<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 10, 1997
REGISTRATION NO. 333-__________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
CLYDE COMPANIES, INC.
(Exact name of registrant as specified in its charter)
UTAH 3272 87-0260879
(State or other (Primary standard (I.R.S. Employer
jurisdiction of industrial Identification No.)
incorporation or Classification
organization) code number)
---------------------
1423 DEVONSHIRE DRIVE
SALT LAKE CITY, UTAH 84108
(801) 582-2783
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
---------------------
CAROL C. SALISBURY
1423 DEVONSHIRE DRIVE
SALT LAKE CITY, UTAH 84108
(801) 582-2783
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
---------------------
WITH COPY TO:
ARTHUR B. RALPH, ESQ.
VAN COTT, BAGLEY, CORNWALL & MCCARTHY
50 SOUTH MAIN STREET, SUITE 1600
SALT LAKE CITY, UTAH 84144
(801) 532-3333
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: At the effective time of the proposed merger of wholly-owned
subsidiaries of Clyde Companies, Inc. ("CCI") with and into W.W. Clyde & Co.
("Clyde"), Geneva Rock Products, Inc. ("Geneva Rock"), Utah Service, Inc. ("Utah
Service") and Beehive Insurance Agency, Inc. ("Beehive Insurance"), in
accordance with the Agreement and Plan of Merger, dated as of November 13, 1997,
attached as Annex A to the Proxy Statement/Prospectus forming a part of this
Registration Statement, which shall occur as promptly as practicable after this
Registration Statement becomes effective and the shareholders of each of CCI,
Clyde, Geneva Rock, Utah Service and Beehive Insurance have approved the merger.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
---------------------
<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=================================================================================================
Proposed
Title of each class of maximum Proposed maximum Amount of
securities to be Amount to be offering price aggregate offering registration
registered registered(1) per share(2) price(2) fee (2)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value 6,938,709 shares $14.52 $100,750,055 $30,531
================================================================================================
</TABLE>
(1) Represents the estimated maximum number of shares of common stock, no par
value, of CCI issuable in connection with the merger, based upon an assumed
exchange ratio of (a) 33.93 shares for each outstanding share of common
stock, par value $10 per share, of Clyde, (b) 239.27 shares for each
outstanding share of common stock, par value $10 per share, of Geneva Rock,
(c) 43.43 shares for each outstanding share of common stock, par value $10
per share, of Utah Service, and (e) 4.33 shares for each outstanding share
of common stock, par value $1 per share, of Beehive Insurance.
(2) Estimated pursuant to Rule 457(f) under the Securities Act of 1933, as
amended, based on the book value of the merging companies.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME FURTHER EFFECTIVE IN ACCORDANCE WITH SECTION
8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
<PAGE> 3
CLYDE COMPANIES, INC.
W.W. CLYDE & CO.
GENEVA ROCK PRODUCTS, INC.
UTAH SERVICE, INC.
BEEHIVE INSURANCE AGENCY, INC.
____________, 1998
Dear Shareholder:
Special Meetings of Shareholders (each a "Special Meeting") of each of Clyde
Companies, Inc. ("CCI"), W.W. Clyde & Co. ("Clyde"), Geneva Rock Products, Inc.
("Geneva Rock"), Utah Service, Inc. ("Utah Service") and Beehive Insurance
Agency, Inc. ("Beehive Insurance") will be held at the places and times set
forth in the accompanying Notices of Special Meeting of Shareholders for your
respective company.
At your respective Special Meeting, you will be asked to consider and vote upon
a proposal to approve an Agreement and Plan of Merger dated as of November 13,
1997 (the "Merger Agreement") providing for the merger ("Merger") of wholly
owned subsidiaries of CCI with Clyde, Geneva Rock, Utah Service and Beehive
Insurance, each of which will become wholly owned subsidiaries of CCI. Upon the
effective date of the Merger, each issued and outstanding share of common stock
of Clyde, Geneva Rock, Utah Service and Beehive Insurance will be converted
into, respectively, 33.93, 239.27, 43.43 and 4.33 shares of common stock, no par
value, of CCI.
The Board of Directors of CCI, Clyde, Geneva Rock, Utah Service and Beehive
Insurance each has unanimously approved the Merger Agreement and the
transactions contemplated thereby, and has determined that it is in the best
interests of their respective shareholders. Your Board of Directors unanimously
recommends that shareholders vote to approve the Merger Agreement.
In the materials accompanying this letter, you will find a Notice of Special
Meeting of Shareholders, a Proxy Statement/Prospectus relating to the actions to
be taken by you at the Special Meeting and a proxy card. The Proxy
Statement/Prospectus more fully describes the proposed Merger.
ALL SHAREHOLDERS ARE INVITED TO ATTEND THE SPECIAL MEETING IN PERSON. HOWEVER,
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN,
DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE. IF YOU ATTEND THE SPECIAL
MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN THOUGH YOU HAVE PREVIOUSLY
RETURNED YOUR PROXY. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED
AT THE SPECIAL MEETING.
Sincerely,
- ------------------------------ -----------------------------------------------
Carol C. Salisbury, President Richard C. Clyde, President and General Manager
Clyde Companies, Inc. W.W. Clyde & Co.
- ------------------------------ -----------------------------------------------
Wilford W. Clyde, President David O. Cook, President
Geneva Rock Products, Inc. Utah Service, Inc.
- ------------------------------
W. Douglas Snow, President
Beehive Insurance Agency, Inc.
<PAGE> 4
CLYDE COMPANIES, INC.
1423 DEVONSHIRE DRIVE
SALT LAKE CITY, UTAH 84108
(801) 582-2783
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ______________, __________________, 1998
Notice is hereby given that a Special Meeting of Shareholders of Clyde
Companies, Inc. ("CCI") will be held on _______, _____________, 1998, at 9:30
a.m., local time, at 1565 West 400 North, Orem, Utah for the following purposes:
(1) To consider and vote upon a proposal to approve an Agreement and Plan
of Merger dated as of November 13, 1997 (the "Merger Agreement")
providing for the merger ("Merger") of wholly owned subsidiaries of CCI
with W.W. Clyde & Co. ("Clyde"), Geneva Rock Products, Inc. ("Geneva
Rock"), Utah Service, Inc. ("Utah Service") and Beehive Insurance Agency,
Inc. ("Beehive Insurance"), each of which will become wholly owned
subsidiaries of CCI. Upon the effective date of the Merger, each issued
and outstanding share of common stock of Clyde, Geneva Rock, Utah Service
and Beehive Insurance will be converted into, respectively, 33.93,
239.27, 43.43 and 4.33 shares of common stock, no par value, of CCI.
(2) To transact such other business that may properly come before the
Special Meeting or any postponements or adjournments thereof.
Only shareholders of record at the close of business on ___________, 1998 are
entitled to notice of and to vote at the Special Meeting, or at any
postponements or adjournments thereof.
A complete list of shareholders entitled to vote at the Special Meeting will be
available for examination at CCI's principal executive offices, for any purposes
germane to the Special Meeting, during ordinary business hours, for a period of
at least 10 days prior to the Special Meeting.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES OF COMMON STOCK OF CCI
THAT YOU OWN. WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT WITHOUT DELAY IN
THE ENCLOSED ENVELOPE, WHICH REQUIRES NO ADDITIONAL POSTAGE IF MAILED IN THE
UNITED STATES. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY THEN WITHDRAW YOUR
PROXY AND VOTE IN PERSON. YOUR PROXY CAN BE WITHDRAWN BY YOU AT ANY TIME BEFORE
IT IS VOTED.
____________, 1998
BY ORDER OF THE BOARD OF DIRECTORS,
Carol C. Salisbury, Director and President
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME.
<PAGE> 5
W.W. CLYDE & CO.
1375 NORTH MAIN STREET
SPRINGVILLE, UTAH 84663
(801) 489-5616
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ______________, _________________, 1998
Notice is hereby given that a Special Meeting of Shareholders of W.W. Clyde &
Co. ("Clyde") will be held on _______, _____________, 1998, at 10:00 a.m., local
time, at 1565 West 400 North, Orem, Utah for the following purposes:
(1) To consider and vote upon a proposal to approve an Agreement and Plan
of Merger dated as of November 13, 1997 (the "Merger Agreement")
providing for the merger ("Merger") of wholly owned subsidiaries of Clyde
Companies, Inc. ("CCI") with Clyde, Geneva Rock Products, Inc. ("Geneva
Rock"), Utah Service, Inc. ("Utah Service") and Beehive Insurance Agency,
Inc. ("Beehive Insurance"), each of which will become wholly owned
subsidiaries of CCI. Upon the effective date of the Merger, each issued
and outstanding share of common stock of Clyde, Geneva Rock, Utah Service
and Beehive Insurance will be converted into, respectively, 33.93,
239.27, 43.43 and 4.33 shares of common stock, no par value, of CCI.
(2) To transact such other business that may properly come before the
Special Meeting or any postponements or adjournments thereof.
Only shareholders of record at the close of business on ___________, 1998 are
entitled to notice of and to vote at the Special Meeting, or at any
postponements or adjournments thereof. The affirmative vote of the holders of a
majority of the outstanding shares of common stock of Clyde is required for the
approval of the Merger.
Under the Utah Revised Business Corporation Act, shareholders of Clyde will have
the right to assert dissenters' rights in connection with the proposed Merger.
See "Dissenters' Rights" in the Proxy Statement/Prospectus accompanying this
notice.
A complete list of shareholders entitled to vote at the Special Meeting will be
available for examination at Clyde's principal executive offices, for any
purposes germane to the Special Meeting, during ordinary business hours, for a
period of at least 10 days prior to the Special Meeting.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES OF COMMON STOCK OF
CLYDE THAT YOU OWN. WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN
PERSON, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT WITHOUT
DELAY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO ADDITIONAL POSTAGE IF MAILED
IN THE UNITED STATES. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY THEN WITHDRAW
YOUR PROXY AND VOTE IN PERSON. YOUR PROXY CAN BE WITHDRAWN BY YOU AT ANY TIME
BEFORE IT IS VOTED.
____________, 1998
BY ORDER OF THE BOARD OF DIRECTORS,
Richard C. Clyde, Director, President and
General Manager
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME.
<PAGE> 6
GENEVA ROCK PRODUCTS, INC.
1565 WEST 400 NORTH
OREM, UTAH 84057
(801) 328-2700
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ______________, ________________, 1998
Notice is hereby given that a Special Meeting of Shareholders of Geneva Rock
Products, Inc. ("Geneva Rock") will be held on _______, _________________, 1998,
at 10:30 a.m., local time, at 1565 West 400 North, Orem, Utah for the following
purposes:
(1) To consider and vote upon a proposal to approve an Agreement and Plan
of Merger dated as of November 13, 1997 (the "Merger Agreement")
providing for the merger ("Merger") of wholly owned subsidiaries of Clyde
Companies, Inc. ("CCI") with W.W. Clyde & Co. ("Clyde"), Geneva Rock,
Utah Service, Inc. ("Utah Service") and Beehive Insurance Agency, Inc.
("Beehive Insurance"), each of which will become wholly owned
subsidiaries of CCI. Upon the effective date of the Merger, each issued
and outstanding share of common stock of Clyde, Geneva Rock, Utah Service
and Beehive Insurance will be converted into, respectively, 33.93,
239.27, 43.43 and 4.33 shares of common stock, no par value, of CCI.
(2) To transact such other business that may properly come before the
Special Meeting or any postponements or adjournments thereof.
Only shareholders of record at the close of business on ___________, 1998 are
entitled to notice of and to vote at the Special Meeting, or at any
postponements or adjournments thereof. The affirmative vote of the holders of a
majority of the outstanding shares of common stock of Geneva Rock is required
for the approval of the Merger.
Under the Utah Revised Business Corporation Act, shareholders of Geneva Rock
will have the right to assert dissenters' rights in connection with the proposed
Merger. See "Dissenters' Rights" in the Proxy Statement/Prospectus accompanying
this notice.
A complete list of shareholders entitled to vote at the Special Meeting will be
available for examination at Geneva Rock's principal executive offices, for any
purposes germane to the Special Meeting, during ordinary business hours, for a
period of at least 10 days prior to the Special Meeting.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES OF COMMON STOCK OF
GENEVA ROCK THAT YOU OWN. WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL
MEETING IN PERSON, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN
IT WITHOUT DELAY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO ADDITIONAL POSTAGE
IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY THEN
WITHDRAW YOUR PROXY AND VOTE IN PERSON. YOUR PROXY CAN BE WITHDRAWN BY YOU AT
ANY TIME BEFORE IT IS VOTED.
____________, 1998
BY ORDER OF THE BOARD OF DIRECTORS,
Wilford W. Clyde, Director and President
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME.
<PAGE> 7
UTAH SERVICE, INC.
35 EAST 400 SOUTH
SPRINGVILLE, UTAH 84663
(801) 322-2772
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ______________, ___________________, 1998
Notice is hereby given that a Special Meeting of Shareholders of Utah Service,
Inc. ("Utah Service") will be held on _______, ______________, 1998, at 11:00
a.m., local time, at 1565 West 400 North, Orem, Utah for the following purposes:
(1) To consider and vote upon a proposal to approve an Agreement and Plan
of Merger dated as of November 13, 1997 (the "Merger Agreement")
providing for the merger ("Merger") of wholly owned subsidiaries of Clyde
Companies, Inc. ("CCI") with W.W. Clyde & Co. ("Clyde"), Geneva Rock
Products, Inc. ("Geneva Rock"), Utah Service and Beehive Insurance
Agency, Inc. ("Beehive Insurance"), each of which will become wholly
owned subsidiaries of CCI. Upon the effective date of the Merger, each
issued and outstanding share of common stock of Clyde, Geneva Rock, Utah
Service and Beehive Insurance will be converted into, respectively,
33.93, 239.27, 43.43 and 4.33 shares of common stock, no par value, of
CCI.
(2) To transact such other business that may properly come before the
Special Meeting or any postponements or adjournments thereof.
Only shareholders of record at the close of business on ___________, 1998 are
entitled to notice of and to vote at the Special Meeting, or at any
postponements or adjournments thereof. The affirmative vote of the holders of a
majority of the outstanding shares of common stock of Utah Service is required
for the approval of the Merger.
Under the Utah Revised Business Corporation Act, shareholders of Utah Service
will have the right to assert dissenters' rights in connection with the proposed
Merger. See "Dissenters' Rights" in the Proxy Statement/Prospectus accompanying
this notice.
A complete list of shareholders entitled to vote at the Special Meeting will be
available for examination at Utah Service's principal executive offices, for any
purposes germane to the Special Meeting, during ordinary business hours, for a
period of at least 10 days prior to the Special Meeting.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES OF COMMON STOCK OF
UTAH SERVICE THAT YOU OWN. WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL
MEETING IN PERSON, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN
IT WITHOUT DELAY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO ADDITIONAL POSTAGE
IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY THEN
WITHDRAW YOUR PROXY AND VOTE IN PERSON. YOUR PROXY CAN BE WITHDRAWN BY YOU AT
ANY TIME BEFORE IT IS VOTED.
____________, 1998
BY ORDER OF THE BOARD OF DIRECTORS,
Vernon O. Cook, Chairman of the Board
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME.
<PAGE> 8
BEEHIVE INSURANCE AGENCY, INC.
302 WEST 5400 SOUTH, SUITE 109
MURRAY, UTAH 84107
(801) 685-2779
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ______________, __________________, 1998
Notice is hereby given that a Special Meeting of Shareholders of Beehive
Insurance Agency, Inc. ("Beehive Insurance") will be held on _______,
_______________, 1998, at 11:30 a.m., local time, at 1565 West 400 North, Orem,
Utah for the following purposes:
(1) To consider and vote upon a proposal to approve an Agreement and Plan
of Merger dated as of November 13, 1997 (the "Merger Agreement")
providing for the merger ("Merger") of wholly owned subsidiaries of Clyde
Companies, Inc. ("CCI") with W.W. Clyde & Co. ("Clyde"), Geneva Rock
Products, Inc. ("Geneva Rock"), Utah Service, Inc. ("Utah Service") and
Beehive Insurance, each of which will become wholly owned subsidiaries of
CCI. Upon the effective date of the Merger, each issued and outstanding
share of common stock of Clyde, Geneva Rock, Utah Service and Beehive
Insurance will be converted into, respectively, 33.93, 239.27, 43.43 and
4.33 shares of common stock, no par value, of CCI.
(2) To transact such other business that may properly come before the
Special Meeting or any postponements or adjournments thereof.
Only shareholders of record at the close of business on ___________, 1998 are
entitled to notice of and to vote at the Special Meeting, or at any
postponements or adjournments thereof. The affirmative vote of the holders of a
majority of the outstanding shares of common stock of Beehive Insurance is
required for the approval of the Merger.
Under the Utah Revised Business Corporation Act, shareholders of Beehive
Insurance will have the right to assert dissenters' rights in connection with
the proposed Merger. See "Dissenters' Rights" in the Proxy Statement/Prospectus
accompanying this notice.
A complete list of shareholders entitled to vote at the Special Meeting will be
available for examination at Beehive Insurance's principal executive offices,
for any purposes germane to the Special Meeting, during ordinary business hours,
for a period of at least 10 days prior to the Special Meeting.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES OF COMMON STOCK OF
BEEHIVE INSURANCE THAT YOU OWN. WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL
MEETING IN PERSON, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN
IT WITHOUT DELAY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO ADDITIONAL POSTAGE
IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY THEN
WITHDRAW YOUR PROXY AND VOTE IN PERSON. YOUR PROXY CAN BE WITHDRAWN BY YOU AT
ANY TIME BEFORE IT IS VOTED.
____________, 1998
BY ORDER OF THE BOARD OF DIRECTORS,
W. Douglas Snow, Director, President and
General Manager
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME.
<PAGE> 9
PROXY STATEMENT
CLYDE COMPANIES, INC.
W.W. CLYDE & CO.
GENEVA ROCK PRODUCTS, INC.
UTAH SERVICE, INC.
BEEHIVE INSURANCE AGENCY, INC.
Special Meeting to be Held on
______________, 1998
---------------------------------
PROSPECTUS
CLYDE COMPANIES, INC.
6,938,709 SHARES OF COMMON STOCK
(no par value per share)
---------------------------------
This Proxy Statement/Prospectus is being furnished to holders of common
stock, no par value ("CCI Common Stock"), of Clyde Companies, Inc., a Utah
corporation ("CCI"), holders of common stock, par value $10 per share ("Clyde
Common Stock"), of W.W. Clyde & Co., a Utah corporation ("Clyde"), holders of
common stock, par value $10 per share ("Geneva Rock Common stock"), of Geneva
Rock Products, Inc., a Utah corporation ("Geneva Rock"), holders of common
stock, par value $10 per share ("Utah Service Common Stock"), of Utah Service,
Inc., a Utah corporation ("Utah Service"), and holders of common stock, par
value $1 per share ("Beehive Insurance Common Stock"), of Beehive Insurance
Agency, Inc., a Utah corporation ("Beehive Insurance"), in connection with the
solicitation of proxies by the Boards of Directors of CCI, Clyde, Geneva Rock,
Utah Service, and Beehive Insurance for use at special meetings of each of those
companies to be held at 9:30, 10:00, 10:30, 11:00 and 11:30 a.m., respectively,
on _____________, ____________, 1998, at the offices of Geneva Rock located at
1565 West 400 North, Orem, Utah.
This Proxy Statement/Prospectus constitutes a prospectus of CCI with
respect to up to 4,634,789 shares of CCI Common Stock to be issued in connection
with the merger (the "Merger") of Clyde, Geneva Rock, Utah Service, and Beehive
Insurance with wholly owned subsidiaries of CCI, and 2,303,920 shares presently
held by the shareholders of CCI. Upon the effective date of the Merger, each
issued and outstanding share of Clyde Common Stock, Geneva Rock Common Stock,
Utah Service Common Stock, and Beehive Insurance Common Stock will be converted
into respectively, 33.93, 239.27, 43.43 and 4.33 shares of CCI Common Stock.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY STATEMENT/PROSPECTUS.
HOLDERS OF CCI, CLYDE, GENEVA ROCK, UTAH SERVICE AND BEEHIVE INSURANCE COMMON
STOCK ARE STRONGLY URGED TO READ AND CAREFULLY CONSIDER THIS PROXY
STATEMENT/PROSPECTUS IN ITS ENTIRETY, PARTICULARLY THE MATTERS REFERRED TO UNDER
"RISK FACTORS" BEGINNING ON PAGE 19.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This Proxy Statement/Prospectus and the accompanying form of proxy are first
being mailed to shareholders of CCI, Clyde, Geneva Rock, Utah Service and
Beehive Insurance on or about ____________, 1998.
The date of this Proxy Statement/Prospectus is _____________, 1998.
<PAGE> 10
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE> 11
ADDITIONAL INFORMATION
CCI has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 (together with any amendments
thereto, the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the securities to be issued
pursuant to the Agreement and Plan of Merger dated as of November 13, 1997 (the
"Merger Agreement"), attached as Annex A to this Proxy Statement/Prospectus.
This Proxy Statement/Prospectus does not contain all the information set forth
in the Registration Statement and the exhibits and schedules thereto, certain
parts of which have been omitted in accordance with the rules and regulations of
the Commission. Statements contained in this Proxy Statement/Prospectus or in
any document incorporated by reference in this Proxy Statement/Prospectus as to
the contents of any contract or other document referred to herein or therein are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement or such other document, each such statement being qualified in all
respects by such reference. Copies of the Registration Statement and the
exhibits and schedules thereto may be obtained, upon payment of the fee
prescribed by the Commission, at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's Regional Offices at Seven World Trade Center, Suite
1300, New York, New York 10048, and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material may also be
examined without charge at the Commission's principal office in Washington, D.C.
The Commission maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
All disclosures contained in this Proxy Statement/Prospectus regarding
CCI, Clyde, Geneva Rock, Utah Service and Beehive Insurance, including the
information derived from any publicly available document described in the
preceding paragraph, have been provided by such corporations. CCI makes no
representation that such information or any other publicly available information
regarding Clyde, Geneva Rock, Utah Service or Beehive Insurance is accurate or
complete.
NO AUTHORIZATION
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY CCI, CLYDE, GENEVA ROCK, UTAH SERVICE,
BEEHIVE INSURANCE OR ANY OTHER PERSON. THIS PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY
PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF CCI, CLYDE,
GENEVA ROCK, UTAH SERVICE OR BEEHIVE INSURANCE SINCE THE DATE HEREOF OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
FORWARD-LOOKING STATEMENTS
Certain statements included or incorporated by reference in this Proxy
Statement/Prospectus, including without limitation statements containing the
words "believes," "anticipates," "intends," "expects" and words of similar
import, constitute forward-looking statements. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
the actual results, performance or achievements of CCI to be materially
different from any future results, performance or achievements expressed or
implied by such forward looking statements. Such factors include, among other
things, the following: (1) expected cost savings from the Merger may not be
realized; (2) costs or difficulties related to the integration of the businesses
of Clyde, Geneva Rock, Utah Service and Beehive Insurance may be greater than
expected; (3) an increase of competitive
<PAGE> 12
pressure in the industries of Clyde, Geneva Rock, Utah Service and Beehive
Insurance may adversely affect the businesses of those companies; and (4)
general economic conditions, either nationally or in the states in which Clyde,
Geneva Rock, Utah Service and Beehive do business, may be less favorable than
expected. CCI disclaims any obligation to update such factors or to publicly
announce the result of any revisions to any forward-looking statements included
or incorporated by reference herein to reflect future events or developments.
<PAGE> 13
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY..................................................................................... 1
THE COMPANIES........................................................................1
CCI .......................................................................1
CLYDE .......................................................................1
GENEVA ROCK...................................................................1
UTAH SERVICE..................................................................2
BEEHIVE INSURANCE.............................................................2
THE SPECIAL MEETINGS.................................................................2
TIME, DATE AND PLACE..........................................................2
PURPOSES......................................................................2
VOTE REQUIRED; RECORD DATE....................................................2
THE MERGER...........................................................................3
EFFECT OF MERGER..............................................................3
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS............3
TASK FORCE....................................................................4
VALUATION REPORTS FOR OPERATING COMPANIES BY FINANCIAL ADVISOR................5
EXCHANGE RATIOS...............................................................6
INTEREST OF CERTAIN PERSONS IN THE MERGER.....................................6
ACCOUNTING TREATMENT..........................................................6
REGULATORY APPROVAL...........................................................6
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS.....................................6
REPORTS TO SHAREHOLDERS.......................................................7
STOCK REDEMPTION PLAN................................................................7
VOTING AGREEMENT.....................................................................7
MANAGEMENT OF CCI AFTER THE MERGER...................................................8
COMPARISON OF SHAREHOLDER RIGHTS.....................................................8
THE MERGER AGREEMENT.................................................................9
GENERAL.......................................................................9
CONVERSION OF SHARES..........................................................9
CONDITIONS TO THE MERGER......................................................9
WAIVER AND AMENDMENT.........................................................10
TERMINATION..................................................................10
FEES AND EXPENSES............................................................10
SURRENDER OF CERTIFICATES....................................................10
DISSENTERS' RIGHTS..................................................................10
SELECTED FINANCIAL INFORMATION......................................................11
SUMMARY HISTORICAL FINANCIAL INFORMATION.....................................11
COMPARATIVE PER SHARE DATA...................................................13
PRO FORMA FINANCIAL INFORMATION..............................................18
MARKETS AND MARKET PRICES FOR SHARES................................................18
RISK FACTORS................................................................................19
FAILURE TO REALIZE MERGER STRATEGY..................................................19
NO PUBLIC TRADING MARKET FOR CCI COMMON STOCK; UNCERTAINTY OF STOCK REDEMPTION
PLAN; RESTRICTIONS ON TRANSFER...............................................19
UNCERTAINTY OF FUTURE DIVIDENDS.....................................................19
TAX RISKS...........................................................................20
DEPENDENCE ON KEY PERSONNEL.........................................................20
UNCERTAINTY OF BUSINESS OF OPERATING COMPANIES......................................20
VOTING CONTROL OF CCI...............................................................20
</TABLE>
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<TABLE>
<S> <C>
DETERMINATION OF EXCHANGE RATIOS....................................................20
LACK OF SEPARATE LEGAL REPRESENTATION...............................................21
CLYDE COMPANIES, INC........................................................................22
OVERVIEW............................................................................22
MARKET PRICE OF AND DIVIDENDS ON CCI COMMON STOCK...................................22
CCI MANAGEMENT PRIOR TO CONSUMMATION OF THE MERGER..................................22
DIRECTORS....................................................................22
EXECUTIVE OFFICERS...........................................................24
CCI MANAGEMENT UPON CONSUMMATION OF THE MERGER......................................24
DIRECTORS....................................................................24
EXECUTIVE OFFICERS...........................................................25
COMMITTEES OF CCI BOARD.............................................................25
ATTENDANCE AT CCI BOARD MEETINGS....................................................25
CCI EXECUTIVE COMPENSATION..........................................................25
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION...............................25
COMPENSATION OF DIRECTORS OF CCI.............................................25
DEFINED BENEFIT RETIREMENT PLAN..............................................26
STOCK REDEMPTION PLAN...............................................................26
VOTING AGREEMENT....................................................................27
EMPLOYMENT AGREEMENT................................................................27
PRINCIPAL SHAREHOLDERS OF CCI PRIOR TO CONSUMMATION OF THE MERGER...................28
PRINCIPAL SHAREHOLDERS OF CCI UPON CONSUMMATION OF THE MERGER.......................29
SELECTED FINANCIAL INFORMATION FOR CCI..............................................30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF CCI............................................................31
CCI PRO FORMA COMBINED FINANCIAL INFORMATION (UNAUDITED)............................33
CLYDE ....................................................................................40
BACKGROUND..........................................................................40
SERVICES AND MARKET.................................................................40
RAW MATERIALS, EQUIPMENT AND SUPPLIERS..............................................41
INDUSTRY AND COMPETITION............................................................41
SEASONALITY OF CLYDE BUSINESS.......................................................41
REGULATION AND INSURANCE............................................................41
EMPLOYEES...........................................................................42
CUSTOMERS...........................................................................42
BACKLOG.............................................................................42
PROPERTIES..........................................................................42
EQUIPMENT...........................................................................42
LEGAL PROCEEDINGS...................................................................43
MARKET PRICE OF AND DIVIDENDS ON CLYDE COMMON STOCK.................................43
CLYDE MANAGEMENT....................................................................43
DIRECTORS....................................................................43
EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES.................................44
COMMITTEES OF CLYDE BOARD....................................................44
ATTENDANCE AT CLYDE BOARD MEETINGS...........................................44
COMPENSATION OF DIRECTORS OF CLYDE...........................................44
PRINCIPAL SHAREHOLDERS OF CLYDE.....................................................44
SELECTED FINANCIAL INFORMATION FOR CLYDE............................................46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF CLYDE..........................................................47
FORWARD-LOOKING STATEMENTS...................................................47
RESULTS OF OPERATIONS........................................................47
GENEVA ROCK..................................................................48
LIQUIDITY AND CAPITAL RESOURCES..............................................49
</TABLE>
ii
<PAGE> 15
<TABLE>
<S> <C>
INFLATION....................................................................49
SEASONALITY..................................................................50
THE YEAR 2000 ISSUE..........................................................50
CERTAIN TRANSACTIONS................................................................50
GENEVA ROCK.................................................................................51
BACKGROUND..........................................................................51
PRODUCTS AND SERVICES...............................................................51
NORTHERN DIVISION............................................................51
SOUTHERN DIVISION............................................................52
RAW MATERIALS AND SUPPLIERS.........................................................52
NORTHERN DIVISION............................................................52
SOUTHERN DIVISION............................................................53
COMPETITION.........................................................................53
NORTHERN DIVISION............................................................53
SOUTHERN DIVISION............................................................53
SEASONALITY OF BUSINESS.............................................................53
NORTHERN DIVISION............................................................53
SOUTHERN DIVISION............................................................53
REGULATION..........................................................................54
EMPLOYEES...........................................................................54
NORTHERN DIVISION............................................................54
SOUTHERN DIVISION............................................................54
CUSTOMERS...........................................................................54
PROPERTIES..........................................................................54
NORTHERN DIVISION............................................................54
SOUTHERN DIVISION............................................................56
FUTURE LAND DEVELOPMENT.............................................................56
TRADE NAMES.........................................................................57
BACKLOG.............................................................................57
LEGAL PROCEEDINGS...................................................................57
MARKET PRICE OF AND DIVIDENDS ON GENEVA ROCK COMMON STOCK...........................57
GENEVA ROCK MANAGEMENT..............................................................57
DIRECTORS....................................................................57
EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES.................................58
COMMITTEES OF GENEVA ROCK BOARD..............................................59
ATTENDANCE AT GENEVA ROCK BOARD MEETINGS.....................................59
COMPENSATION OF DIRECTORS OF GENEVA ROCK.....................................59
PRINCIPAL SHAREHOLDERS OF GENEVA ROCK...............................................59
SELECTED FINANCIAL INFORMATION FOR GENEVA ROCK......................................61
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF GENEVA ROCK....................................................62
FORWARD-LOOKING STATEMENTS...................................................62
RESULTS OF OPERATIONS........................................................62
LIQUIDITY AND CAPITAL RESOURCES..............................................63
INFLATION....................................................................64
SEASONALITY..................................................................64
THE YEAR 2000 ISSUE..........................................................64
CERTAIN TRANSACTIONS................................................................64
UTAH SERVICE................................................................................65
BACKGROUND..........................................................................65
PRODUCTS AND SERVICES...............................................................65
BUILDING MATERIALS AND LUMBER................................................65
HARDWARE.....................................................................65
CHEVRON GAS STATION/CONVENIENCE STORE........................................65
</TABLE>
iii
<PAGE> 16
<TABLE>
<S> <C>
AUTOMOTIVE AND INDUSTRIAL SUPPLIES...........................................66
SUPPLIERS...........................................................................66
COMPETITION.........................................................................66
SEASONALITY OF BUSINESS.............................................................66
EMPLOYEES...........................................................................67
INFORMATION SYSTEMS.................................................................67
REGULATION..........................................................................67
PROPERTIES..........................................................................67
TRADE NAMES.........................................................................67
LEGAL PROCEEDINGS...................................................................68
MARKET PRICE OF AND DIVIDENDS ON UTAH SERVICE COMMON STOCK..........................68
UTAH SERVICE MANAGEMENT.............................................................68
DIRECTORS....................................................................68
EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES.................................69
COMMITTEES OF UTAH SERVICE BOARD.............................................69
ATTENDANCE AT UTAH SERVICE BOARD MEETINGS....................................69
COMPENSATION OF DIRECTORS OF UTAH SERVICE....................................69
PRINCIPAL SHAREHOLDERS OF UTAH SERVICE..............................................70
SELECTED FINANCIAL INFORMATION FOR UTAH SERVICE.....................................71
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF UTAH SERVICE...................................................72
FORWARD-LOOKING STATEMENTS...................................................72
RESULTS OF OPERATIONS........................................................72
LIQUIDITY AND CAPITAL RESOURCES..............................................73
INFLATION....................................................................74
SEASONALITY..................................................................74
THE YEAR 2000 ISSUE..........................................................74
CERTAIN TRANSACTIONS................................................................74
BEEHIVE INSURANCE...........................................................................75
BACKGROUND..........................................................................75
THE INDUSTRY AND MARKET.............................................................75
INSURANCE CARRIERS..................................................................75
COMPETITION.........................................................................75
SEASONALITY OF BUSINESS.............................................................76
REGULATION..........................................................................76
EMPLOYEES...........................................................................76
PROPERTIES..........................................................................76
TRADE NAMES.........................................................................77
LEGAL PROCEEDINGS...................................................................77
MARKET PRICE OF AND DIVIDENDS ON BEEHIVE INSURANCE COMMON STOCK.....................77
BEEHIVE INSURANCE MANAGEMENT........................................................77
DIRECTORS....................................................................77
EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES.................................78
COMMITTEES OF BEEHIVE INSURANCE BOARD........................................78
ATTENDANCE AT BEEHIVE INSURANCE BOARD MEETINGS...............................78
COMPENSATION OF DIRECTORS OF BEEHIVE INSURANCE...............................78
PRINCIPAL SHAREHOLDERS OF BEEHIVE INSURANCE.........................................78
SELECTED FINANCIAL INFORMATION FOR BEEHIVE INSURANCE................................80
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF BEEHIVE INSURANCE..............................................81
FORWARD-LOOKING STATEMENTS...................................................81
RESULTS OF OPERATIONS........................................................81
LIQUIDITY AND CAPITAL RESOURCES..............................................82
INFLATION....................................................................83
</TABLE>
iv
<PAGE> 17
<TABLE>
<S> <C>
SEASONALITY..................................................................83
THE YEAR 2000 ISSUE..........................................................83
CERTAIN TRANSACTIONS................................................................83
THE SPECIAL MEETINGS........................................................................85
TIME, DATE AND PLACE OF THE SPECIAL MEETINGS........................................85
PURPOSES OF THE SPECIAL MEETINGS....................................................85
VOTE REQUIRED; RECORD DATE..........................................................85
CCI ......................................................................85
CLYDE ......................................................................85
GENEVA ROCK..................................................................86
UTAH SERVICE.................................................................86
BEEHIVE INSURANCE............................................................86
PROXIES; REVOCATION OF PROXIES......................................................87
THE MERGER..................................................................................88
GENERAL.............................................................................88
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARD OF DIRECTORS OF CCI,
CLYDE, GENEVA ROCK, UTAH SERVICE AND BEEHIVE INSURANCE.......................88
INCREASED FINANCIAL AND COMPETITIVE STRENGTH.................................88
PROFESSIONAL MANAGEMENT TEAM.................................................88
SPIN-OFFS OR SALES OF OPERATIONS.............................................88
INCREASED PURCHASING POWER...................................................88
CONSOLIDATION OF OPERATIONS..................................................89
CONSOLIDATION OF ADMINISTRATIVE FUNCTIONS....................................89
POTENTIAL TAX SAVINGS........................................................89
TASK FORCE..........................................................................89
VALUATION REPORTS FOR OPERATING COMPANIES BY FINANCIAL ADVISOR, HOULIHAN
VALUATION ADVISORS...........................................................90
BACKGROUND...................................................................90
VALUATIONS OF OPERATING COMPANIES............................................90
VALUATION OF CCI BY TASK FORCE...............................................91
RECOMMENDATION OF TASK FORCE.................................................91
LIMITATIONS ON HVA VALUATIONS................................................92
EXCHANGE RATIOS.....................................................................93
INTERESTS OF CERTAIN PERSONS IN THE MERGER..........................................93
CLYDE FAMILY TREE............................................................93
FAMILY RELATIONSHIPS; INTERRELATED MANAGEMENT AND STOCK OWNERSHIP............94
EMPLOYMENT AGREEMENT.........................................................96
VOTING AGREEMENT.............................................................96
LACK OF SEPARATE LEGAL REPRESENTATION........................................97
ACCOUNTING TREATMENT................................................................97
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS...........................................97
REGULATORY APPROVALS................................................................99
FEDERAL SECURITIES LAW CONSEQUENCES.................................................99
THE MERGER AGREEMENT.......................................................................100
GENERAL............................................................................100
CONVERSION OF SHARES...............................................................100
CONDITIONS TO THE MERGER...........................................................100
WAIVER AND AMENDMENT...............................................................101
TERMINATION........................................................................101
FEES AND EXPENSES..................................................................101
SURRENDER OF CERTIFICATES..........................................................101
CORPORATE STRUCTURE AND RELATED MATTERS AFTER THE MERGER...........................102
BUSINESS OF THE OPERATING COMPANIES PENDING THE MERGER.............................102
</TABLE>
v
<PAGE> 18
<TABLE>
<S> <C>
DISSENTERS' RIGHTS........................................................................103
DESCRIPTION OF CCI CAPITAL STOCK...........................................................105
COMMON STOCK.......................................................................105
UTAH CONTROL SHARES ACQUISITION ACT................................................105
CERTAIN PROVISIONS OF CCI'S ARTICLES OF INCORPORATION AND BY-LAWS..................106
COMPARISON OF THE RIGHTS OF HOLDERS OF CCI COMMON STOCK AND CLYDE, GENEVA ROCK, UTAH
SERVICE AND BEEHIVE INSURANCE COMMON STOCK.........................................107
AMENDMENTS TO ARTICLES AND BY-LAWS.................................................107
SPECIAL MEETINGS OF SHAREHOLDERS...................................................107
CORPORATE ACTION BY WRITTEN CONSENT OF SHAREHOLDERS................................108
DIVIDENDS..........................................................................108
CAPITAL STOCK......................................................................108
DISSENTERS' RIGHTS.................................................................108
PROVISIONS RELATING TO DIRECTORS...................................................108
VALIDITY OF CCI COMMON STOCK...............................................................110
EXPERTS....................................................................................110
OTHER MATTERS..............................................................................110
SHAREHOLDER PROPOSALS......................................................................110
INDEX TO FINANCIAL STATEMENTS..............................................................F-1
</TABLE>
LIST OF ANNEXES
ANNEX A AGREEMENT AND PLAN OF MERGER
ANNEX B STOCK REDEMPTION PLAN
ANNEX C UTAH REVISED BUSINESS CORPORATION ACT SECTIONS 16-10A-1301
THROUGH 16-10A-1331
vi
<PAGE> 19
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT/PROSPECTUS. REFERENCE IS MADE TO, AND THIS SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED IN THIS
PROXY STATEMENT/PROSPECTUS AND THE ANNEXES HERETO. UNLESS OTHERWISE DEFINED
HEREIN, CAPITALIZED TERMS USED IN THIS SUMMARY HAVE THE RESPECTIVE MEANINGS
ASCRIBED TO THEM ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS. CCI, CLYDE,
GENEVA ROCK, UTAH SERVICE AND BEEHIVE INSURANCE SHAREHOLDERS ARE URGED TO READ
THIS PROXY STATEMENT/PROSPECTUS AND THE ANNEXES HERETO IN THEIR ENTIRETY. SEE
"RISK FACTORS" FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY THE
SHAREHOLDERS OF CCI, CLYDE, GENEVA ROCK, UTAH SERVICE AND BEEHIVE INSURANCE.
THE COMPANIES
CCI
CCI was incorporated in the state of Utah in 1961 as a holding company
for shares of stock of Clyde, Geneva Rock, Utah Service and Beehive Insurance.
In November 1997, the name of CCI was changed from W.W. Clyde Investment Co. to
Clyde Companies, Inc. CCI has no operations of its own and, prior to the
consummation of the Merger, its assets consisted solely of shares of common
stock of Clyde (31,935 shares or 33.78% of the outstanding shares), Geneva Rock
(4,725 shares or 21.67% of the outstanding shares), Utah Service (1,698 shares
or 31.37% of the outstanding shares) and Beehive Insurance (3,700 shares or
17.22% of the outstanding shares). All cash held by CCI, other than an amount of
cash sufficient to satisfy CCI's tax obligations upon the consummation of the
Merger, will be distributed as a dividend to its shareholders prior to the
consummation of the Merger. It is anticipated that upon the consummation of the
Merger, CCI will continue to be a holding company with no operations of its own,
and that operations will be conducted by its wholly owned subsidiaries, Clyde,
Geneva Rock, Utah Service and Beehive Insurance (the "Operating Companies"). The
merging companies (CCI, Clyde, Geneva Rock, Utah Service and Beehive Insurance)
are sometimes collectively referred to herein as the "Constituent Corporations".
The principal executive offices of CCI are located at 1423 Devonshire Drive,
Salt Lake City, Utah 84108, and its telephone number is (801) 582-2783. See
"Clyde Companies, Inc."
CLYDE
Clyde was founded in approximately 1926 by W. W. Clyde and was
incorporated as a Utah corporation in 1933. Since that time, Clyde has been
involved in the construction of interstate highways, bridges, dams, airports,
mines, golf courses, environmental reclamation projects, large site work/site
preparation, and other types of large construction projects in the Intermountain
region requiring massive earth moving and professional management. Clyde has
completed more than $400 million of construction projects throughout the
Intermountain West. Clyde owns 7,581 shares, or 34.77% of the outstanding shares
of Geneva Rock Common Stock. The principal executive offices of Clyde are
located at 1375 North Main Street, Springville, Utah 84663, and its telephone
number is (801) 489-5616. See "Clyde".
GENEVA ROCK
Geneva Rock, which was incorporated in August 1954 as a Utah
corporation, was founded as a ready-mix concrete business by W.W. Clyde and his
associates. Geneva Rock is engaged in the construction business through its
Northern Utah and Southern Utah divisions. Geneva Rock's products consist
primarily of ready-mix concrete, asphalt, sand, gravel and other building
materials, and its services consist primarily of road and site construction.
Geneva Rock's market is primarily the Northern Utah area, including Utah, Salt
Lake, Davis, Weber, Summit and Wasatch Counties, and the Southern Utah area
surrounding St. George, Utah. Geneva Rock's client base is diversified, with no
one client generating more than 10% of Geneva Rock's total sales. Geneva Rock
has furnished much of the concrete for many of the large commercial office
buildings in downtown Salt Lake City. The principal executive offices of Geneva
Rock are located at 1565 West 400 North, Orem, Utah 84057, and its telephone
number is (801) 765-7800. See "Geneva Rock".
1
<PAGE> 20
UTAH SERVICE
Utah Service was founded in 1938 by W.W. Clyde to service Clyde. Utah
Service owns and operates a hardware store and lumber yard and an adjacent
gasoline station/convenience store, all located at 400 South Main Street in
Springville, Utah. The hardware store sells hardware items, electrical supplies,
plumbing fittings and other plumbing items, vanity goods, building materials,
locksets, hand tools, lawn and garden chemicals and supplies, housewares,
appliances, fasteners, paint, industrial supplies, automotive supplies, auto
care products, auto tools and conveyor belting. Sales are made directly to
retail customers, as well as to building contractors and retail auto shops. The
lumber yard sells a wide variety of lumber products, primarily to building
contractors. The gasoline station/convenience store, located directly to the
west of the hardware store, sells gasoline and diesel fuel, as well as a variety
of convenience items. The principal executive offices of Utah Service are
located at 35 East 400 South, Springville, Utah 84663, and its telephone number
is (801) 489-5686. See "Utah Service".
BEEHIVE INSURANCE
Beehive Insurance was incorporated in Utah in 1961 by W.W. Clyde to
operate as an independent insurance agency for the sale of insurance coverage to
Clyde and the general public. Beehive Insurance's operations have gradually
evolved into the sale of primarily commercial property insurance policies,
casualty insurance policies and surety bonds. Affiliated companies (particularly
Clyde and Geneva Rock) comprise a significant portion of Beehive Insurance's
client base. The principal executive offices of Beehive Insurance are located at
302 West 5400 South, Murray, Utah 84107, and its telephone number is (801)
685-2779. See "Beehive Insurance".
THE SPECIAL MEETINGS
TIME, DATE AND PLACE
The Special Meetings of CCI, Clyde, Geneva Rock, Utah Service and
Beehive Insurance will be held at 9:30, 10:00, 10:30, 11:00 and 11:30 a.m.,
respectively, _____________, 1998, at the offices of Geneva Rock located at 1565
West 400 North, Orem, Utah.
PURPOSES
At the Special Meetings, the shareholders of each of CCI, Clyde, Geneva
Rock, Utah Service and Beehive Insurance will consider and vote upon a proposal
to approve the Agreement and Plan of Merger dated as of November 13, 1997 (the
"Merger Agreement") and the transactions contemplated thereby. A copy of the
Merger Agreement is attached to this Proxy Statement/Prospectus as Annex A.
VOTE REQUIRED; RECORD DATE
Shareholders of record at the close of business on ____________, 1998
(the "Record Date") will be entitled to notice of and to vote at the CCI, Clyde,
Geneva Rock, Utah Service and Beehive Insurance Special Meetings and at any
adjournment or postponement thereof. On the Record Date, there were issued and
outstanding: (i) 2,303,920 shares of CCI Common Stock held by approximately 56
shareholders of record; (ii) 94,544 shares of Clyde Common Stock held by
approximately 100 shareholders of record; (iii) 21,802 shares of Geneva Rock
Common Stock held by approximately 81 shareholders of record; (iv) 5,413 shares
of Utah Service Common Stock held by approximately 52 shareholders of record;
and (v) 21,487 shares of Beehive Insurance Common Stock held by approximately 52
shareholders of record.
Under the Utah Revised Business Corporation Act ("URBCA"), the adoption
and approval of the Merger Agreement by the shareholders of Clyde, Geneva Rock,
Utah Service and Beehive Insurance requires the affirmative vote of the holders
of at least a majority of the outstanding shares of Clyde Common Stock, Geneva
Rock Common Stock, Utah Service Common Stock and Beehive Insurance Common Stock.
The URBCA does not require that the Merger Agreement be adopted and approved by
the shareholders of CCI since only CCI, as the sole
2
<PAGE> 21
shareholder of its subsidiaries, will vote on the merger of its subsidiaries
with Clyde, Geneva Rock, Utah Service and Beehive Insurance. However, the Board
of Directors of CCI has determined that it is in the best interest of CCI and
its shareholders for CCI to submit the Merger Agreement to its shareholders for
approval. Under the terms of the Merger Agreement, the affirmative vote of
holders of at least a majority of the outstanding shares of CCI is required to
approve the Merger. In determining whether the approval of the Merger Agreement
has received the requisite number of affirmative votes, abstentions and shares
not represented at the CCI, Clyde, Geneva Rock, Utah Service and Beehive
Insurance Special Meetings will have the same effect as a vote against any such
proposal.
As of the Record Date, the directors and officers of CCI and their
affiliates owned 759,160 shares representing approximately 32.95% of the
outstanding shares of CCI Common Stock. All of such persons have indicated that
they intend to vote their shares FOR approval of the Merger.
As of the Record Date, the directors and officers of Clyde and their
affiliates owned 12,680 shares, representing approximately 13.41% of the
outstanding shares of Clyde Common Stock, and CCI owned 31,935 shares,
representing approximately 33.78% of the outstanding shares of Clyde Common
Stock. All of such persons have indicated that they intend to vote their shares
FOR approval of the Merger.
As of the Record Date, the directors and officers of Geneva Rock and
their affiliates owned 1,812 shares, representing approximately 8.31% of the
outstanding shares of Geneva Common Stock, Clyde owned 7,581 shares,
representing approximately 34.77% of the outstanding shares of Geneva Rock
Common Stock, and CCI owned 4,725 shares, representing approximately 21.67% of
the outstanding shares of Geneva Rock Common Stock. All of such persons have
indicated that they intend to vote their shares FOR approval of the Merger,
thereby assuring approval of the Merger by the Geneva Rock shareholders.
As of the Record Date, the directors and officers of Utah Service and
their affiliates owned 1,423 shares, representing approximately 26.89% of the
outstanding shares of Utah Services Common Stock, and CCI owned 1,698 shares,
representing approximately 31.37% of the outstanding shares of Utah Service
Common Stock. All of such persons have indicated that they intend to vote their
shares FOR approval of the Merger, thereby assuring approval of the Merger by
the Utah Service shareholders.
As of the Record Date, the directors and officers of Beehive Insurance
and their affiliates owned 6,734 shares, representing approximately 31.34% of
the outstanding shares of Beehive Insurance Common Stock, and CCI owned 3,700
shares of Beehive Insurance Common Stock, representing approximately 17.2% of
the outstanding shares of Beehive Insurance Common Stock. All of such persons
except J. Richard Walton have indicated that they intend to vote their shares
FOR approval of the Merger. Although J. Richard Walton, a director of Beehive
Insurance, believes that the Merger is in the best interest of Beehive Insurance
and its shareholders and, therefore, voted in favor of the Merger as a director
of Beehive Insurance, he has advised CCI that, because of personal financial
considerations, he intends to vote his shares AGAINST approval of the Merger at
the Beehive Insurance Special Meeting and exercise his dissenter's rights. See
"Dissenters' Rights."
THE MERGER
EFFECT OF MERGER
Upon the effective date of the Merger, Clyde, Geneva Rock, Utah Service
and Beehive Insurance each will become wholly owned subsidiaries of CCI, and
each share of common stock of Clyde, Geneva Rock, Utah Service and Beehive
Insurance (except for (i) shares of the Operating Companies owned by CCI and
(ii) shares of Geneva Rock owned by Clyde, which will be distributed as a
dividend to CCI) will be converted into 33.93, 239.27, 43.43 and 4.33 shares,
respectively, of CCI Common Stock. In anticipation of the Merger, in November
1997 each outstanding share of CCI Common Stock was converted into 40 shares of
CCI Common Stock.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
3
<PAGE> 22
The Boards of Directors of the Constituent Corporations believe that the
Merger will be in the best interest of each of the Constituent Corporations for
several reasons. The Merger will combine the financial strength of Clyde and
Geneva Rock and increase their respective competitive positions. The combination
of entities resulting from the Merger will create a company with greater
financial strength to bid on large construction projects. After the Merger, the
benefits of a management team comprised of the top management from the
Constituent Corporations will be made available to each of CCI, Clyde, Geneva
Rock, Utah Service and Beehive Insurance to help them address problems in their
respective businesses. While there are no present plans to sell part or all of
any of the Operating Companies, the Boards of Directors of the Constituent
Corporations believe that the Merger will increase shareholder value by creating
a unified ownership structure that would make it easier to sell one or more of
the Operating Companies should CCI even elect to do so. The Merger will also
create an entity with greater purchasing power, eliminate duplicative purchasing
and potentially reduce the cost of obtaining such items as fuel, construction
materials and equipment. After the Merger, the management of CCI will be in a
better position to combine divisions of Clyde, Geneva Rock, Utah Service and
Beehive Insurance that now have similar operations and to consolidate the
separate financial and accounting systems now used by the Constituent
Corporations, resulting in potential cost savings.
As a consequence of the Merger, taxable dividends to CCI and Clyde from
the other Constituent Corporations will be eliminated, resulting in tax savings
to CCI and Clyde. Also, it is anticipated that the Merger will result in tax
savings for the Constituent Corporations as a whole due to the elimination of
sales tax on certain intercompany transactions and the filing of consolidated
tax returns that will replace the current practice of each of the Constituent
Corporations filing separate tax returns.
The Board of Directors of each of the Constituent Corporations believes
that the terms of the Merger are fair to and in the best interests of each of
the Constituent Corporations and their respective shareholders. ACCORDINGLY, THE
BOARD OF DIRECTORS OF EACH OF THE CONSTITUENT CORPORATIONS HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT THE SHAREHOLDERS OF EACH OF
THE CONSTITUENT CORPORATIONS VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. Although J. Richard Walton,
a director of Beehive Insurance, believes that the Merger is in the best
interest of Beehive Insurance and its shareholders and, therefore, voted in
favor of the Merger as a director of Beehive Insurance, he has advised CCI that,
because of personal financial considerations, he intends to vote his shares
AGAINST approval of the Merger at the Beehive Insurance Special Meeting and
exercise his dissenter's rights. See "Dissenters' Rights."
For a more detailed discussion of the factors considered by the Boards
of Directors of the Constituent Corporations in reaching their decisions to
approve the Merger Agreement and the transactions contemplated thereby and in
recommending that the Constituent Corporations' respective shareholders vote FOR
the proposal to adopt and approve the Merger Agreement and the transactions
contemplated thereby, see "The Merger -- Reasons for the Merger; Recommendations
of the Boards of Directors of CCI, Clyde, Geneva Rock, Utah Service and Beehive
Insurance."
TASK FORCE
In order to facilitate the Merger, an informal working group of
shareholders of the Constituent Corporations (the "Task Force") was formed for
the purpose of considering and making recommendations to the Board of Directors
of each Constituent Corporation with respect to the economic and other terms of
the Merger. The Task Force is comprised of (i) David E. Salisbury, who is a
director of Clyde and the husband of Carol C. Salisbury, who is the President
and a director of CCI and the Secretary, Treasurer and a director of Beehive
Insurance, (ii) Hal M. Clyde, who is a director of Utah Service and Beehive
Insurance, (iii) Wilford W. Clyde, who is the President and General Manager of
Geneva Rock and a director of Clyde, Geneva Rock and Beehive Insurance, (iv)
Richard C. Clyde, who is the President and General Manager of Clyde and a
director of CCI, Clyde, Geneva Rock and Beehive Insurance, (v) Paul B. Clyde,
who is a Vice President of Clyde and a director of CCI, Clyde, Geneva Rock and
Utah Service, (vi) David O. Cook, who is the President and a director of Utah
Service, (vii) James C. Gramoll, who is a grandson of Harry S. Clyde, (viii)
Steven L. Clyde, who is the Project Superintendent and a director of Clyde, (ix)
A. Ray Gammell, who is the Vice President and a director of Utah
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Service and a director of Geneva Rock and (x) Norman D. Clyde, who is a director
of Clyde, Geneva Rock, Utah Service and Beehive Insurance. The Board of
Directors of each of the Constituent Corporations has considered and approved
the recommendations of the majority of the Task Force with respect to the
Merger. See "The Merger -- The Task Force."
VALUATION REPORTS FOR OPERATING COMPANIES BY FINANCIAL ADVISOR
The Task Force requested Houlihan Valuation Advisors ("HVA") to prepare
valuation reports with respect to Clyde, Geneva Rock, Utah Service and Beehive
Insurance as of June 30, 1997. HVA provides professional services relative to
business valuations, fairness and solvency opinions, economic loss analyses and
other valuation and economic issues. HVA prepared two separate valuation reports
for these companies as of June 30, 1997, the first dated September 12, 1997 (the
"First HVA Report") and the second dated October 23, 1997 (the "Second HVA
Report"). Both the First HVA Report and the Second HVA Report resulted in the
same valuations for each of Geneva Rock, Utah Service and Beehive Insurance. The
Second HVA Report resulted in a different valuation for Clyde.
The First HVA Report was prepared valuing each of Clyde, Geneva Rock,
Utah Service and Beehive Insurance as a stand alone entity. This approach took
into account certain tax liabilities that would be incurred by Clyde with
respect to Geneva Rock Common Stock owned by Clyde in the event Clyde and its
assets were to be liquidated. Pursuant to this valuation approach, HVA estimated
the fair market enterprise value of Clyde Common Stock to be $520 per share for
a total value of $49,200,000. The Second HVA Report was prepared valuing each of
Clyde, Geneva Rock, Utah Service and Beehive Insurance based on the assumption
that they would be combining in a tax free transaction where Clyde would not be
liquidated and would incur no tax liabilities with respect to its Geneva Rock
Common Stock. Based on this second approach, the fair market enterprise value of
Clyde as of June 30, 1997 was estimated to be $657 per share for a total value
of $62,100,000. A majority of the Task Force recommended to the Board of
Directors of each of CCI, Clyde, Geneva Rock, Utah Service and Beehive Insurance
that the Second HVA Report be accepted for the purpose of determining the
exchange ratios in the Merger. It is the position of Task Force member James C.
Gramoll that the First HVA Report with respect to Clyde (reflecting the tax
liability which would be incurred by Clyde with respect to its Geneva Rock
Common Stock in the event Clyde were to be liquidated) should be the basis for
calculating the exchange ratios in the Merger. The Boards of Directors of each
of CCI, Clyde, Geneva Rock, Utah Service and Beehive Insurance considered and
approved the majority Task Force recommendation to use the Second HVA Report for
the purpose of determining the exchange ratios in the Merger.
As indicated above, the Second HVA Report estimated the fair market
enterprise value of Clyde to be $657 per share for a total value of $62,100,000.
The fair market enterprise value of the Geneva Rock Common Stock was estimated
by HVA to be $4,633 per share for a total value of $101,206,000 and rounded to
$101,000,000. The fair market enterprise value of the Utah Service Common Stock
was estimated by HVA to be $841 per share for a total value of $4,552,800 and
rounded to $4,550,000. The fair market enterprise value of Beehive Insurance
Common Stock was estimated by HVA to be $83.77 per share for a total value of
$1,795,700 and rounded to $1,800,000.
Since CCI's only assets are cash and the shares of common stock it owns
in the Operating Companies, the Task Force did not request HVA to prepare a
valuation report for CCI. The Task Force determined the value of CCI Common
Stock to be equal to the total value of the shares of the Operating Companies
owned by CCI. Based on the HVA valuations described above, the Task Force
determined that the total value of the shares of the Operating Companies owned
by CCI is approximately $44,610,187, which results in a valuation of
approximately $19.36 per share of CCI Common Stock. As indicated below, for the
purpose of establishing the exchange ratios in the Merger, the Task Force
discounted the above per share valuation for CCI by 25% to $14.52 per share to
reflect the value of minority shareholder interest. Based on this valuation and
in anticipation of the Merger, in November 1997 each outstanding share of CCI
Common Stock was converted into 40 shares, and presently there are 2,303,920
outstanding shares of CCI Common Stock.
Each of the valuation reports were prepared by HVA on the assumption
that HVA was valuing a controlling interest. In light of this, the Task Force
recommended to the Boards of Directors of each of CCI, Clyde,
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Geneva Rock, Utah Service and Beehive Insurance that a discount of 25% be
applied to each of the valuations to reflect the value of a minority shareholder
interest. This discount would reflect the inability of such minority interests
to sell or liquidate the applicable company, mandate the payment of dividends or
otherwise change or effectuate corporate policies. Based on this discount, for
the purpose of establishing the exchange ratios in the Merger, the per share
valuation of CCI, Clyde, Geneva Rock, Utah Service and Beehive Insurance Common
Stock is $14.52, $492.63, $3,474.45, $630.43 and $62.83, respectively. The full
text of the Second HVA Report with respect to any Operating Company can be
obtained by sending a written request to the Secretary of such Operating
Company. See "The Merger -- Valuation Reports for Operating Companies by
Financial Advisor, Houlihan Valuation Advisors."
EXCHANGE RATIOS
The exchange ratios at which shares of common stock of Clyde, Geneva
Rock, Utah Service and Beehive Insurance will be exchanged for shares of CCI
Common Stock were determined by the Task Force and approved by the Board of
Directors of each Constituent Corporation. The exchange ratios were determined
by dividing the discounted value determined by HVA for each share of common
stock of Clyde, Geneva Rock, Utah Service and Beehive Insurance, respectively,
by $14.52, the amount which the Task Force determined to be the discounted per
share value of CCI Common Stock. This resulted in an exchange ratio of (i) 33.93
shares of CCI Common Stock for each outstanding share of Clyde Common Stock,
(ii) 239.27 shares of CCI Common Stock for each outstanding share of Geneva Rock
Common Stock, (iii) 43.43 shares of CCI Common Stock for each outstanding share
of Utah Service Common Stock and (iv) 4.33 shares of CCI Common Stock for each
outstanding share of Beehive Insurance Common Stock, respectively.
INTEREST OF CERTAIN PERSONS IN THE MERGER
Shareholders of CCI, Clyde, Geneva Rock, Utah Service and Beehive
Insurance should be aware that certain directors and executive officers of each
of CCI, Clyde, Geneva Rock, Utah Service and Beehive Insurance have interests in
the Merger that are in addition to the interests of shareholders generally,
which interests may create potential conflicts of interest. These interests
include, among other things, the following: (i) certain directors and executive
officers of each of CCI, Clyde, Geneva Rock, Utah Service and Beehive Insurance
are related family members; (ii) certain directors and executive officers of
each of CCI, Clyde, Geneva Rock, Utah Service and Beehive Insurance will be
directors and/or executive officers of CCI; (iii) certain directors and
executive officers of CCI may be deemed to be principal shareholders of CCI,
Clyde, Geneva Rock, Utah Service and Beehive Insurance Common Stock; (iv)
Richard C. Clyde will enter into an employment agreement with CCI; (v) the
shareholders of CCI as constituted prior to the Merger will enter into a ten
year voting agreement with respect to the election of CCI directors and certain
other matters; and (vi) David E. Salisbury, a director of Clyde, is a
shareholder of the law firm of Van Cott, Bagley, Cornwall & McCarthy, which has
represented each of CCI, Clyde, Geneva Rock, Utah Service and Beehive Insurance
in connection with the Merger. For a more detailed description of the interests
described above, see "The Merger--Interests of Certain Persons in the Merger."
ACCOUNTING TREATMENT
For accounting and financial reporting purposes, it is intended that the
Merger will be accounted for in a manner similar to a "pooling of interests."
See "The Merger -- Accounting Treatment."
REGULATORY APPROVAL
CCI and Geneva Rock filed a notification with the Federal Trade
Commission ("FTC"), pursuant to the Hart Scott Rodino Antitrust Improvement Act
of 1976, requesting early termination of the waiting period required under that
Act. On November 21, 1997, the FTC granted CCI's and Geneva Rock's request for
early termination of the waiting period. See "The Merger -- Regulatory
Approval."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
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The Merger is intended to qualify as (i) a transfer to a controlled
corporation under Section 351 of the Internal Revenue Code of 1986, as amended
(the "Code"), and/or (ii) a reorganization within the meaning of Section
368(a)(1)(B) of the Code so that no gain or loss will be recognized by a holder
of CCI, Clyde, Geneva Rock, Utah Service or Beehive Insurance Common Stock with
respect to the receipt of CCI Common Stock in exchange for Clyde, Geneva Rock,
Utah Service or Beehive Insurance Common Stock pursuant to the Merger (except
with respect to any cash received in lieu of fractional shares of CCI Common
Stock). Grant Thornton LLP, independent accountants ("Grant Thornton"), has
rendered an opinion to that effect. Payment received by holders of Clyde, Geneva
Rock, Utah Service or Beehive Insurance Common Stock in lieu of fractional
shares of CCI Common Stock will be treated as payment in redemption of such
fractional shares and, provided that the redeemed interest is held as a capital
asset at the effective time of the Merger, will generally result in the
recognition of capital gain or loss by such holders measured by the difference
between the amount received and the tax basis allocable to such fractional
shares. For a discussion of certain federal income tax consequences applicable
to shareholders who exercise their dissenters' rights and a further discussion
of certain of the federal income tax consequences of the Merger, see "The Merger
- -- Certain Federal Income Tax Considerations."
Because of the complexity of the tax laws and the individual nature of
the tax consequences of the Merger to each holder of CCI, Clyde, Geneva Rock,
Utah Service or Beehive Insurance Common Stock, each such shareholder should
consult a tax advisor concerning certain other federal and all state, local and
foreign tax consequences of the Merger that may be applicable.
REPORTS TO SHAREHOLDERS
It is anticipated that following the consummation of the Merger, CCI
will furnish to its shareholders audited annual financial statements and
unaudited quarterly financial statements.
STOCK REDEMPTION PLAN
The Board of Directors of CCI has adopted a Stock Redemption Plan, a
copy of which is attached as Annex B hereto, pursuant to which it is anticipated
that CCI will make funds available for the redemption of a limited number of
shares of CCI Common Stock each year beginning in 1999, on a date to be
established each year by the Board of Directors (the "Redemption Date"). Each
year commencing in 1999, as soon as practicable following the issuance by CCI's
independent auditors of their report regarding the consolidated financial
statements of CCI and its subsidiaries for the prior year, the Board of
Directors will (i) cause an appraisal (or an update of a prior appraisal) of CCI
to be completed by an independent individual or firm selected by the Board of
Directors which will set forth a determination of the total fair market value of
CCI as of the last day of the prior year (the "Appraisal Value"), and (ii)
determine the amount which shall be made available by CCI on the Redemption Date
to fund the redemption of shares of CCI Common Stock (the "Redemption Fund").
The price to be paid to shareholders for each share of redeemed CCI Common Stock
(the "Redemption Price") will be an amount equal to the Appraisal Value divided
by the number of shares of CCI Common Stock outstanding on the last day of the
prior year, discounted by 25% (reflecting a lack of marketability and minority
interest). The Redemption Fund established each year will be an amount which is
greater than or equal to 5% and less than or equal to 10% of the net earnings of
CCI (after taxes) for the prior year. All shares of CCI Common Stock will be
eligible for redemption subject to and in accordance with the terms of the Stock
Redemption Plan. In the event that the number of shares offered for redemption
by shareholders is greater than the number of shares that can be redeemed from
the Redemption Fund, such shares will be redeemed on a pro rata basis. Unused
portions of the Redemption Fund will not be carried forward to increase the
Redemption Fund in future years. The Stock Redemption Plan will be administered
and interpreted by the Board of Directors of CCI in its sole and absolute
discretion, and the Stock Redemption Plan may be amended or terminated, and/or
the Redemption for any particular year may be canceled, upon a vote of 75% of
the directors of CCI.
VOTING AGREEMENT
In anticipation of the Merger, the current shareholders of CCI (the
"Original CCI Shareholders") entered into a Voting Agreement dated as of
November 14, 1997 (the "Voting Agreement") for the purpose of controlling
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the voting of the 2,303,920 shares of CCI Common Stock owned by the Original CCI
Shareholders on the Record Date, representing approximately 33.20% of the shares
of CCI Common Stock to be outstanding upon consummation of the Merger (the
"Voting Agreement Shares"). Pursuant to the Voting Agreement, six individuals
(the "Voting Committee Members") have appointed to act as a committee (the
"Voting Committee") to determine how the Voting Agreement Shares will be voted
on each matter to be voted upon by the shareholders of CCI. Each Voting
Committee Member represents the other members of his or her family who are
Original CCI Shareholders.
Pursuant to the Voting Agreement, each Original CCI Shareholder has
granted to the Voting Committee an irrevocable proxy, for a period of 10 years
from November 13, 1997 (or until such time as the Voting Agreement is
terminated), to allow the Committee to vote such Shareholder's Voting Agreement
Shares in accordance with the Voting Agreement. However, under the Voting
Agreement, the Original CCI Shareholders retain their right to vote any shares
of CCI Common Stock which they own, other than the Voting Agreement Shares, as
they wish. The Voting Agreement will remain in effect for 10 years, unless
earlier terminated because (i) the Voting Committee Members unanimously agree in
writing to terminate the Voting Agreement, (ii) CCI is in bankruptcy or
receivership or is dissolved, (iii) CCI ceases it business, (iv) CCI enters into
an underwriting agreement with respect to a public offering of CCI Common Stock
in excess of $30,000,000, (v) CCI sells all or substantially all of its assets
or is the non-surviving corporation in a merger, or (vi) there is only one CCI
Shareholder bound by the terms of the Voting Agreement.
The Voting Agreement provides that an Original CCI Shareholder will not
be permitted to sell, transfer or otherwise dispose of any Voting Agreement
Shares, except to (i) a spouse of such Original CCI Shareholder, (ii) a child of
such Original CCI Shareholder or such spouse, (iii) a trustee in trust for the
benefit of such Original CCI Shareholder, such spouse or such child, (iv) CCI in
the event such Original CCI Shareholder owns no CCI Common Stock other than such
Voting Agreement Shares or (v) a third party upon obtaining the prior written
consent of the Committee Members. All transferees of the Voting Agreement Shares
will be required to enter into the Voting Agreement and to receive and hold the
Voting Agreement Shares subject to the terms and provisions of the Voting
Agreement.
MANAGEMENT OF CCI AFTER THE MERGER
Certain provisions in the Bylaws of CCI will control the composition of
the Board of Directors of CCI upon the consummation of the Merger and for five
years thereafter. Pursuant to such Bylaw provisions, the Board of Directors of
CCI will consist of between eight and eleven directors. Each of six directors
will be the respective nominees of each of the families of the six children of
W. W. Clyde, namely Cornell Clyde, Blaine Clyde, William R. Clyde, Ila C. Cook,
Louise C. Gammell and Carol C. Salisbury. The remaining two directors will be
nominated by the members of the Edward Clyde family. The Board of Directors of
CCI will have the right to add up to three additional directors. In no event
will there be more than eleven directors of CCI. For a more detailed description
of the applicable Bylaw provisions, see "Comparison of the Rights of Holders of
CCI Common Stock and Clyde, Geneva Rock, Utah Service and Beehive Insurance
Common Stock - Provisions Relating to Directors." It is also contemplated that
as soon as reasonably practicable after the consummation of the Merger, Richard
C. Clyde will serve as President and Chief Executive Officer and Wilford W.
Clyde will serve as Vice President and Chief Operating Officer of CCI. See
"Clyde Companies, Inc.--CCI Management Upon Consummation of the Merger".
COMPARISON OF SHAREHOLDER RIGHTS
As a consequence of the Merger, the shareholders of Clyde, Geneva Rock,
Utah Service and Beehive Insurance will become shareholders of CCI. There will
be significant differences between the rights of shareholders of Clyde, Geneva
Rock, Utah Service and Beehive Insurance prior to the Merger and the rights of
CCI shareholders after the Merger. See "Comparison of the Rights of Holders of
CCI Common Stock and Clyde, Geneva Rock, Utah Service and Beehive Insurance
Common Stock" for a summary of the material differences between the rights of
holders of CCI Common Stock and Clyde, Geneva Rock, Utah Service and Beehive
Insurance Common Stock.
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THE MERGER AGREEMENT
GENERAL
The description of the material terms and conditions of the Merger
Agreement and any related documents in this Proxy Statement/Prospectus is
qualified in its entirety by reference to the copy of the Merger Agreement
attached hereto as Annex A. Shareholders of CCI, Clyde, Geneva Rock, Utah
Service and Beehive Insurance are urged to read the Merger Agreement in its
entirety for a more complete description of the terms of such agreement.
CONVERSION OF SHARES
At the effective time of the Merger Agreement (the "Effective Time"),
each outstanding share of common stock of the Operating Companies (except (i)
those shares of the Operating Companies owned by CCI, (ii) those shares of
Geneva Rock owned by Clyde, which will be distributed as a dividend to CCI and
(iii) to the extent that the holders of shares of Clyde, Geneva Rock, Utah
Service or Beehive Insurance Common Stock duly elect to exercise their
dissenters' rights under Part 13 of the URBCA) will be converted into (i) in the
case of Clyde Common Stock, 33.93 shares of CCI Common Stock, (ii) in the case
of Geneva Rock Common Stock, 239.27 shares of CCI Common Stock, (iii) in the
case of Utah Service Common Stock, 43.43 shares of CCI Common Stock, and (iv) in
the case of Beehive Insurance Common Stock, 4.33 shares of CCI Common Stock (the
ratios set forth in clauses (i) through (iv) above are sometimes referred to
herein as the "Exchange Ratios"). Fractional shares of CCI Common Stock will not
be issued. In lieu of fractional shares, shareholders of Clyde, Geneva Rock,
Utah Service and Beehive Insurance will receive cash equal to the product of (i)
such fraction multiplied by (ii) $14.52.
Clyde Reorganization Corporation ("CRC"), Geneva Rock Reorganization
Corporation ("GRRC"), Utah Service Reorganization Corporation ("USRC") and
Beehive Insurance Reorganization Corporation ("BIRC") (collectively, the "Merger
Subs") were recently organized by CCI for the purpose of effecting the
acquisition of the Operating Companies. CRC will merge with Clyde, GRRC will
merge with Geneva Rock, USRC will merge with Utah Service and BIRC will merge
with Beehive Insurance, with the Operating Companies being the surviving
corporations of such mergers. Each share of CRC, GRRC, USRC and BIRC common
stock issued and outstanding immediately prior to the Effective Time will be
converted into one share of common stock of the respective Operating Company.
CONDITIONS TO THE MERGER
Consummation of the Merger is subject to the satisfaction of various
conditions, including but not limited to (i) the approval and adoption of the
Merger Agreement by the requisite vote of the shareholders of each of the
Constituent Corporations; (ii) the total value of all dissenting shares (after
applying a 25% discount for minority interest) is not more than 5% of the
aggregate value of the Operating Companies; (iii) no governmental authority
shall have issued any order, and there shall not be any statute, rule, decree or
regulation restraining, prohibiting or making illegal the consummation of the
Merger; (iv) any waiting period applicable to the consummation of the Merger
under the Hart Scott Rodino Act shall have expired or been terminated (such
waiting period has been terminated); (v) the representations and warranties of
CCI contained in the Merger Agreement shall be true and correct in all material
respects when made and as of the closing date of the Merger (the "Closing Date")
(except for such matters which specifically address a particular date which need
only be true and correct as of such date); (vi) CCI shall have performed in all
material respects all of the obligations to be performed by it under the Merger
Agreement prior to the Closing Date; (vii) a responsible officer of CCI shall
have provided each of the Operating Companies with a certificate with respect to
the matters referred to in the Merger Agreement; (viii) the representations and
warranties of each of the Operating Companies contained in the Merger Agreement
shall be true and correct in all material respects when made and as of the
Closing Date (except for matters which specifically address a particular date
which need only be true and correct as of such date); (ix) each of the Operating
Companies shall have performed in all material respects all of the obligations
to be performed by it under the Merger Agreement prior to the Closing Date; (x)
a responsible officer of each of the Operating Companies shall have provided CCI
with a certificate with respect to the matters referred to in the Merger
Agreement; (xi) CCI shall have received a written Affiliates Agreement (the
"Affiliates Agreement") executed by the affiliates of each of the
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Constituent Corporations; and (xii) the receipt of an opinion from Grant
Thornton to the effect that the Merger will qualify as a tax free
reorganization.
WAIVER AND AMENDMENT
Provisions of the Merger Agreement may be waived by the party entitled
to the benefits thereof by a written instrument signed by the party granting
such waiver. The Merger Agreement may be amended, modified or supplemented at
any time prior to the Closing Date by the written agreement of each of the
parties thereto.
TERMINATION
The Merger Agreement may be terminated and the Merger may be abandoned
at any time prior to the Effective Time, whether before or after approval of the
shareholders of the Constituent Corporations, under the circumstances specified
therein, including (i) automatically, without any further actions by any of the
parties (except as may be otherwise required by the URBCA), (A) if the Merger of
each of the Constituent Corporations has not been consummated on or prior to
June 30, 1998 or (B) if any governmental authority shall have issued a statute,
order, decree or regulation or taken any other action permanently restraining or
enjoining or otherwise materially restricting the consummation of the
transactions contemplated by the Merger Agreement and such statute, order,
decree, regulation or other action shall have become final and non-appealable,
(ii) by the Boards of Directors of the Operating Companies, acting jointly, if
CCI breaches or fails in any material respect to perform or comply with any of
its covenants and agreements contained in the Merger Agreement or breaches its
representations and warranties therein in any material respect and fails to cure
such breach as provided for therein, or (iii) by the Board of Directors of CCI,
if any of the Operating Companies breaches or fails in any material respect to
perform or comply with any of its respective covenants and agreements contained
in the Merger Agreement or breaches its representations and warranties in any
material respect and fails to cure such breach as provided for therein.
FEES AND EXPENSES
If the Merger is consummated, CCI will pay all fees and expenses
incurred in connection with the Merger from the dividends CCI receives from the
Operating Companies. If the Merger is not consummated, each of the Constituent
Corporations will bear their pro-rata share of all such fees and expenses.
SURRENDER OF CERTIFICATES
Certificates nominally representing shares of the common stock of the
Operating Companies, other than any certificate representing dissenting shares,
if any ("Operating Company Certificates"), as of the Effective Time, for all
purposes, shall be deemed to evidence the number of shares of CCI Common Stock
determined in accordance with the applicable Exchange Ratio. As soon as
practicable after the Effective Time, CCI shall mail to each record holder of an
outstanding Operating Company Certificate, as of the Effective Time, a form of
letter of transmittal (the "Transmittal Letter") that contains instructions for
use in effecting the surrender of each Operating Company Certificate in exchange
for a CCI Common Stock certificate ("CCI Certificate"). Upon surrender to CCI of
an Operating Company Certificate, together with a duly executed Transmittal
Letter (and any other documents which may be reasonably required by CCI, if
any), the holder of such Operating Company Certificate shall receive promptly in
exchange therefor a CCI Certificate for the number of shares of CCI Common Stock
evidenced thereby in accordance with the applicable Exchange Ratio. At that
time, the Operating Company Certificate shall be canceled. If a CCI Certificate
is to be issued to a person other than the person in whose name the surrendered
Operating Company Certificate is registered, it shall be a condition of issuance
of the CCI Certificate (x) that the Operating Company Certificate so surrendered
shall be properly endorsed or otherwise be in proper form for transfer and (y)
that the person requesting such issuance shall pay any transfer or other taxes
required by reason of the issuance to a person other than the registered holder
of the Operating Company Certificate surrendered or establish to the
satisfaction of CCI that such tax has been paid or is not applicable. CCI shall
pay all charges and expenses, including those of the Operating Companies, in
connection with the distribution of CCI Certificates.
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DISSENTERS' RIGHTS
If the Merger is consummated, holders of shares of Clyde Common Stock,
Geneva Rock Common Stock, Utah Service Common Stock and Beehive Insurance Common
Stock will be entitled to dissenters' rights under the URBCA, provided that they
comply with the conditions of Sections 16-10a-1301 through 16-10a-1331 of the
URBCA. Original CCI Shareholders are not entitled to dissenters' rights. Those
shareholders of Clyde, Geneva Rock, Utah Service and Beehive Insurance who elect
to exercise their dissenters' rights and who properly and timely perfect such
rights will be entitled to receive the "fair value" in cash for their shares of
Clyde Common Stock, Geneva Rock Common Stock, Utah Service Common Stock and
Beehive Insurance Common Stock. Pursuant to Section 16-10a-1301(4) of the URBCA,
such "fair value" means the value of the shares immediately before the
effectuation of the applicable Merger, excluding any appreciation or
depreciation in anticipation of such Merger. In order to exercise their
dissenters' rights, the holders of Clyde Common Stock, Geneva Rock Common Stock,
Utah Service Common Stock and Beehive Insurance Common Stock must comply with
the procedural requirements of Sections 16-10a-1301 through 16-10a-1331 of the
URBCA, a description of which is provided in "Dissenters' Rights" and the full
text of which is attached to this Proxy Statement/Prospectus as Annex C and
which is incorporated by reference herein. Failure to comply with any of the
steps required under Sections 16-10a-1301 through 16-10a-1331 of the URBCA on a
timely basis may result in the loss of dissenters' rights. See "Dissenters'
Rights."
SELECTED FINANCIAL INFORMATION
SUMMARY HISTORICAL FINANCIAL INFORMATION
The following summary historical financial information should be read in
conjunction with the financial statements of CCI, Clyde, Geneva Rock, Beehive
Insurance and Utah Service and notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" of each of the
respective companies included elsewhere in this Proxy Statement/Prospectus. The
summary historical financial information presented below has been derived from
the financial statements of CCI, Clyde, Geneva Rock, Beehive Insurance and Utah
Service. The financial statements for CCI and Clyde as of and for the year ended
December 31, 1996 have been audited by Grant Thornton whose reports are included
elsewhere herein. The financial statements for Geneva Rock as of and for the
year ended December 31, 1996 have been audited by Squire & Company, PC
("Squire") whose report is included elsewhere herein. The financial statements
for Beehive Insurance as of and for the year ended December 31, 1996 have been
audited by Daines Associates LLC ("Daines") whose report is included elsewhere
herein. The financial statements of Utah Service as of and for the year ended
December 31, 1996 have not been audited. The summary historical financial
information for the nine month period ended September 30, 1997 is included
herein and has not been audited for any of the respective Constituent
Corporations except for Utah Service. Management believes, however, that the
unaudited financial statements reflect all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of the information
included therein. The summary historical financial information for Utah Service
is derived from financial statements as of September 30, 1997 and for the nine
months then ended, which were audited by Grant Thornton whose report is included
elsewhere herein.
11
<PAGE> 30
<TABLE>
<CAPTION>
Geneva Utah Beehive
CCI Clyde Rock Service Insurance
---------- ---------- ---------- ---------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Nine months ended September 30, 1997
- ------------------------------------
Statement of earnings data:
Net revenues $ 93 $ 9,696 $ 94,736 $ 9,258 $ 523
Operating income (loss) 88 (864) 11,033 500 306
Net earnings 1,408 1,437 7,145 358 204
Earnings per common share $ 0.61(1) $ 15.19 $ 327.72 $ 66.20 $ 9.49
Weighted average shares outstanding 2,303,920(1) 94,544 21,802 5,413 21,487
</TABLE>
Balance sheet data (at period end):
<TABLE>
<CAPTION>
Geneva Utah Beehive
CCI Clyde Rock Service Insurance
---------- ---------- ---------- ---------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Current assets $ 124 $ 16,287 $ 42,113 $ 3,539 $ 840
Current liabilities - 1,126 9,913 826 470
Total assets 27,270 47,231 84,598 4,815 945
Total liabilities 9,932 11,014 20,274 958 470
Stockholders' equity 17,338 36,217 64,324 3,857 475
</TABLE>
12
<PAGE> 31
<TABLE>
<CAPTION>
Geneva Utah Beehive
CCI Clyde Rock Service Insurance
---------- ---------- ---------- ---------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1996
Statement of earnings data:
Net revenues $ 404 $ 19,056 $ 116,349 $ 13,108 $ 578
Operating income 398 497 12,462 565 334
Net earnings 1,935 2,687 8,434 421 234
Earnings per common share $ 0.84(1) $ 28.42 $ 386.85 $ 77.78 $ 10.88
Weighted average shares outstanding 2,303,920(1) 94,544 21,802 5,413 21,487
Balance sheet data (at period end):
Current assets $ 31 $ 16,357 $ 35,240 $ 3,057 $ 679
Current liabilities 5 1,092 8,036 626 377
Total assets 25,088 44,916 74,848 4,387 756
Total liabilities 9,158 9,969 17,669 853 377
Stockholders' equity 15,930 34,947 57,179 3,534 379
</TABLE>
(1) Earnings per common share are based upon the weighted average number of
common shares outstanding during the period presented after giving retroactive
effect to all periods presented for the subsequent 40:1 stock split effected
November 13, 1997.
COMPARATIVE PER SHARE DATA
Set forth below are unaudited pro forma combined earnings from
continuing operations and book value per common share of CCI after giving effect
to the Merger. The information set forth below should be read in conjunction
with the financial statements and the "CCI Pro Forma Combined Financial
Information (Unaudited)" included elsewhere in this Proxy Statement/Prospectus,
in each case including the notes thereto. The pro forma information presented
herein is for illustrative purposes only.
Comparative Per Share Data as of and for the nine
months ended September 30, 1997
<TABLE>
<S> <C>
CCI
Historical
Net earnings $ 0.61
Book value (at period end) 7.53
Cash dividends declared by CCI --
*Cash dividends declared by
Subsidiaries 0.14
Pro forma combined
Net earnings $ 1.10
Book value (at period end) 13.12
Cash dividends declared by CCI --
*Cash dividends declared by
Subsidiaries 0.05
</TABLE>
<TABLE>
<CAPTION>
Beehive
Clyde Geneva Rock Utah Service Insurance
---------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
Historical
Net earnings $ 15.20 $ 327.72 $ 66.20 $ 9.48
Book value (at period end) 383.07 2,950.36 712.64 22.11
Cash dividends declared 2.00 -- 6.00 5.00
Exchange ratio 33.93 239.27 43.43 4.33
========== ============ ========== =========
Equivalent pro forma combined
Net earnings $ 37.45 $ 264.11 $ 47.94 $ 4.78
Book value (at period end) 445.08 3,138.64 569.70 56.80
Cash dividends declared by CCI -- -- -- --
*Cash dividends declared by
Subsidiaries 1.61 11.34 2.06 0.21
</TABLE>
13
<PAGE> 32
Comparative Per Share Data as of and for the year
ended December 31, 1996
<TABLE>
<S> <C>
CCI
Historical
Net earnings $ 0.84
Book value (at period end) 6.91
Cash dividends declared by CCI 0.16
*Cash dividends declared by
Subsidiaries 0.67
Pro forma combined
Net earnings $ 1.42
Book value (at period end) 12.01
Cash dividends declared by CCI 0.05
*Cash dividends declared by
Subsidiaries 0.22
</TABLE>
<TABLE>
<CAPTION>
Beehive
Clyde Geneva Rock Utah Service Insurance
---------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
Historical
Net earnings $ 28.42 $ 386.85 $ 77.78 $ 10.87
Book value (at period end) 369.64 2,622.64 652.96 17.61
Cash dividends declared 6.00 30.00 20.00 10.00
Equivalent pro forma combined
Net earnings $ 48.30 $ 340.63 $ 61.83 $ 6.16
Book value (at period end) 407.53 2,873.88 521.64 52.01
Cash dividends declared by CCI 1.75 12.37 2.25 0.22
*Cash dividends declared by
Subsidiaries 7.55 53.26 9.67 0.96
</TABLE>
14
<PAGE> 33
Comparative Per Share Data as of and for the year
ended December 31, 1995
<TABLE>
<S> <C>
CCI
Historical
Net earnings $ 1.14
Cash dividends declared by CCI 0.21
*Cash dividends declared by
Subsidiaries 0.83
Pro forma combined
Net earnings $ 1.91
Cash dividends declared by CCI 0.07
*Cash dividends declared by
Subsidiaries 0.28
</TABLE>
<TABLE>
<CAPTION>
Beehive
Clyde Geneva Rock Utah Service Insurance
---------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
Historical
Net earnings $ 44.81 $ 503.54 $ 64.77 $ 6.09
Cash dividends declared 10.00 30.00 20.00 9.49
Equivalent pro forma combined
Net earnings $ 64.75 $ 456.59 $ 82.88 $ 8.26
Cash dividends declared by CCI 2.33 16.46 2.99 0.30
*Cash dividends declared by
Subsidiaries 9.35 65.93 11.97 1.19
</TABLE>
15
<PAGE> 34
Comparative Per Share Data as of and for the year
ended December 31, 1994
<TABLE>
CCI
<S> <C>
Historical
Net earnings $ 0.87
Cash dividends declared by CCI 0.21
*Cash dividends declared by
Subsidiaries 0.79
Pro forma combined
Net earnings $ 1.47
Cash dividends declared by CCI 0.07
*Cash dividends declared by
Subsidiaries 0.26
</TABLE>
<TABLE>
<CAPTION>
Beehive
Clyde Geneva Rock Utah Service Insurance
---------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
Historical
Net earnings $ 27.34 $ 403.85 $ 89.18 $ 11.26
Cash dividends declared 10.00 27.00 15.59 10.00
Equivalent pro forma combined
Net earnings $ 50.01 $ 352.66 $ 64.01 $ 6.38
Cash dividends declared by CCI 2.31 16.30 2.96 0.29
*Cash dividends declared by
Subsidiaries 8.93 63.00 11.43 1.14
</TABLE>
*Cash dividends declared by Subsidiaries is not a required disclosure but is
included herein for additional information.
17
<PAGE> 35
PRO FORMA FINANCIAL INFORMATION
The CCI Summary Unaudited Pro Forma Financial Information as of December
31, 1996 and September 30, 1997 included below gives effect to the Merger as
described in this Proxy Statement/Prospectus and the estimated adjustments
caused by the Merger as described in "Clyde Companies, Inc. -- CCI Pro Forma
Combined Financial Information (Unaudited)" and the notes thereto. Shareholders
are urged to carefully read this document, "Clyde Companies, Inc. -- CCI Pro
Forma Combined Financial Information (Unaudited)" and the notes thereto.
CCI Summary Unaudited Pro Forma Financial Information
(In thousands, except per share data)
<TABLE>
<CAPTION>
Nine months ended Year ended
September 30, December 31,
1997 1996
----------------- ----------
<S> <C> <C>
Statement of earnings data:(1)
Operating Revenues $ 112,853 $ 147,303
Gross margin 17,610 22,152
Net Earnings 7,659 9,878
Earnings per share $ 0.61 $ 1.42
Weighted average shares outstanding (2) 6,938,709 6,938,709
Balance Sheet Data (at period end):(3)
Working capital $ 50,575
Total assets 114,571
Total liabilities 23,552
Retained earnings 89,215
Stockholders' equity 91,019
</TABLE>
- ----------
(1) The pro forma statements of earnings data are presented assuming the
combination occurred at the beginning of the periods presented.
(2) Reflects the conversion of the Constituent Corporations' shares into CCI
shares.
(3) The September 30, 1997 pro forma balance sheet data are presented assuming
the combination occurred on September 30, 1997.
MARKETS AND MARKET PRICES FOR SHARES
There is no public trading market for CCI Common Stock, Clyde Common
Stock, Geneva Rock Common Stock, Utah Service Common Stock or Beehive Insurance
Common Stock, and it is not anticipated that a public market for CCI Common
Stock will develop following the Merger. See "Clyde Companies, Inc. -- Stock
Redemption Plan."
18
<PAGE> 36
RISK FACTORS
The following risk factors should be considered carefully by the
shareholders of CCI, Clyde, Geneva Rock, Utah Service and Beehive Insurance in
evaluating whether to approve and adopt the Merger Agreement and the
transactions contemplated thereby. These factors should be considered in
conjunction with the other information included in this Proxy
Statement/Prospectus.
FAILURE TO REALIZE MERGER STRATEGY
Although the respective Boards of Directors of CCI, Clyde, Geneva Rock,
Utah Service and Beehive Insurance anticipate that as a result of the Merger the
Operating Companies will be able to achieve certain operating efficiencies,
there can be no assurance that such operating efficiencies will be achieved. The
ability of CCI to achieve operating efficiencies will depend on a number of
factors, including the ability of CCI to: (i) realize economies, particularly in
the areas of accounting and financial reporting, advertising and public
relations, human resources, purchasing, project bidding and employee safety,
(ii) implement effective internal information systems and management,
operational and financial controls, and (iii) retain existing personnel and
attract new personnel. Although CCI will attempt to integrate and streamline
overlapping functions of Clyde, Geneva Rock, Utah Service and Beehive Insurance,
there can be no assurance that it will be successful in doing so or that the
process of integrating businesses and operations will not cause an interruption
of, or loss in momentum in, the businesses of the Operating Companies.
NO PUBLIC TRADING MARKET FOR CCI COMMON STOCK; UNCERTAINTY OF STOCK REDEMPTION
PLAN; RESTRICTIONS ON TRANSFER
There is no public trading market for CCI Common Stock, and no public
trading market is expected to develop in the future. Holders of CCI Common Stock
may be able to redeem a limited number of their shares pursuant to the terms of
CCI's Stock Redemption Plan, which provides that beginning in 1999 between 5%
and 10% of CCI's net after tax earnings, as determined by CCI's Board of
Directors, will be put into a redemption fund to provide for the redemption of
CCI Common Stock. There can be no assurance that CCI will have available
adequate funds to effect all shareholders' requests for redemption, or that the
plan will not be subsequently amended or repealed upon a vote of 75% of the
directors of CCI. Also, there can be no assurance that the redemption prices to
be offered by CCI pursuant to the Stock Redemption Plan will be equal to the
prices which might be received by shareholders upon the sale or liquidation of
CCI. See "Clyde Companies, Inc. -- Stock Redemption Plan".
The Voting Agreement entered into by the Original CCI Shareholders
provides that such shareholders will not be permitted to sell, transfer or
otherwise dispose of any Voting Agreement Shares, except to (i) a spouse of such
Original CCI Shareholder, (ii) a child of such Original CCI Shareholder or such
spouse, (iii) a trustee in trust for the benefit of such Original CCI
Shareholder, such spouse or such child, (iv) CCI in the event such Original CCI
Shareholder owns no CCI Common Stock other than such Voting Agreement Shares and
(v) a third party upon obtaining the prior written consent of the Voting
Committee Members. All transferees of the Voting Agreement Shares will be
required to enter into the Voting Agreement and to receive and hold the Voting
Agreement Shares subject to the terms and provisions of the Voting Agreement.
See "Clyde Companies, Inc. -- Voting Agreement".
UNCERTAINTY OF FUTURE DIVIDENDS
Prior to the Merger, each of the Operating Companies has paid cash
dividends to their respective shareholders. The amount, type and frequency of
dividends paid by CCI on CCI Common Stock will be determined by the Board of
Directors of CCI based on the results of operations, financial condition and
liquidity needs of CCI. The amount, type and frequency of dividends paid by CCI
to its shareholders will not be equivalent to the amount, type and frequency of
dividends paid by the Operating Companies prior to the Merger. See
"Summary--Selected Financial Information--Comparative Per Share Data".
19
<PAGE> 37
TAX RISKS
The Merger has been structured so as to qualify as transfers within the
meaning of Section 351 of the Internal Revenue Code of 1986, as amended (the
"Code"), and/or as reorganizations under Section 368(a)(1)(B) of the Code, and
the independent accounting firm of Grant Thornton has rendered an opinion to
this effect. Assuming the Merger qualifies under one or both of these
provisions, no gain or loss will be recognized by the Operating Companies or by
their shareholders on the exchange of stock of the Operating Companies for
shares of CCI Common Stock. However, no ruling from the Internal Revenue Service
("IRS") has been obtained, and there can be no assurance that the IRS will agree
with Grant Thornton as to the tax consequences of the Merger. Shareholders of
the Constituent Corporations should consult their own tax advisors concerning
the federal, state and local tax consequences to them of the Merger. See "The
Merger--Certain Federal Income Tax Considerations."
DEPENDENCE ON KEY PERSONNEL
Management of the business of CCI will be substantially dependent on
Richard C. Clyde, President and Chief Executive Officer, and Wilford W. Clyde,
Vice President and Chief Operating Officer. The loss of either of these
employees could have a material adverse effect on CCI's business, financial
condition and results of operations.
UNCERTAINTY OF BUSINESS OF OPERATING COMPANIES
The construction business is by nature a cyclical business. Although
Geneva Rock has experienced significant growth in revenues during the last five
years, there can be no assurance that Geneva Rock will be able to maintain
current levels of growth. Clyde has experienced a significant decline in
revenues over the last five years and there can be no assurance that this
decline will not continue. In addition, the business of Utah Service may be
affected by cyclical declines in the construction industry and the economy in
general. Also, the business of Beehive Insurance may be subject to more
restrictive regulations as a result of the Merger because the Utah Insurance
Code restricts the amount of compensation an insurance agency may receive for
placing insurance with "controlled businesses" and such restriction may limit
the amount of insurance business that Beehive Insurance may place with Clyde and
Geneva Rock after the Merger. At the present time, Clyde and Geneva Rock
together account for more than 50% of the insurance business placed by Beehive
Insurance. See "Beehive Insurance -- Regulation".
VOTING CONTROL OF CCI
On all matters with respect to which CCI's shareholders have a right to
vote, including the election of Directors, each share of CCI Common Stock is
entitled to one vote. The Original CCI Shareholders have entered into a 10-year
Voting Agreement for the purpose of controlling the voting of the 2,303,920
shares of CCI Common Stock owned by the Original CCI Shareholders on the Record
Date, representing approximately 33.20% of the shares of CCI Common Stock to be
outstanding upon consummation of the Merger. So long as the Voting Agreement is
in place, such original CCI shareholders may have the ability (subject to the
restrictions in CCI's Bylaws relating to the configuration of its Board of
Directors) to elect the entire Board of Directors of CCI and determine the
outcome of all matters involving a shareholder vote. Control of CCI by such
original CCI shareholders could make it more difficult for a third party to
acquire, or could discourage a third party from attempting to acquire, control
of CCI. See "Clyde Companies, Inc.--Voting Agreement."
DETERMINATION OF EXCHANGE RATIOS
In connection with the Merger, each outstanding share of Clyde, Geneva
Rock, Utah Service and Beehive Insurance Common Stock will be exchanged for
33.93, 239.27, 43.43 and 4.33 shares, respectively, of CCI Common Stock. In
anticipation of the Merger, in November 1997 each then outstanding share of CCI
Common Stock was converted into 40 shares of CCI Common Stock. The exchange
ratios were determined by the Task Force and approved by the Boards of Directors
of the Constituent Corporations in reliance upon valuation reports for each of
the Constituent Corporations, except CCI, prepared by Houlihan Valuation
Advisors. Since the only assets of CCI are cash and the shares of the other
Constituent Corporations which it owns, an independent valuation
20
<PAGE> 38
report was not obtained for CCI. For purposes of determining CCI's value in the
Merger, CCI was assigned a value equal to the value of the shares it owns in
each of the Constituent Corporations. Although in approving the recommendations
of the Task Force, the Boards of Directors of the Constituent Corporations have
used their best efforts to arrive at exchange ratios that are equitable to the
shareholders of each of the Constituent Corporations, there can be no assurance
that such exchange ratios are indicative of the consideration which the
shareholders of the Constituent Corporations would receive upon the sale or
liquidation of the Constituent Corporations in which they own shares. See
"Summary -- Selected Financial Information--Comparative Per Share Data" and "The
Merger -- Valuation Reports for Operating Companies by Financial Advisor,
Houlihan Valuation Advisors."
LACK OF SEPARATE LEGAL REPRESENTATION
The law firm of Van Cott, Bagley, Cornwall & McCarthy ("Van Cott")
previously has represented each of the Constituent Corporations, as well as
certain individual Task Force members, directors, officers and shareholders of
the Constituent Corporations. Because each Constituent Corporation is affiliated
through family relationships, interconnected Boards of Directors and cross stock
ownership, and in an effort to reduce the costs of the Merger, the Boards of
Directors of each Constituent Corporation determined to use Van Cott to
represent all of the Constituent Corporations in connection with the Merger and
the transactions contemplated thereby, including the preparation of this joint
Proxy Statement/Prospectus. Van Cott did not represent any Constituent
Corporation or individual shareholder separately in negotiating the exchange
ratios or any of the other terms or provisions of the Merger Agreement, nor did
Van Cott undertake any due diligence investigation with respect to any
Constituent Corporation, such as an investigation of the validity of the
outstanding shares of the Constituent Corporations, or the status of legal
agreements, pending legal proceedings or other legal matters with respect to the
Constituent Corporations. Such representation by Van Cott involves a conflict of
interest to the extent that the interest of one Constituent Corporation in the
Merger may be separate from or opposed to the interest of the other Constituent
Corporations or individuals (mentioned above) who may also be clients of Van
Cott. Because of such conflicts of interest, Van Cott obtained a written waiver
of such conflicts from the Board of Directors of each Constituent Corporation
and certain individual shareholders, pursuant to which each corporation and
individual shareholder acknowledged the existence of the conflicts of interest,
waived any objection thereto and agreed to Van Cott's representation of all of
the Constituent Corporations. David E. Salisbury, who is a shareholder of Van
Cott, was a member of the Task Force that negotiated the pertinent terms and
provisions of the Merger Agreement, including the exchange ratios. Mr. Salisbury
participated on the Task Force in his capacity as a director of Clyde, and as a
direct or indirect owner of shares of common stock of the Constituent
Corporations. See "The Merger--Interests of Certain Persons in the Merger".
21
<PAGE> 39
CLYDE COMPANIES, INC.
OVERVIEW
CCI was incorporated in the state of Utah in 1961 under the name "W.W.
Clyde Investment Co." as a holding company for shares of stock of Clyde, Geneva
Rock, Utah Service and Beehive Insurance. In November 1997 the name of the
corporation was changed to "Clyde Companies, Inc." CCI has no operations of its
own and, prior to the consummation of the Merger, its assets consisted solely of
cash and shares of common stock of Clyde (31,935 shares or 33.78% of the
outstanding shares), Geneva Rock (4,725 shares or 21.67% of the outstanding
shares), Utah Service (1,698 shares or 31.37% of the outstanding shares) and
Beehive Insurance (3,700 shares or 17.22% of the outstanding shares). Upon the
consummation of the Merger, CCI will be a holding company with wholly owned
subsidiaries consisting of Clyde, Geneva Rock, Utah Service and Beehive
Insurance. At this time, it is anticipated that CCI will have no operations of
its own after the consummation of the Merger. As of the date hereof, CCI has no
employees. The principal executive offices of CCI are located at 1423 Devonshire
Drive, Salt Lake City, Utah 84108, and its telephone number is (801) 582-2783.
MARKET PRICE OF AND DIVIDENDS ON CCI COMMON STOCK
There is no public trading market for CCI's Common Stock and none is
expected to develop. The approximate number of shareholders of record on
September 30, 1997 was 56. Upon the consummation of the Merger, the approximate
number of shareholders of record (assuming that no shareholders of the Operating
Companies exercise their dissenters' rights) will be 174.
In 1995, CCI declared and paid cash dividends of $.21 per share of CCI
Common Stock to shareholders. In 1996, CCI declared and paid cash dividends of
$.16 per share of CCI Common Stock to shareholders. As of November 30, 1997, CCI
had not declared or paid any cash dividends for 1997. Management anticipates
that all cash held by CCI, other than an amount of cash sufficient to satisfy
CCI's tax obligations upon the consummation of the Merger, will be distributed
as a dividend to its shareholders prior to the consummation of the Merger, but
the amount of the dividend has yet to be determined. Because CCI is a holding
company, any dividends declared and paid to its shareholders is dependent upon
the dividends CCI receives from its subsidiaries. The amount, type and frequency
of dividends paid by CCI on CCI Common Stock after consummation of the Merger
will be determined by the Board of Directors of CCI based on the results of
operations, financial condition and liquidity needs of CCI. The amount, type and
frequency of dividends paid by CCI to its shareholders will not be equivalent to
the amount, type and frequency of dividends paid by the Operating Companies
prior to the Merger. See "Summary--Selected Financial Information--Comparative
Per Share Data".
CCI MANAGEMENT PRIOR TO CONSUMMATION OF THE MERGER
DIRECTORS
The names and ages of CCI's Directors prior to and upon the consummation
of the Merger are as follows:
22
<PAGE> 40
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION(S) WITH CCI (PRIOR TO THE MERGER) SINCE
- ---- --- ------------------------------------------ --------
<S> <C> <C> <C>
Carol C. Salisbury......... 70 Director, President 1961
Ila C. Cook................ 76 Director, Vice President 1972
William R. Clyde........... 79 Director, Vice President 1961
Louise C. Gammell.......... 73 Director, Secretary and Treasurer 1961
Paul B Clyde............... 56 Director 1988
Richard C. Clyde........... 62 Director 1997
H. Michael Clyde........... 47 (1)
Tawna Clyde Smith.......... 41 (1)
</TABLE>
- ------------------------
(1) H. Michael Clyde and Tawna Clyde Smith have agreed to serve as directors
upon consummation of the Merger.
Carol C. Salisbury is currently Secretary and Treasurer of Beehive
Insurance. Ms. Salisbury also serves on the Board of Directors and Executive
Committee of Beehive Insurance. She holds a Bachelors degree in economics from
the University of Utah. Prior to becoming President of CCI, Ms. Salisbury was
Secretary and Treasurer of CCI for twenty-two years. Carol C. Salisbury is the
wife of David E. Salisbury, who is currently a director of Clyde; a sister of
William R. Clyde, Ila C. Cook and Louise C. Gammell; and an aunt of Richard C.
Clyde, Paul B. Clyde, Wilford W. Clyde, Steven L. Clyde, David O. Cook, A. Ray
Gammell and B. Clyde Gammell.
Ila C. Cook has served as Vice President of CCI since 1988. She holds a
Bachelors degree from the University of Utah and a Masters degree from New York
University. Ila C. Cook is the wife of Vernon O. Cook, who is currently the
Chairman of the Board of Utah Service, the mother of David O. Cook, who is
currently the President, Chief Executive Officer and a director of Utah Service;
the sister of William R. Clyde, Louise C. Gammell and Carol C. Salisbury; and an
aunt of Richard C. Clyde, Paul B. Clyde, Wilford W. Clyde, Steven L. Clyde, A.
Ray Gammell and B. Clyde Gammell.
William R. Clyde has served as Vice President of CCI since 1997. Mr.
Clyde retired from employment with Clyde in 1983 after working for over 45 years
as a superintendent, project manager and equipment manager for Clyde. Mr. Clyde
is currently the Secretary of Geneva Rock and serves on the Boards of Directors
of Utah Service and Geneva Rock. William R. Clyde is the father of Steven L.
Clyde, who is currently the Project Superintendent and a director of Clyde, and
the brother of Ila C. Cook, Louise C. Gammell and Carol C. Salisbury; and an
uncle of Richard C. Clyde, Paul B. Clyde, Wilford W. Clyde, David O. Cook, A.
Ray Gammell and B. Clyde Gammell.
Louise C. Gammell holds a Bachelors degree from the University of Utah.
Ms. Gammell also serves on the Board of Directors of Utah Service. Louise C.
Gammell is the mother of A. Ray Gammell, who is currently a director of Geneva
Rock, and of B. Clyde Gammell, who is currently the Vice President and a
director of Beehive Insurance; the sister of William R. Clyde, Ila C. Cook and
Carol C. Salisbury; and an aunt of Richard C. Clyde, Paul B. Clyde, Wilford W.
Clyde, Steven L. Clyde and David O. Cook.
Paul B. Clyde has served as Vice President of Construction of Clyde
since 1992. Prior to that, he was Vice President of Marketing, Estimating and
Safety of Clyde from 1986 to 1992; Vice President of Marketing and Estimating
from 1983 to 1992; Chief Estimator from 1982 to 1983; and Project
Manager/Superintendent from 1969 to 1982. Mr. Clyde holds a B.S. degree in
construction engineering and management from Arizona State University. He is
responsible for field construction, estimating and bidding of all projects
performed by Clyde. Mr. Clyde also serves on the Boards of Directors of Clyde,
Utah Service and Geneva Rock. Paul B. Clyde is the brother of Wilford W. Clyde,
who will become the Vice President and Chief Operating Officer of CCI after the
Merger, the President and a director of Geneva Rock, and a director of Clyde and
Beehive Insurance; and a nephew of William R. Clyde, Ila C. Cook, Louise C.
Gammell and Carol C. Salisbury.
Richard C. Clyde is the third generation of the Clyde family to be
President and General Manager of Clyde, being named to that position in 1986.
Prior to that time, he was Vice President and Treasurer of Clyde from 1982 to
1986, and Project Manager/Superintendent from 1976 to 1982. Mr. Clyde holds a
B.S. degree from
23
<PAGE> 41
Brigham Young University. He serves on the National Board of Directors of the
American Road and Transportation Builders Association and is Director of the
Utah Highway Users Federation. Mr. Clyde also serves on the Boards of Directors
of Clyde, Beehive Insurance and Geneva Rock. Richard C. Clyde is the father of
Jeffrey R. Clyde, who is currently the Contracts Manager and a director of
Clyde; and a nephew of William R. Clyde, Ila C. Cook, Louise C. Gammell and
Carol C. Salisbury.
H. Michael Clyde has agreed to become a director of CCI upon
consummation of the Merger. Mr. Clyde is a member of the law firm of Brown &
Bain, P.A. ("Brown & Bain") in Phoenix, Arizona where he is a general litigator
practicing primarily in the areas of securities, antitrust and professional
liability. Neither Mr. Clyde nor Brown & Bain has provided legal services to CCI
or to any other Constituent Corporation, nor has Mr. Clyde or Brown & Bain
provided any advice or services in connection with any of the transactions
discussed in, or contemplated by, this Proxy Statement/Prospectus. Mr. Clyde
received a J.D. degree from the University of Utah. H. Michael Clyde is son of
Hal M. Clyde, who is currently a director of Utah Service and Beehive Insurance;
and a nephew of Norman D. Clyde, who is currently a director of Utah Service,
Clyde, Geneva Rock, and Beehive Insurance.
Tawna Clyde Smith has agreed to become a director of CCI upon
consummation of the Merger. Ms. Smith earned an R.N. degree from Brigham Young
University. She has worked as a secretary and bookkeeper for Geneva Rock and as
an office manager at a medical clinic for three years. Tawna Clyde Smith is the
daughter of Norman D Clyde, who is currently a director of Utah Service, Clyde,
Geneva Rock, and Beehive Insurance; and a niece of Hal M. Clyde, who is
currently a director of Utah Service and Beehive Insurance.
EXECUTIVE OFFICERS
The names, ages and positions of CCI's executive officers prior to the
consummation of the Merger are as follows:
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION(S) WITH CCI SINCE
- ---- --- ---------------------------- -----
<S> <C> <C> <C>
Carol C. Salisbury.................... 70 President 1997
Ila C. Cook........................... 76 Vice President 1988
William R. Clyde...................... 79 Vice President 1997
Louise C. Gammell..................... 73 Secretary and Treasurer 1997
</TABLE>
For a description of the business backgrounds of Carol C. Salisbury, Ila
C. Cook, William R. Clyde and Louise C. Gammell, see "CCI Management Prior to
Consummation of the Merger--Directors" above.
CCI MANAGEMENT UPON CONSUMMATION OF THE MERGER
DIRECTORS
CCI's Directors upon the consummation of the Merger will be the same as
CCI's Directors prior to the consummation of the Merger. See "CCI Management
Prior to Consummation of the Merger--Directors" above.
24
<PAGE> 42
EXECUTIVE OFFICERS
The names, ages and positions of CCI's executive officers upon the
consummation of the Merger will be as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH CCI
- ---- --- --------------------
<S> <C> <C>
Richard C. Clyde...................... 62 President and Chief Executive Officer
Wilford W. Clyde...................... 44 Vice President and Chief Operating Officer
Carol C. Salisbury.................... 70 Secretary and Treasurer
</TABLE>
For a description of the business backgrounds of Richard C. Clyde and
Carol C. Salisbury, see "CCI Management Prior to Consummation of the
Merger--Directors" above.
Wilford W. Clyde is the current President and General Manager of Geneva
Rock. He is also the Chairman of the Board and President of Geneva Rock's wholly
owned subsidiary, J & J Building Supply, Inc. Mr. Clyde graduated form Brigham
Young University. Mr. Clyde also serves on the Board of Directors of Clyde,
Geneva Rock and Beehive Insurance. Wilford W. Clyde is the brother of Paul B.
Clyde, who is currently Vice President of Construction of Clyde and a director
of Clyde, CCI, Geneva Rock and Utah Service; and a nephew of William R. Clyde,
Ila C. Cook, Louise C. Gammell and Carol C. Salisbury.
COMMITTEES OF CCI BOARD
The Board of Directors of CCI currently has no committee and no plans to
establish any committee.
ATTENDANCE AT CCI BOARD MEETINGS
As of the date hereof, the Board of Directors held one meeting in 1997,
and all of the directors attended this meeting.
CCI EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
Previously, none of the executive officers of CCI have received any
compensation for their services as such. It is anticipated that after the
consummation of the Merger, none of the executive officers of CCI will receive
compensation that exceeds $100,000 per year except for Richard C. Clyde, who
will be the President and Chief Executive Officer of CCI, and Wilford W. Clyde,
who will be the Vice President and Chief Operating Officer of CCI. Richard C.
Clyde will receive an aggregate of $110,000 salary per year, plus such bonus as
may be determined by the Board of Directors of CCI, in accordance with the
provisions of an employment agreement to be entered into between CCI and Richard
C. Clyde. See "Clyde Companies, Inc. -- Employment Agreement" and "Interests of
Certain Persons in the Merger Employment Agreement". Wilford W. Clyde will
receive aggregate compensation of $110,000 (including amounts paid to him by
subsidiaries of CCI) plus such bonus as may be determined by the Board of
Directors of CCI.
COMPENSATION OF DIRECTORS OF CCI
Prior to the consummation of the Merger, CCI directors have received
annual cash compensation of $1,000 for serving on the Board of Directors of CCI.
It is anticipated that after the consummation of the Merger, directors will
continue to receive annual cash compensation of $1,000 for serving on the Board
of Directors of CCI.
25
<PAGE> 43
DEFINED BENEFIT RETIREMENT PLAN
Clyde, Geneva and Beehive Insurance have a defined benefit pension plan,
the Retirement Plan for Employees of W.W. Clyde & Co., Geneva Rock Products,
Inc. and Beehive Insurance Agency (the "Plan"), which is qualified under Section
401 of the Internal Revenue Code (the "Code") and that will continue in force
after the Merger. The Plan became effective on April 1, 1965. The annual pension
benefit under the plan is determined by the number of years of employment
multiplied by a percentage of the participant's average monthly compensation for
the five highest consecutive years of participation. Each of the executive
officers listed under the heading "Summary of Cash and Certain Other
Compensation" above is a participant in the Plan. The annual benefits payable at
retirement under the Plan are calculated as 1.800% of the participant's average
monthly compensation multiplied by the participant's total years of employment
with the applicable company.
The table below may be used to calculate the approximate annual benefits
payable at retirement at age 65 under the Plan to individuals in the specified
average annual compensation and years of service classifications:
PENSION TABLE
Years of Service
<TABLE>
<CAPTION>
Average
Compensation 10 15 20 25 30 35
<S> <C> <C> <C> <C> <C> <C>
$60,000 $10,800 $16,200 $21,600 $27,000 $32,400 $37,800
70,000 12,600 18,900 25,200 31,500 37,800 44,100
80,000 14,400 21,600 28,800 36,000 43,200 50,400
90,000 16,200 24,300 32,400 40,500 48,600 56,700
100,000 18,000 27,000 36,000 45,000 54,000 63,000
110,000 19,800 29,700 39,600 49,500 59,400 69,300
120,000 21,600 32,400 43,200 54,000 64,800 75,600
130,000 23,400 35,100 46,800 58,500 70,200 81,900
140,000 25,200 37,800 50,400 63,000 75,600 88,200
</TABLE>
The salary amounts listed under the heading "Summary of Cash and Certain
Other Compensation" above qualify under the Plan. The present credited years of
service for the officers listed under the heading "Summary of Cash and Certain
Other Compensation" above are as follows: Richard C. Clyde, 32 years; and
Wilford W. Clyde, 21 years.
STOCK REDEMPTION PLAN
The Board of Directors of CCI has adopted a Stock Redemption Plan, a
copy of which is attached as Annex B hereto, pursuant to which it is anticipated
that CCI will make funds available for the redemption of a limited number of
shares of CCI Common Stock each year beginning in 1999, on a date to be
established each year by the Board of Directors (the "Redemption Date"). Each
year commencing in 1999, as soon as practicable following the issuance by CCI's
independent auditors of their report regarding the consolidated financial
statements of CCI and its subsidiaries for the prior year, the Board of
Directors will (i) cause an appraisal (or an update of a prior appraisal) of CCI
to be completed by an independent individual or firm selected by the Board of
Directors which will set forth a determination of the total fair market value of
CCI as of the last day of the prior year (the "Appraisal Value"), and (ii)
determine the amount which shall be made available by CCI on the Redemption Date
to fund the redemption of shares of CCI Common Stock (the "Redemption Fund").
The price to be paid to shareholders for each share of redeemed CCI Common Stock
(the "Redemption Price") will be an amount equal to the Appraisal Value divided
by the number of shares of CCI Common Stock outstanding on the last day of the
prior year, discounted by 25% (reflecting a lack of marketability and minority
interest). The Redemption Fund established each year will be an amount which is
greater than or equal to 5% and less than or equal to 10% of the net earnings of
CCI (after taxes) for the prior year. All shares of CCI Common Stock will be
eligible for redemption subject to and in accordance
26
<PAGE> 44
with the terms of the Stock Redemption Plan. In the event that the number of
shares offered for redemption by shareholders is greater than the number of
shares that can be redeemed from the Redemption Fund, such shares will be
redeemed on a pro rata basis. Unused portions of the Redemption Fund will not be
carried forward to increase the Redemption Fund in future years. The Stock
Redemption Plan will be administered and interpreted by the Board of Directors
of CCI in its sole and absolute discretion, and the Stock Redemption Plan may be
amended or terminated, and/or the Redemption for any particular year may be
canceled, upon a vote of 75% of the directors of CCI.
VOTING AGREEMENT
In anticipation of the Merger, the current shareholders of CCI (the
"Original CCI Shareholders") entered into a Voting Agreement dated as of
November 14, 1997 (the "Voting Agreement") for the purpose of controlling the
voting of the 2,303,920 shares of CCI Common Stock owned by the Original CCI
Shareholders on the Record Date, representing approximately 33.20% of the shares
of CCI Common Stock to be outstanding upon consummation of the Merger (the
"Voting Agreement Shares"). Pursuant to the Voting Agreement, six individuals
(the "Voting Committee Members") have been appointed to act as a committee (the
"Voting Committee") to determine how the Voting Agreement Shares will be voted
on each matter to be voted upon by the shareholders of CCI. Each Voting
Committee Member represents the other members of his or her family who are
Original CCI Shareholders.
Pursuant to the Voting Agreement, each Original CCI Shareholder has
granted to the Voting Committee an irrevocable proxy, for a period of 10 years
from November 13, 1997 (or until such time as the Voting Agreement is
terminated), authorizing the Voting Committee to vote such Shareholder's Voting
Agreement Shares in accordance with the Voting Agreement. However, under the
Voting Agreement, the Original CCI Shareholders retain their right to vote any
shares of CCI Common Stock which they own, other than the Voting Agreement
Shares, as they wish. The Voting Agreement will remain in effect for 10 years,
unless earlier terminated because (i) the Voting Committee Members unanimously
agree in writing to terminate the Voting Agreement, (ii) CCI is in bankruptcy or
receivership or is dissolved, (iii) CCI ceases it business, (iv) CCI enters into
an underwriting agreement with respect to a public offering of CCI Common Stock
in excess of $30,000,000, (v) CCI sells all or substantially all of its assets
or is the non-surviving corporation in a merger, or (vi) there is only one CCI
Shareholder bound by the terms of the Voting Agreement.
The Voting Agreement provides that an Original CCI Shareholder may not
sell, transfer or otherwise dispose of any Voting Agreement Shares, except to
(i) a spouse of such Original CCI Shareholder, (ii) a child of such Original CCI
Shareholder or such spouse, (iii) a trustee in trust for the benefit of such
Original CCI Shareholder, such spouse or such child, (iv) CCI in the event such
Original CCI Shareholder owns no CCI Common Stock other than such Voting
Agreement Shares and (v) a third party upon obtaining the prior written consent
of the Committee Members. All transferees of the Voting Agreement Shares will be
required to enter into the Voting Agreement and to receive and hold the Voting
Agreement Shares subject to the terms and provisions of the Voting Agreement.
EMPLOYMENT AGREEMENT
It is contemplated that upon consummation of the Merger, CCI will enter
into an employment agreement with Richard C. Clyde pursuant to which Richard C.
Clyde will be employed as President and Chief Executive Officer for a term of
three years from and after the 1998 annual shareholders meeting of CCI. The
employment agreement will provide for a minimum annual base salary of $110,000
for Richard C. Clyde and a discretionary annual incentive bonus in an amount as
the Board of Directors of CCI may determine. The employment agreement will also
provide that if Richard C. Clyde is terminated by CCI prior to the end of the
term of employment, other than for cause, death or disability, CCI will pay
Richard C. Clyde an amount equal to his annual salary multiplied by the number
of years remaining under the term of the employment agreement. See also
"The Merger -- Interests of Certain Persons in the Merger--Employment
Agreement".
27
<PAGE> 45
PRINCIPAL SHAREHOLDERS OF CCI PRIOR TO CONSUMMATION OF THE MERGER
The following table sets forth certain information regarding the
beneficial ownership of CCI Common Stock as of the Record Date, after giving
effect to the 40:1 split shares of CCI Common Stock which occurred in November
1997, as to (i) each person who is known by CCI to own beneficially 5% or more
of the outstanding shares of Common Stock, (ii) each Director of CCI, (iii) each
executive officer and (iv) all Directors and executive officers as a group.
Except as otherwise noted, CCI believes the persons listed below have sole
investment and voting power with respect to the CCI Common Stock that they are
deemed to beneficially own.
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------
SHARES APPROXIMATE
BENEFICIALLY PERCENTAGE
NAME AND ADDRESS OWNED(1) OWNED(1)
------------ -----------
<S> <C> <C>
Louise C. Gammell (2)............................................. 269,120 11.68%
1100 E. 400 S.
Springville, UT 84663
Kenneth L. and Carma C. Russell (3)............................... 215,600 9.36%
1869 East Michigan Avenue
Salt Lake City, UT 84108
William R. Clyde(4)............................................... 180,160 7.82%
2000 Canyon Road
Springville, UT 84663
INVO, L.C......................................................... 135,480 5.88%
2711 Sherwood Dr.
Salt Lake City, UT 84108
Carol C. Salisbury................................................ 122,360 5.31%
1423 Devonshire Drive
Salt Lake City, UT 84108
Richard C. and Patricia Clyde(5).................................. 115,200 5.00%
776 South 600 West
Orem, UT 84057
Paul B. Clyde(6).................................................. 72,320 3.14%
3308 N. 350 E.
Provo, UT 84601
Ila C. Cook....................................................... 0 *
2711 Sherwood Dr.
Salt Lake City, UT 84108
All Directors and executive officers as a group (6 people)........ 759,160 32.95%
</TABLE>
- ----------
* Less than 1%
(1) Applicable percentage of ownership is based on 2,303,920 shares of Common
Stock outstanding as of the Record Date, after giving effect to the 40:1
stock split in November 1997. Beneficial ownership is determined
28
<PAGE> 46
in accordance with the rules of the Securities and Exchange Commission (the
"Commission"), and includes voting and investment power with respect to
such shares.
(2) Includes 222,720 shares owned directly by Louise C. Gammell and 46,400
shares owned indirectly by Ms. Gammell as custodian for her son, John Scott
Gammell.
(3) Includes 54,400 shares owned directly by Carma C. Russell and 161,200
shares jointly owned by Kenneth L. and Carma C. Russell (husband and wife).
(4) Includes 1,080 shares owned indirectly by William R. Clyde through the
William R. Clyde Family Trust and 179,080 shares owned indirectly by Mr.
Clyde through the Reklaw & Co. Trust. Mr. Clyde does not own any shares of
CCI Common Stock directly.
(5) Includes 8,000 shares owned directly by Richard C. Clyde, 81,600 shares
jointly owned by Richard C. and Patricia Clyde (husband and wife), 12,800
shares owned indirectly by Richard C. Clyde through the Richard C. Clyde
Trust and 12,800 shares owned indirectly by Patricia Clyde through the
Patricia Clyde Trust.
(6) Includes 40,000 shares owned directly by Paul B. Clyde and 35,200 shares
jointly owned by Paul B. and Jeanette P. Clyde (husband and wife).
PRINCIPAL SHAREHOLDERS OF CCI UPON CONSUMMATION OF THE MERGER
The following table sets forth certain information regarding the
beneficial ownership of CCI Common Stock after giving effect to the Merger for
(i) each person who will own beneficially 5% or more of the outstanding shares
of CCI Common Stock, (ii) each person to become a Director of CCI, (iii) each
person to become an executive officer of CCI and (iv) all persons described in
clauses (ii) and (iii) above as a group. Except as otherwise noted, CCI believes
the persons listed below have sole investment and voting power with respect to
the CCI Common Stock that they are deemed to beneficially own.
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------
SHARES APPROXIMATE
BENEFICIALLY PERCENTAGE
NAME AND ADDRESS OWNED(1) OWNED(1)
------------ -----------
<S> <C> <C>
Louise C. Gammell (2)............................................. 369,492 5.33%
1100 E. 400 S.
Springville, UT 84663
Richard C. Clyde(3)............................................... 220,894 3.18%
776 South 600 West
Orem, UT 84057
Carol C. Salisbury(4)............................................. 215,989 3.11%
1423 Devonshire Drive
Salt Lake City, UT 84108
William R. Clyde(5)............................................... 192,585 2.78%
2000 Canyon Road
Springville, UT 84663
Wilford W. Clyde(6)............................................... 183,673 2.65%
1324 East 950 South
Springville, UT 84663
Paul B. Clyde(7).................................................. 178,004 2.57%
3308 N. 350 E.
Provo, UT 84601
</TABLE>
29
<PAGE> 47
<TABLE>
<S> <C> <C>
H. Michael Clyde.................................................. 22,946 *
4338 North 56th Street
Phoenix, Arizona 85018
Ila C. Cook(8).................................................... 17,399 *
2711 Sherwood Dr.
Salt Lake City, UT 84108
Tawna Clyde Smith................................................. 17,398 *
3223 Apache Lane
Provo, Utah 84604
Voting Committee(9)............................................... 2,303,920 33.20%
All Directors and executive officers of CCI as a
group (9 people)................................................ 1,418,380 20.44%
</TABLE>
- -----------
* Less than 1%
(1) Applicable percentage of ownership is based on 6,938,709 shares of CCI
Common Stock outstanding after giving effect to the Merger. Beneficial
ownership is determined in accordance with the rules of the Commission, and
includes voting and investment power with respect to such shares. The
conversion of shares of common stock of the Operating Companies into CCI
Common Stock will, in some instances, result in fractional shares of CCI
Common Stock. Fractional shares of CCI Common Stock will not be issued. In
lieu of fractional shares, shareholders of Clyde, Geneva Rock, Utah Service
and Beehive Insurance will receive cash equal to the product of such
fraction multiplied by $14.52. See "The Merger Agreement -- Conversion of
Shares".
(2) Includes 317,603 shares owned directly by Louise C. Gammell, 46,400 shares
owned indirectly by Ms. Gammell as custodian for her son, John Scott
Gammell, 3,757 shares owned directly by Ms. Gammell's husband, Blake
Gammell, and 1,732 shares owned jointly by Blake and Louise C. Gammell.
(3) Includes 69,965 shares owned directly by Richard C. Clyde, 112,985 shares
jointly owned by Richard C. and Patricia Clyde (husband and wife), 17,933
shares owned indirectly by Richard C. Clyde through Richard C. Clyde Trust
and 20,011 shares owned indirectly by Patricia Clyde through the Patricia
Clyde Trust.
(4) Includes 207,506 shares owned directly by Carol C. Salisbury and 8,483
shares owned directly by her husband, David E. Salisbury.
(5) Includes 608 shares owned directly by William R. Clyde, 9,915 shares owned
indirectly by Mr. Clyde through the William R. Clyde Family Trust and
182,062 shares owned indirectly by Mr. Clyde through the Reklaw & Co.
Trust.
(6) Includes 120,640 shares owned directly by Wilford W. Clyde and 63,033
shares owned jointly by Wilford W. and Natalie Clyde (husband and wife).
(7) Includes 112,091 shares owned directly by Paul B. Clyde and 65,913 shares
jointly owned by Paul B. and Jeanette P. Clyde (husband and wife).
(8) Includes 479 shares owned directly by Ila C. Cook, 11,318 shares owned
indirectly by Ila C. Cook through the Ila C. Cook Family Trust and 5,602
shares owned indirectly by Ms. Cook's husband, Vernon O. Cook, through the
Vernon O. Cook Family Trust.
(9) Pursuant to the Voting Agreement among the Original CCI Shareholders, each
Original CCI Shareholder has granted to the Voting Committee the right to
vote such shares on each matter to be voted upon by the shareholders of
CCI. See "Clyde Companies, Inc. -- Voting Agreement."
SELECTED FINANCIAL INFORMATION FOR CCI
The following selected statement of earnings and balance sheet data as
of and for each of the years in the two year period ended December 31, 1995 are
derived from the financial statements of CCI which are unaudited.
30
<PAGE> 48
The financial statements as of and for the year ended December 31, 1996 have
been audited by Grant Thornton. The selected statement of earnings data for the
nine month period ended September 30, 1997 and 1996 are unaudited, but, in the
opinion of management, the unaudited financial statements reflect all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the information included therein. The financial data for CCI
should be read in conjunction with the Financial Statements and Notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations of CCI" included elsewhere herein. The results for the nine month
period ended September 30, 1997 are not necessarily indicative of results that
may be expected for the full year.
<TABLE>
<CAPTION>
Nine months ended
September 30, Year ended December 31,
---------------------- ----------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- ----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of earnings data:
Revenue $ 93 $ 47 $ 404 $ 530 $ 508 $ 492 $ 461
General and administrative 5 5 6 7 8 7 7
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income 88 42 398 523 500 485 454
Other income (expense), net 2,109 2,669 2,504 3,414 2,472 2,153 1,878
Income taxes 789 998 967 1,321 963 998 755
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings $ 1,408 $ 1,713 $ 1,935 $ 2,616 $ 2,009 $ 1,640 $ 1,577
========== ========= ========== ========== ========== ========== ==========
Earnings per common share(1) $ 0.61 $ 0.74 $ 0.84 $ 1.14 $ 0.87 $ 0.71 $ 0.68
Weighted average shares outstanding(1) 2,303,920 2,303,920 2,303,920 2,303,920 2,303,920 2,303,920 2,303,920
Balance sheet data (at period end):
Current assets $ 124 $ 31 $ 40 $ 39 $ 39 $ 39
Current liabilities - 5 20 19 16 16
Total assets 27,270 25,088 22,593 19,180 16,725 14,574
Total liabilities 9,932 9,158 8,240 6,949 6,047 5,092
Stockholders' equity 17,338 15,930 14,353 12,213 10,678 9,482
</TABLE>
- ----------
(1) Earnings per common share are based upon the weighted average number of
common shares outstanding during the period presented after giving
retroactive effect to all periods presented for the subsequent 40:1 stock
split effected November 13, 1997.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF CCI
CCI is a holding company for shares of stock of Clyde, Geneva Rock, Utah
Service and Beehive Insurance and it has no operations of its own. Its assets
consist solely of cash and shares of common stock of Clyde (31,935 shares or
33.78% of the outstanding shares), Geneva Rock (4,725 shares or 21.67% of the
outstanding shares), Utah Service (1,698 shares or 31.37% of the outstanding
shares), and Beehive Insurance (3,700 shares or 17.22% of the outstanding
shares). CCI's income consists of the dividends it receives from such companies,
and the interest it receives on its cash deposits. All cash held by CCI, other
than an amount of cash sufficient to pay for the expenses of the Merger and to
allow CCI to satisfy its tax obligations upon the consummation of the Merger,
will be distributed as a dividend to its shareholders prior to the consummation
of the Merger. It is anticipated that upon the
31
<PAGE> 49
consummation of the Merger, CCI will continue to be a holding company with no
operations of its own, and that business operations will be conducted by its
wholly owned subsidiaries, Clyde, Geneva Rock, Utah Service and Beehive
Insurance. Based on the September 30, 1997 pro-forma financial statements,
management believes the consolidated company will have adequate cash and cash
equivalents to meet CCI's capital needs in the foreseeable future.
32
<PAGE> 50
CCI PRO FORMA COMBINED FINANCIAL INFORMATION (UNAUDITED)
The following unaudited pro forma combined financial information gives
pro forma effect to the Merger, giving effect to the pro forma adjustments
described in "Notes to Unaudited Pro Forma Combined Financial Statements" below.
The Pro Forma Combined Financial Information and related notes are provided for
informational purposes only. The CCI Unaudited Pro Forma Combined Balance Sheet
and the CCI Unaudited Pro Forma Combined Statements of Earnings included below
are not necessarily indicative of the financial position or results that would
have occurred had the events referred to above been consummated on the dates for
which the consummation of such events is being given effect, nor is it
necessarily indicative of the future financial position or results of the
proposed entity. The Pro Forma Financial Information should be read in
conjunction with the historical consolidated financial statements of CCI, Clyde,
Geneva Rock, Utah Service and Beehive Insurance, and the related notes thereto,
which are included elsewhere in this Proxy Statement/Prospectus. See "Index to
Financial Statements."
33
<PAGE> 51
CCI Unaudited Pro Forma Combined Balance Sheet
September 30, 1997
(In thousands)
<TABLE>
<CAPTION>
Geneva Utah Beehive Eliminating Final
CCI Clyde Rock Service Insurance Combined Entries Combined
--------- --------- --------- --------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 108 $ 2,251 $ 5,245 $ 666 $ 539 $ 8,809 $ -- $ 8,809
Interest bearing deposits in banks -- 8,430 -- -- -- 8,430 -- 8,430
Receivables -- 3,598 28,875 1,385 299 34,157 (776)(2) 33,381
Costs and estimated earnings in
excess of billings, contracts in
progress -- 1,608 -- -- -- 1,608 -- 1,608
Inventories -- 199 7,759 1,478 -- 9,436 -- 9,436
Other current assets 16 201 234 10 2 463 -- 463
--------- --------- --------- --------- --------- --------- --------- ---------
Current assets 124 16,287 42,113 3,539 840 62,903 -- 62,127
Property, plant, and equipment, net -- 8,578 39,742 1,211 59 49,590 -- 49,590
Investments - affiliates 27,146 22,366 -- -- -- 49,512 (49,512)(1) -
Intangible assets -- -- 2,229 -- -- 2,229 -- 2,229
Other assets -- -- 514 65 46 625 -- 625
--------- --------- --------- --------- --------- --------- --------- ---------
$ 27,270 $ 47,231 $ 84,598 $ 4,815 $ 945 $ 164,859 $ (50,288) $ 114,571
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
34
<PAGE> 52
CCI Unaudited Pro Forma Combined Balance Sheet - Continued
September 30, 1997
(In thousands)
<TABLE>
<CAPTION>
Geneva Utah Beehive Eliminating Final
CCI Clyde Rock Service Insurance Combined Entries Combined
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES
Current maturities of long-term
obligations $ -- $ -- $ 721 $ 82 $ -- $ 803 $ -- $ 803
Accounts payable -- 663 6,214 620 2 7,499 (776)(2) 6,723
Billings in excess of costs and
estimated earnings on
contracts in progress -- 96 -- -- -- 96 -- 96
Income taxes payable -- -- 860 -- 4 864 (7)(1) 857
Accrued liabilities -- 367 2,118 124 464 3,073 -- 3,073
--------- --------- --------- --------- --------- --------- --------- ---------
Current liabilities -- 1,126 9,913 826 470 12,335 (783) 11,552
Long-term obligations -- -- 7,745 -- -- 7,745 -- 7,745
Accrued pension expense -- 224 168 132 -- 524 -- 524
Deferred income taxes 9,932 9,664 2,448 -- -- 22,044 (18,313)(1) 3,731
--------- --------- --------- --------- --------- --------- --------- ---------
9,932 9,888 10,361 132 -- 30,313 (18,313) 12,000
EQUITY
Common stock, at par 707 1,000 218 54 21 2,000 27 (1)(4) 2,027
Less: treasury stock -- (538) -- -- -- (538) 538 (1)(4) -
Additional paid-in capital -- -- 29 533 3 565 (565)(1)(4) -
Retained earnings 16,631 35,895 64,077 3,353 451 120,407 (31,192)(1)(4) 89,215
Additional pension cost -- (140) -- (83) -- (223) -- (223)
--------- --------- --------- --------- --------- --------- --------- ---------
17,338 36,217 64,324 3,857 475 122,211 (31,192) 91,019
--------- --------- --------- --------- --------- --------- --------- ---------
$ 27,270 $ 47,231 $ 84,598 $ 4,815 $ 945 $ 164,859 $ (50,288) $ 114,571
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
35
<PAGE> 53
CCI Unaudited Pro Forma Combined Statement of Earnings
Nine Months Ended September 30, 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
Geneva Utah Beehive Eliminating Final
CCI Clyde Rock Service Insurance Combined Entries Combined
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues $ 93 $ 9,696 $ 94,736 $ 9,258 $ 523 $ 114,306 $ (1,453)(3) $ 112,853
Cost of goods sold -- 9,453 79,560 7,590 -- 96,603 (1,360)(3) 92,543
---------- --------- ---------- --------- ---------- ---------- ---------- ----------
Gross margin 93 243 15,176 1,668 523 17,703 (93) 17,610
General and administrative expenses 5 1,107 4,143 1,168 217 6,640 -- 6,640
---------- --------- ---------- --------- ---------- ---------- ---------- ----------
Earnings from operations 88 (864) 11,033 500 306 11,063 (93) 10,970
Other income (expense)
Income from long-term
investment -- -- -- -- -- -- -- --
Interest income, net 1 386 -- (8) 19 398 -- 398
Equity in net earnings of
affiliate 2,089 2,484 -- -- -- 4,573 (4,753)(1) --
Other, net 19 289 255 79 -- 642 -- 642
---------- --------- ---------- --------- ---------- ---------- ---------- ----------
2,109 3,159 255 71 19 5,613 (4,753) 1,040
---------- --------- ---------- --------- ---------- ---------- ---------- ----------
Earnings before income taxes 2,197 2,295 11,288 571 325 16,676 (4,666) 12,010
Income taxes 789 858 4,143 213 121 6,124 (1,773)(1) 4,351
---------- --------- ---------- --------- ---------- ---------- ---------- ----------
Net earnings $ 1,408 $ 1,437 $ 7,145 $ 358 $ 204 $ 10,552 $ (2,893) $ 7,659
========== ========= ========== ========= ========== ========== ========== ==========
Earnings per share $ 0.61 $ 15.20 $ 327.72 $ 66.20 $ 9.49
========== ========= ========== ========= ==========
Weighted average shares
outstanding 2,303,920 94,544 21,802 5,413 21,487
========== ========= ========== ========= ==========
</TABLE>
36
<PAGE> 54
CCI Unaudited Pro Forma Combined Statement of Earnings
Year Ended December 31, 1996
(In thousands, except per share data)
<TABLE>
<CAPTION>
Geneva Utah Beehive
CCI Clyde Rock Service Insurance
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 404 $ 19,056 $ 116,349 $ 13,108 $ 578
Cost of goods sold -- 17,116 98,908 10,915 --
---------- ---------- ---------- ---------- ----------
Gross margin 404 1,940 17,441 2,193 578
General and administrative expenses 6 1,443 4,979 1,628 244
---------- ---------- ---------- ---------- ----------
Earnings from operations 398 497 12,462 565 334
Other income (expense)
Income from long-term
investment -- -- 29 -- --
Interest income, net 1 641 -- (28) 24
Equity in net earnings of
affiliate 2,503 2,932 -- -- --
Other, net -- 127 752 142 5
---------- ---------- ---------- ---------- ----------
2,504 3,700 781 114 29
---------- ---------- ---------- ---------- ----------
Earnings before income taxes 2,902 4,197 13,243 679 363
---------- ---------- ---------- ---------- ----------
Income taxes 967 1,510 4,809 258 129
---------- ---------- ---------- ---------- ----------
Net earnings $ 1,935 $ 2,687 $ 8,434 $ 421 $ 234
========== ========== ========== ========== ==========
Earnings per share $ 0.84 $ 28.42 $ 386.85 $ 77.78 $ 10.88
========== ========== ========== ========== ==========
Weighted average shares outstanding 2,303,920 94,544 21,802 5,413 21,487
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Eliminating Final
Combined Entries Combined
---------- ----------- ----------
<S> <C> <C> <C>
Operating revenues $ 149,495 $ (2,192)(3) $ 147,303
Cost of goods sold 126,939 (1,788)(3) 125,151
---------- ---------- ----------
Gross margin 22,556 (404) 22,152
General and administrative expenses 8,300 -- 8,300
---------- ---------- ----------
Earnings from operations 14,256 (404) 13,852
Other income (expense)
Income from long-term
investment 29 -- 29
Interest income, net 638 -- 638
Equity in net earnings of
affiliate 5,435 (5,435)(1) --
Other, net 1,026 -- 1,026
---------- ---------- ----------
7,128 (5,435) 1,693
---------- ---------- ----------
Earnings before income taxes 21,384 (5,839) 15,545
---------- ---------- ----------
Income taxes 7,673 (2,006)(1) 5,667
---------- ---------- ----------
Net earnings $ 13,711 $ (3,833) $ 9,878
========== ========== ==========
Earnings per share
Weighted average shares outstanding
</TABLE>
37
<PAGE> 55
CCI Unaudited Pro Forma Combined Statement of Earnings
Year Ended December 31, 1995
(In thousands, except per share data)
<TABLE>
<CAPTION>
Geneva Utah Beehive
CCI Clyde Rock Service Insurance
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 530 $ 21,325 $ 100,422 $ 13,580 $ 538
Cost of goods sold -- 18,199 80,811 11,633 --
---------- ---------- ---------- ---------- ----------
Gross margin 530 3,126 19,611 1,947 538
General and administrative expenses 7 1,255 3,173 1,498 357
---------- ---------- ---------- ---------- ----------
Earnings from operations 523 1,871 16,438 449 181
Other income (expense)
Income from long-term investment -- -- 52 -- --
Interest income, net 1 697 -- (22) 33
Equity in net earnings of
affiliate 3,413 3,817 -- -- --
Other, net -- 282 866 123 5
---------- ---------- ---------- ---------- ----------
3,414 4,796 918 101 38
---------- ---------- ---------- ---------- ----------
Earnings before income
taxes 3,937 6,667 17,356 550 219
Income taxes 1,321 2,431 6,378 199 88
---------- ---------- ---------- ---------- ----------
Net earnings $ 2,616 $ 4,236 $ 10,978 $ 351 $ 131
========== ========== ========== ========== ==========
Earnings per share $ 1.14 $ 44.81 $ 503.54 $ 64.77 $ 6.10
========== ========== ========== ========== ==========
Weighted average shares outstanding 2,303,920 94,544 21,802 5,413 21,487
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Eliminating Final
Combined Entries Combined
---------- ----------- ----------
<S> <C> <C> <C>
Operating revenues $ 136,395 $ (3,442)(3) $ 132,953
Cost of goods sold 110,643 (2,912)(3) 107,731
---------- ---------- ----------
Gross margin 25,752 (530) 25,222
General and administrative expenses 6,290 -- 6,290
---------- ---------- ----------
Earnings from operations 19,462 (530) 18,932
Other income (expense)
Income from long-term investment 52 -- 52
Interest income, net 709 -- 709
Equity in net earnings of
affiliate 7,230 (7,230)(1) --
Other, net 1,276 -- 1,276
---------- ---------- ----------
9,267 (7,230) 2,037
---------- ---------- ----------
Earnings before income
taxes 28,729 (7,760) 20,969
Income taxes 10,417 (2,689)(1) 7,728
---------- ---------- ----------
Net earnings $ 18,312 $ (5,071) $ 13,241
========== ========== ==========
Earnings per share
Weighted average shares outstanding
</TABLE>
38
<PAGE> 56
CCI Unaudited Pro Forma Combined Statement of Earnings
Year Ended December 31, 1994
(In thousands, except per share data)
<TABLE>
<CAPTION>
Geneva Utah Beehive
CCI Clyde Rock Service Insurance
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 508 $ 20,222 $ 80,526 $ 10,690 $ 598
Cost of goods sold -- 18,590 65,205 9,159 --
---------- ---------- ---------- ---------- ----------
Gross margin 508 1,632 15,321 1,531 598
General and administrative expenses 8 1,321 2,655 915 254
---------- ---------- ---------- ---------- ----------
Earnings from
operations 500 311 12,666 616 344
Other income (expense)
Income from long-term
investment -- -- 47 -- --
Interest income, net 2 546 -- -- 23
Equity in net earnings of
affiliate 2,455 3,061 -- -- --
Other, net 15 116 1,154 95 4
---------- ---------- ---------- ---------- ----------
2,472 3,723 1,201 95 27
---------- ---------- ---------- ---------- ----------
Earnings before income
taxes 2,972 4,034 13,867 711 371
Income taxes 963 1,449 5,062 265 129
---------- ---------- ---------- ---------- ----------
Net earnings $ 2,009 $ 2,585 $ 8,805 $ 446 $ 242
========== ========== ========== ========== ==========
Earnings per share $ 0.87 $ 27.34 $ 403.85 $ 89.18 $ 11.26
========== ========== ========== ========== ==========
Weighted average shares outstanding 2,303,920 94,544 21,802 5,000 21,487
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Eliminating Final
Combined Entries Combined
---------- ----------- ----------
<S> <C> <C> <C>
Operating revenues $ 112,544 $ (2,246)(3) $ 110,298
Cost of goods sold 92,954 (1,738)(3) 91,216
---------- ---------- ----------
Gross margin 19,590 (508) 19,082
General and administrative expenses 5,153 -- 5,153
---------- ---------- ----------
Earnings from
operations 14,437 (508) 13,929
Other income (expense)
Income from long-term
investment 47 47
Interest income, net 571 -- 571
Equity in net earnings of
affiliate 5,516 (5,516)(1) --
Other, net 1,384 -- 1,384
---------- ---------- ----------
7,518 (5,516) 2,002
---------- ---------- ----------
Earnings before income
taxes 21,955 (6,024) 15,931
Income taxes 7,868 (2,164)(1) 5,704
---------- ---------- ----------
Net earnings $ 14,087 $ (3,860) $ 10,227
========== ========== ==========
Earnings per share
Weighted average shares outstanding
</TABLE>
Notes to Unaudited Pro Forma Combined Financial Statements
1. Represents the elimination of Clyde's investment in Geneva Rock and the
elimination of CCI's investment in Clyde (33.78%), Geneva Rock (21.67%),
Utah Service (31.37%) and Beehive Insurance (17.22%), including related
deferred income taxes.
2. Represents the elimination of affiliate receivables/payables.
3. Represents the elimination of affiliate revenue/expenses.
4. Represents the recapitalization of CCI incorporating the change from $10
par value common stock to no par common stock.
39
<PAGE> 57
CLYDE
BACKGROUND
Clyde was founded in approximately 1926 by W. W. Clyde and was
incorporated in Utah in 1933. Since that time, Clyde has been involved in the
construction of interstate highways, bridges, dams, airports, mines, golf
courses, environmental reclamation projects, large site work/site preparation,
and other types of large construction projects in the Intermountain region
requiring massive earth moving and professional management. Clyde has completed
more than $400 million of construction projects throughout the Intermountain
West.
SERVICES AND MARKET
Examples of recent projects completed by Clyde include a $6.7 million
contract for the Wolf Creek Forest Road in Wasatch County; a $2.4 million
contract for the reconstruction of the Brown's Park Road in Daggett County,
including grading, drainage and paving; a $8.5 million contract for the South
Mountain Planned Community in Draper, Utah, including the construction of the
four lane Highland Drive highway extension, 18 hole golf course, all site storm
drainage, 1,000,000 gallon water storage tank, residential roads, ball fields,
and amphitheater; a $5 million contract for grading a pipeline corridor at
Kennecott Copper; and the construction of a $2.8 million hazardous waste cell at
the Laidlaw Environmental Grassy Mountain Facility.
Other projects in which Clyde is currently involved include a $10.3
million contract for environmental reclamation and site service work at Bingham
Canyon Mine for Kennecott Copper; a $3.2 million contract for the Eagle Mountain
Planned Community in Cedar Valley, Utah, including construction of Eagle
Mountain Boulevard, a concrete water tank and related water system, and the
Waste Water Lagoons; a $2 million contract for construction of the access road,
and phases 1 and 2 residential areas of the Sun River Ranch Planned Community
Project at Bloomington, Utah; a $1 million contract for the reconstruction of
the Holmes Irrigation Dam in Layton, Utah; a $1.2 million contract for closure
of cells 1, 2 and Y at Laidlaw Environmental Grassy Mountain Facility; and a
$1.6 million contract for a grading, drainage and paving project for UDOT in
Grand County, Utah.
Clyde has clients in both the public and private sector, including the
Federal Highway Administration, UDOT, the U.S. Bureau of Reclamation, Laidlaw
Environmental Co., Utah Power & Light (Pacificorp), Kennecott Corporation, the
Wyoming Department of Transportation, Brush Wellman, Burns McDonnell, and many
others. In 1995, the revenue mix between the public and private sectors was
approximately 30% public and 70% private; however, this mix can change
significantly from year to year. For example, public projects for UDOT generated
between 70% and 80% of Clyde's total revenue during the mid-1980s. Clyde
performs construction work throughout the Intermountain Area, primarily in Utah,
Wyoming, Arizona, and Nevada. Most of the projects that Clyde bids on are
competitive bid projects.
Clyde has historically been most successful in bidding and working on
projects in the $15 million to $30 million range, which require the moving of
large amounts of dirt, such as the Jordanelle Highway Relocation Project
completed in 1992. With the completion of construction of the federal Interstate
Highway System in 1992, which provided a large volume of this type of work,
Clyde and the industry in general has seen a significant decline in large earth
work contracts. The market in Utah and surrounding states for highway work has
changed from building new roads to refurbishing existing roads. The most recent
trend in Utah is to enter into design/build contracts, as exhibited by Utah's
massive Interstate 15 ("I-15") re-construction project currently underway in
Salt Lake County. This single contract worth $1.5 billion has drastically
changed the road construction market in Utah. In the past, UDOT would have
divided a project of this magnitude into ten to fifteen smaller projects. Clyde
participated in the bidding process earlier this year for the I-15
re-construction project as a team member on one of the three teams competing for
this project. The Clyde team was not successful in obtaining this work, but
Clyde intends to bid on future UDOT projects.
In addition to bidding on design/build projects, Clyde has moved into
private sector projects, which generally provide better margins than public
projects. In the mid-1980s Clyde's work on projects for the transportation
departments of Utah, Wyoming and Idaho accounted for approximately 70% to 80% of
Clyde's
40
<PAGE> 58
revenues. In 1996, however, these projects accounted for approximately 10% of
Clyde's revenues. The private sector requires more marketing activities,
including early and constant contact and involvement with prospective customers.
Clyde has focused on securing work in the private sector by working with
private-sector customers during the design stage and providing constant input.
Clyde is currently working with owners whose projects are still one to two years
away from commencement. Most of these projects involve residential sub-division
and planned community development. Clyde has also focused on securing repeat
private-sector customers by developing relationships with customers throughout
the construction project. Quality, safety and performance all play an important
part in getting repeat work from the customer.
RAW MATERIALS, EQUIPMENT AND SUPPLIERS
Raw materials and components necessary for the rendering of Clyde's
construction projects are generally available from a variety of sources. Clyde
purchases most of its concrete and other materials used for construction
projects from Geneva Rock, in which Clyde owns a 34.77% equity interest before
giving effect to the Merger. Clyde also produces a limited supply of its own
aggregates through thirteen portable crushers, two asphalt plants and three
concrete batch plants, that can be moved throughout the region to supply Clyde's
needs when local commercial sources are unavailable.
INDUSTRY AND COMPETITION
Clyde's primary competitors are Gibbons & Reed, Gilbert Western,
LeGrande Johnson, Harpers Excavating and Ames Construction, some of which are
larger and have greater capital resources than Clyde. Since these firms are
similar in terms of performing high quality work, bid awards are usually granted
to the low cost bidder. Other factors influencing competitiveness include
reputation for quality, the availability of materials, machinery and equipment,
financial strength, knowledge of the local markets and conditions and estimating
abilities. Clyde believes that its competitive strengths include its excellent
reputation as a heavy contractor which has been in business for over 60 years;
its financial strength; its large, modern equipment fleet; its experienced and
dedicated employee base (field and office supervisors average over 20 years of
experience); its excellent safety record; and its commitment to quality work and
environmental sensitivity. Based on these factors, Clyde believes that it is
well positioned to compete effectively. There can be no assurance, however, that
Clyde will compete effectively.
SEASONALITY OF CLYDE BUSINESS
Clyde's business is seasonal, slowing down significantly during the
winter months due to adverse weather conditions. Historically, Clyde has
experienced a major curtailment in the amount and types of construction work
that can be accomplished in the months of December, January and February due to
the extreme temperatures and the frost in the ground.
REGULATION AND INSURANCE
Clyde's operations are subject to compliance with the regulatory
requirements of federal, state and county agencies and authorities, including
regulations covering safety, labor relations, affirmative action, and the
protection of the environment.
Clyde maintains a full time safety director, to assure its compliance
with all safety regulations and performs monthly safety audits on each of its
projects to assure that it is meeting the safety requirements of the project. As
of September 30, 1997, approximately 80 Clyde employees have received at least
40 hours of hazardous materials training as required by OSHA. All of Clyde's
employees are covered by workers compensation insurance. Because of Clyde's
focus on safety, it enjoys competitive insurance rates. Clyde also carries
general, auto and pollution liability insurance for all operations. Management
believes that each of these insurance policies have limits which are equal to or
greater than the industry norm.
Clyde maintains an affirmative action program and policy for assuring
equal opportunity in the workplace, which program has passed the periodic
reviews of state and federal regulatory agencies. Clyde also holds air quality
41
<PAGE> 59
permits for its general operations and its asphalt plants and periodically
undergoes independent, pollution control testing and certification of its
facilities in accordance with applicable environmental regulations.
Clyde management believes that Clyde currently has all material
licenses, permits and approvals necessary for its current operations and is in
material compliance with all applicable government regulations.
EMPLOYEES
At August 31, 1997, Clyde had a total of 173 employees. This number
varies substantially depending on workload and seasonality, increasing to over
200 at times during the summer, but averaging between 50 and 60 during the
winter months. Clyde has contracts with several unions, including the Operating
Engineers Union, the Teamsters Union, the Laborers Union, the Cement Masons
Union and the Carpenters Union. These labor agreements were re-negotiated during
the summer of 1997 and run through June 30, 2000. All of these contracts contain
"no strike" provisions and enable Clyde to obtain trained workers to meet any
schedule that may be required. Clyde considers its relationship with its
employees to be generally good.
CUSTOMERS
Because of the large size of Clyde's infrastructure projects, a
relatively small number of projects may provide a significant percentage of the
Clyde's revenue in a given year. Kennecott Copper accounted for approximately
38% of Clyde's total 1996 revenues, approximately 33% of total 1995 revenues and
approximately 32% of total revenues over the last seven years. The loss of
Kennecott Copper's business could have a material adverse effect on Clyde.
BACKLOG
Backlog of work as of December 31, 1996 was an estimated $827,998
compared to $3,055,458 as of December 31, 1995. The decline in the 1996 backlog
was attributable to a curtailment in work under Clyde's service contract with
Kennecott Copper and the softening in the Utah housing market, which delayed
projects that were intended to be started during the fourth quarter of 1996, but
that did not materialize until the second quarter of 1997. These delays resulted
in the lower backlog, as well as a decline in construction revenues during 1996.
Kennecott Copper's cut back on Clyde's service contract work in 1996 was due to
problems with Kennecott Copper's new smelter. Work on this project did not begin
to pick up until late summer of 1997. Backlog of work began showing improvement
by August 1997. Clyde's estimate of backlog construction contracts as of
September 30, 1997 is $8,356,000.
PROPERTIES
Clyde owns approximately 10.8 acres of land located at 1375 North Main
Street, Springville, Utah, which includes one office building, an equipment
shed, repair shop and warehouse. Clyde also owns an approximately 20 acre parcel
of land located at 1455 North Main Street, Springville, Utah, which is used to
store Clyde equipment, and an approximately 18 acre parcel of land located at
2600 North 300 West, Lehi, Utah, which is currently being developed into
residential building lots.
EQUIPMENT
Clyde purchases and maintains a large fleet of construction equipment,
including bulldozers, scrapers, graders, loaders, trucks, pavers, rollers and
construction materials processing equipment. As of September 30, 1997, Clyde's
fleet included 21 crawler tractors, 15 rubber tired scrapers, 16 rubber tired
front end loaders, 10 off highway end dump trucks, 11 motor graders, 12
hydraulic track hoes, 30 belly dump semi trucks, 12 - 4,000 gallon water trucks,
3 - 10,000 gallon water trucks, 10 vibrating rollers and 4 asphalt pavers.
Clyde generally replaces and replenishes its equipment from revenues
generated from operations. As of September 30, 1997, Clyde did not have any
long-term debt. Purchases of equipment amounted to $2,220,046 in 1996 and
$4,551,214 in 1995. Clyde believes that owning most of its own equipment assures
it of the availability of
42
<PAGE> 60
equipment when needed, thereby making Clyde more competitive. Clyde does rent or
lease equipment to meet high demand periods or to acquire the use of specialty
equipment. Clyde maintains a 27,000 square foot maintenance shop, with the
ability to completely rebuild or overhaul any of its equipment to assure
availability on the job-site.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which Clyde is a
party. From time to time, Clyde becomes involved in ordinary, routine or
regulatory legal proceedings incidental to the business of Clyde.
MARKET PRICE OF AND DIVIDENDS ON CLYDE COMMON STOCK
There is no public trading market for Clyde Common Stock. The
approximate number of shareholders of record on September 30, 1997 was 98.
In 1995, Clyde paid cash dividends of $10.00 per share of Clyde Common
Stock to shareholders. In 1996, Clyde paid cash dividends of $6.00 per share of
Clyde Common Stock to shareholders. In 1997, Clyde paid cash dividends of $8.00
per share of Clyde Common Stock to shareholders. After the Merger, dividends
will be paid by CCI in such amounts and at such times as the CCI Board of
Directors deems to be appropriate based on the results of operations, financial
condition and liquidity needs of CCI. The amount, type and frequency of
dividends paid by CCI to its shareholders will not be equivalent to the amount,
type and frequency of dividends paid by Clyde prior to the Merger. See
"Summary--Selected Financial Information--Comparative Per Share Data".
CLYDE MANAGEMENT
DIRECTORS
The names and ages of Clyde's Directors are currently as follows:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION(S) WITH CLYDE SINCE
- ---- --- ---------------------- --------
<S> <C> <C> <C>
Richard C. Clyde .......... 62 Director, President and General Manager 1970
Paul B. Clyde ............. 56 Director, Vice President of Construction 1971
Norman D. Clyde............ 67 Director 1961
Wilford W. Clyde .......... 44 Director 1994
William R. Clyde .......... 79 Director 1955
Steven L. Clyde ........... 42 Director, Project Superintendent 1986
Jeffrey R. Clyde .......... 37 Director, Contracts Manager 1994
David E. Salisbury......... 70 Director 1961
</TABLE>
For a description of the business backgrounds of Richard C. Clyde, Paul
B. Clyde, and William R. Clyde, see "Clyde Companies, Inc. -- CCI Management
Prior to Consummation of the Merger," and of Wilford W. Clyde, see "Clyde
Companies, Inc. -- CCI Management Upon Consummation of the Merger."
Norman D. Clyde has been a director since 1961. Mr. Clyde retired from
management of Clyde in 1996, after working over forty years for Clyde. Mr. Clyde
graduated from the University of Utah. Mr. Clyde also serves on the Boards of
Directors of Beehive, Geneva Rock and Utah Service. Norman D. Clyde is the
brother of Hal M. Clyde, who is currently a director of Utah Service and Beehive
Insurance; the father of Tawna Clyde Smith, who will be a director of CCI upon
consummation of the Merger; and an uncle of H. Michael Clyde, who will be a
director of CCI upon consummation of the Merger.
Steven L. Clyde has been a director since 1986. Mr. Clyde graduated from
Brigham Young University. He began working for Clyde in 1981 and is currently
employed as a Project Superintendent of Clyde. Steven L. Clyde is the son of
William R. Clyde; and a nephew of Ila C. Cook, Louise C. Gammell and Carol C.
Salisbury.
43
<PAGE> 61
Jeffrey R. Clyde has been a director since 1994. Mr. Clyde graduate of
Arizona State University. He began working for Clyde in 1986 and is currently
employed as Contracts Manager of Clyde. Jeffrey R. Clyde is the son of Richard
C. Clyde.
David E. Salisbury has been a director since 1961. Mr. Salisbury is a
senior member and past President of the law firm of Van Cott, Bagley, Cornwall &
McCarthy where he has been an attorney for over 45 years. Mr. Salisbury received
a B.S. degree from the University of Utah and a J.D. degree from Stanford
University. David E. Salisbury is the husband of Carol C. Salisbury, who is
currently the President and a director of CCI, and the Secretary, Treasurer and
a director of Beehive Insurance.
EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The names, ages and positions of Clyde's executive officers and
significant employees are currently as follows:
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION(S) WITH CLYDE SINCE
- ---- --- ------------------------------ -----
<S> <C> <C> <C>
Richard C. Clyde....................... 62 President and General Manager 1986
Paul B. Clyde.......................... 56 Vice President of Construction 1992
Keith M. Nelson........................ 37 Secretary and Treasurer 1991
Jeffrey R. Clyde....................... 38 Contracts Manager 1996
Steven L. Clyde........................ 42 Project Superintendent 1990
</TABLE>
For a description of the business backgrounds of Richard C. Clyde and
Paul B. Clyde, see "Clyde Companies, Inc. -- CCI Management Prior to
Consummation of the Merger," and of Jeffrey R. Clyde and Steven L. Clyde, see
"Clyde--Clyde Management--Directors".
Keith M. Nelson has worked for Clyde since 1985 and is currently Office
Manager. He has served as Secretary and Treasurer of Clyde since 1991. He
graduated from Brigham Young University and is a Certified Management
Accountant.
COMMITTEES OF CLYDE BOARD
The Board of Directors of Clyde currently has no committee and no plans
to establish any committee.
ATTENDANCE AT CLYDE BOARD MEETINGS
As of the date hereof, the Board of Directors met two times in 1997, and
no director attended fewer than 75% of these meetings, except Norman Clyde who
is currently on a leave of absence for church service for a period of
approximately three years.
COMPENSATION OF DIRECTORS OF CLYDE
Non-employee directors of Clyde receive an annual cash compensation of
$1,500 for serving on the Board of Directors of Clyde.
PRINCIPAL SHAREHOLDERS OF CLYDE
The following table sets forth certain information regarding the
beneficial ownership of Clyde Common Stock as of the Record Date as to (i) each
person who is known by Clyde to own beneficially 5% or more of the outstanding
shares of Common Stock, (ii) each Director of Clyde, (iii) each executive
officer and (iv) all Directors and executive officers as a group. Except as
otherwise noted, Clyde believes the persons listed below have sole investment
and voting power with respect to the Clyde Common Stock that they are deemed to
beneficially own.
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<TABLE>
<CAPTION>
COMMON STOCK
----------------------------
SHARES APPROXIMATE
BENEFICIALLY PERCENTAGE
OWNED(1) OWNED(1)
------------ -----------
<S> <C> <C>
Richard C. Clyde(2)..................................................... 34,535 36.53%
776 South 600 West
Orem, UT 84057
David E. and Carol C. Salisbury(3)...................................... 34,275 36.25%
1423 Devonshire Drive
Salt Lake City, UT 84108
Louise C. Gammell (4)................................................... 34,255 36.23%
1100 E. 400 S.
Springville, UT 84663
Paul B. Clyde(5)........................................................ 33,660 35.60%
3308 N. 350 E.
Provo, UT 84601
William R. Clyde(6)..................................................... 32,040 33.89%
2000 Canyon Road
Springville, UT 84663
Clyde Companies, Inc.................................................... 31,935 33.78%
1423 Devonshire Drive
Salt Lake City, UT 84108
Ila C. Cook(7).......................................................... 31,935 33.78%
2711 Sherwood Dr.
Salt Lake City, UT 84108
Norman D. Clyde(8)...................................................... 3,150 3.33%
3223 Apache Lane
Provo, UT 84604
Wilford W. Clyde(9)..................................................... 1,675 1.77%
1324 East 950 South
Springville, UT 84663
Steven L. Clyde(10)..................................................... 1,035 1.09%
8604 South Woodland Hills Drive
Spanish Fork, UT 84660
Jeffrey R. Clyde........................................................ 100 *
4753 West Wasatch
Highland, Utah 84003
All Directors and executive officers as a group (8 people)(11).......... 44,615 47.19%
</TABLE>
- ----------
* Less than 1%
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(1) Applicable percentage of ownership is based on 94,544 shares of Common
Stock outstanding as of the Record Date. Beneficial ownership is determined
in accordance with the rules of the Commission, and includes voting and
investment power with respect to such shares.
(2) Includes 1,375 shares owned directly by Richard C. Clyde, 925 shares owned
jointly by Richard C. and Patricia Clyde (husband and wife), 150 shares
owned indirectly by Richard C. Clyde through the Richard Cornell Clyde
Trust, 150 shares owned indirectly by Patricia Clyde through the Patricia
Clyde Trust and 31,935 shares owned by CCI, which shares Mr. Clyde may be
deemed to beneficially own as a result of his position as a director of
CCI.
(3) Includes 250 shares owned directly by David E. Salisbury, 2,090 shares
owned directly by Carol C. Salisbury and 31,935 shares owned by CCI, which
shares the Salisburys may be deemed to beneficially own as a result of
Carol C. Salisbury's position as President and a director of CCI.
(4) Includes 2,320 shares owned directly by Louise C. Gammell and 31,935 shares
owned by CCI, which shares Ms. Gammell may be deemed to beneficially own as
a result of her position as Secretary, Treasurer and a director of CCI.
(5) Includes 1,115 shares owned directly by Paul B. Clyde, 610 shares owned
jointly by Paul B. and Jeanette P. Clyde (husband and wife) and 31,935
shares owned by CCI, which shares Mr. Clyde may be deemed to beneficially
own as a result of his position as a director of CCI.
(6) Includes 75 shares owned indirectly by William R. Clyde through the William
R. Clyde Family Trust, 30 shares owned indirectly by Mr. Clyde through the
Reklaw & Co. Trust and 31,935 shares owned by CCI, which shares Mr. Clyde
may be deemed to beneficially own as a result of his position as Vice
President and a director of CCI.
(7) Ila C. Cook may be deemed to be the beneficial owner of all of the 31,935
shares owned by CCI as a result of her position as Vice President and a
director of CCI. Ms. Cook does not own any shares of Clyde Common Stock
directly.
(8) Includes 50 shares owned directly by Norman D. Clyde and 3,100 shares owned
indirectly by Norman D. Clyde through the Norman D. Clyde Family Inter
Vivos Revocable Trust.
(9) Includes 1,065 shares owned directly by Wilford W. Clyde and 610 shares
jointly owned by Wilford W. and Natalie Clyde (husband and wife).
(10) Includes 885 shares owned directly by Steven L. Clyde and 150 shares owned
jointly by Steven L. and Pamela Clyde (husband and wife).
(11) In computing the aggregate number of shares owned by officers and directors
as a group, the shares owned by CCI, which shares certain of the officers
and directors may be deemed to beneficially own, are counted only once.
SELECTED FINANCIAL INFORMATION FOR CLYDE
The following selected statement of earnings and balance sheet data as
of and for each of the years in the five year period ended December 31, 1996 are
derived from the financial statements of Clyde which have been audited by Grant
Thornton. The selected statement of earnings data for the nine month periods
ended September 30, 1997 and 1996 are unaudited, but, in the opinion of
management, the unaudited financial statements reflect all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
of the information included therein. The financial data for Clyde should be read
in conjunction with the Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Clyde" included elsewhere herein. The results for the nine month period ended
September 30, 1997 are not necessarily indicative of results that may be
expected for the full year.
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<TABLE>
<CAPTION>
Nine months ended
September 30, Year ended December 31,
--------------------- --------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of earnings data:
Construction revenue $ 9,696 $ 14,674 $ 19,056 $ 21,325 $ 20,222 $ 26,911 $ 25,879
Cost of construction 9,417 12,756 17,116 18,199 18,590 23,139 21,658
General and administrative 1,107 995 1,443 1,255 1,321 1,267 1,283
-------- -------- -------- -------- -------- -------- --------
Operating income (loss) (864) 923 497 1,871 311 2,505 2,938
Other income (expense), net 3,159 3,207 3,700 4,796 3,723 3,009 2,072
Income taxes 858 1,584 1,510 2,431 1,449 2,377 1,829
-------- -------- -------- -------- -------- -------- --------
Net earnings $ 1,437 $ 2,546 $ 2,687 $ 4,236 $ 2,585 $ 3,137 $ 3,181
======== ======== ======== ======== ======== ======== ========
Earnings per common share $ 15.19 $ 26.93 $ 28.42 $ 44.81 $ 27.34 $ 33.18 $ 33.64
Weighted average shares outstanding 94,544 94,544 94,544 94,544 94,544 94,544 94,544
Balance sheet data (at period end):
Current assets $ 16,287 $ 16,357 $ 16,320 $ 18,008 $ 18,175 $ 17,516
Current liabilities 1,126 1,092 1,297 1,225 1,599 1,801
Total assets 47,231 44,916 41,825 37,114 34,888 31,638
Total liabilities 11,014 9,969 8,836 7,415 6,829 5,770
Stockholders' equity 36,217 34,947 32,990 29,699 28,059 25,868
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF CLYDE
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Management's Discussion and
Analysis of Financial Condition and Results of Operations of Clyde and other
sections of this Proxy Statement/Prospectus, including without limitation
statements containing the words "believes," "anticipates," "intends," "expects"
and words of similar import, constitute forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Constituent Corporations to be materially different from any future results,
performance or achievements expressed or implied by such forward looking
statements. Such factors include, among other things, the following: (1)
expected cost savings from the Merger may not be realized; (2) costs or
difficulties related to the integration of the businesses of Clyde, Geneva Rock,
Utah Service and Beehive Insurance may be greater than expected; (3) an increase
of competitive pressure in the industries of Clyde, Geneva Rock, Utah Service
and Beehive Insurance may adversely affect the businesses of those companies;
and (4) general economic conditions, either nationally or in the states in which
Clyde, Geneva Rock, Utah Service and Beehive Insurance do business, may be less
favorable than expected. CCI disclaims any obligation to update such factors or
to publicly announce the result of any revisions to any forward-looking
statements included or incorporated by reference herein to reflect future events
or developments.
RESULTS OF OPERATIONS
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The following discussions should be read in conjunction with the
financial statements and related notes of Clyde included elsewhere in this Proxy
Statement/Prospectus.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
Construction revenue for the nine-month period ended September 30, 1997
declined by $4,978,000 or 35% as compared to the nine-month period ended
September 30, 1996. This decrease largely was attributable to a decrease in
Clyde's work under its service contract with Kennecott Copper. The decrease in
construction revenue resulted in a net operating loss of $864,244 for the
interim 1997 period, as compared to a net profit of $923,000 for the 1996
interim period.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Construction revenue for the year ended December 31, 1996 totaled
$19,055,543, which represented a 10.6% decrease from $21,325,495 in construction
revenue for the year ended December 31, 1995. The decrease in 1996 construction
revenue was attributable to a decrease in Clyde's work under its service
contract at Kennecott Copper and the softening in the housing market. Work that
the management of Clyde anticipated doing in the fall of 1996 failed to
materialize during 1996. In addition, the management of Clyde was significantly
involved during 1996 in submitting a bid for the work on the I-15 project. The
bid process consumed considerable management resources and had a material effect
on construction revenue for 1996.
Earnings before income taxes for 1996 were $4,197,191, compared with
earnings before income taxes of $6,667,604 for 1995, resulting in a 37%
decrease. A 10.6% reduction in construction revenue in 1996 contributed
materially to the reduction in earnings before income taxes. Additionally, the
gross profit margin on construction revenue for 1996 declined to 10.2%, down
from a gross profit margin of 14.7% in 1995. The lower gross profit margin for
1996 stemmed from increased competition for construction work in the Utah market
and lower construction work volume. General and administrative expenses for 1996
increased to $1,443,165 from $1,254,961 in 1995. This increase was largely a
result of a non-cash accrual to pension expense of $111,715 in 1996 compared to
no accrual for pension expense in 1995. Earnings before income taxes for 1996
were also materially affected by a 23.2% decrease in the net income of Geneva
Rock in which Clyde has a 34.77% ownership interest (discussed below).
Other income of Clyde in 1996 included gain on the sale of property and
equipment in the amount of $63,541, compared to a gain on the sale of property
and equipment in 1995 in the amount of $196,165. The gain on sale of property in
1995 was from Clyde's sale of 15 acres of land in Lehi, Utah, to the Alpine
School District. Interest income to Clyde for 1996 was $640,667, a decrease from
interest income in 1995 in the amount of $697,056.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Construction revenue for 1995 increased to $21,325,495, a 5.5% gain over
the 1994 construction revenue of $20,222,246. Gross profit on construction
revenue for 1995 in the amount of $3,126,551 represented a gross profit margin
of 14.7%, an increase over the 1994 gross profit margin of 8.1%. Increased
construction revenue in 1995 was attributable to an increased work load at
Kennecott Copper and the South Mountain Golf Course project In addition,
improvements in the gross profit margin from 1994 to 1995 were attributable to
better margins on negotiated work at Kennecott and South Mountain. Net income
before taxes increased to $6,667,604 for 1995 compared to $4,033,789 for 1994.
Clyde's strong net income for 1995 resulted from the strong construction
industry in Utah, the profitable year experienced in 1995 by Geneva Rock and the
volume of negotiated work completed during the year.
GENEVA ROCK
Clyde owns 34.77% of Geneva Rock. Clyde's investment in Geneva Rock is
shown on an equity basis on Clyde's 1996 balance sheet as an investment in an
affiliate having a value of $19,881,754. Clyde's investment in Geneva Rock as of
December 31, 1994 and December 31, 1995 were shown as $17,176,684 and
$13,587,014,
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<PAGE> 66
respectively. Net income of Geneva Rock for 1996 was $8,433,997, resulting in an
additional $2,932,500 of income to Clyde. Geneva Rock has declared and paid
dividends of $30, $30, and $27 per share for the years 1996, 1995, 1994,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Clyde's primary sources of liquidity have been funds generated by
operations and dividends received from Geneva Rock, in which Clyde has a 34.77%
interest. Net cash provided by (used in) operating activities was approximately
$5,668,299, $3,321,364, $1,163,408 and $(133,499) during 1994, 1995, 1996 and
the nine months ended September 30, 1997, respectively. Net cash provided by
operating activities is primarily attributable to Clyde's income before
depreciation and amortization expense. Net cash provided by dividends received
from Geneva Rock was approximately $204,687, $227,430, $227,430 and $0 during
1994, 1995, 1996 and the nine months ended September 30, 1997, respectively.
The cash position of Clyde from December 31, 1994 to December 31, 1995
increased from $5,144,323 on December 31, 1994 to $5,563,295 on December 31,
1995. Net cash provided by Clyde's operations totaled $3,321,364 for the year
ended December 31, 1995. During 1995 Clyde used cash of $4,551,214 for the
purchase of property and equipment and $2,857,022 for the purchase of interest
bearing deposits. In addition, $4,976,979 of investments which matured during
1995 was used to fund the purchase of property and equipment. Clyde paid
dividends of $945,440 during 1995. Equipment sold by Clyde during 1995 generated
$246,875 in cash and Clyde received a dividend from its subsidiary, Geneva Rock,
during 1995 in the amount of $227,430.
The cash position of Clyde dropped from a December 31,1995 balance of
$13,113,317 to a December 31, 1996 balance of $11,835,454. This reduction of
cash assets of Clyde, notwithstanding the 1996 after tax net income of
$2,686,858, resulted from a $112,395 increase in contracts receivable from a
December 31, 1995 balance of $2,084,533 to a December 31, 1996 balance of
$2,191,928. Additionally, costs and estimated earnings in excess of billings on
contracts in progress increased by the amount of $634,352 from a December 31,
1995 balance of $269,753 to a December 31, 1996 balance of $904,105, and costs
and estimated earnings in excess of billings on completed contracts increased to
a December 31, 1996 balance of $268,945 from a zero balance on December 31,
1995.
Clyde has historically had little or no long term debt. This has
continued to be the case through the years 1994, 1995, and 1996. Paid-in capital
remained unchanged from December 31, 1994 through December 31, 1996 at the
amount of $1,000,000. Retained earnings increased from $29,237,220 on December
31, 1994 to $32,527,923 on December 31, 1995 to $34,647,517 on December 31,
1996.
In addition to substantial cash investments on December 31, 1996, Clyde
had other substantial current assets in contracts receivable in the sum of
$2,191,928 (current) and $545,982 (in retention), and income taxes receivable in
the amount or $405,669.
The cash position of Clyde did not change significantly as of September
30, 1997 as compared to September 30, 1996.
INFLATION
Inflation in the U.S. economy has been relatively moderate during the
last few years. Price increases for labor and materials kept pace with inflation
for 1995 and 1996. The low unemployment rate in Utah and the rapid increase in
the number of workers required in the construction industry in the state has put
increased pressure on the cost of labor. Labor contracts negotiated in 1997
provide for increases in the 5% to 6% range per year through the year 2000.
Clyde expects that inflation will increase over the next few years,
making it more difficult to pass the increases on in the form of higher prices.
This could lead to lower margins in the work or a decrease in the work for which
Clyde successfully competes.
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<PAGE> 67
SEASONALITY
Because Clyde conducts its business in the Intermountain West, Clyde
experiences lower sales during the winter months due to adverse weather
conditions. Historically, the months of December, January and February see a
major curtailment in the amount and types of construction work that can be
accomplished due to the extreme temperatures and frost in the ground. Clyde
anticipates that seasonal variations will continue. Clyde has, however,
established adequate reserves and, therefore, seasonal variations do not pose a
threat to Clyde.
THE YEAR 2000 ISSUE
Clyde utilizes computer hardware and software in its operations. Certain
computer applications could fail or create erroneous results due to the upcoming
change in the century (the "Year 2000 Issue"). Clyde regularly upgrades its
computer hardware and believes that it will not incur any additional expenses to
modify computer hardware due to the Year 2000 Issue. Clyde does not expect that
its expenditures related to the Year 2000 Issue will have a material adverse
effect on the results of operations or financial condition of Clyde
CERTAIN TRANSACTIONS
The following is a summary of related party transactions that occurred
during the years ended December 31, 1996 and 1995. Clyde provided construction
services and materials to Geneva Rock totaling approximately $519,000 and
$1,700,000 for the years ended December 31, 1996 and 1995, respectively. Clyde
paid $353,197 and $57,707 for the years ended December 31, 1996 and 1995,
respectively, for construction services and materials provided by Geneva Rock,
and $303,633 and $313,946 for the years ended December 31, 1996 and 1995,
respectively, for construction materials provided by Utah Service. Beehive
Insurance received $51,291 and $42,254 in commission revenue for insurance
purchased by Clyde in 1996 and 1995, respectively. Transactions with related
parties were not effected at below market prices.
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<PAGE> 68
GENEVA ROCK
BACKGROUND
Geneva Rock, which was incorporated in Utah in 1954, was founded as a
ready-mix concrete business by W.W. Clyde and his associates. Geneva Rock is
engaged in the construction business through its Northern and Southern Utah
divisions. Geneva Rock's construction products consist primarily of ready-mix
concrete, asphalt, sand, gravel and other building materials, and its
construction services consist primarily of road and site construction. Geneva
Rock does business primarily in the Northern Utah area including Utah, Salt
Lake, Davis, Weber, Summit and Wasatch Counties, and the Southern Utah area
surrounding St. George, Utah. Geneva Rock's client base is diversified, with no
one client generating more than 10% of Geneva Rock's total sales. Geneva Rock
has furnished much of the concrete for many of the large commercial office
buildings in downtown Salt Lake City. Geneva Rock's Northern and Southern Utah
divisions are more fully described below.
PRODUCTS AND SERVICES
NORTHERN DIVISION
Utah has experienced a strong economy during the past four years. The
construction industry in the metropolitan areas of Utah, Salt Lake, Davis,
Weber, Summit and Wasatch Counties has benefited from Utah's strong economy. The
award of the 2002 Olympics to Salt Lake City has sparked plans of improvements
of highways, airports, lodging and ski areas. Construction of a light rail
system and a massive Interstate 15 ("I-15") freeway expansion project are
currently under way in the Salt Lake Valley. Geneva Rock was a team member of
one of the three consortiums that bid on the large I-15 freeway expansion
project. Although that consortium was not awarded the bid, Geneva Rock
anticipates receiving at least a portion of the materials work on the project
because of the convenient location of its plants along the I-15 freeway.
Geneva Rock produces many types of gravel for use in making asphalt,
drain rock, chips, screened sand, bank run sand, and gravel to make ready-mix
concrete, including washed sand and washed rock. Geneva Rock makes various
grades of asphalt to be used by its own construction crews or sold to other
contractors. The types of asphalt produced include 1/2" and 3/4" asphalt and
many special UDOT mixes, such as rubberized and friction course asphalts.
Because it does not wish to compete with its customers, Geneva Rock supplies,
but does not place, concrete. Geneva Rock's construction services consist of
excavation, utility and pipe work, site preparation, curb, gutter, and sidewalk
(placed by subcontractors), asphalt paving and other road building and site work
activities.
Geneva Rock has spent approximately $14,200,000 since January 1, 1993
updating its trucking fleets. Ninety percent of Geneva Rock's mixer trucks for
the ready-mix concrete business are front discharge trucks with capacities of
nine cubic yards per load. Geneva Rock's belly dump fleet of trucks has not been
significantly updated or expanded since many outside trucking firms are
available to perform these services. Savage Industries and Larsen Trucking, Inc.
are the two main haulers that Geneva Rock uses to transport aggregates to Geneva
Rock's plants. Geneva Rock's Construction Division is currently updating its 14
ton capacity dump trucks to 24 ton capacity trucks. With the constriction on
roads along the Salt Lake Valley region caused by the recent reconstruction of
the I-15 freeway, transporting Geneva Rock's products has become a more
complicated process. Upgrading to larger trucks has decreased the number of
trucks needed to transport product to a job site. In addition, Geneva Rock has
nearly completed the installation of new metal bins at its downtown Salt Lake
City plant that will enable Geneva Rock to produce 1200 to 1400 cubic yards of
concrete without hauling any aggregates into the downtown area during the busy
daylight hours. Aggregates can be hauled to the downtown bins during the night
while traffic is light so that Geneva Rock's trucks will not have to negotiate
I-15 traffic during the day. Since 1990 all cement powder used by Geneva Rock
has been hauled by Savage Industries.
Several Utah construction and material supply companies have recently
been acquired by national and international companies. Within the last two
years, Gibbons & Reed was acquired by Granite Construction, located in
Watsonville, California; Staker Paving and Jack B. Parsons Co. were acquired by
Old Castle, a U.S. subsidiary of CRH, an Ireland company; and Valley Asphalt,
Cox Rock Products, and Western Rock were acquired by U.S. Aggregates. There has
also been an influx of new large construction companies into Utah, such as Ames,
Industrial,
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Morrison Knudsen, and Peter Kewitt. Geneva Rock and Clyde are two of only a few
large, locally owned and operated highway contractors and gravel, asphalt, and
ready-mix concrete suppliers along the Wasatch front. The increase in
competitors and equipment have resulted in generally lower prices in the
industry along the Wasatch Front and operating and profit margins have
decreased. Despite increasing competition and decreased margins, the management
of Geneva Rock believes that it can continue to compete effectively in the Utah
market.
Geneva Rock has made several acquisitions in Northern Utah during the
1990's, including Ajax, a Tooele company acquired in 1990 and later divested;
Ideal Concrete, also acquired in 1990; the Price ready-mix concrete operation,
acquired in 1993; and Pioneer Sand and Gravel, a West Valley company acquired in
1995. Although Geneva Rock does not currently have any plans to acquire other
companies, it intends to continue to seek out other acquisitions to round out
its product lines in its existing market areas.
SOUTHERN DIVISION
In 1996, Geneva Rock formed J & J Building Supply, Inc. ("J & J") which
acquired the assets of J & J Mill & Lumber Supply Co. of St. George, Utah.
Geneva Rock's acquisition of J & J also included the operations of Quality
Concrete, a ready-mix cement producer located in Cedar City, Utah. As of
September 30, 1997, Geneva Rock's total investment in J & J was $18.47 million.
J & J is headquartered in St. George, Utah and also has operations in Cedar
City, Utah and Mesquite, Nevada. J & J's primary construction products consist
of rock products, including sand, gravel and ready mix concrete; concrete block
products, which it produces through its concrete block plant in St. George; and
other building materials, such as lumber, paint, sheet rock, roofing, plumbing,
electrical supplies and hardware products, which it sells through its stores in
St. George and Cedar City. J & J sells its product primarily in St. George and
Cedar City, Utah areas and in Mesquite, Nevada. Construction in Southwestern
Utah and Southeastern Nevada has in the past few years been strong, although
growth has experienced some recent slowdown, making it more difficult for J & J
to maintain past volumes. This region, however, continues to hold significant
potential growth as a preferred retirement community, especially as more people
move out of the increasingly congested Southern California, Las Vegas, Nevada
and Phoenix, Arizona regions.
RAW MATERIALS AND SUPPLIERS
NORTHERN DIVISION
Sand and gravel are the most basic raw materials required by Geneva
Rock. Presently Geneva Rock owns or leases gravel pits in Mapleton, Provo
Canyon, Draper and Bluffdale (Point of the Mountain), West Valley, South Weber,
and Morgan (all located in Utah). For a description of these properties, see
"Geneva Rock--Properties--Northern Division" below. Current sources in Davis and
Weber counties are sufficient, based on Geneva Rock's present requirements, to
supply Geneva Rock with sand and gravel for approximately ten years. Geneva Rock
is presently negotiating with certain property owners in the Davis, Weber and
Box Elder County region for the purchase or lease of new sites. New sources are
becoming harder to come by along the Wasatch Front due to increased property
development and more difficult permitting requirements.
Geneva Rock obtains other major raw materials from outside vendors.
Cement powder is purchased from three main suppliers in the area: Ashgrove
Cement, which owns a plant in Lemmington, Utah (approximately 90 miles south of
Salt Lake City) and a plant in southern Idaho near Inkom; Holnam Cement, which
is modernizing its plant in Weber Canyon at Devils Slide and will soon be able
to double production capacity; and Mountain Cement, which transports its cement
by train from a plant in Wyoming. These suppliers also import cement from other
plants and cement producers to meet customer demand. Geneva Rock is the largest
customer in Utah for Ashgrove and Holnam. Geneva Rock purchases most of its
concrete additives from Grace Construction Products. Geneva Rock also purchases
asphalt oil for the production of asphalt. Geneva Rock's major suppliers of
asphalt oil are Sinclair Oil, Crysen Refining, and Koch Asphalt Materials.
Geneva Rock prices diesel fuel daily and is currently purchasing most of its
diesel fuel requirements from Kellerstraus and Flying J. Management anticipates
that with a new cement plant coming on line, Geneva Rock will not experience any
significant shortages in cement products. Although the Wasatch Front region has
a limited number of suppliers of asphalt oil, management believes that the
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supply is sufficient to meet the needs of Geneva Rock. Management also believes
that the supply of diesel fuel in the region is sufficient to meet the needs of
Geneva Rock.
SOUTHERN DIVISION
J & J has various leases for sand and gravel in St. George and Cedar
City, Utah. For a description of these and other J & J properties, see "Geneva
Rock--Properties--Southern Division" below. J & J also has many suppliers of its
building and hardware products. J & J belongs to a buying cooperative named
TrueServe. Much of J & J's lumber products are purchased direct. Georgia Pacific
is one of J & J's largest suppliers of lumber. Cement products are purchased
from Ashgrove, Holnam, and Southdown. Management believes that because of the
availability of a large number of suppliers, J & J will not experience any
significant shortages in raw materials or goods.
COMPETITION
NORTHERN DIVISION
Geneva Rock has a number of competitors in Northern Utah, some of which
are larger and have greater financial resources. Management believes that with
an increasing number of new competitors entering the construction business and
the increase in the capabilities of existing competitors that have been sold to
larger firms, the opportunities for business and expansion will be more limited
than they have been in the last five years. Geneva Rock's primary ready-mix
concrete competitors currently include Westroc, Metro, Parsons, Monroc, CPC,
Valley Materials, Valley Ready Mix, Alta View/All American, and Fife Rock
Products. Construction, sand and gravel competitors include Valley Asphalt,
Staker Paving, Savage Asphalt, Miller Paving, Gibbons & Reed, Parsons, Harper
Excavating, Western Quality Concrete, H.E. Davis & Sons, and a number of smaller
competitors.
Competition is based on price, product quality and service, and
availability. Geneva Rock management believes that Geneva Rock is well
positioned to compete with its competitors because it has high-quality products
and services and key strategic locations of its operations.
SOUTHERN DIVISION
J & J's primary competitors for building materials include Anderson
Lumber, Burton Lumber, which concentrates on catering to the needs of
contractors, and a number of smaller competitors in the St. George area. J & J
has the only concrete block plant in the St. George area, and its primary
competitors for concrete block products are producers in Las Vegas, Nevada and
Southern California that ship into Southern Utah. J & J's primary competitors in
the sand, gravel, and ready-mix concrete business are Western Rock and, to a
lesser extent, Interstate Rock. Prices in this business are very competitive.
Competition is based on prices, product quality, service and availability.
SEASONALITY OF BUSINESS
NORTHERN DIVISION
The business of Geneva Rock in Northern Utah is seasonal, slowing during
December through February due to the winter weather. Geneva Rock typically lays
off a number of employees during this slow period (depending on the severity of
the weather), and/or as workload varies. During this period, the ready-mix
concrete and aggregate businesses continue to operate, but on a scaled back
basis. Geneva Rock's road construction business almost totally shuts down during
December, January, and February because its work consists largely of asphalt
paving which cannot be performed in the cold winter months.
SOUTHERN DIVISION
Southern Utah experiences two different seasonal weather conditions. In
St. George, Utah and Mesquite, Nevada, work can be performed year round because
the winters generally are mild. The summer months, however,
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<PAGE> 71
are extremely hot which results in a slight slowdown in business since concrete
is harder to finish in extreme heat and many residents go on vacations during
this time. Cedar City, Utah has a climate similar to Northern Utah and must deal
with similar cold winter weather as the Northern Utah division.
REGULATION
Geneva Rock and J & J's operations are subject to a variety of federal,
state, and local laws and regulations, including environmental regulations.
Geneva Rock is continually upgrading its facilities in an effort to ensure
compliance with these regulations. Management believes that Geneva Rock and J &
J are in substantial compliance with all applicable government regulations and
have all material licenses, permits, and approvals from local, state and federal
governing bodies which are required to mine sand and gravel and to conduct
business at Geneva Rock's various locations.
EMPLOYEES
NORTHERN DIVISION
As of September 30, 1997, Geneva Rock's Northern Utah division had
approximately 700 employees, 53 of which were salaried employees and the
remainder of which were hourly employees. Geneva Rock has bargaining agreements
with the Operating Engineers Union and the Teamsters Union. Approximately 250
employees belong to the Operating Engineers Union, 275 belong to the Teamsters
Union and 175 are non-bargaining employees. The two union groups have benefit
programs that are funded by Geneva Rock. Benefit programs for the non-bargaining
unit employees are sponsored by Geneva Rock and, in the case of the health
insurance and retirement plans, are part of a combined plan with other Clyde
affiliated companies. Because of the seasonal nature of Geneva Rock's Northern
Utah business, an average of approximately 50% of its employees are laid off
during the winter months. Geneva Rock also experiences a turnover of about
10-15% of its employees each year. Geneva Rock believes that its employee
relations are satisfactory.
SOUTHERN DIVISION
As of September 30, 1997, J & J had approximately 200 employees, 36 of
which were salaried employees and the remainder of which were hourly employees.
J & J has no affiliation with any labor unions. J & J experiences a turnover of
about 5-10% of it's employees each year. J & J experiences less turnover than
Geneva Rock in Northern Utah because of the limited amount of good paying jobs
in J & J's market area in Southern Utah. Geneva Rock believes that its employee
relations are satisfactory.
CUSTOMERS
Geneva Rock and J & J have a customer base of approximately 5,000
customers. There are a few key customers that do a large volume of business with
Geneva Rock each year, but none that account for more than 10% of the business
of Geneva Rock. UDOT has consistently been Geneva Rock's largest customer.
UDOT's projects are typically awarded to the low bid. Most other customers are
either cities or private construction companies.
PROPERTIES
NORTHERN DIVISION
Geneva Rock has a number of operating facilities and sand and gravel
pits throughout Northern Utah, including sand and gravel pits in Mapleton, Provo
Canyon, Cedar Hills, Draper, Bluffdale, West Valley, Morgan and South Weber.
Geneva Rock has concrete plants in Ogden, Layton, Salt Lake City, South Salt
Lake, West Valley, Sandy, Draper, Orem, Park City and Helper. Geneva Rock also
has two asphalt plants, one at Geneva Rock's gravel pit in Draper at the Point
of the Mountain and the other in Orem, Utah. Geneva Rock's corporate offices and
Construction Division headquarters are located in Orem, Utah. The Ready Mix
Concrete headquarters is located in Murray, Utah and the Gravel and Asphalt
Materials Division is in Draper, Utah. Geneva Rock also has
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offices in Layton, West Valley, Park City and Helper, Utah. The following is a
description of Geneva Rock's primary properties in Northern Utah.
OREM. Geneva Rock's Orem property is the original and present location
of Geneva Rock's corporate office where all accounting functions take place. It
is also the headquarters for Geneva Rock's Construction Division. The property
is situated on 38 acres of industrial property which is owned by Geneva Rock.
The site also has a 300 ton- per-hour asphalt plant, 200 yard-per-hour pre-mix
concrete plant, nine bay shop with paint room and three bay weld shop. The site
is located in the heart of the Utah County, which currently has a population of
over 300,000. This area has experienced significant growth recently, especially
in the high tech industry. Major employers in the area include Brigham Young
University, Utah Valley State College, Geneva Steel, Novell and Nuskin
International.
DRAPER AND BLUFFDALE (POINT OF THE MOUNTAIN). These locations service
both Utah and Salt Lake Counties, Utah's two most populous counties, and are
Geneva Rock's two most important gravel pits. The pit in Bluffdale is leased by
Geneva Rock and contains a gravel washing operation and other miscellaneous
screening plants. The pit is a major source for sand throughout the area. The
Draper pit is owned by Geneva Rock and contains a washing operation, road base
and asphalt plant material crushing plant, dry mix concrete batch plant, and 500
ton-per-hour state-of-the-art asphalt plant. Geneva Rock has also just completed
a new combination shop/office at the Draper site. This will be the new
headquarters for Geneva Rock's Gravel and Asphalt Materials Division. This
shop/office facility, with 10 bays, will be Geneva Rock's largest and will be
used to service crushing equipment, large front end loaders and trucks.
SANDY. This location is owned by Geneva Rock and contains a pre-mix
concrete batch plant and small shop located at the south end of the Salt Lake
Valley, which is currently undergoing a major commercial expansion. The city of
Sandy, however, has restricted this site's operating hours. Geneva Rock has
considered moving its Sandy operations to its Draper property and selling the
Sandy property.
MURRAY. In 1997, Geneva Rock purchased a 25,000 square foot office
building in Murray, Utah. One-fourth of the building is currently being used as
Geneva Rock's Salt Lake Sales and Dispatch Office and the remaining space is
being leased to other tenants, including Beehive Insurance. The office, which is
situated at the center of the Salt Lake Valley, is in an excellent location to
conduct business and is the headquarters for Geneva Rock's Ready-Mix Concrete
Division.
WEST VALLEY CITY. Geneva Rock has three gravel pits with gravel crushers
in West Valley City. The Pioneer property is leased from West Valley City with
two years remaining on the lease. Geneva Rock owns the 150 acre West Valley Pit
and leases the Bacchus property adjacent to the West Valley Pit from the
Property Reserve, Inc. These sites are critical sources of material to service
the west side of the Salt Lake Valley including Kennecott. Geneva Rock also has
a dry mix concrete batch plant at the West Valley Pit.
SOUTH SALT LAKE. This property is owned by Geneva Rock, is Geneva Rock's
first location in the Salt Lake Valley and is located in the middle of the
valley. The site contains a premix concrete batch plant and 8 bay truck shop.
This plant is strategically located to service any location throughout the Salt
Lake Valley.
DOWNTOWN SALT LAKE CITY. This location is owned by Geneva Rock and
contains a premix concrete batch plant and a small truck shop. This plant is
being upgraded to be able to batch 1200 to 1400 cubic yards of concrete without
any aggregate being hauled during daylight hours. It is located in the downtown
area and is key to supplying some of the largest projects in the area.
LAYTON. This location is owned by Geneva Rock and includes a sales
office, premix concrete batch plant and small truck shop. The office services
the Davis and Weber County areas.
PARK CITY. This location is owned by Geneva Rock and includes a sales
office, small batch plant and small shop to service the Park City area, a high
growth resort area located approximately 30 miles from Salt Lake City.
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PRICE. This location is owned by Geneva Rock and includes a sales office
and small dry-mix concrete batch plant to service the Carbon and Emery County
area. This site is situated approximately 90 miles from the corporate office in
Orem and services the low production levels required by surrounding rural
communities.
SOUTHERN DIVISION
ST. GEORGE STORE. This store is leased from the prior owners of J & J
under a 5 year lease with four 5 year options to renew. The store contains J &
J's corporate offices, a hardware store built in 1995 and a lumber yard. It is
located one block away from one of St. George's primary streets, St. George
Boulevard. This has been the original location of J & J for nearly fifty years.
ST. GEORGE CONCRETE PLANT. This plant, located on Bluff Street in the
center of town, is a leased property comprising a small shop and a dry-mix
concrete batch plant. Aggregates from J & J's gravel pit must be hauled through
town to this location. J & J is considering a move of the concrete plant to the
gravel pit. This will save J & J transportation costs and the $180,000 annual
lease currently paid for the St. George plant.
ST. GEORGE CONCRETE BLOCK PLANT. The block plant is owned by J & J and
is located in the Bloomington Hills area of St George. This location has two
block plants: a plant built in 1987 and a new state of the art plant built in
1996. The older plant employs a 3 block machine, while the new plant employs a 5
block machine. The location also includes a masonry store and a sales office.
FORT PIERCE GRAVEL PITS. The Fort Pierce gravel pits are located near
the St. George block plant. J & J is leasing one of the two pits for a term of
25 years and the other gravel pit from the State of Utah for a 5 year term which
began in September 1996. These pits are the two main sources of gravel in the
area. Management believes that these pits hold an adequate supply of gravel to
meet J & J's needs for the next twenty years.
MESQUITE, NEVADA. This location is owned by J & J and includes a small
concrete dry batch plant with a small gravel reserve. The property is surrounded
by a large tract of BLM property that could be a good source for future gravel
reserves, provided that the necessary permits could be obtained. There can be no
assurance, however, that such permits can be obtained.
CEDAR CITY, UTAH. There are two sites in Cedar City. One site includes a
small 6,000 square foot store, which is leased by J & J and stocks building and
masonry products, and the second site, which is owned by J & J, includes a
ready-mix concrete plant and a gravel pit. The second site has approximately 60
acres held in reserve for future gravel production. Although Cedar City is
currently a small community of approximately 20,000 people, it has recently
experienced strong growth.
FUTURE LAND DEVELOPMENT
One of Geneva Rock's most important land development needs is the
acquisition of future gravel reserves. The Davis and Weber County areas have
relatively few gravel reserves compared to other areas. Geneva Rock's current
reserves in the Davis and Weber County areas are expected to last approximately
ten years based on current requirements. Geneva Rock intends to seek the
purchase or lease of additional gravel reserves in this area. Geneva Rock
believes its reserves in Salt Lake and Utah Counties and the St. George, Utah
area will last at least twenty years based on current requirements.
Geneva Rock has entered into a Real Property Purchase Agreement, dated
September 2, 1997, pursuant to which Geneva Rock has agreed to purchase 57 acres
of real property situated in the Box Elder and Weber Counties of Utah. The
purchase price for the property is $40,000 per acre. Geneva Rock is in the
process of conducting due diligence on the property and has applied for
governmental approval and permits necessary for Geneva Rock to conduct sand,
gravel, and rock excavation upon the property and to operate crushing equipment
and a ready mix batch plant. The obligations of Geneva Rock to proceed with its
purchase of the property are contingent upon satisfactory completion of Geneva
Rock's due diligence and the issuance to Geneva Rock of all necessary
governmental approvals and permits.
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TRADE NAMES
Geneva Rock uses the "Geneva Rock Products" and "Red Rock Construction"
names as service marks in connection with its business operations. J & J uses
the "J & J Building Supply" name as a service mark in connection with its
business operations.
BACKLOG
Neither Geneva Rock nor J & J has a significant backlog of projects.
Most projects are completed in the year they are begun. Geneva Rock's Ready-Mix
Concrete Division, however, will start two large projects in 1998 that will
extend into 1999. The first project is for the supply of about 100,000 cubic
yards of concrete to the new Little America Grand Hotel in downtown Salt Lake
City, and the other project is for the supply of about 150,000 cubic yards of
concrete to Wasatch Constructors over the next four years in connection with the
I-15 freeway reconstruction. All other Geneva Rock projects will be
substantially completed in 1997.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which Geneva Rock was
a party. From time to time, Geneva Rock and J & J become involved in ordinary,
routine or regulatory legal proceedings incidental to their business. Management
does not believe that any of these legal proceedings will have a material
adverse impact on the financial condition and results of operations of Geneva
Rock or J & J.
MARKET PRICE OF AND DIVIDENDS ON GENEVA ROCK COMMON STOCK
There is no public trading market for Geneva Rock Common Stock. The
approximate number of Geneva Rock shareholders of record on September 30, 1997
was 81.
In 1995, Geneva Rock paid cash dividends of $30.00 per share of Geneva
Rock Common Stock to shareholders. In 1996, Geneva Rock paid cash dividends of
$30.00 per share of Geneva Rock Common Stock to shareholders. In 1997, Geneva
Rock paid cash dividends of $30.00 per share of Geneva Rock Common Stock to
shareholders. After the Merger, dividends will be paid by CCI in such amounts
and at such times as the CCI Board of Directors deems to be appropriate based on
the results of operations, financial condition and liquidity needs of CCI. The
amount, type and frequency of dividends paid by CCI to its shareholders will not
be equivalent to the amount, type and frequency of dividends paid by Geneva Rock
prior to the Merger. See "Summary--Selected Financial Information--Comparative
Per Share Data".
GENEVA ROCK MANAGEMENT
DIRECTORS
The names and ages of Geneva Rock's Directors are currently as follows:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION(S) WITH GENEVA ROCK SINCE
- ---- --- ---------------------------- -----
<S> <C> <C> <C>
William R. Clyde.............79 Director, Secretary 1954
Norman D. Clyde..............67 Director 1959
Richard C. Clyde.............62 Director 1971
Paul B. Clyde................56 Director 1971
Wilford W. Clyde.............44 Director, President 1978
Albert T. Schellenberg.......51 Director, Vice President 1984
John R. Young................54 Director, Concrete Division Manager 1987
A. Ray Gammell...............39 Director, Equipment and Facilities Manager 1987
</TABLE>
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For a description of the business backgrounds of Richard C. Clyde, Paul
B. Clyde, and William R. Clyde, see "Clyde Companies, Inc.--CCI Management Prior
to Consummation of the Merger," of Wilford W. Clyde, see "Clyde Companies,
Inc.--CCI Management Upon Consummation of the Merger," and of Norman D. Clyde,
see "Clyde--Clyde Management."
Albert T. Schellenberg has been a director since 1984. He is also Vice
President, with responsibility for construction, human resources, property
management, safety, and assisting the President where needed. Mr. Schellenberg
is professional engineer and has worked at Geneva Rock as project manager,
construction division manager, assistant secretary/treasurer, and now as vice
president. He has been involved with road construction and design for 25 years,
with previous employment at Kennecott Copper Mine in Utah. Mr.
Schellenberg also serves on the Board of Directors of J & J.
John R. Young has been a director since 1987. He is currently Concrete
Division Manager for Geneva Rock. He has worked at Geneva Rock for over 30 years
in the concrete sales and production area. He has been a salesman, plant manager
and now division manager.
A. Ray Gammell has been a director since 1987. He is currently Equipment
and Facilities Manager for Geneva Rock. He has worked at Geneva Rock for 17
years in the equipment and asphalt construction divisions. He has worked on
asphalt crews and currently serves as the equipment manager. He is responsible
for all ordering, repair and implementation of all equipment at Geneva Rock. Mr.
Gammell also serves on the Board of Directors of J & J and Utah Service and is
the Vice President of Utah Service. A. Ray Gammell is the son of Louise C.
Gammell, who is currently the Secretary and Treasurer of CCI, a director of CCI
and Utah Service; and the brother of B. Clyde Gammell, who is currently the Vice
President and a director of Beehive Insurance.
Members of the Board of Directors of J & J includes Wilford W. Clyde,
Albert T. Schellenberg, William R. Clyde, Richard C. Clyde, Paul B. Clyde,
Norman D. Clyde, A. Ray Gammell and David O. Cook. For a description of the
business background of David O. Cook, see "Utah Service--Utah Service
Management" below.
EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The names, ages and positions of Geneva Rock's executive officers and
significant employees are currently as follows:
<TABLE>
<CAPTION>
CURRENT POSITION(S)
NAME AGE WITH GENEVA ROCK SINCE
- ---- --- ---------------- -----
<S> <C> <C> <C>
Wilford W. Clyde.........................44 President 1988
Albert T. Schellenberg...................51 Vice President 1988
William R. Clyde.........................79 Secretary 1969
Don C. McGee.............................44 Assistant Secretary, Treasurer 1988
John R. Young............................54 Concrete Division Manager 1983
A. Ray Gammell...........................39 Equipment and Facilities Division Manager 1983
</TABLE>
For a description of the business backgrounds of Wilford W. Clyde, see
"Clyde Companies, Inc.--CCI Management Upon Consummation of the Merger," of
William R. Clyde, see "Clyde Companies, Inc.--CCI Management Prior to
Consummation of the Merger," and of Albert T. Schellenberg, John R. Young and A.
Ray Gammell, see "Geneva Rock--Geneva Rock Management--Directors".
Don C. McGee currently serves as Assistant Secretary and Treasurer of
Geneva Rock, with responsibility for all of the accounting functions and tax
reporting requirements. Don has a B.S. in accounting and has been employed as
Credit Manager, Accounting Manager, Controller and currently is Assistant
Secretary and Treasurer. He has been involved with accounting for 20 years with
previous employment at Exxon Oil Company as an internal auditor. Mr. McGee also
serves as Secretary and Treasurer of J & J.
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COMMITTEES OF GENEVA ROCK BOARD
The Board of Directors of Geneva Rock does not have any committee and no
plans to establish any committee.
ATTENDANCE AT GENEVA ROCK BOARD MEETINGS
As of the date hereof, the Board of Directors met two times in 1997, and
no director attended fewer than 75% of these meetings, except Norman Clyde who
is currently on a leave of absence for church service for a period of
approximately three years.
COMPENSATION OF DIRECTORS OF GENEVA ROCK
Directors that are not full time employees of Geneva Rock received
$1,500 in 1994, 1995, and 1996 for serving on the Geneva Rock Board of
Directors. Members of the Board of Directors that were full time employees
(i.e., Wilford W. Clyde, Albert T. Schellenberg, John R. Young and A. Ray
Gammell) received no compensation for serving as directors.
PRINCIPAL SHAREHOLDERS OF GENEVA ROCK
The following table sets forth certain information regarding the
beneficial ownership of Geneva Rock Common Stock as of the Record Date as to (i)
each person who is known by Geneva Rock to own beneficially 5% or more of the
outstanding shares of Common Stock, (ii) each Director of Geneva Rock, (iii)
each executive officer and (iv) all Directors and executive officers as a group.
Except as otherwise noted, Geneva Rock believes the persons listed below have
sole investment and voting power with respect to the Geneva Rock Common Stock
that they are deemed to beneficially own.
<TABLE>
<CAPTION>
COMMON STOCK
------------
SHARES APPROXIMATE
BENEFICIALLY PERCENTAGE
OWNED(1) OWNED(1)
-------- --------
<S> <C> <C>
Paul B. Clyde (2).......................................................12,831 58.85%
3308 N 350 E
Provo, Utah 84601
Richard C. Clyde(3).....................................................12,366 56.72%
776 South 600 West
Orem, Utah 84057
William R. Clyde(4)....................................................12,335 56.58%
2000 Canyon Road
Springville, Utah 84663
David E. and Carol C. Salisbury(5).....................................12,308 56.45%
1423 Devonshire Drive
Salt Lake City, UT 84108
Norman D. Clyde(6)......................................................8,535 39.15%
3223 Apache Lane
Provo, Utah 84604
Wilford W. Clyde(7).....................................................7,804 35.79%
1324 E 950 S
</TABLE>
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<TABLE>
<S> <C> <C>
Springville, Utah 84663
Steven L. Clyde(8)......................................................7,768 35.63%
8604 South Woodland Hills Drive
Spanish Fork, UT 84660
W.W. Clyde & Co.........................................................7,581 34.77%
P. O. Box 350
Springville, Utah 84663
Jeffrey R. Clyde(9).....................................................7,581 34.77%
4753 West Wasatch
Highland, UT 84003
Ila C. Cook(10).........................................................4,727 21.68%
2711 Sherwood Dr.
Salt Lake City, UT 84108
Louise C. Gammell(11)...................................................4,726 21.68%
1100 E. 400 S.
Springville, UT 84663
Clyde Companies, Inc....................................................4,725 21.67%
1423 Devonshire Drive
Salt Lake City, Utah 84108
Albert T. Schellenberg.....................................................10 *
11089 N 5020 W
Highland, Utah 84003
John R. Young..............................................................10 *
1404 Cherry Canyon Way
Draper, Utah 84020
A. Ray Gammell..............................................................1 *
1294 N 1000 W
Mapleton, Utah 84663
All Directors and Executive Officers as a group (8 people)(12).........14,118 64.76%
</TABLE>
- ----------------
* Less than 1%.
(1) Applicable percentage of ownership is based on 21,802 shares of Common
Stock outstanding as of the Record Date. Beneficial ownership is determined
in accordance with the rules of the Commission, and includes voting and
investment power with respect to such shares.
(2) Includes 143 shares owned directly by Paul B. Clyde, 37 shares owned
jointly by Paul B. and Jeanette Clyde (husband and wife), 7,581 shares
owned by Clyde, which shares Mr. Clyde may be deemed to beneficially own as
a result of his position as a director and Vice President of Clyde, and
4,725 shares owned by CCI, which shares Mr. Clyde may be deemed to
beneficially own as a result of his position as a director of CCI.
(3) Includes 60 shares owned directly by Richard C. Clyde, 7,581 shares owned
by Clyde, which shares Mr. Clyde may be deemed to beneficially own as a
result of his position as a director, President and General Manager of
Clyde, and 4,725 shares owned by CCI, which shares Mr. Clyde may be deemed
to beneficially own as a result of his position as a director of CCI.
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(4) Includes 26 shares owned indirectly by William R. Clyde through the William
R. Clyde Trust, 3 shares owned indirectly by Mr. Clyde through the Reklaw &
Co. Trust, 7,581 shares owned by Clyde, which shares Mr. Clyde may be
deemed to beneficially own as a result of his position as a director of
Clyde, and 4,725 shares owned by CCI, which shares Mr. Clyde may be deemed
to beneficially own as a result of his position as a director of CCI.
(5) David E. and Carol C. Salisbury (husband and wife) may be deemed to be the
beneficial owners of two shares owned directly by Carol C. Salisbury, all
of the 7,581 shares owned by Clyde as a result of Mr. Salisbury's position
as a director of Clyde and all of the 4,725 shares owned by CCI as a result
of Ms. Salisbury's position as President and Director of CCI.
(6) Includes 304 shares owned directly by Norman D. Clyde, 650 shares owned
jointly by Norman D. and Phyllis Clyde (husband and wife) and 7,581 shares
owned by Clyde, which shares Mr. Clyde may be deemed to beneficially own as
a result of his position as a director of Clyde.
(7) Includes 186 shares owned directly by Wilford W. Clyde, 37 shares owned
jointly by Wilford W. and Natalie Clyde (husband and wife) and 7,581 shares
owned by Clyde, which shares Mr. Clyde may be deemed to beneficially own as
a result of his position as a director of Clyde.
(8) Includes 187 shares owned directly by Steven L. Clyde and 7,581 shares
owned by Clyde, which shares Mr. Clyde may be deemed to beneficially own as
a result of his position as a director of Clyde.
(9) Jeffrey R. Clyde may be deemed to be the beneficial owners of all of the
7,581 shares owned by Clyde as a result of his position as a director of
Clyde. Mr. Clyde does not own any shares of Geneva Rock Common Stock
directly.
(10) Includes two shares owned directly by Ila C. Cook and 4,725 shares owned by
CCI, which shares Ms. Cook may be deemed to beneficially own as a result of
her position as Vice President and Director of CCI.
(11) Includes one share owned directly by Louise C. Gammell and 4,725 shares
owned by CCI, which shares Ms. Gammell may be deemed to beneficially own as
a result of her position as Secretary, Treasurer and Director of CCI.
(12) In computing the aggregate number of shares owned by officers and directors
as a group, the shares owned by CCI and Clyde, which shares certain of the
officers and directors may be deemed to beneficially own, are counted only
once.
SELECTED FINANCIAL INFORMATION FOR GENEVA ROCK
The following selected statement of earnings and balance sheet data as
of and for each of the years in the five year period ended December 31, 1996 are
derived from the financial statements of Geneva Rock which have been audited by
Squire. The selected statement of earnings for the nine month periods ended
September 30, 1997 and 1996 are unaudited, but, in the opinion of management,
the unaudited financial statements reflect all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of the information
included therein. The financial data for Geneva Rock should be read in
conjunction with the Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Geneva Rock" included elsewhere herein. The results for the nine month period
ended September 30, 1997 are not necessarily indicative of results that may be
expected for the full year.
<TABLE>
<CAPTION>
Nine months ended
September 30, Year ended December 31,
------------------ -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------- ------- -------- -------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of earnings data:
Gross sales and contract income $94,736 $85,260 $116,349 $100,422 $80,526 $70,556 $56,507
Cost of sales and contracts 79,560 71,566 98,908 80,811 65,205 58,133 49,853
General and administrative 4,143 2,784 4,979 3,173 2,655 2,905 2,254
------- ------- -------- -------- ------- ------- -------
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Operating income 11,033 10,910 12,462 16,438 12,666 9,518 4,400
Other income (expense), net 255 810 781 918 1,201 430 235
Income taxes 4,143 3,675 4,809 6,378 5,062 3,321 1,488
------- ------- -------- -------- ------- ------- -------
Net earnings $ 7,145 $ 8,045 $ 8,434 $ 10,978 $ 8,805 $ 6,627 $ 3,147
======= ======= ======== ======== ======= ======= =======
Earnings per common share $327.72 $369.04 $ 386.85 $ 503.54 $403.85 $304.01 $144.39
Weighted average shares outstanding 21,802 21,802 21,802 21,802 21,802 21,802 21,802
Balance sheet data:
Current assets $42,113 $ 35,240 $ 31,230 $25,373 $19,346 $13,244
Current liabilities 9,913 8,036 5,289 4,307 3,964 2,484
Total assets 84,598 74,848 56,702 45,294 35,919 28,290
Total liabilities 20,274 17,669 7,303 6,219 5,060 3,579
Stockholders' equity 64,077 57,179 49,399 39,075 30,859 24,710
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF GENEVA ROCK
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Management's Discussion and
Analysis of Financial Condition and Results of Operations of Geneva Rock and
other sections of this Proxy Statement/Prospectus, including without limitation
statements containing the words "believes," "anticipates," "intends," "expects"
and words of similar import, constitute forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Constituent Corporations to be materially different from any future results,
performance or achievements expressed or implied by such forward looking
statements. Such factors include, among other things, the following: (1)
expected cost savings from the Merger may not be realized; (2) costs or
difficulties related to the integration of the businesses of Clyde, Geneva Rock,
Utah Service and Beehive Insurance may be greater than expected; (3) an increase
of competitive pressure in the industries of Clyde, Geneva Rock, Utah Service
and Beehive Insurance may adversely affect the businesses of those companies;
and (4) general economic conditions, either nationally or in the states in which
Clyde, Geneva Rock, Utah Service and Beehive Insurance do business, may be less
favorable than expected. CCI disclaims any obligation to update such factors or
to publicly announce the result of any revisions to any forward-looking
statements included or incorporated by reference herein to reflect future events
or developments.
RESULTS OF OPERATIONS
The following discussions should be read in conjunction with the
financial statements and related notes of Geneva Rock included elsewhere in this
Proxy Statement/Prospectus.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
Gross sales and contract income increased by $9,476,000 or 11% for the
nine-month period ended September 30, 1997, as compared to the comparable period
in 1996. This increase was primarily due to the acquisition of J & J on June 28,
1996 resulting in only three months of comparable sales figures for 1996
compared
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<PAGE> 80
to nine months in 1997. However, net earnings decreased by $374,900 or 5%
primarily due to lower prices resulting from increased competition and losses
experienced by J & J.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Gross sales and contract income for the year ended December 31, 1996
totaled $116,348,692, which represented a 15.9% increase from $100,422,149 in
sales for the year ended December 31, 1995. Sales increased 10.9% primarily
because of Geneva Rock's acquisition of J & J. The remaining 5% increase in
sales was attributable to the strong construction market in Utah.
Net earnings for 1996 were $8,433,997 compared with net earnings of
$10,978,104 for 1995, a 23.2% decrease. This decline in net earnings was
attributable primarily to lower gross profit margins. The lower gross profit
margin for 1996 stemmed from increased competition in the Utah market resulting
in static pricing or, in some instances, lower pricing of Geneva Rock's
products. 1995 was a year with a long autumn of fair weather which made it
possible to continue construction work later in the year and contributed to
increased net earnings. In contrast, construction work ceased earlier in the
year during 1996 which contributed to a decrease in net earnings as compared to
1995. Additionally, the cost of producing Geneva Rock's products (i.e., labor
costs, equipment costs, and the cost of raw materials) saw significant increases
in 1996. Also contributing to the reduction in net income in 1996 were losses of
$363,331, attributable to Geneva Rock's investment in J & J. J & J has not
realized a profit since Geneva Rock acquired J & J in 1996 because of the
construction slowdown in the St. George, Utah, Cedar City, Utah and Mesquite,
Nevada areas and the revaluing of J & J's assets which increased the amount of
depreciation. General and administrative expenses for 1996 increased to
$4,979,299 from $3,172,944 in 1995. Increased cost of producing products and
increased overhead resulted from increased sales volumes in 1995 and 1996 which
created the need for more equipment and personnel to service the increasing
sales.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Gross sales and contract income for 1995 increased 24.7% to $100,422,149
over 1994 sales of $80,525,668. Gross profit on sales for 1995 increased to
$19,610,985, a 28% increase over 1994 gross profit on sales of $15,320,393.
Increased sales in 1995 were attributable to strong increases in the Utah
construction market and to Geneva Rock's acquisition of the assets of Pioneer
Sand and Gravel. Net income before taxes increased to $10,978,104 for 1995
compared to $8,804,707 for 1994. Geneva Rock's strong net income for 1995
resulted from the strong construction industry in Utah and less price
competition than was to be experienced by Geneva Rock after 1995.
LIQUIDITY AND CAPITAL RESOURCES
Geneva Rock's primary sources of liquidity have been funds generated by
operations. Net cash provided by operating activities was approximately
$12,052,679, $12,673,418, $9,524,490 and $6,932,153 during 1994, 1995, 1996 and
the nine months ended September 30, 1997, respectively. Net cash provided by
operating activities is primarily attributable to Geneva Rock's income before
depreciation and amortization expense.
The cash position of Geneva Rock from December 31, 1994 to December 31,
1995 was essentially unchanged. However, liquidity improved by an increase of
non-cash current assets from December 31, 1994 to December 31, 1995 by the
amount of $5,905,863. The liquidity of Geneva Rock improved from December, 1994
to December, 1995 as a result of the profitability of Geneva Rock.
The cash position of Geneva Rock dropped from a December 31, 1995
balance of $11,924,153 to a December 31, 1996 balance of $7,752,630. This
reduction of cash assets of Geneva Rock, notwithstanding net income in 1996 of
$8,433,997, resulted from a cash contribution for the stock of J & J in the
amount of $12,130,000. Non-cash current assets increased from 1995 to 1996 by
the amount of $8,180,909. Geneva Rock has historically had little or no long
term debt. In connection with J & J's acquisition of assets from J & J Mill and
Lumber Company, however, Geneva Rock incurred debt of $6,700,000. This debt,
evidenced by a promissory note in the original principal amount of $6,700,000,
is payable with interest at the rate of 8 1/4% per annum in seven
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consecutive equal annual payments of $1,297,908.83. As a result of the
investment in J & J, the December 31, 1996 balance sheet reflects an equity
position in stock in the sum of $18,466,669.
Paid-in capital remained unchanged from December 31, 1994 through
December 31, 1996, in the amount of $28,456. Retained earnings increased from
$38,828,357 on December 31, 1994 to $49,152,401 on December 31, 1995 and to
$56,932,337 on December 31, 1996.
In addition to substantial cash assets on December 31, 1995 and December
31, 1996, Geneva Rock has established a line of credit with First Security Bank
of Utah, N.A. Geneva Rock's line of credit at First Security was $1,000,000 in
1996 and has been increased to $2,000,000 for the year 1997. As of the date
hereof, Geneva Rock had not drawn on this line of credit.
INFLATION
Inflation in the U.S. economy has been relatively moderate during the
last few years. Price increases for labor and materials kept pace with inflation
for 1995. In 1996, although price increases were introduced, increased
competition in the Utah market from outside vendors precluded Geneva Rock from
passing on to its customers all increases in the cost of producing its products.
Geneva Rock expects that inflation will affect the cost of wages and materials
to Geneva Rock in 1998 and that the current competitive circumstance of the Utah
market will preclude Geneva Rock from passing all of such increases on to its
customers. This circumstance may result in lower profit margins for Geneva Rock
in 1998.
SEASONALITY
Because of the location of Geneva Rock's operations primarily in central
and northern Utah, Geneva Rock experiences significantly lower sales during the
winter months due to adverse weather conditions. Historically, the months of
November through March have shown losses for Geneva Rock, with Geneva Rock's
profitable months being April through October. Geneva Rock has historically
dealt well with these seasonal variations in sales and has established adequate
reserves to address the liquidity requirements of Geneva Rock in the winter
months. Also, the acquisition of J & J in southern Utah may reduce the losses
historically experienced in the winter months, although it will not eliminate
losses in the winter months.
THE YEAR 2000 ISSUE
Geneva Rock utilizes computer hardware and software in its operations.
Certain computer applications could fail or create erroneous results due to the
upcoming change in the century (the "Year 2000 Issue"). Geneva Rock regularly
upgrades its computer hardware and believes that it will not incur any
additional expenses to modify computer hardware due to the Year 2000 Issue. In
addition, Geneva Rock has received commitments from software vendors that will
allow Geneva Rock to upgrade third-party software programs with minimal expense
to Geneva Rock. Geneva Rock anticipates, however, that it will incur expenses of
approximately $300,000 over the next two years to upgrade certain proprietary
software developed for Geneva Rock. Geneva Rock does not expect that its
expenditures related to the Year 2000 Issue will have a material adverse effect
on the results of operations or financial condition of Geneva Rock
CERTAIN TRANSACTIONS
The following is a summary of related party transactions that occurred
during the years ended December 31, 1996 and 1995. Geneva Rock provided
construction services and materials to Clyde totaling approximately $353,197 and
$57,707 for the years ended December 31, 1996 and 1995, respectively. Geneva
Rock paid $519,000 and $1,700,000 for the years ended December 31, 1996 and
1995, respectively, for construction services and materials provided by Clyde,
and $637,833 and $645,138 for the years ended December 31, 1996 and 1995,
respectively, for construction materials provided by Utah Service. Beehive
Insurance received $193,025 and $183,885 in commission revenue for insurance
purchased by Geneva Rock in 1996 and 1995, respectively. Geneva Rock also leases
part of its office building in Murray, Utah to Beehive Insurance. Transactions
with related parties were not effected at below market prices.
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UTAH SERVICE
BACKGROUND
Utah Service was founded in 1937 by W.W. Clyde to service Clyde. Utah
Service owns and operates a hardware store and lumber yard and an adjacent
gasoline station/convenience store, all located at 400 South Main Street in
Springville, Utah. Utah Service's customer base is well diversified, with none
of its customers generating more than 10% of total sales. The products and
services offered by Utah Service are described below.
PRODUCTS AND SERVICES
BUILDING MATERIALS AND LUMBER
Utah Service is a retailer of lumber and building materials. Utah
Service stocks a wide range of building materials and lumber to provide
customers with quality products needed to build, repair or remodel residential
or commercial property. Wood products include lumber, plywood, roof trusses,
floor trusses, treated lumber, sheathing, wood siding and specialty lumber.
Building materials include roofing, vinyl siding, doors, windows, molding,
drywall, insulation, cement and nails.
Utah Service sells its products to general contractors, such as
residential and commercial building professionals, repair contractors and
remodeling contractors, and to the general public, such as retail customers
involved in home improvement and remodeling projects. Utah Service concentrates
its efforts on service, product assortment, specialist advice, convenient
location, scheduled on time job-site delivery and competitive prices. Utah
Service's retail building materials and lumber market is largely confined to the
Springville/Mapleton area. Utah Service's customer base is well diversified,
with no customers accounting for more than 10% of total sales. Most of Utah
Service's advertising is in the form of direct mail and advertisements in the
local newspaper. These marketing efforts are generally targeted at the general
public which includes individual homeowners, students, and other retail
customers.
Utah Service is formulating plans for moving to a new, fully operational
building material and lumber contractor yard by the fall of 1998 on a 7.3 acre
site owned by Utah Service and located one-half mile west of Utah Service's
current location. The yard will be surfaced and comprised of lumber sheds and a
contractor's office. Utah Service estimates that the cost of this new facility
will be approximately $825,000.
HARDWARE
Utah Service is also a retailer in the home improvement industry. Utah
Service sells an assortment of building materials, home improvement, lawn and
garden supplies, housewares, appliances and seasonal items, such as plumbing,
heating, lighting, electrical, hardware, tools and paint. The hardware store
stocks approximately 42,000 product items ranging in color and size with a
variety of quality and nationally advertised brand names, such as "Ace". Utah
Service's retail hardware sales are largely confined to the
Springville/Mapleton, Utah area.
Utah Service plans to open a new full service hardware and garden store
at an existing site in Spanish Fork, a city adjacent to Springville, by the fall
of 1998. The leased store will be 24,500 square feet and stocked with everything
currently sold at the Springville store, other than lumber packages which will
be supplied by the Springville store. The location of the new store will help
maintain customer satisfaction by reducing delays in shopping, increasing
utilization by existing customers and attracting new customers to a more
convenient location. The hardware department will also continue to offer a broad
assortment of high quality merchandise at competitive prices. Utah Service
estimates that the cost of this new facility will be approximately $725,000.
CHEVRON GAS STATION/CONVENIENCE STORE
Utah Service also owns and operates a Chevron gas station/convenience
retail store. The gas station/convenience store sells Chevron gasoline and
diesel products exclusively under an independent dealership arrangement with
Chevron. The store also offers a wide variety of products, such as milk, ice
cream, groceries,
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beverages, snack foods, candy, deli products, hot dogs, chili, soup, nachos,
baked goods, other food items, tobacco products and health and beauty aids. The
store also supplies various automotive supplies, such as oil, brake fluid,
windshield wipers, fix-a-flat and air fresheners. Utah Service's retail service
station/convenience store market is largely confined to the
Springville/Mapleton, Utah area.
Utah Service plans to upgrade and remodel its Chevron gas
station/convenience store on its existing location in late 1998 or early 1999
once the lumber yard is moved to its new site. These remodeling plans include
modernizing and changing the store's appearance, upgrading the gasoline
facilities, increasing the number of gas pumps from 4 to 8 and installing modern
environmental protection equipment. Utah Service estimates that the cost of
upgrading and remodeling this facility will be approximately $250,000.
AUTOMOTIVE AND INDUSTRIAL SUPPLIES
Utah Service is also an automotive specialty retailer in the automotive
aftermarket. The automotive aftermarket refers to products and services
purchased for vehicles after the original sale, such as accessories, maintenance
and repairs, replacement parts, including brake shoes, brake pads, belts, hoses,
starters, alternators, batteries, shocks, struts, CV boots, carburetors,
transmission parts, clutches, electrical components, suspension and engine
parts. Other automotive products sold include batteries, oil, antifreeze, brake
and power steering fluid, engine additives, wax and protectants, floor mats,
seat covers, and more. Utah Service is not in the business of selling tires or
performing automotive repairs. Utah Service's retail automotive supply market is
largely confined to the automotive repair shops and retail customers in the
Springville/Mapleton, Utah area. The department also sells industrial supplies,
including crusher bowls, conveyor belting, and fasteners for industrial use.
SUPPLIERS
Utah Service purchases its products for each department from numerous
vendors. The majority of its building materials, lumber, automotive and
industrial supplies are purchased directly from manufacturers, while the
remaining products are purchased from combination manufacturers/wholesalers. Its
main hardware vendor is Ace Hardware. The hardware department purchases
approximately 62% of its hardware items from Ace. Utah Service purchase all of
its gasoline and diesel products through Chevron's local wholesaler. Convenience
store items are purchased through various vendors. Utah Service is not fully
dependent on any single vendor and management believes that alternative sources
of products and supplies are available for all of its products.
COMPETITION
Utah Service's business is highly competitive. Utah Service's building
materials and lumber business competes primarily with national or regional
building centers, warehouses, and home center retailing, such as Anderson
Lumber, Burton Lumber and BMC West. Utah Service's hardware business competes
primarily with chains of building supply houses, home improvement stores,
national hardware stores and warehouse clubs, such as Anderson Lumber, Eagle
Hardware and Home Base. Utah Service's gas station/convenience store business
currently competes with other convenience stores, large, nationally recognized
gas stations, supermarket chains, independent gasoline stations, fast food
operations and other similar retail stores. As of September 30, 1997,
Springville had seven other gasoline stations and/or convenience stores which
competed with Utah Service's Chevron station. Automotive products similar or
identical to those sold at the Utah Service store are generally available from a
variety of different competitors in and around Springville. Key competitive
factors include location, quality service, product selection, pricing, hours of
operation, expertise of sales staff and product promotions. Management believes
that Utah Service competes favorably on each of these factors.
SEASONALITY OF BUSINESS
Utah Service's businesses are generally adversely affected by cold
weather patterns in the first and fourth quarters when sales tend to decline by
approximately 35% to 40% from average annual sales. Hardware sales usually rise,
however, during the fourth quarter due to holiday shopping. Utah Service
generally experiences higher revenues and profit margins during the warmer
months in the second and third quarters. For example, gas sales
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during this period tend to increase by approximately 25% from average annual
sales as a result of an increase in vacation traveling and the use of
recreational vehicles, boats, jet skis and motorcycles.
EMPLOYEES
As of September 30, 1997, Utah Service had a total of 57 employees, 32
which were full time and 25 which were part time. None are unionized. Utah
Service considers its employee relations to be satisfactory.
INFORMATION SYSTEMS
Utah Service employs "point of sale" computer terminals with an
electronic bar code scanning system in every department. These systems provide
efficient customer check-out, which decreases transaction time, reduces register
lines and eliminates the time previously spent on price labeling every item. The
systems also provide management with current, valuable sales and marketing
information to help in the future planning of each store and monitor inventory
levels thereby reducing the frequency of physical inventories to only once or
twice a year.
Utah Service also makes use of the Internet to help expand its business.
Utah Service maintains a World Wide Web site at http://www.ACELB.com, which
contains valuable product and service information relating to their hardware,
lumber and building materials needs. Utah Service also has access to detailed
and up-to-date information on Ace through Ace Net.
REGULATION
Utah Service is subject to a variety of federal, state, and local laws
and regulations. Utah Service management believes that Utah Service currently
has all licenses, permits and approvals necessary for its current operations and
is in substantial compliance with all applicable government regulations.
PROPERTIES
Utah Service merged with an affiliated company, Utah Valley Industrial
Supply, on December 31, 1994. Prior to that date, the two companies operated out
of two separate facilities, Utah Service out of a 7,000 square foot building and
Utah Valley Industrial Supply out of a 4,000 square foot building, both located
where the present facilities are located. The present hardware store facility
was completed in April 1995 at a total cost of $825,000 (excluding approximately
$148,000 in new equipment purchased to equip the new facility). The facility has
a total of 23,500 square feet of space on the main (retail) floor, with an
additional 2,000 square feet of corporate office space located on the second
floor.
Utah Service's hardware store, gasoline station/convenience store, and
lumber yard are all located on a 2.75 acre parcel of land. In addition to these
facilities, Utah Service also owns a 2.67 acre parcel of land located west of
Center Street in Springville, which is used by Utah Service primarily for lumber
storage. In October 1997, Utah Service sold two retail buildings located on Main
Street in Springville to help fund Utah Service's expansion plans. These plans
include building a new, fully operational building material and lumber
contractor yard on land that it owns in Springville, opening a new full service
hardware and garden store and expanding its gas station/convenience store in
late 1998 or early 1999. See "Utah Service--Products and Services" above.
TRADE NAMES
Utah Service uses the "Chevron", "Ace Hardware" and "Parts Plus" names
as service marks in connection with its business operations. Utah Service owns
the "Utah Service, Inc." mark and currently licenses the other marks. It does
not sell any goods under any brand name owned by Utah Service.
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LEGAL PROCEEDINGS
There are no material pending legal proceedings to which Utah Service
was a party. From time to time, Utah Service becomes involved in ordinary,
routine or regulatory legal proceedings incidental to the business of Utah
Service.
MARKET PRICE OF AND DIVIDENDS ON UTAH SERVICE COMMON STOCK
There is no public trading market for Utah Service Common Stock. The
approximate number of shareholders of record on September 30, 1997 was 52.
In 1995, Utah Service paid cash dividends of $20.00 per share of Utah
Service Common Stock to shareholders. In 1996, Utah Service paid cash dividends
of $20.00 per share of Utah Service Common Stock to shareholders. In 1997, Utah
Service paid cash dividends of $20.00 per share of Utah Service Common Stock to
shareholders. After the Merger, dividends will be paid by CCI in such amounts
and at such times as the CCI Board of Directors deems to be appropriate based on
the results of operations, financial condition and liquidity needs of CCI. The
amount, type and frequency of dividends paid by CCI to its shareholders will not
be equivalent to the amount, type and frequency of dividends paid by Utah
Service prior to the Merger. See "Summary--Selected Financial
Information--Comparative Per Share Data".
UTAH SERVICE MANAGEMENT
DIRECTORS
The names and ages of Utah Service's Directors are currently as
follows:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION(S) WITH UTAH SERVICE SINCE
- ---- --- ----------------------------- -----
<S> <C> <C> <C>
Vernon O. Cook ..............76 Chairman of the Board 1949
Hal M. Clyde ................70 Director 1970
Norman D. Clyde .............67 Director 1964
Paul B. Clyde ...............56 Director 1987
William R. Clyde ............79 Director 1948
A. Ray Gammell...............39 Director , Vice President 1995
Louise C. Gammell............73 Director 1968
David O. Cook................47 Director, President and Chief Executive Officer 1982
</TABLE>
For a description of the business backgrounds of Paul B. Clyde, William
R. Clyde, and Louise C. Gammell, see "Clyde Companies, Inc.--CCI Management
Prior to Consummation of the Merger," of Norman D. Clyde, see "Clyde--Clyde
Management," and of A. Ray Gammell, see "Geneva Rock--Geneva Rock Management."
Vernon O. Cook has served as director since 1949 and as Chairman of the
Board since April 1997. He is retired from work in the retail and real estate
industries and from management of Utah Service. Mr. Cook graduated from the
University of California in 1949 with a degree in Physics. From 1949-1962, he
was Manager of Operations and Director of Utah Service. From 1962-1971, he was
General Manager and Executive Vice President of IRECO Chemicals, Mesabi Blasting
Agents, Inc. and Intermountain Research and Engineering Co., Inc. Since the
early 1970s, Mr. Cook has purchased and operated income property and has formed
a private corporation called Vernon O. Cook & Co., Inc. for real estate sales
and operations. Vernon O. Cook is the husband of Ila C. Cook, who is currently
Vice President and a director of CCI; and the father of David O. Cook, who is
currently President, CEO and a director of Utah Service.
Hal M. Clyde has served as director since 1970. He is retired from 44
years of employment with Clyde. Mr. Clyde currently serves as a Commissioner on
the UDOT Commission. He also serves on the Board of Directors of Beehive
Insurance. Hal M. Clyde is the brother of Norman D. Clyde, who is currently a
director of Utah Service, Clyde, Geneva Rock, and Beehive Insurance; the father
of H. Michael Clyde, who has agreed to become a director
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of CCI upon consummation of the Merger; and an uncle of Tawna Clyde Smith, who
has agreed to become a director of CCI upon consummation of the Merger.
Louise C. Gammell has been a director since 1968. She has a Bachelors
degree from the University of Utah. Ms. Gammell is currently the Secretary,
Treasurer and a director of CCI. Louise C. Gammell is the mother of A. Ray
Gammell, who is currently the Vice President and a director of Utah Service and
a director of Geneva Rock, and B. Clyde Gammell, who is currently the Vice
President and a director of Beehive Insurance; the sister of William R. Clyde,
Ila C. Cook and Carol C. Salisbury; and an aunt of Richard C. Clyde, Paul B.
Clyde, Wilford W. Clyde, Steven L. Clyde and David O. Cook.
David O. Cook has been a director since 1982. He was elected President
and Chief Executive Officer of Utah Service in April 1997. He graduated from
BYU, Hawaii with a Bachelors degree in Accounting and Business Administration.
Mr. Cook is a Certified Public Accountant and a member of the American Institute
of Certified Public Accountants and Utah Association of Certified Public
Accountants. From 1977 to present, he has worked for Utah Service in a variety
of positions, including Assistant Manager, General Manager, Secretary/Treasurer,
Vice President and now President. Prior to joining Utah Service, Mr. Cook was
Assistant Controller for NRP, Staff Accountant and Supervisor for Robinson, Hill
and Co. from 1973 to 1975. David O. Cook is the son of Vernon O. Cook, who is
currently Chairman of the Board of Utah Service, and of Ila C. Cook who is
currently the Vice President and a director of CCI.
EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The names, ages and positions of Utah Service's executive officers and
significant employees are currently as follows:
<TABLE>
<CAPTION>
CURRENT POSITION(S)
NAME AGE WITH UTAH SERVICE SINCE
- ---- --- ----------------- -----
<S> <C> <C> <C>
Vernon O. Cook...........................76 Chairman of Board 1997
David O. Cook............................47 President and Chief Executive Officer 1997
A. Ray Gammell...........................39 Vice President 1997
Lawrence Kosmuch.........................45 Accounting Manager, Secretary and Treasurer 1979
</TABLE>
For a description of the business backgrounds of A. Ray Gammell, see
"Geneva Rock--Geneva Rock Management," and of Vernon O. Cook and David O. Cook,
see "Utah Service--Utah Service Management--Directors" above.
Lawrence Kosmuch has been the Accounting Manager, Secretary and
Treasurer of Utah Service since 1979.
COMMITTEES OF UTAH SERVICE BOARD
The Board of Directors of Utah Service does not have any committee and
no plans to establish any committees.
ATTENDANCE AT UTAH SERVICE BOARD MEETINGS
As of the date hereof, the Board of Directors met four times in 1997,
and no director attended fewer than 75% of these meetings, except Norman Clyde
who is currently on a leave of absence for church service for a period of
approximately three years.
COMPENSATION OF DIRECTORS OF UTAH SERVICE
Vernon O. Cook receives $2,000 annually for his services as Chairman of
the Board of Directors of Utah Service. Directors who are not employed by Utah
Service, including Hal M. Clyde, Norman D. Clyde, Paul B.
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Clyde, William R. Clyde, A. Ray Gammell and Louise Clyde Gammell, receive $750
per year for their services as directors.
PRINCIPAL SHAREHOLDERS OF UTAH SERVICE
The following table sets forth certain information regarding the
beneficial ownership of Utah Service Common Stock as of the Record Date as to
(i) each person who is known by Utah Service to own beneficially 5% or more of
the outstanding shares of Common Stock, (ii) each Director of Utah Service,
(iii) each executive officer and (iv) all Directors and executive officers as a
group. Except as otherwise noted, Utah Service believes the persons listed below
have sole investment and voting power with respect to the Utah Service Common
Stock that they are deemed to beneficially own.
<TABLE>
<CAPTION>
COMMON STOCK
------------
SHARES APPROXIMATE
BENEFICIALLY PERCENTAGE
OWNED(1) OWNED(1)
-------- --------
<S> <C> <C>
Louise C. Gammell(2).....................................................2,084 38.50%
1100 E. 400 S.
Springville, UT 84663
Vernon O. Cook and Ila C. Cook(3)........................................2,019 37.30%
2711 Sherwood Dr.
Salt Lake City, UT 84108
Carol Clyde Salisbury(4).................................................1,946 35.95%
1423 Devonshire Dr.
Salt Lake City, UT 84108
Richard C. Clyde(5)......................................................1,720 31.78%
776 South 600 West
Orem, UT 84057
Paul B. Clyde(6).........................................................1,719 31.76%
3308 N. 350 E.
Provo, UT 84601
William. R. Clyde(7).....................................................1,712 31.63%
2000 Canyon Rd.
Springville, UT 84663
Clyde Companies, Inc.....................................................1,698 31.37%
1423 Devonshire Drive
Salt Lake City, UT 84108
David O. Cook..............................................................379 7.00%
1498 E. Center St.
Springville, UT 84663
Hal M. Clyde(8)............................................................192 3.55%
908 Hillcrest Dr.
Springville, UT 84663
</TABLE>
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<TABLE>
<S> <C> <C>
Norman D. Clyde............................................................191 3.53%
3223 Apache Lane
Provo, UT 84604
A. Ray Gammell...............................................................5 *
1294 N. 1000 W.
Mapleton , UT 84664
All Directors and executive officers as a group (8 people)(9)............3,207 59.25%
</TABLE>
- -----------------
* Less than 1%.
(1) Applicable percentage of ownership is based on 5,413 shares of Common Stock
outstanding as of the Record Date. Beneficial ownership is determined in
accordance with the rules of the Commission, and includes voting and
investment power with respect to such shares.
(2) Includes 300 shares owned directly by Louise C. Gammell, 86 shares owned
directly by Ms. Gammell's husband, Blake Gammell, which shares Ms. Gammell
may be deemed to beneficially own, and 1,698 shares owned by CCI, which
shares Ms. Gammell may be deemed to beneficially own as a result of her
position as Secretary, Treasurer and a director of CCI.
(3) Includes 129 shares owned indirectly by Vernon O. Cook through the Vernon O.
Cook Family Trust, 192 shares owned indirectly by Ila C. Cook through the
Ila C. Cook Family Trust, and 1,698 shares owned by CCI, which shares Ila C.
Cook may be deemed to beneficially own as a result of her position as Vice
President and a director of CCI.
(4) Includes 248 shares owned directly by Carol C. Salisbury and 1,698 shares
owned by CCI, which shares Ms. Salisbury may be deemed to beneficially own
as a result of her position as President and a director of CCI.
(5) Includes 22 shares owned directly by Richard C. Clyde and 1,698 shares owned
by CCI, which shares Mr. Clyde may be deemed to beneficially own as a result
of his position as a director of CCI.
(6) Includes 21 shares jointly owned by Paul B. and Jeanette Clyde (husband and
wife) and 1,698 shares owned by CCI, which shares Mr. Clyde may be deemed to
beneficially own as a result of his position as a director of CCI.
(7) Includes 14 shares owned directly by William R. Clyde and 1,698 shares owned
by CCI, which shares Mr. Clyde may be deemed to beneficially own as a result
of his position as Vice President and a director of CCI.
(8) Includes 192 shares owned indirectly by Hal M. Clyde through the Hal M.
Clyde Trust.
(9) In computing the aggregate number of shares owned by officers and directors
as a group, the shares owned by CCI, which shares certain of the officers
and directors may be deemed to beneficially own, are counted only once.
SELECTED FINANCIAL INFORMATION FOR UTAH SERVICE
The following selected statement of earnings and balance sheet data as
of and for the nine months ended September 30, 1997 are derived from the
financial statements of Utah Service which have been audited by Grant Thornton.
The selected statement of earnings and balance sheet data as of and for each of
the years in the five year period ended December 31, 1996 and the selected
statement of earnings data for the nine months ended September 30, 1996 are
unaudited, but, in the opinion of management, the unaudited financial statements
reflect all adjustments (consisting of normal recurring adjustments) necessary
for a fair presentation of the information included therein. The financial data
for Utah Service should be read in conjunction with the Financial Statements and
Notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Utah Service" included elsewhere herein. The
results for the nine month period ended September 30, 1997 are not necessarily
indicative of results that may be expected for the full year.
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<PAGE> 89
<TABLE>
<CAPTION>
Nine months ended
September 30, Year ended December 31,
----------------- -------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------ ------ ------- ------- ------- ------ ------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of earnings data:
Operating revenues $9,258 $9,939 $13,108 $13,580 $10,690 $8,252 $6,141
Cost of goods sold 7,590 8,373 10,915 11,633 9,159 7,053 5,152
General and administrative 1,168 1,121 1,628 1,498 915 800 691
------ ------ ------- ------- ------- ------ ------
Operating income 500 445 565 449 616 399 298
Other income (expense), net 71 89 114 101 95 165 123
Income taxes 213 183 258 199 265 217 148
------ ------ ------- ------- ------- ------ ------
Net earnings $ 358 $ 351 $ 421 $ 351 $ 446 $ 347 $ 273
====== ====== ======= ======= ======= ====== ======
Earnings per common share $66.20 $64.81 $ 77.78 $ 64.77 $ 89.18 $69.23 $54.66
Weighted average shares outstanding 5,413 5,413 5,413 5,413 5,000 5,000 5,000
Balance sheet data (at period end):
Current assets $3,539 $ 3,057 $ 2,911 $ 2,339 $2,098 $1,741
Current liabilities 826 626 608 359 489 400
Total assets 4,815 4,387 4,278 2,857 2,618 2,281
Total liabilities 958 853 977 359 489 400
Stockholders' equity 3,857 3,534 3,301 2,498 2,130 1,881
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF UTAH SERVICE
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Management's Discussion and
Analysis of Financial Condition and Results of Operations of Utah Service and
other sections of this Proxy Statement/Prospectus, including without limitation
statements containing the words "believes," "anticipates," "intends," "expects"
and words of similar import, constitute forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Constituent Corporations to be materially different from any future results,
performance or achievements expressed or implied by such forward looking
statements. Such factors include, among other things, the following: (1)
expected cost savings from the Merger may not be realized; (2) costs or
difficulties related to the integration of the businesses of Clyde, Geneva Rock,
Utah Service and Beehive Insurance may be greater than expected; (3) an increase
of competitive pressure in the industries of Clyde, Geneva Rock, Utah Service
and Beehive Insurance may adversely affect the businesses of those companies;
and (4) general economic conditions, either nationally or in the states in which
Clyde, Geneva Rock, Utah Service and Beehive Insurance do business, may be less
favorable than expected. CCI disclaims any obligation to update such factors or
to publicly announce the result of any revisions to any forward-looking
statements included or incorporated by reference herein to reflect future events
or developments.
RESULTS OF OPERATIONS
The following discussions should be read in conjunction with the
financial statements and related notes of Utah Service included elsewhere in
this Proxy Statement/Prospectus.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
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<PAGE> 90
Operating Revenues and net earnings for the nine months ended September
30, 1997 did not change significantly from the comparable period in 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Operating revenues for the year ended December 31, 1996 totaled
$13,107,947, which represented a 3.5% decrease from $13,580,133 in operating
revenues for the year ended December 31, 1995. Approximately one million dollars
of the operating revenues in 1995 were attributable solely to a single sale of
lumber in connection with the Pinehurst/Orchard Park project.
Operating income before income taxes for 1996 was $679,336 compared with
net income before income taxes of $550,083 for 1995, a 23.5% increase. This
increase in operating income was attributable in part to the 4.2% increase in
sales (excluding the Pinehurst/Orchard Park sale) and to an improved gross
profit margin. The improved gross profit margin for 1996 was the result of a
greater volume of sales in the hardware area, as opposed to lumber sales which
typically have a lower gross profit margin. Also, total operating expenses for
1996 experienced a 8.9% increase over 1995. Most of this increase was
attributable to additional payroll expense resulting from a tight labor market
in Utah which required Utah Service to pay higher salaries and wages to attract
and retain qualified employees. It is likely that payroll expenses in 1997 and
1998 will continue to increase at a rate somewhat higher than inflation.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Operating revenues for 1995 increased 27% to $13,580,133 over 1994
operating revenues of $10,689,864. Gross profit on sales for 1995 increased due
to increased sales with the gross profit margin remaining essentially unchanged
from 1994 to 1995. Increased sales in 1995 were attributable to the
approximately one million dollar sale of lumber to the Pinehurst/Orchard Park
project and to the opening of Utah Service's new and expanded hardware/lumber
store facility in Springville, Utah. The expansion into the new hardware/lumber
store facility caused some lost sales in 1994 due to interruption of business
for the transition. Further, 1995 benefited from increased and improved space
for marketing Utah Service's lumber and hardware products and from a strong
construction industry in Utah.
LIQUIDITY AND CAPITAL RESOURCES
Utah Service's primary sources of liquidity have been funds generated by
operations. Net cash provided by (used in) operating activities was
approximately $(227,602), $569,020 and $364,272 during 1995, 1996 and the nine
months ended September 30, 1997, respectively. Net cash provided by operating
activities is primarily attributable to Utah Service's income before
depreciation and amortization expense.
The cash position of Utah Service from December 31, 1994 to December 31,
1995 reflected a decline in cash by the amount of $388,235 from a December 31,
1994 cash balance of $603,618 to a December 31, 1995 cash balance of $215,383.
This decline in cash was more than offset in the current assets by a $942,934
increase in accounts receivable from a December 31, 1994 balance of $1,011,242
to a December 31, 1995 balance of $1,954,176. The net effect was an increase in
liquidity of Utah Service from December 31, 1994 to December 31, 1995 by the
amount of $554,699.
The cash position of Utah Service improved in 1996 from a December 31,
1995 balance of $215,383 to a December 31, 1996 balance of $479,954. This
improvement in the cash assets of Utah Service was more than offset by a
$682,974 decline in the accounts receivable balance from a December 31, 1995
balance of $1,954,176 to a December 31, 1996 balance of $1,271,202. Total
current assets saw a modest increase from a December 31, 1995 balance of
$2,911,288 to a December 31, 1996 balance of $3,057,394.
The liquidity of Utah Service was also affected by an increase in
current liabilities from a December 31, 1994 balance of $359,115 to a December
31, 1995 balance of $608,183. Current liabilities as of December 31, 1996
increased to a level of $626,226. Most of the increase in current liabilities
from December 31, 1994 to December 31, 1996 resulted from increases in the
accounts payable of Utah Service. With the expansion of the
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<PAGE> 91
hardware and lumber sales facilities of Utah Service in December 31, 1995,
accounts payable levels are likely to remain higher than the December 31, 1994
level.
The expansion of Utah Service's hardware and lumber sales facilities in
Springville, Utah resulted in an $824,938 increase in the book value of
buildings and store equipment from a December 31, 1994 balance of $377,541 to a
December 31, 1995 balance of $1,202,479. Utah Service financed its acquisition
of additional building and store equipment assets with a loan from First
Security Bank of Utah, N.A. in the amount of $369,257 as of December 31, 1995
and from cash balances of Utah Service. Paid-in capital and assets of Utah
Service increased by the amount of $555,348 in 1995 by reason of the merger of
Utah Valley Industrial Supply into Utah Service. On December 31, 1996 paid in
capital remained essentially unchanged at a level of $556,397, while the First
Security Bank of Utah, N.A. Promissory Note had been reduced to a December 31,
1996 balance of $198,081.
Management believe that cash on hand and other current assets are
consistent with historical levels and sufficient for meeting the needs of Utah
Service's ongoing obligations.
INFLATION
Inflation in the U.S. economy has been relatively moderate during the
last few years. Price increases for Utah Service's products have kept pace with
inflation for both 1995 and 1996. Utah Service expects that inflation will
affect the cost of wages for its employees in 1998 and Utah Service expects that
it will be able to pass such increases on by increasing its prices for Utah
Service's products. Fuel and lumber prices typically fluctuate upward and
downward and do not typically track consumer inflation indices. As a result of
these factors, Utah Service anticipates that it will be in a position to
maintain essentially the same profit margin in 1998 that it has experienced in
1996 and 1997.
SEASONALITY
Because of the location of Utah Service's operations in Utah County,
Utah, Utah Service experiences lower sales during the winter months due to
adverse weather conditions. Historically, the months of December through
February have shown decreased sales, with Utah Service's more profitable months
being March through November. Utah Service has historically dealt well with
these seasonal variations in sales and has established adequate reserves to
address the liquidity requirements of Utah Service in the winter months.
THE YEAR 2000 ISSUE
Utah Service utilizes computer hardware and software in its operations.
Certain computer applications could fail or create erroneous results due to the
upcoming change in the century (the "Year 2000 Issue"). Utah Service regularly
upgrades its computer hardware and believes that it will not incur any
additional expenses to modify computer hardware due to the Year 2000 Issue. In
addition, Utah Service has received commitments from software vendors that will
allow Utah Service to upgrade third-party software programs with minimal expense
to Utah Service. Utah Service anticipates, however, that it will incur expenses
of approximately $30,000 over the next two years to upgrade certain proprietary
software developed for Utah Service. Utah Service does not expect that its
expenditures related to the Year 2000 Issue will have a material adverse effect
on the results of operations or financial condition of Utah Service.
CERTAIN TRANSACTIONS
During the years ended December 31, 1996 and 1995, Utah Service sold
construction materials to Clyde totaling approximately $303,633 and $313,946,
respectively, and to Geneva Rock totaling approximately $637,833 and $645,138,
respectively. Beehive Insurance received $6,658 and $5,641 in commission revenue
for insurance purchased by Utah Service in 1996 and 1995, respectively.
Transactions with related parties were not effected at below market prices.
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<PAGE> 92
BEEHIVE INSURANCE
BACKGROUND
Beehive Insurance was incorporated in the State of Utah in 1961 by W.W.
Clyde for the purpose of operating as an independent insurance agency for the
sale of insurance coverage to Clyde and the general public. These coverages
include personal automobile and homeowners policies as well as commercial,
property, liability, automobile, surety bonds and other related or companion
commercial insurance coverages. Beehive Insurance's operations have gradually
evolved into the sale of primarily commercial property insurance policies,
casualty insurance policies and surety bonds. Businesses owned by the W.W. Clyde
family (particularly Clyde and Geneva Rock, which collectively generated
approximately 51% of Beehive Insurance's commission revenue in 1996) comprise a
significant portion of Beehive Insurance's client base. The loss of business
from Clyde and Geneva would have a material adverse effect on the business of
Beehive Insurance. Other unaffiliated customers, however, are also serviced by
Beehive Insurance. Revenue for Beehive Insurance is derived from commissions on
the sale of insurance policies to customers, interest income and insurance
company profit sharing revenues received from insurance companies which Beehive
Insurance represents.
THE INDUSTRY AND MARKET
As an independent insurance agency, Beehive Insurance represents several
large national insurance companies and markets their insurance policies and
services to customers. Some insurance companies require certain production
requirements. Such insurance companies monitor Beehive Insurance's production
and loss ratios on insurance placed annually to determine whether to continue
their agency relationship with Beehive Insurance.
The majority of Beehive Insurance's customers are located along the
Wasatch Front (primarily Weber, Davis, Salt Lake and Utah Counties) in the state
of Utah. Beehive Insurance acquires new customers primarily by referral from
existing customers. Some advertising is done, mainly in contractor trade
journals and other publications. Beehive Insurance markets insurance policies to
its customers primarily through commissioned sales associates.
INSURANCE CARRIERS
Insurance policies rendered to customers are provided through a variety
of highly rated national and local insurance companies. The financial strengths
of the insurance companies are monitored through an industry rating service
known as A.M. Best. Beehive Insurance generally markets through insurance
companies bearing ratings of A- or better from A.M. Best. One of the challenges
associated with marketing insurance policies is to have the right insurance
company available to meet the customer's need when it arises. Beehive Insurance
believes that it has been successful in attracting and retaining representation
of insurance companies suited to its customer base with stable financial
resources.
The primary carriers currently represented by Beehive Insurance include
St. Paul Fire & Marine and Reliance Insurance Co., which provides coverage and
surety bonds for Clyde, and Royal Insurance Co. and USF&G which insures Geneva
Rock. Other carriers represented by Beehive Insurance in smaller amounts include
Ohio Casualty and Unigard Insurance.
Because of Beehive Insurance's relatively small size, Beehive Insurance
relies on the insurance companies for development of policies, programs and
services that can be offered to customers.
COMPETITION
Beehive Insurance encounters strong competition in the insurance
services business from other insurance brokerages or agencies, many of which are
larger and have greater financial and other resources than Beehive Insurance. In
addition, certain insureds or groups of insureds establish programs of self
insurance as a supplement or alternative to third party insurance, thereby
reducing in some cases, the need for insurance placement services. Some of
Beehive Insurance's strongest competition has come from specialized insurance
companies providing a
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<PAGE> 93
certain niche or specialized type of insurance coverage suited to a specific
industry such as equipment dealers, roofing contractors and metal fabrication,
etc. In many cases these specialized programs are not accessible to Beehive
Insurance in traditional distribution channels.
SEASONALITY OF BUSINESS
The business activity of Beehive Insurance remains fairly constant
throughout the year. There are periods of seasonal activity relative to the time
certain customer accounts renew during the year. Beehive Insurance experiences
particularly heavy activity for January 1 renewals. Such renewals constitute
approximately 67% of Beehive's annual premium production on customer insurance
policies.
REGULATION
While the laws and regulations vary among jurisdictions, each state
requires an insurance agent, broker, consultant or solicitor to have an
individual and/or company license from a governmental agency or self regulatory
organization. If Beehive Insurance transacts insurance coverage for a customer
located in a state other than Utah, Beehive Insurance must obtain a non-resident
license from that state. Insurance policies transacted under the non-residence
license must be countersigned (in most cases) by a resident agent of the
particular state. In the states of Nevada and Wyoming, a portion of the
commission must be shared with the resident countersigning agent. In most cases,
the insurance company providing the coverage arranges for countersignature.
Beehive Insurance is currently licensed as a resident agent in the state of Utah
and as a non-resident agent in Idaho, Wyoming, Colorado, New Mexico, Arizona,
Montana, Nevada, Oregon, Indiana, Kansas and Connecticut. Beehive Insurance's
non-resident agent license is pending in California. An insurance company doing
business in the foregoing states must undergo a prequalification process for
admission to the state. An insurance company meeting the state qualifications is
known as an admitted carrier. Not all insurance companies doing business in the
state of Utah are admitted carriers. Beehive insurance currently provides
insurance coverage, in some cases in Utah, to customers through non-admitted
carriers. These carriers are not regulated by the State Insurance Department in
the same way or to the extent admitted carriers are. Non-admitted carriers are
also known as surplus lines carriers. In order for Beehive Insurance to provide
policies to customers through surplus lines carriers, a surplus lines broker
license is required. Beehive Insurance holds a surplus lines broker license for
Utah. The surplus lines broker is obligated to collect from the customer surplus
lines taxes and remit the taxes to the Surplus Lines Association of Utah.
The business of Beehive Insurance may be subject to more restrictive
regulations as a result of the Merger because the Utah Insurance Code restricts
the amount of premiums an insurance agency may receive for placing insurance
with "controlled businesses" to less than 50% of the insurance agency's total
premiums during the preceding 12 months. Beehive Insurance's business with the
other Operating Companies during the 12 months preceding September 30, 1997
accounted for approximately 58% of Beehive Insurance's total premiums. After the
Merger, insurance that Beehive Insurance places with the other Operating
Companies might be deemed to be placed with "controlled businesses" for purposes
of the Utah Insurance Code and, if so, Beehive Insurance may have to restrict or
reduce such coverage.
EMPLOYEES
As of September 30, 1997, Beehive Insurance has four full-time employees
providing management and production, customer service, accounting/record keeping
and clerical functions.
PROPERTIES
Beehive Insurance leases from Geneva Rock approximately 1,200 square
feet of office space at 302 West 5400 South, Suite 109, Murray, Utah. Beehive
Insurance owns a single story brick office building situated at 227 West 600
South, Salt Lake City, Utah . The building is approximately 2,500 square feet
and is situated on a 1/3 acre lot that is also owned by Beehive Insurance.
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<PAGE> 94
TRADE NAMES
Beehive Insurance uses the "Beehive Insurance Agency" name as a service
mark in connection with its business operations. Beehive Insurance has
registered "Beehive Insurance Agency, Inc." with the states of Utah and Nevada,
but has no federal registration.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which Beehive
Insurance was a party. From time to time, Beehive Insurance becomes involved in
ordinary, routine or regulatory legal proceedings incidental to the business of
Beehive Insurance.
MARKET PRICE OF AND DIVIDENDS ON BEEHIVE INSURANCE COMMON STOCK
There is no public trading market for Beehive Insurance Common Stock.
The approximate number of shareholders of record on the Record Date was 52.
In 1995, Beehive Insurance paid cash dividends of $9.50 per share of
Beehive Insurance Common Stock to shareholders. In 1996, Beehive Insurance paid
cash dividends of $10.00 per share of Beehive Insurance Common Stock to
shareholders. In 1997, Beehive Insurance paid cash dividends of $10.00 per share
of Beehive Insurance Common Stock to shareholders. After the Merger, dividends
will be paid by CCI in such amounts and at such times as the CCI Board of
Directors deems to be appropriate based on the results of operations, financial
condition and liquidity needs of CCI. The amount, type and frequency of
dividends paid by CCI to its shareholders will not be equivalent to the amount,
type and frequency of dividends paid by Beehive Insurance prior to the Merger.
See "Summary--Selected Financial Information--Comparative Per Share Data".
BEEHIVE INSURANCE MANAGEMENT
DIRECTORS
The names and ages of Beehive Insurance's Directors are currently as
follows:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION(S) WITH BEEHIVE INSURANCE SINCE
- ---- --- ---------------------------------- -----
<S> <C> <C> <C>
W. Douglas Snow............ 41 Director, President, General Manager 1987
B. Clyde Gammell........... 49 Director, Vice President 1971
Carol C. Salisbury......... 70 Director, Secretary, Treasurer 1971
J. Richard Walton.......... 73 Director 1961
Richard C. Clyde........... 62 Director 1987
Wilford W. Clyde........... 44 Director 1988
Norman D. Clyde............ 67 Director 1970
Hal M. Clyde............... 70 Director 1963
</TABLE>
For a description of the business backgrounds of Carol C. Salisbury and
Richard C. Clyde, see "Clyde Companies, Inc.--CCI Management Prior to
Consummation of the Merger," of Wilford W. Clyde, see "Clyde Companies,
Inc.--CCI Management Upon Consummation of the Merger," of Norman D. Clyde, see
"Clyde--Clyde Management," and of Hal M. Clyde, see "Utah Service--Utah Service
Management."
W. Douglas Snow has been a director since 1987. He joined Beehive
Insurance in July of 1979 following a brief period of employment with Fireman's
Fund Insurance Company in the commercial underwriting department. Mr. Snow was
appointed as President and General Manager of Beehive Insurance in 1991.
B. Clyde Gammell has been a director since 1971. He is also currently
Vice President of Beehive Insurance. Mr. Gammell is also the owner and operator
of Clydeco Building Supplies, Inc. B. Clyde Gammell is the
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son of Louise C. Gammell, who is currently the Secretary, Treasurer and a
director of CCI and a director of Utah Service; the brother of A. Ray Gammell
who is currently Vice President and a director of Utah Service and a director of
Geneva Rock; and a nephew of William R. Clyde, Ila C. Cook, and Carol C.
Salisbury.
J. Richard Walton has been a director since 1961 and is one of the
founders of Beehive Insurance. He served as President and General Manager of
Beehive Insurance from its inception in 1961 to 1991.
EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The names, ages and positions of Beehive Insurance's executive officers
and significant employees are currently as follows:
<TABLE>
<CAPTION>
CURRENT POSITION(S)
NAME AGE WITH BEEHIVE INSURANCE SINCE
- ---- --- ---------------------- -----
<S> <C> <S> <C>
W. Douglas Snow .........................41 President and General Manager 1991
B. Clyde Gammell.........................49 Vice President 1997
Carol C. Salisbury.......................70 Secretary, Treasurer 1988
</TABLE>
For a description of the business backgrounds of Carol C. Salisbury, see
"Clyde Companies, Inc.--CCI Management Prior to Consummation of the Merger," and
of W. Douglas Snow and B. Clyde Gammel, see "Beehive Insurance--Beehive
Insurance Management--Directors."
COMMITTEES OF BEEHIVE INSURANCE BOARD
Currently, there is an Executive Committee of the Board of Directors of
Beehive Insurance consisting of W. Douglas Snow, B. Clyde Gammell and Carol C.
Salisbury. The executive committee meets regularly with Douglas Snow to review
progress of the agency and review the agendas prior to Board of Directors
meetings and shareholders meetings.
ATTENDANCE AT BEEHIVE INSURANCE BOARD MEETINGS
As of the date hereof, the Board of Directors met three times in 1997,
and no director attended fewer than 75% of these meetings, except Norman Clyde
who is currently on a leave of absence for church service for a period of
approximately three years.
COMPENSATION OF DIRECTORS OF BEEHIVE INSURANCE
Each director receives an annual director fee of $500. In addition, B.
Clyde Gammell and Carol C. Salisbury receive an additional $1,000 for serving on
the Executive Committee.
PRINCIPAL SHAREHOLDERS OF BEEHIVE INSURANCE
The following table sets forth certain information regarding the
projected beneficial ownership of Beehive Insurance Common Stock as of September
30, 1997 as to (i) each person who is known by Beehive Insurance to own
beneficially 5% or more of the outstanding shares of Common Stock, (ii) each
Director of Beehive Insurance, (iii) each executive officer and (iv) all
Directors and executive officers as a group. Except as otherwise noted, Beehive
Insurance believes the persons listed below have sole investment and voting
power with respect to the Beehive Insurance Common Stock that they are deemed to
beneficially own.
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<TABLE>
<CAPTION>
COMMON STOCK
------------
SHARES APPROXIMATE
BENEFICIALLY PERCENTAGE
OWNED(1) OWNED(1)
-------- --------
<S> <C> <C>
Louise C. Gammell(2).....................................................4,774 22.22%
1100 E. 400 S.
Springville, UT 84663
Carol C. Salisbury(3)....................................................4,389 20.43%
1423 Devonshire Drive
Salt Lake City, UT 84108
Ila C. Cook(4)...........................................................4,388 20.42%
2711 Sherwood Dr.
Salt Lake City, UT 84108
Richard C. Clyde(5)......................................................4,200 19.55%
776 South 600 West
Orem, UT 84057
William R. Clyde(6)......................................................4,004 18.63%
2000 Canyon Road
Springville, UT 84663
Paul B. Clyde(7).........................................................3,768 17.54%
3308 N. 350 E.
Provo, UT 84601
Clyde Companies, Inc.....................................................3,700 17.22%
1423 Devonshire Drive
Salt Lake City, UT 84108
J. Richard Walton(8).....................................................3,000 13.96%
2370 Logan Way
Salt Lake City, UT 84108
Edna T. Clyde............................................................1,788 8.32%
380 East 200 South
Springville, UT 84663
Louise C. Clyde..........................................................1,690 7.87%
240 East Center Street
Springville, UT 84663
Norman D. Clyde..........................................................1,366 6.36%
3223 Apache Lane
Provo, UT 84604
Hal M. Clyde...............................................................916 4.26%
908 Hillcrest Dr.
Springville, UT 84663
W. Douglas Snow............................................................200 *
</TABLE>
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<TABLE>
<S> <C> <C>
640 East 1400 South
Kaysville, UT 84037
Wilford W. Clyde............................................................58 *
1324 East 950 South
Springville, UT 84663
B. Clyde Gammell.............................................................5 *
1045 West 1200 North
Mapleton, UT 84664
All Directors and Executive Officers as a group (8 People)(9)...........10,834 50.42%
</TABLE>
- -----------------------
* Less than 1%.
(1) Applicable percentage of ownership is based on 21,487 shares of Common Stock
outstanding as of the Record Date. Beneficial ownership is determined in
accordance with the rules of the Commission, and includes voting and
investment power with respect to such shares.
(2) Includes 669 shares owned directly by Louise C. Gammell, 5 shares owned
directly by her husband, Blake Gammell, 400 shares owned jointly by Louise
and Blake Gammell, and 3,700 shares owned by CCI, which shares Ms. Gammell
may be deemed to beneficially own as a result of her position as Secretary,
Treasurer and as director of CCI.
(3) Includes 689 shares owned directly by Carol C. Salisbury and 3,700 shares
owned by CCI, which shares Ms. Salisbury may be deemed to beneficially own
as a result of her position as President and as director of CCI.
(4) Includes 688 shares owned indirectly by Ila C. Cook through the Ila C. Cook
Family Trust and 3,700 shares owned by CCI, which shares Ms. Cook may be
deemed to beneficially own as a result of her position as Vice President and
a director of CCI.
(5) Includes 10 shares owned indirectly by Richard C. Clyde through the Richard
C. Clyde Trust, 490 shares owned indirectly by Patricia Clyde, through the
Patricia Clyde Trust and 3,700 shares owned by CCI, which shares Mr. Clyde
may be deemed to beneficially own as a result of his position as a director
of CCI.
(6) Includes 16 shares owned indirectly by William R. Clyde through the William
R. Clyde Trust, 288 shares owned indirectly by Mr. Clyde through the Reklaw
and Co. Trust and 3,700 shares owned by CCI, which shares William R. Clyde
may be deemed to beneficially own as a result of his position as Vice
President and as director of CCI.
(7) Includes 10 shares owned directly by Paul B. Clyde, 58 shares jointly owned
by Paul B. and Jeanette Clyde (husband and wife) and 3,700 shares of owned
by CCI, which shares Paul B. Clyde may be deemed to beneficially own as a
result of his position as a director of CCI.
(8) Includes 3,000 shares owned indirectly by Mr. Walton through the J. Richard
Walton Revocable Trust.
(9) In computing the aggregate number of shares owned by officers and directors
as a group, the shares owned by CCI, which shares certain of the officers
and directors may be deemed to beneficially own, are counted only once.
SELECTED FINANCIAL INFORMATION FOR BEEHIVE INSURANCE
The following selected statement of earnings and balance sheet data as
of and for each of the years in the five year period ended December 31, 1996 are
derived from the financial statements of Beehive Insurance which have been
audited by Daines. The selected statement of earnings for the nine month periods
ended September 30, 1997 and 1996 are unaudited, but, in the opinion of
management, the unaudited financial statements reflect all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
of the information included therein. The financial data for Beehive Insurance
should be read in conjunction with the Financial Statements and Notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations of Beehive Insurance" included elsewhere herein. The results for the
nine month period ended September 30, 1997 are not necessarily indicative of
results that may be expected for the full year.
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<TABLE>
<CAPTION>
Nine months ended
September 30, Year ended December 31,
------------------ ---------------------------------------- -------
1997 1996 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of earnings data:
Commission revenue $ 523 $ 501 $ 578 $ 538 $ 598 $ 507 $ 519
General and administrative 217 194 244 357 254 239 246
------- ------- ------- ------- ------- ------- -------
Operating income 306 307 334 181 344 268 273
Other income (expense), net 19 20 29 38 27 21 29
Income taxes 121 108 129 88 129 100 104
------- ------- ------- ------- ------- ------- -------
Net earnings $ 204 $ 219 $ 234 $ 131 $ 242 $ 189 $ 198
======= ======= ======= ======= ======= ======= =======
Earnings per common share $ 9.49 $ 10.19 $ 10.88 $ 6.10 $ 11.26 $ 8.76 $ 9.20
Weighted average shares outstanding 21,487 21,487 21,487 21,487 21,487 21,487 21,487
Balance sheet data:
Current assets $ 840 $ 679 $ 827 $ 960 $ 846 $ 946
Current liabilities 470 377 554 555 473 560
Total assets 945 756 914 988 879 972
Total liabilities 470 377 554 555 473 560
Stockholders' equity 475 379 360 433 406 411
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF BEEHIVE INSURANCE
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Management's Discussion and
Analysis of Financial Condition and Results of Operations of Beehive Insurance
and other sections of this Proxy Statement/Prospectus, including without
limitation statements containing the words "believes," "anticipates," "intends,"
"expects" and words of similar import, constitute forward-looking statements.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or achievements
of the Constituent Corporations to be materially different from any future
results, performance or achievements expressed or implied by such forward
looking statements. Such factors include, among other things, the following: (1)
expected cost savings from the Merger may not be realized; (2) costs or
difficulties related to the integration of the businesses of Clyde, Geneva Rock,
Utah Service and Beehive Insurance may be greater than expected; (3) an increase
of competitive pressure in the industries of Clyde, Geneva Rock, Utah Service
and Beehive Insurance may adversely affect the businesses of those companies;
and (4) general economic conditions, either nationally or in the states in which
Clyde, Geneva Rock, Utah Service and Beehive Insurance do business, may be less
favorable than expected. CCI disclaims any obligation to update such factors or
to publicly announce the result of any revisions to any forward-looking
statements included or incorporated by reference herein to reflect future events
or developments.
RESULTS OF OPERATIONS
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<PAGE> 99
The following discussions should be read in conjunction with the
financial statements and related notes of Beehive Insurance included elsewhere
in this Proxy Statement/Prospectus.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
Commission revenue for the nine month period increased 4.4% from the
comparable period in 1996 due to the acquisition of J & J by Geneva Rock in June
1996, resulting in increased commission revenue primarily derived from insurance
policies sold to J & J subsequent to the acquisition. Net earnings also
increased by the same margin.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Commission revenue for the year ended December 31, 1996 totaled
$577,562, which represented a 7.4% increase from $537,792 in commission revenue
for the year ended December 31, 1995. The increase in 1996 of commission revenue
resulted from an increase in insurance commissions in 1996 to $517,497, which
were up 14.5% from 1995 insurance commissions in the amount of $451,940.
Insurance commissions in 1996 increased due to the addition of several new
customers and an increase in surety bond business, which pays a higher
commission rate.
The increase of insurance commissions for 1996 was not fully reflected
in commission revenue for 1996 because of a 30% decline in 1996 profit sharing
commissions, from $85,852 in 1995 to $60,065 in 1996. Profit sharing commissions
are paid by the insurance carriers to insurance agencies based on the level of
premium production during the preceding year and how profitable that business is
to the insurance company. The profit sharing commissions declined in 1996
primarily because the premium production of Beehive Insurance in 1995 was less
than premium production in 1994. In addition to the declining premium volumes of
1995, the cost of claims to the insurance companies from Beehive Insurance's
policyholders resulted in a decline in the profitability of Beehive Insurance's
business to the insurance companies. Accordingly, the profit sharing income was
less in 1996 because it was based upon the lower premium production and higher
claims of 1995.
Net earnings for 1996 were $233,783, compared with net earnings of
$131,007 for 1995, resulting in a 78.5% increase. This increase in net earnings
was attributable in large part to a reduction of pension expenses to $12,641 in
1996, down from $104,487 in 1995. The increase in pension expenses in 1995 was
caused by an actuarial adjustment. The increase in commission revenue discussed
above also had a material impact on net earning for 1996. Additionally, income
during 1996 benefited from a decline in selling, general and administrative
expenses from $105,947 in 1995, to $80,823 in 1996, a savings of $25,124. The
decline in selling, general and administrative expenses was attributable to the
manner of presentation of Beehive Insurance's state corporation franchise tax
payments on the 1996 Statement of Income and Retained Earnings. In 1996 the
State Income Tax was reported with Beehive Insurance's income tax. In 1995 the
State Income Tax was reported in Beehive Insurance's account for selling,
general and administrative expenses.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Commission revenue for 1995 declined 10.1% to $537,792, down from 1994
commission revenue of $598,125. The decline in commission revenue was
attributable to a 12.9% decline in insurance commissions from 1994 insurance
commissions of $518,935 to insurance commissions in 1995 of $451,940. This
decline was mitigated to some extent by an 8.4% increase in profit sharing
commissions from $79,190 in 1994 to $85,852 in 1995. The 12.9% decline in
insurance commissions from 1994 to 1995 resulted from Beehive Insurance's loss
of certain customer accounts. Also, contract surety bond commissions were less
in 1995 than in 1994.
Net income for 1995 was down 45.9% to $131,007 from net income for 1994
of $242,005. Most of this decline was attributable to the 1995 pension expenses
in the amount of $104,487, none of which were recognized on the financial
statements for 1994.
LIQUIDITY AND CAPITAL RESOURCES
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Beehive Insurance's primary sources of liquidity have been funds
generated by operations. Net cash provided by operating activities was
approximately $623,956, $92,584, $135,588 and $110,230 during 1994, 1995, 1996
and the nine months ended September 30, 1997, respectively. Net cash provided by
operating activities is primarily attributable to Beehive Insurance's income
before depreciation and amortization expense.
On December 31, 1994 Beehive Insurance had cash of $779,895 and total
current assets of $960,204. This amount declined to balances on December 31,
1995 of $640,669 cash and $827,348 total current assets. On December 31, 1996
cash on hand in Beehive Insurance was $558,642 with total current assets of
$678,501. This decrease in cash and current assets of Beehive Insurance from
December 31, 1994 to December 31, 1995 did not jeopardize the liquidity or cash
requirements of Beehive Insurance. The decline in cash and current assets must
be viewed in connection with the reduction in insurance premiums payable to
insurance companies together with the increased amount of accounts receivable.
If the accrued pension liability was eliminated, the current liabilities would
be less in 1995 with correspondingly reduced cash for the payment of the current
liabilities. Also, Beehive Insurance expended cash in 1995 for the purchase of
an automobile, computer equipment and the replacement of the roof on the
building owned by Beehive Insurance. Management believes Beehive Insurance's
cash position is sufficient to meet Beehive Insurance's ongoing obligations.
Paid in capital remained unchanged from December 31, 1994 to December
31, 1996 at the amount of $24,997, less $120 and 13 shares of treasury stock.
Retained earnings decreased from $408,303 on December 31, 1994 to $335,184 on
December 31, 1995. Retained earnings increased from $335,184 on December 31,
1995 to $354,097 on December 31, 1996. Dividends were paid in 1996, 1995, and
1994 in the amounts of $10.00, $9,50, and $10.00 per share, respectively.
INFLATION
Inflation in the U.S. economy has been relatively moderate during the
last few years. The impact of inflation on Beehive Insurance has been mainly the
increase in employee salaries. Also, increases have been noticed in the cost of
health insurance coverage for employees.
SEASONALITY
The business activity of Beehive Insurance remains fairly consistent
through each year. There may be periods of seasonal activity relative to the
time certain customers' accounts renew during each year. Beehive Insurance
experiences particularly heavy activity for January 1 renewals. Such renewals
account for approximately 67% of Beehive Insurance's annual production on
customer insurance policies.
THE YEAR 2000 ISSUE
Beehive Insurance utilizes computer hardware and software in its
operations. Certain computer applications could fail or create erroneous results
due to the upcoming change in the century (the "Year 2000 Issue"). Beehive
Insurance has not regularly upgraded its computer hardware and software in the
past and anticipates that it will incur expenses of approximately $25,000 over
the next two years to upgrade its computer hardware and proprietary software
developed for the insurance agency business. The management of Beehive Insurance
believes that such upgrades will prevent the Year 2000 Issue from having a
material adverse effect on the business and operations of Beehive Insurance.
CERTAIN TRANSACTIONS
During the years ended December 31, 1996 and 1995, Clyde, Geneva Rock, J
& J, and Utah Service each purchased substantially all of their insurance
coverages through Beehive Insurance, and together they accounted for
approximately 58% of Beehive Insurance's total commission revenue. As of
December 31, 1996 Clyde, Geneva Rock, J & J and Utah Service generated $51,291
or 9.91%, $193,025 or 37.30%, $19,204 or 3.71%, and $6,658 or 1.29%,
respectively, of the total commission revenue received by Beehive Insurance
during the preceding 12 months. As of December 31, 1995 Clyde, Geneva Rock and
Utah Service generated $42,254 or 9.35%. $183,885 or
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40.69%, and $5,641 or 1.25%, respectively, of the total commission revenue
received by Beehive Insurance during the preceding 12 months.
Beehive Insurance leases from Geneva Rock approximately 1,200 square
feet of office space owned by Geneva Rock and situated at 302 West 5400 South,
Murray, Utah. The monthly rental amount paid by Beehive Insurance to Geneva Rock
for the leased space is $1,614.17. Transactions with related parties were not
effected at below market prices.
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THE SPECIAL MEETINGS
TIME, DATE AND PLACE OF THE SPECIAL MEETINGS
The Special Meetings of CCI, Clyde, Geneva Rock, Utah Service and
Beehive Insurance will be held at 9:30, 10:00, 10:30, 11:00 and 11:30 a.m.,
respectively, _____________, 1998, at the offices of Geneva Rock located at 1565
West 400 North, Orem, Utah.
PURPOSES OF THE SPECIAL MEETINGS
At the Special Meetings, the shareholders of each of CCI, Clyde, Geneva
Rock, Utah Service and Beehive Insurance will consider and vote upon a proposal
to approve the Merger Agreement and the transactions contemplated thereby. A
copy of each of the Merger Agreement is attached to this Proxy
Statement/Prospectus as Annex A.
VOTE REQUIRED; RECORD DATE
CCI
CCI shareholders of record at the close of business on ____________,
1998 (the "Record Date") will be entitled to notice of and to vote at the CCI
Special Meeting and at any adjournment or postponement thereof. There were
issued and outstanding 2,303,920 shares of CCI Common Stock as of the Record
Date, held by approximately 56 shareholders of record.
The Utah Revised Business Corporation Act ("URBCA") does not require
that the Merger be approved by the CCI shareholders since only CCI, as the sole
shareholder of its subsidiaries, will vote on the merger of its subsidiaries
with Clyde, Geneva Rock, Utah Service and Beehive Insurance. However, the Board
of Directors of CCI has determined that it is in the best interest of CCI and
its shareholders for CCI to submit the Merger to its shareholders for approval.
Under the terms of the Merger Agreement, the affirmative vote of holders of at
least a majority of the outstanding shares of CCI is required to approve the
Merger. In determining whether the approval of the Merger has received the
requisite number of affirmative votes, abstentions and shares not represented at
the CCI Special Meeting will have the same effect as a vote against any such
proposal. Holders of a majority of the shares entitled to vote at the CCI
Special Meeting, represented in person or by proxy, will constitute a quorum.
Each holder will be entitled to cast one vote for each share of CCI Common Stock
held.
As of the Record Date, the directors and officers of CCI and their
affiliates owned 759,160 shares, representing approximately 32.95% of the
outstanding shares of CCI Common Stock. Such persons have indicated that they
intend to vote their shares FOR approval of the Merger.
CLYDE
Clyde shareholders of record at the close of business on the Record Date
will be entitled to notice of and to vote at the Clyde Special Meeting and at
any adjournment or postponement thereof. There were issued and outstanding
94,544 shares of Clyde Common Stock as of the Record Date, held by approximately
98 shareholders of record.
Under the URBCA, the approval of the Merger by the Clyde shareholders
requires the affirmative vote of the holders of at least a majority of the
outstanding shares of Clyde Common Stock. In determining whether the approval of
the Merger has received the requisite number of affirmative votes, abstentions,
and shares not represented at the Special Meeting will have the same effect as a
vote against any such proposal. Holders of a majority of the shares entitled to
vote at the Clyde Special Meeting, represented in person or by proxy, will
constitute a quorum. Each holder will be entitled to cast one vote for each
share of Clyde Common Stock held.
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As of the Record Date, the directors and officers of Clyde and their
affiliates owned 12,680 shares, representing approximately 13.41% of the
outstanding shares of Clyde Common Stock, and CCI owned 31,935 shares,
representing approximately 33.78% of the outstanding shares of Clyde Common
Stock. Such persons have indicated that they intend to vote their shares FOR
approval of the Merger.
GENEVA ROCK
Shareholders of record at the close of business on the Record Date will
be entitled to notice of and to vote at the Geneva Rock Special Meeting and at
any adjournment or postponement thereof. There were issued and outstanding
21,802 shares of Geneva Rock Common Stock as of the Record Date, held by
approximately 81 shareholders of record.
Under the URBCA, the approval of the Merger by the Geneva Rock
shareholders requires the affirmative vote of the holders of at least a majority
of the outstanding shares of Geneva Rock Common Stock. In determining whether
the approval of the Merger has received the requisite number of affirmative
votes, abstentions, and shares not represented at the Special Meeting will have
the same effect as a vote against any such proposal. Holders of a majority of
the shares entitled to vote at the Geneva Rock Special Meeting, represented in
person or by proxy, will constitute a quorum. Each holder will be entitled to
cast one vote for each share of Geneva Rock Common Stock held.
As of the Record Date, the directors and officers of Geneva Rock and
their affiliates owned 1,812 shares, representing approximately 8.31% of the
outstanding shares of Geneva Common Stock, Clyde owned 7,581 shares,
representing approximately 34.77% of the outstanding shares of Geneva Rock
Common Stock, and CCI owned 4,725 shares, representing approximately 21.67% of
the outstanding shares of Geneva Rock Common Stock. Such persons have indicated
that they intend to vote their shares FOR approval of the Merger, thereby
assuring approval of the Merger by the Geneva Rock shareholders.
UTAH SERVICE
Utah Service shareholders of record at the close of business on the
Record Date will be entitled to notice of and to vote at the Utah Service
Special Meeting and at any adjournment or postponement thereof. There were
issued and outstanding 5,413 shares of Utah Service Common Stock as of the
Record Date, held by approximately 52 shareholders of record.
Under the URBCA, the approval of the Merger by the Utah Service
shareholders requires the affirmative vote of the holders of at least a majority
of the outstanding shares of Utah Service Common Stock. In determining whether
the approval of the Merger has received the requisite number of affirmative
votes, abstentions, and shares not represented at the Special Meeting will have
the same effect as a vote against any such proposal. Holders of a majority of
the shares entitled to vote at the Utah Service Special Meeting, represented in
person or by proxy, will constitute a quorum. Each holder will be entitled to
cast one vote for each share of Utah Service Common Stock held.
As of the Record Date, the directors and officers of Utah Service and
their affiliates owned 1,423 shares, representing approximately 26.89% of the
outstanding shares of Utah Services Common Stock, and CCI owned 1,698 shares,
representing approximately 31.37% of the outstanding shares of Utah Service
Common Stock. Such persons have indicated that they intend to vote their shares
FOR approval of the Merger, thereby assuring approval of the Merger by the Utah
Service shareholders.
BEEHIVE INSURANCE
Shareholders of record at the close of business on the Record Date will
be entitled to notice of and to vote at the Beehive Insurance Special Meeting
and at any adjournment or postponement thereof. There were issued and
outstanding 21,487 shares of Beehive Insurance Common Stock as of the Record
Date, held by approximately 50 shareholders of record.
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Under the URBCA, the approval of the Merger by the Beehive Insurance
shareholders requires the affirmative vote of the holders of at least a majority
of the outstanding shares of Beehive Insurance Common Stock. In determining
whether the approval of the Merger has received the requisite number of
affirmative votes, abstentions, and shares not represented at the Special
Meeting will have the same effect as a vote against any such proposal. Holders
of a majority of the shares entitled to vote at the Beehive Insurance Special
Meeting, represented in person or by proxy, will constitute a quorum. Each
holder will be entitled to cast one vote for each share of Beehive Insurance
Common Stock held.
As of the Record Date, the directors and officers of Beehive Insurance
and their affiliates owned 6,734 shares, representing approximately 31.34% of
the outstanding shares of Beehive Insurance Common Stock, and CCI owned 3,700
shares of Beehive Insurance Common Stock, representing approximately 17.2% of
the outstanding shares of Beehive Insurance Common Stock. All such persons
except J. Richard Walton have indicated that they intend to vote their shares
FOR approval of the Merger. Although J. Richard Walton, a director of Beehive
Insurance, believes that the Merger is in the best interest of Beehive Insurance
and its shareholders and, therefore, voted in favor of the Merger as a director
of Beehive Insurance, he has advised CCI that, because of personal financial
considerations, he intends to vote his shares AGAINST approval of the Merger at
the Beehive Insurance Special Meeting and exercise his dissenter's rights. See
"Dissenters' Rights."
PROXIES; REVOCATION OF PROXIES
Shares of CCI Common Stock, Clyde Common Stock, Geneva Rock Common
Stock, Utah Service Common Stock and Beehive Insurance Common Stock represented
by properly executed and unrevoked proxies will be voted at the CCI Special
Meeting, Clyde Special Meeting, Geneva Rock Special Meeting, Utah Service
Special Meeting and Beehive Insurance Special Meeting, respectively, in
accordance with the directions contained therein. If no direction is made in a
properly executed and unrevoked proxy, the shares of Clyde Common Stock, CCI
Common Stock, Geneva Rock Common Stock, Utah Service Common Stock and Beehive
Insurance Common Stock represented by such proxy will be voted FOR the adoption
and approval of the Merger, and the transactions contemplated thereby.
Any CCI, Clyde, Geneva Rock, Utah Service or Beehive Insurance
shareholder is empowered to revoke a proxy at any time before its exercise. A
proxy may be revoked by filing with the Secretary of the respective company a
written revocation or a duly executed proxy bearing a later date. Any written
notice revoking a proxy should be sent to (i) in the case of CCI, Clyde
Companies, Inc., 1423 Devonshire Drive, Salt Lake City, Utah, 84108, Attention:
Secretary, or hand delivered to the Secretary at or before the taking of the
vote at the CCI Special Meeting; (ii) in the case of Clyde, W.W. Clyde & Co.,
1375 North Main Street, Springville, Utah, 84663, Attention: Secretary, or hand
delivered to the Secretary at or before the taking of the vote at the Clyde
Special Meeting; (iii) in the case of Geneva Rock, Geneva Rock Products, Inc.,
1565 West 400 North, Orem, Utah, 84057, Attention: Secretary, or hand delivered
to the Secretary at or before the taking of the vote at the Geneva Rock Special
Meeting; (iv) in the case of Utah Service, Utah Service, Inc., 35 East 400
South, Springville, Utah, 84663, Attention: Secretary, or hand delivered to the
Secretary at or before the taking of the vote at the Utah Service Special
Meeting; or (v) in the case of Beehive Insurance, Beehive Insurance Agency,
Inc., 302 West 5400 South, Suite 109, Murray, Utah, 84107, Attention: Secretary,
or hand delivered to the Secretary at or before the taking of the vote at the
Beehive Insurance Special Meeting.
CCI, Clyde, Geneva Rock, Utah Service and Beehive Insurance will bear
the costs of soliciting proxies from their respective shareholders. In addition
to soliciting proxies by mail, directors, officers and employees of each of CCI,
Clyde, Geneva Rock, Utah Service and Beehive Insurance may solicit proxies by
telephone, by courier service, by telegram or in person. Such directors,
officers and employees will not be additionally compensated for such
solicitation but may be reimbursed for their out-of-pocket expenses incurred in
connection therewith. Arrangements may also be made with banks, brokerage houses
and other custodians, nominees and fiduciaries for the forwarding of
solicitation material to the beneficial owners of common stock held of record by
such persons, and upon request, CCI, Clyde, Geneva Rock, Utah Service or Beehive
Insurance will reimburse such custodians, nominees and fiduciaries for their
reasonable out-of-pocket expenses in connection therewith.
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THE MERGER
GENERAL
The following is a brief summary of certain aspects of the Merger. This
summary does not purport to be complete and is qualified in its entirety by
reference to the Merger Agreement, a copy of which is attached to this Proxy
Statement/Prospectus as Annex A and is incorporated herein by reference.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS OF CCI,
CLYDE, GENEVA ROCK, UTAH SERVICE AND BEEHIVE INSURANCE
The Board of Directors of each of CCI, Clyde, Geneva Rock, Utah Service
and Beehive Insurance believes that the shareholders of CCI, Clyde, Geneva Rock,
Utah Service and Beehive Insurance, respectively, should vote FOR approval of
the Merger Agreement and the transactions contemplated thereby. The following
are the reasons considered by the Board of Directors of each of CCI, Clyde,
Geneva Rock, Utah Service and Beehive Insurance, respectively, to be material in
its decision to approve the Merger as described above. NO ATTEMPT HAS YET BEEN
MADE TO QUANTIFY THE EXTENT OF ANY OF THE FOLLOWING POTENTIAL COST SAVINGS OR
POTENTIAL INCREASES IN RETURN ON CAPITAL DESCRIBED BELOW. THERE CAN BE NO
ASSURANCE THAT ANY OF THE FACTORS DESCRIBED BELOW WILL ACTUALLY RESULT IN COST
SAVINGS OR INCREASED RETURNS.
INCREASED FINANCIAL AND COMPETITIVE STRENGTH
The Boards of Directors of the Constituent Corporations believe that the
Merger will combine the financial strength of Clyde and Geneva and increase
their respective competitive positions, placing Clyde in a better competitive
position to bid on larger design/build projects with increased bonding
capability. This is particularly important due to the general consolidation
which has taken place in the construction industry, resulting in larger and
better financed players coming into the regional construction market in which
Clyde operates.
PROFESSIONAL MANAGEMENT TEAM
After the Merger, the benefits of a professional management team will be
made available to each of the Constituent Corporations to help them move forward
and grow their businesses. Under the current management structure, each of the
Constituent Corporations draws on its own independent management personnel. The
Merger will make the management personnel of the Constituent Corporations
available to each of the other Constituent Corporations. Management believes
that the consolidated professional management team will help the consolidated
company to identify and take advantage of future opportunities and investments.
SPIN-OFFS OR SALES OF OPERATIONS
While management does not have any present plans to sell any of the
Operating Companies, management believes that the Merger will increase
shareholder value by creating a unified ownership structure that will make it
easier to sell one or more of the Operating Companies should CCI decide to do so
at some point in the future. From time to time, certain of the Constituent
Corporations have received offers from buyers interested in purchasing
operations or entire businesses of the Constituent Corporations (no such offers
have been received in the last two years). The diffused and overlapping
shareholder structure has made it difficult to respond effectively to such
offers. The simplified shareholder structure resulting from the Merger will
allow the management of CCI to more effectively engage in negotiations with
potential buyers and consider attractive offers that have the potential to
increase shareholder value.
INCREASED PURCHASING POWER
The combination of entities resulting from the Merger will potentially
create greater purchasing power due to increased volume and will eliminate some
duplicative purchasing that currently occurs among the Operating Companies. The
increased volume of purchasing will potentially reduce the cost of obtaining
such items as fuel,
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construction materials and equipment. Currently, the Operating Companies
negotiate, order and purchase on an independent basis. This has resulted in a
certain amount of duplication which can be eliminated in part through the
Merger.
CONSOLIDATION OF OPERATIONS
After the Merger, the management of CCI will be in a better position to
combine divisions of the Operating Companies that now have similar or identical
operations. In particular, the Merger will make it possible to combine the road
construction operations of Clyde and Geneva Rock. After the consummation of the
Merger, the Board of Directors of CCI will consider combining other operations
of the Operating Companies with a view to realizing overall cost savings.
CONSOLIDATION OF ADMINISTRATIVE FUNCTIONS
It is anticipated that the Merger will result in cost savings to each of
the Constituent Corporations generated by the elimination of certain duplicative
management and administrative functions now being carried out separately by each
of the Constituent Corporations. In particular, the Merger will make it possible
to explore the consolidation of the various separate financial accounting
systems now used by the Constituent Corporations, resulting in potential cost
savings. Also, the Merger will allow Utah Service and Beehive Insurance to enjoy
the benefits of the human resource departments that have been developed by Clyde
and Geneva Rock. Utah Service and Beehive Insurance have not had the financial
capacity to invest in a large and well-developed human resources department to
the extent of Clyde and Geneva Rock. The Merger will make it possible to spread
these and other administrative benefits to all the employees of the various
Constituent Corporations.
POTENTIAL TAX SAVINGS
As a consequence of the Merger, taxable dividends to CCI and Clyde from
the other Constituent Corporations will be eliminated, resulting in tax savings
to CCI and Clyde. It is anticipated that the Merger will produce some tax
savings for the Constituent Corporations as a whole. This is primarily due to
the elimination of sales tax on certain intercompany transactions and the fact
that, after the consummation of the Merger, CCI will file consolidated tax
returns for federal and state tax purposes on behalf of itself and all of the
Constituent Corporations, eliminating the necessity for each Operating Company
to pay a separate corporate tax on earnings.
TASK FORCE
In order to facilitate the Merger, an informal working group of
shareholders of the Constituent Corporations (the "Task Force") was formed for
the purpose of considering and making recommendations to the Boards of Directors
of each Constituent Corporation with respect to the economic and other terms of
the Merger. The Task Force is comprised of (i) David E. Salisbury, who is a
director of Clyde and the husband of Carol C. Salisbury, who is the President
and a director of CCI and the Secretary, Treasurer and a director of Beehive
Insurance, (ii) Hal M. Clyde, who is a director of Utah Service and Beehive
Insurance, (iii) Wilford W. Clyde, who is the President and General Manager of
Geneva Rock and a director of Clyde, Geneva Rock and Beehive Insurance, (iv)
Richard C. Clyde, who is the President and General Manager of Clyde and a
director of CCI, Clyde, Geneva Rock and Beehive Insurance, (v) Paul B. Clyde,
who is a Vice President of Clyde and a director of CCI, Clyde, Geneva Rock and
Utah Service, (vi) David O. Cook, who is the President and a director of Utah
Service, (vii) James C. Gramoll, who is a grandson of Harry S. Clyde, (viii)
Steven L. Clyde, who is the Project Superintendent and a director of Clyde, (ix)
A. Ray Gammell, who is a director of Geneva Rock and Utah Service and (x) Norman
D. Clyde, who is a director of Clyde, Geneva Rock, Utah Service and Beehive
Insurance. The Board of Directors of each of the Constituent Corporations has
considered and approved the recommendations of the majority of the Task Force
with respect to the Merger.
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VALUATION REPORTS FOR OPERATING COMPANIES BY FINANCIAL ADVISOR, HOULIHAN
VALUATION ADVISORS
BACKGROUND
The Task Force requested Houlihan Valuation Advisors ("HVA") to prepare
valuation reports with respect to Clyde, Geneva Rock, Utah Service and Beehive
Insurance. HVA provides professional services relative to business valuations,
fairness and solvency opinions, economic loss analyses and other valuation and
economic issues. HVA prepared two separate valuation reports for these companies
as of June 30, 1997, the first dated September 12, 1997 (the "First HVA Report")
and the second dated October 23, 1997 (the "Second HVA Report"). Both the First
HVA Report and the Second HVA Report resulted in the same valuations for each of
Geneva Rock, Utah Service and Beehive Insurance. The Second HVA Report resulted
in a different valuation for Clyde, as explained below. These reports were
submitted to the Board of Directors of Clyde, Geneva Rock, Utah Service and
Beehive Insurance.
The First HVA Report was prepared valuing each of Clyde, Geneva Rock,
Utah Service and Beehive Insurance as a stand alone entity. This approach took
into account certain tax liabilities that would be incurred by Clyde with
respect to Geneva Rock Common Stock owned by Clyde in the event Clyde and its
assets were to be liquidated. Pursuant to this valuation approach, HVA estimated
the fair market enterprise value of Clyde Common Stock as follows: (i) book
value was estimated at $370 per share for a total value of $34,947,000 and
assigned a weight of 0% in the final calculation; (ii) liquidation value was
estimated at $533 per share for a total value of $50,400,000 and assigned a
weight of 40% in the final calculation; (iii) the price-earnings method yielded
a value of $546 per share for a total value of $51,604,000 and was assigned a
weight of 10% in the final calculation; (iv) the price to cash flow method
yielded a value of $544 per share for a total value of $51,417,000 and was
assigned a weight of 10% in the final calculation; (v) the price to revenue
method yielded a value of $429 per share for a total value of $40,561,000 and
was assigned a weight of 0% in the final calculation; (vi) the price to book
value method yielded a value of $545 per share for a total value of $51,554,000
was assigned a weight of 10% in the final calculation; and (vii) income value
was estimated at $479 per share for a total value of $45,332,000 and was
assigned a weight of 30% in the final calculation. Based on the foregoing
estimated values and weights, the fair market enterprise value of the Clyde
Common Stock as of June 30, 1997 was estimated to be $520 per share for a total
value of $49,200,000.
The Second HVA Report was prepared valuing each of Clyde, Geneva Rock,
Utah Service and Beehive Insurance based on the assumption that they would be
combining in a tax free transaction where Clyde would not be liquidated and
would incur no tax liabilities with respect to its Geneva Rock Common Stock. In
this second valuation, all the various valuation methods were considered, but
the liquidation method was given 100% weight because this method resulted in a
significantly higher value than the other methods which assume a going concern.
Based on this second approach the fair market enterprise value of Clyde as of
June 30, 1997 was estimated to be $657 per share for a total value of
$62,100,000.
VALUATIONS OF OPERATING COMPANIES
The valuation of each Operating Company is described below.
CLYDE. As explained above, the Second HVA Report for Clyde estimated the
fair market enterprise value of Clyde Common Stock as of June 30, 1997 to be
$657 per share for a total value of $62,100,000.
GENEVA ROCK. Both the First HVA Report and the Second HVA Report
estimated the fair market enterprise value of Geneva Rock Common Stock as
follows: (i) book value was estimated at $2,623 per share for a total value of
$57,179,000 and assigned a weight of 0% in the final calculation; (ii)
liquidation value was estimated at $4,162 per share for a total value of
$90,730,000 and assigned a weight of 10% in the final calculation; (iii) the
price-earnings method yielded a value of $4,963 per share for a total value of
$108,203,000 and was assigned a weight of 10% in
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the final calculation; (iv) the price to cash flow method yielded a value of
$4,666 per share for a total value of $101,732,000 and was assigned a weight of
10% in the final calculation; (v) the price to revenue method yielded a value of
$4,626 per share for a total value of $100,865,000 and was assigned a weight of
10% in the final calculation; (vi) the price to book value method yielded a
value of $4,304 per share for a total value of $93,831,000 and was assigned a
weight of 10% in the final calculation; and (vii) income value was estimated at
$4,740 per share for a total value of $103,339,000 and was assigned a weight of
50% in the final calculation. Based on the foregoing estimated values and
weights, the fair market enterprise value of the Geneva Rock Common Stock as of
June 30, 1997 was estimated to be $4,633 per share for a total value of
$101,206,000 and rounded to $101,000,000.
UTAH SERVICE. Both the First HVA Report and the Second HVA Report
estimated the fair market enterprise value of Utah Service Common Stock as
follows: (i) book value was estimated at $668 per share for a total value of
$3,614,500 and assigned a weight of 0% in the final calculation; (ii)
liquidation value was estimated at $756 per share for a total value of
$4,090,000 and assigned a weight of 10% in the final calculation; (iii) the
price-earnings method yielded a value of $1,009 per share for a total value of
$5,459,500 and was assigned a weight of 10% in the final calculation; (iv) the
price to cash flow method yielded a value of $653 per share for a total value of
$3,533,000 and was assigned a weight of 10% in the final calculation; (v) the
price to revenue method yielded a value of $676 per share for a total value of
$3,658,100 and was assigned a weight of 10% in the final calculation; (vi) the
price to book value method yielded a value of $856 per share for a total value
of $4,635,600 and was assigned a weight of 10% in the final calculation; and
(vii) income value was estimated at $892 per share for a total value of
$4,830,100 and was assigned a weight of 50% in the final calculation. Based on
the foregoing estimated values and weights, the fair market enterprise value of
the Utah Service Common Stock as of June 30, 1997 was estimated to be $841 per
share for a total value of $4,552,800 and rounded to $4,550,000.
BEEHIVE INSURANCE. Both the First HVA Report and the Second HVA Report
estimated the fair market enterprise value of Beehive Insurance Common Stock as
follows: (i) book value was estimated at $17.63 per share for a total value of
$378,900 and assigned a weight of 0% in the final calculation; (ii) the
price-earnings method yielded a value of $88.14 per share for a total value of
$1,893,800 and was assigned a weight of 20% in the final calculation; (iii) the
price to cash flow method yielded a value of $68.87 per share for a total value
of $1,479,900 and was assigned a weight of 20% in the final calculation; (iv)
the price to revenue method yielded a value of $23.71 per share for a total
value of $509,400 and was assigned a weight of 0% in the final calculation; (v)
the price to book value method yielded a value of $25.89 per share for a total
value of $556,200 and was assigned a weight of 0% in the final calculation; and
(vi) income value was estimated at $86.95 per share for a total value of
$1,868,200 and was assigned a weight of 60% in the final calculation. Based on
the foregoing estimated values and weights, the fair market enterprise value of
Beehive Insurance Common Stock as of June 30, 1997 was estimated to be $83.77
per share for a total value of $1,795,700 and rounded to $1,800,000.
VALUATION OF CCI BY TASK FORCE
Since CCI's only assets are cash and the shares of common stock it owns
in the Operating Companies, the Task Force did not request HVA to prepare a
valuation report for CCI. Prior to December 31, 1997, CCI intends to pay a
dividend to its shareholders equal to all cash currently held by CCI, less the
amount of the tax liabilities and other expenses that CCI will incur in
connection with the Merger. Accordingly, the Task Force determined the value of
CCI Common Stock to be equal to the total value of the shares of the Operating
Companies owned by CCI. Based on the HVA valuations described above, the Task
Force determined that the total value of the shares of the Operating Companies
owned by CCI is approximately $44,610,187, which results in a valuation of
approximately $19.36 per share of CCI Common Stock. For the purpose of
establishing the exchange ratios in the Merger, the Task Force discounted the
above per share valuation for CCI by 25% to $14.52 per share to reflect the
value of minority shareholder interest. Based on this valuation and in
anticipation of the Merger, in November 1997 each outstanding share of CCI
Common Stock was converted into 40 shares, and presently there are 2,303,920
outstanding shares of CCI Common Stock.
RECOMMENDATION OF TASK FORCE
All members of the Task Force, except James C. Gramoll, recommended to
the Board of Directors of each of CCI, Clyde, Geneva Rock, Utah Service and
Beehive Insurance that the Second HVA Report be accepted for the purpose of
determining the exchange ratios in the Merger. It is the position of James C.
Gramoll that the First HVA Report with respect to Clyde (reflecting the tax
liability which would be incurred by Clyde with respect to its
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Geneva Rock Common Stock in the event Clyde were to be liquidated) should be the
basis for calculating the exchange ratios in the Merger. The Boards of Directors
of each of CCI, Clyde, Geneva Rock, Utah Service and Beehive Insurance
considered and approved the majority Task Force recommendation to use the Second
HVA Report for the purpose of determining the exchange ratios in the Merger.
As described above, each of the valuation reports were prepared by HVA
on the assumption that HVA was valuing a controlling interest. In light of this,
the Task Force recommended to the Boards of Directors of each of CCI, Clyde,
Geneva Rock, Utah Service and Beehive Insurance that a discount of 25% be
applied to each of the valuations to reflect the value of a minority shareholder
interests. This discount would reflect the inability of minority shareholders to
sell or liquidate the applicable company, mandate the payment of dividends or
otherwise change or effectuate corporate policies. Although HVA recommended that
a discount of 30% be applied to reflect minority shareholder interest, the Board
of Directors of CCI, Clyde, Geneva Rock, Utah Service and Beehive Insurance
determined to accept the 25% valuation discount recommended by the Task Force.
Based on this discount, for the purpose of establishing the exchange ratios in
the Merger, the per share valuation of a share of CCI, Clyde, Geneva Rock, Utah
Service and Beehive Insurance Common Stock would be $14.52, $492.63, $3,474.45,
$630.43 and $62.83, respectively.
LIMITATIONS ON HVA VALUATIONS
HVA did not express any opinion as to what the value of CCI Common Stock
will be when issued to the shareholders of CCI, Clyde, Geneva Rock, Utah Service
and Beehive Insurance pursuant to the Merger or the prices at which CCI Common
Stock will actually trade at any time (there is no trading market for such
shares and it is not anticipated that a trading market will develop). The full
text of the Second HVA Report with respect to any Operating Company can be
obtained by sending a written request to the Secretary of such Operating
Company.
In preparing its valuations, HVA used information provided by each of
Clyde, Geneva Rock, Utah Service and Beehive Insurance, respectively. The
management of each of the foregoing companies represented to HVA that the
information provided was reasonably complete and accurate. HVA did not make
independent examinations of any financial statements or other information
prepared by the management of any of the foregoing companies which was relied
upon and, accordingly, HVA made no representations or warranties and did not
express any opinion regarding the accuracy or reasonableness of such financial
statements and other information. All of the information made available to HVA
was carefully analyzed and reasonable attempts were made by HVA to find
additional information which would be helpful in the valuation study.
Financial projections utilized in the First and Second HVA Reports were
prepared based on analysis of each respective company's historical operating
results and conversations with the management of each respective company.
FORECASTING THE FUTURE IS AT BEST A DIFFICULT AND TENUOUS PROCESS. THERE WILL
UNDOUBTEDLY BE DISPARITIES BETWEEN THE PROJECTED FIGURES AND ACTUAL RESULTS,
SINCE EVENTS AND CIRCUMSTANCES FREQUENTLY DO NOT OCCUR AS EXPECTED, AND THOSE
DISPARITIES MAY BE MATERIAL. THE HVA VALUATION REPORTS DO NOT CONSTITUTE A
RECOMMENDATION TO ANY SHAREHOLDER OF ANY OF THE CONSTITUENT CORPORATIONS AS TO
HOW SUCH SHAREHOLDER SHOULD VOTE AT ANY OF THE SPECIAL MEETINGS OF ANY
CONSTITUENT CORPORATION.
Both the First HVA Report and the Second HVA Report were prepared for
the specific purpose of valuing the common stock of Clyde, Geneva Rock, Utah
Service and Beehive Insurance on an enterprise value basis pursuant to the
proposed Merger. In arriving at its valuations of the fair market enterprise
value (assuming controlling interest) of the common stock of each of Clyde,
Geneva Rock, Utah Service and Beehive Insurance, HVA defined "fair market value"
as that value at which a willing buyer and willing seller, neither being
compelled to act and both being well informed of the relevant facts and
conditions which might be anticipated, would effect a sale of an asset at "arm's
length" on a given date. HVA's valuation study was undertaken using widely
accepted principles of financial analysis and valuation. In particular, the book
value, liquidation value, market value, and income value methods of valuation
were utilized in arriving at an estimate of the fair market enterprise value of
the common stock of Clyde, Geneva Rock, Utah Service and Beehive Insurance.
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Valuation is an imprecise science, and HVA has not purported to be a
guarantor of the valuations set forth in the Valuation Reports. Value is a
question of informed judgment, and reasonable persons can differ in their
estimates of value. HVA has certified that the First HVA Report and the Second
HVA Report were conducted and the conclusions arrived at independently using
conceptually sound and commonly accepted methods of valuation.
Neither HVA or its principals have any present or intended interest in
any of the Constituent Corporations. HVA's fees for providing the Valuation
Reports are based on professional time charges, and are in no way contingent
upon the final valuation figures. The actual fees paid to HVA for the
performance of the valuations amounted to approximately $20,000.
EXCHANGE RATIOS
The exchange ratios at which shares of common stock of Clyde, Geneva
Rock, Utah Service and Beehive Insurance will be exchanged for shares of CCI
Common Stock were determined by the Task Force and approved by the Board of
Directors of each Constituent Corporation. The exchange ratios were determined
by dividing the discounted value determined by HVA for each share of common
stock of Clyde, Geneva Rock, Utah Service and Beehive Insurance, respectively,
by $14.52, the amount which the Task Force determined to be the discounted per
share value of CCI Common Stock. This resulted in an exchange ratio of (i) 33.93
shares of CCI Common Stock for each outstanding share of Clyde Common Stock,
(ii) 239.27 shares of CCI Common Stock for each outstanding share of Geneva Rock
Common Stock, (iii) 43.43 shares of CCI Common Stock for each outstanding share
of Utah Service Common Stock and (iv) 4.33 shares of CCI Common Stock for each
outstanding share of Beehive Insurance Common Stock, respectively.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Shareholders of CCI, Clyde, Geneva Rock, Utah Service and Beehive
Insurance should be aware that certain directors and executive officers of each
of CCI, Clyde, Geneva Rock, Utah Service and Beehive Insurance have interests in
the Merger that are in addition to the interests as shareholders generally and
which may create potential conflicts of interest. These interests include, among
other things, the following: (i) certain directors and executive officers of
CCI, Clyde, Geneva Rock, Utah Service and Beehive Insurance are related family
members; (ii) certain directors and executive officers of each of CCI, Clyde,
Geneva Rock, Utah Service and Beehive Insurance will be directors and/or
executive officers of CCI; (iii) certain directors and executive officers of CCI
may be deemed to be principal shareholders of CCI, Clyde, Geneva Rock, Utah
Service and Beehive Insurance Common Stock; (iv) Richard C. Clyde will enter
into an employment agreement with CCI; (v) the shareholders of CCI as
constituted prior to the Merger will enter into a ten year Voting Agreement with
respect to the election of CCI directors and certain other matters; and (vi)
David E. Salisbury, a director of Clyde, is a shareholder of the law firm of Van
Cott, Bagley, Cornwall & McCarthy, which has represented each of CCI, Clyde,
Geneva Rock, Utah Service and Beehive Insurance in connection with the Merger.
These interests are more fully described below.
CLYDE FAMILY TREE
For ease of reference, the following sets forth the family relationships
among members of the W.W. Clyde family that are currently serving on the Task
Force or as officers or directors of the Constituent Corporations. The three
brothers involved in the founding of the various Constituent Corporations were
W.W. Clyde, Edward Clyde and Harry S. Clyde.
W.W. CLYDE FAMILY. The children of W.W. Clyde whose names or whose
children's names appear elsewhere in this Proxy Statement/Prospectus are Cornell
Clyde (deceased), Blaine Clyde (deceased), William R. Clyde, Ila C. Cook, Louise
C. Gammell and Carol C. Salisbury. The spouses, children and grandchildren of
the foregoing whose names appear elsewhere in this Proxy Statement/Prospectus
are as follows:
(i) CORNELL CLYDE. Richard C. Clyde is the son of Cornell Clyde;
Jeffrey R. Clyde is the son of Richard C. Clyde.
(ii) BLAINE CLYDE. Paul B. Clyde and Wilford W. Clyde are each
sons of Blaine Clyde.
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(iii) WILLIAM R. CLYDE. Steven L. Clyde is the son of William R.
Clyde.
(iv) ILA C. COOK. David O. Cook is the son of Vernon O. and Ila
C. Cook.
(v) LOUISE C. GAMMELL. B. Clyde Gammell and A. Ray Gammell are
each sons of Louise C. Gammell.
(vi) CAROL C. SALISBURY. David E. Salisbury is the husband of
Carol C. Salisbury.
EDWARD CLYDE FAMILY. The children of Edward Clyde whose names appear
elsewhere in this Proxy Statement/Prospectus are Hal M. Clyde and Norman D.
Clyde. The children of the foregoing whose names appear elsewhere in this Proxy
Statement/Prospectus are as follows:
(i) HAL M. CLYDE. H. Michael Clyde is the son of Hal M. Clyde.
(ii) NORMAN D. CLYDE. Tawna Clyde Smith is the daughter of Norman
D. Clyde.
HARRY S. CLYDE FAMILY. The only descendant of Harry S. Clyde whose name
appears elsewhere in this Proxy Statement/Prospectus is James C. Gramoll, who is
a grandson of Harry S. Clyde.
FAMILY RELATIONSHIPS; INTERRELATED MANAGEMENT AND STOCK OWNERSHIP
Carol C. Salisbury is the President and a director of CCI and the
Secretary and Treasurer and a director of Beehive Insurance. After the
consummation of the Merger, Ms. Salisbury will become the Secretary and
Treasurer of CCI. Ms. Salisbury is the wife of David E. Salisbury, who is
currently a director of Clyde; a sister of William R. Clyde, Ila C. Cook and
Louise C. Gammell; and an aunt of Richard C. Clyde, Paul B. Clyde, Wilford W.
Clyde, Steven L. Clyde, David O. Cook, A. Ray Gammell and B. Clyde Gammell. As
of the Record Date, Ms. Salisbury may be deemed to beneficially own or control
(i) 122,360 shares or approximately 5.31% of the outstanding CCI Common Stock;
(ii) 34,275 shares or approximately 36.25% of the outstanding Clyde Common
Stock; (iii) 12,308 shares or approximately 56.45% of the outstanding Geneva
Rock Common Stock; (iv) 1,946 shares or approximately 35.95% of the outstanding
Utah Service Common Stock; and (v) 4,389 shares or approximately 20.43% of the
outstanding Beehive Insurance Common Stock. Upon the consummation of the Merger,
Ms. Salisbury may be deemed to beneficially own or control 215,988 shares or
approximately 1.95% of the outstanding CCI Common Stock. See "Clyde Companies,
Inc.--Principal Shareholders of CCI Prior to Consummation of the Merger", "Clyde
Companies, Inc.--Principal Shareholders of CCI Upon Consummation of the Merger",
"Clyde--Principal Shareholders of Clyde", "Geneva Rock--Principal Shareholders
of Geneva Rock", "Utah Service--Principal Shareholders of Utah Service" and
"Beehive Insurance--Principal Shareholders of Beehive Insurance".
Ila C. Cook is Vice President and a director of CCI. Ms. Cook is the
wife of Vernon O. Cook, who is currently the Chairman of the Board of Utah
Service, the mother of David O. Cook, who is currently the President, Chief
Executive Officer and a director of Utah Service; the sister of William R.
Clyde, Louise C. Gammell and Carol C. Salisbury; and an aunt of Richard C.
Clyde, Paul B. Clyde, Wilford W. Clyde, Steven L. Clyde, A. Ray Gammell and B.
Clyde Gammell. As of the Record Date, Ms. Cook may be deemed to beneficially own
or control (i) 31,935 shares or approximately 33.78% of the outstanding Clyde
Common Stock; (ii) 4,727 shares or approximately 21.68% of the outstanding
Geneva Rock Common Stock; (iii) 2,019 shares or approximately 37.30% of the
outstanding Utah Service Common Stock; and (iv) 4,388 shares or approximately
20.42% of the outstanding Beehive Insurance Common Stock. Upon the consummation
of the Merger, Ms. Cook may be deemed to beneficially own or control 17,398
shares or less than 1% of the outstanding CCI Common Stock. See
"Clyde--Principal Shareholders of Clyde", "Geneva Rock--Principal Shareholders
of Geneva Rock", "Utah Service--Principal Shareholders of Utah Service" and
"Beehive Insurance--Principal Shareholders of Beehive Insurance".
William R. Clyde is Vice President of CCI and a director of CCI, Clyde,
Geneva Rock and Utah Service. William R. Clyde is the father of Steven L. Clyde,
who is currently the Project Superintendent and a director of Clyde, and the
brother of Ila C. Cook, Louise C. Gammell and Carol C. Salisbury; and an uncle
of Richard C.
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Clyde, Paul B. Clyde, Wilford W. Clyde, David O. Cook, A. Ray Gammell and B.
Clyde Gammell. As of the record Date, Mr. Clyde may be deemed to beneficially
own or control (i) 180,160 shares or approximately 7.82% of the outstanding CCI
Common Stock; (ii) 32,040 shares or approximately 33.89% of the outstanding
Clyde Common Stock; (iii) 12,335 shares or approximately 56.58% of the
outstanding Geneva Rock Common Stock; (iv) 1,712 shares or approximately 31.63%
of the outstanding Utah Service Common Stock; and (v) 4,004 shares or
approximately 18.63% of the outstanding Beehive Insurance Common Stock. Upon the
consummation of the Merger, Mr. Clyde may be deemed to beneficially own or
control 192,585 shares or approximately 1.74% of the outstanding CCI Common
Stock. See "Clyde Companies, Inc.--Principal Shareholders of CCI Prior to
Consummation of the Merger", "Clyde Companies, Inc.--Principal Shareholders of
CCI Upon Consummation of the Merger", "Clyde--Principal Shareholders of Clyde",
"Geneva Rock--Principal Shareholders of Geneva Rock", "Utah Service--Principal
Shareholders of Utah Service" and "Beehive Insurance--Principal Shareholders of
Beehive Insurance".
Louise C. Gammell is currently Secretary and Treasurer of CCI and a
director of CCI and Utah Service. Ms. Gammell is the mother of A. Ray Gammell,
who is currently the Vice President and a director of Utah Service and a
director of Geneva Rock, and of B. Clyde Gammell, who is currently the Vice
President and a director of Beehive Insurance; the sister of William R. Clyde,
Ila C. Cook and Carol C. Salisbury; and an aunt of Richard C. Clyde, Paul B.
Clyde, Wilford W. Clyde, Steven L. Clyde and David O. Cook. As of the Record
Date, Ms. Gammell may be deemed to beneficially own or control (i) 269,120
shares or approximately 11.68% of the outstanding CCI Common Stock; (ii) 34,255
shares or approximately 36.25% of the outstanding Clyde Common Stock; (iii)
4,726 shares or approximately 21.68% of the outstanding Geneva Rock Common
Stock; (iv) 300 shares or approximately 5.54% of the outstanding Utah Service
Common Stock; and (v) 3,969 shares or approximately 18.47% of the outstanding
Beehive Insurance Common Stock. Upon the consummation of the Merger, Ms. Gammell
may be deemed to beneficially own or control 369,491 shares or approximately
3.34% of the outstanding CCI Common Stock. See "Clyde Companies, Inc.--Principal
Shareholders of CCI Prior to Consummation of the Merger", "Clyde Companies,
Inc.--Principal Shareholders of CCI Upon Consummation of the Merger",
"Clyde--Principal Shareholders of Clyde", "Geneva Rock--Principal Shareholders
of Geneva Rock", "Utah Service--Principal Shareholders of Utah Service" and
"Beehive Insurance--Principal Shareholders of Beehive Insurance".
Paul B. Clyde is the Vice President of Construction of Clyde and a
director of CCI, Clyde, Geneva Rock and Utah Services. Mr. Clyde is the brother
of Wilford W. Clyde, who will become the Vice President and Chief Operating
Officer of CCI after consummation of the Merger, the President and a director of
Geneva Rock, and a director of Clyde and Beehive Insurance; and a nephew of
William R. Clyde, Ila C. Cook, Louise C. Gammell and Carol C. Salisbury. As of
the Record Date, Mr. Clyde may be deemed to beneficially own or control (i)
72,320 shares or approximately 3.14% of the outstanding CCI Common Stock; (ii)
33,660 shares or approximately 35.60% of the outstanding Clyde Common Stock;
(iii) 12,831 shares or approximately 58.85% of the outstanding Geneva Rock
Common Stock; (iv) 1,719 shares or approximately 31.76% of the outstanding Utah
Service Common Stock; and (v) 3,768 shares or approximately 17.54% of the
outstanding Beehive Insurance Common Stock. Upon the consummation of the Merger,
Mr. Clyde may be deemed to beneficially own or control 178,004 shares or
approximately 1.61% of the outstanding CCI Common Stock. See "Clyde Companies,
Inc.--Principal Shareholders of CCI Prior to Consummation of the Merger", "Clyde
Companies, Inc.--Principal Shareholders of CCI Upon Consummation of the Merger",
"Clyde--Principal Shareholders of Clyde", "Geneva Rock--Principal Shareholders
of Geneva Rock", "Utah Service--Principal Shareholders of Utah Service" and
"Beehive Insurance--Principal Shareholders of Beehive Insurance".
Richard C. Clyde is a director of CCI and after the consummation of the
Merger will become the President and Chief Executive Officer of CCI. Mr. Clyde
is also the President and General Manager of Clyde and a director of Clyde,
Geneva Rock and Beehive Insurance. Mr. Clyde is the father of Jeffrey R. Clyde,
who is currently the Contracts Manager and a director of Clyde; and a nephew of
William R. Clyde, Ila C. Cook, Louise C. Gammell and Carol C. Salisbury. As of
the Record Date, Mr. Clyde may be deemed to beneficially own or control (i)
115,200 shares or approximately 5.00% of the outstanding CCI Common Stock; (ii)
34,535 shares or approximately 36.53% of the outstanding Clyde Common Stock;
(iii) 12,366 shares or approximately 56.72% of the outstanding Geneva Rock
Common Stock; (iv) 1,720 shares or approximately 31.78% of the outstanding Utah
Service Common Stock; and (v) 4,200 shares or approximately 19.55% of the
outstanding Beehive Insurance Common Stock. Upon the consummation of the Merger,
Mr. Clyde may be deemed to beneficially own or control 220,894 shares or
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approximately 2.00% of the outstanding CCI Common Stock. See "Clyde Companies,
Inc.--Principal Shareholders of CCI Prior to Consummation of the Merger", "Clyde
Companies, Inc.--Principal Shareholders of CCI Upon Consummation of the Merger",
"Clyde--Principal Shareholders of Clyde", "Geneva Rock--Principal Shareholders
of Geneva Rock", "Utah Service--Principal Shareholders of Utah Service" and
"Beehive Insurance--Principal Shareholders of Beehive Insurance".
Wilford W. Clyde will become the Chief Operating Officer of CCI after
the consummation of the Merger. Mr. Clyde is currently the President of Geneva
Rock and a director of Clyde, Geneva Rock and Beehive Insurance. Mr. Clyde is
the brother of Paul B. Clyde, who is currently Vice President of Construction of
Clyde and a director of Clyde, CCI, Geneva Rock and Utah Service; and a nephew
of William R. Clyde, Ila C. Cook, Louise C. Gammell and Carol C. Salisbury. As
of the Record Date, Mr. Clyde may be deemed to beneficially own or control (i)
72,320 shares or approximately 3.14% of the outstanding CCI Common Stock; (ii)
1,675 shares or approximately 1.77% of the outstanding Clyde Common Stock; (iii)
7,804 shares or approximately 35.79% of the outstanding Geneva Rock Common
Stock; (iv) 21 shares or approximately 0.39% of the outstanding Utah Service
Common Stock; and (v) 58 shares or approximately 0.27% of the outstanding
Beehive Insurance Common Stock. Upon the consummation of the Merger, Mr. Clyde
may be deemed to beneficially own or control 183,673 shares or approximately
1.66% of the outstanding CCI Common Stock. See "Clyde Companies, Inc.--Principal
Shareholders of CCI Upon Consummation of the Merger", "Clyde--Principal
Shareholders of Clyde", "Geneva Rock--Principal Shareholders of Geneva Rock" and
"Beehive Insurance--Principal Shareholders of Beehive Insurance".
H. Michael Clyde has agreed to become a director of CCI upon
consummation of the Merger. Mr. Clyde is the son of Hal M. Clyde, who is
currently a director of Utah Service and Beehive Insurance; and a nephew of
Norman D. Clyde, who is currently a director of Utah Service, Clyde, Geneva
Rock, and Beehive Insurance. As of the Record Date, Mr. Clyde may be deemed to
beneficially own or control (i) 500 shares or approximately 0.53% of the
outstanding Clyde Common Stock and (ii) 25 shares or approximately 0.11% of the
outstanding Geneva Rock Common Stock. Upon the consummation of the Merger, Mr.
Clyde may be deemed to beneficially own or control 22,946 shares or less than 1%
of the outstanding CCI Common Stock.
Tawna Clyde Smith has agreed to become a director of CCI upon
consummation of the Merger. Ms. Smith is the daughter of Norman D Clyde, who is
currently a director of Utah Service, Clyde, Geneva Rock, and Beehive Insurance;
and a niece of Hal M. Clyde, who is currently a director of Utah Service and
Beehive Insurance. As of the Record Date, Ms. Smith may be deemed to
beneficially own or control (i) 500 shares or approximately 0.53% of the
outstanding Clyde Common Stock and (ii) 100 shares or approximately 0.47% of the
outstanding Beehive Insurance Common Stock. Upon the consummation of the Merger,
Ms. Smith may be deemed to beneficially own or control 17,398 shares or less
than 1% of the outstanding CCI Common Stock.
EMPLOYMENT AGREEMENT
It is contemplated that upon consummation of the Merger, CCI will enter
into an employment agreement with Richard C. Clyde pursuant to which Richard C.
Clyde will be employed as President and Chief Executive Officer for a term of
three years from the 1998 annual shareholders meeting of CCI. The employment
agreement will provide for a minimum annual base salary of $110,000 for Richard
C. Clyde and a discretionary annual incentive bonus in an amount as the Board of
Directors of CCI may determine. The employment agreement will also provide that
if Richard C. Clyde is terminated by CCI prior to the end of the term of
employment, other than for cause, death or disability, CCI will pay Richard C.
Clyde an amount equal to his annual salary multiplied by the number of years
remaining under the term of the employment agreement. See also "Clyde Companies,
Inc.--Employment Agreement."
VOTING AGREEMENT
On all matters with respect to which CCI's shareholders have a right to
vote, including the election of directors, each share of CCI Common Stock is
entitled to one vote. The Original CCI Shareholders have entered into a 10-year
Voting Agreement for the purpose of controlling the voting of the 2,303,920
shares of CCI Common Stock owned by the Original CCI Shareholders on the Record
Date, representing approximately 33.20% of the shares of CCI Common Stock to be
outstanding upon consummation of the Merger. So long as the Voting
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Agreement is in place, such original CCI shareholders may have the ability
(subject to the restrictions in CCI's Bylaws relating to the configuration of
its Board of Directors) to elect the entire Board of Directors of CCI and
determine the outcome of all matters involving a shareholder vote. Control of
CCI by such original CCI shareholders could make it more difficult for a third
party to acquire, or could discourage a third party from attempting to acquire,
control of CCI. See "Clyde Companies, Inc.--Voting Agreement."
LACK OF SEPARATE LEGAL REPRESENTATION
The law firm of Van Cott, Bagley, Cornwall & McCarthy ("Van Cott")
previously has represented each of the Constituent Corporations, as well as
certain individual Task Force members, directors, officers and shareholders of
the Constituent Corporations. Because each Constituent Corporation is affiliated
through family relationships, interconnected Boards of Directors and cross stock
ownership, and in an effort to reduce the costs of the Merger, the Boards of
Directors of each Constituent Corporation determined to use Van Cott to
represent all of the Constituent Corporations in connection with the Merger and
the transactions contemplated thereby, including the preparation of this joint
Proxy Statement/Prospectus. Van Cott did not represent any Constituent
Corporation or individual separately in negotiating the exchange ratios or any
of the other terms or provisions of the Merger Agreement, nor did Van Cott
undertake any due diligence investigation with respect to any Constituent
Corporation, such as an investigation of the validity of the outstanding shares
of the Constituent Corporations, or the status of legal agreements, pending
legal proceedings or other legal matters with respect to the Constituent
Corporations. Such representation by Van Cott involves a conflict of interest to
the extent that the interest of one Constituent Corporation in the Merger may be
separate from or opposed to the interest of the other Constituent Corporations
or individuals (mentioned above) who may also be clients of Van Cott. Because of
such conflicts of interest, Van Cott obtained a written waiver of such conflicts
from the Boards of Directors of each Constituent Corporation and certain
individual shareholders, pursuant to which each corporation and individual
shareholder acknowledged the existence of the conflicts of interest, waived any
objection thereto and agreed to Van Cott's representation of all of the
Constituent Corporations. David E. Salisbury, who is a shareholder of Van Cott,
was a member of the Task Force that negotiated the pertinent terms and
provisions of the Merger Agreement, including the exchange ratios. Mr. Salisbury
participated on the Task Force in his capacity as a director of Clyde, and as a
direct or indirect owner of shares of Common Stock of the Constituent
Corporations. See also "Risk Factors--Lack of Separate Legal Representation".
ACCOUNTING TREATMENT
For accounting and financial reporting purposes, it is expected that the
Merger will be accounted for in a manner similar to a "pooling of interests."
Under this method of accounting, the previously recorded assets and liabilities
of CCI, Clyde, Geneva Rock, Utah Service and Beehive Insurance prior to the
consummation of the Merger will be carried forward to CCI, Clyde, Geneva Rock,
Utah Service and Beehive Insurance, respectively, subsequent to the consummation
of the Merger, at their recorded amounts; income and expenses of CCI, Clyde,
Geneva Rock, Utah Service and Beehive Insurance subsequent to the consummation
of the Merger would include income and expenses of CCI, Clyde, Geneva Rock, Utah
Service and Beehive Insurance, respectively, for the entire fiscal year in which
the Merger occurs.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The firm of Grant Thornton LLP, independent accountants, has rendered an
opinion to the Constituent Corporations and their shareholders regarding certain
federal income tax consequences of the Merger, as described below. The following
discussion summarizes certain of the principal federal income tax considerations
associated with the Merger under the Internal Revenue Code of 1986, as amended
(the "Code"), to holders who hold shares of CCI, Clyde, Geneva Rock, Utah
Service or Beehive Insurance Common Stock as capital assets. As it is not
feasible to describe all of the tax consequences associated with the Merger,
each shareholder should consult his or her tax advisor with respect to the tax
consequences of the Merger applicable to his or her specific circumstances. The
following summary is based on the Code, applicable Treasury Regulations,
judicial authority and administrative rulings and practice, all as of the date
hereof. There can be no assurance that future legislative, judicial or
administrative changes or interpretations will not adversely affect the
statements and conclusions set forth herein. Any such changes or interpretations
could be applied retroactively and could affect the tax consequences of the
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Merger to CCI, Clyde, Geneva Rock, Utah Service or Beehive Insurance and their
respective shareholders. Furthermore, the following discussion addresses only
certain federal income tax matters and does not consider any state, local or
foreign tax consequences of the Merger.
Neither CCI nor Clyde, Geneva Rock, Utah Service or Beehive Insurance
has requested or will request any ruling from the Internal Revenue Service
("IRS") in connection with the Merger. However, the Merger has been structured
with the intention that it qualify as (i) a transfer to a controlled corporation
described in Section 351 of the Code and/or as (ii) a reorganization under
Section 368(a)(1)(B) of the Code.
Assuming the Merger qualifies under Section 351 of the Code or the
Merger is treated as a reorganization under the Code, the following federal
income tax consequences, among others, generally will apply to shareholders of
CCI, Clyde, Geneva Rock, Utah Service and Beehive Insurance:
(i) No gain or loss will be recognized by a holder of Clyde, Geneva
Rock, Utah Service or Beehive Insurance Common Stock with respect to the
receipt of CCI Common Stock in exchange for such Clyde, Geneva Rock,
Utah Service or Beehive Insurance Common Stock pursuant to the Merger
(except with respect to any cash received in lieu of fractional shares
of CCI Common Stock).
(ii) The aggregate tax basis of CCI Common Stock received by each holder
of Clyde, Geneva Rock, Utah Service or Beehive Insurance Common Stock
will be the same as the aggregate tax basis of the Clyde, Geneva Rock,
Utah Service or Beehive Insurance Common Stock received by such
shareholder in the Merger, decreased by the amount of any tax basis
allocable to fractional shares of CCI Common Stock in lieu of which cash
will be paid.
(iii) The holding period of CCI Common Stock received by each holder of
Clyde, Geneva Rock, Utah Service or Beehive Insurance Common Stock will
include the period for which the Clyde, Geneva Rock, Utah Service or
Beehive Insurance Common Stock received in exchange therefor was
considered to be held, provided the Clyde, Geneva Rock, Utah Service or
Beehive Insurance Common Stock so received is held as a capital asset at
the effective time of the Merger.
(iv) Payment received by holders of Clyde, Geneva Rock, Utah Service or
Beehive Insurance Common Stock in lieu of fractional shares of CCI
Common Stock will be treated as payment in redemption of such fractional
shares and, provided that the redeemed interest is held as a capital
asset at the effective time of the Merger, will generally result in the
recognition of capital gain or loss by such holders measured by the
difference between the amount received and the tax basis allocable to
such fractional shares.
Each holder of Clyde, Geneva Rock, Utah Service or Beehive Insurance
Common Stock who receives cash in lieu of a fractional interest will recognize
gain or loss as of the effective time of the Merger equal to the difference
between the amount of cash received and the portion of such holder's adjusted
tax basis in the shares of Clyde, Geneva Rock, Utah Service or Beehive Insurance
Common Stock allocable to such fractional share interest. Any gain or loss
generally will be capital gain or loss if such shareholder holds Clyde, Geneva
Rock, Utah Service or Beehive Insurance Common Stock as a capital asset at the
effective time of the Merger and will be long-term capital gain or loss if the
holding period (determined as described above) for the fractional share interest
deemed to be received and then redeemed is more than one year. Under recently
enacted legislation, an individual holder of Clyde, Geneva Rock, Utah Service or
Beehive Insurance Common Stock is generally subject to a maximum capital gains
rate of 28% for Clyde, Geneva Rock, Utah Service or Beehive Insurance Common
Stock held more than one year and a maximum capital gains rate of 20% for Clyde,
Geneva Rock, Utah Service or Beehive Insurance Common Stock held in excess of 18
months.
Holders of Clyde, Geneva Rock, Utah Service or Beehive Insurance Common
Stock who exercise their dissenters' rights and who receive cash in exchange for
their respective shares will be treated as having received such payment in
redemption of such shares. In general, if such shares are held as a capital
asset at the effective time of the Merger, the holder will recognize capital
gain or loss measured by the difference between the amount of cash received and
the holder's adjusted tax basis for the shares. If, however, the holder owns,
either actually or constructively, any Clyde, Geneva Rock, Utah Service or
Beehive Insurance Common Stock that is exchanged in
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the Merger for CCI Common Stock, the payment for dissenting shares to such
holder could, in certain circumstances, be treated as dividend income. In
general, under the constructive ownership rules of the Code, a holder may be
considered to own stock that is owned, and in some cases constructively owned,
by certain related individuals or entities, as well as stock that the holder (or
related individuals or entities) has the right to acquire by exercising an
option or converting a convertible security. Each holder who contemplates
exercising dissenters' rights should consult such holder's own tax advisor as to
the possibility that any payment to such holder will be treated as dividend
income.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IS NOT A COMPLETE
DESCRIPTION OF ALL POTENTIAL TAX CONSEQUENCES THAT MAY OCCUR AS A RESULT OF THE
MERGER. SHAREHOLDERS SHOULD THEREFORE CONSULT THEIR TAX ADVISORS REGARDING THE
FEDERAL TAX CONSEQUENCES OF THE MERGER, THE HOLDING AND DISPOSING OF CCI COMMON
STOCK RECEIVED IN THE MERGER, AND THE TAX CONSEQUENCES OF THE MERGER ARISING
UNDER THE LAWS OF ANY STATE, LOCAL OR OTHER JURISDICTION.
REGULATORY APPROVAL
CCI and Geneva Rock filed a notification with the Federal Trade
Commission ("FTC"), pursuant to the Hart Scott Rodino Antitrust Improvement Act
of 1976, requesting early termination of the waiting period required under that
Act. On November 21, 1997, the FTC granted CCI's and Geneva Rock's request for
early termination of the waiting period. See "The Merger Agreement--Conditions
to the Merger."
FEDERAL SECURITIES LAW CONSEQUENCES
All shares of CCI Common Stock received by Clyde, Geneva Rock, Utah
Service and Beehive Insurance shareholders in the Merger will be freely
transferable, except that (i) shares of CCI Common Stock received by persons who
are deemed to be "affiliates" (as such term is defined under the Securities Act)
of CCI, Clyde, Geneva Rock, Utah Service and Beehive Insurance will be
restricted as described herein and (ii) shares of CCI Common Stock that are
subject to the Voting Agreement described above under "Clyde Companies,
Inc.--Voting Agreement" will be subject to certain restrictions thereunder. Rule
145 promulgated under the Securities Act regulates the disposition of securities
of "affiliates" of CCI, Clyde, Geneva Rock, Utah Service and Beehive Insurance
in connection with the Merger.
As a condition to the consummation of the Merger, CCI must receive a
written Affiliates Agreement (the "Affiliates Agreement") executed by the
"affiliates" of each of CCI, Clyde, Geneva Rock, Utah Service or Beehive
Insurance at the time of the CCI, Clyde, Geneva Rock, Utah Service and Beehive
Insurance Special Meetings (an "Affiliate") prior to the effective time of the
Merger.
Under the Affiliates Agreement, each Affiliate will agree that the
Affiliate will not sell, transfer, exchange, pledge, or otherwise dispose of any
shares of CCI Common Stock issued to the Affiliate in the Merger unless (i) such
transaction is permitted pursuant to Rule 145 under the Securities Act, (ii)
counsel representing the Affiliate, which counsel is satisfactory to CCI, shall
have advised CCI in a written opinion letter that no registration under the
Securities Act would be required in connection with the proposed sale, transfer
or other disposition, (iii) a registration statement under the Securities Act
covering CCI Common Stock proposed to be sold, transferred or otherwise disposed
of shall have been filed with the SEC and made effective under the Securities
Act, or (iv) an authorized representative of the SEC shall have rendered written
advice to the Affiliate (sought by the Affiliate or counsel to the Affiliate) to
the effect that the SEC would take no action, or that the staff of the SEC would
not recommend that the SEC take action, with respect to the proposed disposition
if consummated. CCI is under no obligation to register the sale, transfer or
other disposition of CCI Common Stock under the Securities Act or to take any
other action necessary to make compliance with an exemption from such
registration available.
Under the Affiliate Agreement, CCI will issue appropriate stop transfer
instructions to the transfer agent for the shares of CCI Common Stock that are
to be received by such Affiliate and will place restrictive legends on the
certificates evidencing such CCI Common Stock.
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THE MERGER AGREEMENT
GENERAL
The description of the material terms and conditions of the Merger
Agreement and any related documents in this Proxy Statement/Prospectus is
qualified in its entirety by reference to the copy of the Merger Agreement
attached hereto as Annex A. Shareholders of CCI, Clyde, Geneva Rock, Utah
Service and Beehive Insurance are urged to read the Merger Agreement in their
entirety for a more complete description of the terms of such agreements.
CONVERSION OF SHARES
At the Effective Time, each outstanding share of the Operating Companies
except (i) those shares of the Operating Companies owned by CCI, (ii) those
shares of Geneva Rock owned by Clyde, which will be distributed as a dividend to
CCI and (iii) to the extent that the holders of shares of Clyde Common Stock,
Geneva Rock Common Stock, Utah Service Common Stock or Beehive Insurance Common
Stock duly elect to exercise their dissenters' rights under Part 13 of the
URBCA) will be converted into shares of CCI Common Stock equal to (i) in the
case of Clyde Common Stock, 33.93 shares of CCI Common Stock, (ii) in the case
of Geneva Rock Common Stock, 239.27 shares of CCI Common Stock, (iii) in the
case of Utah Service Common Stock, 43.43 shares of CCI Common Stock, and (iv) in
the case of Beehive Insurance Common Stock, 4.33 shares of CCI Common Stock (the
ratios set forth in clauses (i) through (iv) above are sometimes referred to
herein as the "Exchange Ratios"). Fractional shares of CCI Common Stock will not
be issued. In lieu of fractional shares, shareholders of Clyde, Geneva Rock,
Utah Service and Beehive Insurance will receive cash equal to the product of (i)
such fraction multiplied by (ii) $14.52.
CRC will merge with and into Clyde, GRRC will merge with and into Geneva
Rock, USRC will merge with and into Utah Service and BIRC will merge with and
into Beehive Insurance, with the Operating Companies being the surviving
corporations of such mergers. Each share of CRC, GRRC, USRC and BIRC common
stock issued and outstanding immediately prior to the Effective Time will be
converted into one share of common stock of the respective Operating Company.
CONDITIONS TO THE MERGER
Consummation of the Merger provided for in the Merger Agreement is
subject to the satisfaction of various conditions, including but not limited to
(i) the approval and adoption of the Merger Agreement by the requisite vote of
the shareholders of each of the Constituent Corporations; (ii) the total value
of all dissenting shares (after applying a 25% discount for minority interest)
is not more than 5% of the aggregate value of the Operating Companies; (iii) no
governmental authority shall have issued any order, and there shall not be any
statute, rule, decree or regulation restraining, prohibiting or making illegal
the consummation of the Merger; (iv) any waiting period applicable to the
consummation of the Merger under the Hart Scott Rodino Act shall have expired or
been terminated (such waiting period has been terminated); (v) the
representations and warranties of CCI contained in the Merger Agreement shall be
true and correct in all material respects when made and as of the closing date
of the Merger (the "Closing Date") (except for such matters which specifically
address a particular date which need only be true and correct as of such date);
(vi) CCI shall have performed in all material respects all of the obligations to
be performed by it under the Merger Agreement prior to the Closing Date; (vii) a
responsible officer of CCI shall have provided each of the Operating Companies
with a certificate with respect to the matters referred to in the Merger
Agreement; (viii) the representations and warranties of each of the Operating
Companies contained in the Merger Agreement shall be true and correct in all
material respects when made and as of the Closing Date (except for matters which
specifically address a particular date which need only be true and correct as of
such date); (ix) each of the Operating Companies shall have performed in all
material respects all of the obligations to be performed by it under the Merger
Agreement prior to the Closing Date; (x) a responsible officer of each of the
Operating Companies shall have provided CCI with a certificate with respect to
the matters referred to in the Merger Agreement; (xi) CCI shall have received a
written Affiliates Agreement (the "Affiliates Agreement") executed by the
affiliates of each of the Constituent Corporations; and (xii) the receipt of an
opinion from Grant Thornton to the effect that the Merger will qualify as a tax
free reorganization.
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WAIVER AND AMENDMENT
Provisions of the Merger Agreement may be waived by the party entitled
to the benefits thereof by a written instrument signed by the party granting
such waiver. The Merger Agreement may be amended, modified or supplemented at
any time prior to the Closing Date by the written agreement of each of the
parties thereto.
TERMINATION
The Merger Agreement may be terminated and the Merger may be abandoned
at any time prior to the Effective Time, whether before or after approval of the
shareholders of the Constituent Corporations, under the circumstances specified
therein, including (i) automatically, without any further actions by any of the
parties (except as may be otherwise required by the URBCA), (A) if the Merger of
each of the Constituent Corporations has not been consummated on or prior to
June 30, 1998 or (B) if any governmental authority shall have issued a statute,
order, decree or regulation or taken any other action permanently restraining or
enjoining or otherwise materially restricting the consummation of the
transactions contemplated by the Merger Agreement and such statute, order,
decree, regulation or other action shall have become final and non-appealable,
(ii) by the Boards of Directors of the Operating Companies, acting jointly, if
CCI breaches or fails in any material respect to perform or comply with any of
its covenants and agreements contained in the Merger Agreement or breaches its
representations and warranties therein in any material respect and fails to cure
such breach as provided for therein, or (iii) by the Board of Directors of CCI,
if any of the Operating Companies breaches or fails in any material respect to
perform or comply with any of its respective covenants and agreements contained
in the Merger Agreement or breaches its representations and warranties in any
material respect and fails to cure such breach as provided for therein.
FEES AND EXPENSES
If the Merger is consummated, CCI will pay all fees and expenses
incurred in connection with the Merger from the dividends CCI receives from the
Operating Companies. If the Merger is not consummated, each of the Constituent
Corporations will bear their pro-rata share of all such fees and expenses.
SURRENDER OF CERTIFICATES
Certificates nominally representing shares of the common stock of the
Operating Companies, other than any certificate representing dissenting shares,
if any, ("Operating Company Certificates"), as of the Effective Time, for all
purposes, shall be deemed to evidence the number of shares of CCI Common Stock
determined in accordance with the applicable Exchange Ratio. As soon as
practicable after the Effective Time, CCI shall mail to each record holder of an
outstanding Operating Company Certificate, as of the Effective Time, a form of
letter of transmittal (the "Transmittal Letter") that contains instructions for
use in effecting the surrender of each Operating Company Certificate in exchange
for a CCI Common Stock certificate ("CCI Certificate"). Upon surrender to CCI of
an Operating Company Certificate, together with a duly executed Transmittal
Letter (and any other documents which may be reasonably required by CCI, if
any), the holder of such Operating Company Certificate shall receive promptly in
exchange therefor a CCI Certificate for the number of shares of CCI Common Stock
evidenced thereby in accordance with the applicable Exchange Ratio. At that
time, the Operating Company Certificate shall be canceled. If a CCI Certificate
is to be issued to a person other than the person in whose name the surrendered
Operating Company Certificate is registered, it shall be a condition of issuance
of the CCI Certificate (x) that the Operating Company Certificate so surrendered
shall be properly endorsed or otherwise be in proper form for transfer and (y)
that the person requesting such issuance shall pay any transfer or other taxes
required by reason of the issuance to a person other than the registered holder
of the Operating Company Certificate surrendered or establish to the
satisfaction of CCI that such tax has been paid or is not applicable. CCI shall
pay all charges and expenses, including those of the Operating Companies, in
connection with the distribution of CCI Certificates.
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CORPORATE STRUCTURE AND RELATED MATTERS AFTER THE MERGER
At the Effective Time, CRC will merge with and into Clyde, GRRC will
merge with and into Geneva Rock, USRC will merge with and into Utah Service and
BIRC will merge with and into Beehive Insurance, with the Operating Companies
being the surviving corporations of such mergers. Each share of CRC, GRRC, USRC
and BIRC common stock issued and outstanding immediately prior to the Effective
Time will be converted into one share of common stock of the respective
Operating Company and all of the issued and outstanding shares of the common
stock of each of the Operating Companies will be owned by CCI.
The Articles of Incorporation of each of the Operating Companies, as
amended, shall continue to be the Articles of Incorporation of such Operating
Company. The Bylaws of each of the Operating Companies, as amended, shall
continue to be the Bylaws of such Operating Company. The directors and officers
of each Operating Company prior to the Merger shall continue to be the officers
and directors of such Operating Company.
BUSINESS OF THE OPERATING COMPANIES PENDING THE MERGER
Prior to the Effective Time, each of the Operating Companies is required
to operate its businesses in accordance with sound business practices and not
engage in any transactions other than in the ordinary course of business. In
addition, neither CCI nor any of the Operating Companies is permitted to issue
any additional shares of its capital stock (except, CCI shall issue shares of
CCI Common Stock in accordance with the Merger Agreement).
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DISSENTERS' RIGHTS
If the Merger is consummated, holders of shares of Clyde Common Stock,
Geneva Rock Common Stock, Utah Service Common Stock and Beehive Insurance Common
Stock will be entitled to dissenters' rights under the Utah Revised Business
Corporation Act ("URBCA"), provided that they comply with the conditions of
Sections 16-10a-1301 through 16-10a-1331 of the URBCA.
SECTIONS 16-10A-1301 THROUGH 16-10A-1331 OF THE URBCA ARE REPRINTED IN
THEIR ENTIRETY AS ANNEX C TO THIS PROXY STATEMENT/PROSPECTUS. THE FOLLOWING
DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW RELATING TO DISSENTERS' RIGHTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO ANNEX C. THIS DISCUSSION AND
APPENDIX SHOULD BE REVIEWED CAREFULLY BY ANY HOLDER OF CLYDE COMMON STOCK,
GENEVA ROCK COMMON STOCK, UTAH SERVICE COMMON STOCK OR BEEHIVE INSURANCE COMMON
STOCK WHO WISHES TO EXERCISE STATUTORY DISSENTERS' RIGHTS OR WHO WISHES TO
PRESERVE THE RIGHT TO DO SO. FAILURE TO COMPLY WITH THE PROCEDURES SET FORTH IN
SECTIONS 16-10A-1301 THROUGH 16-10A-1331 OF THE URBCA WILL RESULT IN THE LOSS OF
DISSENTERS' RIGHTS.
If the Merger is consummated, holders of record of shares of Clyde
Common Stock, Geneva Rock Common Stock, Utah Service Common Stock and Beehive
Insurance Common Stock who (a) deliver to Clyde, Geneva Rock, Utah Service and
Beehive Insurance, respectively, before the vote is taken written notice of
their intent to demand payment for such shares if the proposed Merger is
effectuated, (b) refrain from voting in favor of the Merger Agreement, by either
voting against the adoption of the Merger Agreement or abstaining from voting,
and (c) comply with the provisions of Sections 16-10a-1301 through 16-10a-1331
of the URBCA, will then be entitled to have paid to them the "fair value" of
their shares at the time of the Merger. The following is a brief summary of the
relevant provisions of Sections 16-10a-1301 through 16-10a-1331 of the URBCA,
which sets forth the procedures for demanding statutory dissenters' rights. This
summary is qualified in its entirety by reference to Sections 16-10a-1301
through 16-10a-1331 of the URBCA, the text of which is attached hereto in
Annex C.
If the Merger is approved and consummated, those shareholders of Clyde,
Geneva Rock, Utah Service and Beehive Insurance who elect to exercise their
dissenters' rights and who properly and timely perfect such rights will be
entitled to receive the "fair value" in cash for their shares of Geneva Rock
Common Stock, Utah Service Common Stock and Beehive Insurance Common Stock,
respectively. Pursuant to Section 16-10a-1301(4) of the URBCA, such "fair value"
means the value of the shares immediately before the effectuation of the Merger,
excluding any appreciation or depreciation in anticipation of the Merger.
A shareholder who elects to exercise his or her dissenters' rights must
perfect such rights by delivering to Clyde, Geneva Rock, Utah Service and
Beehive Insurance, as the case may be, prior to the vote at the applicable
Special Meeting written notice of his or her intent to demand payment, and not
vote his or her shares in favor of the Merger Agreement, by either voting
against the adoption of the applicable Merger Agreement or abstaining from
voting.
If a shareholder fails to deliver written notice to Clyde, Geneva Rock,
Utah Service and Beehive Insurance, as the case may be, of the shareholder's
intent to demand payment prior to the vote at the applicable Special Meeting or
if the shareholder votes his or her shares in favor of the Merger Agreement,
such shareholder will lose the right to receive the fair value of his or her
shares.
If the Merger is approved, within ten days after the date on which the
Merger is consummated, Clyde, Geneva Rock, Utah Service and Beehive Insurance,
as the case may be, will deliver to those shareholders who deliver to Clyde,
Geneva Rock, Utah Service and Beehive Insurance, respectively, prior to the vote
written notice of their intent to demand payment and who refrain from voting in
favor of the Merger Agreement a written dissenters' notice (the "Dissenters'
Notice"). The Dissenters' Notice will state that the Merger was authorized and
the effective date or proposed effective date of the Merger. The Dissenters'
Notice will set forth the address to which the shareholder must send the payment
demand, where and when certificates for such shares must be deposited and the
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date by which Clyde, Geneva Rock, Utah Service and Beehive Insurance, as the
case may be, must receive the payment demand (which date must not be fewer than
30 days nor more that 70 days after the date on which the Dissenters' Notice is
delivered). In addition, the Dissenters' Notice must include (a) a form for
demanding payment which requests the dissenting shareholder to state the address
to which payment is to be made and which includes the date of the first
announcement to the shareholders of the terms of the Merger and requires the
shareholder to certify whether he or she acquired beneficial ownership of the
shares before that date, and (b) a copy of the sections of the URBCA pertaining
to dissenters' rights.
A shareholder who is sent a Dissenters' Notice must demand payment in
writing, certifying whether he or she acquired beneficial ownership of the
shares before the date specified in such notice and deposit his or her
certificates in accordance with the Dissenters' Notice. A shareholder who does
not demand payment by the date set in the Dissenters' Notice or who does not
deposit his or her certificates where required and by the date set in the
Dissenter's Notice is not entitled to a dissenters' right of payment for his or
her shares.
Upon the later of consummation of the Merger or receipt of the payment
demand, Clyde, Geneva Rock, Utah Service and Beehive Insurance, as the case may
be, shall pay each holder of their respective shares who has complied with the
requirements set forth above the amount that Clyde, Geneva Rock, Utah Service
and Beehive Insurance, as the case may be, estimates to be the fair value of
such shares, plus accrued interest. The payment must be accompanied by the
latest available financial statements of Clyde, Geneva Rock, Utah Service and
Beehive Insurance, as the case may be, a statement of the estimate of the fair
value of the respective shares and the amount of interest payable with respect
to such shares, a statement of the dissenters' rights if the dissenter is
dissatisfied with the payment and a copy of the sections of the URBCA pertaining
to dissenters' rights.
If (a) the dissenter believes that the amount paid by Clyde, Geneva
Rock, Utah Service and Beehive Insurance, as the case may be, is less than the
fair value of his or her shares or that the interest due is incorrectly
calculated, (b) Clyde, Geneva Rock, Utah Service or Beehive Insurance, as the
case may be, fail to make payment within 60 days after the date set in the
Dissenters' Notice for demanding payment, or (c) the Merger is not consummated
and Clyde, Geneva Rock, Utah Service or Beehive Insurance, as the case may be,
do not return to the dissenter the deposited certificates within 60 days after
the date set in the Dissenters' Notice for demanding payment, the dissenter may
notify Clyde, Geneva Rock, Utah Service or Beehive Insurance, as the case may
be, of his or her estimate of the fair value of his or her shares and the amount
of interest due and demand payment of his or her estimate, less any payment
previously received. The dissenter must notify Clyde, Geneva Rock, Utah Service
or Beehive Insurance, as the case may be, of his or her demand in writing within
30 days after Clyde, Geneva Rock, Utah Service and Beehive Insurance, as the
case may be, made or offered payment for the dissenters' shares. If, within 60
days after receipt by Clyde, Geneva Rock, Utah Service or Beehive Insurance, as
the case may be, of a demand described in this paragraph, the demand remains
unsettled, CCI, Clyde, Geneva Rock, Utah Service or Beehive Insurance, as the
case may be, shall commence a proceeding and shall petition the court to
determine the fair value of the shares and accrued interest thereon. If Clyde,
Geneva Rock, Utah Service or Beehive Insurance, as the case may be, do not bring
the respective proceeding within such 60-day period, it shall pay each dissenter
whose demand remains unsettled the amount demanded. If the respective proceeding
is brought within the 60-day period, the dissenter shall be entitled to judgment
for the amount by which the court finds the fair value of his or her shares plus
interest exceeds the amount paid by Clyde, Geneva Rock, Utah Service and Beehive
Insurance, as the case may be.
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<PAGE> 122
DESCRIPTION OF CCI CAPITAL STOCK
At the effective time of the Merger, the authorized capital stock of CCI
will consist of 10,000,000 shares of CCI Common Stock. For a discussion of
significant differences between CCI's Articles of Incorporation and Bylaws and
the Articles of Incorporation and Bylaws for Clyde, Geneva Rock, Utah Service
and Beehive Insurance, see "Comparison of the Rights of Holders of CCI Common
Stock and Clyde, Geneva Rock, Utah Service and Beehive Insurance Common Stock."
COMMON STOCK
Holders of shares of CCI Common Stock will be entitled to one vote per
share on all matters to be voted on by shareholders. Holders of CCI Common Stock
will be entitled to receive ratably such dividends as may be declared by the
Board of Directors out of funds legally available therefor. In the event of a
liquidation, dissolution, or winding up of CCI, the holders of CCI Common Stock
will be entitled to share ratably in all assets remaining after payment of
liabilities. Holders of CCI Common Stock will have no preemptive rights and will
have no rights to convert their CCI Common Stock into any other securities.
Holders of CCI Common Stock will have certain limited rights to have their
shares of CCI Common Stock redeemed for cash pursuant to the terms of the Stock
Redemption Plan. For a summary of such rights, see "Clyde Companies, Inc.--Stock
Redemption Plan." CCI Common Stock to be outstanding upon completion of the
offering will be validly issued, fully paid and non-assessable.
UTAH CONTROL SHARES ACQUISITION ACT
The Utah Control Shares Acquisition Act (the "Control Shares Act")
essentially provides that, when a person or group (the "Acquiror") acquires
shares (or the power to direct the voting of shares) of a corporation that is
subject to the Control Shares Act equal to or in excess of 20%, 33 1/3% or a
majority of the voting power of the corporation, the Acquiror is not permitted
to vote (or to direct the voting of) the shares unless a majority of the
corporation's shares (voting in voting groups, if applicable), excluding shares
held by the Acquiror or by the officers and employee-directors of the
corporation, approve a resolution granting the Acquiror the right to vote the
shares. Shareholder approval may occur at the next meeting of the shareholders
or, if the Acquiror requests a special meeting and agrees to pay the associated
costs of the corporation for the requested special meeting, at the requested
special meeting of the shareholders (to be held within 50 days of the
corporation's receipt of the request by the Acquiror).
If authorized by the corporation's articles of incorporation or bylaws,
the corporation may redeem the Acquiror's shares at their fair market value if
the Acquiror does not file an "acquiring person statement." CCI's Articles of
Incorporation and Bylaws do not provide for redemption of an Acquiror's shares
in the event the Acquiror fails to file an "acquiring person statement." An
Acquiror's shares are not subject to redemption after an "acquiring person
statement" has been filed unless the shares are not accorded full voting rights
by the shareholders.
If the Acquiror obtains the right to vote, and if the Acquiror obtains a
majority of the voting power of the corporation, the shareholders may be
entitled to dissenters' rights.
The Control Shares Act does not apply if (a) a corporation's articles of
incorporation or bylaws provide that the Control Shares Act does not apply, (b)
the acquisition of shares of the corporation is consummated pursuant to a merger
(to which the corporation is a party) , or (c) under certain other specified
circumstances. In addition, the Control Shares Act applies only to Utah
corporations that (a) have 100 or more shareholders, (b) have their (i)
principal place of business, (ii) principal office, or (iii) substantial assets
in the State of Utah, and (c) have (i) more than 10% of their shareholders who
are residents of Utah, (ii) more than 10% of their shares owned by Utah
residents, or (iii) 10,000 or more shareholders who are residents of Utah.
CCI's Articles of Incorporation and Bylaws contain no additional
provision restricting transactions with interested shareholders or other
takeover situations, nor do they contain provisions opting out of the Control
Shares Act.
105
<PAGE> 123
CERTAIN PROVISIONS OF CCI'S ARTICLES OF INCORPORATION AND BY-LAWS
The description of certain provisions of the Articles of Incorporation
and the By-Laws set forth in "Comparison of the Rights of Holders of CCI Common
Stock and Clyde, Geneva Rock, Utah Service and Beehive Insurance Common Stock"
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, CCI's Articles of Incorporation and By-Laws.
106
<PAGE> 124
COMPARISON OF THE RIGHTS OF HOLDERS OF CCI COMMON STOCK AND CLYDE,
GENEVA ROCK, UTAH SERVICE AND BEEHIVE INSURANCE COMMON STOCK
As a consequence of the Merger, the shareholders of Clyde, Geneva Rock,
Utah Service and Beehive Insurance will become shareholders of CCI. The
following is a summary of material differences between the rights of holders of
CCI Common Stock and the rights of holders of Clyde, Geneva Rock, Utah Service
and Beehive Insurance Common Stock.
Shareholders of Clyde, Geneva Rock, Utah Service and Beehive Insurance,
whose rights as shareholders are currently governed by each of Clyde's, Geneva
Rock's, Utah Service's and Beehive Insurance's respective Articles of
Incorporation (the "Clyde Articles", "Geneva Rock Articles", "Utah Service
Articles" and "Beehive Insurance Articles") and each of Clyde's, Geneva Rock's,
Utah Service's and Beehive Insurance's respective By-laws (the "Clyde By-laws",
"Geneva Rock By-laws", "Utah Service By-laws" and "Beehive Insurance By-laws")
will, upon consummation of the Merger, automatically become shareholders of CCI,
and their rights will be governed by CCI's Articles of Incorporation (the "CCI
Articles") and CCI's By-laws (the "CCI By-laws"). The following is a discussion
of only those material similarities and differences between the rights of
shareholders of Clyde, Geneva Rock, Utah Service and Beehive Insurance under the
Clyde Articles and By-laws, Geneva Rock Articles and By-laws, Utah Service
Articles and By-laws and Beehive Insurance Articles and By-laws on the one hand
and shareholders of CCI under the CCI Articles and By-laws on the other hand.
This summary does not purport to be a complete discussion of, and is qualified
in its entirety by reference to the CCI Articles and By-laws, Clyde Articles and
By-laws, Geneva Rock Articles and By-laws, Utah Service Articles and By-laws and
Beehive Insurance Articles and By-laws.
AMENDMENTS TO ARTICLES AND BY-LAWS
The URBCA generally provides that in order for an amendment to the
articles of incorporation of a corporation to be adopted, the board of directors
of the corporation must recommend the amendment to the shareholders to be voted
on by the shareholders. In order for an amendment to a corporation's articles of
incorporation to be adopted, the amendment must be approved by a majority of the
votes entitled to be cast on the amendment by any voting group with respect to
which the amendment would create dissenters' rights or materially and adversely
affect other rights of shareholders and by every other voting group entitled to
vote on the amendment.
Under the URBCA, a corporation's board of directors may amend the
corporation's bylaws unless the corporation's articles of incorporation, the
by-laws or the URBCA reserves the power to amend the by-laws exclusively to the
shareholders in whole or in part. The URBCA also provides that a corporation's
shareholders may also amend or repeal the corporation's by-laws. The Clyde
By-laws, Geneva Rock By-laws and Beehive Insurance By-laws provide that no
by-law adopted by the shareholders can be altered by the board of directors. The
Clyde By-laws, Geneva Rock By-laws, Utah Service By-laws and Beehive Insurance
By-laws provide that they cannot be amended by the board of directors in a way
that would fix a greater quorum or voting requirement for shareholder votes. The
CCI By-laws provide that the board of directors may not adopt, amend or repeal a
by-law that fixes a greater quorum or voting requirement for shareholder votes.
The CCI By-Laws also provide that the provisions in the CCI By-Laws regarding
the qualifications of directors (described below) can only be amended by the
approval of a 75% majority of the directors or shareholders of CCI.
SPECIAL MEETINGS OF SHAREHOLDERS
The URBCA provides that a special meeting of shareholders may be called
by the board of directors or the holders of 10% or more of the votes entitled to
be cast on any issue proposed to be considered at the proposed special meeting,
or by such persons as are specified in the articles of incorporation or bylaws.
The Clyde and Beehive Insurance By-laws provide that special meetings may be
called by the chairman of the board of directors, the president or by the board
of directors, or in the absence or disability of the foregoing, by any vice
president. The Geneva Rock Articles and By-laws provide that a special meeting
may be called by the president, vice president or any two directors. The Beehive
Insurance Articles provide that a special meeting may be called by a majority of
the directors. The Utah Service Articles provide that the president, vice
president or any three directors may call a
107
<PAGE> 125
special meeting. The Utah Service Bylaws provide that a special meeting may be
called by the president or the board of directors. The CCI By-laws state that
special meetings of shareholders may be called by the president or the board of
directors and that the president is required to call a special meeting of
shareholders upon a request made by the holders of not less than 10% of CCI
Common Stock.
CORPORATE ACTION BY WRITTEN CONSENT OF SHAREHOLDERS
The URBCA permits corporate action by shareholders without a
shareholders meeting upon the written consent of all the shareholders entitled
to vote on the action with respect to any corporation, such as CCI, Clyde,
Geneva Rock, Utah Service or Beehive Insurance, formed prior to July 1, 1992.
The written consent of the holders of shares having not less than the minimum
number of votes that would be necessary to authorize or take the action at a
meeting at which all the shares entitled to vote thereon were present and voted
is sufficient if all the shareholders entitled to vote have first approved a
resolution to that effect. As of the date hereof, no such shareholder resolution
has been approved by the shareholders of Clyde, Geneva Rock, Utah Service or
Beehive Insurance Common Stock. The shareholders of CCI Common Stock have,
however, approved such a resolution.
DIVIDENDS
Under the URBCA, the board of directors of a corporation may authorize
and the corporation may make distributions (including dividends) to shareholders
only if after giving effect to the distribution (i) the corporation would be
able to pay its debts as they become due in the usual course of business and
(ii) the corporation's total assets would at least equal the sum of its total
liabilities plus, unless the corporation's articles of incorporation permit
otherwise, the amount that would be needed if the corporation were to be
dissolved at the time of the distribution to satisfy the preferential rights
upon dissolution of shareholders whose preferential rights are superior to those
receiving the distribution.
CAPITAL STOCK
The authorized capital stock of CCI consists of 10,000,000 shares of CCI
Common Stock and no preferred stock. The authorized capital stock of Clyde
consists of 200,000 shares of Clyde Common Stock and no preferred stock. The
authorized capital stock of Geneva Rock consists of 50,000 shares of Geneva Rock
Common Stock and no preferred stock. The authorized capital stock of Utah
Service consists of 5,000 shares of Utah Service Common Stock and no preferred
stock. The authorized capital stock of Beehive Insurance consists of 50,000
shares of Beehive Insurance Common Stock and no preferred stock.
DISSENTERS' RIGHTS
Holders of common stock of any of Operating Companies are entitled under
the URBCA to certain dissenters' rights, as more fully described in "Dissenters'
Rights" above.
PROVISIONS RELATING TO DIRECTORS
Under the URBCA, a corporation must have a board of directors consisting
of at least three directors, unless the number of shareholders is less than
three, in which case the number of directors must be at least equal to the
number of shareholders. The Clyde Articles provide that the Clyde Board of
Directors shall consist of not less than three nor more than fifteen directors.
The Clyde By-laws fix the number of directors at nine. Only eight directors are
currently serving, and the Clyde Board of Directors has not filled the remaining
vacancy. The Board of Directors, by a majority vote, or the shareholders, by a
three-fourths vote, may amend the Clyde By-laws to change from time to time the
number of directors. The Geneva Rock By-laws provide that the Geneva Rock Board
of Directors shall consist of nine directors. Only eight directors are currently
serving, and the Geneva Rock Board of Directors has not filled the remaining
vacancy. The Board of Directors, by a majority vote, or the shareholders, by a
three-fourths vote, may amend the Geneva Rock By-laws to change from time to
time the number of directors. The Utah Service Articles provide that the Utah
Service Board of Directors shall consist of not less than three nor more than
nine directors. The Utah Service By-laws fix the number of directors at nine.
The Board of Directors or shareholders may change from time to time the number
of directors by approving an amendment to the Utah Service
108
<PAGE> 126
By-laws. The Beehive Insurance Articles provide that the Beehive Insurance Board
of Directors shall consist of not less than three nor more than thirteen
directors. The Beehive Insurance By-laws fix the number of directors at nine.
The Board of Directors or shareholders may change from time to time the number
of directors by approving an amendment to the Beehive Insurance By-laws. Only
eight directors are currently serving, and the Beehive Insurance Board of
Directors has not filled the remaining vacancy.
The CCI By-laws provide that the CCI Board of Directors shall consists
of not less than eight nor more than eleven directors. Section 3.2( c) of the
CCI By-laws provides that directors must have the following qualifications: (i)
for a period of five years after the date on which the CCI By-laws are adopted,
(a) six of the directors must be direct descendants (or the spouse of a direct
descendant) of W.W. Clyde and (b) two of the directors must be direct
descendants (or the spouse of a direct descendant) of Edward Clyde; and (ii) no
person over seventy-five years of age will be elected or appointed a director of
CCI except for any director elected within sixty days after the adoption of the
CCI By-laws and serving during the five year period described above.
The Clyde, Geneva Rock and Beehive Insurance By-laws provide that
vacancies in their respective boards of directors may be filled by the vote of
the remaining directors. The CCI and Utah Service By-laws provide that vacancies
in their respective boards of directors may be filled by the vote of the
shareholders, the board of directors or the affirmative vote of a majority of
the remaining directors if less than a quorum.
The URBCA allows the articles of incorporation of a corporation to
provide for staggering the terms of directors by dividing the total number of
directors into two or three groups, with each group containing 1/2 or 1/3 of the
total, as near as may be. None of the Articles or By-laws of any of the
Constituent Corporations or CCI provide for staggering the terms of directors.
Under the URBCA, one or more directors may be removed with or without
cause by the shareholders of a corporation unless the articles of incorporation
provide that directors may be removed only for cause. The CCI, Clyde, Geneva
Rock, Utah Service and Beehive Insurance Articles do not provide that the
directors may be removed only for cause. If a director is selected by a voting
group of shareholders, only the shareholders of that voting group may
participate in the vote to remove the director. If cumulative voting is
authorized, a director may not be removed if the number of votes sufficient to
elect the director under cumulative voting is voted against the director's
removal. If cumulative voting is not authorized, a director may be removed only
if the number of votes cast to remove the director exceeds the number of votes
cast not to remove the director. A director may be removed by the shareholders
only at a meeting called for the purpose of removing the director and the
meeting notice must state that the purpose, or one of the purposes, of the
meeting is removal of the director.
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<PAGE> 127
VALIDITY OF CCI COMMON STOCK
The validity of the shares of CCI Common Stock to be issued in
connection with the Merger has been passed upon by Van Cott, Bagley, Cornwall &
McCarthy, Salt Lake City, Utah. See "Risk Factors--Lack of Separate Legal
Representation" and "The Merger--Interests of Certain Persons in the
Merger--Lack of Separate Legal Representation".
EXPERTS
The audited financial statements of CCI, Clyde and Utah Service included
in this Proxy Statement/Prospectus have been so included in reliance on the
reports of Grant Thornton, given on the authority of said firm as experts in
auditing and accounting. The audited financial statements of Geneva Rock
included in this Proxy Statement/Prospectus have been so included in reliance on
the reports of Squire, given on the authority of said firm as experts in
auditing and accounting. The audited financial statements of Beehive Insurance
included in this Proxy Statement/Prospectus have been so included in reliance on
the reports of Daines, given on the authority of said firm as experts in
auditing and accounting.
OTHER MATTERS
None of the Boards of Directors of CCI, Clyde, Geneva Rock, Utah Service
and Beehive Insurance intend to bring any matters before the Special Meetings
other than those specifically set forth in the Notices of Special Meeting, nor
do they know of any matters to be brought before the CCI, Clyde, Geneva Rock,
Utah Service and Beehive Insurance Special Meeting, respectively, by others. If
any other matters properly come before the CCI, Clyde, Geneva Rock, Utah Service
and Beehive Insurance Special Meeting, it is the intention of the persons named
in the accompanying proxies to vote such proxies in accordance with the judgment
of the Boards of Directors of CCI, Clyde, Geneva Rock, Utah Service and Beehive
Insurance, respectively.
SHAREHOLDER PROPOSALS
If the Merger is not consummated, the date by which shareholder
proposals must be received by CCI, Clyde, Geneva Rock, Utah Service and Beehive
Insurance for inclusion in the Proxy Statement and Form of Proxy for each of
their respective 1998 Annual Meeting of Shareholders is ___________, 1998. Such
shareholder proposals should be submitted to: (i) in the case of CCI, Clyde
Companies, Inc., 1423 Devonshire Drive, Salt Lake City, Utah, 84108, Attention:
Secretary; (ii) in the case of Clyde, W.W. Clyde & Co., 1375 North Main Street,
Springville, Utah 84663, Attention: Secretary; (iii) in the case of Geneva Rock,
Geneva Rock Products, Inc., 302 West 5400 South, Suite 200, Murray, Utah 84107,
Attention: Secretary; (iv) in the case of Utah Service, Utah Service, Inc., 35
East 400 South, Springville, Utah 84663, Attention: Secretary; or (v) in the
case of Beehive Insurance, Beehive Insurance Agency, Inc., 302 West 5400 South,
Suite 109, Murray, Utah 84107, Attention: Secretary.
110
<PAGE> 128
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
CLYDE COMPANIES, INC.
Report of Independent Accountants F-3
Balance Sheets as of September 30, 1997 (unaudited), December 31, 1996
and December 31, 1995 (unaudited) F-4
Statements of Earnings and Retained Earnings for the nine months
ended September 30, 1997 (unaudited) and September 30, 1996 (unaudited)
and for the years ended December 31, 1996, December 31, 1995 (unaudited)
and December 31, 1994 (unaudited) F-5
Statements of Cash Flows for the nine months ended
September 30, 1997 (unaudited) and September 30, 1996 (unaudited) and
for the years ended December 31, 1996, December 31, 1995 (unaudited)
and December 31, 1994 (unaudited) F-6
Notes to Financial Statements F-7
W.W. CLYDE & CO.
Report of Independent Accountants F-19
Balance Sheets as of September 30, 1997 (unaudited),
December 31, 1996 and December 31, 1995 F-20
Statements of Earnings and Retained Earnings for the nine months
ended September 30, 1997 (unaudited) and September 30, 1996 (unaudited)
and for the years ended December 31, 1996, December 31, 1995 and December 31, 1994 F-22
Statements of Cash Flows for the nine months ended
September 30, 1997 (unaudited) and September 30, 1996 (unaudited) and
for the years ended December 31, 1996, December 31, 1995
and December 31, 1994 F-25
Notes to Financial Statements
GENEVA ROCK PRODUCTS, INC.
Report of Independent Accountants F-38
Consolidated Balance Sheets as of September 30, 1997 (unaudited),
December 31, 1996 and December 31, 1995 F-39
Consolidated Statements of Earnings for the nine months ended
September 30, 1997 (unaudited) and September 30, 1996 (unaudited) and
for the years ended December 31, 1996, December 31, 1995
and December 31, 1994 F-41
Consolidated Statement of Stockholders' Equity for the nine months ended
September 30, 1997 (unaudited) and for the years ended
December 31, 1996, December 31, 1995 and December 31, 1994 F-42
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1997 (unaudited) and September 30, 1996 (unaudited) and
for the years ended December 31, 1996, December 31, 1995 and December 31, 1994
Notes to Consolidated Financial Statements F-44
UTAH SERVICE, INC.
Report of Independent Accountants F-55
Balance sheets as of September 30, 1997 and December 31, 1996 (unaudited) F-56
Statements of Earnings for the nine months ended September 30, 1997
and September 30, 1996 (unaudited) and for the years ended
December 31, 1996 (unaudited) and December 31, 1995 (unaudited) F-58
</TABLE>
F-1
<PAGE> 129
<TABLE>
<CAPTION>
<S> <C>
Statement of Stockholders' Equity for the nine months ended September 30, 1997
and for the years ended December 31, 1996 (unaudited), December 31, 1995
(unaudited) and December 31, 1994 (unaudited) F-59
Statements of Cash Flows for the nine months ended September 30, 1997
and September 30, 1996 (unaudited) and for the years ended
December 31, 1996 (unaudited), December 31, 1995 (unaudited)
and December 31, 1994 (unaudited) F-60
Notes to Financial Statements F-62
BEEHIVE INSURANCE AGENCY, INC.
Report of Independent Accountants F-72
Balance Sheets as of September 30, 1997 (unaudited), December 31, 1996 and
December 31, 1995 F-73
Statements of Earnings for the nine months ended
September 30, 1997 (unaudited) and September 30, 1996 (unaudited) and
for the years ended December 31, 1996, December 31, 1995 and December 31, 1994 F-75
Statements of Cash Flows for the nine months ended
September 30, 1997 (unaudited) and September 30, 1996 (unaudited) and
for the years ended December 31, 1996, December 31, 1995
and December 31, 1994 F-76
Notes to Financial Statements F-77
</TABLE>
F-2
<PAGE> 130
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Clyde Companies, Inc.
We have audited the accompanying balance sheet of Clyde Companies, Inc.
(formerly W.W. Clyde Investment Co.) as of December 31, 1996, and the related
statements of earnings and retained earnings, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Clyde Companies, Inc. as of
December 31, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Provo, Utah
October 14, 1997, except for Note D for which
the date is November 13, 1997
F-3
<PAGE> 131
Clyde Companies, Inc.
(formerly W. W. Clyde Investment Co.)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
September 30, --------------------------
1997 1996 1995
-------------- ----------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 107,894 $ 27,264 $ 35,897
Other assets 15,865 4,000 4,000
----------- ----------- -----------
Total current assets 123,759 31,264 39,897
INVESTMENT IN AFFILIATES (Note B) 27,145,779 25,056,938 22,553,514
----------- ----------- -----------
$27,269,538 $25,088,202 $22,593,411
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITES -
Accrued federal income tax $ -- $ 5,385 $ 20,332
DEFERRED INCOME TAXES (Note C) 9,932,225 9,153,088 8,219,311
STOCKHOLDERS' EQUITY (Note D)
Capital stock, no par value
Authorized - 10,000,000 shares
Issued - 2,303,920 shares 706,530 706,530 706,530
Retained earnings 16,630,783 15,223,199 13,647,238
----------- ----------- -----------
17,337,313 15,929,729 14,353,768
----------- ----------- -----------
$27,269,538 $25,088,202 $22,593,411
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 132
Clyde Companies, Inc.
(formerly W. W. Clyde Investment Co.)
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Nine months ended
September 30, Year ended December 31,
------------------------- --------------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Operating expenses $ 4,874 $ 4,886 $ 6,510 $ 6,582 $ 7,774
----------- ----------- ------------ ------------ ------------
Other income
Dividend income from affiliates 92,558 47,188 404,320 530,210 508,373
Equity in undistributed net earnings of affiliates 2,088,841 2,668,598 2,503,424 3,412,424 2,454,520
Interest income 1,277 743 1,029 1,097 1,693
Other 18,499 -- -- 418 15,389
----------- ----------- ------------ ------------ ------------
Total other income 2,201,175 2,716,529 2,908,773 3,944,149 2,979,975
----------- ----------- ------------ ------------ ------------
Earnings before income taxes 2,196,301 2,711,643 2,902,263 3,937,567 2,972,201
Income taxes 788,717 998,001 967,484 1,321,488 962,805
----------- ----------- ------------ ------------ ------------
NET EARNINGS 1,407,584 1,713,642 1,934,779 2,616,079 2,009,396
Retained earnings at beginning of period 15,223,199 13,647,238 13,647,238 11,508,370 9,971,687
Cash dividends -- -- (358,818) (477,211) (472,713)
----------- ----------- ------------ ------------ ------------
Retained earnings at end of period $16,630,783 $15,360,880 $15,223,199 $13,647,238 $11,508,370
=========== =========== ============ ============ ============
Earnings per share $ 0.61 $ 0.74 $ 0.84 $ 1.14 $ 0.87
=========== =========== ============ ============ ============
Weighted average shares outstanding 2,303,920 2,303,920 2,303,920 2,303,920 2,303,920
=========== =========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 133
Clyde Companies, Inc.
(formerly W. W. Clyde Investment Co.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended
September 30, Year ended December 31,
-------------------------- -----------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Increase in cash and cash equivalents
Cash flows from operating activities
Net earnings $1,407,584 $1,713,642 $1,934,779 $2,616,079 $2,009,396
Adjustments to reconcile net earnings to
net cash provided by operating activities
Equity in net earnings of affiliates (2,088,841) (2,668,598) (2,503,424) (3,412,424) (2,454,520)
Deferred income taxes 779,137 995,387 933,777 1,272,835 915,536
Changes in assets and liabilities
Other assets - (11,865) (23,708) -- -- 1,119
Accrued federal income tax (5,385) (15,456) (14,947) 1,385 2,848
----------- ----------- ----------- ----------- -----------
Total adjustments 1,326,954 (1,712,375) (1,584,594) (2,138,204) (1,535,017)
----------- ----------- ----------- ----------- -----------
Net cash provided by
operating activities 80,630 1,267 350,185 477,875 474,379
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities -
Dividends paid -- -- (358,818) (477,211) (472,713)
----------- ----------- ----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents 80,630 1,267 (8,633) 664 1,666
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at beginning
of period 27,264 35,897 35,897 35,233 33,567
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 107,894 $ 37,164 $ 27,264 $ 35,897 $ 35,233
=========== =========== =========== =========== ===========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ -- $ -- $ -- $ -- $ --
Income taxes 27,901 40,021 40,021 47,902 46,087
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 134
CLYDE COMPANIES, INC.
(formerly W. W. Clyde Investment Co.)
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows. Insofar
as the notes refer to the nine months ended September 30, 1997 and 1996
and the years ended December 31, 1995 and December 31, 1994, they are not
audited. In the opinion of management, the unaudited financial statements
for the nine months ended September 30, 1997 and 1996 and the years ended
December 31, 1995 and December 31, 1994 include all adjustments,
consisting of normal recurring accruals, necessary to present fairly the
Company's financial position, results of operations and cash flows.
Operating results for the nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the full
year.
1. Organization
In connection with an "Agreement and Plan of Merger" adopted on November
13, 1997, Clyde Companies, Inc. (the Company) changed its name from W. W.
Clyde Investment Co. The Company is incorporated under the laws of the
State of Utah. The Company is located in Salt Lake City, Utah and is an
investment company which holds stock in four related companies: W. W.
Clyde & Co. (W.W. Clyde) (33.78%), Geneva Rock Products, Inc. (Geneva
Rock) (21.67%), Utah Service, Inc. (Utah Service) (31.37%) and Beehive
Insurance Agency, Inc. (Beehive Insurance) (17.22%) (See Note D).
2. Cash and cash equivalents
For purposes of the financial statements, the Company considers all
short-term debt securities with an original maturity of three months or
less when purchased to be cash equivalents.
3. Income taxes
The Company utilizes the liability method of accounting for income taxes.
Under the liability method, deferred taxes are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. An allowance against deferred tax
assets is recorded when it is more likely than not that such tax benefits
will not be realized.
F-7
<PAGE> 135
CLYDE COMPANIES, INC.
(formerly W. W. Clyde Investment Co.)
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
4. Use of estimates
In preparing the Company's financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues
and expenses during the reported period. Actual results could differ from
those estimates.
5. Fair value of financial instruments
The carrying value of the Company's cash and cash equivalents, trade
receivables, notes payable and trade payables approximate their fair
values.
6. Investments
Investments in affiliates are accounted for on the equity method.
7. Earnings per share
Earnings per common share are based upon the weighted average number of
common shares outstanding during the period presented after giving
retroactive effect to all periods presented for the 40:1 stock split as
described in Note D.
8. Recently issued accounting statements not yet adopted
Earnings per share
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings
Per Share." SFAS 128 eliminates the presentation of primary earnings per
share (EPS) and requires the presentation of basic EPS, which includes no
common stock equivalents and thus no dilution. The statement also
eliminates the modified treasury stock method of computing potential
common shares. This statement is effective for financial statements
issued for periods ending after December 15, 1997.
F-8
<PAGE> 136
CLYDE COMPANIES, INC.
(formerly W. W. Clyde Investment Co.)
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
8. Recently issued accounting statements not yet adopted - continued
Capital Structure
Also in February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129 (SFAS 129), "Disclosure of Information about Capital
Structure." SFAS 129 consolidates in one statement disclosures about the
rights of outstanding securities and changes in the number of equity
securities during the period, disclosures about liquidation preferences
and preferred stock, and disclosures about redemption requirements of
certain redeemable stock. Disclosures were previously included in
Accounting Principles Board (APB) Opinion 15, APB Opinion 10 and SFAS 47.
The statement does not change the required disclosures about capital
structure for entities currently subject to the requirements of APB
Opinions 10 and 15 and SFAS 47. SFAS 129 is effective for financial
statements for interim and annual periods ending after December 15, 1997.
Comprehensive income
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 (SFAS 130), "Reporting Comprehensive Income." SFAS 130 requires
entities presenting a complete set of financial statements to include
details of comprehensive income that arise in the reporting period.
Comprehensive income consists of net income or loss for the current
period and other comprehensive income, which consists of revenue,
expenses, gains, and losses that bypass the income statement and are
reported directly in a separate component of equity. Other comprehensive
income includes, for example, foreign currency items, minimum pension
liability adjustments, and unrealized gains and losses on certain
investment securities. SFAS 130 requires that components of comprehensive
income be reported in a financial statement that is displayed with the
same prominence as other financial statements. This statement is
effective for fiscal years beginning after December 15, 1997, and
requires restatement of prior period financial statements presented for
comparative purposes.
F-9
<PAGE> 137
CLYDE COMPANIES, INC.
(formerly W. W. Clyde Investment Co.)
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
8. Recently issued accounting statements not yet adopted - continued
Disclosure of segments
Also in June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131 (SFAS 131), "Disclosures about Segments of an
Enterprise and Related Information." This statement requires an entity to
report financial and descriptive information about their reportable
operating segments. An operating segment is a component of an entity for
which financial information is developed and evaluated by the entity's
chief operating decision maker to assess performance and to make
decisions about resource allocation. Entities are required to report
segment profit or loss, certain specific revenue and expense items and
segment assets based on financial information used internally for
evaluating performance and allocating resources. This statement is
effective for fiscal years beginning after December 15, 1997, and
requires restatement of prior period financial statements presented for
comparative purposes.
The Company does not believe that the adoption of SFAS 128, SFAS 129,
SFAS 130 and SFAS 131 will have a material effect on the Company's
financial statements.
9. Certain reclassifications
Certain nonmaterial reclassifications have been made to the 1996, 1995
and 1994 financial statements to conform to the September 30, 1997
presentation.
F-10
<PAGE> 138
CLYDE COMPANIES, INC.
(formerly W. W. Clyde Investment Co.)
NOTES TO FINANCIAL STATEMENTS
NOTE B - INVESTMENT IN AFFILIATES
The Company owns 33.78% of the outstanding common stock of W. W. Clyde,
21.67% of the outstanding common stock of Geneva Rock, 31.37% of the
outstanding common stock of Utah Service, and 17.22% of the outstanding
common stock of Beehive Insurance. These investments are accounted for
under the equity method (See Note D).
The Company's investments in affiliates consist of the following:
<TABLE>
<CAPTION>
Geneva Utah Beehive
W.W. Clyde Rock Service Insurance Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Initial investment at cost $ 427,002 $ 63,178 $ 22,703 $ 4,947 $ 517,830
------------ ------------ ------------ ------------ ------------
Equity in investment at
January 1, 1994 8,894,907 6,571,220 637,252 65,361 16,168,740
Share of net earnings for
the year 873,167 1,908,185 139,868 41,673 2,962,893
Dividends received for the
year (319,350) (127,575) (24,448) (37,000) (508,373)
------------ ------------ ------------ ------------ ------------
Equity in investment at
December 31, 1994 9,448,724 8,351,830 752,672 70,034 18,623,260
Share of net earnings for
the year 1,430,881 2,379,210 109,984 22,559 3,942,634
Dividends received for the
year (319,350) (141,750) (33,960) (35,150) (530,210)
------------ ------------ ------------ ------------ ------------
Equity in investment at
December 31, 1995 10,560,255 10,589,290 828,696 57,443 22,035,684
</TABLE>
F-11
<PAGE> 139
CLYDE COMPANIES, INC.
(formerly W. W. Clyde Investment Co.)
NOTES TO FINANCIAL STATEMENTS
NOTE B - INVESTMENT IN AFFILIATES - CONTINUED
<TABLE>
<CAPTION>
Geneva Utah Beehive
W.W. Clyde Rock Service Insurance Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Share of net earnings for
the year 907,565 1,827,843 132,079 40,257 2,907,744
Dividends received for the
year (191,610) (141,750) (33,960) (37,000) (404,320)
------------ ------------ ------------ ------------ ------------
Equity in investment at
December 31, 1996 11,276,210 12,275,383 926,815 60,700 24,539,108
Share of net earnings for
the period 485,388 1,548,483 112,420 35,108 2,181,399
Dividends received for the
period (63,870) -- (10,188) (18,500) (92,558)
------------ ------------ ------------ ------------ ------------
Equity in investment at
September 30, 1997 11,697,728 13,823,866 1,029,047 77,308 26,627,949
------------ ------------ ------------ ------------ ------------
Total Investment $12,124,730 $13,887,044 $ 1,051,750 $ 82,255 $27,145,779
============ ============ ============ ============ ============
Percent Ownership 33.78% 21.67% 31.37% 17.22%
</TABLE>
Condensed balance sheets of W.W. Clyde consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
------------- ---------------------------
1997 1996 1995
------------- ----------- -----------
<S> <C> <C> <C>
Assets
Current assets $16,287,000 $16,357,000 $16,320,000
Property and equipment, net of depreciation 8,578,000 8,678,000 8,328,000
Other assets 22,366,000 19,881,000 17,177,000
----------- ----------- -----------
Total assets $47,231,000 $44,916,000 $41,825,000
=========== =========== ===========
Liabilities and stockholders' equity
Current liabilities $1,126,000 $1,092,000 $1,297,000
Long-term liabilities 9,888,000 8,877,000 7,539,000
----------- ----------- -----------
Total liabilities 11,014,000 9,969,000 8,836,000
Stockholders' equity 36,217,000 34,947,000 32,989,000
----------- ----------- -----------
Total liabilities and stockholders' equity $47,231,000 $44,916,000 $41,825,000
=========== =========== ===========
</TABLE>
F-12
<PAGE> 140
CLYDE COMPANIES, INC.
(formerly W. W. Clyde Investment Co.)
NOTES TO FINANCIAL STATEMENTS
NOTE B - INVESTMENT IN AFFILIATES - CONTINUED
Condensed statements of earnings of W.W. Clyde are as follows:
<TABLE>
<CAPTION>
Nine months ended
September 30, Year ended December 31,
------------------------ -------------------------------------
1997 1996 1996 1995 1994
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Construction revenue $9,696,000 $14,674,000 $19,056,000 $21,325,000 $20,222,000
Cost of construction 9,452,000 12,756,000 17,116,000 18,199,000 18,590,000
---------- ----------- ----------- ----------- -----------
Gross profit 244,000 1,918,000 1,940,000 3,126,000 1,632,000
Operating expenses 1,108,000 995,000 1,443,000 1,255,000 1,321,000
Other income, net 3,159,000 3,207,000 3,700,000 4,796,000 3,723,000
---------- ----------- ----------- ----------- -----------
Earnings before income taxes 2,295,000 4,130,000 4,197,000 6,667,000 4,034,000
Income taxes 858,000 1,584,000 1,510,000 2,431,000 1,449,000
---------- ----------- ----------- ----------- -----------
Net earnings 1,437,000 2,546,000 2,687,000 4,236,000 2,585,000
Ownership percentage 33.78% 33.78% 33.78% 33.78% 33.78%
---------- ----------- ----------- ----------- -----------
Equity in net earnings of affiliate $ 485,000 $ 860,000 $ 908,000 $1,431,000 $ 873,000
========== =========== =========== =========== ===========
</TABLE>
F-13
<PAGE> 141
CLYDE COMPANIES, INC.
(formerly W. W. Clyde Investment Co.)
NOTES TO FINANCIAL STATEMENTS
NOTE B - INVESTMENT IN AFFILIATES - CONTINUED
Condensed balance sheets of Geneva Rock consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
------------ ---------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Assets
Current assets $42,113,000 $35,240,000 $31,230,000
Property and equipment, net of depreciation 39,742,000 36,528,000 24,580,000
Other assets 2,743,000 3,080,000 892,000
----------- ----------- -----------
Total assets $84,598,000 $74,848,000 $56,702,000
=========== =========== ===========
Liabilities and stockholders' equity
Current liabilities $ 9,912,000 $ 8,036,000 $ 5,289,000
Long-term liabilities 10,362,000 9,633,000 2,014,000
----------- ----------- -----------
Total liabilities 20,274,000 17,669,000 7,303,000
Stockholders' equity 64,324,000 57,179,000 49,399,000
----------- ----------- -----------
Total liabilities and stockholders' equity $84,598,000 $74,848,000 $56,702,000
=========== =========== ===========
</TABLE>
Condensed statements of earnings of Geneva Rock are as follows:
<TABLE>
<CAPTION>
Nine months ended
September 30, Year ended December 31,
--------------------------- --------------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Net sales $94,736,000 $85,260,000 $105,451,000 $100,422,000 $80,526,000
Cost of sales 79,560,000 71,566,000 88,900,000 80,811,000 65,205,000
----------- ----------- ------------ ------------ -----------
Gross profit 15,176,000 13,694,000 16,551,000 19,611,000 15,321,000
Operating expenses 3,888,000 1,973,000 3,023,000 3,073,000 2,117,000
------------ ------------ ------------ ------------ ------------
Earnings before income taxes 11,288,000 11,721,000 13,528,000 16,538,000 13,204,000
Income taxes 4,143,000 4,201,000 5,094,000 5,560,000 4,399,000
----------- ----------- ------------ ------------ -----------
Net earnings 7,145,000 7,520,000 8,434,000 10,978,000 8,805,000
Ownership percentage 21.67% 21.67% 21.67% 21.67% 21.67%
----------- ----------- ------------ ------------ -----------
Equity in net earnings of affiliate $1,548,000 $1,630,000 $ 1,828,000 $ 2,379,000 $1,908,000
=========== =========== ============ ============ ===========
</TABLE>
F-14
<PAGE> 142
CLYDE COMPANIES, INC.
(formerly W. W. Clyde Investment Co.)
NOTES TO FINANCIAL STATEMENTS
NOTE B - INVESTMENT IN AFFILIATES - CONTINUED
Condensed balance sheets of Utah Service consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
------------ --------------------------
1997 1996 1995
------------ ---------- ----------
<S> <C> <C> <C>
Assets
Current assets $3,539,000 $3,057,000 $2,911,000
Property and equipment, net of depreciation 1,211,000 1,256,000 1,360,000
Other assets 65,000 75,000 7,000
---------- ---------- ----------
Total assets $4,815,000 $4,388,000 $4,278,000
========== ========== ==========
Liabilities and stockholders' equity
Current liabilities $ 825,000 $ 626,000 $ 608,000
Long-term liabilities 132,000 226,000 369,000
---------- ---------- ----------
Total liabilities 957,000 852,000 977,000
Stockholders' equity 3,858,000 3,536,000 3,301,000
---------- ---------- ----------
Total liabilities and stockholders' equity $4,815,000 $4,388,000 $4,278,000
========== ========== ==========
</TABLE>
Condensed statements of earnings of Utah Service are as follows:
<TABLE>
<CAPTION>
Nine months ended
September 30, Year ended December 31,
1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales $9,258,000 $9,939,000 $13,108,000 $13,580,000 $10,690,000
Operating expenses 7,590,000 8,373,000 10,915,000 11,633,000 9,159,000
----------- ----------- ----------- ----------- -----------
Gross profit 1,668,000 1,566,000 2,193,000 1,947,000 1,531,000
Operating expenses 1,168,000 1,121,000 1,690,000 1,498,000 915,000
Other income, net 72,000 89,000 142,000 101,000 95,000
----------- ----------- ----------- ----------- -----------
Earnings before income taxes 572,000 534,000 645,000 550,000 711,000
Income taxes 213,000 183,000 224,000 199,000 265,000
----------- ----------- ----------- ----------- -----------
Net earnings 359,000 351,000 421,000 351,000 446,000
Ownership percentage 31.37% 31.37% 31.37% 31.37 % 31.37%
----------- ----------- ----------- ----------- -----------
Equity in net earnings of affiliate $ 113,000 $ 110,000 $ 132,000 $ 110,000 $ 140,000
=========== =========== =========== =========== ===========
</TABLE>
F-15
<PAGE> 143
CLYDE COMPANIES, INC.
(formerly W. W. Clyde Investment Co.)
NOTES TO FINANCIAL STATEMENTS
NOTE B - INVESTMENT IN AFFILIATES - CONTINUED
Condensed balance sheets of Beehive Insurance consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
------------ ------------------------
1997 1996 1995
------------ -------- --------
<S> <C> <C> <C>
Assets
Current assets $840,000 $679,000 $827,000
Property and equipment, net of depreciation 59,000 41,000 48,000
Other assets 46,000 36,000 39,000
-------- -------- --------
Total assets $945,000 $756,000 $914,000
======== ======== ========
Liabilities and stockholders' equity
Current liabilities $470,000 $377,000 $554,000
Long-term liabilities - - -
-------- -------- --------
Total liabilities 470,000 377,000 554,000
Stockholders' equity 475,000 379,000 360,000
-------- -------- --------
Total liabilities and stockholders' equity $945,000 $756,000 $914,000
======== ======== ========
</TABLE>
Condensed statements of earnings of Beehive Insurance are as follows:
<TABLE>
<CAPTION>
Nine months ended
September 30, Year ended December 31,
---------------------- ----------------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales $523,000 $501,000 $578,000 $538,000 $598,000
Operating expenses 217,000 194,000 244,000 357,000 254,000
-------- -------- -------- -------- --------
Operating income 306,000 307,000 334,000 181,000 344,000
Other income, net 19,000 20,000 29,000 38,000 27,000
-------- -------- -------- -------- --------
Earnings before income taxes 325,000 327,000 363,000 219,000 371,000
Income taxes 121,000 108,000 129,000 88,000 129,000
-------- -------- -------- -------- --------
Net earnings 204,000 219,000 234,000 131,000 242,000
Ownership percentage 17.22% 17.22% 17.22% 17.22% 17.22%
-------- -------- -------- -------- --------
Equity in net earnings of affiliate $35,100 $37,700 $40,300 $22,600 $41,700
======== ======== ======== ======== ========
</TABLE>
F-16
<PAGE> 144
CLYDE COMPANIES, INC.
(formerly W. W. Clyde Investment Co.)
NOTES TO FINANCIAL STATEMENTS
NOTE C - INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
Nine months ended
September 30, Year ended December 31,
---------------------- -----------------------------------
1997 1996 1996 1995 1994
-------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Current $ 9,579 $ 2,614 $ 33,707 $ 48,653 $ 47,269
Deferred 779,138 995,387 933,777 1,272,835 915,536
-------- -------- -------- ---------- --------
$788,717 $998,001 $967,484 $1,321,488 $962,805
======== ======== ======== ========== ========
</TABLE>
The income tax provision reconciled to the tax computed at the federal
statutory rate of 34% is as follows:
<TABLE>
<CAPTION>
Nine months ended
September 30, Year ended December 31,
---------------------- -----------------------------------
1997 1996 1996 1995 1994
-------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income taxes at statutory rate $746,742 $921,959 $986,769 $1,338,773 $1,010,548
State income taxes, net of federal
tax benefit 72,478 89,484 95,775 129,940 98,083
Dividends received deduction (25,176) (14,081) (109,975) (144,217) (138,277)
All other (5,327) 639 (5,085) (3,008) (7,549)
-------- -------- -------- ---------- ----------
$788,717 $998,001 $967,484 $1,321,488 $ 962,805
======== ======== ======== ========== ==========
</TABLE>
Deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
------------ ------------------------
1997 1996 1995
------------ ---------- ----------
<S> <C> <C> <C>
Long-term deferred tax liability
Investment in W. W. Clyde, Geneva Rock,
Utah Service and Beehive Insurance $9,932,225 $9,153,088 $8,219,311
========== ========== ==========
</TABLE>
F-17
<PAGE> 145
CLYDE COMPANIES, INC.
(formerly W. W. Clyde Investment Co.)
NOTES TO FINANCIAL STATEMENTS
NOTE D - SUBSEQUENT EVENTS
Agreement and plan of merger
On November 13, 1997, the Company adopted an "Agreement and Plan of
Merger" whereby the following was effected:
1. The name of the Company was changed to Clyde Companies, Inc.
2. The Company changed its capital structure by authorizing ten million
shares of "no par value" common stock and declaring a 40:1 stock
split resulting in 2,303,920 shares outstanding.
3. Directors of the Company approved the merger of the Company with
W.W. Clyde & Co., Geneva Rock Products, Inc., Utah Service, Inc. and
Beehive Insurance Agency, Inc., all related companies through common
shareholders and the Company's equity investment in each entity
(Note B).
4. The merger upon majority approval of the shareholders of each
respective company, will be effected by the exchange of shares of
the Company's common stock with the respective shares of common
stock held by the shareholders of each respective entity. The merger
transaction will be accounted for in a manner similar to a pooling
of interests. The exchange rates used in determining the number of
shares to be exchanged are based upon independent valuations
performed on each company to be acquired.
Stock redemption plan
The Company has adopted a stock redemption plan (the Plan) effective
January 1, 1999. The Plan provides for the creation of a "Redemption
Fund" (the Fund) which would be used to annually redeem shares of
outstanding common stock from willing shareholders. The Fund will have an
amount allocated to it annually by the Company between 5% and 10% of
consolidated net earnings. The per share price to be paid the
shareholders will be based on an annual valuation of the Company's common
stock.
F-18
<PAGE> 146
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
W. W. Clyde & Co.
We have audited the accompanying balance sheets of W. W. Clyde & Co. as of
December 31, 1996 and 1995, and the related statements of earnings and retained
earnings and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of W. W. Clyde & Co. as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
Provo, Utah
February 27, 1997
F-19
<PAGE> 147
W. W. Clyde & Co.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
------------- -----------------------------
1997 1996 1995
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (Notes B and J) $2,250,706 $3,616,669 $5,563,295
Interest-bearing deposits in banks (Note J) 8,430,509 8,218,785 7,550,022
Contracts receivable
Current 3,202,655 2,191,928 2,084,533
Retention 394,967 545,982 600,922
Income taxes receivable 143,686 405,669 6,783
Other receivables - - 20,418
Costs and estimated earnings in excess of billings:
Contracts in progress (Note C) 887,860 904,105 269,753
Contracts completed 720,471 268,945 -
Prepaid expenses and other assets - 2,431 4,182
Inventories 198,624 176,727 220,520
Deferred income taxes (Note F) 57,073 25,487 -
----------- ----------- -----------
Total current assets 16,286,551 16,356,728 16,320,428
PROPERTY AND EQUIPMENT, AT COST
Buildings and improvements 328,338 328,338 313,733
Machinery and equipment 30,932,302 33,033,819 31,676,827
Transportation equipment 7,065,930 6,745,645 6,545,954
Furniture and fixtures 130,462 127,391 92,525
----------- ----------- -----------
38,457,032 40,235,193 38,629,039
Less accumulated depreciation and amortization 30,163,992 31,842,600 30,585,703
----------- ----------- -----------
8,293,040 8,392,593 8,043,336
Land 285,027 285,027 285,027
----------- ----------- -----------
8,578,067 8,677,620 8,328,363
INVESTMENT IN AFFILIATE (Note D) 22,366,054 19,881,754 17,176,684
----------- ----------- -----------
$47,230,672 $44,916,102 $41,825,475
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-20
<PAGE> 148
W.W. Clyde & Co.
BALANCE SHEETS - CONTINUED
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
------------ ----------------------------
1997 1996 1995
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 598,979 $ 498,475 $ 610,000
Subcontractors payable
Current 41,062 112,393 --
Retention 21,729 231,601 60,350
Accrued expenses (Note G) 367,397 152,964 175,849
Billings in excess of costs and estimated
earnings on contracts in progress (Note C) 96,481 96,481 195,637
Income taxes payable -- -- 246,594
Deferred income taxes (Note F) -- -- 8,165
------------ ------------ ------------
Total current liabilities 1,125,648 1,091,914 1,296,595
ACCRUED PENSION COSTS (Note I) 223,780 258,417 --
DEFERRED INCOME TAXES (Note F) 9,664,438 8,618,592 7,539,268
COMMITMENTS (Notes I and K) -- -- --
STOCKHOLDERS' EQUITY (Notes E and L)
Common stock, $10 par value;
authorized 200,000 shares;
issued 100,000 shares 1,000,000 1,000,000 1,000,000
Retained earnings 35,895,426 34,647,517 32,527,923
------------ ------------ ------------
36,895,426 35,647,517 33,527,923
Less cost of 5,456 shares of stock held
in treasury (538,311) (538,311) (538,311)
Excess of additional pension cost over un-
recognized net pension obligation,
net of applicable income taxes (Note I) (140,309) (162,027) --
------------ ------------ ------------
36,216,806 34,947,179 32,989,612
------------ ------------ ------------
$ 47,230,672 $ 44,916,102 $ 41,825,475
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-21
<PAGE> 149
W. W. Clyde & Co.
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Nine months ended
September 30, Year ended December 31,
------------------------ ---------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Earnings from construction (Notes H, J and K)
Construction revenue $9,695,784 $14,674,157 $19,055,543 $21,325,495 $20,222,246
Cost of construction 9,452,460 12,756,171 17,115,558 18,198,944 18,590,221
----------- ----------- ----------- ----------- -----------
Gross profit 243,324 1,917,986 1,939,985 3,126,551 1,632,025
General and administrative expenses 1,107,568 994,955 1,443,165 1,254,961 1,321,299
----------- ----------- ----------- ----------- -----------
Operating profit (loss) (864,244) 923,031 496,820 1,871,590 310,726
Other income (expense)
Gain on sale of property and equipment 253,542 63,541 63,541 196,165 29,685
Interest income 386,053 474,390 640,667 697,056 547,246
Interest expense -- -- -- -- (1,464)
Other income, net 35,001 53,938 63,663 85,693 86,096
Equity in net earnings of affiliate (Note D) 2,484,300 2,614,700 2,932,500 3,817,100 3,061,500
----------- ----------- ----------- ----------- -----------
3,158,896 3,206,569 3,700,371 4,796,014 3,723,063
----------- ----------- ----------- ----------- -----------
Earnings before income taxes 2,294,652 4,129,600 4,197,191 6,667,604 4,033,789
Income taxes (Note F) 857,655 1,583,933 1,510,333 2,431,461 1,448,767
----------- ----------- ----------- ----------- -----------
NET EARNINGS 1,436,997 2,545,667 2,686,858 4,236,143 2,585,022
Retained earnings at beginning of period 34,647,517 32,527,923 32,527,923 29,237,220 27,597,638
Cash dividends (Note E) (189,088) - (567,264 ) (945,440) (945,440)
----------- ----------- ----------- ----------- -----------
Retained earnings at end of period $35,895,426 $35,073,590 $34,647,517 $32,527,923 $29,237,220
=========== =========== =========== =========== ===========
Earnings per common share $ 15.20 $ 26.92 $ 28.42 $ 44.81 $ 27.34
Weighted average shares outstanding 94,544 94,544 94,544 94,544 94,544
</TABLE>
The accompanying notes are an integral part of these statements.
F-22
<PAGE> 150
W. W. Clyde & Co.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended
September 30, Year ended December 31,
--------------------------- -------------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Increase in cash and cash equivalents
Cash flows from operating activities
Net earnings $ 1,436,997 $ 2,545,667 $ 2,686,858 $ 4,236,143 $ 2,585,022
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation 1,184,747 1,441,219 1,815,721 1,691,221 1,431,047
Gain on sale of property and
equipment (253,542) (63,541) (63,541) (196,165) (29,685)
Equity in net earnings of affiliate (2,484,300) (2,614,700) (2,932,500) (3,817,100) (3,061,500)
Deferred income taxes 1,001,341 1,148,397 1,142,062 1,297,225 1,022,238
Changes in assets and liabilities
Contracts receivable (859,712) 543,630 (52,455) (730,840) 3,678,751
Costs and estimated earnings in
excess of billings on contracts
in progress and completed (435,281) (3,070,225) (903,297) 367,850 164,270
Prepaid expenses and other assets 2,431 4,182 1,751 298,565 70,133
Income taxes receivable 261,983 6,783 (398,886) 208,075 152,477
Other receivables -- 16,575 20,418 (20,418) 78,593
Inventories (21,897) (36,288) 43,793 (136,617) 11,239
Accounts payable 100,504 (459,744) (111,525) 84,079 (708,911)
Subcontractors payable (281,203) 9,886 283,644 (44,713) (8,954)
Other liabilities and accrued
expenses 214,433 125,309 (22,885) (76,292) 63,504
Income taxes payable -- (172,765) (246,594) 245,755 (29,360)
Billings in excess of costs and
estimated earnings on
contracts in progress -- -- (99,156) (85,404) 249,435
----------- ----------- ----------- ----------- -----------
Total adjustments (1,570,496) (3,211,282) (1,523,450) (914,779) 3,083,277
----------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) operating
activities (133,499) (575,615) 1,163,408 3,321,364 5,668,299
----------- ----------- ----------- ----------- -----------
</TABLE>
(Continued)
The accompanying notes are an integral part of these statements.
F-23
<PAGE> 151
W. W. Clyde & Co.
STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Nine months ended
September 30, Year ended December 31,
--------------------------- -------------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from investing activities
Purchases of property and equipment (1,266,193) (2,178,681) (2,220,046) (4,551,214) (996,085)
Proceeds from sale of property and
equipment 434,541 117,340 118,609 246,875 58,743
Net increase in interest-bearing
deposits (211,724) (1,149,978) (668,763) (2,857,022) --
Proceeds from maturity of held-to-maturity
securities -- -- -- 4,976,979 13,311,520
Purchase of investments -- -- -- -- (14,854,043)
Dividends received from affiliate -- -- 227,430 227,430 204,687
----------- ----------- ----------- ----------- ------------
Net cash used in
investing activities (1,043,376) (3,211,319) (2,542,770) (1,956,952) (2,275,178)
----------- ----------- ----------- ----------- ------------
Cash flows from financing activities -
dividends paid (189,088) -- (567,264) (945,440) (945,440)
----------- ----------- ----------- ----------- ------------
Net (decrease) increase
in cash and cash equivalents (1,365,963) (3,786,934) (1,946,626) 418,972 2,447,681
Cash and cash equivalents at beginning
of period 3,616,669 5,563,295 5,563,295 5,144,323 2,696,642
----------- ----------- ----------- ----------- ------------
Cash and cash equivalents at end of period $ 2,250,706 $ 1,776,361 $ 3,616,669 $ 5,563,295 $ 5,144,323
=========== =========== =========== =========== ============
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ -- $ -- $ -- $ -- $ 1,500
Income taxes 704,610 759,070 759,070 887,500 313,000
</TABLE>
Noncash investing and financing activities
At September 30, 1997 and December 31, 1996, the Company had an excess of
additional pension cost over unrecognized net pension obligation of $140,309 and
$162,027, respectively. As a result, deferred tax assets were increased by
$83,471 and $12,919, respectively.
The accompanying notes are an integral part of these statements.
F-24
<PAGE> 152
W. W. CLYDE & CO.
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows. Insofar
as the notes refer to September 30, 1997 and to the nine months ended
September 30, 1997 and September 30, 1996, they are not audited. In the
opinion of management, the unaudited financial statements for the nine
months ended September 30, 1997 and September 30, 1996 include all
adjustments, consisting of normal recurring accruals, necessary to
present fairly the Company's results of operations and cash flows.
Operating results for the nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the full
year.
1. Financial Statement Presentation
The accounting and reporting policies of W. W. Clyde & Co. (the Company)
conform with generally accepted accounting principles and with general
practices in the construction industry. In preparing the financial
statements, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities as of the date of
the balance sheet and revenues and expenses for the period. Actual
results could differ significantly from those estimates.
2. Business activity
The Company is involved in the construction of highways, bridges, dams,
and other types of construction work involving the moving of large
quantities of earth.
3. Inventories
Inventories consisting of steel products, pipe, oil and grease, and tires
are recorded at the lower of cost or market, using the first-in,
first-out method.
4. Method of accounting for long-term contracts
The accompanying financial statements have been prepared using the
percentage-of-completion method of accounting and, therefore, take into
account the costs, estimated earnings, and revenue to date on contracts
not yet completed.
The amount of revenue recognized at statement date is that portion of the
total contract price that cost expended to date bears to anticipated
final total cost, based on current estimates of cost to complete. At the
time a loss on a contract becomes known, the entire amount of the
estimated ultimate loss is recognized in the financial statements.
Contract costs include all direct labor and benefits, materials unique to
or installed in the project, subcontractor costs and indirect cost
allocations, employee benefits, and construction equipment expense. As
long-term contracts extend over one or more years, revisions in cost and
earnings estimates during the course of the work are reflected in the
accounting period in which the facts that require the revision become
known.
F-25
<PAGE> 153
W. W. CLYDE & CO.
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
4. Method of accounting for long-term contracts - continued
The current assets, "costs and estimated earnings in excess of billings
on contracts in progress and completed," represent revenues recognized in
excess of amounts billed (underbillings), and the current liability,
"billings in excess of costs and estimated earnings on contracts in
progress," represents billings in excess of revenues recognized
(overbillings).
5. Depreciation
Depreciation of property and equipment is provided principally on
accelerated methods for both financial and tax reporting purposes.
Estimated useful lives used in the computation of depreciation are as
follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Buildings and improvements 5-30
Machinery and equipment 7
Transportation equipment 5-7
Furniture and fixtures 5-10
</TABLE>
6. Cash flows
For purposes of the financial statements, the Company considers all
highly liquid investments purchased with a maturity of 90 days or less to
be cash equivalents. For those cash equivalents, the carrying amount is a
reasonable estimate of fair value.
7. Deferred income taxes
The Company utilizes the liability method of accounting for income taxes.
Under the liability method, deferred income tax assets and liabilities
are recorded based on the difference between the financial statement and
tax bases of assets and liabilities as measured by the currently enacted
tax rates in effect for the years in which these differences are expected
to reverse. Deferred tax expense or benefit is the result of changes in
deferred tax assets and liabilities.
8. Earnings per share
Earnings per common share are based upon the weighted average number of
common shares outstanding during the period presented.
9. Fair value of financial instruments
The carrying value of the Company's cash and cash equivalents,
receivables, accounts payable and accrued liabilities approximate their
fair values.
F-26
<PAGE> 154
W. W. CLYDE & CO.
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
10. Recently issued accounting statements not yet adopted
Earnings per share
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings
Per Share." SFAS 128 eliminates the presentation of primary earnings per
share (EPS) and requires the presentation of basic EPS, which includes no
common stock equivalents and thus no dilution. The statement also
eliminates the modified treasury stock method of computing potential
common shares. This statement is effective for financial statements
issued for periods ending after December 15, 1997.
Capital Structure
Also in February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129 (SFAS 129), "Disclosure of Information about Capital
Structure." SFAS 129 consolidates in one statement disclosures about the
rights of outstanding securities and changes in the number of equity
securities during the period, disclosures about liquidation preferences
and preferred stock, and disclosures about redemption requirements of
certain redeemable stock. Disclosures were previously included in
Accounting Principles Board (APB) Opinion 15, APB Opinion 10 and SFAS 47.
The statement does not change the required disclosures about capital
structure for entities currently subject to the requirements of APB
Opinions 10 and 15 and SFAS 47. SFAS 129 is effective for financial
statements for interim and annual periods ending after December 15, 1997.
Comprehensive income
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 (SFAS 130), "Reporting Comprehensive Income." SFAS 130 requires
entities presenting a complete set of financial statements to include
details of comprehensive income that arise in the reporting period.
Comprehensive income consists of net income or loss for the current
period and other comprehensive income, which consists of revenue,
expenses, gains, and losses that bypass the income statement and are
reported directly in a separate component of equity. Other comprehensive
income includes, for example, foreign currency items, minimum pension
liability adjustments, and unrealized gains and losses on certain
investment securities. SFAS 130 requires that components of comprehensive
income be reported in a financial statement that is displayed with the
same prominence as other financial statements. This statement is
effective for fiscal years beginning after December 15, 1997, and
requires restatement of prior period financial statements presented for
comparative purposes.
F-27
<PAGE> 155
W. W. CLYDE & CO.
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
10. Recently issued accounting statements not yet adopted - continued
Disclosure of segments
Also in June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131 (SFAS 131), "Disclosures about Segments of an
Enterprise and Related Information." This statement requires an entity to
report financial and descriptive information about their reportable
operating segments. An operating segment is a component of an entity for
which financial information is developed and evaluated by the entity's
chief operating decision maker to assess performance and to make
decisions about resource allocation. Entities are required to report
segment profit or loss, certain specific revenue and expense items and
segment assets based on financial information used internally for
evaluating performance and allocating resources. This statement is
effective for fiscal years beginning after December 15, 1997, and
requires restatement of prior period financial statements presented for
comparative purposes.
The Company does not believe that the adoption of SFAS 128, SFAS 129,
SFAS 130 and SFAS 131 will have a material effect on the Company's
consolidated financial statements.
11. Reclassifications - not material
Certain reclassifications have been made to the 1996, 1995 and 1994
financial statements to conform to the September 30, 1997 presentation.
NOTE B - CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, cash and cash equivalents
consist of the following:
<TABLE>
<CAPTION>
December 31,
September 30, ----------------------------
1997 1996 1995
------------- ---------- ----------
<S> <C> <C> <C>
Cash and interest bearing deposits in banks $ 585,712 $1,992,328 $2,956,484
Repurchase agreements 1,664,994 1,624,341 2,606,811
---------- ---------- ----------
Total cash and cash equivalents $2,250,706 $3,616,669 $5,563,295
========== ========== ==========
</TABLE>
F-28
<PAGE> 156
W. W. CLYDE & CO.
NOTES TO FINANCIAL STATEMENTS
NOTE C - CONTRACTS IN PROGRESS
Costs incurred to date, estimated earnings, and the related progress
billings to date on contracts in progress are as follows:
<TABLE>
<CAPTION>
December 31,
September 30, ------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Costs incurred to date $20,162,312 $17,561,289 $18,308,195
Estimated earnings 4,088,328 3,597,419 3,360,428
----------- ----------- -----------
Revenue recognized 24,250,640 21,158,708 21,668,623
Progress billings to date 23,459,261 20,351,084 21,594,507
----------- ----------- -----------
Net underbillings $ 791,379 $ 807,624 $ 74,116
=========== =========== ===========
</TABLE>
The following are included in the accompanying balance sheets under the captions
below:
<TABLE>
<CAPTION>
December 31,
September 30, -----------------------------
1997 1996 1995
------------- ---------- ----------
<S> <C> <C> <C>
Costs and estimated earnings in excess
of billings on contracts in progress $887,860 $904,105 $ 269,753
Billings in excess of costs and estimated
earnings on contracts in progress (96,481) (96,481) (195,637)
-------- -------- ---------
$791,379 $807,624 $ 74,116
======== ======== =========
</TABLE>
F-29
<PAGE> 157
W. W. CLYDE & CO.
NOTES TO FINANCIAL STATEMENTS
NOTE D - INVESTMENT IN AFFILIATE
The Company owns 34.77% of the outstanding common stock of Geneva Rock
Products, Inc. The investment is accounted for under the equity method.
The complete financial statements of Geneva Rock Products, Inc. are
included in the S-4 registration statement.
The investment in Geneva Rock Products, Inc., consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
------------- --------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Investment, at cost $ 94,410 $ 94,410 $ 94,410
----------- ----------- -----------
Equity in unrealized increase in investment
Balance at beginning of period 19,787,344 17,082,274 13,492,604
Unrealized net income before deferred
income taxes of $926,644 in 1997,
$1,578,791 in 1996 and $1,338,910 in 1995 2,484,300 2,932,500 3,817,100
Less dividends received during the period -- 227,430 227,430
----------- ----------- -----------
Total equity in unrealized increase
in investment 22,271,664 19,787,344 17,082,274
----------- ----------- -----------
Total investment in Geneva Rock
Products, Inc. $22,366,054 $19,881,754 $17,176,684
=========== =========== ===========
</TABLE>
Summary balance sheets of Geneva Rock Products, Inc. consist of the
following:
<TABLE>
<CAPTION>
September 30, December 31,
------------- --------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Assets
Current assets $42,113,000 $35,240,000 $31,230,000
Property and equipment, net of
depreciation 39,742,000 36,528,000 24,580,000
Other assets 2,743,000 3,080,000 892,000
----------- ----------- -----------
Total assets $84,598,000 $74,848,000 $56,702,000
=========== =========== ===========
Liabilities and stockholders' equity
Current liabilities $ 9,912,000 $ 8,036,000 $ 5,289,000
Long-term liabilities 10,362,000 9,633,000 2,014,000
----------- ----------- -----------
Total liabilities 20,274,000 17,669,000 7,303,000
Stockholders' equity 64,324,000 57,179,000 49,399,000
----------- ----------- -----------
Total liabilities and stock-
holders' equity $84,598,000 $74,848,000 $56,702,000
=========== =========== ===========
</TABLE>
F-30
<PAGE> 158
W. W. CLYDE & CO.
NOTES TO FINANCIAL STATEMENTS
NOTE D - INVESTMENT IN AFFILIATE - CONTINUED
Summary statements of earnings of Geneva Rock Products, Inc., are as
follows:
<TABLE>
<CAPTION>
Nine months ended
September 30, Year ended December 31,
--------------------------- ---------------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Net sales $94,736,000 $85,260,000 $105,451,000 $100,422,000 $80,526,000
Cost of sales 79,560,000 71,566,000 88,900,000 80,811,000 65,205,000
----------- ----------- ------------ ------------ -----------
Gross profit 15,176,000 13,694,000 16,551,000 19,611,000 15,321,000
Operating expenses 3,888,000 1,973,000 3,023,000 3,073,000 2,117,000
----------- ----------- ------------ ------------ -----------
Income before income taxes 11,288,000 11,721,000 13,528,000 16,538,000 13,204,000
Income taxes 4,143,000 4,201,000 5,094,000 5,560,000 4,399,000
----------- ----------- ------------ ------------ -----------
Net earnings 7,145,000 7,520,000 8,434,000 10,978,000 8,805,000
Ownership percentage 34.77% 34,77% 34.77% 34.77% 34.77%
----------- ----------- ------------ ------------ -----------
Equity in net earnings of affiliate $ 2,484,300 $ 2,614,700 $ 2,932,500 $ 3,817,100 $ 3,061,500
=========== =========== ============ ============ ===========
</TABLE>
NOTE E - DIVIDENDS
Dividends of $2 per share for the nine month period ended September 30,
1997 and dividends of $6 per share for the year ended December 31, 1996,
respectively, were declared on 94,544 shares outstanding. Dividends of
$10 per share were declared for the years ended December 31, 1995 and
1994, respectively, on 94,544 shares outstanding.
NOTE F - INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
Nine months ended
September 30, Year ended December 31,
------------------------- --------------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Current $ (143,686) $ 435,536 $ 368,271 $1,134,236 $ 426,529
Deferred 1,001,341 1,148,397 1,142,062 1,297,225 1,022,238
---------- ---------- ---------- ---------- ----------
$ 857,655 $1,583,933 $1,510,333 $2,431,461 $1,448,767
========== ========== ========== ========== ==========
</TABLE>
F-31
<PAGE> 159
W. W. CLYDE & CO.
NOTES TO FINANCIAL STATEMENTS
NOTE F - INCOME TAXES - CONTINUED
The income tax provision reconciled to the tax computed at the federal
statutory rate of 34% is as follows:
<TABLE>
<CAPTION>
Nine months ended
September 30, Year ended December 31,
---------------------- ----------------------------------------
1997 1996 1996 1995 1994
-------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income taxes at statutory rate $780,182 $1,404,064 $1,427,045 $2,266,985 $1,371,500
Differences due to dividends received
deduction -- -- (61,861) (61,861) 55,675
Nondeductible expense 1,596 1,197 -- -- 1,849
State income taxes, net of federal
tax benefit 75,877 134,496 138,780 220,031 42,428
Other -- 44,176 6,369 6,306 (22,685)
-------- ---------- ---------- ---------- ----------
$857,655 $1,583,933 $1,510,333 $2,431,461 $1,448,767
======== ========== ========== ========== ==========
</TABLE>
Deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
------------- ---------------------------
1997 1996 1995
------------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Deferred tax assets (liabilities)
Construction contracts $ 57,073 $ 25,487 $ (8,165)
Accrued pension cost 164,655 138,059 --
Equipment temporary differences (1,447,955) (1,332,631) (1,124,239)
Investment in Geneva Rock Products, Inc. (8,381,138) (7,424,020) (6,415,029)
----------- ----------- -----------
$(9,607,365) $(8,593,105) $(7,547,433)
=========== =========== ===========
</TABLE>
F-32
<PAGE> 160
W. W. CLYDE & CO.
NOTES TO FINANCIAL STATEMENTS
NOTE G - OTHER LIABILITIES AND ACCRUED EXPENSES
Other liabilities and accrued expenses consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------------------
1997 1996 1995
------------- ---------- ----------
<S> <C> <C> <C>
Accrued pension costs $217,654 $111,715 $ --
Accrued insurance 119,269 -- --
Payroll and related expenses -- 40,809 6,728
Other 30,474 440 169,121
-------- -------- --------
$367,397 $152,964 $175,849
======== ======== ========
</TABLE>
NOTE H - RELATED PARTY TRANSACTIONS
The following is a summary of related party transactions that occurred
during the nine months ended September 30, 1997 and 1996 and the years
ended December 31, 1996, 1995 and 1994. Related parties considered herein
include the officers and stockholders of the Company, Geneva Rock
Products, Inc., and other entities owned by the owners of the Company.
The Company performed construction work for and sold construction
materials to affiliates totaling approximately $214,191 and $291,172 for
the nine months ended September 30, 1997 and 1996, respectively, and
$519,000, $1,700,000, and $447,000 for the years ended December 31, 1996,
1995 and 1994, respectively.
The Company was charged $1,035,560 and $1,023,549 for the nine months
ended September 30, 1997 and 1996, respectively, and $1,246,000, $351,000
and $583,000 for the years ended December 31, 1996, 1995 and 1994,
respectively, for construction work, services, and construction materials
provided by affiliates.
NOTE I - PENSION PLAN
The Company has a noncontributory defined benefit pension plan covering
substantially all of its non-union employees. The benefits are based on
years of service and the employee's compensation during the last five
years of employment. The Company's funding policy is to contribute
annually the maximum amount that can be deducted for federal income tax
purposes. Contributions are intended to provide not only for benefits
attributed to services to date but also for those benefits expected to be
earned in the future. Employees vest 100% after five years.
F-33
<PAGE> 161
W. W. CLYDE & CO.
NOTES TO FINANCIAL STATEMENTS
NOTE I - PENSION PLAN - CONTINUED
Actuarial present value of benefit obligations are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
------------- -----------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Accumulated benefit obligation, including
vested benefits of $1,786,040 ($1,685,462 in
1996 and $1,941,766 in 1995) $ 1,818,070 $ 1,715,688 $ 1,957,939
=========== =========== ===========
Projected benefit obligation for service
rendered to date $(2,607,865) $(2,461,007) $(3,399,116)
Plan assets at fair value, primarily listed
stocks 1,376,636 1,345,556 2,433,257
----------- ----------- -----------
Plan assets in deficiency of projected
benefit obligation (1,231,229) (1,115,451) (965,859)
Unrecognized net loss from past ex-
perience different from that assumed
and effects of changes in assumptions 1,246,118 1,264,184 1,316,454
Unrecognized net obligation at January 1,
1989, being recognized over 15 years (232,543) (260,448) (297,655)
----------- ----------- -----------
Prepaid (accrued) pension cost $ (217,654) $ (111,715) $ 52,940
=========== =========== ===========
</TABLE>
Net pension cost includes the following components:
<TABLE>
<CAPTION>
Nine months ended
September 30, Year ended December 31,
------------------------- ----------------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Service cost--benefits earned during
the period $ 51,774 $ 69,164 $ 92,218 $ 80,383 $ 62,299
Interest cost on projected benefit
obligation 128,250 115,605 154,140 128,193 145,383
Actual return on plan assets (64,246) (62,645) (83,527) (214,787) (91,906)
Net amortization and deferral (9,839) 1,367 1,824 25,133 (99,396)
-------- -------- -------- --------- --------
Net periodic pension cost $105,939 $123,491 $164,655 $ 18,922 $ 16,380
======== ======== ======== ========= ========
</TABLE>
F-34
<PAGE> 162
W. W. CLYDE & CO.
NOTES TO FINANCIAL STATEMENTS
NOTE I - PENSION PLAN - CONTINUED
The following table sets forth the funded status and amounts recognized in the
Company's balance sheet at September 30, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Actuarial present value of benefit obligations
Vested benefit obligation $1,786,040 $1,685,462
========== ==========
Projected benefit obligation $2,607,865 $2,461,007
========== ==========
Accumulated benefit obligation $1,818,070 $1,715,688
Plan assets at fair value (primarily U.S.
government securities and common stock
funds) 1,376,636 1,345,556
---------- ----------
Accumulated benefit obligation greater
than plan assets 441,434 370,132
Pension liability included in accrued
expenses 217,654 111,715
---------- ----------
Additional accrued pension costs
recognized on the balance sheet 223,780 258,417
Applicable income taxes 83,471 96,390
---------- ----------
Excess of additional pension cost over
unrecognized net pension obligation
recorded as reduction of stockholders'
equity $ 140,309 $ 162,027
========== ==========
</TABLE>
The weighted-average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligation ranged from 7% and 4% for the nine months ended September 30, 1997
and 1996 respectively and 7% to 7.5% and 4% to 3%, respectively, for the years
ended December 31, 1996, 1995 and 1994. The expected long-term rate of return on
assets ranged from 7.5% for the nine months ended September 30, 1997 and 1996
and 7.5% to 6.5% for the years ending December 31, 1996, 1995, and 1994,
respectively.
F-35
<PAGE> 163
W. W. CLYDE & CO.
NOTES TO FINANCIAL STATEMENTS
NOTE J - CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
The Company maintains cash balances and interest bearing deposits at
several financial institutions located in the United States. Accounts at
each institution are secured by the Federal Deposit Insurance Corporation
up to $100,000. Uninsured balances aggregate to approximately $8,545,000
as of September 30, 1997 and $8,900,000 and $13,400,000 as of December
31, 1996 and 1995, respectively.
The Company has billed and unbilled receivables of approximately
$5,206,000 for the nine months ended September 30, 1997 and $3,911,000
and $2,950,000 as of December 31, 1996 and 1995, respectively from
project owners in the private and governmental sector which relate to
work performed primarily in Wyoming and Utah.
At September 30, 1997, December 31, 1996 and 1995, the Company had
contracts receivable due from its largest customer approximating
$2,315,850, $2,109,940 and $1,718,558, respectively. Remaining contracts
receivable at September 30, 1997, December 31, 1996 and 1995 were due
from a variety of other customers under normal credit terms.
Construction revenue for the nine months ended September 30, 1997,
December 31, 1996 and 1995 from the Company's largest customer (only
customer in excess of 10%) represented approximately 26%, 38% and 33%,
respectively.
NOTE K - BACKLOG
The following schedule shows backlog activity representing signed
contracts, excluding fees from management contracts, from January 1, 1997
through September 30, 1997:
<TABLE>
<S> <C>
Balance, January 1, 1997 $ 827,998
Contract adjustments 4,019,457
New contracts 13,204,508
-----------
18,051,963
Less contract revenue earned 9,695,784
-----------
Balance, September 30, 1997 $ 8,356,179
===========
</TABLE>
In addition, between September 30, 1997 and November 11, 1997, the
Company entered into additional construction with revenues of $1,856,774.
NOTE L - SUBSEQUENT EVENTS
On November 13, 1997, Clyde Companies, Inc., which owns 33.78% of the
Company, adopted an "Agreement and Plan of Merger" which provides for the
merger of Clyde Companies, Inc. with the Company and certain other
companies related through common stockholders.
F-36
<PAGE> 164
W. W. CLYDE & CO.
NOTES TO FINANCIAL STATEMENTS
NOTE L - SUBSEQUENT EVENTS - CONTINUED
The merger upon majority approval of the stockholders of each respective
company, will be effected by the exchange of shares of Clyde Companies,
Inc. common stock with the respective shares of common stock held by the
Company's stockholders. The merger transaction will be accounted for in a
manner similar to a pooling of interests. The exchange rates used in
determining the number of shares to be exchanged are based upon
independent valuations performed on each company to be acquired.
In connection with the transaction, Clyde Companies, Inc. is preparing to
file a registration statement Form S-4 with the Securities and Exchange
Commission.
F-37
<PAGE> 165
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Geneva Rock Products, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Geneva Rock
Products, Inc. and Subsidiary as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the years in the three year period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Geneva Rock
Products, Inc. and Subsidiary as of December 31, 1996 and 1995, and the
consolidated results of their operations and their consolidated cash flows for
each of the years in the three year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
February 15, 1997
F-38
<PAGE> 166
GENEVA ROCK PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996 1995
------------- ------------ ------------
(unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 5,245,294 $ 7,752,630 $ 11,924,153
Accounts receivable 28,874,541 18,545,642 15,437,932
Inventory 7,759,314 6,844,977 2,511,753
Prepaid expenses 233,520 244,239 488,944
Federal and state income taxes receivable 1,830,825 867,414
Deferred tax asset -- 21,269 --
------------ ------------ ------------
Total current assets 42,112,669 35,239,582 31,230,196
PROPERTY, PLANT AND EQUIPMENT:
Land 9,175,552 11,286,396 8,963,628
Buildings 5,079,264 2,623,128 1,293,964
Office equipment 866,337 797,253 511,259
Machinery and equipment 26,055,659 23,031,549 13,318,367
Transportation equipment 22,707,634 20,382,107 18,112,947
Batch plant 10,164,939 9,095,766 8,004,380
Wells 120,764 120,764 147,147
------------ ------------ ------------
Accumulated depreciation and depletion (34,428,121) (30,809,018) (25,771,872)
------------ ------------ ------------
Net fixed assets 39,742,028 36,527,945 24,579,820
OTHER ASSETS:
Non-compete agreements 84,000 153,154 420,440
Long-term investment 238,120 270,717 303,018
Other 373,220 396,538 168,314
Goodwill, net of accumulated amortization 2,047,746 2,259,730 --
------------ ------------ ------------
Total other assets 2,743,086 3,080,139 891,772
------------ ------------ ------------
Total assets $ 84,597,783 $ 74,847,666 $ 56,701,788
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-39
<PAGE> 167
GENEVA ROCK PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
------------- -------------------------
1997 1996 1995
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes and
capital leases payable $ 3,173,911 $ 1,689,494 $ 224,002
Accounts payable 6,213,911 4,450,178 3,646,944
Accrued liabilities 2,117,901 1,896,453 1,417,709
Income tax payable 859,961 -- --
----------- ----------- -----------
Total current liabilities 12,365,684 8,036,125 5,288,655
LONG-TERM LIABILITIES:
Notes payable and capital leases payable 5,291,698 7,496,531 667,339
Long-term pension payable 168,330 168,330 --
Deferred tax liability 2,448,281 1,967,867 1,346,917
----------- ----------- -----------
Total long-term liabilities 7,908,309 9,632,728 2,014,256
----------- ----------- -----------
Total Liabilities 20,273,993 17,668,853 7,302,911
STOCKHOLDERS' EQUITY:
Common stock, $10 par value, 21,802 shares
issued and outstanding, 50,000
shares authorized 218,020 218,020 218,020
Paid-in-capital in excess of par 28,456 28,456 28,456
Retained earnings 64,077,314 56,932,337 49,152,401
----------- ----------- -----------
Total stockholders' equity 64,323,790 57,178,813 49,398,877
----------- ----------- -----------
Total liabilities and stockholders' equity $84,597,783 $74,847,666 $56,701,788
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-40
<PAGE> 168
GENEVA ROCK PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Nine Months Ended Year Ended December 31,
------------------------------ -----------------------
September 30, September 30,
1997 1996 1996 1995 1994
------------- ------------- ------------- ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
GROSS SALES AND CONTRACT INCOME $ 94,736,195 $ 85,260,106 $ 116,348,692 $ 100,422,149 $ 80,525,668
COST OF SALES AND CONTRACTS 79,559,984 71,565,986 98,907,330 80,811,164 65,205,275
------------- ------------- ------------- ------------- -------------
GROSS PROFIT ON SALES AND CONTRACTS 15,176,211 13,694,120 17,441,362 19,610,985 15,320,393
GENERAL AND ADMINISTRATIVE EXPENSES 4,143,083 2,783,935 4,979,299 3,172,944 2,655,499
------------- ------------- ------------- ------------- -------------
OPERATING INCOME 11,033,128 10,910,185 12,462,063 16,438,041 12,664,894
OTHER INCOME (EXPENSE):
Income from long-term investment -- -- 28,601 52,454 46,992
Other income 255,151 810,317 766,958 865,318 1,154,525
Gain (loss) on fixed assets -- -- (14,288) -- --
------------- ------------- ------------- ------------- -------------
Total other income 255,151 810,317 781,271 917,772 1,201,517
------------- ------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES 11,288,279 11,720,502 13,243,334 17,355,813 13,866,411
INCOME TAXES:
Current 3,641,619 3,691,887 4,577,464 6,190,700 4,985,977
Deferred 501,683 508,726 231,873 187,009 75,727
------------- ------------- ------------- ------------- -------------
Total income taxes 4,143,302 4,200,613 4,809,337 6,377,709 5,061,704
------------- ------------- ------------- ------------- -------------
NET INCOME $ 7,144,977 $ 7,519,889 $ 8,433,997 $ 10,978,104 $ 8,804,707
============= ============= ============= ============= =============
EARNING PER SHARE $ 327.72 $ 344.92 $ 386.85 $ 503.54 $ 403.85
============= ============= ============= ============= =============
Average shares outstanding 21,802 21,802 21,802 21,802 21,802
============= ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-41
<PAGE> 169
GENEVA ROCK PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1996,
1995 and Nine Months Ended September 30, 1997
<TABLE>
<CAPTION>
Capital in
Common excess of Retained
stock par value earnings
------------ ------------ ------------
<S> <C> <C> <C>
Balance at December 31, 1993 $ 218,020 $ 28,456 $ 30,612,304
Net Income for 1994 -- -- 8,804,707
Cash Dividends Paid on Common Stock -- -- (588,654)
------------ ------------ ------------
Balance at December 31, 1994 218,020 28,456 38,828,357
Net Income for 1995 -- -- 10,978,104
Cash Dividends Paid on Common Stock -- -- (654,060)
------------ ------------ ------------
Balance at December 31, 1995 218,020 28,456 49,152,401
Net Income for 1996 -- -- 8,433,997
Cash Dividends Paid on Common Stock -- -- (654,061)
------------ ------------ ------------
Balance at December 31, 1996 218,020 28,456 56,932,337
(UNAUDITED)
Net Income for nine months -- -- 7,144,977
Cash Dividends Paid on Common Stock -- -- --
------------ ------------ ------------
Balance at September 30, 1997 $ 218,020 $ 28,456 $ 64,077,314
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-42
<PAGE> 170
GENEVA ROCK PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended Year Ended December 31,
----------------------------- --------------------------------------------
September 30, September 30,
1997 1996 1996 1995 1994
------------ ------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,144,977 $ 7,519,889 $ 8,433,997 $10,978,104 $ 8,804,707
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion, and amortization 5,838,225 4,896,001 7,422,456 6,556,760 5,189,467
Gain on investments -- -- (26,375) (52,454) (46,992)
Deferred income taxes 501,683 508,726 231,874 187,009 75,727
Absorbed loss on consolidation -- -- 367,807 -- --
Deferred pension payable (168,330) -- 168,330 -- --
Loss on disposal of property -- -- 14,287 -- 136,805
Changes in assets and liabilities:
Accounts receivable (10,328,899) (8,970,494) (3,107,710) (5,005,945) (1,643,148)
Prepaid expenses 10,719 239,225 244,705 (434,261) 175,642
Inventories (914,337) (4,058,271) (4,333,224) 267,015 (998,603)
Income taxes receivable 1,830,825 736,258 (963,411) (732,672) 231,260
Other assets 3,818 (106,006) (80,224) (43,298) (7,965)
Organization costs -- (130,000) (130,000) -- --
Accounts payable 1,763,733 3,982,549 803,234 454,622 453,828
Accrued liabilities 389,778 981,728 478,744 505,659 56,271
Deferred revenue -- -- -- (7,121) (374,320)
Income taxes payable 859,961 994,214 -- -- --
------------ ------------ ------------ ------------ ------------
Total adjustments (212,824) (926,070) 1,090,493 1,695,314 3,247,972
------------ ------------ ------------ ------------ ------------
Net Cash Provided by Operating Activities 6,932,153 6,593,819 9,524,490 12,673,418 12,052,679
CASH FLOW FROM INVESTING ACTIVITIES:
Cash payments for the purchase of property (7,716,733) (8,266,668) (9,688,706) (11,908,065) (8,647,653)
Cash payments for the purchase of
long-term investment -- -- (1,000) -- --
Cash received from long-term investment 32,597 58,675 58,676 35,723 28,836
Cash received from sale of assets -- -- 112,545 -- --
Cash payments for the acquisition of
Quality Concrete, Inc. -- -- (3,139,556) -- --
------------ ------------ ------------ ------------ ------------
Net Cash Used in Investing Activities (7,684,136) (8,207,993) (12,658,041) (11,872,342) (8,618,817)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt -- -- -- -- 980,010
Repayment of long-term debt (1,755,353) (318,497) (383,912) (196,002) (32,667)
Payment of dividends -- -- (654,060) (654,060) (588,654)
------------ ------------ ------------ ------------ ------------
Net Cash Provided by (Used in)
Financing Activities (1,755,353) (318,497) (1,037,972) (850,062) 358,689
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH (2,507,336) (1,932,671) (4,171,523) (48,986) 3,792,551
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 7,752,630 11,924,153 11,924,153 11,973,139 8,180,588
------------ ------------ ------------ ------------ ------------
CASH AND EQUIVALENTS, END OF PERIOD $ 5,245,294 $ 9,991,482 $ 7,752,630 $ 11,924,153 $ 11,973,139
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-43
<PAGE> 171
GENEVA ROCK PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of certain significant accounting
policies followed in the preparation of these financial
statements. The financial statements and notes are
representations of the Company's management, which is responsible
for their integrity and objectivity. The policies conform to
generally accepted accounting principles and have been
consistently applied. Insofar as the notes refer to the nine
months ended September 30, 1997 and 1996, they are not audited.
In the opinion of management, the unaudited interim financial
statements for the nine months ended September 30, 1997 and 1996
include all adjustments, consisting of normal recurring accruals,
necessary to present fairly the Company's results of operations
and cash flows. The financial position for the interim period,
September 30, 1997, and the income statement, statement of
stockholders equity and statement of cash flows for the nine
month period then ended are not necessarily indicative of the
results that may be expected for the full year.
Nature of Operations - Geneva Rock Products, Inc. (the Company)
was incorporated on August 8, 1954 as a Utah corporation. The
Company is engaged in the manufacturing of construction materials
consisting mostly of concrete, asphalt, sand, and gravel
products. Currently, the Company has manufacturing facilities in
Utah and Nevada. The Company also owns J & J Building Supply,
Inc. (J & J). The results of J & J's operations are included in
these financial statements.
On May 17, 1996, Geneva Rock formed J & J Building Supply, Inc.
(J & J) and on June 28, 1996 acquired the assets of J & J Mill &
Lumber Supply Co. of St. George, Utah.
The detail of the acquisition is as follows:
<TABLE>
<S> <C>
Working capital $ 1,936,800
Equipment and land 8,711,206
Intangible and other assets 2,219,716
Long-term debt assumed (6,700,000)
Capital leases assumed (456,206)
-----------
Cash used to acquire J & J Supply Co. $ 5,711,516
===========
</TABLE>
The details of the financial condition and results of operations
of J & J Mill and Lumber Supply Co. were never made available to
Geneva Rock.
On October 23, 1996, J & J purchased the assets of Quality
Concrete, Inc. The detail of the acquisition is as follows:
<TABLE>
<S> <C>
Working capital $ 70,828
Equipment and land 3,192,979
Intangible and other assets 49,600
Long-term debt assumed (81,941)
Capital leases assumed (91,910)
----------
Cash used to acquire Quality Concrete $3,139,556
==========
</TABLE>
As of September 30, 1997, Geneva Rock's total investment in J & J
was $18.47 million. J & J is headquartered in St. George, Utah
and also has operations in Cedar City, Utah and Mesquite, Nevada.
J & J's primary construction products consist of rock products,
including sand, gravel and ready mix concrete; concrete block
products, which it produces through its
F-44
<PAGE> 172
concrete block plant in St. George; and other building
materials; such as lumber, paint, sheet rock, roofing, plumbing,
electrical supplies and hardware products, which it sells
through its store in St. George and Cedar City.
Principles of Consolidation - The consolidated statements include
the accounts of the Company and its wholly-owned subsidiary. All
material intercompany accounts and transactions have been
eliminated in consolidation.
Use of Estimates in Preparation of Financial Statements - The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Accounts Receivable - Accounts receivable are shown net of an
allowance for uncollectible accounts of $154,536 for 1996,
$100,000 for 1995 and $212,723 at September 30, 1997.
F-45
<PAGE> 173
GENEVA ROCK PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Inventories - Inventories consist of sand, gravel, cement,
additives, truck repair and maintenance parts and office
supplies. The sand and gravel as well as the block and masonry
components of inventory are stated at cost using the full
absorption method. The truck repair parts are stated at estimated
cost. The estimated costs for the parts was developed by
discounting current replacement costs. The raw materials and
other purchased inventory are valued at the lower of cost or
market using the weighted average method. The components of
inventory are as follows:
<TABLE>
<CAPTION>
December 31,
September 30, --------------------------------
1997 1996 1995
------------- ------------- ------------
<S> <C> <C> <C>
Sand and gravel $3,131,254 $2,105,067 $1,463,525
Block and masonry 710,000 1,038,725 -
Fuel 43,250 37,502 -
Cement and additives 1,271,676 1,206,377 397,328
Lumber and hardware 1,818,471 1,701,392 -
Concrete piping 34,839 34,839 -
Truck repair and maintenance 735,117 708,368 641,630
Office supplies 14,707 12,707 9,270
---------- ---------- ----------
Total $7,759,314 $6,844,977 $2,511,753
========== ========== ==========
</TABLE>
Depreciation, Depletion and Amortization - Provisions for
depreciation of property, plant and equipment are computed on the
declining-balance and straight-line methods for financial
reporting purposes. Depreciation is based upon estimated useful
lives of individual units or classes of property as follows:
<TABLE>
<S> <C>
Buildings 10 to 33 Years
Office equipment 5 to 10 Years
Machinery and equipment 5 to 10 Years
Transportation equipment 5 to 8 Years
Batch plant 8 to 10 Years
Wells 20 Years
</TABLE>
Maintenance, repairs, and renewals which neither materially add
to the value of the property nor appreciably prolong its life are
charged to expense as incurred. Gains and losses from
dispositions of fixed assets are reflected in income.
Depletion of the Company's sand and gravel pits is computed by
the cost method, (i.e. - the pit's basis divided by total
recoverable tons, times tons removed during any given year.)
F-46
<PAGE> 174
GENEVA ROCK PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Non-compete agreements purchased by the Company from unaffiliated
parties are being amortized using the straight-line method over
the life of the agreements. The amortization expense was
$267,286, $257,952 and $239,286 for 1996, 1995 and 1994,
respectively and $186,038 for the nine month period ended
September 30, 1997.
Depreciation, depletion and amortization expense has been
allocated on the income statement to the following areas:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
---------------------------- ---------------------------
1997 1996 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cost of sales and contracts $5,405,892 $6,951,817 $6,479,280 $5,111,393
General and administrative 246,295 470,639 77,480 78,074
----------- ----------- ----------- -----------
Total $5,652,187 $7,422,456 $6,556,760 $5,189,467
=========== =========== =========== ===========
</TABLE>
Income Recognition - Income is recognized as products are sold or
contracts are completed. For those contracts not complete at year
end, income is recorded on the percentage-of-completion method.
Income being recognized is that percentage of estimated total
income that incurred costs to date bear to estimated total costs
after giving effect to estimates of costs to complete based upon
the most recent information.
As these long-term contracts extend over one or more years,
revisions in cost and profit estimates during the course of the
work are reflected in the accounting period in which the facts
which require the revision become known.
At the time a loss on a contract becomes known, the entire amount
of the estimated ultimate loss on both short and long-term
contracts is recognized.
Costs and estimated profits in excess of amounts billed were
$61,944, $24,099 and $32,710 at December 31, 1996, 1995 and 1994,
respectively. These amounts are included in accounts receivable.
There was no required adjustment to work in process at September
30, 1997.
Income taxes - The Company provides for income taxes based on
income reported for financial statement purposes. Income tax
expense differs from amounts currently payable due to timing
differences in the recognition of certain income and expense
items for tax and financial statement purposes, primarily
depreciation of fixed assets. Tax accumulated depreciation
exceeded book accumulated depreciation by $1,327,162 at December
31, 1996 and $1,275,734 at September 30, 1997.
Depletion of $510,333 in 1996, $484,925 in 1995, and $296,662 in
1994 and $59,647 for the nine months ending September 30, 1997,
are allowed as deductions for tax purposes but are not recorded
on the books.
F-47
<PAGE> 175
GENEVA ROCK PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings per share - Earnings per share are computed using the
average number of common shares outstanding, 21,802 shares in
1996, 1995 and 1994 and for the nine month period ending September
30, 1997.
Cash and cash equivalents - For purpose of the statements of cash
flows, cash equivalents include time deposits, money market funds,
and overnight repurchase agreements with maturities of less than
90 days.
Supplemental cash flow information - During the nine months ended
September 30, 1997 and the years ended December 31, 1996, 1995 and
1994 the Company's cash outlay for federal income tax was
$3,907,475, $5,321,611, $6,240,220 and $4,457,981, respectively.
The Company disbursed cash for interest during the nine months
ended September 30, 1997 and the years ended December 31, 1996,
1995 and 1994 of $472,707, $357,317, $58,468 and $10,528,
respectively.
The Company had the following non-cash activity for the year. The
Company acquired intangible assets of $130,000 and tangible assets
in the amount of $6,700,000 by issuing debt. The company acquired
tangible assets in the amount of $559,927 by obtaining long-term
financing, and also acquired assets in the amount of $1,122,878 by
entering in capital lease obligations.
NOTE 2. GOODWILL
The excess of the purchase price over the value of the assets
purchased is reported as goodwill. Goodwill is being amortized
over fifteen years. The accumulated amortization was $77,922 at
December 31, 1996 and $211,984 at September 30, 1997.
NOTE 3. ACCOUNTS PAYABLE - J & J MILL
As part of the purchase agreement of J & J Mill, the Company did
not purchase the outstanding accounts receivable. The Company was
paid to collect the outstanding accounts receivable and remit the
amounts collected to J & J Mill. At December 31, 1996, the Company
had collected $74,546 that had not been remitted and at September
30, 1997 the Company had collected $13,835 that remained
unremitted.
F-48
<PAGE> 176
GENEVA ROCK PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. OPERATING LEASE COMMITMENTS
The Company has entered into several long-term leases for real
property and has assumed leases of machinery and equipment, and
trucks and vehicles. The Company also leases trucks and other
equipment under non-cancelable operating leases. The following is
a schedule by years of future minimum lease payments:
<TABLE>
<CAPTION>
Machinery &
Equipment and
Trucks & Vehicles Real Property Total Leases
----------------- ------------- ------------
<S> <C> <C> <C>
1997 $ 3,077,590 $ 445,238 $ 3,522,828
1998 3,034,299 263,246 3,297,545
1999 2,842,858 262,000 3,104,858
2000 2,580,146 262,000 2,842,146
2001 1,459,450 136,000 1,595,450
Thereafter 478,136 -- 478,136
----------- ---------- -----------
Total $13,472,479 $1,368,484 $14,840,963
=========== ========== ===========
</TABLE>
For the years ended December 31, 1996, 1995 and 1994, rental
payments for these operating leases amounted to $1,417,484,
$719,484, and $592,746, respectively and $2,481,227 and $1,063,113
for the nine months ended September 30, 1997 and 1996.
NOTE 5. OBLIGATIONS UNDER CAPITAL LEASES
<TABLE>
<CAPTION>
September 30, December 31,
------------- -------------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
The Company leases trucks and other
equipment bearing various terms and
collateralized by specific equipment $ 839,540 $1,122,817 $ --
Less current maturities (413,106) (464,295) --
--------- ---------- ----------
Obligations under capital leases $ 426,434 $ 658,522 $ --
========= ========== ==========
</TABLE>
Future minimum lease payments on capital lease obligations are as
follows:
<TABLE>
<CAPTION>
Years Ending
September 30 Amount
------------ -----------
<S> <C> <C>
1998 $413,106
1999 345,308
2000 68,939
2001 12,187
2002 -
-------
$839,540
========
</TABLE>
Machinery and construction equipment includes equipment that is
held under capital leases. At December 31, 1996 and September 30,
1997, the total capitalized amount was $1,122,817.
F-49
<PAGE> 177
GENEVA ROCK PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. COMMITTED COSTS
The Company has at December 31, 1996 committed to purchase
machinery in the amount of $176,050 that will be delivered early
in 1997. The Company has also committed to lease trucks, in the
amount of $642,988, that will be delivered in March of 1997. These
committed costs are not reflected in the financial statements.
NOTE 7. NOTES PAYABLE
The Company's Long-term debt obligation consists of the following:
<TABLE>
<CAPTION>
September 30, December 31, December 31,
1997 1996
-------------- ----------- -----------
<S> <C> <C> <C>
A note payable to a local concrete company. The debt was $ 408,338 $ 555,339 $ 751,341
incurred in October 1994 and carries the following terms:
Principal payments of $16,334 plus interest at 2% below
the commercial loan variable rate at Zions Bank are due
monthly. This note is collateralized by a Utah Deed
of Trust
Notes to two employees for a non-competition and 84,000 112,000 140,000
confidentiality agreements, payable at $28,000 a year,
unsecured
A note payable to Alvin & Larine Bradshaw. This debt 70,975 81,941 --
was incurred in October 1996 and carries the following
terms: Monthly payments of $1,574 including interest at
10%. The note is collateralized by a Utah Deed of Trust
A note payable to Virgin Valley Credit Union in the 220,000 220,000 --
amount of $240,000. This is a non-interest bearing note
that has been discounted for financial statement purposes
to reflect an interest rate of 8.25%
A note payable to the Small Business Administration. -- 393,928 --
This note bears a 9.996% interest rate. Principal
payments of $5,054 plus interest and administrative fees
of $182 are due monthly. This note is collateralized by
a Utah Deed of Trust
A note payable for assumed debt in the purchase of J & J 5,842,756 6,700,000 --
Building Supply, Inc., a wholly-owned subsidiary, annual
payments of $1,297,909, matures on June 28, 2003. The
note is secured by a Utah Deed of Trust
A line of credit at a bank, $3,000,000 approved, 1,000,000 -- --
bears 8.25% interest, renews annually, unsecured ----------- ----------- ---------
Total 7,626,069 8,063,208 891,341
Less Current Maturities (2,760,805) (1,225,199) (224,002)
----------- ----------- ---------
Long-term Portion $ 4,865,264 $ 6,838,009 $ 667,339
=========== =========== =========
</TABLE>
F-50
<PAGE> 178
GENEVA ROCK PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. NOTES PAYABLE (Continued)
Future maturities of notes payable are as follows:
<TABLE>
<CAPTION>
Year Ending
September 30 Amount
------------ -----------
<S> <C>
1998 $ 2,760,805
1999 540,805
2000 1,361,119
2001 1,312,220
2002 651,120
----------
$7,626,069
==========
</TABLE>
NOTE 8. PENSION PLAN
The Company has a defined benefit pension plan covering all
non-bargaining employees who meet age and length of service
requirements. The benefits are based on years of service and the
employee's compensation during the last five years of employment.
The Company's funding policy is to contribute annually the maximum
amount that can be deducted for federal income tax purposes.
Contributions are intended to provide not only for benefits
attributed to service to date but also for those expected to be
earned in the future.
The following table sets forth the plan's funded status:
<TABLE>
<CAPTION>
September 30, December 31,
Actuarial present value of benefit obligations: 1997 1996 1995
------------- ----------- -----------
<S> <C> <C> <C>
Accumulated benefit obligation, including
(unaudited) vested benefits of $1,603,787,
$1,456,792 and $1,414,011 for the periods
ending September 30, 1996 and December 31,
1996 and 1995, respectively $ 1,644,505 $ 1,493,778 $ 1,456,370
=========== =========== ===========
Projected benefit obligation for service
rendered to date $(2,800,219) $(2,543,566) $(1,697,814)
Plan assets at fair value 1,834,028 1,558,940 1,588,644
----------- ----------- -----------
Unfunded projected benefit obligation or
plan assets in excess of benefit obligation (966,191) (984,596) (109,170)
Unrecognized net (gain) or loss from past
experience different from that assumed
and effects of changes in assumptions 707,847 709,653 (147,961)
Unrecognized net asset at January 1, 1989
being recognized over 15 years (105,304) (117,941) (134,790)
----------- ----------- -----------
Accrued pension cost $ (363,648) $ (392,884) $ (391,921)
=========== =========== ===========
</TABLE>
F-51
<PAGE> 179
GENEVA ROCK PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. PENSION PLAN (Continued)
<TABLE>
<CAPTION>
Net pension cost for 1997, 1996 and 1995 September 30, December 31,
included the following components: 1997 1996 1996 1995
--------- --------- --------- ---------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Service cost-benefits earned during the $ 154,381 $ 114,377 $ 152,503 $ 209,633
period
Interest cost on projected benefit 133,538 109,466 145,955 100,308
obligation
Actual return on plan assets (81,769) (59,993) (79,991) (115,382)
Net amortization (10,830) (19,520) (3,018) (16,849)
Net asset gain (loss) during the year
deferred for later recognition -- -- (23,009) 293
--------- --------- --------- ---------
Net periodic cost $ 195,320 $ 144,330 $ 192,440 $ 178,003
========= ========= ========= =========
</TABLE>
The discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the
projected benefit obligation were 7.0% and 4.0% for 1996 and 1995
and 7.5% and 4.0% for 1994. The expected long-term rate of return
on assets was 8.0% for 1996 and 1995 and 6.5% for 1994.
NOTE 9. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash
deposits and trade accounts receivable. The Company places all
but $1,616,320 at December 30, 1996 and $192,234 at September 30,
1997 of its cash with one federally insured institution. This
other money is in a money market account of a major brokerage
company and is uninsured. Concentrations of credit risk with
respect to trade receivables are limited due to the large number
of customers comprising the Company's customer base. However,
customers are concentrated in the construction industry primarily
in northern and central Utah. Neither cash nor accounts
receivable are collateralized.
NOTE 10. RELATED PARTY TRANSACTIONS
The following is a summary of related party transactions that
occurred during the nine months ended September 30, 1997 and 1996
(unaudited) and the years ended December 31, 1996, 1995 and 1994.
Related parties considered herein include W.W. Clyde & Co., Utah
Service, Inc., Beehive Insurance Agency, Inc., J & J Building
Supply, Inc., and W.W. Clyde Investment Company.
The Company performed construction work for and sold construction
materials to affiliates totaling approximately $250,000 and
$43,280 for the nine months ended September 30, 1997 and 1996,
respectively, and $57,707, $21,000, and $45,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.
The Company was charged $2,116,167 and $1,811,490 for the nine
months ended September 30, 1997 and 1996, respectively, and
$2,415,320, $3,610,517 and $2,596,624 for the years ended
December 31, 1996, 1995 and 1994, respectively, for construction
work, services, and construction materials provided by
affiliates.
F-52
<PAGE> 180
GENEVA ROCK PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. PROVISION FOR INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
Nine months ended
September 30, Year ended December 31,
------------------------ --------------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Current $3,641,619 $3,691,887 $4,577,464 $6,190,700 $4,985,977
Deferred 501,683 508,726 231,873 187,009 75,727
---------- ---------- ---------- ---------- ----------
Total $4,143,302 $4,200,613 $4,809,337 $6,377,709 $5,061,704
========== ========== ========== ========== ==========
</TABLE>
The income tax provision reconciled to the tax computed at the
federal statutory rate is as follows:
<TABLE>
<CAPTION>
Nine months ended
September 30, Year ended December 31,
--------------------------- -------------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Income taxes at statutory rate $ 3,850,898 $ 4,002,176 $ 4,535,167 $ 5,974,534 $ 4,714,580
Environmental tax -- -- -- 18,305 14,263
Difference due to depletion (133,962) (133,962) (173,513) (164,875) (100,865)
Nondeductible expense 46,813 46,813 60,633 2,263 2,201
State income taxes, net of
federal tax benefit 322,181 326,628 374,276 539,810 437,407
Other 57,372 (41,042) 12,774 7,672 (5,882)
----------- ----------- ----------- ----------- -----------
Total $ 4,143,302 $ 4,200,613 $ 4,809,337 $ 6,377,709 $ 5,061,704
=========== =========== =========== =========== ===========
</TABLE>
NOTE 12. RECENTLY ISSUED ACCOUNTING STATEMENTS NOT YET ADOPTED
Earnings per share - In February 1997, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 128 (SFAS 128), "Earnings Per Share." SFAS 128
eliminates the presentation of primary earnings per share (EPS)
and requires the presentations of basic EPS, which includes no
common stock equivalents and thus no dilution. The statement also
eliminates the modified treasury stock method of computing
potential common shares. This statement is effective for
financial statements issued for periods ending after December 15,
1997.
Capital structure - Also in February 1997, the FASB issued
Statement of Financial Accounting Standards No. 129 (SFAS 129),
"Disclosure of Information about Capital Structure." SFAS 129
consolidates in one statement disclosures about the rights of
outstanding securities and changes in the number of equity
securities during the period, disclosures about liquidation
preferences and preferred stock, and disclosures about redemption
requirements of certain redeemable stock.
F-53
<PAGE> 181
GENEVA ROCK PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. RECENTLY ISSUED ACCOUNTING STATEMENTS NOT YET ADOPTED (Continued)
Disclosures were previously included in Accounting Principles
Board (APB) Opinion 15, APB Opinion 10 and SFAS 47. The statement
does not change the required disclosures about capital structure
for entities currently subject to the requirements of APB
Opinions 10 and 15 and SFAS 47. SFAS 129 is effective for
financial statements for interim and annual periods ending after
December 15, 1997.
Comprehensive income - In June 1997, the FASB issued Statement of
Financial Accounting Standards No. 130 (SFAS 130), "Reporting
Comprehensive Income." SFAS 130 requires entities presenting a
complete set of financial statements to include details of
comprehensive income that arise in the reporting period.
Comprehensive income consists of net income or loss for the
current period and other comprehensive income, which consists of
revenue, expenses, gains, and losses that bypass the income
statement and are reported directly in a separate component of
equity. Other comprehensive income includes, for example, foreign
currency items, minimum pension liability adjustments, and
unrealized gains and losses on certain investment securities.
SFAS 130 requires that components of comprehensive income be
reported in a financial statement that is displayed with the same
prominence as other financial statements. This statement is
effective for fiscal years beginning after December 15, 1997, and
requires restatement of prior period financial statements
presented for comparative purposes.
Disclosure of segments - Also in June 1997, the FASB issued
Statement of Financial Accounting Standards No. 131 (SFAS 131),
"Disclosure about Segments of an Enterprise and Related
Information." This statement requires an entity to report
financial and descriptive information about their reportable
operating segments. An operating segment is a component of an
entity for which financial information is developed and evaluated
by the entity's chief operating decision maker to assess
performance and to make decisions about resource allocation.
Entities are required to report segment profit or loss, certain
specific revenue and expense items and segment assets based on
financial information used effective for fiscal years beginning
after December 15, 1997 and requires restatement of prior period
financial statements presented for comparative purpose.
The Company does not believe that the adoption of SFAS 128, SFAS
129, SFAS 130 and SFAS 131 will have a material effect on the
Company's financial statements.
NOTE 13. CERTAIN RECLASSIFICATIONS
Certain nonmaterial reclassifications have been made to the 1995
and 1996 financial statements to conform to the September 30,
1997 presentation.
F-54
<PAGE> 182
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Utah Service, Inc.
We have audited the accompanying balance sheet of Utah Service, Inc. as of
September 30, 1997, and the related statements of earnings, stockholders'
equity, and cash flows for the nine months then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Utah Service, Inc. as of
September 30, 1997, and the results of its operations and its cash flows for the
nine months then ended in conformity with generally accepted accounting
principles.
Provo, Utah
October 14, 1997
F-55
<PAGE> 183
Utah Service, Inc.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
(unaudited)
CURRENT ASSETS
Cash and cash equivalents (Note B) $ 666,391 $ 479,954
Receivables (Note B) 1,385,233 1,271,202
Prepaid expenses 9,348 8,138
Inventories (Note C) 1,478,010 1,298,100
----------- -----------
Total current assets 3,538,982 3,057,394
PROPERTY AND EQUIPMENT, AT COST (Note D)
Buildings 1,004,713 1,004,713
Furniture and equipment 402,447 392,330
Transportation equipment 340,230 321,328
Surfacing 112,910 112,910
----------- -----------
1,860,300 1,831,281
Less accumulated depreciation and amortization 827,805 754,446
----------- -----------
1,032,495 1,076,835
Land 178,419 178,419
----------- -----------
1,210,914 1,255,254
DEFERRED TAX ASSETS - LONG TERM (Note G) 43,517 34,575
OTHER ASSETS 21,557 39,967
----------- -----------
$ 4,814,970 $ 4,387,190
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-56
<PAGE> 184
Utah Service, Inc.
BALANCE SHEETS - CONTINUED
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term obligation (Note E) $ 81,743 $ 99,264
Accounts payable 619,553 401,533
Accrued liabilities (Note F) 123,922 125,429
----------- -----------
Total current liabilities 825,218 626,226
LONG-TERM OBLIGATION (Note E) -- 98,817
ACCRUED PENSION COSTS (Note H) 132,226 127,660
COMMITMENTS (Notes D and H) -- --
STOCKHOLDERS' EQUITY (Notes H and I)
Common stock - $10 par value
Authorized - 50,000
Issued - 5,413 54,130 54,130
Additional paid-in capital 533,457 533,457
Retained earnings 3,352,845 3,026,943
Excess of additional pension cost over
unrecognized net pension obligation, net
of applicable income taxes (82,906) (80,043)
----------- -----------
Total stockholders' equity 3,857,526 3,534,487
----------- -----------
$ 4,814,970 $ 4,387,190
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-57
<PAGE> 185
Utah Service, Inc.
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Nine months ended Year ended
September 30, December 31,
------------ ------------ ------------ ------------
1997 1996 1996 1995
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Operating revenues (Note B) $ 9,257,713 $ 9,938,724 $ 13,107,947 $ 13,580,133
Cost of goods sold 7,589,882 8,373,180 10,915,126 11,632,581
------------ ------------ ------------ ------------
Gross margin 1,667,831 1,565,544 2,192,821 1,947,552
Operating expenses
Salaries, wages and benefits 814,387 730,432 1,078,599 970,076
Operating supplies and expenses 264,934 278,734 377,311 343,607
Depreciation 77,209 95,552 128,036 130,014
Other 11,312 15,990 43,579 54,100
------------ ------------ ------------ ------------
Total operating expenses 1,167,842 1,120,708 1,627,525 1,497,797
------------ ------------ ------------ ------------
Other income (expense)
Interest expense (8,117) (22,430) (28,098) (22,457)
Service charge income 31,400 79,012 98,350 92,333
Other, net (Note D) 48,307 32,278 43,788 30,452
------------ ------------ ------------ ------------
71,590 88,860 114,040 100,328
------------ ------------ ------------ ------------
Earnings before income taxes 571,579 533,696 679,336 550,083
Income taxes (Note G) 213,199 199,069 258,286 199,468
------------ ------------ ------------ ------------
NET EARNINGS $ 358,380 $ 334,627 $ 421,050 $ 350,615
============ ============ ============ ============
Earnings per common share $ 66.20 $ 61.82 $ 77.78 $ 64.77
============ ============ ============ ============
Weighted average shares outstanding 5,413 5,413 5,413 5,413
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-58
<PAGE> 186
UTAH SERVICE, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
Year ended December 31, 1996 and 1995 and nine months ended September 30, 1997
<TABLE>
<CAPTION>
Common stock
-------------------------- Additional
Number paid-in Treasury Retained
of shares Amount capital stock earnings Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 5,000 $ 50,000 $ -- $ (24,220) $ 2,471,798 $ 2,497,578
Issuance of common stock 413 4,130 -- -- -- 4,130
Contributions from stockholders -- -- 556,628 -- -- 556,628
Retirement of treasury stock -- -- (24,220) 24,220 -- --
Dividends paid -- -- -- -- (108,260) (108,260)
Net earnings for the year -- -- -- -- 350,615 350,615
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1995 5,413 54,130 532,408 -- 2,714,153 3,300,691
Contributions from stockholders -- -- 1,049 -- -- 1,049
Dividends paid -- -- -- -- (108,260) (108,260)
Net earnings for the year -- -- -- -- 421,050 421,050
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1996 5,413 54,130 533,457 -- 3,026,943 3,614,530
Dividends paid -- -- -- -- (32,478) (32,478)
Net earnings for the period -- -- -- -- 358,380 358,380
----------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 1997 5,413 $ 54,130 $ 533,457 $ -- $ 3,352,845 $ 3,940,432
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-59
<PAGE> 187
Utah Service, Inc.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended Year ended
September 30, December 31,
------------------------- -------------------------
1997 1996 1996 1995
---------- ---------- ---------- ----------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Increase in cash and cash equivalents
Cash flows from operating activities
Net earnings $ 358,380 $ 350,839 $ 421,050 $ 350,615
---------- ---------- ---------- ----------
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation 73,359 97,681 130,873 132,852
Deferred income taxes (13,343) -- -- --
Changes in assets and liabilities
Accounts receivable (114,031) 593,982 682,974 (942,934)
Prepaid expenses (1,210) 65,228 63,243 (66,734)
Inventories (179,910) (577,089) (627,752) 49,531
Other assets (1,000) 1,778 1,778
Accounts payable 243,534 (58,214) (144,233) 251,173
Other liabilities and accrued
expenses (1,507) 33,475 41,087 (2,105)
---------- ---------- ---------- ----------
Total adjustments 5,892 156,841 147,970 (578,217)
---------- ---------- ---------- ----------
Net cash provided by (used in)
operating activities 364,272 507,680 569,020 (227,602)
---------- ---------- ---------- ----------
Cash flows from investing activities
Purchases of property and equipment (29,019) (26,833) (26,062) (996,387)
---------- ---------- ---------- ----------
</TABLE>
(Continued)
The accompanying notes are an integral part of these statements.
F-60
<PAGE> 188
Utah Service, Inc.
STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Nine months ended Year ended
September 30, December 31,
---------- ---------- ---------- ----------
1997 1996 1996 1995
---------- ---------- ---------- ----------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash flows from financing activities
Proceeds from issuance of long-term obligations -- -- -- 369,257
Principal payments on long-term obligations (116,338) (52,025) (171,176) --
Contributions from stockholders -- -- 1,049 574,757
Dividends paid (32,478) (32,478) (108,260) (108,260)
---------- ---------- ---------- ----------
Net cash (used in) provided
by financing activities (148,816) (84,503) (278,387) 835,754
---------- ---------- ---------- ----------
Net increase (decrease)
in cash and cash
equivalents 186,437 396,344 264,571 (388,235)
Cash and cash equivalents at beginning
of period 479,954 215,383 215,383 603,618
---------- ---------- ---------- ----------
Cash and cash equivalents at end of period $ 666,391 $ 611,727 $ 479,954 $ 215,383
========== ========== ========== ==========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 8,117 $ 22,430 $ 28,098 $ 22,457
Income taxes 193,740 155,650 258,286 199,468
</TABLE>
Noncash investing and financing activities
At September 30, 1997 and December 31, 1996, the Company had an excess of
additional pension cost over unrecognized net pension obligations of $82,906
and $80,043, respectively. As a result, deferred tax assets were decreased by
$22,285 and $20,375, respectively.
The accompanying notes are an integral part of these statements.
F-61
<PAGE> 189
UTAH SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows. Insofar
as the notes refer to the nine months ended September 30, 1996 and the
year ended December 31, 1996 and 1995, they are not audited. In the
opinion of management, the unaudited financial statements for the nine
months ended September 30, 1996 and the year ended December 31, 1996 and
1995 include all adjustments, consisting of normal recurring accruals,
necessary to present fairly the Company's financial position, results of
operations and cash flows. Operating results for the interim period as of
and for the nine months ended September 30, 1997 are not necessarily
indicative of the results that may be expected for the full year.
1. Organization
Utah Service, Inc. (the Company), was incorporated under the laws of the
State of Utah. The Company is located in Springville, Utah and is a
retailer of hardware, home improvement and petroleum products.
2. Cash and cash equivalents
For purposes of the financial statements, the Company considers all
short-term debt securities with an original maturity of three months or
less when purchased to be cash equivalents.
3. Inventories
Inventories are valued at the lower of cost or market, with cost being
determined using the first-in, first-out method.
4. Property and equipment
Property and equipment is stated at cost. Expenditures for maintenance
and repairs are charged to operations as incurred, whereas major
replacements and improvements are capitalized and subsequently
depreciated. Depreciation is provided on a straight-line basis over the
estimated useful lives of the assets.
5. Income taxes
The Company utilizes the liability method of accounting for income taxes.
Under the liability method, deferred taxes are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. An allowance against deferred tax
assets is recorded when it is more likely than not that such tax benefits
will not be realized.
F-62
<PAGE> 190
UTAH SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
6. Use of estimates
In preparing the Company's financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues
and expenses during the reported period. Actual results could differ from
those estimates.
7. Fair value of financial instruments
The carrying value of the Company's cash and cash equivalents,
receivables, long-term obligations and accounts payable approximate their
fair values.
8. Recently issued accounting statements not yet adopted
Earnings per share
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings
Per Share." SFAS 128 eliminates the presentation of primary earnings per
share (EPS) and requires the presentation of basic EPS, which includes no
common stock equivalents and thus no dilution. The statement also
eliminates the modified treasury stock method of computing potential
common shares. This statement is effective for financial statements
issued for periods ending after December 15, 1997.
Capital structure
Also in February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129 (SFAS 129), "Disclosure of Information about Capital
Structure." SFAS 129 consolidates in one statement disclosures about the
rights of outstanding securities and changes in the number of equity
securities during the period, disclosures about liquidation preferences
and preferred stock, and disclosures about redemption requirements of
certain redeemable stock. Disclosures were previously included in
Accounting Principles Board (APB) Opinion 15, APB Opinion 10 and SFAS 47.
The statement does not change the required disclosures about capital
structure for entities currently subject to the requirements of APB
Opinions 10 and 15 and SFAS 47. SFAS 129 is effective for financial
statements for interim and annual periods ending after December 15, 1997.
F-63
<PAGE> 191
UTAH SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
8. Recently issued accounting pronouncements not yet adopted -
continued
Comprehensive income
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 (SFAS 130), "Reporting Comprehensive Income." SFAS 130 requires
entities presenting a complete set of financial statements to include
details of comprehensive income that arise in the reporting period.
Comprehensive income consists of net income or loss for the current
period and other comprehensive income, which consists of revenue,
expenses, gains, and losses that bypass the income statement and are
reported directly in a separate component of equity. Other comprehensive
income includes, for example, foreign currency items, minimum pension
liability adjustments, and unrealized gains and losses on certain
investment securities. SFAS 130 requires that components of comprehensive
income be reported in a financial statement that is displayed with the
same prominence as other financial statements. This statement is
effective for fiscal years beginning after December 15, 1997, and
requires restatement of prior period financial statements presented for
comparative purposes.
Disclosure of segments
Also in June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131 (SFAS 131), "Disclosures about Segments of an
Enterprise and Related Information." This statement requires an entity to
report financial and descriptive information about their reportable
operating segments. An operating segment is a component of an entity for
which financial information is developed and evaluated by the entity's
chief operating decision maker to assess performance and to make
decisions about resource allocation. Entities are required to report
segment profit or loss, certain specific revenue and expense items and
segment assets based on financial information used internally for
evaluating performance and allocating resources. This statement is
effective for fiscal years beginning after December 15, 1997 and requires
restatement of prior period financial statements presented for
comparative purposes.
The Company does not believe that the adoption of SFAS 128, SFAS 129,
SFAS 130 and SFAS 131 will have a material effect on the Company's
financial statements.
9. Certain reclassifications
Certain nonmaterial reclassifications have been made to the 1995 and 1996
financial statements to conform to the September 30, 1997 presentation
F-64
<PAGE> 192
UTAH SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE B - CREDIT CONCENTRATION, MAJOR CUSTOMERS, AND RELATED PARTIES
1. Credit concentration
The Company maintains cash balances at several financial institutions
located in the United States. Accounts at each institution are secured by
the Federal Deposit Insurance Corporation up to $100,000. Uninsured
balances aggregate to approximately $428,000 and $329,000 as of September
30, 1997 and December 31, 1996, respectively.
Financial instruments which potentially subject the Company to credit
risk concentration consist primarily of trade accounts receivable. The
Company sells to customers in the home construction and improvement
industry throughout the Springville, Utah area. The Company sells
substantially to recurring customers wherein the customer's ability to
pay has previously been evaluated. The Company generally does not require
collateral. The majority of its trade receivables are unsecured.
Allowances are periodically evaluated by management for potential credit
losses, and such losses have been insignificant. Accordingly, no
allowance for doubtful accounts has been established as of September
30,1997 and December 31, 1996.
2. Major customer
At September 30,1997 and December 31, 1996, the Company had accounts
receivable due from its largest customer approximating $235,743 and
$62,569, respectively. Remaining accounts receivable at September 30,1997
and December 31, 1996 were due from a variety of other customers under
normal credit terms.
Revenue for the nine months ending September 30, 1997 and 1996 from the
Company's largest customer represented approximately 13% and 6% of net
revenues, respectively (6% for the years ending December 31, 1996 and
1995, respectively).
3. Related parties
Related parties include the Company's officers, directors, stockholders,
Geneva Rock Products, Inc., W.W. Clyde & Co. and other entities under
their common control.
Accounts receivable from related parties were $202,206 and $113,335 for
September 30, 1997 and December 31, 1996, respectively
The Company sold materials to affiliates totaling approximately $634,202
and $752,185 for the nine months ending September 30, 1997 and 1996,
respectively, and $941,466 and $959,084 for the years ended December 31,
1996 and 1995, respectively.
F-65
<PAGE> 193
UTAH SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE C - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Lumber $ 295,209 $ 182,764
Hardware and housewares 877,924 756,306
Automotive 245,957 304,575
Other 58,920 54,455
---------- ----------
$1,478,010 $1,298,100
========== ==========
</TABLE>
NOTE D - PROPERTY HELD FOR LEASE
The Company leases two buildings for nominal rent through October 1997.
Lease revenues from the buildings were $20,500 and $11,850 for the nine
months ended September 30, 1997 and 1996, respectively, and $17,400 and
$14,851 for the years ended December 31, 1996 and 1995, respectively.
Both leases were terminated in October 1997 when the Company sold the two
buildings.
NOTE E - LONG-TERM OBLIGATION
The Company's long-term obligation consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
8.5% non-revolving note payable to
a bank, due in 2000, payable in
monthly installments of $8,272
plus interest. The note is unsecured $ 81,743 $ 198,081
Less current maturities 81,743 99,264
---------- ----------
$ -- $ 98,817
========== ==========
</TABLE>
F-66
<PAGE> 194
UTAH SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE F - ACCRUED LIABILITIES
Accrued Liabilities consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Payroll, payroll taxes and benefits $ 24,427 $ 33,871
Sales tax payable 58,830 49,403
Income tax payable 14,347 40,683
Other 26,318 1,472
---------- ----------
$ 123,922 $ 125,429
========== ==========
</TABLE>
NOTE G - INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
Nine months ended Year ended
September 30, December 31,
-------------------------- --------------------------
1997 1996 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Current $ 226,542 $ 202,599 $ 261,816 $ 191,764
Deferred (13,343) (3,530) (3,530) 7,704
--------- --------- --------- ---------
$ 213,199 $ 199,069 $ 258,286 $ 199,468
========= ========= ========= =========
</TABLE>
The income tax provision reconciled to the tax computed at the statutory
Federal rate is as follows:
<TABLE>
<CAPTION>
Nine months ended Year ended
September 30, December 31,
---------- ---------- ---------- ----------
1997 1996 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income taxes (benefit) computed at:
Federal statutory rate $ 194,337 $ 181,457 $ 230,974 $ 187,028
State income taxes, net of federal benefit 18,862 17,612 22,418 18,153
All other -- -- 4,894 (5,713)
---------- ---------- ---------- ----------
$ 213,199 $ 199,069 $ 258,286 $ 199,468
========== ========== ========== ==========
</TABLE>
Deferred tax assets consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Long-term deferred tax assets
Accrued pension costs $ 43,517 $ 34,575
========== ==========
</TABLE>
F-67
<PAGE> 195
UTAH SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE H - PENSION PLAN
The Company has a noncontributory defined benefit pension plan covering
substantially all of its non-union employees. The benefits are based on
years of service and the employee's compensation during the last five
years of employment. The Company's funding policy is to contribute
annually the maximum amount that can be deducted for federal income tax
purposes. Contributions are intended to provide not only for benefits
attributed to services to date but also for those benefits expected to be
earned in the future. Employees vest 100% after five years. No
contributions to the plan were required for 1996 or 1995.
Actuarial present value of benefit obligations are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
------------- -------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Accumulated benefit obligation, including
vested benefits of $528,421 as of
September 30, 1997 and $488,773 and
$412,965 as of December 31, 1996 and
1995, respectively $ 533,966 $ 493,902 $ 417,298
========== ========== ==========
Projected benefit obligation for service
rendered to date (533,966) (493,902) (417,298)
Plan assets at fair value, primarily listed
stocks 417,297 401,209 347,636
---------- ---------- ----------
Plan assets in deficiency of projected
benefit obligation (116,669) (92,693) (69,662)
Unrecognized net loss (gain) from past ex-
perience different from that assumed
and effects of changes in assumptions 137,317 133,163 101,217
Unrecognized net obligation at January 1,
1989, being recognized over 15 years (5,091) (5,503) (6,053)
Additional minimum liability (132,226) (127,660) (95,164)
---------- ---------- ----------
Prepaid (accrued) pension cost $ (116,669) $ (92,693) $ (69,662)
========== ========== ==========
</TABLE>
F-68
<PAGE> 196
UTAH SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE H - PENSION PLAN - CONTINUED
Net pension cost (credit) includes the following components:
<TABLE>
<CAPTION>
Nine months ended
September 30, Year ended December 31,
------------------------ -------------------------
1997 1996 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Service cost--benefits earned during
the period $ 14,134 $ 16,466 $ 21,954 $ 19,281
Interest cost on projected benefit
obligation 25,930 21,908 29,211 26,397
Actual return on plan assets (16,088) (13,537) (18,233) (17,859)
Net amortization and deferral 7,756 (6,679) (7,205) (5,019)
---------- ---------- ---------- ----------
Net periodic pension cost $ 31,732 $ 18,158 $ 25,727 $ 22,800
========== ========== ========== ==========
</TABLE>
F-69
<PAGE> 197
UTAH SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE H - PENSION PLAN - CONTINUED
The following table sets forth the funded status and amounts recognized
in the Company's balance sheet at December 31, 1996 and September 30,
1997:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(unaudited)
<S> <C> <C>
Actuarial present value of benefit obligations
Vested benefit obligation $ 528,421 $ 488,773
========== ==========
Projected benefit obligation $ 533,966 $ 493,902
========== ==========
Accumulated benefit obligation $ 533,966 $ 493,902
Plan assets at fair value (primarily U.S.
government securities and common stock
funds) 417,297 401,209
Accumulated benefit obligation greater
than plan assets 116,669 92,693
Prepaid pension cost included in other
assets 15,557 34,967
Additional accrued pension costs
recognized on the balance sheet 132,226 127,660
Applicable income taxes 49,320 47,617
---------- ----------
Excess of additional pension cost over
unrecognized net pension obligation
recorded as reduction of stockholders'
equity $ 82,906 $ 80,043
========== ==========
</TABLE>
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of
the projected benefit obligation were 7% and 4%, respectively, in 1996
(7% and 3% in 1995 and 7.5% and 4% in 1994). The expected long-term rate
of return on assets was 7.5% in 1996 (6.5% in 1995).
NOTE I - SUBSEQUENT EVENTS
On November 13, 1997, Clyde Companies, Inc., who owns 31.37% of the
Company adopted an "Agreement and Plan of Merger" which provides for the
merger of Clyde Companies, Inc. with the Company and certain other
companies related through common stockholders.
F-70
<PAGE> 198
UTAH SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE I - SUBSEQUENT EVENTS - CONTINUED
The merger upon majority approval of the stockholders of each respective
company, will be effected by the exchange of shares of Clyde Companies,
Inc. common stock with the respective shares of common stock held by the
Company's stockholders. The merger transaction will be accounted for in a
manner similar to a pooling of interests. The exchange rates used in
determining the number of shares to be exchanged are based upon
independent valuations performed on each company to be acquired.
In connection with the transaction, Clyde Companies, Inc. is preparing to
file a registration statement Form S-4 with the Securities and Exchange
Commission.
F-71
<PAGE> 199
INDEPENDENT ACCOUNTANTS AUDIT REPORT
To the Shareholders and Board of Directors of
Beehive Insurance Agency, Inc.
We have audited the accompanying balance sheet of Beehive Insurance Agency, Inc.
as of December 31, 1996 and 1995, and the related statements of income for the
year ended December 31, 1996, 1995 and 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statement based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements, referred to above, present fairly, in
all material respects, the financial position of Beehive Insurance Agency, Inc.
as of December 31, 1996 and 1995, and the results of its operations and its cash
flows for the years ended December 31, 1996, 1995 and 1994 in conformity with
generally accepted accounting principles.
October 21, 1997
Salt Lake City, Utah
F-72
<PAGE> 200
BEEHIVE INSURANCE AGENCY, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 1) $ 539,422 $ 558,642 $ 640,669
Accounts receivable 290,948 110,075 171,286
Commissions receivable 8,045 8,199 5,403
Interest receivable 1,934 -- --
Federal income tax receivable (Note 1) -- 1,585 7,374
Prepaid Utah state franchise tax -- -- 2,616
---------- ---------- ----------
Total current assets 840,349 678,501 827,348
---------- ---------- ----------
Property and equipment: (Note 1)
Automobiles 19,594 32,599 32,599
Office furniture, fixtures & equipment 42,187 29,221 26,476
Sign 1,145 1,145 1,145
Building & improvements 56,705 56,705 56,705
---------- ---------- ----------
Total property and equipment 119,631 119,670 116,925
Less: accumulated depreciation (73,313) (90,820) (82,062)
---------- ---------- ----------
Net depreciable assets 46,318 28,850 34,863
Land 12,500 12,500 12,500
---------- ---------- ----------
Net property and equipment 58,818 41,350 47,363
Prepaid expenses 5,522 -- --
Deferred tax asset (Note 3) 40,220 36,072 38,974
---------- ---------- ----------
Total assets $ 944,909 $ 755,923 $ 913,685
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-73
<PAGE> 201
BEEHIVE INSURANCE AGENCY, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
LIABILITIES AND
SHAREHOLDERS EQUITY
Current liabilities:
Accounts payable $ 1,772 $ 367 $ 641
Commissions payable 1,696 83 --
Insurance premiums payable 240,182 123,764 313,460
Accrued pension expense (Note 2) 135,481 144,779 132,138
Accrued federal income tax 27,328 -- --
Other accrued expenses 59,033 -- --
Utah income tax payable 4,041 571 --
Dividends payable -- 107,435 107,435
---------- ---------- ----------
Total current liabilities 469,533 376,999 553,674
---------- ---------- ----------
Shareholders equity:
Capital stock - par value $1.00;
authorized 50,000 shares; issued and
outstanding 21,500 shares 21,500 21,500 21,500
Less: 13 shares in treasury stock (Note 1) (120) (120) (120)
Paid in surplus 3,447 3,447 3,447
Retained earnings 450,549 354,097 335,184
---------- ---------- ----------
Total shareholders equity 475,376 378,924 360,011
---------- ---------- ----------
Total liabilities & shareholders equity $ 944,909 $ 755,923 $ 913,685
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-74
<PAGE> 202
BEEHIVE INSURANCE AGENCY, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
FOR THE NINE FOR THE NINE FOR THE YEAR FOR THE YEAR FOR THE YEAR
MONTHS ENDED MONTHS ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1996 1995 1994
------------ ------------ ------------ ------------ ------------
Revenue:
<S> <C> <C> <C> <C> <C>
Insurance commissions $ 453,693 $ 440,658 $ 517,497 $ 451,940 $ 518,935
Profit sharing commissions 69,208 60,065 60,065 85,852 79,190
----------- ----------- ----------- ----------- -----------
Total revenue 522,901 500,723 577,562 537,792 598,125
----------- ----------- ----------- ----------- -----------
Operating expense:
Salaries 110,944 103,547 141,282 136,928 139,276
Selling, general & administrative expenses 90,481 75,720 80,823 105,947 105,473
Pension expenses 11,122 9,481 12,641 104,487 --
Depreciation 4,480 5,408 8,758 9,834 8,953
----------- ----------- ----------- ----------- -----------
Total operating expense 217,027 194,156 243,504 357,196 253,702
----------- ----------- ----------- ----------- -----------
Operating income 305,874 306,567 334,058 180,596 344,423
Other income (expense):
Interest income 18,903 16,860 24,017 32,806 22,747
Rental income 400 3,600 4,800 4,200 4,200
Gain on sale of automobile -- -- -- 1,279 --
----------- ----------- ----------- ----------- -----------
Total other income (expense) 19,303 20,460 28,817 38,285 26,947
----------- ----------- ----------- ----------- -----------
Income before income taxes 325,177 327,027 362,875 218,881 371,370
Provision for income taxes (Note 3) (121,292) (108,495) (129,092) (87,874) (129,365)
----------- ----------- ----------- ----------- -----------
Net income 203,885 218,532 233,783 131,007 242,005
----------- ----------- ----------- ----------- -----------
Retained earnings at beginning of period 354,097 335,184 335,184 408,303 381,168
Less: dividends (107,433) (90,239) (214,870) (204,126) (214,870)
----------- ----------- ----------- ----------- -----------
Retained earnings at end of period $ 450,549 $ 463,477 $ 354,097 $ 335,184 $ 408,303
=========== =========== =========== =========== ===========
Earnings per share $ 9.49 $ 10.17 $ 10.88 $ 6.10 $ 11.26
Weighted Average Outstanding Shares 21,487 21,487 21,487 21,487 21,487
</TABLE>
The accompanying notes are an integral part of these statements.
F-75
<PAGE> 203
BEEHIVE INSURANCE AGENCY, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1996 1995 1994
------------- ------------- ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Net income $ 203,885 $ 218,352 $ 233,783 $ 131,007 $ 242,005
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 4,480 5,408 8,758 9,834 8,953
Gain on sale of automobile -- -- -- (1,279) --
Change in assets and liabilities:
Decrease (increase) in accounts
receivable (180,873) (143,526) 61,211 (13,597) 283,007
(Increase) decrease in commissions receivable 154 (168) (2,796) 1,457 2,730
Decrease (Increase) in interest receivable (1,935) (2,242) -- -- --
Decrease (Increase) in federal income tax
receivable 1,585 7,374 5,789 (7,374) --
Decrease (Increase) in prepaid Utah state
franchise tax -- (6,009) 2,616 13,144 5,280
Decrease (Increase) in deferred tax asset (4,148) 2,902 (38,974) --
(Increase) in prepaid expense (5,452) (6,946)
(Decrease) increase in accounts payable 1,405 789 (274) (330) (611)
Increase in commissions payable 1,613 1,123 83 -- --
(Decrease) increase in ins. premiums payable 116,418 115,118 (189,696) (76,206) 44,119
(Decrease) increase in federal income tax payable -- -- -- (29,585) 29,585
Increase (Decrease) in state income tax payable 3,470 -- 571 -- --
Increase in provision for federal income tax 27,328 53,505 -- -- --
Increase in other accrued expenses 59,033 27,509 -- -- --
(Decrease) in dividends payable (107,435) (107,435) -- -- --
Increase (Decrease)in accrued pension expense (9,298) 9,481 12,641 104,487 8,888
--------- --------- --------- --------- ---------
Net cash provided by operating activities 110,230 172,333 135,588 92,584 623,956
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of automobiles (9,051) -- -- (17,047) --
Purchases of office furniture, fixtures & (12,966) (2,746) (2,745) (3,153) (3,982)
equipment
Purchases of building improvements -- -- -- (9,285) --
Proceeds from sale of automobile -- -- -- 1,801 --
--------- --------- --------- --------- ---------
Net cash used in investing activities (22,017) (2,746) (2,745) (27,684) (3,982)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (107,433) (90,239) (214,870) (204,126) (214,870)
--------- --------- --------- --------- ---------
Net cash used in financing activities (107,433) (90,239) (214,870) (204,126) (214,870)
--------- --------- --------- --------- ---------
Net (decrease) increase in cash (19,220) 79,348 (82,027) (139,226) 405,104
Cash at beginning of year 558,642 640,669 640,669 779,895 374,791
--------- --------- --------- --------- ---------
Cash at end of year $ 539,422 $ 720,017 $ 558,642 $ 640,669 $ 779,895
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-76
<PAGE> 204
BEEHIVE INSURANCE AGENCY, INC.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied
in the preparation of the accompanying financial statements follows.
Insofar as the notes refer to the nine months ended September 30, 1997
and the year ended December 31, 1996 and 1995, they are not audited. In
the opinion of management, the unaudited financial statements for the
nine months ended September 30, 1996 and the year ended December 31,
1996 and 1995 include all adjustments, consisting of normal recurring
accruals, necessary to present fairly the Company's results of
operations and cash flows. Operating results for the interim period as
of and for the nine months ended September 30, 1997 are not necessarily
indicative of the results that may be expected for the full year.
ORGANIZATION
Beehive Insurance Agency, Inc. (the Company) was incorporated in the
State of Utah, June 20, 1961 and operates as a regular corporation. The
company serves as an independent insurance agency selling to the
general public. The following is a summary of significant accounting
policies.
ACCOUNTING METHOD
The accrual method of accounting is used to record revenue and
expenses.
CASH AND CASH EQUIVALENTS
The Company considers cash and cash equivalents to be defined as cash
on hand and cash in banks with maturities of three months or less.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is provided
using straight-line and declining-balance methods over the estimated
useful lives of the assets.
TREASURY STOCK
Treasury stock transactions are accounted for under the cost method,
using a moving average cost assumption.
INCOME TAXES
The Company accounts for income taxes using the liability method as
prescribed by Statement of Financial Accounting Standards No. 109 (SFAS
109), "Accounting for Income Taxes." SFAS 109 is an asset and liability
approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax
returns.
The Internal Revenue Service examined 1977 and 1980 under the Taxpayer
Compliance Measurement Program. There were no changes as a result of
these examinations.
F-77
<PAGE> 205
BEEHIVE INSURANCE AGENCY, INC.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments including cash, receivables,
payables and accrued liabilities approximate book values at September
30, 1997, December 31, 1996 and 1995.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of accounts receivable.
At December 31, 1996, accounts receivable includes amounts due from
three customers of $ 48,912, $ 21,281 and $ 19,992. Sales to
significant customers are summarized in Note 4. The Company's accounts
receivable result from its insurance contracts with customers. The
Company controls credit risk associated with accounts receivable by
leveraging the unused portion of the policy.
The Company maintains all bank accounts and temporary cash investments
at Key Bank of Utah. The accounts exceed the FDIC insured amounts by
$439,422, $458,642 and $540,669 at September 30, 1997 and December 31,
1996 and 1995 respectively.
LONG-LIVED ASSETS
The Company accounts for the impairment of long lived assets in
accordance with Statement of Financial Accounting Standards No. 121
(SFAS 121), "Accounting for the Impairment of long-lived assets to be
disposed of." The Company reviews long-lived assets for possible
impairments whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable, as measured by a comparison
of estimated future cash flows (undiscounted and without interest
charges) to the carrying value of the asset. An impairment loss is then
recognized if the carrying value of the asset exceeds the fair value of
the asset. Assets held for sale are written down to their fair value,
less cost to sell. Any subsequent revision in the fair value less cost
to sell, not to exceed the original carrying cost, is charged or
credited to income. This did not have a material effect on the
financial statements for September 30, 1997 (unaudited) and December
31, 1996 and 1995.
F-78
<PAGE> 206
BEEHIVE INSURANCE AGENCY, INC.
NOTES TO FINANCIAL STATEMENTS
2. PENSION PLAN
The Company has a defined benefit pension plan covering substantially
all of its employees. The benefits are based on years of service and
the employees compensation during the 5 highest consecutive years of
participation in the plan. The funding policy of the Company is based
upon actuarially determined contributions that take into consideration
the amount deductible for income tax purposes, however a liability
under FAS 87 has been recognized for financial purposes. The actuarial
reports were prepared by Rocky Mountain Employee Benefits. These
reports reflect in summary the following:
<TABLE>
<CAPTION>
PERIOD ENDED
-----------------------------------------------
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
1. Pension Expense
Service cost $ 4,122 $ 5,332 $ 5,453
Interest cost 10,318 12,318 23,043
Expected return 0 (2,300) (44,926)
Amortization
a. Transition asset (2,074) (1,874) (2,700)
b. (Gain) loss (1,244) (835) 2,082
c. Deferral assets
gain/(loss) 0 -- 32,879
---------- ---------- ----------
Net Periodic Costs $ 11,122 $ 12,641 $ 15,831
========== ========== ==========
</TABLE>
F-79
<PAGE> 207
BEEHIVE INSURANCE AGENCY, INC.
NOTES TO FINANCIAL STATEMENTS
2. PENSION PLAN (CONTINUED)
<TABLE>
<CAPTION>
UNDERFUNDED UNDERFUNDED UNDERFUNDED
PLAN PLAN PLAN
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
2. Funded status
Actuarial present value
of benefit obligation
Vested benefit obligation $ 140,616 $ 137,678 $ 132,284
Non-vested benefit
obligation 2,611 2,557 1,836
---------- ---------- ----------
Accumulated benefit
obligation 143,227 140,235 134,120
Effect on projected future
salary increases 45,874 44,915 43,234
---------- ---------- ----------
Projected benefit
obligation 189,101 185,150 177,354
Fair value of plan assets 48,188 37,013 48,119
Projected benefit
obligation in excess of
assets 140,913 148,137 129,235
Unrecognized net loss (17,150) (16,482) (12,095)
Unrecognized net
transition asset 11,718 13,124 14,998
---------- ---------- ----------
Accrued pension cost
in Company's financial
statements $ 135,481 $ 144,779 $ 132,138
</TABLE>
F-80
<PAGE> 208
BEEHIVE INSURANCE AGENCY, INC.
NOTES TO FINANCIAL STATEMENTS
2. PENSION PLAN (CONTINUED)
The following assumptions were used to measure the status of the
pension plan at September 30, 1997 (unaudited) and December 31, 1996
and 1995 under FAS 87.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Discounted rate 7% 7% 7%
Expected long-term rate of
return on assets 7% 7% 7%
Average increase in compensation
levels 3% 3% 3%
</TABLE>
In addition to the net periodic pension costs, net losses of $ 88,656 were
recorded in 1995 pursuant to FASB Statement No. 88, "Employers Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits", due to a pension settlement with a former employee of the
Company.
3. INCOME TAX
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Current
Federal $ 108,625 $ 108,396 $ 109,652
State 16,815 17,794 17,196
---------- ---------- ----------
125,440 126,190 126,848
---------- ---------- ----------
Deferred
Federal (3,781) 2,645 (35,526)
State (367) 257 (3,448)
---------- ---------- ----------
(4,148) 2,902 (38,974)
---------- ---------- ----------
Provision for income taxes $ 121,292 $ 129,092 $ 87,874
========== ========== ==========
</TABLE>
F-81
<PAGE> 209
BEEHIVE INSURANCE AGENCY, INC.
NOTES TO FINANCIAL STATEMENTS
3. INCOME TAX (CONTINUED)
A summary of the composition of the deferred income tax assets is as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Long-term deferred income taxes
Accrued pension expense $ 40,220 $ 36,072 $ 38,974
</TABLE>
4. SALES TO SIGNIFICANT CUSTOMERS
Approximately 49 % of total revenues for the nine months ended
September 30, 1997 was from four customers, accounting for 36%, 8%, and
5% of total revenues. Approximately 56% of total revenues for the year
ended December 31, 1996 was from three customers, accounting for 40%,
11% and 5% of total revenues. Approximately 50% of total revenues for
the year ended December 31, 1995 was from two customers, accounting for
33% and 17% of total revenues.
5. RELATED PARTIES
Related parties include the Company's officers, directors,
stockholders, Geneva Rock Products, Inc., W. W. Clyde & Co., J &J
Building Supply, Utah Services, Inc.
Accounts receivable and insurance commission received from related
parties is as follows:
<TABLE>
<CAPTION>
Geneva Rock W. W. Clyde J & J Building Utah
Products & Co. Supply Service, Inc.
----------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
September 30, 1997:
Accounts receivable $ 146,095 $ 61,316 $ -- $ --
Insurance commissions 186,006 42,920 26,094 6,822
December 31, 1996
Accounts receivable 48,912 750 1,200 --
Insurance commissions 193,025 51,291 19,204 6,558
December 31, 1995
Accounts receivable 131,687 -- -- --
Insurance commissions 183,885 42,254 -- 5,641
</TABLE>
F-82
<PAGE> 210
ANNEX A
[AGREEMENT AND PLAN OF MERGER]
[BEGINS ON NEXT PAGE]
A-1
<PAGE> 211
ARTICLES OF MERGER
OF
W.W. CLYDE REORGANIZATION CORPORATION
INTO
W.W. CLYDE & CO.
EFFECTIVE __________ ___, 1998 AT 9:00 A.M.
In accordance with Section 16-10a-1105 of the Utah Revised
Business Corporation Act (the "URBCA"), W.W. Clyde & Co., a Utah corporation
("Clyde"), hereby declares and certifies as follows:
ARTICLE ONE
Plan of Merger
The Agreement and Plan of Merger, dated as of November 13, 1997
(the "Plan of Merger"), among Clyde, W.W. Clyde Reorganization Corporation, a
Utah corporation ("CRC"), and the other parties signatory thereto, is attached
hereto as Exhibit A and is incorporated herein by this reference.
ARTICLE TWO
Shareholder Approval
The shareholders of each of Clyde and CRC were required to
approve the Plan of Merger. The designation, number of outstanding shares,
number of votes entitled to be cast by each voting group entitled to vote
separately, and the total number of votes cast for and against the Plan of
Merger by each voting group entitled to vote separately were as follows:
<PAGE> 212
<TABLE>
<CAPTION>
Corporation and Outstanding Votes entitled For Against
Designation Shares to be cast
- ------------------------- ------------------- ---------------------- ----------------- -------------
<S> <C> <C> <C> <C>
Clyde 94,544 94,544 ________ ______
Common Stock
- ------------------------- ------------------- ---------------------- ----------------- -------------
CRC 1,000 1,000 1,000 0
Common Stock
- ------------------------- ------------------- ---------------------- ----------------- -------------
</TABLE>
The number of votes cast for the Plan of Merger was sufficient for approval.
ARTICLE THREE
Effective Date
Pursuant to Section 16-10a-1105(2) of the URBCA, these Articles
of Merger shall be effective on __________ ___, 1998 at 9:00 a.m.
IN WITNESS WHEREOF, Clyde hereby certifies to the truth of the
facts stated herein and executes and delivers these Articles of Merger this ____
day of __________, 199__.
W.W. Clyde & Co.,
a Utah corporation
-----------------------------------
Chief Executive Officer
ATTEST:
- ----------------------------------
Secretary
2
<PAGE> 213
MAILING ADDRESS
If, upon completion of filing of the above Articles of Merger,
the Division elects to send a copy of the Articles of Merger to Clyde by mail,
the address to which the copy should be mailed is:
W.W. Clyde & Co.
---------------------------------
---------------------------------
3
<PAGE> 214
ARTICLES OF MERGER
OF
GENEVA ROCK REORGANIZATION CORPORATION
INTO
GENEVA ROCK PRODUCTS, INC.
EFFECTIVE __________ ___, 1998 AT 12:00 NOON
In accordance with Section 16-10a-1105 of the Utah Revised
Business Corporation Act (the "URBCA"), Geneva Rock Products, Inc., a Utah
corporation ("Geneva Rock"), hereby declares and certifies as follows:
ARTICLE ONE
Plan of Merger
The Agreement and Plan of Merger, dated as of November 13, 1997
(the "Plan of Merger"), among Geneva Rock, Geneva Rock Reorganization
Corporation, a Utah corporation ("GRRC"), and the other parties signatory
thereto, is attached hereto as Exhibit A and is incorporated herein by this
reference.
ARTICLE TWO
Shareholder Approval
The shareholders of each of Geneva Rock and GRRC were required to
approve the Plan of Merger. The designation, number of outstanding shares,
number of votes entitled to be cast by each voting group entitled to vote
separately, and the total number of votes cast for and against the Plan of
Merger by each voting group entitled to vote separately were as follows:
<TABLE>
<CAPTION>
Corporation and Outstanding Votes entitled For Against
Designation Shares to be cast
- ------------------------- ------------------- ---------------------- ----------------- -------------
<S> <C> <C> <C> <C>
Geneva Rock 21,802 21,802 ________ ______
Common Stock
- ------------------------- ------------------- ---------------------- ----------------- -------------
GRRC 1,000 1,000 1,000 0
Common Stock
- ------------------------- ------------------- ---------------------- ----------------- -------------
</TABLE>
The number of votes cast for the Plan of Merger was sufficient for approval.
<PAGE> 215
ARTICLE THREE
Effective Date
Pursuant to Section 16-10a-1105(2) of the URBCA, these Articles
of Merger shall be effective on __________ ___, 1998 at 12:00 noon.
IN WITNESS WHEREOF, Geneva Rock hereby certifies to the truth of
the facts stated herein and executes and delivers these Articles of Merger this
____ day of __________, 199__.
Geneva Rock Products, Inc.,
a Utah corporation
-----------------------------------
Chief Executive Officer
ATTEST:
- ----------------------------
Secretary
MAILING ADDRESS
If, upon completion of filing of the above Articles of Merger,
the Division elects to send a copy of the Articles of Merger to Geneva Rock by
mail, the address to which the copy should be mailed is:
Geneva Rock Products, Inc.
--------------------------
--------------------------
2
<PAGE> 216
ARTICLES OF MERGER
OF
UTAH SERVICE REORGANIZATION CORPORATION
INTO
UTAH SERVICE INC.
EFFECTIVE __________ ___, 1998 AT 10:00 A.M.
In accordance with Section 16-10a-1105 of the Utah Revised
Business Corporation Act (the "URBCA"), Utah Service Inc., a Utah corporation
("Utah Service"), hereby declares and certifies as follows:
ARTICLE ONE
Plan of Merger
The Agreement and Plan of Merger, dated as of November 13, 1997
(the "Plan of Merger"), among Utah Service, Utah Service Reorganization
Corporation, a Utah corporation ("USRC"), and the other parties signatory
thereto, is attached hereto as Exhibit A and is incorporated herein by this
reference.
ARTICLE TWO
Shareholder Approval
The shareholders of each of Utah Service and USRC were required
to approve the Plan of Merger. The designation, number of outstanding shares,
number of votes entitled to be cast by each voting group entitled to vote
separately, and the total number of votes cast for and against the Plan of
Merger by each voting group entitled to vote separately were as follows:
<TABLE>
<CAPTION>
Corporation and Outstanding Votes entitled For Against
Designation Shares to be cast
- ------------------------- ------------------- ---------------------- ----------------- -------------
<S> <C> <C> <C> <C>
Utah Service 5,413 5,413 ________ ______
Common Stock
- ------------------------- ------------------- ---------------------- ----------------- -------------
USRC 1,000 1,000 1,000 0
Common Stock
- ------------------------- ------------------- ---------------------- ----------------- -------------
</TABLE>
The number of votes cast for the Plan of Merger was sufficient for approval.
<PAGE> 217
ARTICLE THREE
Effective Date
Pursuant to Section 16-10a-1105(2) of the URBCA, these Articles
of Merger shall be effective on __________ ___, 1998 at 10:00 a.m.
IN WITNESS WHEREOF, Utah Service hereby certifies to the truth of
the facts stated herein and executes and delivers these Articles of Merger this
____ day of __________, 199__.
Utah Service Inc.,
a Utah corporation
-----------------------------------
Chief Executive Officer
ATTEST:
- ----------------------------
Secretary
MAILING ADDRESS
If, upon completion of filing of the above Articles of Merger,
the Division elects to send a copy of the Articles of Merger to Utah Service by
mail, the address to which the copy should be mailed is:
Utah Service Inc.
-----------------
-----------------
2
<PAGE> 218
ARTICLES OF MERGER
OF
BEEHIVE INSURANCE REORGANIZATION CORPORATION
INTO
BEEHIVE INSURANCE AGENCY, INC.
EFFECTIVE __________ ___, 1998 AT 11:00 A.M.
In accordance with Section 16-10a-1105 of the Utah Revised
Business Corporation Act (the "URBCA"), Beehive Insurance Agency, Inc., a Utah
corporation ("Beehive Insurance"), hereby declares and certifies as follows:
ARTICLE ONE
Plan of Merger
The Agreement and Plan of Merger, dated as of November 13, 1997
(the "Plan of Merger"), among Beehive Insurance, Beehive Insurance
Reorganization Corporation, a Utah corporation ("BIRC"), and the other parties
signatory thereto, is attached hereto as Exhibit A and is incorporated herein by
this reference.
ARTICLE TWO
Shareholder Approval
The shareholders of each of Beehive Insurance and BIRC were
required to approve the Plan of Merger. The designation, number of outstanding
shares, number of votes entitled to be cast by each voting group entitled to
vote separately, and the total number of votes cast for and against the Plan of
Merger by each voting group entitled to vote separately were as follows:
<PAGE> 219
<TABLE>
<CAPTION>
Corporation and Outstanding Votes entitled For Against
Designation Shares to be cast
- ------------------------- ------------------- ---------------------- ----------------- -------------
<S> <C> <C> <C> <C>
Beehive Insurance 21,467 21,467 ________ ______
Common Stock
- ------------------------- ------------------- ---------------------- ----------------- -------------
BIRC 1,000 1,000 1,000 0
Common Stock
- ------------------------- ------------------- ---------------------- ----------------- -------------
</TABLE>
The number of votes cast for the Plan of Merger was sufficient for approval.
ARTICLE THREE
Effective Date
Pursuant to Section 16-10a-1105(2) of the URBCA, these Articles
of Merger shall be effective on __________ ___, 1998 at 11:00 a.m.
IN WITNESS WHEREOF, Beehive Insurance hereby certifies to the
truth of the facts stated herein and executes and delivers these Articles of
Merger this ____ day of __________, 199__.
2
<PAGE> 220
Beehive Insurance Agency, Inc.,
a Utah corporation
-----------------------------------
Chief Executive Officer
ATTEST:
- ---------------------------------
Secretary
MAILING ADDRESS
If, upon completion of filing of the above Articles of Merger,
the Division elects to send a copy of the Articles of Merger to Beehive
Insurance by mail, the address to which the copy should be mailed is:
Beehive Insurance Agency, Inc.
------------------------------
------------------------------
3
<PAGE> 221
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and
entered into as of the 13th day of November, 1997 by and among Clyde Companies,
Inc., a Utah corporation (the "Parent"), W.W. Clyde Reorganization Corporation,
a Utah corporation ("CRC"), W.W. Clyde & Co., a Utah corporation ("Clyde"),
Geneva Rock Reorganization Corporation, a Utah corporation ("GRRC"), Geneva Rock
Products, Inc., a Utah corporation ("Geneva Rock"), Utah Service Reorganization
Corporation, a Utah corporation ("USRC"), Utah Service Inc., a Utah corporation
("Utah Service"), Beehive Insurance Reorganization Corporation, a Utah
corporation ("BIRC"), and Beehive Insurance Agency, Inc., a Utah corporation
("Beehive Insurance").
Recitals
WHEREAS, the Board of Directors of each of the Parent, and CRC,
GRRC, USRC and BIRC (collectively, the "Reorganization Corporations") and Clyde,
Geneva Rock, Utah Service and Beehive Insurance (collectively, the "Acquired
Corporations" and, together with the Parent and the Reorganization Corporations,
the "Corporations") have approved, and have determined that it is advisable and
in the best interests of each of their respective shareholders for the Parent to
acquire the Acquired Corporations on the terms and conditions set forth in this
Agreement; and
WHEREAS, to accomplish such acquisitions, (i) the Board of
Directors of each of the Parent, CRC and Clyde has determined that CRC should be
merged with and into Clyde (the "Clyde Merger"), (ii) the Board of Directors of
each of the Parent, GRRC and Geneva Rock has determined that GRRC should be
merged with and into Geneva Rock (the "Geneva Rock Merger"), (iii) the Board of
Directors of each of the Parent, USRC and Utah Service has determined that USRC
should be merged with and into Utah Service (the "Utah Service Merger"), and
(iv) the Board of Directors of each of the Parent, BIRC and Beehive Insurance
has determined that BIRC should be merged with and into Beehive Insurance (the
"Beehive Insurance Merger" and, collectively with the Clyde Merger, the Geneva
Rock Merger and the Utah Service Merger, the "Mergers") in accordance with this
Agreement and the applicable provisions of the Utah Revised Business Corporation
Act (the "URBCA") and the Internal Revenue Code of 1986, as amended (the
"Code").
Agreement
NOW, THEREFORE, pursuant to and in accordance with the URBCA and
the Code, the Corporations agree upon and prescribe the terms and conditions of
the Mergers as follows:
I. Merger
4
<PAGE> 222
1.1 Names and States of Incorporation. The name and state of
incorporation of each of the constituent corporations in the Mergers is as
follows:
(a) for the Clyde Merger, W.W. Clyde
Reorganization Corporation, a Utah corporation, and W.W. Clyde &
Co., a Utah corporation;
(b) for the Geneva Rock Merger, Geneva Rock Reorganization
Corporation, a Utah corporation, and Geneva Rock Products, Inc.,
a Utah corporation;
(c) for the Utah Service Merger, Utah Service
Reorganization Corporation, a Utah corporation, and Utah Service
Inc., a Utah corporation; and
(d) for the Beehive Insurance Merger, Beehive Insurance
Reorganization Corporation, a Utah corporation, and Beehive
Insurance Agency, Inc., a Utah corporation.
1.2 Closing and Effective Time. The closing of each of the Mergers (the
"Closing") shall take place concurrently at the offices of Van Cott, Bagley,
Cornwall & McCarthy at 8:30 a.m. (local time) on a date (the "Closing Date") to
be specified by the Corporations, which shall be no sooner than the date upon
which all of the conditions specified in Article V of this Agreement have been
satisfied or waived by the applicable Corporations (other than those conditions
that, by their nature, are to be satisfied at the Closing). In accordance with
the URBCA and Articles of Mergers to be filed by each of the respective Acquired
Corporations with the Utah Department of Commerce, Division of Corporations and
Commercial Code (the "Utah Division of Corporations"), the Mergers shall become
effective sequentially, with the Clyde Merger becoming effective first, followed
one hour later by the Utah Service Merger, followed one hour later by the
Beehive Insurance Merger and followed one hour later by the Geneva Rock Merger.
Each of the respective Mergers shall be effective at the date and time specified
in the applicable Articles of Merger (for each Merger, the "Effective Time").
The Closing Date shall be prior to the Effective Time.
1.3 Mergers. At the Effective Time, the following shall occur:
(a) The respective Reorganization Corporation shall be
merged with and into the corresponding Acquired Corporation, and
the separate existence of the Reorganization Corporation shall
cease.
(b) The respective Acquired Corporation shall be the
surviving corporation and shall continue its corporate existence
in accordance with the laws of the State of Utah and under its
current name.
(c) The respective Merger shall have the effects set forth
in Section 16-10a-1106 of the URBCA.
1.4 Articles of Incorporation. The Articles of Incorporation of each of
the Acquired
5
<PAGE> 223
Corporations shall continue to be the Articles of Incorporation of such Acquired
Corporation after the Effective Time, until amended or repealed in accordance
with the URBCA.
1.5 Bylaws. The Bylaws of each of the Acquired Corporations shall
continue to be the Bylaws of such Acquired Corporation after the Effective Time,
until amended or repealed in the manner provided by such Bylaws and the URBCA.
1.6 Directors. The directors of each of the Acquired Corporations
immediately prior to the Effective Time shall continue to serve as the directors
of such Acquired Corporation for the term specified in the Bylaws of such
Acquired Corporation.
1.7 Officers. The officers of each of the Acquired Corporations
immediately prior to the Effective Time shall continue to be officers of such
Acquired Corporation until otherwise provided in accordance with the Bylaws of
such Acquired Corporation.
1.8 Securities Filings. If required by applicable law, the Corporations
shall promptly prepare and file with the Securities and Exchange Commission (the
"SEC") a Registration Statement on Form S-4 (including any amendments or
supplements thereto, the "Registration Statement") and, as part of the
Registration Statement, a letter, notice of meeting, proxy statement and form of
proxy to the shareholders of each of the Acquired Companies in connection with
the Mergers (collectively, including any amendments or supplements thereto, the
"Proxy Statement"). Each of the Corporations shall provide reasonable
opportunities for the other Corporations to review and comment on the contents
of the Registration Statement. At any time after the preparation of the
Registration Statement, each of the Corporations agrees promptly to notify the
others of and to correct any information which any of them shall have furnished
for inclusion in the Registration Statement that shall have become false or
misleading in any material respect. Each of the Corporations shall use its
reasonable best efforts to have the Registration Statement declared effective
under the Securities Act of 1933, as amended (the "Securities Act"), as promptly
as practicable after such filing. The Parent shall also take any action required
to be taken under any applicable state securities laws in connection with the
issuance of Parent Common Stock (as defined below) in the Merger, and each of
the Corporations shall furnish all information concerning its business, affairs
and/or shareholders as may be reasonably requested in connection with any such
action.
1.9 Special Meeting. As promptly as practicable following the
execution and delivery of this Agreement, in accordance with the URBCA and other
applicable law, each of the Acquired Corporations (a) shall duly call, give
notice of, convene and hold a special meeting of its shareholders (each a
"Special Meeting") and shall submit this Agreement to a vote of such
shareholders at the Special Meeting, (b) subject to any review by the SEC, shall
include in the Proxy Statement, the recommendation of the Board of Directors
that the shareholders should vote in favor of the approval of this Agreement and
(c) shall take all such other action reasonably necessary or appropriate to
obtain the lawful approval of this Agreement by the shareholders.
1.10 Geneva Rock Common Stock Owned by Clyde. As of the date of
this Agreement, Clyde owns (and as of the Effective Time, Clyde will own) 7,518
shares (the
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"Distribution Shares") of Geneva Rock Common Stock (as defined below).
Immediately after the Effective Time of the Clyde Merger, Clyde, acting in
accordance with resolutions duly adopted by its Board of Directors, shall
distribute (in a dividend distribution) the Distribution Shares to the Parent.
Immediately upon such distribution, the Parent shall own the Distribution
Shares, and, at the Effective Time of the Geneva Rock Merger, the Distribution
Shares shall be treated in the same manner as all of the other shares of Geneva
Rock Common Stock owned by the Parent in accordance with Section 2.1(c) below.
II. Conversion of Shares
2.1 Conversion. As of the Effective Time, by virtue of each of the
Mergers and without any further action, the following shall occur:
(a) Each issued and outstanding share of Clyde Common
Stock (as defined below) (other than (i) shares of Clyde Common
Stock owned by the Parent, which shall not be converted and shall
each remain one (1) issued and outstanding share of Clyde Common
Stock, and (ii) Dissenting Shares (as defined below), if any)
shall be converted into 33.93 shares of Parent Common Stock.
(b) Each issued and outstanding share of CRC Common Stock
(as defined below) shall be converted into one (1) share of Clyde
Common Stock.
(c) Each issued and outstanding share of Geneva Rock
Common Stock (other than (i) shares of Geneva Rock Common Stock
owned by the Parent, which shall not be converted and shall each
remain one (1) issued and outstanding share of Geneva Rock Common
Stock, and (ii) Dissenting Shares, if any) shall be converted
into 239.27 shares of Parent Common Stock.
(d) Each issued and outstanding share of GRRC Common Stock
(as defined below) shall be converted into one (1) share of
Geneva Rock Common Stock.
(e) Each issued and outstanding share of Utah Service
Common Stock (as defined below) (other than (i) shares of Utah
Service Common Stock owned by the Parent, which shall not be
converted and shall each remain one (1) issued and outstanding
share of Utah Service Common Stock, and (ii) Dissenting Shares,
if any) shall be converted into 43.43 shares of Parent Common
Stock.
(f) Each issued and outstanding share of USRC Common Stock
(as defined below) shall be converted into one (1) share of Utah
Service Common Stock.
(g) Each issued and outstanding share of Beehive Insurance
Common Stock (as defined below) (other than (i) shares of Beehive
Insurance Common Stock owned by the Parent, which shall not be
converted and shall each
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remain one (1) issued and outstanding share of Beehive Insurance
Common Stock, and (ii) Dissenting Shares, if any) shall be
converted into 4.33 shares of Parent Common Stock.
(h) Each issued and outstanding share of BIRC Common Stock
(as defined below) shall be converted into one (1) share of
Beehive Insurance Common Stock.
2.2 Fractional Shares. Notwithstanding any other provision of this
Agreement to the contrary, each holder of shares of common stock of the Acquired
Corporations exchanged pursuant to the Mergers who would otherwise have been
entitled to receive a fraction of a share of Parent Common Stock (after taking
into account all Acquired Corporation Certificates delivered by such holder)
shall receive, in lieu thereof, cash (without interest) in an amount equal to
such fraction multiplied by $14.52 (the projected value, determined as of the
date of this Agreement, of one share of Parent Common Stock as of the Effective
Time). No such holder shall be entitled to any fractional share of Parent Common
Stock (or to any dividends, voting rights or any other rights as a shareholder
in respect of such fractional share of Parent Common Stock).
2.3 Acquired Corporation Certificates. Certificates nominally
representing shares of the common stock of the Acquired Corporations ("Acquired
Corporation Certificates") shall be treated as follows:
(a) As of the Effective Time, each Acquired
Corporation Certificate, other than any certificate representing
Dissenting Shares, if any, for all purposes, shall be deemed to
evidence the number of shares of Parent Common Stock determined
in accordance with Section 2.1 above.
(b) As soon as practicable after the Effective Time, the
Parent shall mail to each record holder of an outstanding
Acquired Corporation Certificate, as of the Effective Time, a
form of letter of transmittal (the "Transmittal Letter") that is
reasonably acceptable to the Acquired Corporations (which shall
specify that delivery of an Acquired Corporation Certificate
shall be effected, and risk of loss and title to the Acquired
Corporation Certificate shall pass, only upon proper delivery of
the Acquired Corporation Certificate to the Parent) and
instructions for use in effecting the surrender of each Acquired
Corporation Certificate in exchange for a Parent Common Stock
certificate ("Parent Certificate"). Upon surrender to the Parent
of an Acquired Corporation Certificate, together with a duly
executed Transmittal Letter (and any other documents which may be
reasonably required by the Parent, if any), the holder of such
Acquired Corporation Certificate shall receive promptly in
exchange therefor a Parent Certificate for the number of shares
of Parent Common Stock evidenced thereby in accordance with
Section 2.1 above. Thereafter, the applicable Acquired
Corporation Certificate shall be canceled. If a Parent
Certificate is to be issued to a person other than the person in
whose name the surrendered Acquired Corporation Certificate is
registered, it shall be a condition of issuance of the Parent
Certificate (x) that the Acquired Corporation Certificate so
surrendered shall be properly endorsed or otherwise be in proper
form for transfer and (y) that the person requesting such
issuance shall pay any transfer or other taxes required
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by reason of the issuance to a person other than the registered
holder of the Acquired Corporation Certificate surrendered or
establish to the satisfaction of the Parent that such tax has
been paid or is not applicable. The Parent shall pay all charges
and expenses, including those of the Acquired Corporations, in
connection with the distribution of the Parent Certificates.
(c) If any Acquired Corporation Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the person claiming such Acquired Corporation
Certificate to be lost, stolen or destroyed, the Parent will
issue in exchange for such lost, stolen or destroyed Acquired
Corporation Certificate the shares of Parent Common Stock
deliverable in respect thereof as determined in accordance with
Section 2.1 above; provided that, at the option of the Parent,
the person to whom such shares are issued, as a condition
precedent to the issuance of such shares, shall give to the
Parent a bond in such sum as the Parent may direct or otherwise
indemnify the Parent in a manner satisfactory to the Parent
against any claim that may be made against the Parent with
respect to the Acquired Corporation Certificate claimed to have
been lost, stolen or destroyed.
2.4 Dissenters' Rights. Notwithstanding any other provision of this
Agreement, each share of the common stock of any of the Acquired Corporations
(a) as to which a written notice of intent to demand payment was submitted to
the applicable Acquired Corporation in accordance with Section 16-10a-1321(1)(a)
of the URBCA, (b) which is not voted in favor of approval of this Agreement at a
Special Meeting, and (c) as to which a written demand for payment of fair value
shall have been or may still be timely filed, and the Acquired Corporation
Certificate(s) for such shares shall have been or may still be deposited with
the applicable Acquired Corporation in accordance with the requirements of Part
13 of the URBCA (collectively, "Dissenting Shares"), shall not be converted into
shares of Parent Common Stock. Each holder of Dissenting Shares who becomes
entitled under the URBCA to receive payment of the fair value of such holder's
Dissenting Shares shall receive such payment from the Parent (but only after
such fair value shall have been agreed upon or finally determined) and such
Dissenting Shares shall thereupon be canceled. Each Dissenting Share as to which
dissenters' rights pursuant to the URBCA shall be effectively withdrawn or lost
shall thereupon be deemed to have been converted, at the Effective Time, into
shares of Parent Common Stock in accordance with Section 2.1 above.
2.5 Options, Warrants or Other Rights. At the Effective Time, any
options, warrants or other rights to purchase shares of any of the Acquired
Corporations, without any further action, shall be terminated.
III. Representations and Warranties of the Acquired Corporations
Each of the Acquired Corporations, solely as to itself and not as
to any other Acquired Corporation, represents and warrants to the Parent as
follows, subject only to such limitations and exceptions as are set forth below:
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3.1 Organization and Good Standing. The Acquired Corporation is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Utah, and has all requisite corporate power and corporate
authority to own, lease and operate its properties to carry on its business as
now being conducted. The Acquired Corporation is duly qualified and in good
standing to do business in each jurisdiction in which the nature of its business
or the ownership or leasing of its properties makes such qualification
necessary, except where the failure to be so qualified would not have a material
adverse effect on the Acquired Corporation.
3.2 Capital Structure of the Acquired Corporations.
(a) Clyde has an authorized capital structure consisting
of Two Hundred Thousand (200,000) shares of Ten Dollar ($10.00)
par value common stock ("Clyde Common Stock"), and Ninety-Four
Thousand Five Hundred Forty-Four (95,544) shares of Clyde Common
Stock are issued and outstanding.
(b) Geneva Rock has an authorized capital structure
consisting of Fifty Thousand (50,000) shares of Ten Dollar
($10.00) par value common stock ("Geneva Rock Common Stock"), and
Twenty-One Thousand Eight Hundred Two (21,802) shares of Geneva
Rock Common Stock are issued and outstanding.
(c) Utah Service has an authorized capital structure
consisting of One Hundred Thousand (100,000) shares of Ten Dollar
($10.00) par value common stock ("Utah Service Common Stock"),
and Five Thousand Four Hundred Thirteen (5,413) shares of Utah
Service Common Stock are issued and outstanding.
(d) Beehive Insurance has an authorized capital structure
consisting of Fifty Thousand (50,000) shares of One Dollar
($1.00) par value common stock ("Beehive Insurance Common
Stock"), and Twenty-One Thousand Four Hundred Sixty-Seven
(21,467) shares of Beehive Insurance Common Stock are issued and
outstanding.
3.3 Authority. The Acquired Corporation has all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Acquired
Corporation, subject in the case of this Agreement only to the approval of this
Agreement by the shareholders of the Acquired Corporation as required under the
URBCA.
3.4 Execution and Delivery. This Agreement has been duly executed and
delivered by the Acquired Corporation and constitutes a valid and binding
obligation of the Acquired Corporation, enforceable against the Acquired
Corporation in accordance with its terms but subject to (i) bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance and equitable
principles, and (ii) statutes, rules or procedures and applicable case law
limiting the availability of or prescribing the procedural requirements for the
exercise of remedies.
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3.5 Property. The Acquired Corporation has good, valid and
marketable title to (or in the case of leased property, valid leasehold
interests in) all of its properties and assets.
3.6 No Violations. The execution and delivery of this Agreement
does not, and the consummation of the transactions contemplated hereby will not,
(a) conflict with, or result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or the loss of a material benefit
under, or the creation of a lien, pledge, security interest, charge or other
encumbrance on assets (any such conflict, violation, default, right of
termination, cancellation or acceleration, loss or creation, a "Violation")
pursuant to any provision of the Articles of Incorporation or Bylaws of the
Acquired Corporation, or (b) result in any Violation of (i) any loan or credit
agreement, note, mortgage, indenture, lease or other agreement, obligation,
instrument, permit, concession, franchise, license, statute, law, ordinance,
rule or regulation applicable to the Acquired Corporation or its properties or
assets (except for such Violations as would not, singly or in the aggregate,
have a material adverse effect on the Acquired Corporation), or (ii) any
judgment, order or decree applicable to the Acquired Corporation or its
properties or assets.
3.7 Consents. No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental agency, authority or instrumentality, domestic
or foreign (each, a "Governmental Authority"), is required by or with respect to
the Acquired Corporation in connection with the execution and delivery of this
Agreement by the Acquired Corporation, or the consummation by the Acquired
Corporation of the transactions contemplated hereby, except for (a) the filing
with the SEC of the Registration Statement (including the Proxy Statement as a
part thereof), (b) the filing of the Articles of Merger with the Utah Division
of Corporations and appropriate documents with the relevant authorities of other
states in which the Acquired Corporation is qualified to do business, (c)
notices and other filings as may be required under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (d) filings as
may be required under state securities laws and (e) such filings,
authorizations, orders and approvals as may be required under foreign laws.
3.8 Information Supplied. None of the information supplied or to
be supplied by the Acquired Corporation for inclusion or incorporation by
reference in the Proxy Statement, at the date of mailing to the Acquired
Corporation's shareholders and at the time of its Special Meeting, will contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. All documents that the Acquired Corporation is responsible for
filing with any Governmental Authority in connection with the transactions
contemplated hereby will comply as to form in all material respects with the
provisions of applicable law. Without limiting any of the representations and
warranties contained herein, no representation or warranty by the Acquired
Corporation as of the date thereof contains any untrue statement of material
fact, or omits a material fact necessary in order to make the statements
contained therein, in light of the circumstances under which such statements are
or will be made, not misleading.
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3.9 Litigation. There are no actions, arbitrations, audits,
hearings, investigations, suits or litigation (whether civil, criminal,
administrative, investigative or informal) before or otherwise involving any
Governmental Authority, court or arbitrator (a "Proceeding") commenced by or
against the Acquired Corporation (or that otherwise relate to or may affect the
business or the assets of the Acquired Corporation) that either (a) challenge,
or that may have the effect of preventing, delaying, making illegal, or
otherwise interfering with, any of transactions specified in this Agreement, or
(b) would reasonably be expected to have a material adverse effect on the
Acquired Corporation. To the knowledge of the Acquired Corporation, (1) no such
Proceeding has been threatened, and (2) no event has occurred or circumstance
exists that may give rise to or serve as a basis for the commencement of any
such Proceeding.
3.10 Financial Statements. The financial statements of the
Acquired Corporation (including any balance sheets and statements of income,
changes in stockholders' equity and cash flow, together with any reports thereon
of independent certified public accountants) provided by the Acquired
Corporation in connection with the preparation of (a) the Registration
Statement, and (b) the HVA Appraisals, fairly present the financial condition
and the results of operations, changes in stockholders' equity and cash flow of
the Acquired Corporation as at the respective dates of and for the periods
referred to in such financial statements, all in accordance with generally
accepted accounting principles ("GAAP"). The financial statements referred to in
this Section 3.10 reflect the consistent application of accounting principles
throughout the periods involved, except as otherwise disclosed in the notes to
such financial statements.
3.11 Taxes.
(a) All material reports, filings, statements,
declarations and returns (collectively, "Tax Returns") with
respect to taxes, charges, fees, levies or assessments
(collectively, "Taxes") required to be filed by the Acquired
Corporation as of the Effective Time have been or will be duly
filed, and such Tax Returns are or will be true and correct in
all material respects. The Acquired Corporation has paid or will
pay all Taxes shown as due and payable on such Tax Returns; and
the charges, accruals and reserves for Taxes with respect to the
Acquired Corporation reflected in the Acquired Corporation's
financial statements are adequate under GAAP to cover Taxes
accruing through the date thereof, including contested amounts
and amounts not yet due and payable.
(b) There are no material claims with respect to Taxes
pending against the Acquired Corporation and the Acquired
Corporation is not aware of any threatened claim for Taxes or any
basis for such claims. No material issues have been raised in any
examination by any Governmental Authority with respect to the
Acquired Corporation which reasonably could be expected to result
in a proposed deficiency for any other period not so examined,
and there are not now in force any waivers or agreements by the
Acquired Corporation for the extension
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of time for the assessment of any material Taxes, nor has any
such waiver or agreement been requested by any Governmental
Authority. The Acquired Corporation does not have any liability
for any material Taxes of any corporation or entity other than
the Acquired Corporation.
(c) The Acquired Corporation has paid or is withholding
and will pay when due to the proper Governmental Authorities all
material withholding amounts required to be withheld with respect
to all Taxes.
3.12 Undisclosed Liabilities. The Acquired Corporation is not
subject to any liabilities of any nature which have had or can reasonably be
expected to have a material adverse effect on its business or financial
prospects.
IV. Representations and Warranties of the Parent
The Parent represents and warrants to the Acquired Corporations
as follows, subject only to such exceptions and limitations as are set forth
below:
4.1 Organization, Standing and Authority. Each of the Parent and
the Reorganization Corporations is a corporation duly organized, validly
existing and in good standing under the laws of the State of Utah, and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. Each of the Parent and the
Reorganization Corporations is duly qualified and in good standing to do
business in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary,
except where the failure to be so qualified would not have a material adverse
effect on the Parent and the Reorganization Corporations considered as a whole.
4.2 Capital Structure of the Parent.
(a) As of the Effective Time, (i) the authorized capital
stock of the Parent will consist of Ten Million (10,000,000)
shares of common stock ("Parent Common Stock"), and (ii)
2,303,920 shares of Parent Common Stock will be issued and
outstanding. Shares of Parent Common Stock to be issued in the
Mergers, when issued in accordance with this Agreement, will be
validly issued, fully paid and nonassessable.
(b) Except for the Articles of Restatement of the Articles
of Incorporation of the Parent and the Amended and Restated
Articles of Incorporation of the Parent attached thereto
(collectively, the "Parent Recapitalization Documents"), there
are no options, warrants, calls, rights, commitments or
agreements of any character to which the Parent or any of the
Reorganization Corporations is a party or by which it is bound
obligating the Parent or any of the Reorganization Corporations
to issue, deliver or sell, or cause to be issued, delivered or
sold, shares of capital stock or obligating the Parent or
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any of the Reorganization Corporations to grant, extend or enter
into any such option, warrant, call, right, commitment or
agreement.
(c) Except for that certain Clyde Companies, Inc.
Stock Redemption Plan, adopted as of November 12, 1997 by the
Board of Directors of the Parent and the Parent Recapitalization
Documents, there are no outstanding contractual obligations of
the Parent or any of the Reorganization Corporations, to
repurchase, redeem or otherwise acquire any shares of capital
stock of the Parent or any of the Reorganization Corporations.
(d) Except for the Parent Recapitalization Documents, the
Parent has not (i) made or agreed to make any stock split or
stock dividend, or issued or permitted to be issued any shares of
capital stock or securities exercisable for or convertible into
shares of capital stock of the Parent or any of the
Reorganization Corporations.
(e) All of the outstanding shares of capital stock of each
Reorganization Corporation (i) are validly issued, fully paid and
nonassessable and free of any preemptive rights, and (ii) are
directly owned by the Parent, free and clear of all liens,
claims, pledges, agreements, voting or other restrictions,
charges or other encumbrances, with the result that the Parent
directly owns the entire equity interest in each of the
Reorganization Corporations.
4.3 Authority. The Parent has all requisite corporate power and
corporate authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Parent.
4.4 Execution and Delivery. This Agreement has been duly executed
and delivered by the Parent and constitutes a valid and binding obligation of
the Parent, enforceable against the Parent in accordance with its terms but
subject to (i) bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and equitable principles, and (ii) statutes, rules or procedures and
applicable case law limiting the availability of or prescribing the procedural
requirements for the exercise of remedies.
4.5 No Violations. The execution and delivery of this Agreement
does not, and the consummation of the transactions contemplated hereby will not,
(a) result in any Violation of any provision of the Articles of Incorporation or
Bylaws of the Parent, or (b) result in any Violation of (i) any loan or credit
agreement, note, mortgage, indenture, lease or other agreement, obligation,
instrument, permit, concession, franchise, license, statute, law, ordinance,
rule or regulation applicable to the Parent or its properties or assets (except
for such Violations as would not, singly or in the aggregate, have a material
adverse effect on the Parent), or (ii) any judgment, order or decree applicable
to the Parent or its properties or assets.
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4.6 Consents. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Authority is required
by or with respect to the Parent in connection with the execution and delivery
of this Agreement by the Parent, or the consummation by the Parent of the
transactions contemplated hereby, except for (a) the filing with the SEC of the
Registration Statement (including the Proxy Statement as a part thereof), (b)
the filing of the Articles of Merger with the Utah Division of Corporations and
appropriate documents with the relevant authorities of other states in which the
Parent is qualified to do business, (c) notices and other filings as may be
required under the HSR Act, (d) filings as may be required under state
securities laws and (e) such filings, authorizations, orders and approvals as
may be required under foreign laws.
4.7 Information Supplied. None of the information supplied or to
be supplied by the Parent for inclusion or incorporation by reference in the
Proxy Statement, at the date of mailing to the Acquired Corporation's
shareholders and at the time of the Special Meeting, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. All documents that
the Parent is responsible for filing with any Governmental Authority in
connection with the transactions contemplated hereby will comply as to form in
all material respects with the provisions of applicable law. Without limiting
any of the representations and warranties contained herein, no representation or
warranty by the Parent as of the date thereof contains any untrue statement of
material fact, or omits a material fact necessary in order to make the
statements contained therein, in light of the circumstances under which such
statements are or will be made, not misleading.
4.8 Financial Statements. The financial statements of the Parent
(including any balance sheets and statements of income, changes in stockholders'
equity and cash flow, together with any reports thereon of independent certified
public accountants) provided by the Parent in connection with the preparation of
the Registration Statement, fairly present the financial condition and the
results of operations, changes in stockholders' equity and cash flow of the
Parent as at the respective dates of and for the periods referred to in such
financial statements, all in accordance with GAAP. The financial statements
referred to in this Section 4.8 reflect the consistent application of accounting
principles throughout the periods involved, except as otherwise disclosed in the
notes to such financial statements.
4.9 Litigation. There are no Proceedings commenced by or against
the Parent or any of the Reorganization Corporations (or that otherwise relate
to or may affect the business or the assets of the Parent or any of the
Reorganization Corporations) that either (a) challenge or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with any of
transactions specified in this Agreement, or (b) would reasonably be expected to
have a material adverse effect on the Parent and the Reorganization Corporations
considered as a whole. To the knowledge of the Parent, (a) no such Proceeding
has been threatened, and (b) no event has occurred or circumstance exists that
may give rise to or serve as a basis for the commencement of any such
Proceeding.
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4.10 Undisclosed Liabilities. The Parent is not subject to any
liabilities of any nature which have had or can reasonably be expected to have a
material adverse effect on its business or financial prospects.
V. Conditions to Closing
5.1 Conditions to the Corporations' Obligations. The respective
obligations of each of the Corporations to consummate the Mergers shall be
subject to the satisfaction, on or prior to the Closing Date, of each of the
following conditions:
(a) This Agreement shall have been approved by (i) the
shareholders of each of the Reorganization Corporations and the
Acquired Corporations in accordance with the URBCA, and (ii) a
majority of the shareholders of the Parent in accordance with
resolutions duly adopted by the Board of Directors of the Parent.
(b) The total value of all of the Dissenting Shares, as
determined in accordance with the appraisals of the Acquired
Companies prepared by Houlihan Valuation Advisors and dated
October 23, 1997 (the "HVA Appraisals") (after applying the
discount for minority interest provided for in the HVA
Appraisals), shall not be greater than five percent (5%) of the
aggregate value of the Acquired Companies, as determined in
accordance with the HVA Appraisals (without applying any
discounts for minority interest).
(c) The Parent and the Acquired Corporations shall have
received the opinion of Grant Thorton LLP that the Mergers
constitute tax-free transfers in accordance with Section 351 of
the Code or tax-free reorganizations in accordance with Section
368(a)(1)(B) of the Code.
(d) No Governmental Authority shall have issued any order,
and there shall not be any statute, rule, decree or regulation
restraining, prohibiting or making illegal the consummation of
the Merger.
(e) Any waiting period applicable to the consummation of
the Mergers under the HSR Act shall have expired or been
terminated.
5.2 Conditions to the Obligations of the Acquired Corporations.
The obligation of the Acquired Corporations to effect the Mergers is further
subject to the satisfaction or waiver, on or prior to the Closing Date, of each
of the following conditions:
(a) The representations and warranties of the Parent
contained in this Agreement shall be true and correct in all
material respects when made and as of the Closing Date (except
for matters which specifically address a particular date which
need only be true and correct as of such date).
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(b) The Parent shall have performed in all material
respects all of the obligations to be performed by it under this
Agreement prior to the Closing Date.
(c) A responsible officer of the Parent shall have
provided the Acquired Corporations with a certificate dated the
Closing Date which provides (i) that the matters referred to in
subsections (a) and (b) of this Section 5.2 are accurate and
complete, (ii) that the Parent is prepared in all material
respects to perform, and shall perform, all of the obligations to
be performed by it under this Agreement up to the Effective Time,
and (iii) for statements of fact with respect to such other
matters as the Acquired Corporations may reasonably request.
5.3 Conditions to the Obligations of the Parent. The obligation
of the Parent to effect the Mergers is further subject to the satisfaction or
waiver, on or prior to the Closing Date, of each of the following conditions:
(a) The representations and warranties of each of the
Acquired Corporations contained in this Agreement shall be true
and correct in all material respects when made and as of the
Closing Date (except for matters which specifically address a
particular date which need only be true and correct as of such
date).
(b) Each of the Acquired Corporations shall have performed
in all material respects all of the obligations to be performed
by it under this Agreement prior to the Closing Date.
(c) A responsible officer of each of the Acquired
Corporations shall have provided the Parent with a certificate
dated the Closing Date which provides (i) that the matters
referred to in subsections (a) and (b) of this Section 5.3 are
accurate and complete, (ii) that the Acquired Corporation is
prepared in all material respects to perform, and shall perform,
all of the obligations to be performed by it under this Agreement
up to the Effective Time, and (iii) for statements of fact with
respect to such other matters as the Parent may reasonably
request.
(d) The Parent shall have received a written
agreement substantially in the form of Exhibit 5.3(d) attached
hereto (the "Affiliates Agreement") from each person who is an
"affiliate" (as such term is used in paragraphs (c) and (d)of
Rule 145 of the Securities Act) of any of the Parent, Clyde,
Geneva Rock, Utah Service or Beehive Insurance at or prior to the
Effective Time (each of such persons being identified in the
Affiliates Agreement).
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VI. Termination
6.1 Right to Terminate. Notwithstanding any other provision of this
Agreement to the contrary, this Agreement may be terminated and the Mergers may
be abandoned at any time prior to the Effective Time, whether before or after
shareholder approval, in accordance with Sections 6.2 through 6.4 below.
6.2 Automatic Termination. Unless otherwise agreed in writing by
each of the Corporations, this Agreement shall be automatically terminated,
without any further actions by any of the Corporations (except as may be
otherwise required by the URBCA), if (a) any Governmental Authority shall have
issued a statute, order, decree or regulation or taken any other action
permanently restraining or enjoining or otherwise materially restricting the
consummation of the transactions contemplated by this Agreement and such
statute, order, decree, regulation or other action shall have become final and
non-appealable, or (b) the Mergers have not been consummated on or before June
30, 1998.
6.3 Termination by the Acquired Corporations. This Agreement may
be terminated by the Boards of Directors of the Acquired Corporations, acting
jointly, if the Parent breaches or fails in any material respect to perform or
comply with any of its covenants and agreements contained herein or breaches its
representations and warranties in any material respect; provided, however, that
if any such breach is curable by the breaching party through the exercise of the
breaching party's reasonable best efforts and for so long as such breaching
party shall be so attempting to cure such breach for a period not to exceed 20
days, the Acquired Corporations may not terminate this Agreement pursuant to
this Section 6.3.
6.4 Termination by the Parent. This Agreement may be terminated
by the Board of Directors of the Parent if any of the Acquired Corporations
breaches or fails in any material respect to perform or comply with any of its
covenants and agreements contained herein or breaches its representations and
warranties in any material respect; provided, however, that if any such breach
is curable by the Acquired Corporation through the exercise of the Acquired
Corporation's reasonable best efforts and for so long as the Acquired
Corporations shall be so attempting to cure such breach for a period not to
exceed 20 days, the Parent may not terminate this Agreement pursuant to this
Section 6.4.
6.5 Notice of Termination. In the event of the termination of this
Agreement as provided in Sections 6.3 or 6.4 above, written notice thereof shall
forthwith be given to the other party and such written notice shall specify the
provision of this Agreement pursuant to which such termination is made.
6.6 Effect of Termination. Upon the termination of this Agreement
pursuant to any of Sections 6.2, 6.3 or 6.4 above, this Agreement shall
thereupon become null and void and there shall be no liability on the part of
any of the Corporations to the other (or to any other person). Without limiting
the generality of the foregoing, the Corporations expressly agree (a) that the
sole remedy for any breach of this Agreement shall be the termination rights
contained in Sections 6.3 or 6.4 above, and (b) that in the event of any breach
of this Agreement, the breaching party shall have no liability to any person
whatsoever (including, without limitation, liability for actual, consequential,
punitive, exemplary or special damages).
18
<PAGE> 236
VII. General Provisions
7.1 Approval. This Agreement has been approved by the Board of Directors
and the shareholders of each of the Corporations as required by the URBCA.
7.2 Actions Prior to Closing. Between the date of this Agreement and the
Effective Time, (a) the Acquired Corporations shall each operate their
respective businesses in accordance with sound business practices and shall not
engage in any transactions other than in the ordinary course of business, and
(b) neither the Parent nor any of the Acquired Corporations shall issue any
additional shares of its capital stock (except, the Parent shall issue shares of
Parent Common Stock in accordance with the Parent Recapitalization Documents).
7.3 Taxation of Transaction. The Corporations intend that the
transactions contemplated by this Agreement shall constitute tax-free transfers
and/or reorganizations pursuant to Sections 351 and 368 of the Code. Therefore,
all of the terms and provisions of this Agreement shall be interpreted so that
such terms and provisions are in accordance with Sections 351 and 368 of the
Code.
7.4 Additional Actions. The officers of the Corporations shall execute
all such other documents and shall take all such other actions as may be
necessary or advisable to make this Agreement and the Mergers effective.
7.5 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified or supplemented at any time prior to the
Closing Date by the written agreement of each of the Corporations and the
Parent.
7.6 Waiver of Compliance. Except as otherwise provided in this
Agreement, any failure of any of the Corporations to comply with any obligation,
covenant, agreement or condition herein may be waived by the party entitled to
the benefits thereof only by a written instrument signed by the party granting
such waiver, but such waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure.
7.7 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, by overnight express
courier service or by facsimile transmission (in each case, as of the date of a
written receipt obtained by the party giving such notice), to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Clyde, to:
1375 N. Main Street
Springville, Utah 84663
Facsimile: (801) 489-7653
(b) if to Geneva Rock, to:
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<PAGE> 237
302 West 5400 South
Suite 200
Murray, Utah 84107
Facsimile: (801) 765-7830
(c) if to the Utah Service, to:
35 East 400 South
Springville, Utah 84663
Facsimile: (801) 489-8978
(d) if to the Beehive Insurance, to:
302 West 5400 South
Suite 109
Murray, Utah 84107
Facsimile: (801) 685-2899
(e) if to the Parent, to:
1423 Devonshire Drive
Salt Lake City, Utah 84108
Facsimile: (801) ___-____
Copies of any notices should be provided to counsel as follows:
Van Cott, Bagley, Cornwall & McCarthy
50 South Main Street, Suite 1600
Salt Lake City, Utah 84144
Attention: David E. Salisbury, Esq.
Facsimile: (801) 534-0058
7.8 Assignment. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the Corporations and their respective
successors and assigns.
7.9 Third Party Rights. This Agreement is not intended to confer upon
any other person except the Corporations any rights or remedies hereunder.
7.10 Interpretation. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not in any way affect the meaning or interpretation of
this Agreement. All words used in this Agreement shall be construed to be of
such gender or number as the circumstances require.
20
<PAGE> 238
7.11 Entire Agreement. This Agreement, including any certificates and
instruments referred to herein, embody the entire agreement and understanding of
the Corporations in respect of the transactions contemplated by this Agreement.
There are no restrictions, promises, representations, warranties, covenants or
undertakings, other than those expressly set forth or referred to herein. This
Agreement supersedes all prior agreements and understandings between the
Corporations with respect to such transactions.
7.12 Expenses. If the Mergers are consummated in accordance with
this Agreement, the Parent shall pay all of the expenses incurred by the
Corporations in connection with transactions contemplated by this Agreement. If
this Agreement is terminated, (a) each Corporation shall pay its pro rata share
(based upon the valuation of each of the Corporations as set forth in the HVA
Appraisals) of the expenses incurred by all of the Corporations in connection
with transactions contemplated by this Agreement, and (b) the officers of each
of the Corporations shall, in good faith, take all of the actions which may be
necessary or advisable to cause such expenses to be paid in accordance with
clause (a) above.
7.13 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.14 Governing Law. This Agreement shall be governed by the laws of the
State of Utah (regardless of the laws that might otherwise govern under
applicable principles of conflicts of law) as to all matters, including but not
limited to matters of validity, construction, effect, performance and remedies.
[signature page follows]
21
<PAGE> 239
IN WITNESS WHEREOF, this Agreement has been executed by the duly
authorized officers of the Corporations as of the date first written above.
Acquired
Corporations: W.W. Clyde & Co., a Utah corporation
By: ____________________________
Its: ___________________________
Geneva Rock Products, Inc., a Utah corporation
By:
----------------------------
Its:
---------------------------
Utah Service Inc., a Utah corporation
By:
----------------------------
Its:
---------------------------
Beehive Insurance Agency, Inc., a Utah
corporation
By:
----------------------------
Its:
---------------------------
22
<PAGE> 240
Reorganization
Corporations: W.W. Clyde Reorganization
Corporation, a Utah corporation
Geneva Rock Reorganization
Corporation, a Utah corporation
Utah Service Reorganization
Corporation, a Utah corporation
Beehive Insurance Reorganization
Corporation, a Utah corporation
By:
----------------------------
Their:
---------------------------
The Parent: Clyde Companies, Inc.,
a Utah corporation
By:
----------------------------
Its:
---------------------------
23
<PAGE> 241
ANNEX B
[STOCK REDEMPTION PLAN]
[BEGINS ON NEXT PAGE]
<PAGE> 242
CLYDE COMPANIES, INC.
STOCK REDEMPTION PLAN
The Board of Directors (the "Board") of Clyde Companies, Inc., a Utah
corporation (the "Company"), has adopted the following stock redemption plan
(this "Plan"), effective as of January 1, 1999:
3. Purposes. Certain shareholders of the Company ("Shareholders")
desire to sell shares of the common stock of Company ("Common Stock") from time
to time. However, there is no public or other ready market for the Common Stock.
Accordingly, the Shareholders have requested that the Company redeem, on an
annual basis, a limited number of shares of Common Stock. The Board has
determined that it is advisable and in the best interests of the Company and the
Shareholders for the Company to redeem shares of Common Stock, each year on a
date established by the Board (the "Redemption Date"), in accordance with the
terms of this Plan (the "Redemption").
4. Valuation of the Common Stock. Each year, as soon as practicable
following the issuance by the Company's auditors of their report regarding the
consolidated financial statements of the Company and its subsidiaries for the
prior year (the "Financial Statements"), the Board shall cause an appraisal (or
an update of a prior appraisal) of the Company (the "Appraisal") to be completed
by an independent individual or firm selected by the Board which shall set forth
a determination of the total fair market value of the Company as of the last day
of the prior year (the "Appraisal Value"). The price to be paid to the
Shareholders for each share of redeemed Common Stock (the "Redemption Price")
shall be an amount equal to the Appraisal Value divided by the number of shares
of Common Stock outstanding on the last day of the prior year, discounted by
twenty-five percent (25%) (reflecting a lack of marketability and minority
interest).
5. Redemption Fund. As soon as practicable following the Appraisal,
the Board shall determine the amount which shall be made available by the
Company on the Redemption Date to fund the Redemption (the "Redemption Fund").
Notwithstanding any other provision of this Plan to the contrary, the Redemption
Fund shall be an amount which is greater than or equal to Five Percent (5%) and
less than or equal to Ten Percent (10%) of the net earnings of the Company
(after taxes) as recorded in the Financial Statements. Any amount of the
Redemption Fund remaining after the Redemption Date shall be reallocated for the
purposes determined by the Board.
<PAGE> 243
6. Redemption Procedures. Each year, as soon as practicable after
the determination of the amount of the Redemption Fund, the following shall
occur:
(a) The Company shall mail to each record Shareholder (i) a
form of letter of transmittal (the "Transmittal Letter") advising such
Shareholder of his or her right to redeem shares of Common Stock and specifying
(A) the Appraisal Value, (B) the Redemption Price, (C) the Redemption Date, and
(D) the instructions necessary for the Shareholders to participate in and
complete the Redemption, (ii) the Financial Statements, (iii) a copy of the
Appraisal (or a summary thereof), and (iv) such other information as shall be
required by applicable law.
(b) The Shareholders who desire to participate in the
Redemption (each a "Selling Shareholder") shall comply with all of the
requirements set forth in the Transmittal Letter and shall surrender
certificates evidencing shares of Common Stock to be redeemed to the Company. If
less than all of the shares represented by any certificate evidencing shares of
Common Stock are to be redeemed, as soon as practicable following the Redemption
Date, the Company shall issue a new certificate to the Selling Shareholder for
the appropriate number of shares of Common Stock.
(c) If the number of shares of Common Stock offered for
Redemption by the Selling Shareholders is greater than the number of shares
which may be redeemed by the Company (given the amount of the Redemption Fund
and the Redemption Price), the Company shall spend the entire amount of the
Redemption Fund and shares of Common Stock shall be redeemed from each Selling
Shareholder on a pro rata basis.
(d) If the number of shares of Common Stock offered for
Redemption by the Selling Shareholders is less than the number of shares which
may be redeemed by the Company (given the amount of the Redemption Fund and the
Redemption Price), the Company shall spend such amount of the Redemption Fund as
is necessary to redeem all of the shares of Common Stock offered for Redemption
and the remaining amounts shall be treated as set forth in paragraph 3 above.
(e) In accordance with applicable law and the Transmittal
Letter, the Company shall pay to each Selling Shareholder an amount in cash
equal to the Redemption Price multiplied by the number of shares of Common Stock
redeemed from such Selling Shareholder pursuant to this Plan.
(f) Upon Redemption, all shares of Common Stock redeemed
shall be authorized and unissued shares of the Company and any certificates
representing such shares of Common Stock shall be canceled.
7. Eligible Shares. All shares of Common Stock shall be eligible
for redemption subject to and in accordance with the terms of this Plan.
8. Administration. This Plan shall be administered and interpreted
by the Board in its sole and absolute discretion. This Plan may be repealed,
amended, modified, supplemented or changed, or the Redemption for any particular
year may be canceled, only after the approval of such action by a seventy-five
percent (75%) majority of the Board.
2
<PAGE> 244
ANNEX C
[SECTIONS 16-10A-1301 THROUGH 16-10A-1331 OF
THE UTAH REVISED BUSINESS CORPORATION ACT]
UTAH CODE
TITLE 16. CORPORATIONS
CHAPTER 10A. REVISED BUSINESS CORPORATION ACT
PART 13. DISSENTERS' RIGHTS
16-10a-1301. Definitions.
For purposes of Part 13:
(1) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(2) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by merger
or share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Section 16-10a-1302 and who exercises that right when and
in the manner required by Sections 16-10a-1320 through 16-10a-1328.
(4) "Fair value" with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action.
(5) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the statutory rate set forth in Section
15-1-1, compounded annually.
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
that are registered in the name of a nominee to the extent the beneficial owner
is recognized by the corporation as the shareholder as provided in Section
16-10a-723.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
16-10a-1302. Right to dissent.
(1) A shareholder, whether or not entitled to vote, is entitled to dissent
from, and obtain payment of the fair value of shares held by him in the event
of, any of the following corporate actions:
(a) consummation of a plan of merger to which the corporation is a
party if:
(i) shareholder approval is required for the merger by Section
16-10a-1103 or the articles of incorporation; or
(ii) the corporation is a subsidiary that is merged with its parent
under Section 16-10a-1104;
(b) consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired;
(c) consummation of a sale, lease, exchange, or other disposition of
all, or substantially all, of the property of the corporation for which a
shareholder vote is required under Subsection 16-10a-1202(1), but not including
a sale for cash pursuant to a plan by which all or substantially all of the net
proceeds of the sale will be distributed to the shareholders within one year
after the date of sale; and
(d) consummation of a sale, lease, exchange, or other disposition of
all, or substantially all, of the property of an entity controlled by the
corporation if the shareholders of the corporation were entitled to vote upon
the consent of the corporation to the disposition pursuant to Subsection
16-10a-1202(2).
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(2) A shareholder is entitled to dissent and obtain payment of the fair
value of his shares in the event of any other corporate action to the extent the
articles of incorporation, bylaws, or a resolution of the board of directors so
provides.
(3) Notwithstanding the other provisions of this part, except to the
extent otherwise provided in the articles of incorporation, bylaws, or a
resolution of the board of directors, and subject to the limitations set forth
in Subsection (4), a shareholder is not entitled to dissent and obtain payment
under Subsection (1) of the fair value of the shares of any class or series of
shares which either were listed on a national securities exchange registered
under the federal Securities Exchange Act of 1934, as amended, or on the
National Market System of the National Association of Securities Dealers
Automated Quotation System, or were held of record by more than 2,000
shareholders, at the time of:
(a) the record date fixed under Section 16-10a-707 to determine the
shareholders entitled to receive notice of the shareholders' meeting at which
the corporate action is submitted to a vote;
(b) the record date fixed under Section 16-10a-704 to determine
shareholders entitled to sign writings consenting to the proposed corporate
action; or
(c) the effective date of the corporate action if the corporate action
is authorized other than by a vote of shareholders.
(4) The limitation set forth in Subsection (3) does not apply if the
shareholder will receive for his shares, pursuant to the corporate action,
anything except:
(a) shares of the corporation surviving the consummation of the plan of
merger or share exchange;
(b) shares of a corporation which at the effective date of the plan of
merger or share exchange either will be listed on a national securities exchange
registered under the federal Securities Exchange Act of 1934, as amended, or on
the National Market System of the National Association of Securities Dealers
Automated Quotation System, or will be held of record by more than 2,000
shareholders;
(c) cash in lieu of fractional shares; or
(d) any combination of the shares described in Subsection (4), or cash
in lieu of fractional shares.
(5) A shareholder entitled to dissent and obtain payment for his shares
under this part may not challenge the corporate action creating the entitlement
unless the action is unlawful or fraudulent with respect to him or to the
corporation.
16-10a-1303. Dissent by nominees and beneficial owners.
(1) A record shareholder may assert dissenters' rights as to fewer than
all the shares registered in his name only if the shareholder dissents with
respect to all shares beneficially owned by any one person and causes the
corporation to receive written notice which states the dissent and the name and
address of each person on whose behalf dissenters' rights are being asserted.
The rights of a partial dissenter under this subsection are determined as if the
shares as to which the shareholder dissents and the other shares held of record
by him were registered in the names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if:
(a) the beneficial shareholder causes the corporation to receive the
record shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(b) the beneficial shareholder dissents with respect to all shares of
which he is the beneficial shareholder.
(3) The corporation may require that, when a record shareholder dissents
with respect to the shares held by any one or more beneficial shareholders, each
beneficial shareholder must certify to the corporation that both he and the
record shareholders of all shares owned beneficially by him have asserted, or
will timely assert, dissenters' rights as to all the shares unlimited on the
ability to exercise dissenters' rights. The certification requirement must be
stated in the dissenters' notice given pursuant to Section 16-10a-1322.
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16-10a-1320. Notice of dissenters' rights.
(1) If a proposed corporate action creating dissenters' rights under
Section 16-10a-1302 is submitted to a vote at a shareholders' meeting, the
meeting notice must be sent to all shareholders of the corporation as of the
applicable record date, whether or not they are entitled to vote at the meeting.
The notice shall state that shareholders are or may be entitled to assert
dissenters' rights under this part. The notice must be accompanied by a copy of
this part and the materials, if any, that under this chapter are required to be
given the shareholders entitled to vote on the proposed action at the meeting.
Failure to give notice as required by this subsection does not affect any action
taken at the shareholders' meeting for which the notice was to have been given.
(2) If a proposed corporate action creating dissenters' rights under
Section 16-10a-1302 is authorized without a meeting of shareholders pursuant to
Section 16-10a-704, any written or oral solicitation of a shareholder to execute
a written consent to the action contemplated by Section 16-10a-704 must be
accompanied or preceded by a written notice stating that shareholders are or may
be entitled to assert dissenters' rights under this part, by a copy of this
part, and by the materials, if any, that under this chapter would have been
required to be given to shareholders entitled to vote on the proposed action if
the proposed action were submitted to a vote at a shareholders' meeting. Failure
to give written notice as provided by this subsection does not affect any action
taken pursuant to Section 16-10a-704 for which the notice was to have been
given.
16-10a-1321. Demand for payment - Eligibility and notice of intent.
(1) If a proposed corporate action creating dissenters' rights under
Section 16-10a-1302 is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert dissenters' rights:
(a) must cause the corporation to receive, before the vote is taken,
written notice of his intent to demand payment for shares if the proposed action
is effectuated; and
(b) may not vote any of his shares in favor of the proposed action.
(2) If a proposed corporate action creating dissenters' rights under
Section 16-10a-1302 is authorized without a meeting of shareholders pursuant to
Section 16-10a-704, a shareholder who wishes to assert dissenters' rights may
not execute a writing consenting to the proposed corporate action.
(3) In order to be entitled to payment for shares under this part, unless
otherwise provided in the articles of incorporation, bylaws, or a resolution
adopted by the board of directors, a shareholder must have been a shareholder
with respect to the shares for which payment is demanded as of the date the
proposed corporate action creating dissenters' rights under Section 16-10a-1302
is approved by the shareholders, if shareholder approval is required, or as of
the effective date of the corporate action if the corporate action is authorized
other than by a vote of shareholders.
(4) A shareholder who does not satisfy the requirements of Subsections (1)
through (3) is not entitled to payment for shares under this part.
16-10a-1322. Dissenters' notice.
(1) If proposed corporate action creating dissenters' rights under Section
16-10a-1302 is authorized, the corporation shall give a written dissenters'
notice to all shareholders who are entitled to demand payment for their shares
under this part.
(2) The dissenters' notice required by Subsection (1) must be sent no
later than ten days after the effective date of the corporate action creating
dissenters' rights under Section 16-10a-1302, and shall:
(a) state that the corporate action was authorized and the effective
date or proposed effective date of the corporate action;
(b) state an address at which the corporation will receive payment
demands and an address at which certificates for certificated shares must be
deposited;
(c) inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
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(d) supply a form for demanding payment, which form requests a
dissenter to state an address to which payment is to be made;
(e) set a date by which the corporation must receive the payment demand
and by which certificates for certificated shares must be deposited at the
address indicated in the dissenters' notice, which dates may not be fewer than
30 nor more than 70 days after the date the dissenters' notice required by
Subsection (1) is given;
(f) state the requirement contemplated by Subsection 16-10a-1303(3), if
the requirement is imposed; and
(g) be accompanied by a copy of this part.
16-10a-1323. Procedure to demand payment.
(1) A shareholder who is given a dissenters' notice described in Section
16-10a-1322, who meets the requirements of Section 16-10a-1321, and wishes to
assert dissenters' rights must, in accordance with the terms of the dissenters'
notice:
(a) cause the corporation to receive a payment demand, which may be the
payment demand form contemplated in Subsection 16-10a-1322(2)(d), duly
completed, or may be stated in another writing;
(b) deposit certificates for his certificated shares in accordance with
the terms of the dissenters' notice; and
(c) if required by the corporation in the dissenters' notice described
in Section 16-10a-1322, as contemplated by Section 16-10a-1327, certify in
writing, in or with the payment demand, whether or not he or the person on whose
behalf he asserts dissenters' rights acquired beneficial ownership of the shares
before the date of the first announcement to news media or to shareholders of
the terms of the proposed corporate action creating dissenters' rights under
Section 16-10a-1302.
(2) A shareholder who demands payment in accordance with Subsection (1)
retains all rights of a shareholder except the right to transfer the shares
until the effective date of the proposed corporate action giving rise to the
exercise of dissenters' rights and has only the right to receive payment for the
shares after the effective date of the corporate action.
(3) A shareholder who does not demand payment and deposit share
certificates as required, by the date or dates set in the dissenters' notice, is
not entitled to payment for shares under this part.
16-10a-1324. Uncertificated shares.
(1) Upon receipt of a demand for payment under Section 16-10a-1323 from a
shareholder holding uncertificated shares, and in lieu of the deposit of
certificates representing the shares, the corporation may restrict the transfer
of the shares until the proposed corporate action is taken or the restrictions
are released under Section 16-10a-1326.
(2) In all other respects, the provisions of Section 16-10a-1323 apply to
shareholders who own uncertificated shares.
16-10a-1325. Payment.
(1) Except as provided in Section 16-10a-1327, upon the later of the
effective date of the corporate action creating dissenters' rights under Section
16-10a-1302, and receipt by the corporation of each payment demand pursuant to
Section 16-10a-1323, the corporation shall pay the amount the corporation
estimates to be the fair value of the dissenter's shares, plus interest to each
dissenter who has complied with Section 16-10a-1323, and who meets the
requirements of Section 16-10a-1321, and who has not yet received payment.
(2) Each payment made pursuant to Subsection (1) must be accompanied by:
(a) (i) (A) the corporation's balance sheet as of the end of its most
recent fiscal year, or if not available, a fiscal year ending not more than 16
months before the date of payment;
(B) an income statement for that year;
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(C) a statement of changes in shareholders' equity for that year and
a statement of cash flow for that year, if the corporation customarily provides
such statements to shareholders; and
(D) the latest available interim financial statements, if any;
(ii) the balance sheet and statements referred to in Subsection (i)
must be audited if the corporation customarily provides audited financial
statements to shareholders;
(b) a statement of the corporation's estimate of the fair value of the
shares and the amount of interest payable with respect to the shares;
(c) a statement of the dissenter's right to demand payment under
Section 16-10a-1328; and (d) a copy of this part.
16-10a-1326. Failure to take action.
(1) If the effective date of the corporate action creating dissenters'
rights under Section 16-10a-1302 does not occur within 60 days after the date
set by the corporation as the date by which the corporation must receive payment
demands as provided in Section 16-10a-1322, the corporation shall return all
deposited certificates and release the transfer restrictions imposed on
uncertificated shares, and all shareholders who submitted a demand for payment
pursuant to Section 16-10a-1323 shall thereafter have all rights of a
shareholder as if no demand for payment had been made.
(2) If the effective date of the corporate action creating dissenters'
rights under Section 16-10a-1302 occurs more than 60 days after the date set by
the corporation as the date by which the corporation must receive payment
demands as provided in Section 16-10a-1322, then the corporation shall send a
new dissenters' notice, as provided in Section 16-10a-1322, and the provisions
of Sections 16-10a-1323 through 16-10a-1328 shall again be applicable.
16-10a-1327. Special provisions relating to shares acquired after announcement
of proposed corporate action.
(1) A corporation may, with the dissenters' notice given pursuant to
Section 16-10a-1322, state the date of the first announcement to news media or
to shareholders of the terms of the proposed corporate action creating
dissenters' rights under Section 16-10a-1302 and state that a shareholder who
asserts dissenters' rights must certify in writing, in or with the payment
demand, whether or not he or the person on whose behalf he asserts dissenters'
rights acquired beneficial ownership of the shares before that date. With
respect to any dissenter who does not certify in writing, in or with the payment
demand that he or the person on whose behalf the dissenters' rights are being
asserted, acquired beneficial ownership of the shares before that date, the
corporation may, in lieu of making the payment provided in Section 16-10a-1325,
offer to make payment if the dissenter agrees to accept it in full satisfaction
of his demand.
(2) An offer to make payment under Subsection (1) shall include or be
accompanied by the information required by Subsection 16-10a-1325(2).
16-10a-1328. Procedure for shareholder dissatisfied with payment or offer.
(1) A dissenter who has not accepted an offer made by a corporation under
Section 16-10a-1327 may notify the corporation in writing of his own estimate of
the fair value of his shares and demand payment of the estimated amount, plus
interest, less any payment made under Section 16-10a-1325, if:
(a) the dissenter believes that the amount paid under Section
16-10a-1325 or offered under Section 16-10a-1327 is less than the fair value of
the shares;
(b) the corporation fails to make payment under Section 16-10a-1325
within 60 days after the date set by the corporation as the date by which it
must receive the payment demand; or
C-5
<PAGE> 249
(c) the corporation, having failed to take the proposed corporate action
creating dissenters' rights, does not return the deposited certificates or
release the transfer restrictions imposed on uncertificated shares as required
by Section 16-10a-1326.
(2) A dissenter waives the right to demand payment under this section unless
he causes the corporation to receive the notice required by Subsection (1)
within 30 days after the corporation made or offered payment for his shares.
16-10a-1330. Judicial appraisal of shares - Court action.
(1) If a demand for payment under Section 16-10a-1328 remains unresolved,
the corporation shall commence a proceeding within 60 days after receiving the
payment demand contemplated by Section 16-10a-1328, and petition the court to
determine the fair value of the shares and the amount of interest. If the
corporation does not commence the proceeding within the 60-day period, it shall
pay each dissenter whose demand remains unresolved the amount demanded.
(2) The corporation shall commence the proceeding described in Subsection
(1) in the district court of the county in this state where the corporation's
principal office, or if it has no principal office in this state, the county
where its registered office is located. If the corporation is a foreign
corporation without a registered office in this state, it shall commence the
proceeding in the county in this state where the registered office of the
domestic corporation merged with, or whose shares were acquired by, the foreign
corporation was located.
(3) The corporation shall make all dissenters who have satisfied the
requirements of Sections 16-10a-1321, 16-10a-1323, and 16-10a-1328, whether or
not they are residents of this state whose demands remain unresolved, parties to
the proceeding commenced under Subsection (2) as an action against their shares.
All such dissenters who are named as parties must be served with a copy of the
petition. Service on each dissenter may be by registered or certified mail to
the address stated in his payment demand made pursuant to Section 16-10a-1328.
If no address is stated in the payment demand, service may be made at the
address stated in the payment demand given pursuant to Section 16-10a-1323. If
no address is stated in the payment demand, service may be made at the address
shown on the corporation's current record of shareholders for the record
shareholder holding the dissenter's shares. Service may also be made otherwise
as provided by law.
(4) The jurisdiction of the court in which the proceeding is commenced
under Subsection (2) is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend decision on the question
of fair value. The appraisers have the powers described in the order appointing
them, or in any amendment to it. The dissenters are entitled to the same
discovery rights as parties in other civil proceedings.
(5) Each dissenter made a party to the proceeding commenced under
Subsection (2) is entitled to judgment:
(a) for the amount, if any, by which the court finds that the fair
value of his shares, plus interest, exceeds the amount paid by the corporation
pursuant to Section 16-10a-1325; or
(b) for the fair value, plus interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold payment
under Section 16-10a-1327.
16-10a-1331. Court costs and counsel fees.
(1) The court in an appraisal proceeding commenced under Section
16-10a-1330 shall determine all costs of the proceeding, including the
reasonable compensation and expenses of appraisers appointed by the court. The
court shall assess the costs against the corporation, except that the court may
assess costs against all or some of the dissenters, in amounts the court finds
equitable, to the extent the court finds that the dissenters acted arbitrarily,
vexatiously, or not in good faith in demanding payment under Section
16-10a-1328.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
C-6
<PAGE> 250
(a) against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of Sections 16-10a-1320 through 16-10a-1328; or
(b) against either the corporation or one or more dissenters, in favor
of any other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by this part.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to those counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
C-7
<PAGE> 251
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article IV, Section 1 of CCI's Articles of Incorporation provides that,
except as otherwise required by Utah law, CCI will indemnify and advance
expenses to its directors and officers and to any person who is or was serving
at CCI's request as a director or officer of another domestic or foreign
corporation or other person to the fullest extent permitted by Utah law. Article
IV, Section 2 of CCI's Articles of Incorporation provides that the personal
liability of the directors and officers of CCI to CCI or its shareholders will
be eliminated or limited to the fullest extent permitted by Utah law. Section
6.2 of CCI's Bylaws provides for indemnification of directors to the fullest
extent and in the manner permitted by Utah law. Sections 16-10a-901 through
16-10a-909 of the Utah Revised Business Corporation Law make provision for such
indemnification in terms sufficiently broad to cover directors under certain
circumstances for liabilities arising under the Securities Act of 1933, as
amended (the "Securities Act").
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
EXHIBIT
NUMBER EXHIBIT
- ------ -------
2.1 Agreement and Plan of Merger dated November 13, 1997 by and among
CCI, W.W. Clyde Reorganization Corporation, Clyde, Geneva Rock
Reorganization Corporation, Geneva Rock, Utah Service Reorganization
Corporation, Utah Service, Beehive Insurance Reorganization
Corporation and Beehive Insurance.
3.1 Articles of Incorporation of CCI
3.2 Bylaws of CCI.
4.1 Bylaws of CCI filed as Exhibit 3.2 to this Registration Statement.
4.2 Form of CCI Common Stock Certificate.
5 Opinion of Van Cott, Bagley, Cornwall & McCarthy re legality of
Common Stock.
8 Opinion of Grant Thornton LLP regarding tax matters.
[CCI Material Contracts: Exhibits 10.1-10.3]
10.1 Voting Agreement dated November 14, 1997 among the persons named on
Schedule 1 thereto.
10.2 Stock Redemption Plan adopted by the Board of Directors of CCI as of
November 12, 1997.
10.3 Form of Employment Agreement between CCI and Richard C. Clyde.
[Geneva Rock Material Contracts: Exhibits 10.4-10.10]
II-1
<PAGE> 252
10.4 Promissory Note dated June 28, 1996 in favor of J&J Mill and Lumber
Company.
10.5 Promissory Note dated October 18, 1994 in favor of Ideal Concrete
Corporation.
10.6 Lease dated January 1, 1991 between Mt. Jordan Limited Partnership
and Geneva.
10.7 Asphalt Sales Contract dated February 13, 1997 between Geneva Rock
and Sinclair Oil Corporation.
10.8 Asphalt Cement Contract dated May 29, 1997 between Geneva Rock and
Crysen Refining, Inc.
10.9 Stock Purchase and Shipping Order dated May 1, 1997 between Geneva
Rock and Conoco Inc.
10.10 Stock Purchase and Shipping Order dated July 1, 1997 between Geneva
Rock and Conoco Inc.
[Clyde Material Contracts: Exhibits 10.11-10.17]
10.11 Contract dated October 2, 1997 between Clyde and Holmes Creek
Irrigation Company.
10.12 Contract No. ES-01 dated July 21, 1997 between Clyde and Kennecott
Utah Copper Corporation.
10.13 Agreement dated September 12, 1997 between Clyde and Sun River St.
George Development, L.C.
10.14 Agreement dated July 23, 1997 between Clyde and USPCI.
10.15 Profit Participation Agreement dated September 23, 1997 between
Clyde and Overland Trails, L.L.C.
10.16 Contract dated April 28, 1997 between Clyde and the Utah Department
of Transportation.
10.17 Proposal and Contract dated September 22, 1997 between Clyde and the
United States Department of Transportation.
[Utah Service Material Contracts: Exhibits 10.18-10.19]
10.18 Supply Contract dated July 2, 1990 between Utah Service and Mike
Petersen Oil Company
10.19 Ace Dealer Franchise Agreement dated April 29, 1981 between Utah
Service and Ace Hardware Corporation
[Beehive Insurance Material Contracts: Exhibits 10.20-10.28]
10.20 Agency Agreement dated September 7, 1993 between Beehive Insurance
and St. Paul Fire and Marine Insurance Company.
II-2
<PAGE> 253
10.21 Agency-Company Agreement dated December 27, 1994 between Beehive
Insurance and Reliance Insurance Company
10.22 Agency Agreement dated January 1, 1995 between Beehive Insurance and
The Ohio Casualty Insurance Company.
10.23 Producer Agreement dated May 16, 1988 between Beehive Insurance and
The Swett & Crawford Group, Inc.
10.24 Producer Agreement dated January 1, 1993 between Beehive Insurance
and Sobieski & Bradley, Inc.
10.25 Agency-Company Agreement dated December 15, 1992 between Beehive
Insurance and Royal Insurance Company of America.
10.26 Independent Agency Agreement dated January 1, 1997 between Beehive
Insurance and Unigard Insurance Company.
10.27 Lease Agreement dated October 31, 1997 between Beehive Insurance and
Geneva.
10.28 Retirement Plan for Employees of Clyde, Geneva Rock and Beehive
Insurance.
21 Subsidiaries of the Registrant.
23.1 Consent of Houlihan Valuation Advisors.
23.2 Consent of Van Cott, Bagley, Cornwall & McCarthy (included in
Exhibit 5.1).
23.3 Consent of Grant Thornton LLC
23.4 Consent of Daines Associates LLC
23.5 Consent of Squire & Company, PC
24.1 Power of Attorney (included in the signature page hereto).
27.1 Financial Data Schedule for CCI.
27.2 Financial Data Schedule for Clyde.
27.3 Financial Data Schedule for Geneva Rock.
27.4 Financial Data Schedule for Utah Service.
27.5 Financial Data Schedule for Beehive Insurance.
99.1 Forms of Proxy Cards.
99.2 Valuation report of Houlihan Valuation Advisors with respect to
Clyde.
99.3 Valuation report of Houlihan Valuation Advisors with respect to
Geneva Rock.
99.4 Valuation report of Houlihan Valuation Advisors with respect to Utah
Service.
II-3
<PAGE> 254
99.5 Valuation report of Houlihan Valuation Advisors with respect to
Beehive Insurance.
(b) Financial Statement Schedules
Schedules have been omitted because the information required to be
set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The Registrant undertakes that every prospectus (i) that is filed
pursuant to the immediately preceding paragraph, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the Registration Statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person of the Registrant in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form S-4, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and CCI being
acquired involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
II-4
<PAGE> 255
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Salt Lake
City, State of Utah, on Decemeber 10, 1997.
CLYDE COMPANIES, INC.
By: /s/ CAROL C. SALISBURY
-------------------------------------
Carol C. Salisbury
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints, jointly and severally, Carol C.
Salisbury his or her attorney-in-fact, with the power of substitution, for him
or her in any and all capacities, to sign this Registration Statement and any
and all amendments hereto (including post-effective amendments), and to file the
same, with exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or her substitute or substitutes, may do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on December 10,
1997 in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ CAROL C. SALISBURY President and Director
- -------------------------------
Carol C. Salisbury
/s/ ILA C. COOK Vice President and Director
- -------------------------------
Ila C. Cook
/s/ WILLIAM R. CLYDE Vice President and Director
- -------------------------------
William R. Clyde
/s/ LOUISE C. GAMMELL Secretary, Treasurer and Director
- -------------------------------
Louise C. Gammell
/s/ PAUL B. CLYDE Director
- -------------------------------
Paul B. Clyde
/s/ RICHARD C. CLYDE Director
- -------------------------------
Richard C. Clyde
</TABLE>
II-5
<PAGE> 256
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT PAGE
- ------ ------- ----
<S> <C> <C>
2.1 Agreement and Plan of Merger dated November 13, 1997 by and among
CCI, W.W. Clyde Reorganization Corporation, Clyde, Geneva Rock
Reorganization Corporation, Geneva Rock, Utah Service Reorganization
Corporation, Utah Service, Beehive Insurance Reorganization
Corporation and Beehive Insurance.
3.1 Articles of Incorporation of CCI
3.2 Bylaws of CCI.
4.1 Bylaws of CCI filed as Exhibit 3.2 to this Registration Statement.
4.2 Form of CCI Common Stock Certificate.
5 Opinion of Van Cott, Bagley, Cornwall & McCarthy re legality of
Common Stock.
8 Opinion of Grant Thornton LLP regarding tax matters.
[CCI Material Contracts: Exhibits 10.1-10.3]
10.1 Voting Agreement dated November 14, 1997 among the persons named on
Schedule 1 thereto.
10.2 Stock Redemption Plan adopted by the Board of Directors of CCI as of
November 12, 1997.
10.3 Form of Employment Agreement between CCI and Richard C. Clyde.
[Geneva Rock Material Contracts: Exhibits 10.4-10.10]
10.4 Promissory Note dated June 28, 1996 in favor of J&J Mill and Lumber
Company.
10.5 Promissory Note dated October 18, 1994 in favor of Ideal Concrete
Corporation.
10.6 Lease dated January 1, 1991 between Mt. Jordan Limited Partnership
and Geneva.
10.7 Asphalt Sales Contract dated February 13, 1997 between Geneva Rock
and Sinclair Oil Corporation.
10.8 Asphalt Cement Contract dated May 29, 1997 between Geneva Rock and
Crysen Refining, Inc.
10.9 Stock Purchase and Shipping Order dated May 1, 1997 between Geneva
Rock and Conoco Inc.
10.10 Stock Purchase and Shipping Order dated July 1, 1997 between Geneva
Rock and Conoco Inc.
[Clyde Material Contracts: Exhibits 10.11-10.17]
10.11 Contract dated October 2, 1997 between Clyde and Holmes Creek
Irrigation Company.
10.12 Contract No. ES-01 dated July 21, 1997 between Clyde and Kennecott
</TABLE>
II-6
<PAGE> 257
<TABLE>
<S> <C> <C>
Utah Copper Corporation.
10.13 Agreement dated September 12, 1997 between Clyde and Sun River St.
George Development, L.C.
10.14 Agreement dated July 23, 1997 between Clyde and USPCI.
10.15 Profit Participation Agreement dated September 23, 1997 between
Clyde and Overland Trails, L.L.C.
10.16 Contract dated April 28, 1997 between Clyde and the Utah Department
of Transportation.
10.17 Proposal and Contract dated September 22, 1997 between Clyde and the
United States Department of Transportation.
[Utah Service Material Contracts: Exhibits 10.18-10.19]
10.18 Supply Contract dated July 2, 1990 between Utah Service and Mike
Petersen Oil Company
10.19 Ace Dealer Franchise Agreement dated April 29, 1981 between Utah
Service and Ace Hardware Corporation
[Beehive Insurance Material Contracts: Exhibits 10.20-10.28]
10.20 Agency Agreement dated September 7, 1993 between Beehive Insurance
and St. Paul Fire and Marine Insurance Company.
10.21 Agency-Company Agreement dated December 27, 1994 between Beehive
Insurance and Reliance Insurance Company
10.22 Agency Agreement dated January 1, 1995 between Beehive Insurance and
The Ohio Casualty Insurance Company.
10.23 Producer Agreement dated May 16, 1988 between Beehive Insurance and
The Swett & Crawford Group, Inc.
10.24 Producer Agreement dated January 1, 1993 between Beehive Insurance
and Sobieski & Bradley, Inc.
10.25 Agency-Company Agreement dated December 15, 1992 between Beehive
Insurance and Royal Insurance Company of America.
10.26 Independent Agency Agreement dated January 1, 1997 between Beehive
Insurance and Unigard Insurance Company.
10.27 Lease Agreement dated October 31, 1997 between Beehive Insurance and
Geneva.
10.28 Retirement Plan for Employees of Clyde, Geneva Rock and Beehive
Insurance.
21 Subsidiaries of the Registrant.
23.1 Consent of Houlihan Valuation Advisors.
23.2 Consent of Van Cott, Bagley, Cornwall & McCarthy (included in
Exhibit 5.1).
23.3 Consent of Grant Thornton LLC
23.4 Consent of Daines Associates LLC
23.5 Consent of Squire & Company, PC
24.1 Power of Attorney (included in the signature page hereto).
</TABLE>
II-7
<PAGE> 258
<TABLE>
<S> <C> <C>
27.1 Financial Data Schedule for CCI.
27.2 Financial Data Schedule for Clyde.
27.3 Financial Data Schedule for Geneva Rock.
27.4 Financial Data Schedule for Utah Service.
27.5 Financial Data Schedule for Beehive Insurance.
99.1 Forms of Proxy Cards.
99.2 Valuation report of Houlihan Valuation Advisors with respect to
Clyde.
99.3 Valuation report of Houlihan Valuation Advisors with respect to
Geneva Rock.
99.4 Valuation report of Houlihan Valuation Advisors with respect to Utah
Service.
99.5 Valuation report of Houlihan Valuation Advisors with respect to
Beehive Insurance.
</TABLE>
II-8
<PAGE> 1
ARTICLES OF MERGER
OF
W.W. CLYDE REORGANIZATION CORPORATION
INTO
W.W. CLYDE & CO.
EFFECTIVE __________ ___, 1998 AT 9:00 A.M.
In accordance with Section 16-10a-1105 of the Utah Revised
Business Corporation Act (the "URBCA"), W.W. Clyde & Co., a Utah corporation
("Clyde"), hereby declares and certifies as follows:
ARTICLE ONE
Plan of Merger
The Agreement and Plan of Merger, dated as of November 13, 1997
(the "Plan of Merger"), among Clyde, W.W. Clyde Reorganization Corporation, a
Utah corporation ("CRC"), and the other parties signatory thereto, is attached
hereto as Exhibit A and is incorporated herein by this reference.
ARTICLE TWO
Shareholder Approval
The shareholders of each of Clyde and CRC were required to
approve the Plan of Merger. The designation, number of outstanding shares,
number of votes entitled to be cast by each voting group entitled to vote
separately, and the total number of votes cast for and against the Plan of
Merger by each voting group entitled to vote separately were as follows:
<PAGE> 2
<TABLE>
<CAPTION>
Corporation and Outstanding Votes entitled For Against
Designation Shares to be cast
- ------------------------- ------------------- ---------------------- ----------------- -------------
<S> <C> <C> <C> <C>
Clyde 94,544 94,544 ________ ______
Common Stock
- ------------------------- ------------------- ---------------------- ----------------- -------------
CRC 1,000 1,000 1,000 0
Common Stock
- ------------------------- ------------------- ---------------------- ----------------- -------------
</TABLE>
The number of votes cast for the Plan of Merger was sufficient for approval.
ARTICLE THREE
Effective Date
Pursuant to Section 16-10a-1105(2) of the URBCA, these Articles
of Merger shall be effective on __________ ___, 1998 at 9:00 a.m.
IN WITNESS WHEREOF, Clyde hereby certifies to the truth of the
facts stated herein and executes and delivers these Articles of Merger this ____
day of __________, 199__.
W.W. Clyde & Co.,
a Utah corporation
-----------------------------------
Chief Executive Officer
ATTEST:
- ----------------------------------
Secretary
2
<PAGE> 3
MAILING ADDRESS
If, upon completion of filing of the above Articles of Merger,
the Division elects to send a copy of the Articles of Merger to Clyde by mail,
the address to which the copy should be mailed is:
W.W. Clyde & Co.
---------------------------------
---------------------------------
3
<PAGE> 4
ARTICLES OF MERGER
OF
GENEVA ROCK REORGANIZATION CORPORATION
INTO
GENEVA ROCK PRODUCTS, INC.
EFFECTIVE __________ ___, 1998 AT 12:00 NOON
In accordance with Section 16-10a-1105 of the Utah Revised
Business Corporation Act (the "URBCA"), Geneva Rock Products, Inc., a Utah
corporation ("Geneva Rock"), hereby declares and certifies as follows:
ARTICLE ONE
Plan of Merger
The Agreement and Plan of Merger, dated as of November 13, 1997
(the "Plan of Merger"), among Geneva Rock, Geneva Rock Reorganization
Corporation, a Utah corporation ("GRRC"), and the other parties signatory
thereto, is attached hereto as Exhibit A and is incorporated herein by this
reference.
ARTICLE TWO
Shareholder Approval
The shareholders of each of Geneva Rock and GRRC were required to
approve the Plan of Merger. The designation, number of outstanding shares,
number of votes entitled to be cast by each voting group entitled to vote
separately, and the total number of votes cast for and against the Plan of
Merger by each voting group entitled to vote separately were as follows:
<TABLE>
<CAPTION>
Corporation and Outstanding Votes entitled For Against
Designation Shares to be cast
- ------------------------- ------------------- ---------------------- ----------------- -------------
<S> <C> <C> <C> <C>
Geneva Rock 21,802 21,802 ________ ______
Common Stock
- ------------------------- ------------------- ---------------------- ----------------- -------------
GRRC 1,000 1,000 1,000 0
Common Stock
- ------------------------- ------------------- ---------------------- ----------------- -------------
</TABLE>
The number of votes cast for the Plan of Merger was sufficient for approval.
<PAGE> 5
ARTICLE THREE
Effective Date
Pursuant to Section 16-10a-1105(2) of the URBCA, these Articles
of Merger shall be effective on __________ ___, 1998 at 12:00 noon.
IN WITNESS WHEREOF, Geneva Rock hereby certifies to the truth of
the facts stated herein and executes and delivers these Articles of Merger this
____ day of __________, 199__.
Geneva Rock Products, Inc.,
a Utah corporation
-----------------------------------
Chief Executive Officer
ATTEST:
- ----------------------------
Secretary
MAILING ADDRESS
If, upon completion of filing of the above Articles of Merger,
the Division elects to send a copy of the Articles of Merger to Geneva Rock by
mail, the address to which the copy should be mailed is:
Geneva Rock Products, Inc.
--------------------------
--------------------------
2
<PAGE> 6
ARTICLES OF MERGER
OF
UTAH SERVICE REORGANIZATION CORPORATION
INTO
UTAH SERVICE INC.
EFFECTIVE __________ ___, 1998 AT 10:00 A.M.
In accordance with Section 16-10a-1105 of the Utah Revised
Business Corporation Act (the "URBCA"), Utah Service Inc., a Utah corporation
("Utah Service"), hereby declares and certifies as follows:
ARTICLE ONE
Plan of Merger
The Agreement and Plan of Merger, dated as of November 13, 1997
(the "Plan of Merger"), among Utah Service, Utah Service Reorganization
Corporation, a Utah corporation ("USRC"), and the other parties signatory
thereto, is attached hereto as Exhibit A and is incorporated herein by this
reference.
ARTICLE TWO
Shareholder Approval
The shareholders of each of Utah Service and USRC were required
to approve the Plan of Merger. The designation, number of outstanding shares,
number of votes entitled to be cast by each voting group entitled to vote
separately, and the total number of votes cast for and against the Plan of
Merger by each voting group entitled to vote separately were as follows:
<TABLE>
<CAPTION>
Corporation and Outstanding Votes entitled For Against
Designation Shares to be cast
- ------------------------- ------------------- ---------------------- ----------------- -------------
<S> <C> <C> <C> <C>
Utah Service 5,413 5,413 ________ ______
Common Stock
- ------------------------- ------------------- ---------------------- ----------------- -------------
USRC 1,000 1,000 1,000 0
Common Stock
- ------------------------- ------------------- ---------------------- ----------------- -------------
</TABLE>
The number of votes cast for the Plan of Merger was sufficient for approval.
<PAGE> 7
ARTICLE THREE
Effective Date
Pursuant to Section 16-10a-1105(2) of the URBCA, these Articles
of Merger shall be effective on __________ ___, 1998 at 10:00 a.m.
IN WITNESS WHEREOF, Utah Service hereby certifies to the truth of
the facts stated herein and executes and delivers these Articles of Merger this
____ day of __________, 199__.
Utah Service Inc.,
a Utah corporation
-----------------------------------
Chief Executive Officer
ATTEST:
- ----------------------------
Secretary
MAILING ADDRESS
If, upon completion of filing of the above Articles of Merger,
the Division elects to send a copy of the Articles of Merger to Utah Service by
mail, the address to which the copy should be mailed is:
Utah Service Inc.
-----------------
-----------------
2
<PAGE> 8
ARTICLES OF MERGER
OF
BEEHIVE INSURANCE REORGANIZATION CORPORATION
INTO
BEEHIVE INSURANCE AGENCY, INC.
EFFECTIVE __________ ___, 1998 AT 11:00 A.M.
In accordance with Section 16-10a-1105 of the Utah Revised
Business Corporation Act (the "URBCA"), Beehive Insurance Agency, Inc., a Utah
corporation ("Beehive Insurance"), hereby declares and certifies as follows:
ARTICLE ONE
Plan of Merger
The Agreement and Plan of Merger, dated as of November 13, 1997
(the "Plan of Merger"), among Beehive Insurance, Beehive Insurance
Reorganization Corporation, a Utah corporation ("BIRC"), and the other parties
signatory thereto, is attached hereto as Exhibit A and is incorporated herein by
this reference.
ARTICLE TWO
Shareholder Approval
The shareholders of each of Beehive Insurance and BIRC were
required to approve the Plan of Merger. The designation, number of outstanding
shares, number of votes entitled to be cast by each voting group entitled to
vote separately, and the total number of votes cast for and against the Plan of
Merger by each voting group entitled to vote separately were as follows:
<PAGE> 9
<TABLE>
<CAPTION>
Corporation and Outstanding Votes entitled For Against
Designation Shares to be cast
- ------------------------- ------------------- ---------------------- ----------------- -------------
<S> <C> <C> <C> <C>
Beehive Insurance 21,467 21,467 ________ ______
Common Stock
- ------------------------- ------------------- ---------------------- ----------------- -------------
BIRC 1,000 1,000 1,000 0
Common Stock
- ------------------------- ------------------- ---------------------- ----------------- -------------
</TABLE>
The number of votes cast for the Plan of Merger was sufficient for approval.
ARTICLE THREE
Effective Date
Pursuant to Section 16-10a-1105(2) of the URBCA, these Articles
of Merger shall be effective on __________ ___, 1998 at 11:00 a.m.
IN WITNESS WHEREOF, Beehive Insurance hereby certifies to the
truth of the facts stated herein and executes and delivers these Articles of
Merger this ____ day of __________, 199__.
2
<PAGE> 10
Beehive Insurance Agency, Inc.,
a Utah corporation
-----------------------------------
Chief Executive Officer
ATTEST:
- ---------------------------------
Secretary
MAILING ADDRESS
If, upon completion of filing of the above Articles of Merger,
the Division elects to send a copy of the Articles of Merger to Beehive
Insurance by mail, the address to which the copy should be mailed is:
Beehive Insurance Agency, Inc.
------------------------------
------------------------------
3
<PAGE> 11
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and
entered into as of the 13th day of November, 1997 by and among Clyde Companies,
Inc., a Utah corporation (the "Parent"), W.W. Clyde Reorganization Corporation,
a Utah corporation ("CRC"), W.W. Clyde & Co., a Utah corporation ("Clyde"),
Geneva Rock Reorganization Corporation, a Utah corporation ("GRRC"), Geneva Rock
Products, Inc., a Utah corporation ("Geneva Rock"), Utah Service Reorganization
Corporation, a Utah corporation ("USRC"), Utah Service Inc., a Utah corporation
("Utah Service"), Beehive Insurance Reorganization Corporation, a Utah
corporation ("BIRC"), and Beehive Insurance Agency, Inc., a Utah corporation
("Beehive Insurance").
Recitals
WHEREAS, the Board of Directors of each of the Parent, and CRC,
GRRC, USRC and BIRC (collectively, the "Reorganization Corporations") and Clyde,
Geneva Rock, Utah Service and Beehive Insurance (collectively, the "Acquired
Corporations" and, together with the Parent and the Reorganization Corporations,
the "Corporations") have approved, and have determined that it is advisable and
in the best interests of each of their respective shareholders for the Parent to
acquire the Acquired Corporations on the terms and conditions set forth in this
Agreement; and
WHEREAS, to accomplish such acquisitions, (i) the Board of
Directors of each of the Parent, CRC and Clyde has determined that CRC should be
merged with and into Clyde (the "Clyde Merger"), (ii) the Board of Directors of
each of the Parent, GRRC and Geneva Rock has determined that GRRC should be
merged with and into Geneva Rock (the "Geneva Rock Merger"), (iii) the Board of
Directors of each of the Parent, USRC and Utah Service has determined that USRC
should be merged with and into Utah Service (the "Utah Service Merger"), and
(iv) the Board of Directors of each of the Parent, BIRC and Beehive Insurance
has determined that BIRC should be merged with and into Beehive Insurance (the
"Beehive Insurance Merger" and, collectively with the Clyde Merger, the Geneva
Rock Merger and the Utah Service Merger, the "Mergers") in accordance with this
Agreement and the applicable provisions of the Utah Revised Business Corporation
Act (the "URBCA") and the Internal Revenue Code of 1986, as amended (the
"Code").
Agreement
NOW, THEREFORE, pursuant to and in accordance with the URBCA and
the Code, the Corporations agree upon and prescribe the terms and conditions of
the Mergers as follows:
I. Merger
4
<PAGE> 12
1.1 Names and States of Incorporation. The name and state of
incorporation of each of the constituent corporations in the Mergers is as
follows:
(a) for the Clyde Merger, W.W. Clyde
Reorganization Corporation, a Utah corporation, and W.W. Clyde &
Co., a Utah corporation;
(b) for the Geneva Rock Merger, Geneva Rock Reorganization
Corporation, a Utah corporation, and Geneva Rock Products, Inc.,
a Utah corporation;
(c) for the Utah Service Merger, Utah Service
Reorganization Corporation, a Utah corporation, and Utah Service
Inc., a Utah corporation; and
(d) for the Beehive Insurance Merger, Beehive Insurance
Reorganization Corporation, a Utah corporation, and Beehive
Insurance Agency, Inc., a Utah corporation.
1.2 Closing and Effective Time. The closing of each of the Mergers (the
"Closing") shall take place concurrently at the offices of Van Cott, Bagley,
Cornwall & McCarthy at 8:30 a.m. (local time) on a date (the "Closing Date") to
be specified by the Corporations, which shall be no sooner than the date upon
which all of the conditions specified in Article V of this Agreement have been
satisfied or waived by the applicable Corporations (other than those conditions
that, by their nature, are to be satisfied at the Closing). In accordance with
the URBCA and Articles of Mergers to be filed by each of the respective Acquired
Corporations with the Utah Department of Commerce, Division of Corporations and
Commercial Code (the "Utah Division of Corporations"), the Mergers shall become
effective sequentially, with the Clyde Merger becoming effective first, followed
one hour later by the Utah Service Merger, followed one hour later by the
Beehive Insurance Merger and followed one hour later by the Geneva Rock Merger.
Each of the respective Mergers shall be effective at the date and time specified
in the applicable Articles of Merger (for each Merger, the "Effective Time").
The Closing Date shall be prior to the Effective Time.
1.3 Mergers. At the Effective Time, the following shall occur:
(a) The respective Reorganization Corporation shall be
merged with and into the corresponding Acquired Corporation, and
the separate existence of the Reorganization Corporation shall
cease.
(b) The respective Acquired Corporation shall be the
surviving corporation and shall continue its corporate existence
in accordance with the laws of the State of Utah and under its
current name.
(c) The respective Merger shall have the effects set forth
in Section 16-10a-1106 of the URBCA.
1.4 Articles of Incorporation. The Articles of Incorporation of each of
the Acquired
5
<PAGE> 13
Corporations shall continue to be the Articles of Incorporation of such Acquired
Corporation after the Effective Time, until amended or repealed in accordance
with the URBCA.
1.5 Bylaws. The Bylaws of each of the Acquired Corporations shall
continue to be the Bylaws of such Acquired Corporation after the Effective Time,
until amended or repealed in the manner provided by such Bylaws and the URBCA.
1.6 Directors. The directors of each of the Acquired Corporations
immediately prior to the Effective Time shall continue to serve as the directors
of such Acquired Corporation for the term specified in the Bylaws of such
Acquired Corporation.
1.7 Officers. The officers of each of the Acquired Corporations
immediately prior to the Effective Time shall continue to be officers of such
Acquired Corporation until otherwise provided in accordance with the Bylaws of
such Acquired Corporation.
1.8 Securities Filings. If required by applicable law, the Corporations
shall promptly prepare and file with the Securities and Exchange Commission (the
"SEC") a Registration Statement on Form S-4 (including any amendments or
supplements thereto, the "Registration Statement") and, as part of the
Registration Statement, a letter, notice of meeting, proxy statement and form of
proxy to the shareholders of each of the Acquired Companies in connection with
the Mergers (collectively, including any amendments or supplements thereto, the
"Proxy Statement"). Each of the Corporations shall provide reasonable
opportunities for the other Corporations to review and comment on the contents
of the Registration Statement. At any time after the preparation of the
Registration Statement, each of the Corporations agrees promptly to notify the
others of and to correct any information which any of them shall have furnished
for inclusion in the Registration Statement that shall have become false or
misleading in any material respect. Each of the Corporations shall use its
reasonable best efforts to have the Registration Statement declared effective
under the Securities Act of 1933, as amended (the "Securities Act"), as promptly
as practicable after such filing. The Parent shall also take any action required
to be taken under any applicable state securities laws in connection with the
issuance of Parent Common Stock (as defined below) in the Merger, and each of
the Corporations shall furnish all information concerning its business, affairs
and/or shareholders as may be reasonably requested in connection with any such
action.
1.9 Special Meeting. As promptly as practicable following the
execution and delivery of this Agreement, in accordance with the URBCA and other
applicable law, each of the Acquired Corporations (a) shall duly call, give
notice of, convene and hold a special meeting of its shareholders (each a
"Special Meeting") and shall submit this Agreement to a vote of such
shareholders at the Special Meeting, (b) subject to any review by the SEC, shall
include in the Proxy Statement, the recommendation of the Board of Directors
that the shareholders should vote in favor of the approval of this Agreement and
(c) shall take all such other action reasonably necessary or appropriate to
obtain the lawful approval of this Agreement by the shareholders.
1.10 Geneva Rock Common Stock Owned by Clyde. As of the date of
this Agreement, Clyde owns (and as of the Effective Time, Clyde will own) 7,518
shares (the
6
<PAGE> 14
"Distribution Shares") of Geneva Rock Common Stock (as defined below).
Immediately after the Effective Time of the Clyde Merger, Clyde, acting in
accordance with resolutions duly adopted by its Board of Directors, shall
distribute (in a dividend distribution) the Distribution Shares to the Parent.
Immediately upon such distribution, the Parent shall own the Distribution
Shares, and, at the Effective Time of the Geneva Rock Merger, the Distribution
Shares shall be treated in the same manner as all of the other shares of Geneva
Rock Common Stock owned by the Parent in accordance with Section 2.1(c) below.
II. Conversion of Shares
2.1 Conversion. As of the Effective Time, by virtue of each of the
Mergers and without any further action, the following shall occur:
(a) Each issued and outstanding share of Clyde Common
Stock (as defined below) (other than (i) shares of Clyde Common
Stock owned by the Parent, which shall not be converted and shall
each remain one (1) issued and outstanding share of Clyde Common
Stock, and (ii) Dissenting Shares (as defined below), if any)
shall be converted into 33.93 shares of Parent Common Stock.
(b) Each issued and outstanding share of CRC Common Stock
(as defined below) shall be converted into one (1) share of Clyde
Common Stock.
(c) Each issued and outstanding share of Geneva Rock
Common Stock (other than (i) shares of Geneva Rock Common Stock
owned by the Parent, which shall not be converted and shall each
remain one (1) issued and outstanding share of Geneva Rock Common
Stock, and (ii) Dissenting Shares, if any) shall be converted
into 239.27 shares of Parent Common Stock.
(d) Each issued and outstanding share of GRRC Common Stock
(as defined below) shall be converted into one (1) share of
Geneva Rock Common Stock.
(e) Each issued and outstanding share of Utah Service
Common Stock (as defined below) (other than (i) shares of Utah
Service Common Stock owned by the Parent, which shall not be
converted and shall each remain one (1) issued and outstanding
share of Utah Service Common Stock, and (ii) Dissenting Shares,
if any) shall be converted into 43.43 shares of Parent Common
Stock.
(f) Each issued and outstanding share of USRC Common Stock
(as defined below) shall be converted into one (1) share of Utah
Service Common Stock.
(g) Each issued and outstanding share of Beehive Insurance
Common Stock (as defined below) (other than (i) shares of Beehive
Insurance Common Stock owned by the Parent, which shall not be
converted and shall each
7
<PAGE> 15
remain one (1) issued and outstanding share of Beehive Insurance
Common Stock, and (ii) Dissenting Shares, if any) shall be
converted into 4.33 shares of Parent Common Stock.
(h) Each issued and outstanding share of BIRC Common Stock
(as defined below) shall be converted into one (1) share of
Beehive Insurance Common Stock.
2.2 Fractional Shares. Notwithstanding any other provision of this
Agreement to the contrary, each holder of shares of common stock of the Acquired
Corporations exchanged pursuant to the Mergers who would otherwise have been
entitled to receive a fraction of a share of Parent Common Stock (after taking
into account all Acquired Corporation Certificates delivered by such holder)
shall receive, in lieu thereof, cash (without interest) in an amount equal to
such fraction multiplied by $14.52 (the projected value, determined as of the
date of this Agreement, of one share of Parent Common Stock as of the Effective
Time). No such holder shall be entitled to any fractional share of Parent Common
Stock (or to any dividends, voting rights or any other rights as a shareholder
in respect of such fractional share of Parent Common Stock).
2.3 Acquired Corporation Certificates. Certificates nominally
representing shares of the common stock of the Acquired Corporations ("Acquired
Corporation Certificates") shall be treated as follows:
(a) As of the Effective Time, each Acquired
Corporation Certificate, other than any certificate representing
Dissenting Shares, if any, for all purposes, shall be deemed to
evidence the number of shares of Parent Common Stock determined
in accordance with Section 2.1 above.
(b) As soon as practicable after the Effective Time, the
Parent shall mail to each record holder of an outstanding
Acquired Corporation Certificate, as of the Effective Time, a
form of letter of transmittal (the "Transmittal Letter") that is
reasonably acceptable to the Acquired Corporations (which shall
specify that delivery of an Acquired Corporation Certificate
shall be effected, and risk of loss and title to the Acquired
Corporation Certificate shall pass, only upon proper delivery of
the Acquired Corporation Certificate to the Parent) and
instructions for use in effecting the surrender of each Acquired
Corporation Certificate in exchange for a Parent Common Stock
certificate ("Parent Certificate"). Upon surrender to the Parent
of an Acquired Corporation Certificate, together with a duly
executed Transmittal Letter (and any other documents which may be
reasonably required by the Parent, if any), the holder of such
Acquired Corporation Certificate shall receive promptly in
exchange therefor a Parent Certificate for the number of shares
of Parent Common Stock evidenced thereby in accordance with
Section 2.1 above. Thereafter, the applicable Acquired
Corporation Certificate shall be canceled. If a Parent
Certificate is to be issued to a person other than the person in
whose name the surrendered Acquired Corporation Certificate is
registered, it shall be a condition of issuance of the Parent
Certificate (x) that the Acquired Corporation Certificate so
surrendered shall be properly endorsed or otherwise be in proper
form for transfer and (y) that the person requesting such
issuance shall pay any transfer or other taxes required
8
<PAGE> 16
by reason of the issuance to a person other than the registered
holder of the Acquired Corporation Certificate surrendered or
establish to the satisfaction of the Parent that such tax has
been paid or is not applicable. The Parent shall pay all charges
and expenses, including those of the Acquired Corporations, in
connection with the distribution of the Parent Certificates.
(c) If any Acquired Corporation Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the person claiming such Acquired Corporation
Certificate to be lost, stolen or destroyed, the Parent will
issue in exchange for such lost, stolen or destroyed Acquired
Corporation Certificate the shares of Parent Common Stock
deliverable in respect thereof as determined in accordance with
Section 2.1 above; provided that, at the option of the Parent,
the person to whom such shares are issued, as a condition
precedent to the issuance of such shares, shall give to the
Parent a bond in such sum as the Parent may direct or otherwise
indemnify the Parent in a manner satisfactory to the Parent
against any claim that may be made against the Parent with
respect to the Acquired Corporation Certificate claimed to have
been lost, stolen or destroyed.
2.4 Dissenters' Rights. Notwithstanding any other provision of this
Agreement, each share of the common stock of any of the Acquired Corporations
(a) as to which a written notice of intent to demand payment was submitted to
the applicable Acquired Corporation in accordance with Section 16-10a-1321(1)(a)
of the URBCA, (b) which is not voted in favor of approval of this Agreement at a
Special Meeting, and (c) as to which a written demand for payment of fair value
shall have been or may still be timely filed, and the Acquired Corporation
Certificate(s) for such shares shall have been or may still be deposited with
the applicable Acquired Corporation in accordance with the requirements of Part
13 of the URBCA (collectively, "Dissenting Shares"), shall not be converted into
shares of Parent Common Stock. Each holder of Dissenting Shares who becomes
entitled under the URBCA to receive payment of the fair value of such holder's
Dissenting Shares shall receive such payment from the Parent (but only after
such fair value shall have been agreed upon or finally determined) and such
Dissenting Shares shall thereupon be canceled. Each Dissenting Share as to which
dissenters' rights pursuant to the URBCA shall be effectively withdrawn or lost
shall thereupon be deemed to have been converted, at the Effective Time, into
shares of Parent Common Stock in accordance with Section 2.1 above.
2.5 Options, Warrants or Other Rights. At the Effective Time, any
options, warrants or other rights to purchase shares of any of the Acquired
Corporations, without any further action, shall be terminated.
III. Representations and Warranties of the Acquired Corporations
Each of the Acquired Corporations, solely as to itself and not as
to any other Acquired Corporation, represents and warrants to the Parent as
follows, subject only to such limitations and exceptions as are set forth below:
9
<PAGE> 17
3.1 Organization and Good Standing. The Acquired Corporation is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Utah, and has all requisite corporate power and corporate
authority to own, lease and operate its properties to carry on its business as
now being conducted. The Acquired Corporation is duly qualified and in good
standing to do business in each jurisdiction in which the nature of its business
or the ownership or leasing of its properties makes such qualification
necessary, except where the failure to be so qualified would not have a material
adverse effect on the Acquired Corporation.
3.2 Capital Structure of the Acquired Corporations.
(a) Clyde has an authorized capital structure consisting
of Two Hundred Thousand (200,000) shares of Ten Dollar ($10.00)
par value common stock ("Clyde Common Stock"), and Ninety-Four
Thousand Five Hundred Forty-Four (95,544) shares of Clyde Common
Stock are issued and outstanding.
(b) Geneva Rock has an authorized capital structure
consisting of Fifty Thousand (50,000) shares of Ten Dollar
($10.00) par value common stock ("Geneva Rock Common Stock"), and
Twenty-One Thousand Eight Hundred Two (21,802) shares of Geneva
Rock Common Stock are issued and outstanding.
(c) Utah Service has an authorized capital structure
consisting of One Hundred Thousand (100,000) shares of Ten Dollar
($10.00) par value common stock ("Utah Service Common Stock"),
and Five Thousand Four Hundred Thirteen (5,413) shares of Utah
Service Common Stock are issued and outstanding.
(d) Beehive Insurance has an authorized capital structure
consisting of Fifty Thousand (50,000) shares of One Dollar
($1.00) par value common stock ("Beehive Insurance Common
Stock"), and Twenty-One Thousand Four Hundred Sixty-Seven
(21,467) shares of Beehive Insurance Common Stock are issued and
outstanding.
3.3 Authority. The Acquired Corporation has all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Acquired
Corporation, subject in the case of this Agreement only to the approval of this
Agreement by the shareholders of the Acquired Corporation as required under the
URBCA.
3.4 Execution and Delivery. This Agreement has been duly executed and
delivered by the Acquired Corporation and constitutes a valid and binding
obligation of the Acquired Corporation, enforceable against the Acquired
Corporation in accordance with its terms but subject to (i) bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance and equitable
principles, and (ii) statutes, rules or procedures and applicable case law
limiting the availability of or prescribing the procedural requirements for the
exercise of remedies.
10
<PAGE> 18
3.5 Property. The Acquired Corporation has good, valid and
marketable title to (or in the case of leased property, valid leasehold
interests in) all of its properties and assets.
3.6 No Violations. The execution and delivery of this Agreement
does not, and the consummation of the transactions contemplated hereby will not,
(a) conflict with, or result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or the loss of a material benefit
under, or the creation of a lien, pledge, security interest, charge or other
encumbrance on assets (any such conflict, violation, default, right of
termination, cancellation or acceleration, loss or creation, a "Violation")
pursuant to any provision of the Articles of Incorporation or Bylaws of the
Acquired Corporation, or (b) result in any Violation of (i) any loan or credit
agreement, note, mortgage, indenture, lease or other agreement, obligation,
instrument, permit, concession, franchise, license, statute, law, ordinance,
rule or regulation applicable to the Acquired Corporation or its properties or
assets (except for such Violations as would not, singly or in the aggregate,
have a material adverse effect on the Acquired Corporation), or (ii) any
judgment, order or decree applicable to the Acquired Corporation or its
properties or assets.
3.7 Consents. No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental agency, authority or instrumentality, domestic
or foreign (each, a "Governmental Authority"), is required by or with respect to
the Acquired Corporation in connection with the execution and delivery of this
Agreement by the Acquired Corporation, or the consummation by the Acquired
Corporation of the transactions contemplated hereby, except for (a) the filing
with the SEC of the Registration Statement (including the Proxy Statement as a
part thereof), (b) the filing of the Articles of Merger with the Utah Division
of Corporations and appropriate documents with the relevant authorities of other
states in which the Acquired Corporation is qualified to do business, (c)
notices and other filings as may be required under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (d) filings as
may be required under state securities laws and (e) such filings,
authorizations, orders and approvals as may be required under foreign laws.
3.8 Information Supplied. None of the information supplied or to
be supplied by the Acquired Corporation for inclusion or incorporation by
reference in the Proxy Statement, at the date of mailing to the Acquired
Corporation's shareholders and at the time of its Special Meeting, will contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. All documents that the Acquired Corporation is responsible for
filing with any Governmental Authority in connection with the transactions
contemplated hereby will comply as to form in all material respects with the
provisions of applicable law. Without limiting any of the representations and
warranties contained herein, no representation or warranty by the Acquired
Corporation as of the date thereof contains any untrue statement of material
fact, or omits a material fact necessary in order to make the statements
contained therein, in light of the circumstances under which such statements are
or will be made, not misleading.
11
<PAGE> 19
3.9 Litigation. There are no actions, arbitrations, audits,
hearings, investigations, suits or litigation (whether civil, criminal,
administrative, investigative or informal) before or otherwise involving any
Governmental Authority, court or arbitrator (a "Proceeding") commenced by or
against the Acquired Corporation (or that otherwise relate to or may affect the
business or the assets of the Acquired Corporation) that either (a) challenge,
or that may have the effect of preventing, delaying, making illegal, or
otherwise interfering with, any of transactions specified in this Agreement, or
(b) would reasonably be expected to have a material adverse effect on the
Acquired Corporation. To the knowledge of the Acquired Corporation, (1) no such
Proceeding has been threatened, and (2) no event has occurred or circumstance
exists that may give rise to or serve as a basis for the commencement of any
such Proceeding.
3.10 Financial Statements. The financial statements of the
Acquired Corporation (including any balance sheets and statements of income,
changes in stockholders' equity and cash flow, together with any reports thereon
of independent certified public accountants) provided by the Acquired
Corporation in connection with the preparation of (a) the Registration
Statement, and (b) the HVA Appraisals, fairly present the financial condition
and the results of operations, changes in stockholders' equity and cash flow of
the Acquired Corporation as at the respective dates of and for the periods
referred to in such financial statements, all in accordance with generally
accepted accounting principles ("GAAP"). The financial statements referred to in
this Section 3.10 reflect the consistent application of accounting principles
throughout the periods involved, except as otherwise disclosed in the notes to
such financial statements.
3.11 Taxes.
(a) All material reports, filings, statements,
declarations and returns (collectively, "Tax Returns") with
respect to taxes, charges, fees, levies or assessments
(collectively, "Taxes") required to be filed by the Acquired
Corporation as of the Effective Time have been or will be duly
filed, and such Tax Returns are or will be true and correct in
all material respects. The Acquired Corporation has paid or will
pay all Taxes shown as due and payable on such Tax Returns; and
the charges, accruals and reserves for Taxes with respect to the
Acquired Corporation reflected in the Acquired Corporation's
financial statements are adequate under GAAP to cover Taxes
accruing through the date thereof, including contested amounts
and amounts not yet due and payable.
(b) There are no material claims with respect to Taxes
pending against the Acquired Corporation and the Acquired
Corporation is not aware of any threatened claim for Taxes or any
basis for such claims. No material issues have been raised in any
examination by any Governmental Authority with respect to the
Acquired Corporation which reasonably could be expected to result
in a proposed deficiency for any other period not so examined,
and there are not now in force any waivers or agreements by the
Acquired Corporation for the extension
12
<PAGE> 20
of time for the assessment of any material Taxes, nor has any
such waiver or agreement been requested by any Governmental
Authority. The Acquired Corporation does not have any liability
for any material Taxes of any corporation or entity other than
the Acquired Corporation.
(c) The Acquired Corporation has paid or is withholding
and will pay when due to the proper Governmental Authorities all
material withholding amounts required to be withheld with respect
to all Taxes.
3.12 Undisclosed Liabilities. The Acquired Corporation is not
subject to any liabilities of any nature which have had or can reasonably be
expected to have a material adverse effect on its business or financial
prospects.
IV. Representations and Warranties of the Parent
The Parent represents and warrants to the Acquired Corporations
as follows, subject only to such exceptions and limitations as are set forth
below:
4.1 Organization, Standing and Authority. Each of the Parent and
the Reorganization Corporations is a corporation duly organized, validly
existing and in good standing under the laws of the State of Utah, and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. Each of the Parent and the
Reorganization Corporations is duly qualified and in good standing to do
business in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary,
except where the failure to be so qualified would not have a material adverse
effect on the Parent and the Reorganization Corporations considered as a whole.
4.2 Capital Structure of the Parent.
(a) As of the Effective Time, (i) the authorized capital
stock of the Parent will consist of Ten Million (10,000,000)
shares of common stock ("Parent Common Stock"), and (ii)
2,303,920 shares of Parent Common Stock will be issued and
outstanding. Shares of Parent Common Stock to be issued in the
Mergers, when issued in accordance with this Agreement, will be
validly issued, fully paid and nonassessable.
(b) Except for the Articles of Restatement of the Articles
of Incorporation of the Parent and the Amended and Restated
Articles of Incorporation of the Parent attached thereto
(collectively, the "Parent Recapitalization Documents"), there
are no options, warrants, calls, rights, commitments or
agreements of any character to which the Parent or any of the
Reorganization Corporations is a party or by which it is bound
obligating the Parent or any of the Reorganization Corporations
to issue, deliver or sell, or cause to be issued, delivered or
sold, shares of capital stock or obligating the Parent or
13
<PAGE> 21
any of the Reorganization Corporations to grant, extend or enter
into any such option, warrant, call, right, commitment or
agreement.
(c) Except for that certain Clyde Companies, Inc.
Stock Redemption Plan, adopted as of November 12, 1997 by the
Board of Directors of the Parent and the Parent Recapitalization
Documents, there are no outstanding contractual obligations of
the Parent or any of the Reorganization Corporations, to
repurchase, redeem or otherwise acquire any shares of capital
stock of the Parent or any of the Reorganization Corporations.
(d) Except for the Parent Recapitalization Documents, the
Parent has not (i) made or agreed to make any stock split or
stock dividend, or issued or permitted to be issued any shares of
capital stock or securities exercisable for or convertible into
shares of capital stock of the Parent or any of the
Reorganization Corporations.
(e) All of the outstanding shares of capital stock of each
Reorganization Corporation (i) are validly issued, fully paid and
nonassessable and free of any preemptive rights, and (ii) are
directly owned by the Parent, free and clear of all liens,
claims, pledges, agreements, voting or other restrictions,
charges or other encumbrances, with the result that the Parent
directly owns the entire equity interest in each of the
Reorganization Corporations.
4.3 Authority. The Parent has all requisite corporate power and
corporate authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Parent.
4.4 Execution and Delivery. This Agreement has been duly executed
and delivered by the Parent and constitutes a valid and binding obligation of
the Parent, enforceable against the Parent in accordance with its terms but
subject to (i) bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and equitable principles, and (ii) statutes, rules or procedures and
applicable case law limiting the availability of or prescribing the procedural
requirements for the exercise of remedies.
4.5 No Violations. The execution and delivery of this Agreement
does not, and the consummation of the transactions contemplated hereby will not,
(a) result in any Violation of any provision of the Articles of Incorporation or
Bylaws of the Parent, or (b) result in any Violation of (i) any loan or credit
agreement, note, mortgage, indenture, lease or other agreement, obligation,
instrument, permit, concession, franchise, license, statute, law, ordinance,
rule or regulation applicable to the Parent or its properties or assets (except
for such Violations as would not, singly or in the aggregate, have a material
adverse effect on the Parent), or (ii) any judgment, order or decree applicable
to the Parent or its properties or assets.
14
<PAGE> 22
4.6 Consents. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Authority is required
by or with respect to the Parent in connection with the execution and delivery
of this Agreement by the Parent, or the consummation by the Parent of the
transactions contemplated hereby, except for (a) the filing with the SEC of the
Registration Statement (including the Proxy Statement as a part thereof), (b)
the filing of the Articles of Merger with the Utah Division of Corporations and
appropriate documents with the relevant authorities of other states in which the
Parent is qualified to do business, (c) notices and other filings as may be
required under the HSR Act, (d) filings as may be required under state
securities laws and (e) such filings, authorizations, orders and approvals as
may be required under foreign laws.
4.7 Information Supplied. None of the information supplied or to
be supplied by the Parent for inclusion or incorporation by reference in the
Proxy Statement, at the date of mailing to the Acquired Corporation's
shareholders and at the time of the Special Meeting, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. All documents that
the Parent is responsible for filing with any Governmental Authority in
connection with the transactions contemplated hereby will comply as to form in
all material respects with the provisions of applicable law. Without limiting
any of the representations and warranties contained herein, no representation or
warranty by the Parent as of the date thereof contains any untrue statement of
material fact, or omits a material fact necessary in order to make the
statements contained therein, in light of the circumstances under which such
statements are or will be made, not misleading.
4.8 Financial Statements. The financial statements of the Parent
(including any balance sheets and statements of income, changes in stockholders'
equity and cash flow, together with any reports thereon of independent certified
public accountants) provided by the Parent in connection with the preparation of
the Registration Statement, fairly present the financial condition and the
results of operations, changes in stockholders' equity and cash flow of the
Parent as at the respective dates of and for the periods referred to in such
financial statements, all in accordance with GAAP. The financial statements
referred to in this Section 4.8 reflect the consistent application of accounting
principles throughout the periods involved, except as otherwise disclosed in the
notes to such financial statements.
4.9 Litigation. There are no Proceedings commenced by or against
the Parent or any of the Reorganization Corporations (or that otherwise relate
to or may affect the business or the assets of the Parent or any of the
Reorganization Corporations) that either (a) challenge or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with any of
transactions specified in this Agreement, or (b) would reasonably be expected to
have a material adverse effect on the Parent and the Reorganization Corporations
considered as a whole. To the knowledge of the Parent, (a) no such Proceeding
has been threatened, and (b) no event has occurred or circumstance exists that
may give rise to or serve as a basis for the commencement of any such
Proceeding.
15
<PAGE> 23
4.10 Undisclosed Liabilities. The Parent is not subject to any
liabilities of any nature which have had or can reasonably be expected to have a
material adverse effect on its business or financial prospects.
V. Conditions to Closing
5.1 Conditions to the Corporations' Obligations. The respective
obligations of each of the Corporations to consummate the Mergers shall be
subject to the satisfaction, on or prior to the Closing Date, of each of the
following conditions:
(a) This Agreement shall have been approved by (i) the
shareholders of each of the Reorganization Corporations and the
Acquired Corporations in accordance with the URBCA, and (ii) a
majority of the shareholders of the Parent in accordance with
resolutions duly adopted by the Board of Directors of the Parent.
(b) The total value of all of the Dissenting Shares, as
determined in accordance with the appraisals of the Acquired
Companies prepared by Houlihan Valuation Advisors and dated
October 23, 1997 (the "HVA Appraisals") (after applying the
discount for minority interest provided for in the HVA
Appraisals), shall not be greater than five percent (5%) of the
aggregate value of the Acquired Companies, as determined in
accordance with the HVA Appraisals (without applying any
discounts for minority interest).
(c) The Parent and the Acquired Corporations shall have
received the opinion of Grant Thorton LLP that the Mergers
constitute tax-free transfers in accordance with Section 351 of
the Code or tax-free reorganizations in accordance with Section
368(a)(1)(B) of the Code.
(d) No Governmental Authority shall have issued any order,
and there shall not be any statute, rule, decree or regulation
restraining, prohibiting or making illegal the consummation of
the Merger.
(e) Any waiting period applicable to the consummation of
the Mergers under the HSR Act shall have expired or been
terminated.
5.2 Conditions to the Obligations of the Acquired Corporations.
The obligation of the Acquired Corporations to effect the Mergers is further
subject to the satisfaction or waiver, on or prior to the Closing Date, of each
of the following conditions:
(a) The representations and warranties of the Parent
contained in this Agreement shall be true and correct in all
material respects when made and as of the Closing Date (except
for matters which specifically address a particular date which
need only be true and correct as of such date).
16
<PAGE> 24
(b) The Parent shall have performed in all material
respects all of the obligations to be performed by it under this
Agreement prior to the Closing Date.
(c) A responsible officer of the Parent shall have
provided the Acquired Corporations with a certificate dated the
Closing Date which provides (i) that the matters referred to in
subsections (a) and (b) of this Section 5.2 are accurate and
complete, (ii) that the Parent is prepared in all material
respects to perform, and shall perform, all of the obligations to
be performed by it under this Agreement up to the Effective Time,
and (iii) for statements of fact with respect to such other
matters as the Acquired Corporations may reasonably request.
5.3 Conditions to the Obligations of the Parent. The obligation
of the Parent to effect the Mergers is further subject to the satisfaction or
waiver, on or prior to the Closing Date, of each of the following conditions:
(a) The representations and warranties of each of the
Acquired Corporations contained in this Agreement shall be true
and correct in all material respects when made and as of the
Closing Date (except for matters which specifically address a
particular date which need only be true and correct as of such
date).
(b) Each of the Acquired Corporations shall have performed
in all material respects all of the obligations to be performed
by it under this Agreement prior to the Closing Date.
(c) A responsible officer of each of the Acquired
Corporations shall have provided the Parent with a certificate
dated the Closing Date which provides (i) that the matters
referred to in subsections (a) and (b) of this Section 5.3 are
accurate and complete, (ii) that the Acquired Corporation is
prepared in all material respects to perform, and shall perform,
all of the obligations to be performed by it under this Agreement
up to the Effective Time, and (iii) for statements of fact with
respect to such other matters as the Parent may reasonably
request.
(d) The Parent shall have received a written
agreement substantially in the form of Exhibit 5.3(d) attached
hereto (the "Affiliates Agreement") from each person who is an
"affiliate" (as such term is used in paragraphs (c) and (d)of
Rule 145 of the Securities Act) of any of the Parent, Clyde,
Geneva Rock, Utah Service or Beehive Insurance at or prior to the
Effective Time (each of such persons being identified in the
Affiliates Agreement).
17
<PAGE> 25
VI. Termination
6.1 Right to Terminate. Notwithstanding any other provision of this
Agreement to the contrary, this Agreement may be terminated and the Mergers may
be abandoned at any time prior to the Effective Time, whether before or after
shareholder approval, in accordance with Sections 6.2 through 6.4 below.
6.2 Automatic Termination. Unless otherwise agreed in writing by
each of the Corporations, this Agreement shall be automatically terminated,
without any further actions by any of the Corporations (except as may be
otherwise required by the URBCA), if (a) any Governmental Authority shall have
issued a statute, order, decree or regulation or taken any other action
permanently restraining or enjoining or otherwise materially restricting the
consummation of the transactions contemplated by this Agreement and such
statute, order, decree, regulation or other action shall have become final and
non-appealable, or (b) the Mergers have not been consummated on or before June
30, 1998.
6.3 Termination by the Acquired Corporations. This Agreement may
be terminated by the Boards of Directors of the Acquired Corporations, acting
jointly, if the Parent breaches or fails in any material respect to perform or
comply with any of its covenants and agreements contained herein or breaches its
representations and warranties in any material respect; provided, however, that
if any such breach is curable by the breaching party through the exercise of the
breaching party's reasonable best efforts and for so long as such breaching
party shall be so attempting to cure such breach for a period not to exceed 20
days, the Acquired Corporations may not terminate this Agreement pursuant to
this Section 6.3.
6.4 Termination by the Parent. This Agreement may be terminated
by the Board of Directors of the Parent if any of the Acquired Corporations
breaches or fails in any material respect to perform or comply with any of its
covenants and agreements contained herein or breaches its representations and
warranties in any material respect; provided, however, that if any such breach
is curable by the Acquired Corporation through the exercise of the Acquired
Corporation's reasonable best efforts and for so long as the Acquired
Corporations shall be so attempting to cure such breach for a period not to
exceed 20 days, the Parent may not terminate this Agreement pursuant to this
Section 6.4.
6.5 Notice of Termination. In the event of the termination of this
Agreement as provided in Sections 6.3 or 6.4 above, written notice thereof shall
forthwith be given to the other party and such written notice shall specify the
provision of this Agreement pursuant to which such termination is made.
6.6 Effect of Termination. Upon the termination of this Agreement
pursuant to any of Sections 6.2, 6.3 or 6.4 above, this Agreement shall
thereupon become null and void and there shall be no liability on the part of
any of the Corporations to the other (or to any other person). Without limiting
the generality of the foregoing, the Corporations expressly agree (a) that the
sole remedy for any breach of this Agreement shall be the termination rights
contained in Sections 6.3 or 6.4 above, and (b) that in the event of any breach
of this Agreement, the breaching party shall have no liability to any person
whatsoever (including, without limitation, liability for actual, consequential,
punitive, exemplary or special damages).
18
<PAGE> 26
VII. General Provisions
7.1 Approval. This Agreement has been approved by the Board of Directors
and the shareholders of each of the Corporations as required by the URBCA.
7.2 Actions Prior to Closing. Between the date of this Agreement and the
Effective Time, (a) the Acquired Corporations shall each operate their
respective businesses in accordance with sound business practices and shall not
engage in any transactions other than in the ordinary course of business, and
(b) neither the Parent nor any of the Acquired Corporations shall issue any
additional shares of its capital stock (except, the Parent shall issue shares of
Parent Common Stock in accordance with the Parent Recapitalization Documents).
7.3 Taxation of Transaction. The Corporations intend that the
transactions contemplated by this Agreement shall constitute tax-free transfers
and/or reorganizations pursuant to Sections 351 and 368 of the Code. Therefore,
all of the terms and provisions of this Agreement shall be interpreted so that
such terms and provisions are in accordance with Sections 351 and 368 of the
Code.
7.4 Additional Actions. The officers of the Corporations shall execute
all such other documents and shall take all such other actions as may be
necessary or advisable to make this Agreement and the Mergers effective.
7.5 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified or supplemented at any time prior to the
Closing Date by the written agreement of each of the Corporations and the
Parent.
7.6 Waiver of Compliance. Except as otherwise provided in this
Agreement, any failure of any of the Corporations to comply with any obligation,
covenant, agreement or condition herein may be waived by the party entitled to
the benefits thereof only by a written instrument signed by the party granting
such waiver, but such waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure.
7.7 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, by overnight express
courier service or by facsimile transmission (in each case, as of the date of a
written receipt obtained by the party giving such notice), to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Clyde, to:
1375 N. Main Street
Springville, Utah 84663
Facsimile: (801) 489-7653
(b) if to Geneva Rock, to:
19
<PAGE> 27
302 West 5400 South
Suite 200
Murray, Utah 84107
Facsimile: (801) 765-7830
(c) if to the Utah Service, to:
35 East 400 South
Springville, Utah 84663
Facsimile: (801) 489-8978
(d) if to the Beehive Insurance, to:
302 West 5400 South
Suite 109
Murray, Utah 84107
Facsimile: (801) 685-2899
(e) if to the Parent, to:
1423 Devonshire Drive
Salt Lake City, Utah 84108
Facsimile: (801) ___-____
Copies of any notices should be provided to counsel as follows:
Van Cott, Bagley, Cornwall & McCarthy
50 South Main Street, Suite 1600
Salt Lake City, Utah 84144
Attention: David E. Salisbury, Esq.
Facsimile: (801) 534-0058
7.8 Assignment. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the Corporations and their respective
successors and assigns.
7.9 Third Party Rights. This Agreement is not intended to confer upon
any other person except the Corporations any rights or remedies hereunder.
7.10 Interpretation. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not in any way affect the meaning or interpretation of
this Agreement. All words used in this Agreement shall be construed to be of
such gender or number as the circumstances require.
20
<PAGE> 28
7.11 Entire Agreement. This Agreement, including any certificates and
instruments referred to herein, embody the entire agreement and understanding of
the Corporations in respect of the transactions contemplated by this Agreement.
There are no restrictions, promises, representations, warranties, covenants or
undertakings, other than those expressly set forth or referred to herein. This
Agreement supersedes all prior agreements and understandings between the
Corporations with respect to such transactions.
7.12 Expenses. If the Mergers are consummated in accordance with
this Agreement, the Parent shall pay all of the expenses incurred by the
Corporations in connection with transactions contemplated by this Agreement. If
this Agreement is terminated, (a) each Corporation shall pay its pro rata share
(based upon the valuation of each of the Corporations as set forth in the HVA
Appraisals) of the expenses incurred by all of the Corporations in connection
with transactions contemplated by this Agreement, and (b) the officers of each
of the Corporations shall, in good faith, take all of the actions which may be
necessary or advisable to cause such expenses to be paid in accordance with
clause (a) above.
7.13 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.14 Governing Law. This Agreement shall be governed by the laws of the
State of Utah (regardless of the laws that might otherwise govern under
applicable principles of conflicts of law) as to all matters, including but not
limited to matters of validity, construction, effect, performance and remedies.
[signature page follows]
21
<PAGE> 29
IN WITNESS WHEREOF, this Agreement has been executed by the duly
authorized officers of the Corporations as of the date first written above.
Acquired
Corporations: W.W. Clyde & Co., a Utah corporation
By: ____________________________
Its: ___________________________
Geneva Rock Products, Inc., a Utah corporation
By:
----------------------------
Its:
---------------------------
Utah Service Inc., a Utah corporation
By:
----------------------------
Its:
---------------------------
Beehive Insurance Agency, Inc., a Utah
corporation
By:
----------------------------
Its:
---------------------------
22
<PAGE> 30
Reorganization
Corporations: W.W. Clyde Reorganization
Corporation, a Utah corporation
Geneva Rock Reorganization
Corporation, a Utah corporation
Utah Service Reorganization
Corporation, a Utah corporation
Beehive Insurance Reorganization
Corporation, a Utah corporation
By:
----------------------------
Their:
---------------------------
The Parent: Clyde Companies, Inc.,
a Utah corporation
By:
----------------------------
Its:
---------------------------
23
<PAGE> 1
[EXHIBIT 3.1]
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
CLYDE COMPANIES, INC.
(FORMERLY W.W. CLYDE INVESTMENT CO.)
Pursuant to and in accordance with Section 16-10a-1007 of the
Utah Revised Business Corporation Act (the "URBCA"), the following are the
Amended and Restated Articles of Incorporation of Clyde Companies, Inc.
(formerly W.W. Clyde Investment Co.), a Utah corporation (the "Corporation"):
ARTICLE I
NAME
The name of the Corporation is Clyde Companies, Inc.
ARTICLE II
PURPOSES AND POWERS
The Corporation is organized to engage in any and all lawful
acts, activities, and/or pursuits for which corporations may presently or
hereafter be organized under the URBCA.
The Corporation shall have all powers allowed by law, including
without limitation those powers described in Section 302 of the URBCA. The
purposes stated herein shall be construed as powers as well as purposes and the
enumeration of a specific purpose or power shall not be construed to limit or
restrict the meaning of general terms or the general powers; nor shall the
expression of one thing be deemed to exclude another not expressed, although it
be of like nature.
ARTICLE III
AUTHORIZED SHARES
The aggregate number of shares which the Corporation shall have
authority to issue is Ten Million (10,000,000) shares of common stock. All
voting rights of the Corporation shall be exercised by the holders of the common
stock and the holders of the common stock of the Corporation shall be entitled
to receive the net assets of the Corporation upon dissolution. All shares of the
common stock shall be fully paid and nonassessable.
24
<PAGE> 2
ARTICLE IV
OFFICER AND DIRECTOR LIABILITY
1. Except as otherwise required by Utah law, the Corporation
shall indemnify and advance expenses to its directors, officers, employees,
fiduciaries or agents and to any person who is or was serving at the
Corporation's request as a director, officer, partner, trustee, employee,
fiduciary or agent of another domestic or foreign corporation or other person or
of an employee benefit plan (and their respective estates or personal
representatives) to the fullest extent as from time to time permitted by Utah
law.
2. The personal liability of the directors and officers of the
Corporation to the Corporation or its shareholders, or to any third person,
shall be eliminated or limited to the fullest extent as from time to time
permitted by Utah law.
3. Any repeal or modification of this Article IV by the
shareholders of the Corporation shall not adversely affect any right or
protection of any person existing at the time of such repeal or modification.
25
<PAGE> 1
[EXHIBIT 3.2]
A M E N D E D A N D R E S T A T E D
B Y L A W S
OF
CLYDE COMPANIES, INC.
A UTAH CORPORATION
1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1. OFFICES
Section 1.1. Business Offices.......................................................1
Section 1.2. Registered Office......................................................1
ARTICLE 2. SHAREHOLDERS
Section 2.1. Annual Shareholder Meeting.............................................1
Section 2.2. Special Shareholder Meetings...........................................1
Section 2.3. Place of Shareholder Meetings..........................................2
Section 2.4. Notice of Shareholder Meeting..........................................2
Section 2.5. Fixing of Record Date..................................................4
Section 2.6. Shareholder List.......................................................5
Section 2.7. Shareholder Quorum and Voting Requirements.............................5
Section 2.8. Proxies................................................................6
Section 2.9. Voting of Shares.......................................................6
Section 2.10. Corporation's Acceptance of Votes.....................................7
Section 2.11. Informal Action by Shareholders.......................................9
Section 2.12. Waiver of Notice.....................................................10
Section 2.13. Voting for Directors.................................................10
Section 2.14. Rights of Shareholders to Inspect Corporate Records..................10
Section 2.15. Furnishing Financial Statements to a Shareholder.....................12
Section 2.16. Information Respecting Shares........................................12
ARTICLE 3. BOARD OF DIRECTORS
Section 3.1. General Powers........................................................13
Section 3.2. Number, Tenure and Qualifications of Directors........................13
Section 3.3. Regular Meetings of the Board of Directors............................14
Section 3.4. Special Meetings of the Board of Directors............................14
Section 3.5. Notice and Waiver of Notice of Special Director Meetings..............14
Section 3.6. Quorum of Directors...................................................15
Section 3.7. Manner of Acting......................................................15
Section 3.8. Director Action By Written Consent....................................16
Section 3.9. Resignation of Directors..............................................16
Section 3.10. Removal of Directors.................................................16
Section 3.11. Board of Director Vacancies..........................................17
Section 3.12. Director Compensation................................................17
Section 3.13. Director Committees..................................................18
Section 3.14. Director's Rights to Inspect Corporate Records.......................18
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 4. EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 4.1. Creation of Committees................................................19
Section 4.2. Approval of Committees and Members....................................20
Section 4.3. Required Procedures...................................................20
Section 4.4. Authority.............................................................20
Section 4.5. Authority of Executive Committee......................................20
Section 4.6. Compensation..........................................................20
ARTICLE 5. OFFICERS
Section 5.1. Officers..............................................................21
Section 5.2. Appointment and Term of Office........................................21
Section 5.3. Resignation of Officers...............................................21
Section 5.4. Removal of Officers...................................................21
Section 5.5. The Chairman of the Board.............................................22
Section 5.6. The Vice Chairman.....................................................22
Section 5.7. Chief Executive Officer...............................................22
Section 5.8. President.............................................................23
Section 5.9. Vice Presidents.......................................................23
Section 5.10. Secretary............................................................24
Section 5.11. Treasurer............................................................24
Section 5.12. Assistant Secretaries and Assistant Treasurers.......................25
Section 5.13. General Manager......................................................25
Section 5.14. Salaries.............................................................26
Section 5.15. Surety Bonds.........................................................26
ARTICLE 6. LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 6.1. Limitation of Liability of Directors..................................26
Section 6.2. Indemnification of Directors..........................................27
Section 6.3. Advance Payment of Expenses...........................................28
Section 6.4. Indemnification of Officers, Employees, Fiduciaries, and Agents.......28
Section 6.5. Insurance.............................................................28
ARTICLE 7. EXECUTION OF INSTRUMENTS, BORROWING OF MONEY AND DEPOSIT OF
CORPORATE FUNDS
Section 7.1. Execution of Instruments..............................................29
Section 7.2. Loans.................................................................29
Section 7.3. Deposits..............................................................29
Section 7.4. Checks, Drafts, etc...................................................30
Section 7.5. Bonds and Debentures..................................................30
</TABLE>
ii
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Section 7.6. Sale, Transfer, etc. of Securities....................................30
Section 7.7. Proxies...............................................................30
ARTICLE 8. CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 8.1. Certificates for Shares...............................................31
Section 8.2. Shares Without Certificates...........................................32
Section 8.3. Registration of Transfer of Shares....................................32
Section 8.4. Transfer Agents and Registrars........................................32
Section 8.5. Restrictions on Transfer of Shares Permitted..........................33
Section 8.6. Acquisition of Shares.................................................34
Section 8.7. Lost or Destroyed Certificates........................................34
ARTICLE 9. DISTRIBUTIONS
Section 9.1. Distributions.........................................................35
ARTICLE 10. CORPORATE SEAL
Section 10.1. Corporate Seal.......................................................35
ARTICLE 11. FISCAL YEAR
Section 11.1. Fiscal Year..........................................................35
ARTICLE 12. AMENDMENTS
Section 12.1. Amendments...........................................................35
</TABLE>
iii
<PAGE> 5
AMENDED AND RESTATED
BYLAWS
OF
CLYDE COMPANIES, INC.
ARTICLE 1. OFFICES
Section 1.1. Business Offices. The principal office of Clyde
Companies, Inc. (the "Corporation") shall be located at any place either within
or outside the State of Utah, as designated in the Corporation's Articles of
Incorporation or the Corporation's most recent annual report on file with the
Utah Department of Commerce, Division of Corporations and Commercial Code (the
"Division") providing such information. The Corporation may have such other
offices, either within or outside the State of Utah as the Board of Directors
may designate or as the business of the Corporation may require from time to
time. The Corporation shall maintain at its principal office a copy of those
records specified in Section 2.14 of Article II of these Bylaws.
(16-10a-102(24))*
Section 1.2. Registered Office. The registered office of the
Corporation required by the Utah Revised Business Corporation Act shall be
located within the State of Utah. The address of the registered office may be
changed from time to time. (16-10a-501 and 16-10a-502)
ARTICLE 2. SHAREHOLDERS
Section 2.1. Annual Shareholder Meeting. An annual meeting of the
shareholders shall be held each year on the date, at the time and at the place,
fixed by the Board of Directors. The annual meeting shall be held for the
purpose of electing directors and for the transaction of such other business as
may come before the meeting. (16-10a-701)
Section 2.2. Special Shareholder Meetings. Special meetings of
the shareholders may be called, for any purposes described in the notice of the
meeting, by the President, or by the Board of Directors and shall be called by
the
- ------------------------------
* Citations in parentheses are to Utah Code Annotated. These citations are
for reference only and shall not constitute a part of these bylaws.
<PAGE> 6
President at the request of the holder(s) of not less than one-tenth of all
outstanding votes of the Corporation entitled to be cast on any issue at the
meeting. (16-10a-702)
Section 2.3. Place of Shareholder Meetings. The Board of
Directors may designate any place, either within or outside the State of Utah,
as the place for any annual meeting of the shareholders. The President, the
Board of Directors or the shareholder(s) authorized by these Bylaws to request a
meeting, as the case may be, may designate any place, either within or outside
the State of Utah, as the place for any special meeting of the shareholders
called by such person or group. If no designation is made regarding the place of
the meeting, the meeting shall be held at the principal office of the
Corporation. (16-10a-701(2) and 16-10a-702(3))
Section 2.4. Notice of Shareholder Meeting.
(a) Required Notice. Written notice stating the place, day and
hour of any annual or special shareholder meeting shall be delivered not less
than ten (10) nor more than sixty (60) days before the date of the meeting,
either personally or by mail, by or at the direction of the person or group
calling the meeting, to each shareholder of record entitled to vote at such
meeting, and to any other shareholder entitled by the Utah Revised Business
Corporation Act or the Corporation's Articles of Incorporation to receive notice
of the meeting. Notice shall be deemed to be effective when mailed.
(b) Notice Not Required. Notice shall not be required to be given
to any shareholder to whom:
(1) A notice of two consecutive annual meetings, and all
notices of meetings or of the taking of action by written consent
without a meeting during the period between the two consecutive
annual meetings, have been mailed, addressed to the shareholder
at the shareholder's address as shown on the records of the
Corporation and have been returned undeliverable; or
(2) at least two payments, if sent by first class mail, of
dividends or interest on securities during a twelve month period,
have been mailed, addressed to the shareholder at the
shareholder's address as shown on the records of the Corporation,
and have been returned undeliverable.
If a shareholder to whom notice is not required to be given
delivers to the Corporation a written notice setting forth the shareholder's
current address, or if another address
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for the shareholder is otherwise made known to the Corporation, the requirement
that notice be given to the shareholder is reinstated. (16-10a-103 and
16-10a-705)
(c) Adjourned Meeting. If any shareholder meeting is adjourned to
a different date, time or place, notice need not be given of the new date, time
or place, if the new date, time or place is announced at the meeting before
adjournment. However, if the adjournment is for more than thirty (30) days, or
if after the adjournment a new record date for the adjourned meeting is or must
be fixed (see Section 2.5 of these Bylaws), then notice must be given pursuant
to the requirements of paragraph (a) of this Section 2.4 to shareholders of
record who are entitled to vote at the meeting. (16-10a-705(4))
(d) Contents of Notice. Notice of any special meeting of the
shareholders shall include a description of the purpose or purposes for which
the meeting is called. Except as provided in this paragraph (d) of Section 2.4,
in the Articles of Incorporation or in the Utah Revised Business Corporation
Act, notice of an annual meeting of the shareholders need not include a
description of the purpose or purposes for which the meeting is called.
(16-10a-705(2), (3))
(e) Waiver of Notice of Meeting. Any shareholder may waive notice
of a meeting by a writing signed by the shareholder which is delivered to the
Corporation (either before or after the date and time stated in the notice as
the date or time when any action will occur or has occurred) for inclusion in
the minutes or filing with the Corporation's records. (16-10a-706)
(f) Effect of Attendance at Meeting. A shareholder's attendance
at a meeting:
(1) Waives objection to lack of notice or defective notice
of the meeting, unless the shareholder at the beginning of the
meeting objects to holding the meeting or transacting business at
the meeting; and
(2) waives objection to consideration of a particular
matter at the meeting that is not within the purpose or purposes
described in the meeting notice, unless the shareholder objects
to considering the matter when it is presented. (16-10a-706)
Section 2.5. Fixing of Record Date. For the purpose of
determining the shareholders of any voting group entitled to notice of or to
vote at any meeting of the shareholders, or the shareholders entitled to take
action without a meeting or to demand a special meeting, or the shareholders
entitled to receive payment of any distribution or dividend, or in order to make
a determination of the shareholders for any other proper purpose, the Board of
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Directors may fix in advance a date as the record date. Such record date shall
not be more than seventy (70) days prior to the date on which the particular
action, requiring such determination of the shareholders, is to be taken. If no
record date is so fixed by the Board of Directors, the record date shall be at
the close of business on the following dates:
(a) Annual and Special Meetings. With respect to an annual
meeting of the shareholders or any special meeting of the shareholders called by
the President, the Board of Directors or the shareholder(s) authorized by these
Bylaws to request a meeting, the day before the first notice is delivered to
shareholders. (16-10a-707(2))
(b) Meeting Demanded by Shareholders. With respect to a special
shareholder meeting demanded by the shareholders pursuant to the Utah Revised
Business Corporation Act, the earliest date of any of the demands pursuant to
which the meeting is called, or sixty (60) days prior to the date the first of
the written demands is received by the Corporation, whichever is later.
(16-10a-702(1)(b), (2))
(c) Action Without a Meeting. With respect to actions taken in
writing without a meeting (pursuant to Section 2.11 of these Bylaws), the date
the first shareholder delivers to the Corporation a signed written consent upon
which the action is taken.
(16-10a-704(6))
(d) Distributions. With respect to a distribution to the
shareholders (other than one involving a repurchase or reacquisition of shares),
the date the Board of Directors authorizes the distribution. (16-10a-640(2))
(e) Share Dividend. With respect to the payment of a share
dividend, the date the Board of Directors authorizes the share dividend.
(16-10a-623(3))
When a determination of the shareholders entitled to vote at any
meeting of the shareholders has been made as provided in this Section 2.5, such
determination shall apply to any adjournment thereof unless the Board of
Directors fixes a new record date, which it must do if the meeting is adjourned
to a date more than one hundred twenty (120) days after the date fixed for the
original meeting. (16-10a-707)
Section 2.6. Shareholder List. The Secretary shall make a
complete record of the shareholders entitled to vote at each meeting of
shareholders, arranged in alphabetical order within each class or series, with
the address of and the number of shares held by each. If voting groups exist
(see Section 2.7 of these Bylaws), the list must be arranged by voting group,
and within each voting group by class or series of shares. The shareholder list
must be available for inspection by any shareholder, beginning on the earlier of
ten (10) days before the meeting for
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<PAGE> 9
which the list was prepared or two (2) business days after notice of the meeting
is given and continuing through the meeting and any adjournments. The list shall
be available at the Corporation's principal office or at a place identified in
the notice of the meeting in the city where the meeting is to be held. A
shareholder, his agent or attorney is entitled on written demand to inspect and,
subject to the requirements of Section 2.14 of these Bylaws, to inspect and copy
the list during regular business hours and during the period it is available for
inspection. The Corporation shall maintain the shareholder list in written form
or in another form capable of conversion into written form within a reasonable
time. (16-10a-720)
Section 2.7. Shareholder Quorum and Voting Requirements.
(a) Quorum. Unless the Articles of Incorporation, a Bylaw adopted
by the shareholders pursuant to the Utah Revised Business Corporation Act or the
Utah Revised Business Corporation Act provides otherwise, a majority of the
votes entitled to be cast on the matter by the voting group constitutes a quorum
of that voting group for action on that matter. (16-10a-725(1))
(b) Approval of Actions. If a quorum exists, action on a matter
(other than the election of directors) by a voting group is approved if the
votes cast within the voting group favoring the action exceed the votes cast
opposing the action, unless the Articles of Incorporation, a Bylaw adopted by
the shareholders pursuant to the Utah Revised Business Corporation Act or the
Utah Revised Business Corporation Act requires a greater number of affirmative
votes. (16-10a-725(3))
(c) Single Voting Group. If the Articles of Incorporation or the
Utah Revised Business Corporation Act provides for voting by a single voting
group on a matter, action on that matter is taken when approved by that voting
group.
(16-10-726(1))
(d) Voting Groups. Shares entitled to vote as a separate voting
group may take action on a matter at a meeting only if a quorum of those shares
exists with respect to that matter. (16-10a-725(1)) If the Articles of
Incorporation or the Utah Revised Business Corporation Act provides for voting
by two or more voting groups on a matter, action on that matter is taken only
when approved by each of those voting groups counted separately. One voting
group may vote on a matter even though another voting group entitled to vote on
the matter has not voted. (16-10a-726(2))
(e) Effect of Representation. Once a share is represented for any
purpose at a meeting, including the purpose of determining that a quorum exists,
it is deemed present for
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<PAGE> 10
quorum purposes for the remainder of the meeting and for any adjournment of that
meeting, unless a new record date is or must be set for that adjourned meeting.
(16-10a-725(2))
Section 2.8. Proxies. At all meetings of the shareholders, a
shareholder may vote in person or by a proxy executed in any lawful manner. Such
proxy shall be filed with the Corporation before or at the time of the meeting.
No proxy shall be valid after eleven months from the date of its execution
unless otherwise provided in the proxy. (16-10a-722)
Section 2.9. Voting of Shares.
(a) Votes per Share. Unless otherwise provided in the Articles of
Incorporation, each outstanding share entitled to vote shall be entitled to one
vote, and each fractional share shall be entitled to a corresponding fractional
vote, upon each matter submitted to a vote at a meeting of shareholders.
(16-10a-721(1))
(b) Restriction on Shares Held by Controlled Corporation. Except
as provided by specific court order, no shares of the Corporation held by
another corporation, if a majority of the shares entitled to vote for the
election of directors of such other corporation are held by the Corporation,
shall be voted at any meeting of the Corporation or counted in determining the
total number of outstanding shares at any given time for purposes of any
meeting. However, the power of the Corporation to vote any shares, including its
own shares, held by it in a fiduciary capacity is not hereby limited.
(16-10a-721(2), (3))
(c) Redeemable Shares. Redeemable shares are not entitled to be
voted after notice of redemption is mailed to the holders thereof and a sum
sufficient to redeem the shares has been deposited with a bank, trust company or
other financial institution under an irrevocable obligation to pay the holders
the redemption price on surrender of the shares. (16-10a-721(4))
Section 2.10. Corporation's Acceptance of Votes.
(a) Corresponding Name. If the name signed on a vote, consent,
waiver, proxy appointment or proxy appointment revocation corresponds to the
name of a shareholder, the Corporation, if acting in good faith, is entitled to
accept the vote, consent, waiver, proxy appointment or proxy appointment
revocation and give it effect as the act of the shareholder. (16-10a-724(1))
(b) Name does not Correspond. If the name signed on a vote,
consent, waiver, proxy appointment or proxy appointment revocation does not
correspond to the name of a shareholder, the Corporation, if acting in good
faith, is nevertheless entitled to accept the vote,
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<PAGE> 11
consent, waiver, proxy appointment or proxy appointment revocation and give it
effect as the act of the shareholder if:
(1) The shareholder is an entity as defined in the Utah
Revised Business Corporation Act and the name signed purports to
be that of an officer or agent of the entity;
(2) the name signed purports to be that of an
administrator, executor, guardian or conservator representing the
shareholder and, if the Corporation requests, evidence of
fiduciary status acceptable to the Corporation has been presented
with respect to the vote, consent, waiver, proxy appointment or
proxy appointment revocation;
(3) the name signed purports to be that of a receiver or
trustee in bankruptcy of the shareholder and, if the Corporation
requests, evidence of this status acceptable to the Corporation
has been presented with respect to the vote, consent, waiver,
proxy appointment or proxy appointment revocation;
(4) the name signed purports to be that of a pledgee,
beneficial owner or attorney-in-fact of the shareholder and, if
the Corporation requests, evidence acceptable to the Corporation
of the signatory's authority to sign for the shareholder has been
presented with respect to the vote, consent, waiver, proxy
appointment or proxy appointment revocation;
(5) two or more persons are the shareholder as cotenants
or fiduciaries and the name signed purports to be the name of at
least one of the cotenants or fiduciaries and the person signing
appears to be acting on behalf of all the cotenants or
fiduciaries; or
(6) the acceptance of the vote, consent, waiver, proxy
appointment or proxy appointment revocation is otherwise proper
under rules established by the Corporation that are not
inconsistent with the provisions of this Section 2.10.
(16-10a-724(2))
(c) Shares owned by Two or More Persons. If shares of the
Corporation are registered in the names of two or more persons, or if two or
more persons have the same fiduciary relationship respecting the same shares,
unless the Secretary is given written notice to the contrary and furnished with
a copy of the instrument creating the relationship, their acts with respect to
voting shall have the following effect:
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<PAGE> 12
(1) If only one votes, the act binds all;
(2) if more than one vote, the act of the majority so
voting binds all;
(3) if more than one vote, but the vote is evenly split on
any particular matter, each faction may vote the securities in
question proportionately; and
(4) if the instrument so filed or the registration of the
shares shows that any tenancy is held in unequal interests, a
majority or even split for the purpose of this Section 2.10 shall
be a majority or even split in interest. (16-10a-724(3))
(d) Rejection. The Corporation is entitled to reject a vote,
consent, waiver, proxy appointment or proxy appointment revocation if the
Secretary or other officer or agent authorized to tabulate votes, acting in good
faith, has reasonable basis for doubt about the validity of the signature on it
or about the signatory's authority to sign for the shareholder. (16-10a-724(4))
(e) No Liability. The Corporation and its officer or agent who
accepts or rejects a vote, consent, waiver, proxy appointment or proxy
appointment revocation in good faith and in accordance with the standards of
this Section 2.10 are not liable in damages to the shareholder for the
consequences of the acceptance or rejection. (16-10a-724(5))
(f) Validity. Corporate action based on the acceptance or
rejection of a vote, consent, waiver, proxy appointment or proxy appointment
revocation under this Section 2.10 is valid unless a court of competent
jurisdiction determines otherwise. (16-10a-724(6))
Section 2.11. Informal Action by Shareholders.
(a) Written Consent. Unless otherwise provided in the Articles of
Incorporation, any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice if one or
more consents in writing, setting forth the action so taken, are signed by all
of the shareholders entitled to vote on the matter. (16-10a-704)
(b) Revocation. Any shareholder giving a written consent, or the
shareholders' proxyholder, or a transferee of the shares or a personal
representative of the shareholder or their respective proxyholder, may revoke
the consent by a signed writing describing the action and stating that the
shareholder's prior consent is revoked, if the writing is received by the
Corporation prior to the effectiveness of the action.
(16-10a-704(3))
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(c) Effective Date. Action taken pursuant to this Section 2.11 is
not effective unless all written consents on which the Corporation relies for
the taking of action are received by the Corporation within a sixty (60) day
period and are not revoked. Action thus taken is effective as of the date the
last written consent necessary to effect the action is received by the
Corporation; provided, however, that the effective date of the action may be any
date that is specified in all the written consents as the effective date of the
action. The writing may be received by the Corporation by electronically
transmitted facsimile or other form of communication providing the Corporation
with a complete copy thereof, including a copy of the signature. (16-10a-704(4))
(d) Effect of Action Without a Meeting. Action taken under this
Section 2.11 has the same effect as action taken at a meeting of shareholders
and may be so described in any document. (16-10a-704(7))
Section 2.12. Waiver of Notice. A shareholder may waive any
notice required by the Utah Revised Business Corporation Act, the Corporation's
Articles of Incorporation or these Bylaws. Such a waiver may be made before or
after the date and time stated in the notice as the date or time when any action
will occur or has occurred. Such a waiver must be in a writing signed by the
shareholder and must be delivered to the Corporation for inclusion in the
minutes of the relevant meeting of the shareholders or in the Corporation's
records. (16-10a-706(1))
Section 2.13. Voting for Directors. At each election of
directors, unless otherwise provided in the Articles of Incorporation or the
Utah Revised Business Corporation Act, every shareholder entitled to vote at the
election has the right to vote, in person or by proxy, all of the votes to which
the shareholder's shares are entitled for as many persons as there are directors
to be elected and for whose election the shareholder has the right to vote.
Unless otherwise provided in the Articles of Incorporation or the Utah Revised
Business Corporation Act, directors are elected by a plurality of the votes cast
by the shares entitled to be voted in the election, at a meeting at which a
quorum is present.
(16-10a-728(1), (2))
Section 2.14. Rights of Shareholders to Inspect Corporate
Records.
(a) Minutes and Accounting Records. The Corporation shall keep,
as permanent records, minutes of all meetings of its shareholders and Board of
Directors, a record of all actions taken by its shareholders or Board of
Directors without a meeting, a record of all actions taken on behalf of the
Corporation by a committee of the Board of Directors in place of the Board of
Directors, and a record of all waivers of notices of meetings of its
shareholders,
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<PAGE> 14
meetings of the Board of Directors, or any meetings of committees of the Board
of Directors. The Corporation shall maintain appropriate accounting records.
(16-10a-1601(1), (2))
(b) Absolute Inspection Rights. If a shareholder gives the
Corporation written notice of the shareholder's demand at least five (5)
business days before the date on which the shareholder wishes to inspect and
copy, a shareholder (or the shareholder's agent or attorney) has the right to
inspect and copy, during regular business hours, any of the following records,
all of which the Corporation is required to keep at its principal office:
(1) The Corporation's Articles of Incorporation
currently in effect;
(2) the Corporation's Bylaws currently in effect;
(3) the minutes of all shareholders' meetings, and records
of all action taken by shareholders without a meeting, for the
past three years;
(4) all written communications within the past three years
to shareholders as a group or to the holders of any class or
series of shares as a group;
(5) a list of the names and business addresses of the
Corporation's current officers and directors;
(6) the Corporation's most recent annual report
delivered to the Division; and
(7) all financial statements prepared for periods ending
during the last three years that a shareholder could request
pursuant to Section 16-10a-1605 of the Utah Revised Business
Corporation Act. (16-10a-1601(5) and 16-10a-1602(1))
(c) Conditional Inspection Rights. If a shareholder gives the
Corporation a written demand made in good faith and for a proper purpose at
least five business days before the date on which the shareholder wishes to
inspect and copy, the shareholder describes with reasonable particularity the
shareholder's purpose and the records the shareholder desires to inspect, and
the records are directly connected with the shareholder's purpose, the
shareholder (or the shareholder's agent or attorney) is entitled to inspect and
copy, during regular business hours at a reasonable location specified by the
Corporation, any of the following records of the Corporation:
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(1) Excerpts from:
(i) Minutes of any meeting of the Board of
Directors, records of any action of a committee of the
Board of Directors while acting on behalf of the
Corporation in place of the Board of Directors;
(ii) minutes of any meeting of the shareholders;
(iii)records of action taken by the shareholders
without a meeting; and
(iv) waivers of notices of any meeting of the
shareholders, of any meeting of the Board of Directors, or
of any meeting of a committee of the Board of Directors;
(2) accounting records of the Corporation; and
(3) the record of the Corporation's shareholders referred
to in Section 16-10a-1601(3) of the Utah Revised Business
Corporation Act.
(16-10a-1602(2))
(d) Copy Costs. The right to copy records includes, if
reasonable, the right to receive copies made by photographic, xerographic or
other means. The Corporation may impose a reasonable charge, payable in advance,
covering the costs of labor and material, for copies of any documents provided
to a shareholder. The charge may not exceed the estimated cost of production or
reproduction of the records. (16-10a-1603)
(e) Shareholder Includes Beneficial Owner. For purposes of this
Section 2.14, the term "shareholder" shall include a beneficial owner whose
shares are held in a voting trust and any other beneficial owner who establishes
beneficial ownership.
(16-10a-1602(4)(b))
Section 2.15. Furnishing Financial Statements to a Shareholder.
Upon the written request of any shareholder, the Corporation shall mail to the
shareholder its most recent annual or quarterly financial statements showing in
reasonable detail its assets and liabilities and the results of its operations.
(16-10a-1605)
Section 2.16. Information Respecting Shares. Upon the written
request of any shareholder, the Corporation, at its own expense, shall mail to
the shareholder information respecting the designations, preferences,
limitations and relative rights applicable to each class of shares, the
variations determined for each series, and the authority of the Board of
Directors to determine variations for any existing or future class or series.
The Corporation may comply by
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mailing the shareholder a copy of its Articles of Incorporation containing such
information. (16-10a-1606)
ARTICLE 3. BOARD OF DIRECTORS
Section 3.1. General Powers. All corporate powers shall be
exercised by or under the authority of, and the business and affairs of the
Corporation shall be managed under the direction of, the Board of Directors,
subject to any limitation set forth in the Articles of Incorporation or in any
agreement authorized by Section 16-10a-732 of the Utah Revised Business
Corporation Act. (16-10a-801)
Section 3.2. Number, Tenure and Qualifications of Directors.
(a) Number. The number of directors of the Corporation shall be
not less than eight (8) nor more than eleven (11). The number of directors may
be fixed or changed within the range specified in this Section 3.2 by the
shareholders or the Board of Directors, but no decrease may shorten the term of
any incumbent director. (16-10a-803(1), (2))
(b) Tenure. Each director shall hold office until the next annual
meeting of shareholders or until removed. However, if a director's term expires,
the director shall continue to serve until the director's successor shall have
been elected and qualified, or until there is a decrease in the number of
directors. (16-10a-805)
(c) Qualifications. Directors need not be residents of the State
of Utah or shareholders of the Corporation unless the Articles of Incorporation
so prescribe.
(16-10a-802) Directors shall have the following qualifications:
(i) For a period of five (5) years after the date these
Amended and Restated Bylaws are adopted (but not thereafter), (A) six (6) of the
directors shall be direct descendants (or the spouse of a direct descendant) of
W.W. Clyde, and (B) two (2) of the directors shall be direct descendants (or the
spouse of a direct descendant) of Edward Clyde.
(ii) No person over seventy-five (75) years old shall be
elected or appointed a director of the Corporation; provided, however, that any
director elected within sixty (60) days after the adoption of these Amended and
Restated Bylaws shall be qualified to be a director during the period five (5)
years after the date of the adoption of these Amended and Restated Bylaws
(without regard to such person's age).
Section 3.3. Regular Meetings of the Board of Directors. A
regular meeting of the Board of Directors shall be held without other notice
than provided by this Section 3.3
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immediately after, and at the same place as, the annual meeting of shareholders.
The Board of Directors may provide, by resolution, the time and place for the
holding of additional regular meetings without other notice than such
resolution.
Section 3.4. Special Meetings of the Board of Directors. Special
meetings of the Board of Directors may be called by or at the request of the
President, a Vice President or any two (2) directors, who may fix any place,
either within or outside the State of Utah, as the place for holding the
meeting.
Section 3.5. Notice and Waiver of Notice of Special Director
Meetings.
(a) Notice. Unless the Articles of Incorporation provide for a
longer or shorter period, special meetings of the Board of Directors must be
preceded by at least two (2) days notice of the date, time and place of the
meeting. (16-10a-822(2)) Notice may be communicated in person, by telephone, by
any form of electronic communication, or by mail or private carrier.
(16-10a-103(2)) At the written request of any director, notice of any special
meeting of the Board of Directors shall be given to such director by facsimile
or telex, as the case may be, at the number designated in writing by such
director from time to time.
(b) Effective Date. Notice of any meeting of the Board of
Directors shall be deemed to be effective at the earliest of the following: (1)
when received; (2) five (5) days after it is mailed; or (3) the date shown on
the return receipt if sent by registered or certified mail, return receipt
requested, and the receipt is signed by or on behalf of the director.
(16-10a-103(5)).
(c) Waiver of Notice. A director may waive notice of any meeting.
Except as provided in this Section 3.5, the waiver must be in writing and signed
by the director entitled to the notice. The waiver shall be delivered to the
Corporation for filing with the corporate records, but delivery and filing are
not conditions to its effectiveness.
(16-10a-823(1))
(d) Effect of Attendance. The attendance of a director at a
meeting shall constitute a waiver of notice of such meeting, except when a
director attends a meeting for the express purpose of objecting to the
transaction of any business and at the beginning of the meeting, or promptly
upon arrival, the director objects to holding the meeting or transacting
business at the meeting because of lack of notice or defective notice, and does
not thereafter vote for or assent to action taken at the meeting.
(16-10a-823(2))
Section 3.6. Quorum of Directors. A majority of the number of
directors prescribed by resolution (or if no number is prescribed, the number in
office immediately before the meeting begins) shall constitute a quorum for the
transaction of business at any meeting of
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the Board of Directors, unless the Articles of Incorporation require a greater
number. (16-10a-824(1)(b))
Section 3.7. Manner of Acting.
(a) Action by Majority. If a quorum is present when a vote is
taken, the affirmative vote of a majority of directors present is the act of the
Board of Directors, unless the Corporation's Articles of Incorporation or the
Utah Revised Business Corporation Act requires the vote of a greater number of
directors. (16-10a-824(3))
(b) Telephonic Meetings. Unless the Articles of Incorporation
provide otherwise, any or all directors may participate in a regular or special
meeting by, or conduct the meeting through the use of, any means of
communication by which all directors participating may simultaneously hear each
other during the meeting. A director participating in a meeting by this means is
deemed to be present in person at the meeting. (16-10a-820(2))
(c) Effect of Presence at Meeting. A director who is present at a
meeting of the Board of Directors when corporate action is taken is considered
to have assented to the action taken, unless:
(1) The director objects at the beginning of the meeting,
or promptly upon arrival, to holding it or transacting business
at the meeting;
(2) the director contemporaneously requests his dissent or
abstention as to any specific action to be entered into the
minutes of the meeting; or
(3) the director causes written notice of a dissent or
abstention as to any specific action to be received by the
presiding officer of the meeting before its adjournment or by the
Corporation promptly after adjournment of the meeting.
(16-10a-824(4))
(d) Right of Dissent or Abstention. The right of dissent or
abstention as to a specific action is not available to a director who votes in
favor of the action taken. (16-10a-824(5))
Section 3.8. Director Action By Written Consent. Unless the
Articles of Incorporation or the Utah Revised Business Corporation Act provide
otherwise, any action required or permitted to be taken by the Board of
Directors at a meeting may be taken without a meeting if all the directors
consent to the action in writing. Action is taken by written consent at the time
the last director signs a writing describing the action taken, unless, prior to
that time,
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<PAGE> 19
any director has revoked a consent by a writing signed by the director and
received by the Secretary. Action taken by written consent is effective when the
last director signs the consent, unless the Board of Directors establishes a
different effective date. Action taken by written consent has the same effect as
action taken at a meeting of directors and may be described as such in any
document. (16-10a-821)
Section 3.9. Resignation of Directors. A director may resign at
any time by giving a written notice of resignation to the Corporation. A
resignation of a director is effective when the notice is received by the
Corporation unless the notice specifies a later effective date. A director who
resigns may deliver a statement of his resignation pursuant to Section
16-10a-1608 of the Utah Revised Business Corporation Act to the Division for
filing. (16-10a-807)
Section 3.10. Removal of Directors. The shareholders may remove
one or more directors at a meeting called for that purpose if notice has been
given that a purpose of the meeting is such removal. The removal may be with or
without cause, unless the Articles of Incorporation provide that directors may
only be removed with cause. If a director is elected by a voting group of
shareholders, only the shareholders of that voting group may participate in the
vote to remove the director. If cumulative voting is in effect, a director may
not be removed if the number of votes sufficient to elect the director under
cumulative voting is voted against the director's removal. If cumulative voting
is not in effect, a director may be removed only if the number of votes cast to
remove the director exceeds the number of votes cast against removal of the
director. (16-10a-808)
Section 3.11. Board of Director Vacancies.
(a) Vacancies. Unless the Articles of Incorporation provide
otherwise, if a vacancy occurs on the Board of Directors, including a vacancy
resulting from an increase in the number of directors:
(1) The shareholders may fill the vacancy;
(2) the Board of Directors may fill the vacancy; or
(3) if the directors remaining in office constitute fewer
than a quorum of the board, they may fill the vacancy by the
affirmative vote of a majority of all the directors remaining in
office.
(16-10a-810(1))
(b) Rights of Voting Groups. Unless the Articles of Incorporation
provide otherwise, if the vacant office was held by a director elected by a
voting group of shareholders:
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(1) If one or more directors were elected by the same
voting group, only they are entitled to vote to fill the vacancy
if it is filled by the directors; and
(2) only the holders of shares of that voting group are
entitled to vote to fill the vacancy if it is filled by the
shareholders. (16-10a-810(2))
(c) Election of Director Prior to Vacancy. A vacancy that will
occur at a specific later date, because of a resignation effective at a later
date, may be filled before the vacancy occurs, but the new director may not take
office until the vacancy occurs. (16-10a-810(3))
(d) Effect of Expiration of Term. If a director's term expires,
the director shall continue to serve until the director's successor is elected
and qualified or until there is a decrease in the number of directors. The term
of a director elected to fill a vacancy expires at the next shareholders'
meeting at which directors are elected. (16-10a-805(5))
Section 3.12. Director Compensation. Unless otherwise provided in
the Articles of Incorporation, by resolution of the Board of Directors, each
director may be paid his expenses, if any, of attendance at each meeting of the
Board of Directors, and may be paid a stated salary as a director or a fixed sum
for attendance at each meeting of the Board of Directors or both. No such
payment shall preclude any director from serving the Corporation in any capacity
and receiving compensation therefor.
Section 3.13. Director Committees. Committees of the Board of
Directors may be established in accordance with Article 4 of these Bylaws.
Section 3.14. Director's Rights to Inspect Corporate Records.
(a) Absolute Inspection Rights. If a director gives the
Corporation written notice of the director's demand at least five (5) business
days before the date on which the director wishes to inspect and copy, the
director (or the director's agent or attorney) has the right to inspect and
copy, during regular business hours, any of the following records, all of which
the Corporation is required to keep at its principal office:
(1) The Corporation's Articles of Incorporation
currently in effect;
(2) the Corporation's Bylaws currently in effect;
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(3) the minutes of all shareholders' meetings, and records
of all action taken by shareholders without a meeting, for the
past three years;
(4) all written communications within the past three years
to shareholders as a group or to the holders of any class or
series of shares as a group;
(5) a list of the names and business addresses of the
Corporation's current officers and directors;
(6) the Corporation's most recent annual report delivered
to the Division; and
(7) all financial statements prepared for periods ending
during the last three years that a shareholder could request.
(16-10a-1601(5) and 16-10a-1602(1))
(b) Conditional Inspection Rights. In addition, if a director
gives the Corporation a written demand made in good faith and for a proper
purpose at least five business days before the date on which the director wishes
to inspect and copy, the director describes with reasonable particularity the
director's purpose and the records the director desires to inspect, and the
records are directly connected with the director's purpose, the director (or the
director's agent or attorney) is entitled to inspect and copy, during regular
business hours at a reasonable location specified by the Corporation, any of the
following records of the Corporation:
(1) Excerpts from:
(i) Minutes of any meeting of the Board of
Directors, records of any action of a committee of the
Board of Directors while acting on behalf of the
Corporation in place of the Board of Directors;
(ii) minutes of any meeting of the shareholders;
(iii) records of action taken by the shareholders
without a meeting; and
(iv) waivers of notices of any meeting of the
shareholders, of any meeting of the Board of Directors, or
of any meeting of a committee of the Board of Directors;
(2) accounting records of the Corporation; and
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(3) the record of the Corporation's shareholders referred
to in Section 16-10a-1601(3) of the Utah Revised Business
Corporation Act. (16-10a-1602(2))
(d) Copy Costs. The right to copy records includes, if
reasonable, the right to receive copies made by photographic, xerographic or
other means. The Corporation may impose a reasonable charge, payable in advance,
covering the costs of labor and material, for copies of any documents provided
to the director. The charge may not exceed the estimated cost of production or
reproduction of the records. (16-10a-1603)
ARTICLE 4. EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 4.1. Creation of Committees. Unless the Articles of
Incorporation provide otherwise, the Board of Directors may create an Executive
Committee and such other committees as it may deem appropriate and appoint
members of the Board of Directors to serve on such committees. Each committee
must have two (2) or more members, one of whom shall be the Chairman of the
Board, if there be such an officer, and one of whom shall be the President of
the Corporation. (16-10a-825(1))
Section 4.2. Approval of Committees and Members. The creation of
a committee and appointment of members to it must be approved by the greater of:
(1) A majority of all the directors in office when the
action is taken; or
(2) the number of directors required by the Articles of
Incorporation to take such action, or, if not specified in the
Articles of Incorporation, the number required by Section 3.7 of
these Bylaws to take action. (16-10a-825(2))
Section 4.3. Required Procedures. Sections 3.4 through 3.10 of
these Bylaws, which govern procedures applicable to the Board of Directors, also
apply to committees and their members. (16-10a-825(3))
Section 4.4. Authority. Unless limited by the Articles of
Incorporation or the Utah Revised Business Corporation Act, each committee may
exercise those aspects of the authority of the Board of Directors which the
Board of Directors confers upon such committee in the resolution creating the
committee. (16-10a-825(4))
Section 4.5. Authority of Executive Committee. The Executive
Committee shall have, and may exercise all powers of the Board of Directors with
respect to the management of the business and affairs of the Corporation during
the intervals between the
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meetings of the Board of Directors. Provided, however, the Executive Committee
shall not have the power to fill vacancies on the Board of Directors or to amend
these Bylaws.
Section 4.6. Compensation. Unless otherwise provided in the
Articles of Incorporation, the Board of Directors may provide for the payment of
a fixed sum and/or expenses of attendance to any member of a committee for
attendance at each meeting of such committee. Provided, however, no such
payments shall be made to committee members who are salaried employees of the
Corporation.
ARTICLE 5. OFFICERS AND ADVISORS
Section 5.1. Officers and Advisors. The officers of the
Corporation shall be a President, one or more Vice Presidents, a Secretary and a
Treasurer, each of whom shall be appointed by the Board of Directors. The Board
of Directors may appoint a Chief Executive Officer and such other officers and
assistant officers as may be deemed necessary. If specifically authorized by the
Board of Directors, an officer may appoint one or more officers or assistant
officers. The same individual may simultaneously hold more than one office in
the Corporation. (16-10a-830) The Board of Directors may also appoint, but shall
not be required to appoint, a Chairman of the Board and one or more Board
Advisors. The Chairman of the Board and any Board Advisors shall not be officers
of the Corporation, but shall be advisors to the Board of Directors and to the
Corporation. The Board of Directors may appoint such other advisors as may be
deemed necessary.
Section 5.2. Appointment and Term. Each of the officers and
advisors of the Corporation shall be appointed by the Board of Directors for a
term determined by the Board of Directors. If no term is specified, each officer
or advisor shall hold office until the officer or advisor resigns, dies, is
removed in the manner provided in Section 5.4 of these Bylaws, or until the
first meeting of the directors held after the next annual meeting of the
shareholders. If the appointment of officers or advisors shall not be made at
such meeting, such appointment shall be made as soon thereafter as is
convenient. If a vacancy shall occur in any office or advisory position, or if a
new office or advisory position shall be created, the Board of Directors may
appoint officer(s) or advisor(s) to fill such vacancy, office or position, and
such appointment shall be for the term determined by the Board of Directors.
Each officer and advisor shall hold office until his or her successor shall have
been duly appointed. (16-10a-830)
The designation of a specified term does not grant to the officer
or advisor any contract rights, and the Board of Directors may remove the
officer or advisor at any time prior to the end of such term. (16-10a-833)
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Section 5.3. Resignation. Any officer or advisor may resign at
any time by giving written notice of resignation to the Corporation.
(16-10a-832(1))
Section 5.4. Removal. Any officer, advisor or agent of the
Corporation may be removed by the Board of Directors at any time, with or
without cause. Such removal shall be without prejudice to the contract rights,
if any, of the person so removed. Appointment of an officer, advisor or agent
shall not of itself create contract rights. (16-10a-832)
Section 5.5. The Chairman of the Board. The Chairman of the
Board, if there be such a position, shall have the following powers and duties:
(a) To be a senior advisor to the Corporation and, in addition to
the duties specified in this Section 5.5, to perform such duties as may be
assigned to him by the Board of Directors;
(b) to preside at all meetings of the shareholders of the
Corporation;
(c) to preside at all meetings of the Board of Directors;
(d) to be a member of the Executive Committee, if any.
(16-10a-831)
Section 5.6. Board Advisors. The Board of Directors may from time
to time designate and appoint one or more Board Advisors. Each Board Advisor
shall have the right to attend meetings of the Board of Directors, but a Board
Advisor shall not be a director and shall not vote on any matter voted upon by
the directors. Each Board Advisor shall have such powers and perform such duties
as may from time to time be assigned to him or her by the Board of Directors or
by the Chairman of the Board.
Section 5.7. Chief Executive Officer. The Chief Executive
Officer, if there be such an officer, shall be the principal executive officer
of the Corporation and, subject to the control of the Board of Directors, in
general, shall supervise and control all of the business and affairs of the
Corporation. If no Chairman of the Board has been appointed, or in his absence,
the Chief Executive Officer, when present, shall preside at all meetings of the
shareholders and of the Board of Directors. The Chief Executive Officer may
sign, with the Secretary or any other proper officer of the Corporation
authorized by the Board of Directors, certificates for shares of the
Corporation, the issuance of which shall have been authorized by a resolution of
the Board of Directors, and deeds, mortgages, bonds, contracts or other
instruments, except in cases where the signing and execution thereof shall be
expressly delegated by the Board of Directors or by these Bylaws to some other
officer or agent of the Corporation, or shall be required by law to be otherwise
signed or executed; and in general shall perform all duties incident to the
office of
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Chief Executive Officer and such other duties as may be prescribed by the Board
of Directors from time to time. (16-10a-831)
Section 5.8. President. The President shall be an executive
officer of the Corporation, and, if there be no Chief Executive Officer, shall
be the principal executive officer of the Corporation and, subject to the
control of the Board of Directors, in general, shall supervise and control all
of the business and affairs of the Corporation. In the absence of the Chief
Executive Officer or in the event of his death or inability or refusal to act,
the President shall perform the duties of the Chief Executive Officer, and when
so acting, shall have all the powers of and be subject to all the restrictions
upon the Chief Executive Officer. In the absence of the Chairman of the Board
and the Chief Executive Officer, the President, when present, shall preside at
all meetings of the shareholders and of the Board of Directors. The President
may sign, with the Secretary or any other proper officer of the Corporation
authorized by the Board of Directors, certificates for shares of the
Corporation, the issuance of which shall have been authorized by a resolution of
the Board of Directors, and deeds, mortgages, bonds, contracts or other
instruments, except in cases where the signing and execution thereof shall be
expressly delegated by the Board of Directors or by these Bylaws to some other
officer or agent of the Corporation, or shall be required by law to be otherwise
signed or executed; and in general shall perform all duties incident to the
office of President and such other duties as may be prescribed by the Chief
Executive Officer or the Board of Directors from time to time. (16-10a-831)
Section 5.9. Vice Presidents. In the absence of the President or
in the event of his death or inability or refusal to act, the Vice President (or
in the event there be more than one Vice President, the Vice Presidents in the
order designated at the time of their election, or in the absence of any
designation, then in the order of their appointment) shall perform the duties of
the President, and when so acting, shall have all the powers of and be subject
to all the restrictions upon the President. If there is no Vice President, then
the Treasurer shall perform such duties of the President. Any Vice President may
sign, with the Secretary or an Assistant Secretary, certificates for shares of
the Corporation the issuance of which have been authorized by resolution of the
Board of Directors; and shall perform such other duties as from time to time may
be assigned to him or her by the Chief Executive Officer, the President or by
the Board of Directors. (16-10a-831)
Section 5.10. Secretary. The Secretary shall have the following
powers and duties:
(a) to keep the minutes of the proceedings of the shareholders
and of the Board of Directors and the other records and information of the
Corporation required to be kept, in one or more books provided for that purpose;
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(b) to see that all notices are duly given in accordance with the
provisions of these Bylaws or as required by law;
(c) to be custodian of the corporate records and of any seal of
the Corporation;
(d) when requested or required, to authenticate any records of
the Corporation;
(e) to keep a register of the post office address of each
shareholder which shall be furnished to the Secretary by such shareholder;
(f) to sign with the Chief Executive Officer, the President or a
Vice President, certificates for shares of the Corporation, the issuance of
which shall have been authorized by resolution of the Board of Directors;
(g) to have general charge of the stock transfer books of the
Corporation; and
(h) in general, to perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him or
her by the Chief Executive Officer, the President or by the Board of Directors.
(16-10a-830 and 16-10a-831)
Section 5.11. Treasurer. The Treasurer shall have the following
powers and duties:
(a) to have charge and custody of and be responsible for all
funds and securities of the Corporation;
(b) to receive and give receipts for moneys due and payable to
the Corporation from any source whatsoever, and deposit all such moneys in the
name of the Corporation in such banks, trust companies or other depositories as
shall be selected by the Board of Directors;
(c) in general, to perform all of the duties incident to the
office of Treasurer and such other duties as from time to time may be assigned
to him or her by the Chief Executive Officer, the President or by the Board of
Directors; and
(d) if required by the Board of Directors, to give a bond for the
faithful discharge of his or her duties in such sum and with such surety or
sureties as the Board of Directors shall determine. (16-10a-831)
Section 5.12. Assistant Secretaries and Assistant Treasurers. The
Assistant Secretaries, when authorized by the Board of Directors, may sign, with
the President or a Vice
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President, certificates for shares of the Corporation, the issuance of which
shall have been authorized by a resolution of the Board of Directors. The
Assistant Treasurers, if required by the Board of Directors, shall give bonds
for the faithful discharge of their duties in such sums and with such sureties
as the Board of Directors shall determine. The Assistant Secretaries and
Assistant Treasurers, in general, shall perform such duties as shall be assigned
to them by the Secretary or the Treasurer, respectively, or by the Chief
Executive Officer, the President or the Board of Directors. (16-10a-831)
Section 5.13. General Manager. The Chief Executive Officer, the
President or the Board of Directors (or the Executive Committee, if any) may
appoint a General Manager who may, or may not, be one of the officers or
directors of the Corporation. The General Manager shall have the following
powers and duties:
(a) If so designated by the Board of Directors, the General
Manager may be an executive officer of the Corporation.
(b) If so directed by the Chief Executive Officer, the President
or the Board of Directors (or the Executive Committee, if any), the General
Manager may have management of the business of the Corporation and its dealings
and, if so directed, may have general charge of the business affairs and
property of the Corporation, general supervision over its employees and agents;
provided, however, the General Manager shall be at all times subject to the
control of the Chief Executive Officer, the President or the Board of Directors
(or the Executive Committee, if any).
(c) If so directed by the Chief Executive Officer, the President
or the Board of Directors (or the Executive Committee, if any), the General
Manager may employ all employees of the Corporation, or delegate such employment
to subordinate officers or division chiefs, and shall have authority to
discharge any person so employed.
(d) The General Manager shall make a report to the Chief
Executive Officer, the President and the Board of Directors quarterly, or more
often if required to do so, setting forth the result of the operations under his
charge, together with suggestions looking to the improvement and betterment of
the condition of the Corporation, and to perform such other duties as the Board
of Directors shall require.
Section 5.14. Salaries. The salaries of the officers, advisors
and agents shall be fixed from time to time by the Board of Directors; provided,
however, that the Board of Directors may delegate to any person or group of
persons the power to fix the salaries or other compensation of any subordinate
officers, advisors or agents. No officer shall be prevented from
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receiving any such salary or compensation by reason of the fact that he is also
a director of the Corporation.
Section 5.15. Surety Bonds. In the event the Board of Directors
shall so require, any officer, advisor or agent of the Corporation shall execute
to the Corporation a bond in such sums and with such surety or sureties as the
Board of Directors may direct, conditioned upon the faithful performance of his
duties to the Corporation, including responsibility for negligence and for the
accounting for all property, monies or securities of the Corporation which may
come into his hands.
ARTICLE 6. LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 6.1. Limitation of Liability of Directors. Directors
shall not be liable to the Corporation or its shareholders for monetary damages
for any action taken or any failure to take any action, as a director, except
liability for:
(a) the amount of a financial benefit received by a director to
which he is not entitled;
(b) an intentional infliction of harm on the Corporation or its
shareholders;
(c) a violation of Section 16-10a-842 of the Utah Revised
Business Corporation Act;
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(d) an intentional violation of criminal law.
(16-10a-841(1))
Section 6.2. Indemnification of Directors. Unless otherwise
provided in the Articles of Incorporation, the Corporation shall indemnify any
individual made a party to a proceeding because the individual is or was a
director of the Corporation against liability incurred in the proceeding.
Provided, however, the Corporation shall only indemnify an individual if it has
authorized the indemnification in accordance with Section 16-10a-906(4) of the
Utah Revised Business Corporation Act and a determination has been made in
accordance with the procedures set forth in Section 16-10a-906(2) of the Utah
Revised Business Corporation Act that indemnification is in accordance with the
following requirements:
(a) Standard of Conduct. The Corporation shall determine that:
(1) The individual's conduct was in good faith;
(2) the individual reasonably believed that his or her
conduct was in, or not opposed to, the Corporation's best
interests; and
(3) in the case of any criminal proceeding, the individual
had no reasonable cause to believe that his or her conduct was
unlawful.
(16-10a-902(1))
(b) No Indemnification in Certain Circumstances. The Corporation
shall not indemnify an individual under this Section 6.2:
(1) In connection with a proceeding by or in the right of
the Corporation in which the individual was adjudged liable to
the Corporation; or
(2) in connection with any other proceeding charging that
the individual derived an improper personal benefit, whether or
not involving action in the individual's official capacity, in
which proceeding he or she was adjudged liable on the basis that
he or she derived an improper personal benefit. (16-10a-902(4))
(c) Indemnification in Derivative Actions Limited.
Indemnification permitted under this Section 6.2 in connection with a proceeding
by or in the right of the Corporation is limited to reasonable expenses incurred
in connection with the proceeding.
(16-10a-902(5))
Section 6.3. Advance Payment of Expenses. Unless otherwise
provided in the Articles of Incorporation, the Corporation may pay for or
reimburse in advance of final
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disposition of any proceeding the reasonable expenses incurred by an individual
who is a party to a proceeding because he or she is or was a director of the
Corporation if (i) in accordance with the procedures and standards set forth in
Section 16-10a-906(4) of the Utah Revised Business Corporation Act, an
authorization of payment is made, and (ii) in accordance with the procedures of
Section 16-10a-906(2) of the Utah Revised Business Corporation Act, a
determination is made that the following has occurred:
(a) Written Affirmation. The individual has furnished to the
Corporation a written affirmation of the individual's good faith belief that the
individual has met the standard of conduct described in Section 6.2 of these
Bylaws.
(b) Written Undertaking. The individual has furnished to the
Corporation a written undertaking, executed personally or on the individual's
behalf, to repay the advance if it is ultimately determined that the individual
did not meet the standard of conduct (which undertaking must be an unlimited
general obligation of the individual but need not be secured and may be accepted
without reference to financial ability to make repayment).
(c) Factual Determination. A determination has been made that the
facts then known to those making the determination would not preclude
indemnification under Section 6.2 of these Bylaws or Part 9 of the Utah Revised
Business Corporation Act. (16-10a-904)
Section 6.4. Indemnification of Officers, Employees, Fiduciaries
and Agents. Unless otherwise provided in the Articles of Incorporation, the
Corporation shall indemnify and advance expenses to any individual made a party
to a proceeding because the individual is or was an officer, employee, fiduciary
or agent of the Corporation to the same extent as to an individual made a party
to a proceeding because the individual is or was a director of the Corporation,
or to a greater extent, if not inconsistent with public policy, if provided for
by general or specific action of the Board of Directors. (16-10a-907)
Section 6.5. Insurance. The Corporation may purchase and maintain
liability insurance on behalf of a person who is or was a director, officer,
employee, fiduciary or agent of the Corporation, or who, while serving as a
director, officer, employee, fiduciary or agent of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner,
trustee, employee, fiduciary or agent of another foreign or domestic corporation
or other person, or of an employee benefit plan, against liability asserted
against or incurred by him or her in that capacity or arising from his or her
status as a director, officer, employee, fiduciary or agent, whether or not the
Corporation would have power to indemnify him or her against the same liability
under Sections 16-10a-902, 16-10a-903, or 16-10a-907 of the Utah Revised
Business Corporation Act. Insurance may be procured from any insurance company
designated by the Board of Directors, whether the insurance company is formed
under the laws of the State of Utah
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or any other jurisdiction of the United States or elsewhere, including any
insurance company in which the Corporation has an equity or any other interest
through stock ownership or otherwise. (16-10a-908)
ARTICLE 7. EXECUTION OF INSTRUMENTS, BORROWING OF MONEY
AND DEPOSIT OF CORPORATE FUNDS
Section 7.1. Execution of Instruments. Subject to any limitation
contained in the Utah Revised Business Corporation Act, the Articles of
Incorporation or these Bylaws, and subject to any limitations that may be
imposed by the Board of Directors, the Chief Executive Officer, President, any
Vice President or the Secretary, in the name and on behalf of the Corporation,
may execute and deliver any contract or other instrument. Subject to any
limitation contained in the Utah Revised Business Corporation Act, the Articles
of Incorporation or these Bylaws, the Board of Directors may authorize in
writing any other officer or agent to execute and deliver any contract or other
instrument in the name and on behalf of the Corporation; any such authorization
may be general or confined to specific instances.
Section 7.2. Loans. No loan or advance shall be contracted on
behalf of the Corporation, no negotiable paper or other evidence of its
obligation under any loan or advance shall be issued in its name, and no
property of the Corporation shall be mortgaged, pledged, hypothecated,
transferred or conveyed as security for the payment of any loan, advance,
indebtedness or liability of the Corporation, unless and except as authorized by
the Board of Directors. Any such authorization may be general or confined to
specific instances.
Section 7.3. Deposits. All monies of the Corporation not
otherwise employed shall be deposited from time to time to its credit in such
banks or trust companies or with such bankers or other depositories as the Board
of Directors may select, or as from time to time may be selected by any officer
or agent authorized to do so by the Board of Directors.
Section 7.4. Checks, Drafts, etc. All notes, drafts, acceptances,
checks, endorsements, and, subject to the provisions of these Bylaws, evidences
of indebtedness of the Corporation shall be signed by such officer or officers
or such agent or agents of the Corporation and in such manner as the Board of
Directors from time to time may determine. Endorsements for deposit to the
credit of the Corporation in any of its duly authorized depositories shall be in
such manner as the Board of Directors from time to time may determine.
Section 7.5. Bonds and Debentures. Every bond or debenture issued
by the Corporation shall be evidenced by an appropriate instrument which shall
be signed by the Chief Executive Officer, President or a Vice President and by
the Secretary. Where such bond or debenture is authenticated with the manual
signature of an authorized officer of the Corporation
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or other trustee designated by the indenture of trust or other agreement under
which such security is issued, the signature of any of the Corporation's
officers named thereon may be a facsimile. In case any officer who signed, or
whose facsimile signature has been used on any such bond or debenture, shall
cease to be an officer of the Corporation for any reason before the same has
been delivered by the Corporation, such bond or debenture may nevertheless be
adopted by the Corporation and issued and delivered as though the person who
signed it or whose facsimile signature has been used thereon had not ceased to
be such officer.
Section 7.6. Sale, Transfer, etc. of Securities. Sales,
transfers, endorsements, and assignments of shares of stocks, bonds, and other
securities owned by or standing in the name of the Corporation and the execution
and delivery on behalf of the Corporation of any and all instruments in writing
incident to any such sale, transfer, endorsement or assignment, shall be
effected by the Chief Executive Officer, President, any Vice President, or by
any officer or agent thereunto authorized by the Board of Directors.
Section 7.7. Proxies. Proxies to vote with respect to shares of
stock of other corporations used by or standing in the name of the Corporation
shall be executed and delivered on behalf of the Corporation by the Chief
Executive Officer, President, any Vice President, or by any officer or agent
thereunto authorized by the Board of Directors.
ARTICLE 8. CERTIFICATES FOR SHARES AND
THEIR TRANSFER
Section 8.1. Certificates for Shares.
(a) Content. Certificates representing shares of the Corporation,
at a minimum, shall state on their face the name of the Corporation and that the
Corporation is organized under the laws of the State of Utah; the name of the
person to whom issued; and the number and class of shares and the designation of
the series, if any, the certificate represents; and be in such form as is
determined by the Board of Directors. Such certificates shall be signed by the
President or a Vice President and by the Secretary or an Assistant Secretary and
may be sealed with the corporate seal or a facsimile thereof. The signatures of
the officers may be facsimiles if the certificate is countersigned by a transfer
agent, or registered by a registrar, other than the Corporation itself or an
employee of the Corporation. In case any officer who has signed or whose
facsimile signature has been placed upon a certificate ceases to be an officer
before the certificate is issued, the certificate may be issued by the
corporation with the same effect as if the person were an officer at the date of
its issue. Each certificate for shares shall be consecutively numbered or
otherwise identified. The certificates may contain any other information the
Corporation considers necessary or appropriate. (16-10a-625)
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(b) Legend as to Class or Series. If the Corporation is
authorized to issue different classes of shares or different series within a
class, the designations, preferences, limitations, and relative rights
applicable to each class, the variations in preferences, limitations, and
relative rights determined for each series, and the authority of the Board of
Directors to determine variations for any existing or future class or series
must be summarized on the front or back of each certificate. Alternatively, each
certificate may state conspicuously on its front or back that the Corporation
will furnish the shareholder this information on request in writing and without
charge. (16-10a-625)
(c) Shareholder List. The name and address of the person to whom
the shares represented are issued, with the number of shares and date of issue,
shall be entered on the stock transfer books of the Corporation.
(d) Transferring Shares. All certificates surrendered to the
Corporation for transfer shall be canceled and no new certificate shall be
issued until the former certificate for a like number of shares shall have been
surrendered and canceled, except that in case of a lost, destroyed or mutilated
certificate a new one may be issued therefor upon such terms and indemnity to
the Corporation as the Board of Directors may prescribe.
Section 8.2. Shares Without Certificates.
(a) Issuing Shares Without Certificates. Unless the Articles of
Incorporation provide otherwise, the Board of Directors may authorize the
issuance of some or all of the shares of any or all classes or series without
certificates. The authorization does not affect shares already represented by
certificates until they are surrendered to the Corporation.
(b) Information Statement Required. Within a reasonable time
after the issuance or transfer of shares without certificates, the Corporation
shall send the shareholder a written statement containing, at a minimum, the
name of the Corporation and that it is organized under the laws of the State of
Utah; the name of the person to whom issued; and the number and class of shares
and the designation of the series, if any, of the issued shares. If the
Corporation is authorized to issue different classes of shares or different
series within a class, the written statement shall describe the designations,
preferences, limitations, and relative rights applicable to each class, the
variations in preferences, limitations, and relative rights determined for each
series, and the authority of the Board of Directors to determine variations for
any existing or future class or series. (16-10a-626)
Section 8.3. Registration of Transfer of Shares. Registration of
the transfer of shares of the Corporation shall be made only on the stock
transfer books of the Corporation. In order to register a transfer, the record
owner shall surrender the shares to the Corporation for
29
<PAGE> 34
cancellation, properly endorsed by the appropriate person or persons with
reasonable assurances that the endorsements are genuine and effective. Unless
the Corporation has established a procedure by which a beneficial owner of
shares held by a nominee is to be recognized by the Corporation as the owner,
the person in whose name shares stand on the books of the Corporation shall be
deemed by the Corporation to be the owner thereof for all purposes.
Section 8.4. Transfer Agents and Registrars. The Board of
Directors may appoint one or more transfer agents and one or more registrars
with respect to the certificates representing shares of stock of the Corporation
and may require all such certificates to bear the signature of either or both.
The Board of Directors may from time to time define the respective duties of
such transfer agents and registrars.
Section 8.5. Restrictions on Transfer of Shares Permitted. The
Board of Directors or the shareholders may impose restrictions on the transfer
or registration of transfer of shares (including any security convertible into,
or carrying a right to subscribe for or acquire shares). A restriction does not
affect shares issued before the restriction was adopted unless the holders of
the shares are parties to the restriction agreement or voted in favor of the
restriction or otherwise consented to the restriction.
(a) A restriction on the transfer or registration of transfer of
shares may be authorized:
(1) To maintain the Corporation's status when it is
dependent on the number or identity of its shareholders;
(2) to preserve entitlements, benefits or exemptions under
federal, state or local laws; and
(3) for any other reasonable purpose.
(b) A restriction on the transfer or registration of transfer of
shares may:
(1) Obligate the shareholder first to offer the
Corporation or other persons, separately, consecutively or
simultaneously, an opportunity to acquire the restricted shares;
(2) obligate the Corporation or other persons, separately,
consecutively or simultaneously, to acquire the restricted
shares;
30
<PAGE> 35
(3) require, as a condition to a transfer or registration,
that any one or more persons, including the Corporation or any of
its shareholders, approve the transfer or registration, if the
requirement is not manifestly unreasonable; or
(4) prohibit the transfer or the registration of a
transfer of the restricted shares to designated persons or
classes of persons, if the prohibition is not manifestly
unreasonable.
A restriction on the transfer or registration of transfer of
shares is valid and enforceable against the holder or a transferee of the holder
if the restriction is authorized by this Section 8.5 and its existence is noted
conspicuously on the front or back of the certificate, or if the restriction is
contained in the information statement required by Section 8.2 of these Bylaws
with regard to shares issued without certificates. Unless so noted, a
restriction is not enforceable against a person without knowledge of the
restriction. (16-10a-627)
Section 8.6. Acquisition of Shares. The Corporation may acquire
its own shares, and, unless otherwise provided in the Articles of Incorporation,
the shares so acquired constitute authorized but unissued shares.
If the Articles of Incorporation prohibit the reissue of acquired
shares, the number of authorized shares shall be reduced by the number of shares
acquired, effective upon amendment of the Articles of Incorporation, which
amendment shall be adopted by the shareholders or the Board of Directors without
shareholder action. Appropriate Articles of Amendment must be delivered to the
Division and must set forth:
(a) The name of the Corporation;
(b) the reduction in the number of authorized shares, itemized by
class and series;
(c) the total number of authorized shares, itemized by class and
series, remaining after reduction of the shares; and
(d) a statement that the amendment was adopted by the Board of
Directors without shareholder action and that shareholder action was not
required if such be the case. (16-10a-631)
Section 8.7. Lost or Destroyed Certificates. If the holder of a
certificate for shares of the Corporation claims that a certificate has been
lost, destroyed or wrongfully taken, the Corporation shall issue a new
certificate to such holder, if such holder:
31
<PAGE> 36
(a) so requests before the Corporation has notice that the
certificate has been acquired by a bona fide purchaser;
(b) files with the Corporation a sufficient indemnity bond; and
(c) satisfies any other reasonable requirements imposed by the
Corporation. (70A-8-405).
ARTICLE 9. DISTRIBUTIONS
Section 9.1. Distributions. The Board of Directors may authorize,
and the Corporation may make, distributions (including dividends on its
outstanding shares) in the manner and upon the terms and conditions provided by
law and in the Articles of Incorporation. (16-10a-640)
ARTICLE 10. CORPORATE SEAL
Section 10.1. Corporate Seal. The Board of Directors may provide
a corporate seal which may be circular in form and have inscribed thereon any
designation including the name of the Corporation, Utah as the state of
incorporation, and the words "Corporate Seal."
ARTICLE 11. FISCAL YEAR
Section 11.1. Fiscal Year. The fiscal year of the Corporation
shall be fixed by resolution of the Board of Directors.
ARTICLE 12. AMENDMENTS
Section 12.1. Amendments. The Corporation's Board of Directors
may amend these Bylaws, except to the extent that the Articles of Incorporation,
these Bylaws or the Utah Revised Business Corporation Act reserve this power
exclusively to the shareholders in whole or in part. However, the Board of
Directors may not adopt, amend, or repeal a Bylaw that fixes a shareholder
quorum or voting requirement that is greater than required by the Utah Revised
Business Corporation Act.
Section 3.2 of these Bylaws may be amended by the Board of
Directors or by the shareholders; provided, however, that any such amendment of
Section 3.2 of these Bylaws must be approved by a seventy-five percent (75%)
majority of the directors or the shareholders, as the case may be.
32
<PAGE> 37
If authorized by the Articles of Incorporation, the shareholders
may adopt, amend or repeal a Bylaw that fixes a greater quorum or voting
requirement for shareholders, or voting groups of shareholders, than is required
by the Utah Revised Business Corporation Act. Any such action shall comply with
the provisions of the Utah Revised Business Corporation Act.
The Corporation's shareholders may amend or repeal the
Corporation's Bylaws even though the Bylaws may also be amended or repealed by
the Corporation's Board of Directors. (16-10a-1020 to 16-10a-1022)
ADOPTED as of the 12th day of November, 1997.
33
<PAGE> 1
[EXHIBIT 4.1]
A M E N D E D A N D R E S T A T E D
B Y L A W S
OF
CLYDE COMPANIES, INC.
A UTAH CORPORATION
1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1. OFFICES
Section 1.1. Business Offices.......................................................1
Section 1.2. Registered Office......................................................1
ARTICLE 2. SHAREHOLDERS
Section 2.1. Annual Shareholder Meeting.............................................1
Section 2.2. Special Shareholder Meetings...........................................1
Section 2.3. Place of Shareholder Meetings..........................................2
Section 2.4. Notice of Shareholder Meeting..........................................2
Section 2.5. Fixing of Record Date..................................................4
Section 2.6. Shareholder List.......................................................5
Section 2.7. Shareholder Quorum and Voting Requirements.............................5
Section 2.8. Proxies................................................................6
Section 2.9. Voting of Shares.......................................................6
Section 2.10. Corporation's Acceptance of Votes.....................................7
Section 2.11. Informal Action by Shareholders.......................................9
Section 2.12. Waiver of Notice.....................................................10
Section 2.13. Voting for Directors.................................................10
Section 2.14. Rights of Shareholders to Inspect Corporate Records..................10
Section 2.15. Furnishing Financial Statements to a Shareholder.....................12
Section 2.16. Information Respecting Shares........................................12
ARTICLE 3. BOARD OF DIRECTORS
Section 3.1. General Powers........................................................13
Section 3.2. Number, Tenure and Qualifications of Directors........................13
Section 3.3. Regular Meetings of the Board of Directors............................14
Section 3.4. Special Meetings of the Board of Directors............................14
Section 3.5. Notice and Waiver of Notice of Special Director Meetings..............14
Section 3.6. Quorum of Directors...................................................15
Section 3.7. Manner of Acting......................................................15
Section 3.8. Director Action By Written Consent....................................16
Section 3.9. Resignation of Directors..............................................16
Section 3.10. Removal of Directors.................................................16
Section 3.11. Board of Director Vacancies..........................................17
Section 3.12. Director Compensation................................................17
Section 3.13. Director Committees..................................................18
Section 3.14. Director's Rights to Inspect Corporate Records.......................18
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
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<S> <C> <C>
ARTICLE 4. EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 4.1. Creation of Committees................................................19
Section 4.2. Approval of Committees and Members....................................20
Section 4.3. Required Procedures...................................................20
Section 4.4. Authority.............................................................20
Section 4.5. Authority of Executive Committee......................................20
Section 4.6. Compensation..........................................................20
ARTICLE 5. OFFICERS
Section 5.1. Officers..............................................................21
Section 5.2. Appointment and Term of Office........................................21
Section 5.3. Resignation of Officers...............................................21
Section 5.4. Removal of Officers...................................................21
Section 5.5. The Chairman of the Board.............................................22
Section 5.6. The Vice Chairman.....................................................22
Section 5.7. Chief Executive Officer...............................................22
Section 5.8. President.............................................................23
Section 5.9. Vice Presidents.......................................................23
Section 5.10. Secretary............................................................24
Section 5.11. Treasurer............................................................24
Section 5.12. Assistant Secretaries and Assistant Treasurers.......................25
Section 5.13. General Manager......................................................25
Section 5.14. Salaries.............................................................26
Section 5.15. Surety Bonds.........................................................26
ARTICLE 6. LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 6.1. Limitation of Liability of Directors..................................26
Section 6.2. Indemnification of Directors..........................................27
Section 6.3. Advance Payment of Expenses...........................................28
Section 6.4. Indemnification of Officers, Employees, Fiduciaries, and Agents.......28
Section 6.5. Insurance.............................................................28
ARTICLE 7. EXECUTION OF INSTRUMENTS, BORROWING OF MONEY
Section 7.1. Execution of Instruments..............................................29
Section 7.2. Loans.................................................................29
Section 7.3. Deposits..............................................................29
Section 7.4. Checks, Drafts, etc...................................................30
Section 7.5. Bonds and Debentures..................................................30
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
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<S> <C> <C>
Section 7.6. Sale, Transfer, etc. of Securities....................................30
Section 7.7. Proxies...............................................................30
ARTICLE 8. CERTIFICATES FOR SHARES AND
Section 8.1. Certificates for Shares...............................................31
Section 8.2. Shares Without Certificates...........................................32
Section 8.3. Registration of Transfer of Shares....................................32
Section 8.4. Transfer Agents and Registrars........................................32
Section 8.5. Restrictions on Transfer of Shares Permitted..........................33
Section 8.6. Acquisition of Shares.................................................34
Section 8.7. Lost or Destroyed Certificates........................................34
ARTICLE 9. DISTRIBUTIONS
Section 9.1. Distributions.........................................................35
ARTICLE 10. CORPORATE SEAL
Section 10.1. Corporate Seal.......................................................35
ARTICLE 11. FISCAL YEAR
Section 11.1. Fiscal Year..........................................................35
ARTICLE 12. AMENDMENTS
Section 12.1. Amendments...........................................................35
</TABLE>
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<PAGE> 5
AMENDED AND RESTATED
BYLAWS
OF
CLYDE COMPANIES, INC.
ARTICLE 1. OFFICES
Section 1.1. Business Offices. The principal office of Clyde
Companies, Inc. (the "Corporation") shall be located at any place either within
or outside the State of Utah, as designated in the Corporation's Articles of
Incorporation or the Corporation's most recent annual report on file with the
Utah Department of Commerce, Division of Corporations and Commercial Code (the
"Division") providing such information. The Corporation may have such other
offices, either within or outside the State of Utah as the Board of Directors
may designate or as the business of the Corporation may require from time to
time. The Corporation shall maintain at its principal office a copy of those
records specified in Section 2.14 of Article II of these Bylaws.
(16-10a-102(24))*
Section 1.2. Registered Office. The registered office of the
Corporation required by the Utah Revised Business Corporation Act shall be
located within the State of Utah. The address of the registered office may be
changed from time to time. (16-10a-501 and 16-10a-502)
ARTICLE 2. SHAREHOLDERS
Section 2.1. Annual Shareholder Meeting. An annual meeting of the
shareholders shall be held each year on the date, at the time and at the place,
fixed by the Board of Directors. The annual meeting shall be held for the
purpose of electing directors and for the transaction of such other business as
may come before the meeting. (16-10a-701)
Section 2.2. Special Shareholder Meetings. Special meetings of
the shareholders may be called, for any purposes described in the notice of the
meeting, by the
- ---------------------
* Citations in parentheses are to Utah Code Annotated. These citations are
for reference only and shall not constitute a part of these bylaws.
<PAGE> 6
President, or by the Board of Directors and shall be called by the President at
the request of the holder(s) of not less than one-tenth of all outstanding votes
of the Corporation entitled to be cast on any issue at the meeting. (16-10a-702)
Section 2.3. Place of Shareholder Meetings. The Board of
Directors may designate any place, either within or outside the State of Utah,
as the place for any annual meeting of the shareholders. The President, the
Board of Directors or the shareholder(s) authorized by these Bylaws to request a
meeting, as the case may be, may designate any place, either within or outside
the State of Utah, as the place for any special meeting of the shareholders
called by such person or group. If no designation is made regarding the place of
the meeting, the meeting shall be held at the principal office of the
Corporation. (16-10a-701(2) and 16-10a-702(3))
Section 2.4. Notice of Shareholder Meeting.
(a) Required Notice. Written notice stating the place, day and
hour of any annual or special shareholder meeting shall be delivered not less
than ten (10) nor more than sixty (60) days before the date of the meeting,
either personally or by mail, by or at the direction of the person or group
calling the meeting, to each shareholder of record entitled to vote at such
meeting, and to any other shareholder entitled by the Utah Revised Business
Corporation Act or the Corporation's Articles of Incorporation to receive notice
of the meeting. Notice shall be deemed to be effective when mailed.
(b) Notice Not Required. Notice shall not be required to be given
to any shareholder to whom:
(1) A notice of two consecutive annual meetings, and all
notices of meetings or of the taking of action by written consent
without a meeting during the period between the two consecutive
annual meetings, have been mailed, addressed to the shareholder
at the shareholder's address as shown on the records of the
Corporation and have been returned undeliverable; or
(2) at least two payments, if sent by first class mail, of
dividends or interest on securities during a twelve month period,
have been mailed, addressed to the shareholder at the
shareholder's address as shown on the records of the Corporation,
and have been returned undeliverable.
If a shareholder to whom notice is not required to be given
delivers to the Corporation a written notice setting forth the shareholder's
current address, or if another address
2
<PAGE> 7
for the shareholder is otherwise made known to the Corporation, the requirement
that notice be given to the shareholder is reinstated. (16-10a-103 and
16-10a-705)
(c) Adjourned Meeting. If any shareholder meeting is adjourned to
a different date, time or place, notice need not be given of the new date, time
or place, if the new date, time or place is announced at the meeting before
adjournment. However, if the adjournment is for more than thirty (30) days, or
if after the adjournment a new record date for the adjourned meeting is or must
be fixed (see Section 2.5 of these Bylaws), then notice must be given pursuant
to the requirements of paragraph (a) of this Section 2.4 to shareholders of
record who are entitled to vote at the meeting. (16-10a-705(4))
(d) Contents of Notice. Notice of any special meeting of the
shareholders shall include a description of the purpose or purposes for which
the meeting is called. Except as provided in this paragraph (d) of Section 2.4,
in the Articles of Incorporation or in the Utah Revised Business Corporation
Act, notice of an annual meeting of the shareholders need not include a
description of the purpose or purposes for which the meeting is called.
(16-10a-705(2), (3))
(e) Waiver of Notice of Meeting. Any shareholder may waive notice
of a meeting by a writing signed by the shareholder which is delivered to the
Corporation (either before or after the date and time stated in the notice as
the date or time when any action will occur or has occurred) for inclusion in
the minutes or filing with the Corporation's records. (16-10a-706)
(f) Effect of Attendance at Meeting. A shareholder's attendance
at a meeting:
(1) Waives objection to lack of notice or defective notice
of the meeting, unless the shareholder at the beginning of the
meeting objects to holding the meeting or transacting business at
the meeting; and
(2) waives objection to consideration of a particular
matter at the meeting that is not within the purpose or purposes
described in the meeting notice, unless the shareholder objects
to considering the matter when it is presented. (16-10a-706)
Section 2.5. Fixing of Record Date. For the purpose of
determining the shareholders of any voting group entitled to notice of or to
vote at any meeting of the shareholders, or the shareholders entitled to take
action without a meeting or to demand a special meeting, or the shareholders
entitled to receive payment of any distribution or dividend, or in order to make
a determination of the shareholders for any other proper purpose, the Board of
3
<PAGE> 8
Directors may fix in advance a date as the record date. Such record date shall
not be more than seventy (70) days prior to the date on which the particular
action, requiring such determination of the shareholders, is to be taken. If no
record date is so fixed by the Board of Directors, the record date shall be at
the close of business on the following dates:
(a) Annual and Special Meetings. With respect to an annual
meeting of the shareholders or any special meeting of the shareholders called by
the President, the Board of Directors or the shareholder(s) authorized by these
Bylaws to request a meeting, the day before the first notice is delivered to
shareholders. (16-10a-707(2))
(b) Meeting Demanded by Shareholders. With respect to a special
shareholder meeting demanded by the shareholders pursuant to the Utah Revised
Business Corporation Act, the earliest date of any of the demands pursuant to
which the meeting is called, or sixty (60) days prior to the date the first of
the written demands is received by the Corporation, whichever is later.
(16-10a-702(1)(b), (2))
(c) Action Without a Meeting. With respect to actions taken in
writing without a meeting (pursuant to Section 2.11 of these Bylaws), the date
the first shareholder delivers to the Corporation a signed written consent upon
which the action is taken.
(16-10a-704(6))
(d) Distributions. With respect to a distribution to the
shareholders (other than one involving a repurchase or reacquisition of shares),
the date the Board of Directors authorizes the distribution. (16-10a-640(2))
(e) Share Dividend. With respect to the payment of a share
dividend, the date the Board of Directors authorizes the share dividend.
(16-10a-623(3))
When a determination of the shareholders entitled to vote at any
meeting of the shareholders has been made as provided in this Section 2.5, such
determination shall apply to any adjournment thereof unless the Board of
Directors fixes a new record date, which it must do if the meeting is adjourned
to a date more than one hundred twenty (120) days after the date fixed for the
original meeting. (16-10a-707)
Section 2.6. Shareholder List. The Secretary shall make a
complete record of the shareholders entitled to vote at each meeting of
shareholders, arranged in alphabetical order within each class or series, with
the address of and the number of shares held by each. If voting groups exist
(see Section 2.7 of these Bylaws), the list must be arranged by voting group,
and within each voting group by class or series of shares. The shareholder list
must be available for inspection by any shareholder, beginning on the earlier of
ten (10) days before the meeting for
4
<PAGE> 9
which the list was prepared or two (2) business days after notice of the meeting
is given and continuing through the meeting and any adjournments. The list shall
be available at the Corporation's principal office or at a place identified in
the notice of the meeting in the city where the meeting is to be held. A
shareholder, his agent or attorney is entitled on written demand to inspect and,
subject to the requirements of Section 2.14 of these Bylaws, to inspect and copy
the list during regular business hours and during the period it is available for
inspection. The Corporation shall maintain the shareholder list in written form
or in another form capable of conversion into written form within a reasonable
time. (16-10a-720)
Section 2.7. Shareholder Quorum and Voting Requirements.
(a) Quorum. Unless the Articles of Incorporation, a Bylaw adopted
by the shareholders pursuant to the Utah Revised Business Corporation Act or the
Utah Revised Business Corporation Act provides otherwise, a majority of the
votes entitled to be cast on the matter by the voting group constitutes a quorum
of that voting group for action on that matter. (16-10a-725(1))
(b) Approval of Actions. If a quorum exists, action on a matter
(other than the election of directors) by a voting group is approved if the
votes cast within the voting group favoring the action exceed the votes cast
opposing the action, unless the Articles of Incorporation, a Bylaw adopted by
the shareholders pursuant to the Utah Revised Business Corporation Act or the
Utah Revised Business Corporation Act requires a greater number of affirmative
votes. (16-10a-725(3))
(c) Single Voting Group. If the Articles of Incorporation or the
Utah Revised Business Corporation Act provides for voting by a single voting
group on a matter, action on that matter is taken when approved by that voting
group.
(16-10-726(1))
(d) Voting Groups. Shares entitled to vote as a separate voting
group may take action on a matter at a meeting only if a quorum of those shares
exists with respect to that matter. (16-10a-725(1)) If the Articles of
Incorporation or the Utah Revised Business Corporation Act provides for voting
by two or more voting groups on a matter, action on that matter is taken only
when approved by each of those voting groups counted separately. One voting
group may vote on a matter even though another voting group entitled to vote on
the matter has not voted. (16-10a-726(2))
(e) Effect of Representation. Once a share is represented for any
purpose at a meeting, including the purpose of determining that a quorum exists,
it is deemed present for
5
<PAGE> 10
quorum purposes for the remainder of the meeting and for any adjournment of that
meeting, unless a new record date is or must be set for that adjourned meeting.
(16-10a-725(2))
Section 2.8. Proxies. At all meetings of the shareholders, a
shareholder may vote in person or by a proxy executed in any lawful manner. Such
proxy shall be filed with the Corporation before or at the time of the meeting.
No proxy shall be valid after eleven months from the date of its execution
unless otherwise provided in the proxy.
(16-10a-722)
Section 2.9. Voting of Shares.
(a) Votes per Share. Unless otherwise provided in the Articles of
Incorporation, each outstanding share entitled to vote shall be entitled to one
vote, and each fractional share shall be entitled to a corresponding fractional
vote, upon each matter submitted to a vote at a meeting of shareholders.
(16-10a-721(1))
(b) Restriction on Shares Held by Controlled Corporation. Except
as provided by specific court order, no shares of the Corporation held by
another corporation, if a majority of the shares entitled to vote for the
election of directors of such other corporation are held by the Corporation,
shall be voted at any meeting of the Corporation or counted in determining the
total number of outstanding shares at any given time for purposes of any
meeting. However, the power of the Corporation to vote any shares, including its
own shares, held by it in a fiduciary capacity is not hereby limited.
(16-10a-721(2), (3))
(c) Redeemable Shares. Redeemable shares are not entitled to be
voted after notice of redemption is mailed to the holders thereof and a sum
sufficient to redeem the shares has been deposited with a bank, trust company or
other financial institution under an irrevocable obligation to pay the holders
the redemption price on surrender of the shares. (16-10a-721(4))
Section 2.10. Corporation's Acceptance of Votes.
(a) Corresponding Name. If the name signed on a vote, consent,
waiver, proxy appointment or proxy appointment revocation corresponds to the
name of a shareholder, the Corporation, if acting in good faith, is entitled to
accept the vote, consent, waiver, proxy appointment or proxy appointment
revocation and give it effect as the act of the shareholder. (16-10a-724(1))
(b) Name does not Correspond. If the name signed on a vote,
consent, waiver, proxy appointment or proxy appointment revocation does not
correspond to the name of a shareholder, the Corporation, if acting in good
faith, is nevertheless entitled to accept the vote,
6
<PAGE> 11
consent, waiver, proxy appointment or proxy appointment revocation and give it
effect as the act of the shareholder if:
(1) The shareholder is an entity as defined in the Utah
Revised Business Corporation Act and the name signed purports to
be that of an officer or agent of the entity;
(2) the name signed purports to be that of an
administrator, executor, guardian or conservator representing the
shareholder and, if the Corporation requests, evidence of
fiduciary status acceptable to the Corporation has been presented
with respect to the vote, consent, waiver, proxy appointment or
proxy appointment revocation;
(3) the name signed purports to be that of a receiver or
trustee in bankruptcy of the shareholder and, if the Corporation
requests, evidence of this status acceptable to the Corporation
has been presented with respect to the vote, consent, waiver,
proxy appointment or proxy appointment revocation;
(4) the name signed purports to be that of a pledgee,
beneficial owner or attorney-in-fact of the shareholder and, if
the Corporation requests, evidence acceptable to the Corporation
of the signatory's authority to sign for the shareholder has been
presented with respect to the vote, consent, waiver, proxy
appointment or proxy appointment revocation;
(5) two or more persons are the shareholder as cotenants
or fiduciaries and the name signed purports to be the name of at
least one of the cotenants or fiduciaries and the person signing
appears to be acting on behalf of all the cotenants or
fiduciaries; or
(6) the acceptance of the vote, consent, waiver, proxy
appointment or proxy appointment revocation is otherwise proper
under rules established by the Corporation that are not
inconsistent with the provisions of this Section 2.10.
(16-10a-724(2))
(c) Shares owned by Two or More Persons. If shares of the
Corporation are registered in the names of two or more persons, or if two or
more persons have the same fiduciary relationship respecting the same shares,
unless the Secretary is given written notice to the contrary and furnished with
a copy of the instrument creating the relationship, their acts with respect to
voting shall have the following effect:
7
<PAGE> 12
(1) If only one votes, the act binds all;
(2) if more than one vote, the act of the majority so
voting binds all;
(3) if more than one vote, but the vote is evenly split on
any particular matter, each faction may vote the securities in
question proportionately; and
(4) if the instrument so filed or the registration of the
shares shows that any tenancy is held in unequal interests, a
majority or even split for the purpose of this Section 2.10 shall
be a majority or even split in interest. (16-10a-724(3))
(d) Rejection. The Corporation is entitled to reject a vote,
consent, waiver, proxy appointment or proxy appointment revocation if the
Secretary or other officer or agent authorized to tabulate votes, acting in good
faith, has reasonable basis for doubt about the validity of the signature on it
or about the signatory's authority to sign for the shareholder. (16-10a-724(4))
(e) No Liability. The Corporation and its officer or agent who
accepts or rejects a vote, consent, waiver, proxy appointment or proxy
appointment revocation in good faith and in accordance with the standards of
this Section 2.10 are not liable in damages to the shareholder for the
consequences of the acceptance or rejection. (16-10a-724(5))
(f) Validity. Corporate action based on the acceptance or
rejection of a vote, consent, waiver, proxy appointment or proxy appointment
revocation under this Section 2.10 is valid unless a court of competent
jurisdiction determines otherwise. (16-10a-724(6))
Section 2.11. Informal Action by Shareholders.
(a) Written Consent. Unless otherwise provided in the Articles of
Incorporation, any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice if one or
more consents in writing, setting forth the action so taken, are signed by all
of the shareholders entitled to vote on the matter. (16-10a-704)
(b) Revocation. Any shareholder giving a written consent, or the
shareholders' proxyholder, or a transferee of the shares or a personal
representative of the shareholder or their respective proxyholder, may revoke
the consent by a signed writing describing the action and stating that the
shareholder's prior consent is revoked, if the writing is received by the
Corporation prior to the effectiveness of the action. (16-10a-704(3))
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(c) Effective Date. Action taken pursuant to this Section 2.11 is
not effective unless all written consents on which the Corporation relies for
the taking of action are received by the Corporation within a sixty (60) day
period and are not revoked. Action thus taken is effective as of the date the
last written consent necessary to effect the action is received by the
Corporation; provided, however, that the effective date of the action may be any
date that is specified in all the written consents as the effective date of the
action. The writing may be received by the Corporation by electronically
transmitted facsimile or other form of communication providing the Corporation
with a complete copy thereof, including a copy of the signature. (16-10a-704(4))
(d) Effect of Action Without a Meeting. Action taken under this
Section 2.11 has the same effect as action taken at a meeting of shareholders
and may be so described in any document. (16-10a-704(7))
Section 2.12. Waiver of Notice. A shareholder may waive any
notice required by the Utah Revised Business Corporation Act, the Corporation's
Articles of Incorporation or these Bylaws. Such a waiver may be made before or
after the date and time stated in the notice as the date or time when any action
will occur or has occurred. Such a waiver must be in a writing signed by the
shareholder and must be delivered to the Corporation for inclusion in the
minutes of the relevant meeting of the shareholders or in the Corporation's
records. (16-10a-706(1))
Section 2.13. Voting for Directors. At each election of
directors, unless otherwise provided in the Articles of Incorporation or the
Utah Revised Business Corporation Act, every shareholder entitled to vote at the
election has the right to vote, in person or by proxy, all of the votes to which
the shareholder's shares are entitled for as many persons as there are directors
to be elected and for whose election the shareholder has the right to vote.
Unless otherwise provided in the Articles of Incorporation or the Utah Revised
Business Corporation Act, directors are elected by a plurality of the votes cast
by the shares entitled to be voted in the election, at a meeting at which a
quorum is present. (16-10a-728(1), (2))
Section 2.14. Rights of Shareholders to Inspect Corporate
Records.
(a) Minutes and Accounting Records. The Corporation shall keep,
as permanent records, minutes of all meetings of its shareholders and Board of
Directors, a record of all actions taken by its shareholders or Board of
Directors without a meeting, a record of all actions taken on behalf of the
Corporation by a committee of the Board of Directors in place of the Board of
Directors, and a record of all waivers of notices of meetings of its
shareholders,
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meetings of the Board of Directors, or any meetings of committees of the Board
of Directors. The Corporation shall maintain appropriate accounting records.
(16-10a-1601(1), (2))
(b) Absolute Inspection Rights. If a shareholder gives the
Corporation written notice of the shareholder's demand at least five (5)
business days before the date on which the shareholder wishes to inspect and
copy, a shareholder (or the shareholder's agent or attorney) has the right to
inspect and copy, during regular business hours, any of the following records,
all of which the Corporation is required to keep at its principal office:
(1) The Corporation's Articles of Incorporation
currently in effect;
(2) the Corporation's Bylaws currently in effect;
(3) the minutes of all shareholders' meetings, and records
of all action taken by shareholders without a meeting, for the
past three years;
(4) all written communications within the past three years
to shareholders as a group or to the holders of any class or
series of shares as a group;
(5) a list of the names and business addresses of the
Corporation's current officers and directors;
(6) the Corporation's most recent annual report delivered
to the Division; and
(7) all financial statements prepared for periods ending
during the last three years that a shareholder could request
pursuant to Section 16-10a-1605 of the Utah Revised Business
Corporation Act. (16-10a-1601(5) and 16-10a-1602(1))
(c) Conditional Inspection Rights. If a shareholder gives the
Corporation a written demand made in good faith and for a proper purpose at
least five business days before the date on which the shareholder wishes to
inspect and copy, the shareholder describes with reasonable particularity the
shareholder's purpose and the records the shareholder desires to inspect, and
the records are directly connected with the shareholder's purpose, the
shareholder (or the shareholder's agent or attorney) is entitled to inspect and
copy, during regular business hours at a reasonable location specified by the
Corporation, any of the following records of the Corporation:
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(1) Excerpts from:
(i) Minutes of any meeting of the Board of
Directors, records of any action of a committee of the
Board of Directors while acting on behalf of the
Corporation in place of the Board of Directors;
(ii) minutes of any meeting of the shareholders;
(iii)records of action taken by the shareholders
without a meeting; and
(iv) waivers of notices of any meeting of the
shareholders, of any meeting of the Board of Directors, or
of any meeting of a committee of the Board of Directors;
(2) accounting records of the Corporation; and
(3) the record of the Corporation's shareholders referred
to in Section 16-10a-1601(3) of the Utah Revised Business
Corporation Act. (16-10a-1602(2))
(d) Copy Costs. The right to copy records includes, if
reasonable, the right to receive copies made by photographic, xerographic or
other means. The Corporation may impose a reasonable charge, payable in advance,
covering the costs of labor and material, for copies of any documents provided
to a shareholder. The charge may not exceed the estimated cost of production or
reproduction of the records. (16-10a-1603)
(e) Shareholder Includes Beneficial Owner. For purposes of this
Section 2.14, the term "shareholder" shall include a beneficial owner whose
shares are held in a voting trust and any other beneficial owner who establishes
beneficial ownership.
(16-10a-1602(4)(b))
Section 2.15. Furnishing Financial Statements to a Shareholder.
Upon the written request of any shareholder, the Corporation shall mail to the
shareholder its most recent annual or quarterly financial statements showing in
reasonable detail its assets and liabilities and the results of its operations.
(16-10a-1605)
Section 2.16. Information Respecting Shares. Upon the written
request of any shareholder, the Corporation, at its own expense, shall mail to
the shareholder information respecting the designations, preferences,
limitations and relative rights applicable to each class of shares, the
variations determined for each series, and the authority of the Board of
Directors to determine variations for any existing or future class or series.
The Corporation may comply by
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mailing the shareholder a copy of its Articles of Incorporation containing such
information. (16-10a-1606)
ARTICLE 3. BOARD OF DIRECTORS
Section 3.1. General Powers. All corporate powers shall be
exercised by or under the authority of, and the business and affairs of the
Corporation shall be managed under the direction of, the Board of Directors,
subject to any limitation set forth in the Articles of Incorporation or in any
agreement authorized by Section 16-10a-732 of the Utah Revised Business
Corporation Act. (16-10a-801)
Section 3.2. Number, Tenure and Qualifications of Directors.
(a) Number. The number of directors of the Corporation shall be
not less than eight (8) nor more than eleven (11). The number of directors may
be fixed or changed within the range specified in this Section 3.2 by the
shareholders or the Board of Directors, but no decrease may shorten the term of
any incumbent director. (16-10a-803(1), (2))
(b) Tenure. Each director shall hold office until the next annual
meeting of shareholders or until removed. However, if a director's term expires,
the director shall continue to serve until the director's successor shall have
been elected and qualified, or until there is a decrease in the number of
directors. (16-10a-805)
(c) Qualifications. Directors need not be residents of the State
of Utah or shareholders of the Corporation unless the Articles of Incorporation
so prescribe. (16-10a-802) Directors shall have the following qualifications:
(i) For a period of five (5) years after the date these
Amended and Restated Bylaws are adopted (but not thereafter), (A) six (6) of the
directors shall be direct descendants (or the spouse of a direct descendant) of
W.W. Clyde, and (B) two (2) of the directors shall be direct descendants (or the
spouse of a direct descendant) of Edward Clyde.
(ii) No person over seventy-five (75) years old shall be
elected or appointed a director of the Corporation; provided, however, that any
director elected within sixty (60) days after the adoption of these Amended and
Restated Bylaws shall be qualified to be a director during the period five (5)
years after the date of the adoption of these Amended and Restated Bylaws
(without regard to such person's age).
Section 3.3. Regular Meetings of the Board of Directors. A
regular meeting of the Board of Directors shall be held without other notice
than provided by this Section 3.3
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immediately after, and at the same place as, the annual meeting of shareholders.
The Board of Directors may provide, by resolution, the time and place for the
holding of additional regular meetings without other notice than such
resolution.
Section 3.4. Special Meetings of the Board of Directors. Special
meetings of the Board of Directors may be called by or at the request of the
President, a Vice President or any two (2) directors, who may fix any place,
either within or outside the State of Utah, as the place for holding the
meeting.
Section 3.5. Notice and Waiver of Notice of Special Director
Meetings.
(a) Notice. Unless the Articles of Incorporation provide for a
longer or shorter period, special meetings of the Board of Directors must be
preceded by at least two (2) days notice of the date, time and place of the
meeting. (16-10a-822(2)) Notice may be communicated in person, by telephone, by
any form of electronic communication, or by mail or private carrier.
(16-10a-103(2)) At the written request of any director, notice of any special
meeting of the Board of Directors shall be given to such director by facsimile
or telex, as the case may be, at the number designated in writing by such
director from time to time.
(b) Effective Date. Notice of any meeting of the Board of
Directors shall be deemed to be effective at the earliest of the following: (1)
when received; (2) five (5) days after it is mailed; or (3) the date shown on
the return receipt if sent by registered or certified mail, return receipt
requested, and the receipt is signed by or on behalf of the director.
(16-10a-103(5)).
(c) Waiver of Notice. A director may waive notice of any meeting.
Except as provided in this Section 3.5, the waiver must be in writing and signed
by the director entitled to the notice. The waiver shall be delivered to the
Corporation for filing with the corporate records, but delivery and filing are
not conditions to its effectiveness.
(16-10a-823(1))
(d) Effect of Attendance. The attendance of a director at a
meeting shall constitute a waiver of notice of such meeting, except when a
director attends a meeting for the express purpose of objecting to the
transaction of any business and at the beginning of the meeting, or promptly
upon arrival, the director objects to holding the meeting or transacting
business at the meeting because of lack of notice or defective notice, and does
not thereafter vote for or assent to action taken at the meeting.
(16-10a-823(2))
Section 3.6. Quorum of Directors. A majority of the number of
directors prescribed by resolution (or if no number is prescribed, the number in
office immediately before the meeting begins) shall constitute a quorum for the
transaction of business at any meeting of
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the Board of Directors, unless the Articles of Incorporation require a greater
number. (16-10a-824(1)(b))
Section 3.7. Manner of Acting.
(a) Action by Majority. If a quorum is present when a vote is
taken, the affirmative vote of a majority of directors present is the act of the
Board of Directors, unless the Corporation's Articles of Incorporation or the
Utah Revised Business Corporation Act requires the vote of a greater number of
directors. (16-10a-824(3))
(b) Telephonic Meetings. Unless the Articles of Incorporation
provide otherwise, any or all directors may participate in a regular or special
meeting by, or conduct the meeting through the use of, any means of
communication by which all directors participating may simultaneously hear each
other during the meeting. A director participating in a meeting by this means is
deemed to be present in person at the meeting.
(16-10a-820(2))
(c) Effect of Presence at Meeting. A director who is present at a
meeting of the Board of Directors when corporate action is taken is considered
to have assented to the action taken, unless:
(1) The director objects at the beginning of the meeting,
or promptly upon arrival, to holding it or transacting business
at the meeting;
(2) the director contemporaneously requests his dissent or
abstention as to any specific action to be entered into the
minutes of the meeting; or
(3) the director causes written notice of a dissent or
abstention as to any specific action to be received by the
presiding officer of the meeting before its adjournment or by the
Corporation promptly after adjournment of the meeting.
(16-10a-824(4))
(d) Right of Dissent or Abstention. The right of dissent or
abstention as to a specific action is not available to a director who votes in
favor of the action taken. (16-10a-824(5))
Section 3.8. Director Action By Written Consent. Unless the
Articles of Incorporation or the Utah Revised Business Corporation Act provide
otherwise, any action required or permitted to be taken by the Board of
Directors at a meeting may be taken without a meeting if all the directors
consent to the action in writing. Action is taken by written consent at the time
the last director signs a writing describing the action taken, unless, prior to
that time,
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any director has revoked a consent by a writing signed by the director and
received by the Secretary. Action taken by written consent is effective when the
last director signs the consent, unless the Board of Directors establishes a
different effective date. Action taken by written consent has the same effect as
action taken at a meeting of directors and may be described as such in any
document. (16-10a-821)
Section 3.9. Resignation of Directors. A director may resign at
any time by giving a written notice of resignation to the Corporation. A
resignation of a director is effective when the notice is received by the
Corporation unless the notice specifies a later effective date. A director who
resigns may deliver a statement of his resignation pursuant to Section
16-10a-1608 of the Utah Revised Business Corporation Act to the Division for
filing. (16-10a-807)
Section 3.10. Removal of Directors. The shareholders may remove
one or more directors at a meeting called for that purpose if notice has been
given that a purpose of the meeting is such removal. The removal may be with or
without cause, unless the Articles of Incorporation provide that directors may
only be removed with cause. If a director is elected by a voting group of
shareholders, only the shareholders of that voting group may participate in the
vote to remove the director. If cumulative voting is in effect, a director may
not be removed if the number of votes sufficient to elect the director under
cumulative voting is voted against the director's removal. If cumulative voting
is not in effect, a director may be removed only if the number of votes cast to
remove the director exceeds the number of votes cast against removal of the
director. (16-10a-808)
Section 3.11. Board of Director Vacancies.
(a) Vacancies. Unless the Articles of Incorporation provide
otherwise, if a vacancy occurs on the Board of Directors, including a vacancy
resulting from an increase in the number of directors:
(1) The shareholders may fill the vacancy;
(2) the Board of Directors may fill the vacancy; or
(3) if the directors remaining in office constitute fewer
than a quorum of the board, they may fill the vacancy by the
affirmative vote of a majority of all the directors remaining in
office. (16-10a-810(1))
(b) Rights of Voting Groups. Unless the Articles of Incorporation
provide otherwise, if the vacant office was held by a director elected by a
voting group of shareholders:
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(1) If one or more directors were elected by the same
voting group, only they are entitled to vote to fill the vacancy
if it is filled by the directors; and
(2) only the holders of shares of that voting group are
entitled to vote to fill the vacancy if it is filled by the
shareholders. (16-10a-810(2))
(c) Election of Director Prior to Vacancy. A vacancy that will
occur at a specific later date, because of a resignation effective at a later
date, may be filled before the vacancy occurs, but the new director may not take
office until the vacancy occurs. (16-10a-810(3))
(d) Effect of Expiration of Term. If a director's term expires,
the director shall continue to serve until the director's successor is elected
and qualified or until there is a decrease in the number of directors. The term
of a director elected to fill a vacancy expires at the next shareholders'
meeting at which directors are elected.
(16-10a-805(5))
Section 3.12. Director Compensation. Unless otherwise provided in
the Articles of Incorporation, by resolution of the Board of Directors, each
director may be paid his expenses, if any, of attendance at each meeting of the
Board of Directors, and may be paid a stated salary as a director or a fixed sum
for attendance at each meeting of the Board of Directors or both. No such
payment shall preclude any director from serving the Corporation in any capacity
and receiving compensation therefor.
Section 3.13. Director Committees. Committees of the Board of
Directors may be established in accordance with Article 4 of these Bylaws.
Section 3.14. Director's Rights to Inspect Corporate Records.
(a) Absolute Inspection Rights. If a director gives the
Corporation written notice of the director's demand at least five (5) business
days before the date on which the director wishes to inspect and copy, the
director (or the director's agent or attorney) has the right to inspect and
copy, during regular business hours, any of the following records, all of which
the Corporation is required to keep at its principal office:
(1) The Corporation's Articles of Incorporation
currently in effect;
(2) the Corporation's Bylaws currently in effect;
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(3) the minutes of all shareholders' meetings, and records
of all action taken by shareholders without a meeting, for the
past three years;
(4) all written communications within the past three years
to shareholders as a group or to the holders of any class or
series of shares as a group;
(5) a list of the names and business addresses of the
Corporation's current officers and directors;
(6) the Corporation's most recent annual report delivered
to the Division; and
(7) all financial statements prepared for periods ending
during the last three years that a shareholder could request.
(16-10a-1601(5) and 16-10a-1602(1))
(b) Conditional Inspection Rights. In addition, if a director
gives the Corporation a written demand made in good faith and for a proper
purpose at least five business days before the date on which the director wishes
to inspect and copy, the director describes with reasonable particularity the
director's purpose and the records the director desires to inspect, and the
records are directly connected with the director's purpose, the director (or the
director's agent or attorney) is entitled to inspect and copy, during regular
business hours at a reasonable location specified by the Corporation, any of the
following records of the Corporation:
(1) Excerpts from:
(i) Minutes of any meeting of the Board of
Directors, records of any action of a committee of the
Board of Directors while acting on behalf of the
Corporation in place of the Board of Directors;
(ii) minutes of any meeting of the shareholders;
(iii) records of action taken by the shareholders
without a meeting; and
(iv) waivers of notices of any meeting of the
shareholders, of any meeting of the Board of Directors, or
of any meeting of a committee of the Board of Directors;
(2) accounting records of the Corporation; and
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(3) the record of the Corporation's shareholders referred
to in Section 16-10a-1601(3) of the Utah Revised Business
Corporation Act. (16-10a-1602(2))
(d) Copy Costs. The right to copy records includes, if
reasonable, the right to receive copies made by photographic, xerographic or
other means. The Corporation may impose a reasonable charge, payable in advance,
covering the costs of labor and material, for copies of any documents provided
to the director. The charge may not exceed the estimated cost of production or
reproduction of the records. (16-10a-1603)
ARTICLE 4. EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 4.1. Creation of Committees. Unless the Articles of
Incorporation provide otherwise, the Board of Directors may create an Executive
Committee and such other committees as it may deem appropriate and appoint
members of the Board of Directors to serve on such committees. Each committee
must have two (2) or more members, one of whom shall be the Chairman of the
Board, if there be such an officer, and one of whom shall be the President of
the Corporation. (16-10a-825(1))
Section 4.2. Approval of Committees and Members. The creation of
a committee and appointment of members to it must be approved by the greater of:
(1) A majority of all the directors in office when the
action is taken; or
(2) the number of directors required by the Articles of
Incorporation to take such action, or, if not specified in the
Articles of Incorporation, the number required by Section 3.7 of
these Bylaws to take action.
(16-10a-825(2))
Section 4.3. Required Procedures. Sections 3.4 through 3.10 of
these Bylaws, which govern procedures applicable to the Board of Directors, also
apply to committees and their members. (16-10a-825(3))
Section 4.4. Authority. Unless limited by the Articles of
Incorporation or the Utah Revised Business Corporation Act, each committee may
exercise those aspects of the authority of the Board of Directors which the
Board of Directors confers upon such committee in the resolution creating the
committee. (16-10a-825(4))
Section 4.5. Authority of Executive Committee. The Executive
Committee shall have, and may exercise all powers of the Board of Directors with
respect to the management of the business and affairs of the Corporation during
the intervals between the
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meetings of the Board of Directors. Provided, however, the Executive Committee
shall not have the power to fill vacancies on the Board of Directors or to amend
these Bylaws.
Section 4.6. Compensation. Unless otherwise provided in the
Articles of Incorporation, the Board of Directors may provide for the payment of
a fixed sum and/or expenses of attendance to any member of a committee for
attendance at each meeting of such committee. Provided, however, no such
payments shall be made to committee members who are salaried employees of the
Corporation.
ARTICLE 5. OFFICERS AND ADVISORS
Section 5.1. Officers and Advisors. The officers of the
Corporation shall be a President, one or more Vice Presidents, a Secretary and a
Treasurer, each of whom shall be appointed by the Board of Directors. The Board
of Directors may appoint a Chief Executive Officer and such other officers and
assistant officers as may be deemed necessary. If specifically authorized by the
Board of Directors, an officer may appoint one or more officers or assistant
officers. The same individual may simultaneously hold more than one office in
the Corporation. (16-10a-830) The Board of Directors may also appoint, but shall
not be required to appoint, a Chairman of the Board and one or more Board
Advisors. The Chairman of the Board and any Board Advisors shall not be officers
of the Corporation, but shall be advisors to the Board of Directors and to the
Corporation. The Board of Directors may appoint such other advisors as may be
deemed necessary.
Section 5.2. Appointment and Term. Each of the officers and
advisors of the Corporation shall be appointed by the Board of Directors for a
term determined by the Board of Directors. If no term is specified, each officer
or advisor shall hold office until the officer or advisor resigns, dies, is
removed in the manner provided in Section 5.4 of these Bylaws, or until the
first meeting of the directors held after the next annual meeting of the
shareholders. If the appointment of officers or advisors shall not be made at
such meeting, such appointment shall be made as soon thereafter as is
convenient. If a vacancy shall occur in any office or advisory position, or if a
new office or advisory position shall be created, the Board of Directors may
appoint officer(s) or advisor(s) to fill such vacancy, office or position, and
such appointment shall be for the term determined by the Board of Directors.
Each officer and advisor shall hold office until his or her successor shall have
been duly appointed. (16-10a-830)
The designation of a specified term does not grant to the officer
or advisor any contract rights, and the Board of Directors may remove the
officer or advisor at any time prior to the end of such term. (16-10a-833)
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Section 5.3. Resignation. Any officer or advisor may resign at
any time by giving written notice of resignation to the Corporation.
(16-10a-832(1))
Section 5.4. Removal. Any officer, advisor or agent of the
Corporation may be removed by the Board of Directors at any time, with or
without cause. Such removal shall be without prejudice to the contract rights,
if any, of the person so removed. Appointment of an officer, advisor or agent
shall not of itself create contract rights. (16-10a-832)
Section 5.5. The Chairman of the Board. The Chairman of the
Board, if there be such a position, shall have the following powers and duties:
(a) To be a senior advisor to the Corporation and, in addition to
the duties specified in this Section 5.5, to perform such duties as may be
assigned to him by the Board of Directors;
(b) to preside at all meetings of the shareholders of the
Corporation;
(c) to preside at all meetings of the Board of Directors;
(d) to be a member of the Executive Committee, if any.
(16-10a-831)
Section 5.6. Board Advisors. The Board of Directors may from time
to time designate and appoint one or more Board Advisors. Each Board Advisor
shall have the right to attend meetings of the Board of Directors, but a Board
Advisor shall not be a director and shall not vote on any matter voted upon by
the directors. Each Board Advisor shall have such powers and perform such duties
as may from time to time be assigned to him or her by the Board of Directors or
by the Chairman of the Board.
Section 5.7. Chief Executive Officer. The Chief Executive
Officer, if there be such an officer, shall be the principal executive officer
of the Corporation and, subject to the control of the Board of Directors, in
general, shall supervise and control all of the business and affairs of the
Corporation. If no Chairman of the Board has been appointed, or in his absence,
the Chief Executive Officer, when present, shall preside at all meetings of the
shareholders and of the Board of Directors. The Chief Executive Officer may
sign, with the Secretary or any other proper officer of the Corporation
authorized by the Board of Directors, certificates for shares of the
Corporation, the issuance of which shall have been authorized by a resolution of
the Board of Directors, and deeds, mortgages, bonds, contracts or other
instruments, except in cases where the signing and execution thereof shall be
expressly delegated by the Board of Directors or by these Bylaws to some other
officer or agent of the Corporation, or shall be required by law to be otherwise
signed or executed; and in general shall perform all duties incident to the
office of
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Chief Executive Officer and such other duties as may be prescribed by the Board
of Directors from time to time. (16-10a-831)
Section 5.8. President. The President shall be an executive
officer of the Corporation, and, if there be no Chief Executive Officer, shall
be the principal executive officer of the Corporation and, subject to the
control of the Board of Directors, in general, shall supervise and control all
of the business and affairs of the Corporation. In the absence of the Chief
Executive Officer or in the event of his death or inability or refusal to act,
the President shall perform the duties of the Chief Executive Officer, and when
so acting, shall have all the powers of and be subject to all the restrictions
upon the Chief Executive Officer. In the absence of the Chairman of the Board
and the Chief Executive Officer, the President, when present, shall preside at
all meetings of the shareholders and of the Board of Directors. The President
may sign, with the Secretary or any other proper officer of the Corporation
authorized by the Board of Directors, certificates for shares of the
Corporation, the issuance of which shall have been authorized by a resolution of
the Board of Directors, and deeds, mortgages, bonds, contracts or other
instruments, except in cases where the signing and execution thereof shall be
expressly delegated by the Board of Directors or by these Bylaws to some other
officer or agent of the Corporation, or shall be required by law to be otherwise
signed or executed; and in general shall perform all duties incident to the
office of President and such other duties as may be prescribed by the Chief
Executive Officer or the Board of Directors from time to time.
(16-10a-831)
Section 5.9. Vice Presidents. In the absence of the President or
in the event of his death or inability or refusal to act, the Vice President (or
in the event there be more than one Vice President, the Vice Presidents in the
order designated at the time of their election, or in the absence of any
designation, then in the order of their appointment) shall perform the duties of
the President, and when so acting, shall have all the powers of and be subject
to all the restrictions upon the President. If there is no Vice President, then
the Treasurer shall perform such duties of the President. Any Vice President may
sign, with the Secretary or an Assistant Secretary, certificates for shares of
the Corporation the issuance of which have been authorized by resolution of the
Board of Directors; and shall perform such other duties as from time to time may
be assigned to him or her by the Chief Executive Officer, the President or by
the Board of Directors.
(16-10a-831)
Section 5.10. Secretary. The Secretary shall have the following
powers and duties:
(a) to keep the minutes of the proceedings of the shareholders
and of the Board of Directors and the other records and information of the
Corporation required to be kept, in one or more books provided for that purpose;
21
<PAGE> 26
(b) to see that all notices are duly given in accordance with the
provisions of these Bylaws or as required by law;
(c) to be custodian of the corporate records and of any seal of
the Corporation;
(d) when requested or required, to authenticate any records of
the Corporation;
(e) to keep a register of the post office address of each
shareholder which shall be furnished to the Secretary by such shareholder;
(f) to sign with the Chief Executive Officer, the President or a
Vice President, certificates for shares of the Corporation, the issuance of
which shall have been authorized by resolution of the Board of Directors;
(g) to have general charge of the stock transfer books of the
Corporation; and
(h) in general, to perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him or
her by the Chief Executive Officer, the President or by the Board of Directors.
(16-10a-830 and 16-10a-831)
Section 5.11. Treasurer. The Treasurer shall have the following
powers and duties:
(a) to have charge and custody of and be responsible for all
funds and securities of the Corporation;
(b) to receive and give receipts for moneys due and payable to
the Corporation from any source whatsoever, and deposit all such moneys in the
name of the Corporation in such banks, trust companies or other depositories as
shall be selected by the Board of Directors;
(c) in general, to perform all of the duties incident to the
office of Treasurer and such other duties as from time to time may be assigned
to him or her by the Chief Executive Officer, the President or by the Board of
Directors; and
(d) if required by the Board of Directors, to give a bond for the
faithful discharge of his or her duties in such sum and with such surety or
sureties as the Board of Directors shall determine. (16-10a-831)
Section 5.12. Assistant Secretaries and Assistant Treasurers. The
Assistant Secretaries, when authorized by the Board of Directors, may sign, with
the President or a Vice
22
<PAGE> 27
President, certificates for shares of the Corporation, the issuance of which
shall have been authorized by a resolution of the Board of Directors. The
Assistant Treasurers, if required by the Board of Directors, shall give bonds
for the faithful discharge of their duties in such sums and with such sureties
as the Board of Directors shall determine. The Assistant Secretaries and
Assistant Treasurers, in general, shall perform such duties as shall be assigned
to them by the Secretary or the Treasurer, respectively, or by the Chief
Executive Officer, the President or the Board of Directors. (16-10a-831)
Section 5.13. General Manager. The Chief Executive Officer, the
President or the Board of Directors (or the Executive Committee, if any) may
appoint a General Manager who may, or may not, be one of the officers or
directors of the Corporation. The General Manager shall have the following
powers and duties:
(a) If so designated by the Board of Directors, the General
Manager may be an executive officer of the Corporation.
(b) If so directed by the Chief Executive Officer, the President
or the Board of Directors (or the Executive Committee, if any), the General
Manager may have management of the business of the Corporation and its dealings
and, if so directed, may have general charge of the business affairs and
property of the Corporation, general supervision over its employees and agents;
provided, however, the General Manager shall be at all times subject to the
control of the Chief Executive Officer, the President or the Board of Directors
(or the Executive Committee, if any).
(c) If so directed by the Chief Executive Officer, the President
or the Board of Directors (or the Executive Committee, if any), the General
Manager may employ all employees of the Corporation, or delegate such employment
to subordinate officers or division chiefs, and shall have authority to
discharge any person so employed.
(d) The General Manager shall make a report to the Chief
Executive Officer, the President and the Board of Directors quarterly, or more
often if required to do so, setting forth the result of the operations under his
charge, together with suggestions looking to the improvement and betterment of
the condition of the Corporation, and to perform such other duties as the Board
of Directors shall require.
Section 5.14. Salaries. The salaries of the officers, advisors
and agents shall be fixed from time to time by the Board of Directors; provided,
however, that the Board of Directors may delegate to any person or group of
persons the power to fix the salaries or other compensation of any subordinate
officers, advisors or agents. No officer shall be prevented from
23
<PAGE> 28
receiving any such salary or compensation by reason of the fact that he is also
a director of the Corporation.
Section 5.15. Surety Bonds. In the event the Board of Directors
shall so require, any officer, advisor or agent of the Corporation shall execute
to the Corporation a bond in such sums and with such surety or sureties as the
Board of Directors may direct, conditioned upon the faithful performance of his
duties to the Corporation, including responsibility for negligence and for the
accounting for all property, monies or securities of the Corporation which may
come into his hands.
ARTICLE 6. LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 6.1. Limitation of Liability of Directors. Directors
shall not be liable to the Corporation or its shareholders for monetary damages
for any action taken or any failure to take any action, as a director, except
liability for:
(a) the amount of a financial benefit received by a director to
which he is not entitled;
(b) an intentional infliction of harm on the Corporation or its
shareholders;
(c) a violation of Section 16-10a-842 of the Utah Revised
Business Corporation Act;
24
<PAGE> 29
(d) an intentional violation of criminal law. (16-10a-841(1))
Section 6.2. Indemnification of Directors. Unless otherwise
provided in the Articles of Incorporation, the Corporation shall indemnify any
individual made a party to a proceeding because the individual is or was a
director of the Corporation against liability incurred in the proceeding.
Provided, however, the Corporation shall only indemnify an individual if it has
authorized the indemnification in accordance with Section 16-10a-906(4) of the
Utah Revised Business Corporation Act and a determination has been made in
accordance with the procedures set forth in Section 16-10a-906(2) of the Utah
Revised Business Corporation Act that indemnification is in accordance with the
following requirements:
(a) Standard of Conduct. The Corporation shall determine that:
(1) The individual's conduct was in good faith;
(2) the individual reasonably believed that his or her
conduct was in, or not opposed to, the Corporation's best
interests; and
(3) in the case of any criminal proceeding, the individual
had no reasonable cause to believe that his or her conduct was
unlawful.
(16-10a-902(1))
(b) No Indemnification in Certain Circumstances. The Corporation
shall not indemnify an individual under this Section 6.2:
(1) In connection with a proceeding by or in the right of
the Corporation in which the individual was adjudged liable to
the Corporation; or
(2) in connection with any other proceeding charging that
the individual derived an improper personal benefit, whether or
not involving action in the individual's official capacity, in
which proceeding he or she was adjudged liable on the basis that
he or she derived an improper personal benefit. (16-10a-902(4))
(c) Indemnification in Derivative Actions Limited.
Indemnification permitted under this Section 6.2 in connection with a proceeding
by or in the right of the Corporation is limited to reasonable expenses incurred
in connection with the proceeding.
(16-10a-902(5))
Section 6.3. Advance Payment of Expenses. Unless otherwise
provided in the Articles of Incorporation, the Corporation may pay for or
reimburse in advance of final
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<PAGE> 30
disposition of any proceeding the reasonable expenses incurred by an individual
who is a party to a proceeding because he or she is or was a director of the
Corporation if (i) in accordance with the procedures and standards set forth in
Section 16-10a-906(4) of the Utah Revised Business Corporation Act, an
authorization of payment is made, and (ii) in accordance with the procedures of
Section 16-10a-906(2) of the Utah Revised Business Corporation Act, a
determination is made that the following has occurred:
(a) Written Affirmation. The individual has furnished to the
Corporation a written affirmation of the individual's good faith belief that the
individual has met the standard of conduct described in Section 6.2 of these
Bylaws.
(b) Written Undertaking. The individual has furnished to the
Corporation a written undertaking, executed personally or on the individual's
behalf, to repay the advance if it is ultimately determined that the individual
did not meet the standard of conduct (which undertaking must be an unlimited
general obligation of the individual but need not be secured and may be accepted
without reference to financial ability to make repayment).
(c) Factual Determination. A determination has been made that the
facts then known to those making the determination would not preclude
indemnification under Section 6.2 of these Bylaws or Part 9 of the Utah Revised
Business Corporation Act.
(16-10a-904)
Section 6.4. Indemnification of Officers, Employees, Fiduciaries
and Agents. Unless otherwise provided in the Articles of Incorporation, the
Corporation shall indemnify and advance expenses to any individual made a party
to a proceeding because the individual is or was an officer, employee, fiduciary
or agent of the Corporation to the same extent as to an individual made a party
to a proceeding because the individual is or was a director of the Corporation,
or to a greater extent, if not inconsistent with public policy, if provided for
by general or specific action of the Board of Directors. (16-10a-907)
Section 6.5. Insurance. The Corporation may purchase and maintain
liability insurance on behalf of a person who is or was a director, officer,
employee, fiduciary or agent of the Corporation, or who, while serving as a
director, officer, employee, fiduciary or agent of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner,
trustee, employee, fiduciary or agent of another foreign or domestic corporation
or other person, or of an employee benefit plan, against liability asserted
against or incurred by him or her in that capacity or arising from his or her
status as a director, officer, employee, fiduciary or agent, whether or not the
Corporation would have power to indemnify him or her against the same liability
under Sections 16-10a-902, 16-10a-903, or 16-10a-907 of the Utah Revised
Business Corporation Act. Insurance may be procured from any insurance company
designated by the Board of Directors, whether the insurance company is formed
under the laws of the State of Utah
26
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or any other jurisdiction of the United States or elsewhere, including any
insurance company in which the Corporation has an equity or any other interest
through stock ownership or otherwise. (16-10a-908)
ARTICLE 7. EXECUTION OF INSTRUMENTS, BORROWING OF MONEY
AND DEPOSIT OF CORPORATE FUNDS
Section 7.1. Execution of Instruments. Subject to any limitation
contained in the Utah Revised Business Corporation Act, the Articles of
Incorporation or these Bylaws, and subject to any limitations that may be
imposed by the Board of Directors, the Chief Executive Officer, President, any
Vice President or the Secretary, in the name and on behalf of the Corporation,
may execute and deliver any contract or other instrument. Subject to any
limitation contained in the Utah Revised Business Corporation Act, the Articles
of Incorporation or these Bylaws, the Board of Directors may authorize in
writing any other officer or agent to execute and deliver any contract or other
instrument in the name and on behalf of the Corporation; any such authorization
may be general or confined to specific instances.
Section 7.2. Loans. No loan or advance shall be contracted on
behalf of the Corporation, no negotiable paper or other evidence of its
obligation under any loan or advance shall be issued in its name, and no
property of the Corporation shall be mortgaged, pledged, hypothecated,
transferred or conveyed as security for the payment of any loan, advance,
indebtedness or liability of the Corporation, unless and except as authorized by
the Board of Directors. Any such authorization may be general or confined to
specific instances.
Section 7.3. Deposits. All monies of the Corporation not
otherwise employed shall be deposited from time to time to its credit in such
banks or trust companies or with such bankers or other depositories as the Board
of Directors may select, or as from time to time may be selected by any officer
or agent authorized to do so by the Board of Directors.
Section 7.4. Checks, Drafts, etc. All notes, drafts, acceptances,
checks, endorsements, and, subject to the provisions of these Bylaws, evidences
of indebtedness of the Corporation shall be signed by such officer or officers
or such agent or agents of the Corporation and in such manner as the Board of
Directors from time to time may determine. Endorsements for deposit to the
credit of the Corporation in any of its duly authorized depositories shall be in
such manner as the Board of Directors from time to time may determine.
Section 7.5. Bonds and Debentures. Every bond or debenture issued
by the Corporation shall be evidenced by an appropriate instrument which shall
be signed by the Chief Executive Officer, President or a Vice President and by
the Secretary. Where such bond or debenture is authenticated with the manual
signature of an authorized officer of the Corporation
27
<PAGE> 32
or other trustee designated by the indenture of trust or other agreement under
which such security is issued, the signature of any of the Corporation's
officers named thereon may be a facsimile. In case any officer who signed, or
whose facsimile signature has been used on any such bond or debenture, shall
cease to be an officer of the Corporation for any reason before the same has
been delivered by the Corporation, such bond or debenture may nevertheless be
adopted by the Corporation and issued and delivered as though the person who
signed it or whose facsimile signature has been used thereon had not ceased to
be such officer.
Section 7.6. Sale, Transfer, etc. of Securities. Sales,
transfers, endorsements, and assignments of shares of stocks, bonds, and other
securities owned by or standing in the name of the Corporation and the execution
and delivery on behalf of the Corporation of any and all instruments in writing
incident to any such sale, transfer, endorsement or assignment, shall be
effected by the Chief Executive Officer, President, any Vice President, or by
any officer or agent thereunto authorized by the Board of Directors.
Section 7.7. Proxies. Proxies to vote with respect to shares of
stock of other corporations used by or standing in the name of the Corporation
shall be executed and delivered on behalf of the Corporation by the Chief
Executive Officer, President, any Vice President, or by any officer or agent
thereunto authorized by the Board of Directors.
ARTICLE 8. CERTIFICATES FOR SHARES AND
THEIR TRANSFER
Section 8.1. Certificates for Shares.
(a) Content. Certificates representing shares of the Corporation,
at a minimum, shall state on their face the name of the Corporation and that the
Corporation is organized under the laws of the State of Utah; the name of the
person to whom issued; and the number and class of shares and the designation of
the series, if any, the certificate represents; and be in such form as is
determined by the Board of Directors. Such certificates shall be signed by the
President or a Vice President and by the Secretary or an Assistant Secretary and
may be sealed with the corporate seal or a facsimile thereof. The signatures of
the officers may be facsimiles if the certificate is countersigned by a transfer
agent, or registered by a registrar, other than the Corporation itself or an
employee of the Corporation. In case any officer who has signed or whose
facsimile signature has been placed upon a certificate ceases to be an officer
before the certificate is issued, the certificate may be issued by the
corporation with the same effect as if the person were an officer at the date of
its issue. Each certificate for shares shall be consecutively numbered or
otherwise identified. The certificates may contain any other information the
Corporation considers necessary or appropriate. (16-10a-625)
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<PAGE> 33
(b) Legend as to Class or Series. If the Corporation is
authorized to issue different classes of shares or different series within a
class, the designations, preferences, limitations, and relative rights
applicable to each class, the variations in preferences, limitations, and
relative rights determined for each series, and the authority of the Board of
Directors to determine variations for any existing or future class or series
must be summarized on the front or back of each certificate. Alternatively, each
certificate may state conspicuously on its front or back that the Corporation
will furnish the shareholder this information on request in writing and without
charge. (16-10a-625)
(c) Shareholder List. The name and address of the person to whom
the shares represented are issued, with the number of shares and date of issue,
shall be entered on the stock transfer books of the Corporation.
(d) Transferring Shares. All certificates surrendered to the
Corporation for transfer shall be canceled and no new certificate shall be
issued until the former certificate for a like number of shares shall have been
surrendered and canceled, except that in case of a lost, destroyed or mutilated
certificate a new one may be issued therefor upon such terms and indemnity to
the Corporation as the Board of Directors may prescribe.
Section 8.2. Shares Without Certificates.
(a) Issuing Shares Without Certificates. Unless the Articles of
Incorporation provide otherwise, the Board of Directors may authorize the
issuance of some or all of the shares of any or all classes or series without
certificates. The authorization does not affect shares already represented by
certificates until they are surrendered to the Corporation.
(b) Information Statement Required. Within a reasonable time
after the issuance or transfer of shares without certificates, the Corporation
shall send the shareholder a written statement containing, at a minimum, the
name of the Corporation and that it is organized under the laws of the State of
Utah; the name of the person to whom issued; and the number and class of shares
and the designation of the series, if any, of the issued shares. If the
Corporation is authorized to issue different classes of shares or different
series within a class, the written statement shall describe the designations,
preferences, limitations, and relative rights applicable to each class, the
variations in preferences, limitations, and relative rights determined for each
series, and the authority of the Board of Directors to determine variations for
any existing or future class or series. (16-10a-626)
Section 8.3. Registration of Transfer of Shares. Registration of
the transfer of shares of the Corporation shall be made only on the stock
transfer books of the Corporation. In order to register a transfer, the record
owner shall surrender the shares to the Corporation for
29
<PAGE> 34
cancellation, properly endorsed by the appropriate person or persons with
reasonable assurances that the endorsements are genuine and effective. Unless
the Corporation has established a procedure by which a beneficial owner of
shares held by a nominee is to be recognized by the Corporation as the owner,
the person in whose name shares stand on the books of the Corporation shall be
deemed by the Corporation to be the owner thereof for all purposes.
Section 8.4. Transfer Agents and Registrars. The Board of
Directors may appoint one or more transfer agents and one or more registrars
with respect to the certificates representing shares of stock of the Corporation
and may require all such certificates to bear the signature of either or both.
The Board of Directors may from time to time define the respective duties of
such transfer agents and registrars.
Section 8.5. Restrictions on Transfer of Shares Permitted. The
Board of Directors or the shareholders may impose restrictions on the transfer
or registration of transfer of shares (including any security convertible into,
or carrying a right to subscribe for or acquire shares). A restriction does not
affect shares issued before the restriction was adopted unless the holders of
the shares are parties to the restriction agreement or voted in favor of the
restriction or otherwise consented to the restriction.
(a) A restriction on the transfer or registration of transfer of
shares may be authorized:
(1) To maintain the Corporation's status when it is
dependent on the number or identity of its shareholders;
(2) to preserve entitlements, benefits or exemptions under
federal, state or local laws; and
(3) for any other reasonable purpose.
(b) A restriction on the transfer or registration of transfer of
shares may:
(1) Obligate the shareholder first to offer the
Corporation or other persons, separately, consecutively or
simultaneously, an opportunity to acquire the restricted shares;
(2) obligate the Corporation or other persons, separately,
consecutively or simultaneously, to acquire the restricted
shares;
30
<PAGE> 35
(3) require, as a condition to a transfer or registration,
that any one or more persons, including the Corporation or any of
its shareholders, approve the transfer or registration, if the
requirement is not manifestly unreasonable; or
(4) prohibit the transfer or the registration of a
transfer of the restricted shares to designated persons or
classes of persons, if the prohibition is not manifestly
unreasonable.
A restriction on the transfer or registration of transfer of
shares is valid and enforceable against the holder or a transferee of the holder
if the restriction is authorized by this Section 8.5 and its existence is noted
conspicuously on the front or back of the certificate, or if the restriction is
contained in the information statement required by Section 8.2 of these Bylaws
with regard to shares issued without certificates. Unless so noted, a
restriction is not enforceable against a person without knowledge of the
restriction. (16-10a-627)
Section 8.6. Acquisition of Shares. The Corporation may acquire
its own shares, and, unless otherwise provided in the Articles of Incorporation,
the shares so acquired constitute authorized but unissued shares.
If the Articles of Incorporation prohibit the reissue of acquired
shares, the number of authorized shares shall be reduced by the number of shares
acquired, effective upon amendment of the Articles of Incorporation, which
amendment shall be adopted by the shareholders or the Board of Directors without
shareholder action. Appropriate Articles of Amendment must be delivered to the
Division and must set forth:
(a) The name of the Corporation;
(b) the reduction in the number of authorized shares, itemized by
class and series;
(c) the total number of authorized shares, itemized by class and
series, remaining after reduction of the shares; and
(d) a statement that the amendment was adopted by the Board of
Directors without shareholder action and that shareholder action was not
required if such be the case. (16-10a-631)
Section 8.7. Lost or Destroyed Certificates. If the holder of a
certificate for shares of the Corporation claims that a certificate has been
lost, destroyed or wrongfully taken, the Corporation shall issue a new
certificate to such holder, if such holder:
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<PAGE> 36
(a) so requests before the Corporation has notice that the
certificate has been acquired by a bona fide purchaser;
(b) files with the Corporation a sufficient indemnity bond; and
(c) satisfies any other reasonable requirements imposed by the
Corporation. (70A-8-405).
ARTICLE 9. DISTRIBUTIONS
Section 9.1. Distributions. The Board of Directors may authorize,
and the Corporation may make, distributions (including dividends on its
outstanding shares) in the manner and upon the terms and conditions provided by
law and in the Articles of Incorporation. (16-10a-640)
ARTICLE 10. CORPORATE SEAL
Section 10.1. Corporate Seal. The Board of Directors may provide
a corporate seal which may be circular in form and have inscribed thereon any
designation including the name of the Corporation, Utah as the state of
incorporation, and the words "Corporate Seal."
ARTICLE 11. FISCAL YEAR
Section 11.1. Fiscal Year. The fiscal year of the Corporation
shall be fixed by resolution of the Board of Directors.
ARTICLE 12. AMENDMENTS
Section 12.1. Amendments. The Corporation's Board of Directors
may amend these Bylaws, except to the extent that the Articles of Incorporation,
these Bylaws or the Utah Revised Business Corporation Act reserve this power
exclusively to the shareholders in whole or in part. However, the Board of
Directors may not adopt, amend, or repeal a Bylaw that fixes a shareholder
quorum or voting requirement that is greater than required by the Utah Revised
Business Corporation Act.
Section 3.2 of these Bylaws may be amended by the Board of
Directors or by the shareholders; provided, however, that any such amendment of
Section 3.2 of these Bylaws must be approved by a seventy-five percent (75%)
majority of the directors or the shareholders, as the case may be.
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If authorized by the Articles of Incorporation, the shareholders
may adopt, amend or repeal a Bylaw that fixes a greater quorum or voting
requirement for shareholders, or voting groups of shareholders, than is required
by the Utah Revised Business Corporation Act. Any such action shall comply with
the provisions of the Utah Revised Business Corporation Act.
The Corporation's shareholders may amend or repeal the
Corporation's Bylaws even though the Bylaws may also be amended or repealed by
the Corporation's Board of Directors. (16-10a-1020 to 16-10a-1022)
ADOPTED as of the 12th day of November, 1997.
33
<PAGE> 1
[FRONT PAGE]
COMMON STOCK COMMON STOCK
NUMBER:_______ SHARES:________
CLYDE COMPANIES, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF UTAH
(See reverse side for certain definitions)
THIS CERTIFIES THAT _____________________________ is the record holder
of_______________________________ FULLY-PAID AND NON-ASSESSABLE SHARES WITHOUT
PAR VALUE OF THE COMMON STOCK OF CLYDE COMPANIES, INC. transferable on the books
of the Corporation in person or by duly authorized attorney upon surrender of
this certificate properly endorsed.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:_________
__________________________ [SEAL] _______________________
Secretary President and
Chief Executive Officer
<PAGE> 2
[BACK PAGE]
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT --.... Custodian .....
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of survivorship under Uniform Gifts
and not as tenants in common to Minors Act.......
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, ______ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
shares of capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint __________________________________________,
Attorney to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated ____________
- -----------------------------------------
NOTICE. The signature to this assignment must correspond with the name as
written upon the face of the certificate in every particular without alteration
or enlargement, or any change whatever.
Signature(s) Guaranteed:
By:____________________
The Signatures should be guaranteed by an eligible guarantor institution (Banks,
stockbrokers, savings and loan associations and credit unions with membership in
approved signature medallion program), pursuant to SEC Rule 17Ad-15
<PAGE> 1
[EXHIBIT 5]
OPINION OF VAN COTT, BAGLEY, CORNWALL & McCARTHY
VAN COTT, BAGLEY, CORNWALL & MCCARTHY
50 SOUTH MAIN STREET
SUITE 1600
SALT LAKE CITY, UTAH 84144
(801)532-3333
December 10, 1997
Clyde Companies, Inc.
1423 Devonshire Drive
Salt Lake City, Utah 84108
Re: Clyde Companies, Inc.
Registration Statement on Form S-4
Gentlemen:
In our capacity as counsel to Clyde Companies, Inc., a Utah
corporation (the "Company"), you have requested our opinion in connection with
the registration statement on Form S-4 (the "Registration Statement"), filed by
the Company with the Securities and Exchange Commission (the "Commission") on
December 10, 1997 under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to (i) the issuance of up to 4,634,789 authorized and
unissued shares of the Company's Common Stock, no par value, to be issued
subject to the effectiveness of the Registration Statement, and (ii) 2,303,920
shares of the Company's Common Stock authorized and issued prior to the
effectiveness of the Registration Statement (collectively, the "Common Stock").
In connection with the preparation of this opinion letter, and as
the basis for the opinion set forth below, we have made such investigations of
the Utah Revised Business Corporation Act as we have deemed relevant and
necessary, and we have examined such documents and records as we have deemed
relevant and necessary. As to various questions of fact material to this opinion
letter, we have relied upon representations of officers of the Company.
Based upon and subject to the foregoing examination, we are of the
opinion that:
1
<PAGE> 2
1. The Company has the authority to issue 4,634,789 shares of the
Common Stock upon the effectiveness of the Registration Statement. The Company
had the authority to issue 2,303,920 shares of the Common Stock outstanding
prior to the effectiveness of the Registration Statement.
2. The shares of the Common Stock to be issued by the Company upon
the effectiveness of the Registration Statement will, when issued and paid for
as described in the Registration Statement, be validly issued, fully paid and
non-assessable. The shares of the Common Stock issued prior to the effectiveness
of the Registration Statement are validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion letter as Exhibit 5
to the Registration Statement. In giving this consent, we do not admit that we
are within the category of persons whose consent is required under Section 7 of
the Securities Act or the General Rules and Regulations of the Commission.
Very truly yours,
VAN COTT, BAGLEY, CORNWALL & McCARTHY
By /s/ ARTHUR B. RALPH
---------------------------------------------
Arthur B. Ralph
2
<PAGE> 1
EXHIBIT 8
Dear Clyde Companies, Inc., W.W. Clyde and Co., Geneva Rock Products Inc.,
Utah Service Inc. and Beehive Insurance Agency Inc. and the Stockholders of
all above-named corporations:
Pursuant to an Agreement and Plan of Merger (the "Agreement") by and among Clyde
Companies, Inc., ("Companies"), W.W. Clyde Reorganization Corporation ("CRC"),
Geneva Rock Reorganization Corporation ("GRRC"), Utah Service Reorganization
Corporation ("USRC"), Beehive Insurance Reorganization Corporation ("BIRC")
(CRC, GRRC, USRC and BIRC are hereafter collectively referred to as the "Merger
Cos."), WW. Clyde and Co., ("Clyde"), Geneva Rock Products Inc. ("Geneva"), Utah
Service Inc. ("Service") and Beehive Insurance Agency Inc. ("Beehive") (Clyde,
Geneva, Service and Beehive are hereafter collectively referred to as the
"Targets"), the Merger Cos. will be merged with and into the Targets (the
"Merger(s)").
Grant Thornton LLP (the "Firm") has been requested to provide an opinion (the
"Opinion") as to certain federal income tax consequences resulting from the
Mergers. Specifically, with respect to these matters, you have asked the Firm to
address the federal income tax consequences of the following questions:
1. Whether the Mergers will constitute "reorganizations" within the meaning
of Section 368(a)(1)(1) of the Code and/or transfers within the meaning of
Section 351?
2. Whether Companies and the Targets will each be a "party to the
reorganization" within the meaning of Section 368(b) of the Code?
3. Whether gain or loss will be recognized to the Shareholders (as defined
below) upon the receipt of Companies voting common stock solely in
exchange for common stock of the Targets?
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(1) All section references are to the Internal Revenue Code of 1986, as amended.
All regulation references are to the Income Tax Regulations thereunder.
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4. Whether the basis of the shares of Companies voting common stock received
by the Shareholders will be the same, in each instance, as the basis of
the shares of common stock of the Targets surrendered in exchange
therefor?
5. Whether the holding period of Companies voting common stock received by
the Shareholders will include, in each instance, the period during which
the common stock of the Targets surrendered in exchange therefor was held?
6. Whether the payment of cash in lieu of fractional share interests of
Companies will be treated as if the fractional shares were distributed as
part of the Merger and then redeemed by the Companies under the provisions
of Section 302 of the Code?
7. Whether the Distribution (as defined below) will result in the recognition
of gain?
In rendering the Opinion, representatives of the Firm have examined and relied
upon (i) the Agreement; (ii) a draft Form S-4 Registration Statement; and (iii)
a draft Stock Redemption Plan (these items are hereafter collectively referred
to as the "Documents").
Additionally, the Opinion is explicitly conditioned upon representations
contained in certain letters dated as of the date hereof from the Companies and
the Shareholders to the Firm, copies of which are attached to this opinion as
Exhibit A and Exhibit B (the "Representation Letters"). In that regard, the Firm
hereby incorporates by reference all of the statements of facts and factual
representations contained in the Documents and Representation Letters and, for
purposes of rendering the Opinion, the Firm has assumed (without attempting any
independent verification) that all of the statements of facts and factual
representations set forth in the Documents and Representation Letters are true
and complete.
I. OPINION
Based upon the foregoing facts, factual assumptions and representations set
forth in Sections II and III hereof, together with the Exhibits attached hereto
and incorporated by reference in each of such Sections, and the Code, Committee
Reports, legislative history and the relevant Internal Revenue Service and
judicial precedents as of the date hereof, the Firm is of the Opinion that:
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1. For federal income tax purposes, the Mergers in each instance will be
ignored under the step transaction doctrine discussed below and the
Restructuring (as defined below) will be considered a transfer by each of
the Shareholders of their respective stock of the Targets to Companies
solely in exchange for voting common stock (Rev. Rul. 67-448, 1967-2 C.B.
144). As viewed above, the Restructuring with respect to each of the
Targets will qualify as a reorganization within the meaning of Section
368(a)(1)(B) of the Code and/or a transfer of property as described in
Section 351.
2. Companies and the Targets will each be a "party to the reorganization"
within the meaning of Section 368(b) of the Code. Section 368(b) of the
Code.
3. No gain or loss will be recognized to the Shareholders (except to the
extent of fractional share interest, if any,) upon the receipt of
Companies' voting common stock solely in exchange for the Targets common
stock. Section 354(a)(1) and Section 351(a) of the Code.
4. The basis of the shares of Companies voting common stock received
(including fractional share interests, if any,) by the Shareholder will be
the same, in each instance, as the basis of the common stock of the
Targets surrendered by such shareholder in exchange therefor. Section
358(a)(1) of the Code.
5. Provided the common stock of the Targets surrendered by the Shareholder
was held as a capital asset, the holding period of the Companies voting
common stock (including any fractional shares interest) received in
exchange therefor will include the period during which common stock of the
Targets surrendered by such shareholder in exchange therefor was held.
Section 1223(1) of the Code.
6. The payment of cash to any Shareholder made in lieu of a fractional
interest in a share of Companies' voting common stock to which such
Shareholder is entitled will be treated as a distribution in full payment
for such fractional interest. Rev. Proc. 77-41, 1977-2 C.B. 574. Provided
the fractional interest surrendered by the Shareholder was held as a
capital asset, any gain or loss recognized by the shareholder on receipt
of a payment of cash in exchange therefor will be taxable as a capital
gain or loss, long-term or short-term, depending on
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whether the Shareholder had held the share of Companies' common stock
giving rise thereto for more than 18 months before the Restructuring.
7. Any gain realized on the Distribution will not result in immediate
recognition but will be taken into income pursuant to the provisions of
Section 1.1502-13 of the Regulations.
II. FACTS
A. BACKGROUND
Companies is a Utah corporation that directly conducts no business activities
but acts as a holding company for a portion of the stock of the Targets.
Specifically, Companies holds 33.78% of the stock of Clyde, 21.67% of the stock
of Geneva, 31.37% of the stock of Service and 17.22% of the stock of Beehive.
Except for cash, the stock of the Targets is Companies only asset. The
shareholders of Companies and their direct percentage of stock holdings is
attached hereto as Exhibit C (these shareholders are hereafter collectively
referred to as the "Companies Shareholders"). In November 1997, the name of
Companies was changed from W.W. Clyde Investment Co.
Clyde is a Utah corporation that is directly engaged in various aspects of the
construction industry. The shareholders of Clyde and their direct percentage of
stock holdings is attached hereto as Exhibit D (these shareholders are hereafter
referred to as the "Clyde Shareholders"). Clyde currently holds 34.77% of the
stock of Geneva.
Geneva is a Utah corporation that is engaged in the ready-mix concrete business,
as well as other construction related activities. The shareholders of Geneva and
their direct percentage holdings is attached hereto as Exhibit E (these
shareholders are hereafter referred to as the "Geneva Shareholders").
Service is a Utah corporation that owns and operates a hardware store and
adjacent gasoline/convenience store. The shareholders of Service and their
direct percentage holdings is attached as Exhibit F (these shareholders are
hereafter collectively referred to as the "Service Shareholders").
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Beehive is a Utah corporation that operates as an independent insurance agency
providing all types of insurance coverage for the general public. The
shareholders of Beehive and their direct percentage holdings is attached as
Exhibit G (these shareholders are hereafter collectively referred to as the
"Beehive Shareholders"). (The Clyde Shareholders, the Geneva Shareholders, the
Service Shareholders and the Beehive Shareholders are hereafter referred to as
the "Shareholders".)
The Merger Cos. are each wholly-owned, newly-organized subsidiaries of Companies
formed solely for the purpose of participating in the proposed transaction
described below.
B. THE TRANSACTION
For what has been represented to be valid business reasons, the following
transactions (hereafter collectively referred to as the "Restructuring") will
occur:
1. Each outstanding share of Companies on November 13, 1997 at 5:00 p.m. was
converted into 40 shares.
2. All cash held by Companies other than an amount necessary to satisfy its
tax liability upon the consummation of the Restructuring will be
distributed to Companies Shareholders.
3. In anticipation of the Restructuring, Companies has adopted a stock
redemption plan (the "Plan") pursuant to which it is expected that
Companies will redeem a limited number of its shares each year at the
discretion of the Board of Directors of Companies.
4. The Merger Cos. will be formed as described above.
5. Pursuant to the terms of the Agreement, CRC, GRRC, USRC and BIRC will
merge with and into Clyde, Geneva, Service and Beehive, respectively. The
Mergers will be pursuant to the terms of the applicable state laws, with
the Targets being the surviving corporations. In accordance with
applicable state law and the merger agreement between Companies, the
Targets and the Merger Cos., the Mergers will occur sequentially on the
same date with CRC merging into Clyde (the "Clyde Merger") first,
thereafter BIRC merging into Beehive, and one hour thereafter GRRC merging
into Geneva
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6. Immediately after the Clyde Merger and approximately one hour prior to any
other Mergers, Clyde will distribute (the "Distribution") all of its stock
holdings in Geneva to Companies.
7. All of the outstanding stock of the Targets, except for shares held by
Companies, fractional share interests or shares held by dissenting
shareholders, if any, will be converted into solely voting common stock of
Companies.
8. As a result of the Mergers and Distribution, all of the outstanding stock
of the Targets will be held by Companies.
9. No fractional share interests of Companies' stock will be issued. In lieu
thereof, cash will be paid.
10. Pursuant to the terms of the applicable state laws, shareholders of the
Targets may dissent to the Mergers. Any cash paid to dissenting
shareholders will be provided by their respective Target corporation.
Companies will provide no funds directly or indirectly to dissenting
shareholders of the Targets.
11. All corporate expenses of the Restructuring will be paid by Companies from
dividends, received after the Mergers from the Targets. If the
Restructuring is not consumated, each of the Targets would pay its
proportionate share of the Restructuring expenses.
At the conclusion of the Restructuring, the Shareholders will hold at least 80%
of the outstanding stock of Companies and each of the Targets will be a
wholly-owned subsidiary of Companies.
III. REPRESENTATIONS
The following representations were made by the management of the Targets,
Companies, and certain Shareholders who individually and collectively understand
that these representations form an integral part of our opinion regarding the
Restructuring:
1. The fair market value of Companies' stock received as a result of the
Restructuring will in each instance be approximately equal to the fair
market value of the Targets' stock surrendered.
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2. The Targets have no plan or intention to issue additional shares of its
stock that would result in Companies losing control of any of the Targets
within the meaning of Section 368(c) of the Code.
3. Except as provided for in the Plan, Companies has no plan or intention to
reacquire any of its stock issued in the transaction.
4. Companies has no plan or intention to liquidate the Targets, to merge the
Targets with or into another corporation; to sell or otherwise dispose of
the stock of the Targets except for transfers of stock to corporations
controlled by Companies or the Targets; or to cause the Targets to sell or
otherwise dispose of any of its assets, except for dispositions made in
the ordinary course of business.
5. Following the Restructuring, each Target will continue its historic
business or use a significant portion of its historic business assets in a
business.
6. On the date of the Restructuring, the fair market value of the assets of
the Targets will in each instance exceed the sums of its liabilities, plus
the amount of liabilities, if any, to which the assets are subject.
7. The Targets are not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
8. None of the compensation received by any of the Shareholder will be
separate consideration for, or allocable to, any of their shares of
Targets' stock; none of the shares of Companies stock received by any
shareholder-employees will be separate consideration for, or allocable to,
any employment agreement; and the compensation paid to any
shareholder-employees will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's-length
for similar services.
9. Immediately after the Restructuring, the Targets will not have outstanding
any warrants, options, convertible securities or any other type of right
pursuant to which any person could acquire stock that will cause Companies
not to control the Targets within the meaning of Section 368(c) of the
Code.
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10. There are valid business purposes for the Restructuring.
11. To the best of the knowledge of the management of the Companies,
shareholders of the Targets who hold less than 2% of the stock have no
plan or intention to sell, exchange or otherwise dispose of any of the
Companies' stock received in the proposed transaction except as provided
under the stock redemption plan of Companies effective as of January 1,
1999.
12. Except as set forth immediately below any Shareholder holding 2% or more
of Companies' stock has no plan or intention to sell, exchange or
otherwise dispose of any of Companies stock received in the proposed
transactions. While none of the Shareholders has a current plan to do so,
a Shareholder may, if circumstances require, exercise his or her rights
pursuant to the stock redemption plan of Companies effective as of January
1, 1999.
13. No liabilities will be assumed by Companies or the Targets as part of the
transaction. The stock of the Targets is not subject to any liabilities.
14. The payment of cash in lieu of fractional shares Companies stock is solely
for the purpose of avoiding the expense and inconvenience to Companies of
issuing fractional shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid in the
transaction to the Shareholders instead of issuing fraction shares of
Companies stock will not exceed one percent of the total consideration
that will be issued in the transaction to the Shareholders in exchange for
their shares of the Targets' stock. The fractional share interests of each
Shareholder will be aggregated, and no Shareholder will receive cash in an
amount equal to or greater than the value of one full share of Companies
stock.
15. Companies has not acquired any of the stock of the Targets during the last
five years.
16. Companies will file a federal consolidated tax return for the year that
includes the Distribution.
17. Except as set forth below, Companies and the Shareholders will pay their
own expenses incurred in the Restructuring. Companies will pay expenses
that are solely and directly
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related to the transaction in accordance with the guidances established in
Rev. Rul. 73-54, 1973-1 C.B. 187.
18. The facts and factual representations set forth in Section II above,
together with the Exhibits attached hereto and incorporated herein by
reference thereto and in this Section III, are true, correct and complete
as of the date thereof.
19. There are no facts relevant to the transactions described in Section IIB
or issues addressed in this letter that have not been supplied to the
Firm.
IV. DISCUSSION
In order to be tax-free, the Restructuring has to satisfy both the statutory
requirements set forth in the Code and several judicially-created concepts that
in certain instances are elaborated upon in the regulations and by the Internal
Revenue Service in administrative pronouncements such as revenue rulings and
procedures. Among these judicially-created concepts are continuity of interest,
continuity of business enterprise, the step transaction doctrine and business
purpose.
1. THE STATUTE
Section 368(a)(1)(B) of the Code defines the term reorganization to mean the
acquisition of the stock of a corporation (T) solely in exchange for voting
stock of another corporation (P) if immediately after the transaction P controls
T.
Section 351 of the Internal Revenue Code provides that no gain or loss will be
recognized if property is transferred to a corporation by one or more persons
solely in exchange for stock of the transferee corporation provided that
immediately after the exchange the person or persons who transferred the
property are in control of the transferee. While neither the Code nor Internal
Revenue Service regulations define the term "property," stock of a corporation
undoubtedly satisfies the requirement.
As defined in Section 368(c) of the Code, the term control means the ownership
of stock possessing at least 80% of the total combined voting power of all
classes of stock entitled to vote and at least 80% of the total number of shares
of all other classes of stock.
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In Rev. Rul. 67-448, 1967-2 C.B. 144, the Internal Revenue Service (the
"Service") determined that a transaction could constitute a reorganization
within the meaning of Section 368(a)(1)(B) if a corporation, P, gained control
of another corporation, T, solely in exchange for its voting stock through a
merger of a newly-formed transitory subsidiary of P with and into T. The
existence of the subsidiary and its merger into T are ignored for federal income
tax purposes. The transaction is treated as a direct acquisition by P of the T
stock solely in exchange for voting stock. This same principal applies to ignore
the existence of the Subsidiary and treat the transaction as a transfer of
property pursuant to Section 351. In Rev. Rul. 69-585, 1969-2 C.B. 56, the
Service determined that both the control and solely for voting stock requirement
of Section 368(a)(1)(B) were satisfied when P received 25% of the stock of T as
a dividend from its wholly-owned subsidiary.
The structure of the Mergers is consistent with the transaction described in
Rev. Rul. 67-448. Companies formation of Merger Cos. will be accomplished solely
to effectuate the Mergers. Except for minimal capital, the Merger Cos. will have
no assets and will conduct no business activities. As a result of the Merger and
Distribution, the Targets will become a wholly-owned subsidiaries of Companies
with its shareholders receiving solely voting common stock of Companies. Thus
for federal income tax purposes, the Merger should be ignored. Companies should
be treated as transferring solely its voting common stock to the Shareholders in
exchange for their stock. Immediately after the Restructuring, Companies will
hold all of the stock of the Target and will thus control the Targets within the
meaning of Section 368(c). Representations have been obtained indicating
Companies will not undertake a transaction that will result in the loss of
control of the Targets and result in the Shareholders receiving non-Companies
voting stock consideration for their stock. Consequently, the Restructuring
meets the definition of a reorganization as defined in Section 368(a)(1)(B).
Additionally, since the facts indicate that the shareholders hold at least 80%
of the outstanding stock of Companies immediately after the Restructuring, it
meets the definition of a transfer within the meaning of Section 351 of the
Code.
A party to the reorganization is defined in Section 368(b) of the Code to
include both corporations in the case of reorganization resulting from the
acquisition by one corporation of the stock or properties of another. Since the
Restructuring qualifies as a reorganization within the meaning of Section
368(a)(1)(B), Companies and each of the Targets will each be a party to the
reorganization.
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Section 354(a)(1) of the Code provides that neither gain nor loss will be
recognized if the stock in a corporation that is a party to reorganization is
exchanged pursuant to a plan of reorganization solely for stock of another
corporation that is a party to the reorganization. Under Section 356(a)(1), if
property or money is received in addition to the stock, gain, if any, to the
recipient will be recognized but in an amount not in excess of the sum of the
money or the fair market value of any other property. Pursuant to Section
356(a)(2), if the receipt of money or other property has the effect of a
dividend distribution (determined using the attribution rules of Section 318),
then it will be treated as a dividend distribution to the extent of each
distributees ratable share of earnings and profits. The remainder of any gain
will be treated as gain from the exchange of property.
The Shareholders will receive solely Companies voting common stock in the
Restructuring. Consequently, pursuant to Section 354(a)(1), no gain or loss
should be recognized to the Shareholders on the receipt of Companies stock in
exchange for stock of the Targets. Similarly, since the Restructuring satisfies
the requirements of Section 351, no gain or loss is also recognized under that
provision.
Section 351(e) of the Code provided that the general non-recognition rule of
Section 351(a) does not apply to transfers of property to an investment company.
As part of the Taxpayer Relief Act of 1997, Congress provided guidance in
Section 351(e)(1) in determining when a company is to be considered an
investment company. The Firm has reviewed Section 351(e)(1) and examined its
legislative history. It is the Firm's opinion that Companies is not an
investment company within the meaning of Section 351(e).
Additionally, a transaction cannot qualify as a reorganization within the
meaning of Section 368(a) if any two parties to the transaction are investment
companies within the meaning of Section 368(a)(2)(F) of the Code. The Firm is of
the opinion that no two parties to the Restructuring are investment companies
within the meaning of Section 368(a)(2)(F).
2. JUDICIAL GLOSS
a) Continuity of Interest
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It is well established that a reorganization under Section 368(a)(1) must also
meet the continuity of interest doctrine. See Pinellas Ice & Cold Storage Co. v.
Commissioner, S. Ct., 3 USTC P. 1023, 287 US 462 (1933) and Section 1.368-1(b)
of the Regulations. The purpose of this doctrine is to ensure that the
shareholders of the acquired corporation ("Target") maintain, if only
indirectly, a substantial part of the equity investment in Target following the
reorganization through holding of the acquiring corporation's stock. If the
Target shareholders do not satisfy this requirement, the transaction becomes a
taxable stock or asset acquisition. See Helvering v. Minnesota Tea Co., S. Ct.,
36-1 USTC Paragraph 9015, 296 US 378. In the case of the Restructuring, if it
was a taxable event, the Shareholders would be considered to have sold their
stock to Companies.
In ascertaining whether sufficient continuity is present, the Internal Revenue
Service and the courts look to the historic (old and cold) shareholders of
Target. See Superior Coach of Florida Inc., 80 TC 895 (1983) and Yoc Heating
Co., 61 TC 168 (1973). These historic shareholders must receive a substantial
part of the consideration in stock of the acquiring corporation. It is generally
accepted that 40% is sufficient continuity. See Nelson v. Helvering, S. Ct.,
36-1 USTC Paragraph 9019. In the Restructuring, the Shareholders, are receiving
solely voting of Companies.
Continuity of interest must also be maintained by the historic shareholders of
Target for a period of time after the reorganization . It is clear that the
Internal Revenue Service takes post-reorganization sales undertaken as part of
the plan of reorganization into account in measuring continuity of interest. See
Section 3.02 of Rev. Proc. 77-37, 1977-2 C.B. 568. To satisfy
post-reorganization continuity, case law and IRS pronouncements, while not
completely consistent or clear, appear to require that at the time of
reorganization, Target's shareholders had no intention, or perhaps fixed
intention, to dispose of the stock of the acquiring corporation. See McDonalds
Restaurants of Illinois v. Commissioner, 82-2 USTC Paragraph 9581 (1982); Estate
of Christian, 57 TCM 1231, Dec. 45296 (M), TC Memo 1989-413; and R.A. Penrod, 88
TC 1415 (1987). Generally, the actual ownership of the stock of the acquiring
corporation for some period of time following the transaction establishes the
requisite continuity. See Rev. Rul. 66-23, 1966-1 C.B. 67 and Rev. Rul. 78-142,
1978-1 C.B. 111.
Nothing in the Documents or the facts as the Firm understands them indicates
that the Shareholders, who will participate in the Restructuring, are not its
historic shareholders for
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purposes of continuity of interest. Additionally, it has been represented that,
except as might occur under the Plan, to the best of management's knowledge the
Shareholders of the Targets who hold less than 2% of their stock will not
dispose of any amount of Companies stock after the Restructuring. Additionally,
except as might occur under the Plan, Shareholders of the Targets who hold 2% or
more of their stock have no plan or intention to dispose of any amount of their
shares. Consequently, it is our opinion that continuity of interest should be
satisfied in the Restructuring.
b) Continuity of Business Enterprise
A transaction constitutes a tax-free reorganization only if there is a
"continuity of the business enterprise under the modified corporate form." Reg.
Section 1.368-1(b). This means that the acquiring corporation must either (1)
continue Target's historic business or (2) use a significant portion of Target's
historic business assets in a business. Reg. Section 1.368-1(d)(2); and George
R. Laure v. Commissioner, CA-6, 81-2 USTC Paragraph 9517, aff'g, rev'g, and
rem'g TC, 653 F.2d 253. In determining whether a line of business or a portion
of Target's historic business assets is "significant," all relevant facts and
circumstances are considered. Reg. Section 1.368-1(d)(3), (4).
A representation has been given that indicates continuity of business will be
satisfied. The facts support this representation. Given the above, it is our
opinion continuity of business enterprise will be satisfied in the
Restructuring.
c) Step Transaction
The step transaction doctrine permits a series of formally separate steps to be
amalgamated and treated as a single transaction if the steps are in substance
integrated, interdependent and focused toward a particular result. See Penrod,
p. 1428 and Rev. Rul. 79-250, 1979-2 C.B. 156.
A review of case law indicates the step transaction doctrine is a very nebulous
concept. While courts generally speak in terms of end result, binding commitment
or interdependence in applying the step transaction doctrine, the key to its
application, regardless of the test the court
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allegedly applies, appears to be intent and temporal proximity. See Penrod; R.
Campbell, 15 TC 312 (195)); Cal-Maine Foods Inc. v. Commissioner, 93 TC 181
(1989); and Private Letter Ruling 8742033 (July 20, 1987).
If it can be demonstrated that at the time of the first in a series of
transactions the taxpayer had no intent to effectuate the subsequent
transactions, the series of transactions generally will not be stepped together.
See Penrod; Estate of Christian, 57 TCM 1231, Dec. 45926 (M) TCM 1989-413 and
IRS Technical Advice Memorandum 8646002 (July 18, 1989). Courts rarely rely on
the word of the taxpayer in discerning intent but rather look at all of the
facts and circumstances. Unanticipated, material changes in circumstances beyond
the taxpayer's control are critical in establishing the lack of intent.
The amount of time that elapses between the first and subsequent transaction
often is significant in determining whether to step the transactions together.
The shorter the period of time between the transactions, the greater the
likelihood of stepping the transactions together. See Private Letter Ruling
8742033 (July 20, 1987) [two transactions four months apart were not viewed as
independent].
The step transaction doctrine applies to the Restructuring in the sense that the
Merger of Merger Cos. with and into the respective Targets will be ignored. The
substance of the Mergers is a direct acquisition of the Targets stock by
Companies solely in exchange for its voting stock.
Additionally, the step transaction doctrine could apply to negate the control
immediately after requirement of Section 351 if the Shareholders as part of the
Restructuring dispose of an amount of Companies' stock sufficient to result in
the loss of control as defined in Section 368(c). Nothing in the Documents or
facts as the Firm understands them indicates that this will occur. The only
possible sale of stock might occur through the operation of the Plan. The Firm
is of the opinion that any such sale, based on the facts and representations
given, should be treated as a transaction separate from the Restructuring and
thus have no impact on the Restructuring.
d) Business Purpose
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There must be a valid business purpose for a reorganization. Gregory v.
Helvering, 293 US 465 (1935) and Section 1.368-1(b), Section 1.368-1(c) and
Section 1.368-2(g) of the Regulations. Companies and the Targets Boards of
Directors believe there are numerous valid business reasons for the
Restructuring. Nothing in the Documents or facts contradict this. Thus, the Firm
is of the opinion that a valid business reason exists for the Restructuring.
3. CASH RECEIVED IN LIEU OF FRACTIONAL SHARES
No fractional shares of Companies voting common stock will be issued in the
Restructuring. A Targets shareholder who receives cash in lieu of a fractional
share would generally be treated as having received such fractional share
pursuant to the Mergers and then as having exchanged such fractional share for
cash in a redemption by Companies subject to Section 302(a) of the Code,
provided that such redemption is "substantially disproportionate" with respect
to such Targets shareholder or is "not essentially equivalent to a dividend." If
the Companies common stock represents a capital asset in the hands of the
shareholder, then the shareholder will generally recognize capital gain on such
a deemed redemption of the fractional share in an amount equal to the excess of
the amount of cash received for such fractional share over the shareholder's tax
basis in the fractional share, or capital loss in an amount equal to the excess
of the shareholder's tax basis in the fractional share over the amount of cash
received for such fractional share. Any such capital gain or loss will be
long-term if the Targets' common stock exchanged was held for more than 18
months.
Administratively, however, the Internal Revenue Service has concluded in Rev.
Proc. 77-41 that cash in lieu of fractional shares will be treated as received
in an exchange subject to Section 302(a) of the Code if the cash distribution is
undertaken solely for the purpose of saving the corporation the expense and
inconvenience of issuing and transferring a fractional share interest, and it is
not separately bargained for consideration. Additionally, certain information
such as the maximum amount of cash that can be received by any shareholder and
the percentage of total cash consideration will be considered in determining
whether the transaction is governed by Section 302(a). A representation has been
made that the sole purpose of issuing cash in lieu of fractional share interests
in Companies is to save Companies the expense and inconvenience of issuing such
an interest and that this does not represent separately bargained for
consideration. An additional
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representation has been made with respect to the minimal amount of cash an
individual shareholder of a Target can receive in exchange for a fractional
share interest as well as to the amount of total cash being issued in exchange
for fractional shares. Accordingly, any cash issued in lieu of fractional shares
should be treated as a sale or exchange under Section 302(a).
The Service has also determined that the payment of cash in lieu of fractional
share interests by the acquiring corporation does not violate the solely for
requirement of Section 368(a)(1)(B) if the cash is not separately bargained for
consideration. Rev. Rul. 66-365, 1966-2 C.B. 116. A representation to this
effect has been given to the Firm. Consequently, any cash provided by Companies
in lieu of any fractional share interests will not be treated as non-stock
consideration for purposes of Section 368(a)(1)(B).
V. CAVEATS AND LIMITATIONS
This opinion is subject to the receipt of all Representation Letters and the
consummation of the Restructuring as described herein.
It is assumed for the purpose of this Opinion that the management of Companies
and the Targets are not aware of any facts inconsistent with those set forth
above and in the Documents. Also, it is assumed that the Documents accurately
reflect all consummated and proposed transactions. The existence of inconsistent
facts and/or consummated or proposed transactions not set forth in the Documents
could materially alter our opinions.
Additionally, the opinions expressed herein are based upon the provisions of the
Code, Treasury regulations (both current and proposed) promulgated thereunder,
judicial decisions, revenue rulings and procedures and related authorities
issued to, and in effect on, the date of this opinion.
Furthermore, no assurance can be given that the Internal Revenue Service or the
courts will not alter their present views, either prospectively or
retroactively, or adopt new views in respect of our opinions. In that event, the
opinions expressed herein would necessarily have to be
16
<PAGE> 17
reevaluated in light of any change in such views. We assume no obligation to
advise you of any change in any such provisions or views which would affect our
opinions set forth herein.
Our opinion is based solely upon the facts, representations and assumptions
contained herein, and we have not undertaken an independent investigation of any
such facts or representations. Our opinion would require reevaluation in the
event of any change in any such fact or representation.
The opinions expressed in this opinion reflect what we believe to be the federal
income tax consequences of the transactions described herein. Nevertheless, they
are only opinions, and no assurance can be given that the Internal Revenue
Service will not challenge any position taken in such opinions. Furthermore, it
should be noted that we express no opinion regarding tax consequences under the
laws of any state or local jurisdiction.
VI. SUBSTANTIAL AUTHORITY
Without limiting the foregoing, providing the facts, assumptions, and
representations contained herein are correct, substantial authority, within the
meaning of Section 6662 of the Code, exists to each of the conclusions made in
this opinion.
If you have questions, please feel free to call either Steve Smith at
801/373-3654 or Robert B. Haran at 202/861-4151.
17
<PAGE> 18
VII. CONSENT
We hereby consent to the references contained in the Form S-4 Registration
Statement of Companies ("Form S-4") to the Firm's Opinion and to the inclusion
of the Opinion as an exhibit to the Form S-4.
Sincerely,
/s/ Grant Thornton LLP
Grant Thornton LLP
18
<PAGE> 1
[EXHIBIT 10.1]
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement") is made and entered into
as of November 14, 1997, by and among the persons named on Schedule 1 attached
hereto and each such other person who shall enter into a Voting Agreement
Supplement (as defined below) in accordance with Section 8 of this Agreement
(each individually a "Shareholder" and collectively the "Shareholders").
Recitals
H. Officers of W.W. Clyde Investment Co., a Utah corporation (the "Company"),
have filed or shall file Articles of Restatement and Amended and Restated
Articles of Incorporation with respect to the Company (collectively, the
"Amendment Documents") with the Utah Department of Commerce, Division of
Corporations and Commercial Code which shall be effective as of November 13,
1997 at 5:00 p.m. (the "Effective Time").
I. Pursuant to the Utah Revised Business Corporation Act (the
"URBCA") and the Amendment Documents, at the Effective Time, (i) the name of the
Company shall be changed to Clyde Companies, Inc., and (ii) each outstanding
share of the $10.00 par value Common Stock of the Company ("Old Common Stock")
shall be reclassified into forty (40) shares of Common Stock of the Company
("New Common Stock").
J. As of the Effective Time, each Shareholder shall own the number
of shares of New Common Stock set forth opposite such Shareholder's name on
Schedule 1 (collectively, the "Subject Shares").
K. The Shareholders desire to collectively control the voting of
the Subject Shares pursuant to and in accordance with this Agreement.
NOW THEREFORE, in consideration of the agreements and promises
set forth in this Agreement, the Shareholders hereby agree as follows:
1. Voting Agreement. This Agreement is a voting agreement created under Section
16-10a-731 of the URBCA and, as a result, (a) is not subject to the provisions
of Section 16-10a-730 of the URBCA regarding voting trusts, and (b) is
specifically enforceable in accordance with Section 16-10a-731(2) of the URBCA.
<PAGE> 2
2. Term. Unless earlier terminated in accordance with Section 11 below, this
Agreement shall remain in full force and effect among each of the Shareholders
for a period of ten (10) years from the Effective Time.
3. The Committee. Six (6) individuals (each a "Committee Member" and
collectively the "Committee Members") shall act as a committee to determine, in
accordance with this Agreement, how the Subject Shares shall be voted (the
"Committee"). As soon as practicable after their appointment, the Committee
Members shall elect a chairperson of the Committee (the "Chairperson") (in such
election, the Chairperson shall be the individual who receives the greatest
number of votes, without regard to whether such number constitutes a majority).
4. Committee Members. Each Committee Member shall represent (x) the group of
Shareholders set forth under such Committee Member's name on Schedule 1, (y) the
Permitted Transferees (as defined below) of Shareholders set forth under such
Committee Member's name on Schedule 1, and (z) the transferees (in accordance
with Section 8(c) below) of Shareholders set forth under such Committee Member's
name on Schedule 1 (collectively, a "Family Group"). The Committee Members shall
be appointed or elected as follows:
(a) The following individuals shall be, and hereby are
appointed, as the Committee Members to serve for the term of this
Agreement (or until their death, incapacitation or resignation):
(i) Richard C. Clyde (for the W. Cornell Clyde
Family Group);
(ii) Paul B. Clyde (for the Blaine P. Clyde
Family Group);
(iii) William R. Clyde (for the William R. Clyde
Family Group);
(iv) Ila C. Cook (for the Ila C. Cook Family
Group);
(v) Louise C. Gammell (for the Louise C. Gammell
Family Group); and
(vi) Carol C. Salisbury (for the Carol C.
Salisbury Family Group).
(b) If any Committee Member shall die, become
incapacitated (as determined in the sole discretion of the
Committee) or resign, as soon as practicable thereafter, the
Committee shall provide a written notice regarding the election
of a new Committee Member to the Shareholders in the applicable
37
<PAGE> 3
Family Group and shall cause the Shareholders of such Family
Group to vote, either at a meeting or by written instrument, to
elect a new Committee Member for the remainder of the term. Each
new Committee Member shall be a Shareholder and a member of the
applicable Family Group. Except to the extent otherwise provided
for in this Agreement, voting for Committee Members shall be
conducted in accordance with the provisions regulating voting by
the shareholders of the Company set forth in the Bylaws of the
Company, as amended from time to time.
5. Actions of the Committee. At such time as the Company, for any
purpose, conducts a meeting of, solicits written consents from or otherwise
seeks a vote of its shareholders ("Shareholder Action"), the Committee shall act
as follows:
(a) The Chairperson shall cause a meeting of the Committee
("Meeting") to be held, and, at the Meeting, the Committee shall
determine, in accordance with this Section 5, how the Subject
Shares shall be voted with respect to the Shareholder Action.
(b) The Chairperson shall set the date, time and location
of each Meeting (and any Meeting may be held immediately prior to
a meeting of the shareholders of the Company). Provided, however,
the Chairperson shall use reasonable efforts to accommodate each
of the Committee Members with respect to the date, time and
location of each Meeting. Unless otherwise agreed to by all of
the Committee Members, Meetings shall be held within Utah County
or Salt Lake County of the State of Utah.
(c) Unless waived by all Committee Members, Meetings must
be preceded by at least five (5) days notice of the date, time
and location of the Meeting. Notice may be communicated in
person, by telephone, by any form of electronic communication or
by mail or private carrier. Nevertheless, wherever possible,
notice of any Meeting shall be given by facsimile at a number
which shall be designated in writing by each Committee Member
from time to time.
(d) A Committee Member may waive notice of any Meeting. A
waiver of notice need not be in writing and the attendance of a
Committee Member at a Meeting shall constitute a waiver of notice
of such Meeting.
(e) Four (4) Committee Members shall constitute a quorum
for the taking of action at any Meeting.
38
<PAGE> 4
(f) If a quorum is present when a vote is taken, the
affirmative vote of a majority of Committee Members present is
the act of the Committee. If no affirmative vote of a majority of
the Committee Members present is obtained, (i) if the Board of
Directors of the Company has recommended approval of the
Shareholder Action, all of the Subject Shares shall be voted in
favor of the Shareholder Action, (ii) if the Board of Directors
of the Company has recommended a vote against the Shareholder
Action, all of the Subject Shares shall be voted against the
Shareholder Action, and (iii) if the Board of Directors of the
Company has not recomended either the approval of or a vote
against the Shareholder Action, one-half (1/2) of the Subject
Shares shall be voted in favor of the particular Shareholder
Action and one-half (1/2) of the Subject Shares shall be voted
against the particular Shareholder Action.
(g) Any or all Committee Members may participate in a
Meeting (or Caucus (as defined below)) by, or conduct the Meeting
(or Caucus) through the use of, any means of communication by
which all Committee Members participating may simultaneously hear
each other during the Meeting (or Caucus). A Committee Member
participating in a Meeting (or Caucus) by this means is deemed to
be present in person at the Meeting (or Caucus).
(h) If any Shareholder Action is to be taken at a meeting
and the Committee has not had a prior opportunity to consider and
vote with respect to such Shareholder Action, (i) if a quorum is
present (or if a quorum may be obtained in accordance with
Subsection 5(g) above), the Committee Members present (or deemed
present in accordance with Subsection 5(g) above) shall caucus
("Caucus") prior to voting on such Shareholder Action, and the
affirmative vote of a majority of the Committee Members
participating in the Caucus shall be the act of the Committee,
and (ii) if a quorum is not present, the Subject Shares shall not
be voted with respect to such Shareholder Action.
(i) Any action required or permitted to be taken by the
Committee at a Meeting may be taken without a Meeting if four (4)
or more of the Committee Members consent to the action in
writing. Action is taken by written consent at the time the
fourth Committee Member signs a writing describing the action
taken, unless, prior to that time, any Committee Member has
revoked a consent by a writing signed by the Committee Member and
received by the Chairperson. Action taken by written consent is
effective when the fourth Committee Member signs the consent,
unless the Committee establishes a different effective date.
Action taken by written consent has the same effect as action
taken at a Meeting of the Committee and may be described as such
in any document. The
39
<PAGE> 5
Committee, as soon as practicable, shall notify any Committee
Member that has not consented to an action in writing of the
action taken by the Committee.
6. PROXY. EACH SHAREHOLDER HEREBY (OR, IF APPLICABLE, BY A VOTING
AGREEMENT SUPPLEMENT) GRANTS TO THE COMMITTEE AN IRREVOCABLE PROXY, FOR A PERIOD
OF TEN (10) YEARS FROM THE EFFECTIVE TIME (OR UNTIL SUCH TIME AS THIS AGREEMENT
IS TERMINATED IN ACCORDANCE WITH SECTION 11 BELOW), TO ALLOW THE COMMITTEE TO
VOTE SUCH SHAREHOLDER'S SUBJECT SHARES IN THE MANNER DESCRIBED IN, AND FOR THE
PURPOSES CONTEMPLATED BY, THIS AGREEMENT. THIS PROXY IS IRREVOCABLE AND THE
APPOINTMENT OF THE COMMITTEE IS COUPLED WITH AN INTEREST PURSUANT TO SECTION
16-10A-722(5)(E) OF THE URBCA. A COPY OF THIS PROXY, AS TO ALL OF THE SUBJECT
SHARES, SHALL BE DELIVERED TO THE COMPANY. Each of the Shareholders further
agrees to deliver promptly to the Committee from time to time such additional
proxies and other documents as may be reasonably requested by the Committee to
allow the Committee to exercise voting power with respect to the Subject Shares.
7. Legend on Certificates. Each stock certificate evidencing
Subject Shares shall bear a legend to the effect that it is subject to this
Agreement. Such legend shall be placed on the face or reverse side of the stock
certificate and shall be substantially in the following form:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE ARE
RESTRICTED BY THE TERMS OF THAT CERTAIN "VOTING AGREEMENT," DATED
AS OF NOVEMBER 14, 1997, A COPY OF WHICH IS ON FILE AT THE
COMPANY'S OFFICE IN SPRINGVILLE, UTAH.
8. Transfers of Subject Shares. No Shareholder shall sell,
transfer or otherwise dispose of any of his or her Subject Shares, except as
follows:
(a) Any Shareholder, during his or her lifetime and/or
upon his or her death, may sell, transfer or dispose of all or
any Subject Shares to (x) his or her spouse, (y) the issue of
such Shareholder or his or her spouse or (z) a trustee in trust
for the benefit of such Shareholder, such Shareholder's spouse or
the issue of either of them (a "Permitted Transferee"), provided
that:
(i) the Permitted Transferee shall receive and hold
such Subject Shares subject to the terms of this
Agreement; and
40
<PAGE> 6
(ii) the Permitted Transferee shall enter into a
Voting Agreement Supplement substantially in the form
attached hereto as Exhibit A ("Voting Agreement
Supplement").
(b) Any Shareholder may sell, transfer or dispose of all
or any Subject Shares to the Company (but only if such
Shareholder does not own any shares of New Common Stock, other
than Subject Shares, unless such other shares of New Common Stock
are also being sold, transferred or disposed of to the Company).
(c) A Shareholder may sell, transfer or dispose of any of
his or her Subject Shares to a person other than a Permitted
Transferee or the Company only upon obtaining the prior written
consent of the Committee (which consent shall not be unreasonably
withheld), provided that:
(i) The transferee shall receive and hold such
Subject Shares subject to the terms of this Agreement; and
(ii) The transferee shall enter into a Voting
Agreement Supplement.
9. Representations, Warranties and Covenants of Shareholders. Each
Shareholder represents and warrants to, and agrees with, the other Shareholders
as follows:
(a) this Agreement (or, if applicable, a Voting Agreement
Supplement) has been duly executed and delivered by such
Shareholder and constitutes a valid and legally binding
obligation of such Shareholder enforceable in accordance with its
terms;
(b) such Shareholder is not subject to or obligated under
any provision of (i) any contract, (ii) any license, franchise or
permit or (iii) any law, regulation, order, judgment or decree
that would be breached or violated by the execution, delivery and
performance of this Agreement and the consummation of the
transactions contemplated hereby;
(c) no authorization, consent or approval of, or any
filing with, any public body or authority is necessary for
consummation by such Shareholder of the transactions contemplated
by this Agreement;
(d) as of the Effective Time, the Subject Shares
beneficially owned by such Shareholder consist of the number of
shares of New Common Stock set forth opposite such Shareholder's
name on Schedule 1; and
41
<PAGE> 7
(e) as of the Effective Time, such Shareholder has, and
such Shareholder will have at all times up to the termination of
this Agreement, the unrestricted power to vote his or her Subject
Shares and good and marketable title to such Subject Shares free
and clear of all claims, liens, charges, encumbrances and
security interests.
10. Other Shares of New Common Stock. Each Shareholder will
retain at all times the right to vote his or her shares of New Common Stock
other than the Subject Shares, in such Shareholder's sole discretion, on all
matters which are at any time or from time to time presented for Shareholder
Action.
11. Termination. This Agreement shall be terminated upon the
earliest to occur of any one of the following events:
(a) the written agreement of all of the Committee
Members to terminate this Agreement;
(b) the bankruptcy, receivership or dissolution of the
Company;
(c) the cessation of business by the Company;
(d) the Company enters into an underwriting agreement with
respect to a public offering of New Common Stock in excess of
Thirty Million Dollars ($30,000,000);
(e) the Company sells all or substantially all of its
assets or is the non-surviving corporation in a merger; or
(f) if ever there is only one Shareholder bound by the
terms of this Agreement.
12. Transfer of all Subject Shares. Any Shareholder who ceases to
own any Subject Shares shall thereupon cease to be a Shareholder under this
Agreement and shall (a) be released from all of the terms, provisions and
obligations of this Agreement, and (b) no longer be entitled to any rights or
benefits under this Agreement.
13. Amendment. This Agreement may not be modified, amended,
altered or supplemented except upon the execution and delivery of a written
agreement executed by all of the Committee Members.
42
<PAGE> 8
14. Assignment. No Shareholder may assign or delegate any of his
or her rights or obligations under this Agreement without the prior written
consent of the Committee.
15. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same document.
16. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Utah.
17. Binding Effect. This Agreement shall be binding upon, inure
to the benefit of, and be enforceable by the heirs, personal representatives,
successors and permitted assigns of the parties hereto. Nothing expressed or
referred to in this Agreement is intended or shall be construed to give any
person other than the parties to this Agreement, or their respective heirs,
personal representatives, successors or assigns, any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision contained
herein.
18. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof.
19. Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
20. Further Assurances. Each Shareholder will, upon the request
of the Committee, execute and deliver such documents and take such action deemed
by the Committee to be necessary or desirable to effectuate the purposes of this
Agreement.
21. Remedies. Each Shareholder agrees that, for any violation of
this Agreement, the Committee shall have the right to seek equitable relief in
any court of competent jurisdiction to require that such Shareholder comply with
the terms of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the day and year first written above.
(Counterpart Signature Page) (Counterpart Signature Page)
---------------------------- ----------------------------
W. Cornell Clyde Richard C. Clyde
43
<PAGE> 9
(Counterpart Signature Page) (Counterpart Signature Page)
---------------------------- ----------------------------
Carma C. Russell Kenneth L. Russell
(Counterpart Signature Page) (Counterpart Signature Page)
---------------------------- ----------------------------
Richard C. Clyde, Trustee Patricia T. Clyde, Trustee
Richard C. Clyde Trust Patricia T. Clyde Trust
(Counterpart Signature Page) (Counterpart Signature Page)
---------------------------- ----------------------------
Richard C. Clyde Patricia T. Clyde
(Counterpart Signature Page) (Counterpart Signature Page)
---------------------------- ----------------------------
Jeffrey R. Clyde Lisa C. Bunker
(Counterpart Signature Page) (Counterpart Signature Page)
---------------------------- ----------------------------
Laurie C. Shaefer Melanie C. Bitters
(Counterpart Signature Page)
----------------------------
Matthew C. Clyde
- ---------------
(Counterpart Signature Page) (Counterpart Signature Page)
---------------------------- ----------------------------
Louise C. Clyde Paul B. Clyde
(Counterpart Signature Page) (Counterpart Signature Page)
---------------------------- ----------------------------
Jeanette P. Clyde Dianne C. Carr
(Counterpart Signature Page) (Counterpart Signature Page)
---------------------------- ----------------------------
Wallace J. Carr Barbara C. Robertson
(Counterpart Signature Page) (Counterpart Signature Page)
---------------------------- ----------------------------
44
<PAGE> 10
John S. Robertson Wilford W. Clyde II
(Counterpart Signature Page) (Counterpart Signature Page)
---------------------------- ----------------------------
Natalie E. Clyde Carl C. Clyde
(Counterpart Signature Page)
----------------------------
Heather B. Clyde
- ---------------
(Counterpart Signature Page) (Counterpart Signature Page)
---------------------------- ----------------------------
William R. Clyde and Warren D. Clyde
Hazel S. Clyde, Trustees of
the Wm. R. Clyde Family Trust
(Counterpart Signature Page) (Counterpart Signature Page)
---------------------------- ----------------------------
Marietta C. Young Wilford R. Clyde
(Counterpart Signature Page) (Counterpart Signature Page)
---------------------------- ----------------------------
H. Leon Clyde Steven L. Clyde
(Counterpart Signature Page) (Counterpart Signature Page)
---------------------------- ----------------------------
Helene C. Arnett Joan C. Whicker
(Counterpart Signature Page) (Counterpart Signature Page)
---------------------------- ----------------------------
William D. Clyde Reklaw and Co.
- ---------------
(Counterpart Signature Page) (Counterpart Signature Page)
---------------------------- ----------------------------
INVO, L.C. Bruce V. Cook
(Counterpart Signature Page) (Counterpart Signature Page)
---------------------------- ----------------------------
45
<PAGE> 11
Glenn C. Cook Joshua G. Cook
(Counterpart Signature Page) (Counterpart Signature Page)
---------------------------- ----------------------------
Glenn C. Cook, Custodian for Glenn C. Cook, Custodian for
Jed Robinson Cook Emily Cook
(Counterpart Signature Page) (Counterpart Signature Page)
---------------------------- ----------------------------
David O. Cook Nan C. Oblad
(Counterpart Signature Page) (Counterpart Signature Page)
---------------------------- ----------------------------
J. Philip Cook Charlotte C. Cook
(Counterpart Signature Page) (Counterpart Signature Page)
---------------------------- ----------------------------
Catherine C. Rasband Christine C. Christensen
- ---------------
(Counterpart Signature Page) (Counterpart Signature Page)
---------------------------- ----------------------------
Louise C. Gammell Louise C. Gammell, Custodian
for John S. Gammell
(Counterpart Signature Page) (Counterpart Signature Page)
---------------------------- ----------------------------
B. Clyde Gammell Mary Louise G. Winkler
(Counterpart Signature Page)
----------------------------
A. Ray Gammell
- ---------------
(Counterpart Signature Page) (Counterpart Signature Page)
---------------------------- ----------------------------
Carol C. Salisbury Susan Salisbury
(Counterpart Signature Page) (Counterpart Signature Page)
---------------------------- ----------------------------
46
<PAGE> 12
Carol Ann S. Larson Sally S. Anderson
(Counterpart Signature Page) (Counterpart Signature Page)
---------------------------- ----------------------------
David C. Salisbury Katherine V. Salisbury
47
<PAGE> 13
SCHEDULE 1
<TABLE>
<CAPTION>
NAME SHARES
- ------------------------------------------------ -----------------------------------------------
<S> <C>
RICHARD C. CLYDE 8,000
- ------------------------------------------------ -----------------------------------------------
W. Cornell Clyde 6,320
- ------------------------------------------------ -----------------------------------------------
Richard C./Patricia T. Clyde 81,600
- ------------------------------------------------ -----------------------------------------------
Richard C. Clyde Trust 12,800
- ------------------------------------------------ -----------------------------------------------
Patricia T. Clyde Trust 12,800
- ------------------------------------------------ -----------------------------------------------
Carma C. Russell 54,400
- ------------------------------------------------ -----------------------------------------------
Kenneth L./Carma C. Russell 161,200
- ------------------------------------------------ -----------------------------------------------
Jeffery R. Clyde 4,000
- ------------------------------------------------ -----------------------------------------------
Lisa C. Bunker 4,000
- ------------------------------------------------ -----------------------------------------------
Laurie C. Shaefer 4,000
- ------------------------------------------------ -----------------------------------------------
Melanie C. Bitters 4,000
- ------------------------------------------------ -----------------------------------------------
Matthew C. Clyde 4,000
- ------------------------------------------------ -----------------------------------------------
SUBTOTAL: 357,120
- ------------------------------------------------ -----------------------------------------------
PAUL B. CLYDE 40,000
- ------------------------------------------------ -----------------------------------------------
Louise C. Clyde 7,000
- ------------------------------------------------ -----------------------------------------------
Paul B./Jeannette P. Clyde 32,320
- ------------------------------------------------ -----------------------------------------------
Dianne C. Carr 40,000
- ------------------------------------------------ -----------------------------------------------
Dianne C./Wallace J. Carr 44,360
- ------------------------------------------------ -----------------------------------------------
Barbara C. Robertson 40,000
- ------------------------------------------------ -----------------------------------------------
Barbara C./John S. Robertson 44,360
- ------------------------------------------------ -----------------------------------------------
Wilford W. Clyde II 40,000
- ------------------------------------------------ -----------------------------------------------
Wilford W./Natalie E. Clyde 32,320
- ------------------------------------------------ -----------------------------------------------
Carl C. Clyde 58,000
- ------------------------------------------------ -----------------------------------------------
Carl C./Heather B. Clyde 2,760
- ------------------------------------------------ -----------------------------------------------
SUBTOTAL: 381,120
- ------------------------------------------------ -----------------------------------------------
</TABLE>
<PAGE> 14
<TABLE>
<S> <C>
WILLIAM R. CLYDE
- ------------------------------------------------ -----------------------------------------------
William R. Clyde & Hazel S. Clyde, 1,080
Trustess of the Wm R. Clyde Faimly
Trust
- ------------------------------------------------ -----------------------------------------------
Reklaw and Co. 179,080
- ------------------------------------------------ -----------------------------------------------
Wilford R. Clyde 28,120
- ------------------------------------------------ -----------------------------------------------
H. Leon Clyde 28,120
- ------------------------------------------------ -----------------------------------------------
Marietta C. Young 28,120
- ------------------------------------------------ -----------------------------------------------
Joan C. Whicker 28,120
- ------------------------------------------------ -----------------------------------------------
William D. Clyde 28,120
- ------------------------------------------------ -----------------------------------------------
Steven L. Clyde 28,120
- ------------------------------------------------ -----------------------------------------------
Helene C. Arnett 28,120
- ------------------------------------------------ -----------------------------------------------
Warren D. Clyde 28,120
- ------------------------------------------------ -----------------------------------------------
SUBTOTAL: 405,120
- ------------------------------------------------ -----------------------------------------------
ILA C. COOK
- ------------------------------------------------ -----------------------------------------------
INVO, L.C. 135,480
- ------------------------------------------------ -----------------------------------------------
Bruce V. Cook 45,600
- ------------------------------------------------ -----------------------------------------------
Glenn C. Cook 29,800
- ------------------------------------------------ -----------------------------------------------
Joshua G. Cook 3,280
- ------------------------------------------------ -----------------------------------------------
Glenn C. Cook, Custodian for Jed R. 3,240
Cook
- ------------------------------------------------ -----------------------------------------------
Glenn C. Cook, Custodian for Emily Cook 3,240
- ------------------------------------------------ -----------------------------------------------
David O. Cook 20,680
- ------------------------------------------------ -----------------------------------------------
Nan C. Oblad 50,360
- ------------------------------------------------ -----------------------------------------------
J. Philip Cook 4,960
- ------------------------------------------------ -----------------------------------------------
J. Philip/Charlotte C. Cook 20,680
- ------------------------------------------------ -----------------------------------------------
Catherine C. Rasband 44,280
- ------------------------------------------------ -----------------------------------------------
Christine C. Christensen 35,480
- ------------------------------------------------ -----------------------------------------------
SUBTOTAL: 397,080
- ------------------------------------------------ -----------------------------------------------
LOUISE C. GAMMELL 222,720
- ------------------------------------------------ -----------------------------------------------
B. Clyde Gammell 37,800
- ------------------------------------------------ -----------------------------------------------
Mary Louise G. Winkler 40,400
- ------------------------------------------------ -----------------------------------------------
A. Ray Gammell 37,800
- ------------------------------------------------ -----------------------------------------------
Louise C. Gammell, Custodian for John 46,400
S. Gammell
- ------------------------------------------------ -----------------------------------------------
SUBTOTAL: 385,120
- ------------------------------------------------ -----------------------------------------------
</TABLE>
2
<PAGE> 15
<TABLE>
<S> <C>
CAROL C. SALISBURY 122,360
- ------------------------------------------------ -----------------------------------------------
Susan Salisbury 64,000
- ------------------------------------------------ -----------------------------------------------
Carol Ann S. Larson 64,000
- ------------------------------------------------ -----------------------------------------------
Sally S. Anderson 64,000
- ------------------------------------------------ -----------------------------------------------
David C. Salisbury 58,000
- ------------------------------------------------ -----------------------------------------------
David C./Katherine V. Salisbury 6,000
- ------------------------------------------------ -----------------------------------------------
SUBTOTAL: 378,360
- ------------------------------------------------ -----------------------------------------------
TOTAL: 2,303,920
- ------------------------------------------------ -----------------------------------------------
</TABLE>
3
<PAGE> 16
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
W. Cornell Clyde
S-1
<PAGE> 17
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Richard C. Clyde
S-2
<PAGE> 18
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Carma C. Russell
S-3
<PAGE> 19
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Kenneth L. Russell
S-4
<PAGE> 20
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Richard C. Clyde, Trustee
Richard C. Clyde Trust
S-5
<PAGE> 21
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Patricia T. Clyde, Trustee
Patricia T. Clyde Trust
S-6
<PAGE> 22
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Richard C. Clyde
S-7
<PAGE> 23
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Patricia T. Clyde
S-8
<PAGE> 24
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Jeffrey R. Clyde
S-9
<PAGE> 25
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Lisa C. Bunker
S-10
<PAGE> 26
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Laurie C. Shaefer
S-11
<PAGE> 27
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Melanie C. Bitters
S-12
<PAGE> 28
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Matthew C. Clyde
S-13
<PAGE> 29
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Louise C. Clyde
S-14
<PAGE> 30
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Paul B. Clyde
S-15
<PAGE> 31
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Jeanette P. Clyde
S-16
<PAGE> 32
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Dianne C. Carr
S-17
<PAGE> 33
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Wallace J. Carr
S-18
<PAGE> 34
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Barbara C. Robertson
S-19
<PAGE> 35
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
John S. Robertson
S-20
<PAGE> 36
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Wilford W. Clyde II
S-21
<PAGE> 37
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Natalie E. Clyde
S-22
<PAGE> 38
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Carl C. Clyde
S-23
<PAGE> 39
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Heather B. Clyde
S-24
<PAGE> 40
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
William R. Clyde, Trustee of
the Wm. R. Clyde Family Trust
--------------------------
Hazel S. Clyde, Trustee of
the Wm. R. Clyde Family Trust
S-25
<PAGE> 41
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Warren D. Clyde
S-26
<PAGE> 42
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Marietta C. Young
S-27
<PAGE> 43
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Wilford R. Clyde
S-28
<PAGE> 44
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
H. Leon Clyde
S-29
<PAGE> 45
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Steven L. Clyde
S-30
<PAGE> 46
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Helene C. Arnett
S-31
<PAGE> 47
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Joan C. Whicker
S-32
<PAGE> 48
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
William D. Clyde
S-33
<PAGE> 49
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
Reklaw and Co.
By:
-------------------------
Its:
------------------------
S-34
<PAGE> 50
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
INVO, L.C.
By:
-------------------------
Its:
------------------------
S-35
<PAGE> 51
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Bruce V. Cook
S-36
<PAGE> 52
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Glenn C. Cook
S-37
<PAGE> 53
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Joshua G. Cook
S-38
<PAGE> 54
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Glenn C. Cook, Custodian
for Jed Robinson Cook
S-39
<PAGE> 55
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Glenn C. Cook, Custodian
for Emily Cook
S-40
<PAGE> 56
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
David O. Cook
S-41
<PAGE> 57
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Nan C. Oblad
S-42
<PAGE> 58
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
J. Philip Cook
S-43
<PAGE> 59
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Charlotte C. Cook
S-44
<PAGE> 60
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Catherine C. Rasband
S-45
<PAGE> 61
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Christine C. Christensen
S-46
<PAGE> 62
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Louise C. Gammell
S-47
<PAGE> 63
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
----------------------------
Louise C. Gammell, Custodian
for John S. Gammell
S-48
<PAGE> 64
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
B. Clyde Gammell
S-49
<PAGE> 65
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Mary Louise G. Winkler
S-50
<PAGE> 66
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
A. Ray Gammell
S-51
<PAGE> 67
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Carol C. Salisbury
S-52
<PAGE> 68
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Susan Salisbury
S-53
<PAGE> 69
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Carol Ann S. Larson
S-54
<PAGE> 70
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Sally S. Anderson
S-55
<PAGE> 71
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
David C. Salisbury
S-56
<PAGE> 72
Counterpart Signature Page
(Attached to and forming a part of that certain
Voting Agreement made and entered into as of
November 14, 1997)
--------------------------
Katherine V. Salisbury
S-57
<PAGE> 73
EXHIBIT A
VOTING AGREEMENT SUPPLEMENT
VOTING AGREEMENT SUPPLEMENT (this "Supplement") to the Voting
Agreement dated as of January 1, 1998 (the "Voting Agreement") among each of the
persons named as a "Shareholder" therein. The capitalized terms used without
definition in this Supplement have the meanings specified in the Voting
Agreement.
Recitals
A. Pursuant to the Voting Agreement, Permitted Transferees and
all other transferees of Subject Shares in accordance with Section 8(c) of the
Voting Agreement are required to (i) receive and hold Subject Shares subject to
the terms of the Voting Agreement and (ii) enter into a Supplement.
B. The signatory to this Supplement (the "New Shareholder") has
acquired Subject Shares and desires to comply with the requirements
of the Voting Agreement.
NOW THEREFORE, in consideration of the agreements and promises
set forth in this Supplement and the Voting Agreement, the New Shareholder
hereby agrees with the Shareholders as follows:
1. In accordance with Section 8 of the Voting Agreement, the New
Shareholder hereby becomes a Shareholder under the Voting Agreement with the
same force and effect as if the New Shareholder were originally named as a
Shareholder in the Voting Agreement.
2. The New Shareholder hereby agrees to all of the terms and provisions of the
Voting Agreement applicable to the New Shareholder, and represents and warrants
to each of the other Shareholders that, as of the date of this Supplement, the
representations and warranties made by the New Shareholder as a Shareholder
under the Voting Agreement are true and correct.
3. Each reference to "Shareholder" or "Shareholders" in the Voting Agreement
shall be deemed to include the New Shareholder.
4. The New Shareholder hereby represents and warrants to each of
the other Shareholders that this Supplement has been duly executed and delivered
by the New Shareholder and constitutes a legal, valid and binding obligation of
the New Shareholder.
5. Except as expressly supplemented by this Supplement, the
Voting Agreement remains in full force and effect.
<PAGE> 74
6. This Supplement shall be governed by and construed in
accordance with the laws of the State of Utah.
IN WITNESS WHEREOF, the New Shareholder has duly executed this
Supplement to the Voting Agreement as of the day and year first written above.
New Shareholder:
----------------------------
Address:
----------------------------
----------------------------
----------------------------
2
<PAGE> 1
CLYDE COMPANIES, INC.
STOCK REDEMPTION PLAN
The Board of Directors (the "Board") of Clyde Companies, Inc., a Utah
corporation (the "Company"), has adopted the following stock redemption plan
(this "Plan"), effective as of January 1, 1999:
3. Purposes. Certain shareholders of the Company ("Shareholders")
desire to sell shares of the common stock of Company ("Common Stock") from time
to time. However, there is no public or other ready market for the Common Stock.
Accordingly, the Shareholders have requested that the Company redeem, on an
annual basis, a limited number of shares of Common Stock. The Board has
determined that it is advisable and in the best interests of the Company and the
Shareholders for the Company to redeem shares of Common Stock, each year on a
date established by the Board (the "Redemption Date"), in accordance with the
terms of this Plan (the "Redemption").
4. Valuation of the Common Stock. Each year, as soon as practicable
following the issuance by the Company's auditors of their report regarding the
consolidated financial statements of the Company and its subsidiaries for the
prior year (the "Financial Statements"), the Board shall cause an appraisal (or
an update of a prior appraisal) of the Company (the "Appraisal") to be completed
by an independent individual or firm selected by the Board which shall set forth
a determination of the total fair market value of the Company as of the last day
of the prior year (the "Appraisal Value"). The price to be paid to the
Shareholders for each share of redeemed Common Stock (the "Redemption Price")
shall be an amount equal to the Appraisal Value divided by the number of shares
of Common Stock outstanding on the last day of the prior year, discounted by
twenty-five percent (25%) (reflecting a lack of marketability and minority
interest).
5. Redemption Fund. As soon as practicable following the Appraisal,
the Board shall determine the amount which shall be made available by the
Company on the Redemption Date to fund the Redemption (the "Redemption Fund").
Notwithstanding any other provision of this Plan to the contrary, the Redemption
Fund shall be an amount which is greater than or equal to Five Percent (5%) and
less than or equal to Ten Percent (10%) of the net earnings of the Company
(after taxes) as recorded in the Financial Statements. Any amount of the
Redemption Fund remaining after the Redemption Date shall be reallocated for the
purposes determined by the Board.
<PAGE> 2
6. Redemption Procedures. Each year, as soon as practicable after
the determination of the amount of the Redemption Fund, the following shall
occur:
(a) The Company shall mail to each record Shareholder (i) a
form of letter of transmittal (the "Transmittal Letter") advising such
Shareholder of his or her right to redeem shares of Common Stock and specifying
(A) the Appraisal Value, (B) the Redemption Price, (C) the Redemption Date, and
(D) the instructions necessary for the Shareholders to participate in and
complete the Redemption, (ii) the Financial Statements, (iii) a copy of the
Appraisal (or a summary thereof), and (iv) such other information as shall be
required by applicable law.
(b) The Shareholders who desire to participate in the
Redemption (each a "Selling Shareholder") shall comply with all of the
requirements set forth in the Transmittal Letter and shall surrender
certificates evidencing shares of Common Stock to be redeemed to the Company. If
less than all of the shares represented by any certificate evidencing shares of
Common Stock are to be redeemed, as soon as practicable following the Redemption
Date, the Company shall issue a new certificate to the Selling Shareholder for
the appropriate number of shares of Common Stock.
(c) If the number of shares of Common Stock offered for
Redemption by the Selling Shareholders is greater than the number of shares
which may be redeemed by the Company (given the amount of the Redemption Fund
and the Redemption Price), the Company shall spend the entire amount of the
Redemption Fund and shares of Common Stock shall be redeemed from each Selling
Shareholder on a pro rata basis.
(d) If the number of shares of Common Stock offered for
Redemption by the Selling Shareholders is less than the number of shares which
may be redeemed by the Company (given the amount of the Redemption Fund and the
Redemption Price), the Company shall spend such amount of the Redemption Fund as
is necessary to redeem all of the shares of Common Stock offered for Redemption
and the remaining amounts shall be treated as set forth in paragraph 3 above.
(e) In accordance with applicable law and the Transmittal
Letter, the Company shall pay to each Selling Shareholder an amount in cash
equal to the Redemption Price multiplied by the number of shares of Common Stock
redeemed from such Selling Shareholder pursuant to this Plan.
(f) Upon Redemption, all shares of Common Stock redeemed
shall be authorized and unissued shares of the Company and any certificates
representing such shares of Common Stock shall be canceled.
7. Eligible Shares. All shares of Common Stock shall be eligible
for redemption subject to and in accordance with the terms of this Plan.
8. Administration. This Plan shall be administered and interpreted
by the Board in its sole and absolute discretion. This Plan may be repealed,
amended, modified, supplemented or changed, or the Redemption for any particular
year may be canceled, only after the approval of such action by a seventy-five
percent (75%) majority of the Board.
2
<PAGE> 1
[EXHIBIT 10.3]
FORM OF EMPLOYMENT AGREEMENT BETWEEN CCI AND RICHARD C. CLYDE
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered
into as of the ____ day of __________, 1998, by and between CLYDE COMPANIES,
INC. (the "Company"), a Utah corporation with an office at [1375 North Main
Street, Springville, Utah 84663], and RICHARD C. CLYDE (the "Executive"), an
individual having an address at 776 South 600 West, Orem, Utah 84057.
WHEREAS, the Company desires to retain the services of the
Executive for the term and on the terms and conditions hereinafter set forth;
and
WHEREAS, the parties hereto deem it to be in their best interests to
enter into an employment agreement whereby the Company will employ or continue
to employ the Executive on the terms hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises hereinafter
made by the parties hereto, the Executive and the Company hereby covenant and
agree as follows:
SECTION 1: EMPLOYMENT OF EXECUTIVE; DUTIES AND RESPONSIBILITIES
1.1 Employment of the Executive. The Company shall employ the
Executive, and the Executive shall provide services to the Company, subject to
the terms and conditions hereof.
1.2 Term of Employment. The Executive's employment by the Company
shall be for a period commencing on ______________, 1998 (the "Effective Date")
and ending on the date of termination pursuant to the provisions of Section 3
hereof (the "Employment Period").
1.3 Office and Position of the Executive. During the Employment
Period and unless otherwise mutually agreed by the Company and the Executive,
the Executive shall be the President and Chief Executive Officer of the Company.
1.4 Duties and Responsibilities. During the Employment Period:
(a) subject to the ultimate control and responsibility of the
Board of Directors of the Company, as President and Chief Executive Officer, the
Executive shall have the responsibilities related to such position which may be
specified in the Articles of Incorporation or Bylaws of the Company and shall
have the powers and duties related thereto, and shall perform such other duties
and responsibilities as the Board of Directors of the Company shall reasonably
assign to the Executive which are consistent with the Executive's position
specified in Section 1.3; and
5
<PAGE> 2
(b) the Executive shall perform his duties and
responsibilities at or from the Company's offices in [Springville], Utah, or
from any other office or location in the State of Utah which the Company, with
the Executive's concurrence, deems appropriate or convenient.
SECTION 2: COMPENSATION; BENEFITS; REIMBURSEMENT
2.1 Base Salary. The Company shall pay to the Executive a base
salary at the rate of $____________ per annum, payable in substantial equal
monthly installments (such amount, as it may be increased from time to time, is
hereinafter referred to as the "Base Salary"). The Base Salary and any other
compensation that the Executive may be entitled to hereunder, shall be reviewed
by the Board of Directors at least annually and may be increased or decreased
(but in no event lower than as previously provided in this Section 2.1) as the
Board of Directors may determine.
2.2 Discretionary Annual Incentive Bonus. The Company may pay the
Executive with respect to each calendar year during his employment an annual
incentive bonus in such amount as the Board of Directors may determine. This
compensation is completely discretionary to the Board of Directors.
2.3 Other Benefits.
(a) Employee Benefit Plans or Arrangements. The Executive
shall be entitled to participate in all employee benefit plans of the Company,
as presently in effect or as they may be modified by the Company from time to
time, under such terms as may be applicable to officers of the Executive's rank
employed by the Company or its subsidiaries, including, without limitation,
plans providing retirement benefits, medical insurance, life insurance,
disability insurance and accidental death or dismemberment insurance.
(b) Vacation and Sick Leave. The Executive shall be entitled
to paid annual vacation periods and to sick leave in accordance with the
policies of the Company, as presently in effect or as they may be modified by
the Company from time to time, under such terms as may be applicable to officers
of the Executive's rank employed by the Company or its subsidiaries, but in no
event less than _________ of vacation per annum or ___________ of sick leave per
annum.
(c) Expenses. Subject to the policy and limitations of the
Company, the Company shall reimburse the Executive for all reasonable expenses
incurred by him in the discharge of his duties, including but not limited to
expenses for entertainment and travel on behalf of the Company. The Executive
shall account to the Company for all such expenses.
SECTION 3: TERMINATION OF EMPLOYMENT
3.1 Termination of Employment Period. The Employment Period shall
terminate as follows:
(a) Mandatory Termination. The Employment Period shall
terminate on the date that is three (3) years from and after the Effective Date
(the "Mandatory Termination Date"). The Employment Period may be extended beyond
the Mandatory Termination Date only
6
<PAGE> 3
upon the affirmative vote of not less than eighty percent (80%) of the Board of
Directors of the Company.
(b) Termination for Cause. The Company may terminate the
Employment Period for "cause" at any time upon written notice to the Executive
stating the facts constituting such "cause". For purposes of this Section
3.1(b), the term "cause" shall mean:
(1) conviction for commission of a felony by the
Executive; or
(2) gross negligence or intentional or willful
misconduct by the Executive in the performance of his duties as determined in
good faith by the Board of Directors of the Company.
(c) Termination on Death. The Employment Period shall
terminate upon the death of the Executive.
(d) Termination for Disability. The Company may terminate the
Employment Period if the Executive shall become unable to fulfill his duties
under this Agreement for a period of time in excess of 180 days, as measured by
the Company's usual business activities, by reason of any medically determinable
physical and/or mental disability (including without limitation, alcohol, drug,
or other substance abuse) determined in accordance with the procedure set forth
below.
If in the opinion of the Company's Board of Directors or the
Executive, the Executive has been disabled for a period of 180 days, then the
Company shall promptly employ three physicians to examine the Executive and
determine if, in their opinion, the Executive is disabled. One of the three
physicians employed by the Company for this purpose shall be a physician
selected by the Executive. The opinion of the group of three physicians shall be
certified in writing to the Board of Directors and the Board of Directors shall
make such certificate available for inspection by the Executive or his
representative. If the three physicians, as a group, concludes that the
Executive is disabled and will remain disabled for at least 90 days, then the
Board of Directors, in its sole discretion, may terminate the Employment Period.
A termination of the Employment Period pursuant to this
Section 3.1(d) shall be effective 30 days after written notice of termination is
delivered to the Executive.
(e) Termination by the Executive. The Executive may, upon 60
days written notice to the Company, terminate the Employment Period (i) at any
time after the Mandatory Termination Date, if the Employment Period has been
extended beyond the Mandatory Termination Date in accordance with Section
3.1(a), or (ii) at any time after the occurrence of Constructive Termination, as
defined below. As used herein, "Constructive Termination" shall mean a material
reduction in the Executive's salary or benefits below those provided in Sections
2.1 and 2.3 hereof, a material change in the Executive's responsibilities, a
change of title, or a requirement that the Executive relocate, except for office
relocations that would not increase the Executive's one-way commute distance by
more than [20] miles.
3.2 Severance Payment. If, at any time prior to the Mandatory
Termination Date, the Executive's employment is involuntarily terminated for any
reason by the Company, other
7
<PAGE> 4
than for cause, death or disability, including a Constructive Termination, as
defined in Section 3.1(e), the Executive shall be entitled to receive a
severance payment from the Company in an amount determined under Section 3.3
below (the "Severance Payment"). The Severance Payment shall be made in one lump
sum not more than 60 days following the date of the employment termination. The
Severance Payment shall be in lieu of any further payment to the Executive under
Section 2 and any further accrual of benefits under Section 2 with respect to
periods subsequent to the date of the employment termination.
3.3 Severance Amount. The amount of the Severance Payment shall be
an amount equal to the sum of (i) the Executive's Base Salary (as of the date of
termination) multiplied by the number of years (including fractions thereof)
from the date of termination through and including the Mandatory Termination
Date plus (ii) the average annual bonus paid by the Company to the Executive, if
any, pursuant to Section 2.2 during the fiscal year(s) immediately preceding the
date of termination, multiplied by the number of years (including fractions
thereof) from the date of termination through and including the Mandatory
Termination Date.
3.4 Employee Benefit Plan Coverage. If, at any time prior to the
Mandatory Termination Date, the Executive's employment is involuntarily
terminated for any reason by the Company, other than for cause, death or
disability, including a Constructive Termination, in addition to the Severance
Payment, the Executive (and, where applicable, the Executive's dependents) shall
be entitled to continue participation until the Mandatory Termination Date, or
until the Executive's normal retirement date, if earlier, in the employee
benefit plans referred to in Section 2.3(a).
3.5 No Mitigation. The Executive shall not be required to mitigate
the amount of any payment contemplated by this Section 3 (whether by seeking new
employment or in any other manner), nor shall any such payment be reduced by any
earnings that the Executive may receive from any other source.
3.6 Successors of Company. The Company shall require any successor
(whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Company's business and/or assets, by an agreement in substance and form
satisfactory to the Executive, to assume this Agreement and to agree expressly
to perform this Agreement in the same manner and to the same extent as the
Company would be required to perform it in the absence of a succession. The
Company's failure to obtain such agreement prior to the effectiveness of a
succession shall be a breach of this Agreement and shall entitle the Executive
to all of the compensation and benefits to which the Executive would have been
entitled hereunder if the Company had involuntarily terminated the Executive's
employment without cause or disability, on the date when such succession became
effective. For all purposes under this Agreement, the term "Company" shall
include any successor to the Company's business and/or assets which executes and
delivers the assumption agreement described in this Section 3.6 or which becomes
bound by this Agreement or by operation of law.
8
<PAGE> 5
SECTION 4: GENERAL PROVISIONS
4.1 Assignment. Neither this Agreement nor any of the rights,
obligations or interests hereunder may be assigned by the Executive without the
prior written consent of the Company; provided, however, that nothing in this
Section 4.1 shall preclude the Executive from designating in writing a
beneficiary or beneficiaries to receive any compensation payable to him or any
other benefit receivable by him under this Agreement upon the death or
disability of the Executive, nor shall it preclude the executors, administrators
or any other legal representatives of the Executive or his estate from assigning
any rights hereunder to the person or persons entitled thereto. Neither this
Agreement nor any of the rights, obligations or interests arising hereunder may
be assigned by the Company without the prior written consent of the Executive to
any person, except that the Company may assign this Agreement without the
Executive's consent to any party with which the Company merges or consolidates,
or to whom the Company sells all or substantially all of its assets; provided,
however, that any such affiliate or successor shall expressly assume all of the
Company's obligations and liabilities to the Executive under this Agreement.
4.2 Severability. This Agreement shall be deemed severable, and any
part hereof which may be held invalid by a court or other entity of competent
jurisdiction shall be deemed automatically excluded from this Agreement and the
remaining parts shall remain in full force and effect.
4.3 Entire Agreement. This Agreement contains the entire
understanding of the parties hereto and constitutes the only agreement between
the Company and the Executive regarding the employment of the Executive by the
Company. This Agreement supersedes all prior agreements, either express or
implied, between the parties hereto regarding the employment of the Executive by
the Company.
4.4 Amendment. No term or condition of this Agreement shall be
amended or modified unless expressly consented to in writing and signed by each
of the parties hereto.
4.5 Binding Agreement. This Agreement shall be binding upon and
inure to the benefit of the parties hereto, and their respective heirs, other
legal representatives and permitted successors and assigns, as the case may be.
4.6 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the state of Utah.
4.7 Notices. All notices or other communications to be given by the
parties among themselves pursuant to this Agreement shall be in writing, shall
be deemed to have been duly made mailed by certified mail or hand delivered to
either of the parties at their respective addresses as they first appear above.
Any of the parties hereto may change their respective addresses upon written
notice to the other given in the manner provided in this Section.
4.8 Waiver. No waiver by any of the parties to this Agreement of any
condition, term or provision of this Agreement shall be deemed to be a waiver of
any preceding or subsequent breach of the same or any other condition, term or
provision hereof.
9
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date and year first above written.
CLYDE COMPANIES, INC.:
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
EXECUTIVE:
---------------------------------------------
Richard C. Clyde
10
<PAGE> 1
[EXHIBIT 10.4]
PROMISSORY NOTE
$6,700,000.00 June 28, 1996
St. George, Utah
FOR VALUE RECEIVED, the undersigned, J & J BUILDING SUPPLY, INC., a Utah
corporation (hereinafter the "Maker"), having a mailing address at 1565 West 400
North, Orem, Utah 84057, promises and agrees to pay to the order of J & J MILL
AND LUMBER COMPANY, a Utah corporation, and J & J TRANSPORTATION, INC., a Utah
corporation, at 423 Vermillion, St. George, Utah 84790, or at such other place
as the holder(s) hereof may designate in writing, the principal sum of SIX
MILLION SEVEN HUNDRED THOUSAND AND NO/100 DOLLARS ($6,700,000.00), together with
interest on the unpaid balance thereof at the rate of eight and one-quarter
percent (8.25%) per annum from the date hereof until paid. Principal and
interest shall be paid in seven (7) consecutive equal annual payments of One
Million Two Hundred Ninety-Seven Thousand Nine Hundred Eight and 83/100 Dollars
(S1,297,908.83) each, commencing with a payment on the 28th day of June, 1997,
and continuing with a payment on the 28th day of June of each year thereafter
until the entire remaining unpaid balance of principal and interest has been
paid in R'11; provided, however, that the final payment due hereunder on June
28, 2003 shall be in an amount equal to the then remaining unpaid balance of
principal and all accrued and unpaid interest. Payments shall be applied first
toward the payment and satisfaction of accrued and unpaid interest, and the
remainder shall be applied toward the reduction of principal. Principal and
interest shall be payable only in lawful money of the United States of America.
The undersigned may prepay at any time the obligations hereunder, in whole or in
part, without penalty.
In the event the undersigned fails to make any payment hereunder when
due, or within thirty (30) days after written notice to the Maker identifying
such failure and requesting payment, the entire remaining unpaid balance of both
principal and interest owing hereunder shall, at the option of the holder(s)
hereof and upon written notice to the undersigned, become immediately due and
payable, and shall then commence to accrue interest from the date of
acceleration (being the 30th day after such notice) at the rate of twelve and
one-quarter percent (12.25%) per annum until paid. The payment by the Maker of
any installment or payment after the occurrence of a default in payment and
prior to the Makers receipt of notice of acceleration, provided for in this
paragraph, shall constitute a waiver of such right of acceleration with respect
to such default in payment.
In the event payment under this Note is not made at the time required,
the undersigned agrees to pay all costs and expenses (regardless of the
particular nature thereof and whether incurred with or without suit, before or
after judgment, in bankruptcy proceedings or on appeal) which may be incurred by
the holder(s) hereof in connection with the enforcement of any of its rights
under this Note, including reasonable expenses, court costs, and reasonable
attorneys' fees.
<PAGE> 2
Notwithstanding any other provision contained in this Note: (i) The
rates of interest provided for herein shall in no event exceed the maximum rate
allowed by applicable law; and (ii) if, for any reason whatsoever, the holder(s)
hereof ever receives as interest on this Note an amount which would result in
interest being charged at a rate exceeding the maximum allowed by applicable
law, such amount or portion thereof as would otherwise be excessive interest
shall automatically be applied toward reduction of the unpaid principal balance
then outstanding hereunder and not toward payment of interest.
Notwithstanding any other provision contained in this Note, the
undersigned shall have the right to deduct from payments to be paid hereunder
and to set-off against amounts owing to the holder(s) of this Note an amount
equal to the sums of money, if any, owed by J & J Mill and Lumber Company and/or
J & J Transportation, Inc. to the Maker pursuant to the terms and provisions of
that certain Asset Purchase and Sale Agreement, dated May 21, 1996, and any
instruments or agreements delivered pursuant thereto, as amended by First
Amendment to Asset Purchase and Sale Agreement, dated June 28, 1996; provided,
however, that no such amounts shall be set-off or deducted from payments to be
made hereunder unless written notice (hereinafter the "Nonpayment Notices) of
the obligation of J & J Mill and Lumber Company and/or J & J Transportation,
Inc. has been given by the Maker to the party owing such amount and payment
thereof has not been made to the Maker within thirty (30) days of the Nonpayment
Notice. Any sums identified in the Nonpayment Notice which are not timely paid
by J & J Mill and Lumber Company and/or J & J Transportations Inc. and which are
set-off against payment obligations hereunder shall be deemed to have been paid
and satisfied to the extent of the set-off, notwithstanding the fact that the
holder(s) hereof may be a person(s) other than J & J Mill and Lumber Company
and/or J & J Transportation, Inc.
In the event that the net worth of Geneva Rock Products, Inc.
("Geneva"), as such net worth is shown on the December 3 l, 1995 audited
financial statements of Geneva, should decline by fifty percent (50%) of such
December 31, 1995 net worth, the holder(s) of this Note may, upon thirty (30)
days prior written notice to Maker, declare the entire remaining unpaid balance
of both principal and interest owing hereunder due and payable on such thirtieth
(30th) day.
Any notice or demand hereunder shall be personally delivered or
deposited in the U.S. mail, certified or registered mail, return receipt
requested, postage prepaid, and addressed to the Maker or the holder(s) hereof
at the address set forth in the first paragraph of this Note, for the Maker or
the payee, respectively, or at such other address as the Maker or the holder(s)
may hereafter designate in writing delivered in accordance with this notice
procedure.
The Maker, sureties, guarantors, and endorsers hereof severally waive
presentment for payment. protest, demand, notice of dishonor, and notice of
nonpayment, and expressly agree that this Note, or any payment hereunder, may be
extended without notice from time to time by the/ holder(s) hereof without in
any way affecting the liability of such parties.
This Note shall be governed by and construed in accordance with the laws
of the State of Utah.
6
<PAGE> 3
J & J BUILDING SUPPLY, INC., a Utah
corporation,
By __________________________________
Mansfield L. Jennings
President
By __________________________________
Don C. McGee
Secretary/Treasurer
<PAGE> 1
[EXHIBIT 10.5]
PROMISSORY NOTE
(Secured by Utah Deed of Trust)
$980,010.14 October 18, 1994
Salt Lake City, Utah
FOR VALUE RECEIVED, the undersigned GENEVA ROCK PRODUCTS, INC., a Utah
corporation (hereinafter "Maker"), having a mailing address at 1564 West 400
North, Orem, Utah, 84057, promises to pay to the order of IDEAL CONCRETE
CORPORATION, a Utah corporation, at 5250 South 300 West, Suite 200, Salt Lake
City, Utah 84107, or at such other place as the holder hereof may designate in
writing, the principal sum of NINE HUNDRED EIGHTY THOUSAND TEN AND 14/00 DOLLARS
($980,010.14) from the date hereof, in sixty (60) consecutive monthly payments,
as hereinafter provided, beginning on the 18th day of November, 1994, and
continuing on the 18th day of each month thereafter, with all remaining amounts
owing hereunder being due and payable on October 18, 1999. Each monthly payment
shall be an amount equal to all accrued and unpaid interest through the date of
such payment, plus a principal payment in the amount of Sixteen Thousand Three
Hundred Thirty-Three and 50/100 Dollars ($16,333.50).
Interest shall be at a floating rate equal to two percent (2%) below the
commercial loan variable rate index published by Zions First National Bank, a
national association, at its head office in Salt Lake City, Utah (hereinafter
the "Zions Base Rate"), from time to time in effect, adjusted as of the date of
any change in Zions Base Rate. In the event Zions First National Bank, N.A.
shall cease or fail for any reason to publish a commercial loan variable rate
index, the "Zions Base Rate" shall be deemed to mean the commercial loan
variable rate index held by any two of the following banks: Chemical Bank,
Manufacturer's Hanover Trust Company, and Bank of America. In the event Zions
First National Bank, N.A. ceases to publish a commercial loan variable rate
index and no two of the banks identified in the foregoing sentence have the same
published rate, the bank having the median rate will establish the "Zions Base
Rate."
Payments shall be applied first toward the payment and satisfaction of
accrued and unpaid interest, and the remainder shall be applied toward the
reduction of principal. Principal and interest shall be payable only in lawful
money of the United States of America.
The undersigned may prepay at any time the obligations hereunder, in
whole or in part, without penalty.
In the event: (a) the undersigned fails to make any payment hereunder
when due or within ten (10) days after written notice from holder hereof,
demanding payment; or (b) the undersigned defaults in the performance of any
covenant or agreement contained herein (other than a covenant or agreement to
make payments hereunder) or under the Deed of Trust securing this Note, and
fails to correct such failure within thirty (30) days of written demand from the
holder
<PAGE> 2
hereof to correct such a failure; then and in any of such events, the entire
remaining unpaid balance of both principal and interest owing hereunder shall
become, at the option of the holder hereof and without further notice or demand,
be, immediately due and payable. Thereafter, said unpaid principal balance and
interest shall, until paid and both before and after judgment, earn interest at
the floating rate equal to two percent (2%) above the Zions Base Rate (from time
to time in effect adjusted as of the date of any change in the Zions Base Rate).
In the event any payment under this Note is not made or any obligation
provided to be satisfied or performed under any instrument given to secure
payment of the obligations evidenced hereby is not satisfied or performed, at
the time and in the manner required, the undersigned agrees to pay the
reasonable attorneys fees, costs and expenses incurred by the holder hereof, in
connection with the enforcement of any of its rights under this Note.
This Note is principally secured by a Deed of Trust covering certain
real property situated in Davis County, State of Utah. This Note shall be
governed by and construed in accordance with the laws of the State of Utah.
GENEVA ROCK PRODUCTS, INC., a
Utah corporation
By
_________________________________________
Wilford W. Clyde
President
9
<PAGE> 1
[EXHIBIT 10.6]
LEASE
THIS LEASE is made, executed and delivered, in duplicate, as of the 1st
day of January, 1991 by and between MT. JORDAN LIMITED PARTNERSHIP, hereinafter
referred to as "LESSOR" and GENEVA ROCK PRODUCTS, INC., a Utah corporation,
hereinafter referred to as "LESSEE."
In consideration of the rents and royalties reserved by the LESSOR and
the other terms and conditions hereinafter set forth, LESSOR hereby leases to
LESSEE the leased premises, hereinafter described, and LESSEE hereby accepts
said Lease and the parties mutually agree to the following terms and conditions:
1. DESCRIPTION. The premises leased by LESSOR to LESSEE hereunder,
hereinafter referred to as the Leased Premises, are situated in Salt Lake
County, State of Utah, and are more particularly deserted as follows:
Commencing at the Quarter Section corner of Sections 14 and 23, Township
4 South, Range 1 West, Salt Lake Base and Meridian, and running thence
South 0(degree)1' East 1307.46 feet; thence North 89(degree)51' East
1293.17 feet to the West line of the right-of-way of Highway 89-91;
thence along said right-of-way Northeasterly approximately 3858 feet to
the Mountain Fuel Supply Company easement; thence Northwesterly along
said easement approximately 1430 feet to the East bank of the existing
canal; thence Southwesterly along said canal approximately 2700 feet
along which an access road must be maintained; thence South 0(degree)1'
East approximately 1650 feet to the Quarter Section corner of Sections
14 and 23 which is the point of beginning. Approx. 174 acres
and:
Commencing at the Quarter section corner of Sections 14 and 23, Township
4 South, Range 1 West, Salt Lake Base and Meridian, and running thence
South 0(degree)01' East 1307.46 feet; thence South 89(degree)46'40 West
1087.88 feet; thence North 250 feet; thence North 56(degree)7' West
781.62 feet; thence North 34(degree)6'19" Fact 2225.84 feet; thence
North 345.73 feet to the Draper Irrigation Canal; thence Northeasterly
along said canal to the 1/4 Section Line of Section 14; thence South
along the 114 Section Line of Section 14 to the point of beginning.
Approx. 75 acres
and:
Beginning at a point which is West 76.97 feet from the Southwest Corner
of Section 14, Township 4 South, Range 1 West, Salt Lake Base and
Meridian, and
1
<PAGE> 2
running thence West 68(degree)19 feet; thence South 74(degree)10' West
236.92 feet; thence North 13(degree)13'12" West 1213.45 feet; thence
North 49(degree)25' East 338.66 feet; thence East 395.83 feet; thence
North 53.97 feet; thence South 85(degree)51'16" East 331.00 feet; thence
South 87(degree)15'38" East 558.36 feet; thence South 85(degree)51'16"
East 87.95 feet; North 82(degree)13'57" East 656.32 feet; thence North
74(degree)50'20" East 525.26 feet; thence South 345.73 feet; thence
South 34(degree)06'19" West 2225.83 feet; thence North 56(degree)07'
West 426.98 feet; thence South 84(degree)36'54" West 295.67 feet; thence
South 83(degree)55'45" West 396.47 feet; thence North 14(degree)49'17"
East 242.34 feet; thence North 4(degree)16'27" East 226.68 feet to the
point of beginning. Parcel Contains 85.56 acres.
and:
Beginning at the intersection of the southerly boundary line of a tract
of land and the westerly existing highway right of way line of a
frontage road for a highway known as Interstate 15, which point is
approximately 9.53 feet north and 1027.51 feet west from the Southeast
corner of said Section 14, Township 4 South, Range 1 West, Salt Lake
Base and Meridian; thence Northeasterly along said frontage road right
of way line the following two (2) courses: Northeasterly 487.66 feet
along the arc of a 4397.30-foot radius curve to the right (Note: Tangent
to said curve at its point of beginning bears approximately N
22(degree)07'52~ E ); thence N 28(degree)29'07. E 293.05 feet, more or
less, to a northeasterly corner of said tract; thence N 43(degree)49'44"
W 23.57 feet, more or less, along a northeasterly boundary line of said
tract to a northwesterly corner of said tract; thence Southwesterly
along the northwesterly boundary line of said tract the following two
(2) courses: S 28(degree)15' W 202.60 feet, more or less, to a point of
tangency with an 1834.86 foot radius curve to the right; thence
Southwesterly 632.48 feet along the arc of said curve to a westerly
comer of said tract; thence S 42(degree)00' E 54.60 feet, more or less,
to the southerly boundary line of said tract; thence S 89(degree)2'07" E
116.10 feet, more or less, along said southerly boundary line to the
point of beginning. Parcel Contains 1.10 acres, more or less.
2. QUIET POSSESSION. LESSOR covenants and warrants that it has full
right and lawful authority to enter into this Lease for the full term hereof and
for all extensions herein provided, and that LESSOR is lawfully seised of the
entire premises hereby leased and has good title thereto, free and clear of all
tenancies, liens and encumbrances. LESSOR further covenants and warrants that if
LESSEE shall discharge the obligations herein set forth to be performed by
LESSEE, then LESSEE shall have and enjoy during the term of this Lease and any
renewal or extension thereof, the quiet and undisturbed possession of the Leased
Premises for the uses and purposes herein described.
3. PURPOSE OF LEASE. The purpose of this Lease is to permit LESSEE
to extract and remove from the Leased Premises concrete aggregates and other
usable materials for use in its business. It is also understood and agreed that
LESSEE shall have the right to erect and operate a ready-mix concrete plant and
asphalt plant upon the Leased Premises.
2
<PAGE> 3
4. TERM. This Lease shall be for a term of ten (10) years,
commencing on the 1st day of January, 1991 and ending on the 31st day of
December, 2000. As used herein, the term Lease year" shall mean any year
hereafter during the term of this Lease, commencing on the 1st day of January of
the year and ending on the 31st day of December of the same year.
5. RENEWAL. LESSEE shall have the right and option to renew this
Lease for two (2) additional successive terms of five (5) years each by giving
the LESSOR written notice of its intention to exercise each successive option at
least ninety (90) days prior to the expiration of the initial term with respect
to the first option to renew and at least ninety (90) days prior to the
expiration of each successive renewal term with respect to the subsequent
options to renew.
6. ROYALTIES. Commencing January 1, 1991, LESSEE hereby agrees to
pay to LESSOR a royalty equal to twenty-four and six-tenths (24.6) cents per ton
for all concrete aggregates removed from the Leased Premises, fifty (50) cents
for all topsoil removed from that portion of ground that was previously used as
a turf farm, and twelve and three-tenths (12.3) cents per ton for all other
usable materials removed therefrom. Said royalties shall be payable within
twenty (20) days after the end of each calendar month in which such materials
are removed from the Leased Premises. After every two years, the royalty price
shall be adjusted based upon the U.S. Consumer Price Index for Construction,
Sand, Gravel, and Crushed Stone, published by the Bureau of Labor Statistics of
the Department of Labor. On the first month of each two year period of the
Lease, said index shall be compared with the index for the last month of that
two year period and the royalty for the succeeding two year period shall be
increased or decreased by an amount equal to the percentage difference in said
index
LESSEE further agrees to pay LESSOR a minimum annual royalty of Nine
Thousand Dollars ($9,000.00) for each lease year. Said minimum annual royalty
shall be payable within twenty (20) days after the end of each lease year.
Royalties paid during each Lease year can be applied toward the minimum annual
royalty. For example, if during the lease year, commencing January 1, 1991,
LESSEE pays to LESSOR royalties in the sum of Seven Thousand Dollars
($7,000.00), the minimum annual royalty which would be payable within twenty
(20) days after December 31st, 1991, would be Two Thousand Dollars ($2,000.00).
Once a total of Ninety Thousand Dollars ($90,000.00) has been paid in royalties,
no minimum annual royalties will be due during the initial lease term, nor
during any renewal terms. At the end of each lease year, LESSEE shall furnish to
LESSOR an accurate statement verified by an officer of the LESSOR as to the
amount of material removed by LESSEE during the prior year.
LESSEE shall have the unlimited right, subject only to zoning
restrictions, to remove as much material from the property during the term of
this Lease as it may desire. All materials removed from said premises shall be
weighed over truck scales and LESSEE shall keep an accurate record of all
material removed, which records may be inspected by LESSOR at any time.
3
<PAGE> 4
7. USE OF WELL. LESSEE shall have the right to use the wells
Numbered 1, 2, 6, and 8, situated upon the Leased Premises, provided however,
that if LESSEE elects to use the wells in connection with its washing process,
it shall pay to LESSOR an additional sum of Six Thousand Seven Hundred and Fifty
Dollars ($6,750) per year as rental for the use of same. This amount will be due
the 1st day of January of each year this lease is in effect. Any power used to
pump water shall be furnished by LESSEE and in the event more water is developed
than is required by LESSEE, the LESSOR may purchase said water from LESSEE by
paying to LESSEE a proportionate share of LESSEE's costs, including the cost of
power, equipment and rental being paid to LESSOR. The cost of maintaining and
repairing said wells and pumps or installation of any new pumps thereon, shall
be paid by LESSEE. These costs may be deducted from the yearly well rental,
however, if costs exceed rental payments due LESSOR, LESSEE will be responsible
for these costs. Any costs that the LESSEE has previously expended for upkeep on
said Wells that have not been applied towards previous well rental can be
carried forward to future rental payments. At the end of the Lease, all well
improvements and pumps will become the property of the LESSOR. LESSEE shall have
the right to construct settling ponds on the Leased Premises at its own expense.
Also, this Lease shall commence with the LESSEE having an amount of
sixty one thousand three hundred fifty dollars ($61,350) that can be applied
toward the yearly well rental. This amount is for expenses incurred by LESSEE
with LESSOR on previous leases. Any of this amount that has not been applied to
the yearly well rental can be carried forward to future rental payments.
8. TAXES. LESSOR agrees to pay and discharge all taxes, assessments
(either general or special) and any other obligations which are or may become a
lien upon or levied against the Leased Premises as they become due and payable
during the term of this Lease. LESSEE agrees to pay all personal property taxes
upon any equipment or improvements owned or installed by it upon the Leased
Premises.
9. OPTION TO PURCHASE. LESSOR hereby grants to LESSEE a first right
of refusal to purchase the Leased Premises in the event LESSOR elects to sell
same. In the event LESSOR receives a bona fide offer for the sale of the leased
Premises which LESSOR desires to accept, LESSOR shall give to LESSEE written
notice of such offer and LESSEE shall be given a period of thirty (30) days
within which to purchase said property at the same price and upon the same terms
and conditions set forth in said offer. In the event LESSEE does not elect to
purchase said property, then LESSOR shall be free to sell same pursuant to said
offer which it has received. In the event LESSEE purchases said property, LESSOR
shall be granted the right to use the excess water from the well over and above
the needs and requirements of LESSEE. The foregoing right of purchase shall not
apply if LESSOR receives an offer to a larger tract of land which includes the
Leased Premises unless a separate price is quoted for the Leased Premises and
can be separated from the remainder of the offer which LESSOR has received.
10. RIGHT OF WAY. LESSOR hereby grants to LESSEE a right of way and
easement over and across other property owned by LESSOR for the purpose of
ingress to and egress from the Leased Premises. Any roadway shall be constructed
and maintained by LESSEE.
4
<PAGE> 5
11. CONTOUR SURVEY. In the event LESSOR desires to have a contour or
topographical survey made of the Leased Premises at the beginning and end of
each lease year, LESSOR may do so at LESSOR's sole cost and expense.
12. RIGHT OF TERMINATION. LESSEE shall have the right to terminate
this Lease and be relieved of any further obligation in the event LESSEE is
prohibited by law or ordinance at any time from removing additional material
from the Leased Premises. LESSEE shall also have the right to terminate this
Lease, at any time, and to be relieved of any further obligations hereunder in
the event the gravel reserves on the leased Premises are completely exhausted
and depleted.
13. NOTICES. Any notice required to be given to either party
pursuant to this Lease shall be deemed to have been served when such notice has
been mailed by registered mail to said party addressed to the last known
principal place of business of the party involved.
14. EXECUTION. This Lease has been prepared and is submitted for
signature by the partners of LESSOR and a duly authorized officer of LESSEE with
the understanding that it shall not bind the LESSEE or the LESSOR until duly
executed by both parties. The officer of the LESSEE executing this Lease
warrants that he has been duly authorized to do so by his Board of Directors.
15. RESTORATION. At the expiration of the time of this lease
mentioned, LESSEE will yield and deliver up the said demised premises to the
LESSOR in as good order and condition as when the same were entered upon by the
LESSEE, reasonable use as contemplated by this Lease and wear thereof and damage
by the elements excepted. Specifically, the LESSEE will perform at LESSEE's cost
any and all restoration or curative work required by local, state, or federal
regulations on the leased premises which result from LESSEE's activities and
which must be altered or changed in order to comply with local state, or federal
regulations.
16. TERMINATION OF PRIOR LEASES. All prior leases between the LESSOR
and the LESSEE shall be terminated upon execution of this Lease.
IN WITNESS WHEREOF, this Lease has been executed as of the day and year
first above mentioned.
LESSOR:
MOUNT JORDAN LIMITED PARTNERSHIP
LESSEE:
GENEVA ROCK PRODUCES, INC
5
<PAGE> 6
PARTNERSHIP ACKNOWLEDGMENT
STATE OF UTAH )
)ss.
COUNTY OF SALT LAKE )
On the day of _________________19___ personally appeared before me
____________ ___________________________and ___________________________who being
by me duly sworn, did say that they are partners of MT. JORDAN LIMITED
PARTNERSHIP, a partnership existing under the laws of the State of Utah; and
that said instrument was signed by them in behalf of said partnership and said
_____________________________ and ___________________________________
acknowledged to me that said partnership executed the same.
----------------------------------------
NOTARY PUBLIC, residing in
----------------------------
My Commission Expires:
- --------------------
6
<PAGE> 1
[EXHIBIT 10.7]
SINCLAIR OIL CORPORATION ASPHALT SALES CONTRACT
550 East South Temple SOC-4288-E (11/96)
P.O. Box 30825
Salt Lake City, Utah 84130-0825 Date: February 13, 1997
Attn: L. A. Hobbs
Customer Number Loading Number
330510-001 918604409
Gentlemen:
Subject to the Additional Terms and Conditions which follow this page, the
undersigned as "Buyer" hereby offers to purchase the below stated quantities and
grades of asphalt from Sinclair Oil Corporation, as "Seller". When accepted by
you, this document shall constitute the entire contract between us.
CONTRACT PERIOD: FROM FEBRUARY 13, 1997 TO DECEMBER 31, 1997
GRADE OR SPECIFICATION AC-5/10/20 MC-70/250
QUANTITIES 19,000/TONS 500/TONS
METHOD OF DELIVERY TT TT
PRICE: F.O.B. ORIGIN, SINCLAIR, WY $101.00/TON $121.00/TON
F.O.B. DESTINATION
DESTINATION: OREM OR POINT OF THE MOUNTAIN, UTAH
PROJECT # AND NAME: BASE PLANTS
GENERAL CONTRACTOR FOR PROJECT:
PAYMENT BOND #____________ ISSUED BY __________________ Covers the Products
Purchased Under this
Agreement
TERMS OF PAYMENT: NET 30 DAYS
FREIGHT RATE UTILIZED:
SALES AND USE TAXES: The amount of all applicable sales and use taxes shall be
paid by Buyer unless Buyer demonstrates exemption under the law from such taxes
in the state in which title passes to the satisfaction of Seller.
SPECIAL PROVISIONS:
Buyer: GENEVA ROCK PRODUCTS, INC Approved and accepted by Seller on
P.O. Box 538 March 5, 1997
Orem, Utah 84059-0538 SINCLAIR OIL CORPORATION
By: Carl C. Clyde
<PAGE> 2
ASPHALT SALES CONTRACT
ADDITIONAL TERMS AND CONDITIONS
QUANTITY VARIANCES
Buyer hereby agrees to purchase and receive from Seller under the terms and
conditions hereof and within the Contract Period, a quantity of each stated
grade of asphalt product equal to nor less than 90% of the stated Quantities.
Buyer hereby agrees to sell and deliver to Buyer, under the terms and conditions
hereof and within the Contract Period, the quantity of each stated grade of
asphalt product ordered by Buyer up to 110% of the stated Quantities.
FREIGHT CHARGES
Each F.O.B. Destination Price herein is based upon the Freight Rule utilized as
specified on the reverse side hereof. The F.O.B. Destination Price shall be
increased or decreased by the amount by which the actual freight charges vary
from the Freight Rate Utilized.
DELIVERIES
As to F.O.B. Destination sales, unless otherwise expressly stated in this
agreement, Seller shall not be obligated to deliver in less than full tank car
or tank truck. Buyer agrees to promptly unload upon arrival at destination all
tank cars or tank trucks supplied or arranged for by Seller and to pay all
charges arising form any delay in unloading same. Deliveries shall be made
within the usual business hours of the delivering facilities. Buyer shall
furnish, or cause to be furnished, to Seller the necessary shipping
instructions. Buyer shall be liable for all damages or injuries to persons or
property that are connected or related in any way to the loading or unloading of
product(s) sold hereunder (unless such damages or injuries are directly caused
by Seller's sole negligence), and shall indemnify Seller as provided below. The
burden of proving Seller's negligence shall be on Buyer.
PAYMENT
Buyer agrees to make payment in accordance with the Terms of Payment provision
on the first page hereof. In the event Buyer fails to do so, an interest charge
of 1 -1/2% per month, before and after judgment, shall be charged on the past
due balance, and Seller may (1) terminate this contract forthwith and without
notice, (2) suspend deliveries until all indebtedness is paid in full, and/or
(3) place Buyer on a cash-on-delivery or prepayment basis. In addition, if in
the sole opinion of Seller the financial responsibility of Buyer is impaired or
unsatisfactory to Seller, Seller may suspend deliveries and/or place Buyer on a
cash-on-delivery basis until Buyer makes arrangements for security satisfactory
to Seller or, at Seller's option, until all indebtedness to Seller is paid in
full.
DESTINATION
All asphalt products purchased hereunder shall be used by Buyer only at the
Destination and only on the Project identified on the reverse side hereof. Buyer
or its agent shall certify to Seller the destination of each shipment of asphalt
products purchased hereunder at time of shipment.
FORCE MAJEURE
Except as to payment due hereunder either party hereto shall be relieved from
liability hereunder for delay or failure to sell, deliver, purchase, or receive
asphalt products hereunder for the time and to the extent such delay or failure
is occasioned by war, military operations, national emergency, civil commotion,
fires, explosions, riots, governmental regulations, strikes or other industrial
disturbances or disagreements with workmen or unions, disruption or breakdown of
transportation facilities, floor or storms of an extraordinary or abnormal
nature, Seller shall be relieved from liability hereunder for delay or failure
to sell or deliver asphalt products hereunder for the time and to the extent the
supplies of Seller or the facilities of production, manufacture, transportation,
or distribution which otherwise would be available to Seller are impaired by
causes beyond the control of Seller or by order, requisition, request,
recommendation of any governmental agency or authority, or Seller's compliance
therewith, or by governmental proration, regulation, or priority, or from any
other delay or failure due to any cause beyond the control of the Seller,
similar or dissimilar to any such causes. The parties hereto recognize that
inasmuch as the asphalt products covered hereby are manufactured as a by-product
in the refining of other petroleum products, Seller shall be relieved from
responsibility hereunder for delay in or failure to sell or deliver asphalt
products hereunder for the time and to the extent that Seller's asphalt products
supplies are reduced due, at least in part, to market conditions for other
petroleum products or crude oil. When any of the above causes exist, and as a
result Seller's supplies of asphalt products are reduced, Seller shall have the
right, in its sole discretion, to restrict or cease deliveries hereunder and/or
to prorate, in any manner Seller deems appropriate, Seller's available supplies
among its various buyers. Provided further, that in order to obtain any release
from continuing obligations under this paragraph, the affected party shall give
timely notice and reasonably full particulars to the other party of the
conditions believed to justify relief under this paragraph. The affected party
shall notify the other party of any change in circumstances giving rise to the
suspension of its performance.
CLAIMS AND WARRANTIES
Notice of any claim by Buyer pertaining to any breach of this contract or to the
quality of asphalt products delivered or which should have been delivered
hereunder shall be made in writing to Seller within 30 days after the asphalt
products were or should have been delivered. With respect to any such claim,
Seller's total responsibility to Buyer shall be limited to the replacement of
shortages in or defective deliveries of asphalt products. Seller warrants that
it passes title to the product(s) purchased hereunder free and clear of all
liens or encumbrances, and that the product(s) conform(s) to the specifications
set forth herein with respect to such product(s). IN NO EVENT SHALL SELLER BE
LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES. SELLER MAKES NO OTHER
WARRANTIES, EXPRESS OR IMPLIED, OF MERCHANTABILITY, FITNESS OR SUITABILITY FOR A
PARTICULAR PURPOSE OR OTHERWISE EXCEPT AS SET FORTH HEREIN. ANY IMPLIED
WARRANTIES ARE EXPRESSLY DISCLAIMED AND EXCLUDED.
In the event Buyer shall, within the Contract Period, fail to purchase and
receive at least the minimum quantities of each grade of asphalt products
required by this agreement, then Buyer shall be liable to Seller of 10% of
contract value of such quantities not purchased as compensation for additional
selling and other expenses incurred by Seller, and such other damages as Seller
may incur. All claims for monies
<PAGE> 3
due or to become due from Seller shall be subject to deduction by Seller for any
setoff or counterclaim arising out of this or any other transaction with Buyer
or its affiliates, whether such setoff or counterclaim arose before or after any
assignment by Buyer.
INDEMNITY
Buyer hereby relinquishes, release, discharges and agrees to indemnify, hold
harmless and defend Seller, its employees, agents and representatives, of and
from any and all claims, demands, liability and costs (including attorneys'
fees) for any loss, damage, injury or other casualty to property or to persons
caused by, growing out of, related to or happening in connection with the
delivery, sale, transportation, use or subsequent use, sale or distribution of
any product(s) purchased hereunder [unless such damages or injuries are directly
caused by Seller's sole negligence] including without limitation, any such loss,
damage, injury or death caused by the negligence of [Buyer], its employees,
agents or representatives of a third party.
COMPLIANCE WITH LAW
All provisions of this agreement are subject to all federal or state laws,
municipal ordinances, or any orders or regulations of any regulatory body
having, or purporting to have jurisdiction or control of any of the matters
involved herein. Buyer agrees to comply with such laws, ordinances, orders or
regulations relating to the handling, use, sale and transportation of product(s)
covered by this agreement and to require each subsequent purchaser for resale to
obligate itself. Buyer agrees to communicate all necessary warnings or to take
other precautionary action with respect to all persons handling, coming into
contact with or in any way concerned with the product sold hereunder, including
its employees, independent contractors and subsequent purchasers. Buyer
acknowledges receipt of Seller's material safety data sheet for product to be
received under this agreement.
TITLE AND RISK OF LOSS
Unless specifically agreed otherwise in this contract, title and risk of loss
shall pass as stated in this paragraph. For asphalt products sold F.O.B. Origin,
title and risk of loss shall pass from Seller to Buyer at Seller's point of
shipment, as asphalt product leaves the loading spout for delivery into Buyer's
equipment or into contract or common carrier hired by Buyer. For asphalt
products sold F.O.B. Destination, title and risk of loss shall pass form Seller
to Buyer as the asphalt product leaves the loading spout to enter the storage
tank at Buyer's point of receipt.
TAXES
Any tax, excise, fee, or other charge or any increase in any such tax, excise,
fee, or charge, now or hereafter imposed by law upon asphalt products sold and
delivered to Buyer hereunder, or upon the production, manufacture, storage,
sale, transportation, or delivery thereof which Seller is required to pay or
collect, shall be added to the prices herein stated and shall be paid by Buyer.
GENERAL
This Contract shall be binding upon and inure to the benefit of the personal
representatives, heirs and successor of Buyer and the successors and assigns of
Seller, but shall not be assigned by Buyer without the prior written consent of
Seller.
This Contract contains the entire agreement between the parties hereto and there
are no oral representation, stipulations, warranties, agreements or
understandings with respect tot he subject matter of this contract which are not
fully expressed herein. Neither this contract nor its execution has been induced
by any representation, stipulation, warranty, agreement or understanding of any
kind other than those herein expressed. The terms and conditions stated herein
shall prevail over any contradictory or conflicting terms and conditions
contained in Buyer's confirmation or acceptance and shall prevail over any
contradictory or conflicting course of dealing or usage of trade.
No amendment, addition to, alternation, modification or waiver of all or any
part of this contract shall be of any force or effect unless in writing and
signed by Seller and Buyer. Any notice, request or other communication required
that is permitted by or pertaining to this contract shall be in writing and
addressed to the other party at the address specified on the first page hereof.
<PAGE> 1
[EXHIBIT 10.8]
CRYSEN REFINING, INC.
A CRYSEN CORPORATION COMPANY
ASPHALT CEMENT CONTRACT
Crysen Refining, Inc. commits to sell 6,500 short tons of Utah DOT AC-10 asphalt
cement to Geneva Rock Products, Inc. at a price of $117 a ton F.O.B. Woods
Cross, Utah by December 31, 1997. Geneva Rock agrees to take delivery of the
asphalt cement on a reasonable uniform basis.
These prices are firm though December 31, 1997.
In the event Geneva Rock Products, Inc. can obtain asphalt cement at a better
price from another source, Crysen Refining, Inc. will match or better the new
price, and in this event Geneva Rock Products, Inc. will be committed to
purchase the 6,500 tons by December 31, 1997.
There shall be no obligation to deliver or to receive or to use the said
products, when and while, and to the extent that the receiving or using, or
manufacturing, or making deliveries in the customary manner are prevented or
hindered by acts of God, fire, strike, partial or total lock-out, or by other
causes beyond the control of the parties, whether similar to the causes
hereinabove specified or not.
Terms: 1% 10 days, 1.% per month finance charge will apply after 30 days.
We agree to the above terms and conditions of this contract.
Geneva Rock Products, Inc. by: Crysen Refining, Inc. by:
Carl C. Clyde David McSwain
Title: Division Manager Title: President
Date: 5/27/97 Date: 5/29/97
P.O. Box 870298 o 2355 South 1100 West o Woods Cross, Utah 84087 o
(801) 298-3211
<PAGE> 1
[EXHIBIT 10.9]
<TABLE>
<S> <C>
-----------------------------------------------
CONOCO INC. DIVISION ORDER NO. TRANSACTION TYPE:
STOCK PURCHASE AND
SHIPPING ORDER 442-0929776 SALE
----------------------- -----------------------
ISSUED LOCATION: ISSUED DATE:
Effective Dates 5/1/97 thru 12/31/97 Woods Cross, UT 5/1/97
-----------------------------------------------
CUSTOMER'S ORDER NO: ORDER REFERENCE:
R40 SC 54-01 OT 155
-----------------------------------------------
SOLD F.O.B.
Freight Collect/ Terminal
-----------------------------------------------
SHIP TO: TERMS
GENEVA ROCK PRODUCTS, INC. NET 15 PROX
-----------------------------------------------
DESTINATION: SALES TAX LIC.* FEDERAL REG. NO.*
UTAH COUNTY, UT
-----------------------------------------------
ROUTING: SOLD FOR ACCOUNT OF:
TRUCK
GENEVA ROCK PRODUCTS, INC.
ORDER DESCRIPTION: P.O. BOX 538
SP-9999(434) [PMS Utah & Wasatch County] OREM, UT 84059
PROJECT NO.: (801) 531-7663
-----------------------------------------------
*For resale or exempt, please furnish
certificate
- ------------------------------------------------------------------------------------------------
PRODUCT GROUP PRODUCT DESCRIPTION QUANTITY UNITS PRICE
- ------------------------------------------------------------------------------------------------
PG 64-34 PG 64-34 582.00 Metric Tons $223.00
- ------------------------------------------------------------------------------------------------
</TABLE>
By shipment Seller certifies that these goods were produced in compliance with
all applicable requirements of Sections 6, 7, and 12 of the Fair Labor Standards
Act as amended, and of regulations and orders of the United States Department of
Labor issued under Section 14 thereof.
- --------------------------------------------------------------------------------
Buyer Conoco, Inc. Seller
Carl C. Clyde Seller's Signature
Division Manger Product Manager
See Terms and Conditions on Back
<PAGE> 2
TERMS AND CONDITIONS OF PURCHASE
All asphalt purchased by the buyer (Buyer is defined as the individual or entity
in the "Sold for the account of, Name" on the attached Stock Purchase and
Shipping Order) will be purchased according to the terms and conditions set out
below.
Buyer agrees to purchase those volumes of asphalt and at the purchase price as
listed on this Stock Purchase and Shipping Order.
Conoco shall not be liable for failure or delay in performance hereunder by
reason of partial or total interruption of transportation, inability to obtain
crude petroleum or other necessary supplies or materials, war (declared or
undeclared whether in this or some other country), fire, flood, strike, lockout
or other labor trouble, riot, storm, acts of God, injunctions, government
regulations, or other cause beyond its control whatsoever. If any of the events
specified in this paragraph shall have occurred, Conoco shall have the right to
allocate in a fair and reasonable manner among its customers for the duration of
the event.
Conoco warrants that the product delivered hereunder will, at the time of
delivery, meet the specifications of that product.
Conoco shall not be liable in contract or tort for special, incidental or
consequential damages to equipment or other property, personal injury, loss of
profits or revenue and cost of capital.
Conoco's payment terms for all types of asphalt is net 15th prox. from date of
shipment except that Conoco may at its option amend such terms. All payments
shall be mailed to the remittance address shown on Conoco's invoice, or in a
manner otherwise designed by Conoco. Shipments of the types of asphalt may be
deferred if terms of payment have not be satisfied or if in Conoco's judgment
the financial responsibility of Buyer becomes impaired.
Conoco's obligations under this letter expires when the designated amounts of
asphalt covered has been purchased.
The "Terms and Conditions" set out herein are the only "Terms and Conditions"
under which Conoco Inc. has agreed to sell asphalt to the Buyer not withstanding
the fact that Conoco may have accepted and even executed Buyers Purchase Order.
<PAGE> 1
[EXHIBIT 10.10]
<TABLE>
<CAPTION>
<S> <C>
-----------------------------------------------
CONOCO INC. DIVISION ORDER NO. TRANSACTION TYPE:
STOCK PURCHASE AND
SHIPPING ORDER 442-0908968 SALE
-----------------------------------------------
ISSUED LOCATION: ISSUED DATE:
Effective Dates 7/1/97 thru 12/31/97 Woods Cross, UT 7/1/97
-----------------------------------------------
CUSTOMER'S ORDER NO: ORDER REFERENCE:
R40 SC 54-01 OT 155
-----------------------------------------------
SOLD F.O.B.
Freight Collect/ Terminal
-----------------------------------------------
SHIP TO: TERMS
GENEVA ROCK PRODUCTS, INC. NET 15 PROX
-----------------------------------------------
DESTINATION: SALES TAX LIC.* FEDERAL REG. NO.*
UTAH COUNTY, UT
-----------------------------------------------
ROUTING: SOLD FOR ACCOUNT OF:
TRUCK
GENEVA ROCK PRODUCTS, INC.
ORDER DESCRIPTION: P.O. BOX 538
STP-2082(3) 9 [Highland Drive Reconstruction OREM, UT 84059
4800 S. to 4500 S.]
(801) 531-7663
PROJECT NO.:
-----------------------------------------------
*For resale or exempt, please furnish
certificate
- ------------------------------------------------------------------------------------------------
PRODUCT GROUP PRODUCT DESCRIPTION QUANTITY UNITS PRICE
- ------------------------------------------------------------------------------------------------
PG 64-28 PG 64-28 500.00 English Tons $172.00
- ------------------------------------------------------------------------------------------------
EMULSION SS-1H 6.00 English Tons $114.00
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
By shipment Seller certifies that these goods were produced in compliance with
all applicable requirements of Sections 6, 7, and 12 of the Fair Labor Standards
Act as amended, and of regulations and orders of the United States Department of
Labor issued under Section 14 thereof.
- ------------------------------------------------------------------------------------------------
</TABLE>
Buyer Conoco, Inc. Seller
Carl C. Clyde Seller's Signature
Division Manger Product Manager
See Terms and Conditions on Back
<PAGE> 2
TERMS AND CONDITIONS OF PURCHASE
All asphalt purchased by the buyer (Buyer is defined as the individual or entity
in the "Sold for the account of, Name" on the attached Stock Purchase and
Shipping Order) will be purchased according to the terms and conditions set out
below.
Buyer agrees to purchase those volumes of asphalt and at the purchase price as
listed on this Stock Purchase and Shipping Order.
Conoco shall not be liable for failure or delay in performance hereunder by
reason of partial or total interruption of transportation, inability to obtain
crude petroleum or other necessary supplies or materials, war (declared or
undeclared whether in this or some other country), fire, flood, strike, lockout
or other labor trouble, riot, storm, acts of God, injunctions, government
regulations, or other cause beyond its control whatsoever. If any of the events
specified in this paragraph shall have occurred, Conoco shall have the right to
allocate in a fair and reasonable manner among its customers for the duration of
the event.
Conoco warrants that the product delivered hereunder will, at the time of
delivery, meet the specifications of that product.
Conoco shall not be liable in contract or tort for special, incidental or
consequential damages to equipment or other property, personal injury, loss of
profits or revenue and cost of capital.
Conoco's payment terms for all types of asphalt is net 15th prox. from date of
shipment except that Conoco may at its option amend such terms. All payments
shall be mailed to the remittance address shown on Conoco's invoice, or in a
manner otherwise designed by Conoco. Shipments of the types of asphalt may be
deferred if terms of payment have not be satisfied or if in Conoco's judgment
the financial responsibility of Buyer becomes impaired.
Conoco's obligations under this letter expires when the designated amounts of
asphalt covered has been purchased.
The "Terms and Conditions" set out herein are the only "Terms and Conditions"
under which Conoco Inc. has agreed to sell asphalt to the Buyer not withstanding
the fact that Conoco may have accepted and even executed Buyers Purchase Order.
<PAGE> 1
[EXHIBIT 10.11]
CONTRACT
THIS AGREEMENT, entered into this 2nd day of October, 1997, by and between
Holmes Creek Irrigation Company, hereinafter called the "Water Company", First
Party, and W. W. Clyde and Company Hereinafter called the Construction
Contractor, Second Party,
WITNESSETH: That for and in consideration of payments hereinafter
mentioned to be made by the Water Company, the Construction Contractor agrees to
furnish all labor and equipment: to furnish and deliver all materials not
specifically mentioned as being furnished by the Water Company, and to perform
all work in construction of a water conservation project in Davis County, Utah,
described or known as Holmes Dam Reconstruction for the approximate sum of One
million. One hundred fourteen thousand, Seven hundred Sixty-eight Dollars
($1,114,768.00).
The Construction Contractor further covenants and agrees that all of
said work and labor shall be performed in the most workmanlike manner and in
strict conformity with the plans and specifications. The said plans and
technical specifications, notice and information to bidders, invitation to bid,
bid proposal, bid schedule, general conditions, special conditions, and contract
bond are hereby made a part of this agreement as fully and to the same effect as
if the same had been set forth at length.
The Construction Contractor shall commence work on or before the 6th day
of October. 1997; shall pursue the work with diligence, and shall complete it on
or before the 30 day of June, 1998. Reservoir filling shall commence by April
30, 1998.
Time shall be considered the essence of this contract and if the
Contractor, without fault of the Water Company, shall have failed to complete
the said performance as required under this Contract by the time above set
forth, the Construction Contractor shall forfeit as liquidated damages to the
Water Company the sum of Five Hundred Dollars ($ 500.00) per day for each and
every calendar day that said performance shall remain incomplete.
The Water Company shall pay to the Construction Contractor for the
performance of work in accordance with the unit prices and lump sums bid on the
bid schedule, a copy of which is hereby attached and made a part hereto.
Payments shall be made in accordance with Section 14, PAYMENTS TO CONTRACTOR AND
COMPLETION, of the General Conditions of the contract. Final payment, including
the retainage withheld on partial payments shall be made within 30 days after
final approval of work and after Conditions of the specifications have been
satisfied, or as follows:
IN WITNESS WHEREOF, the Parties have subscribed their names through their proper
officers thereunto duly authorized as of the day and year first above written.
Holmes Creek Irrigation Company
W. W. Clyde and Company
<PAGE> 1
[EXHIBIT 10.12]
CONTRACT NO. ES-01
ENGINEERING CIVIL SERVICES
FOR
KENNECOTT UTAH COPPER CORPORATION
ENGINEERING SERVICES
JULY, 1997
<PAGE> 2
CONTRACT NO. ES-01
ENGINEERING CIVIL SERVICES
This Agreement is dated as of the 21st day of July, 1997, by and between W. W.
Clyde & Company, whose address is 1375 North Main, Springville, Utah 84663,
hereinafter called the "Contractor" and Kennecott Utah Copper Corporation, a
Delaware corporation, whose address is P. O. Box 112, Bingham Canyon, Utah,
84006-0112, hereinafter called the "Company".
WHEREAS, the Company desires to Miscellaneous Civil work done at venous
locations on the property.
WHEREAS, the Contractor represents that it is fully qualified, ready, willing
and able to perform such work for the Company,
NOW THEREFORE, intending to be legally bound hereby, the parties hereto agree as
follows:
1. SCOPE OF WORK
Contractor shall perform the work (the "Work") to be done hereunder to the sole
satisfaction of Company. The scope of the Work to be performed by Contractor
pursuant to this Agreement is described in the documents identified in Exhibit
"A" attached hereto and incorporated herein by this reference.
All of the documents identified in Exhibit A are incorporated herein and with
this Agreement are hereafter called the "Contract Documents." In the event of
any inconsistency between this Agreement and other Contact Documents, the terms
of this Agreement shall control.
The Company may, at any time, pursuant to a written change order executed by the
Company and the Contractor, issue additional instructions, require changes,
modify or add Work or direct the omission of Work. If such changes require a
change in the time of performance of the Work called for hereunder, the segment
of Work shall be modified in writing accordingly. The rates indicated in the
Contract Documents shall not be adjusted by reason of any order issued under
this section without the consent of both parties hereto.
2. TIME FOR PERFORMANCE
The term of this agreement shall be one year from the date first written above.
If the completion of the Work is delayed due to an event of force majeure
described in Section 7 below, then and in such event the time for completion of
the Work shall be extended for such additional time within which to complete the
Work as is caused by such delay, up to a maximum of 10 days, provided that the
Contractor shall give to the Company written notice of such event or condition
within ten (10) calendar days after the onset of such condition. Failure on the
part of the Contractor to give the Company such notice within the required ten
(10) day
<PAGE> 3
period shall constitute a waiver of Contractor's right to extend the completion
date as the result of such event of force majeure.
The Company specifically reserves the right to terminate this Agreement in the
event the Work herein provided for is not prosecuted with the promptness and
diligence which the Company believes is necessary to complete the Work within
the time limit herein provided.
3. EXAMINATION OF SITE
Contractor has, by careful examination, satisfied itself as to the scope, nature
and location of the Work, the kind and type of equipment and facilities needed
preliminary to and during the prosecution of the Work, the general and local
conditions, and all other matters which can in any way affect the Work.
4. MATERIAL, EQUIPMENT AND LABOR
The Contractor undertakes and agrees to furnish and pay for all materials,
supplies, labor, transportation, tools, equipment, services and supervision
necessary to perform the Work.
5. COMPENSATION FOR PERFORMANCE OF THE WORK
The Company undertakes and agrees to pay the Contractor for doing and performing
the Work herein specified the compensation specified in Exhibit B attached
hereto, and the Contractor agrees to accept in full payment for such Work the
compensation specified in Exhibit B attached hereto. It is understood that all
tasks involving hourly rates will be described on Exhibit B prior to beginning
such tasks.
Contractor will present to the Company an invoice, in such detail as may be
requested by the Company, covering all the compensation and including a list of
the hours worked, rates, total charges of each compensation category listed in
the Contract Documents, and reimbursable expenses. The invoice shall be
supported with documentation necessary to substantiate the costs and charges for
applicable sales and use taxes. Payment is contingent upon the Company's
approval of articles delivered or services rendered in accordance with this
Agreement, but payment is not evidence of the Company's final acceptance of such
articles or services, and payment by the Company shall not preclude the rights
of the Company subsequently to audit the amount thereof. Subject to the
foregoing, Company will make monthly progress payments to Contractor within
thirty (30) days after receipt of each monthly invoice, in the proper form and
with the necessary supporting documentation.
Final payment shall be made by the Company within thirty (30) days after total
completion of the Work by the Contractor in a satisfactory manner and upon the
approval and acceptance of the Work by the Company and upon the Contractor
furnishing Company with a satisfactory final invoice and a properly Executed
Contractor's Release and Waiver of Lien.
<PAGE> 4
6. WARRANTY
Contractor warrants, guarantees and covenants that all Work done under this
Contract shall be performed with that degree of skill, care and judgment
normally exercised by recognized construction firms performing services of a
similar nature, shall be free of faulty equipment, materials and workmanship and
shall conform in all aspects with all of the specifications set forth herein.
Contractor hereby agrees, immediately upon receiving notification from Company,
to remedy, repair, modify and/or replace, without cost to Company, and to
Company's entire satisfaction, all non-conformance to specifications, defects,
damages and/or imperfections which may appear as a result of faulty materials
and/or workmanship in said Work, at any time, or from time to time, during the
period beginning with commencement of Work and ending one year after the date of
final acceptance of the Work by Company. Payment to Contractor by Company shall
not relieve Contractor from these obligations, nor shall Contractor's
obligations to remedy, repair, modify and/or replace be construed to limit
Company's rights and remedies for breach of this Section 6 by Contractor.
Company shall be entitled to avail itself of any rights or remedies available at
law or in equity in the event of such breach by Contractor.
Contractor's guarantee on equipment manufactured and supplied by firms other
than Contractor shall equal that guarantee provided in this Section 6.
Contractor further agrees that Contractor will, immediately upon receiving
notification from Company, remedy, repair, modify and/or replace, without cost
to Company, and to Company's entire satisfaction, all non-conformance with
specifications, defects, damages or imperfections which may appear at any time
and which are a result of faulty materials and/or workmanship in said Work,
where such faulty materials and/or workmanship are latent and not ordinarily
visible or detectable. Contractor will indemnify Company pursuant to Section 13
for any liabilities (as defined therein) that may occur at any time which are
the result of faulty design, materials and/or workmanship by Contractor.
Contractor warrants that the articles or materials to be furnished hereunder
will be equal to or will exceed the kind and quality described in any
specifications in or made a part of this Agreement, and will be free from all
defects in workmanship and material. Contractor further warrants that the
articles or materials to be furnished hereunder will be adequate for, or capable
of exceeding all operating conditions described or implied in any specifications
in or made a part of this Agreement and will be fit for the particular purpose
of the Company.
Contractor further warrants that it has absolute title to and full right to
dispose of the articles and materials to be furnished hereunder and that there
are no liens, claims or encumbrances of any kind whatsoever against the same.
The warranties herein contained are not to be deemed exclusive, but Company
shall be entitled to all other warranties and remedies provided for and
available to it at law or in equity.
<PAGE> 5
7. FORCE MAJEURE
If either party is prevented in whole or in part from performing its obligations
under this Agreement by unforeseeable causes beyond its reasonable control and
without its fault or negligence, then the party so prevented shall be excused
from whatever performance is affected by such cause, to the extent the
performance is actually affected up to a maximum of 10 days; provided that such
party provides written notice to the other party of such condition within ten
(10) calendar days from the onset of such condition.
8. CHANGES
The Company may, by written change order executed by the Company and by the
Contractor, at any time during the term of this Agreement and without
invalidating the Agreement, make changes within the general scope of the Work to
be performed pursuant to this Agreement, and Contractor agrees to perform such
changed Work. If such change increases or deceases the cost or time for
performing the Work hereunder, an equitable adjustment shall be made in the
payment to the Contractor and/or the time for performance of the Work.
9. SUBCONTRACTS
The Contractor shall not employ any Subcontractor without the prior written
approval of the Company, and the Contractor shall require each such
Subcontractor to execute an Agreement in writing containing provisions similar
to all provisions of this Agreement which are in any way applicable to such
Subcontractor and which will obligate such Subcontractor to comply with and
perform all such provisions. Nothing herein shall be deemed to create a
contractual relationship between any such Subcontractor and the Company.
10. ASSIGNMENT
The Contractor shall not assign this Agreement in whole or in part nor shall the
Contractor assign any moneys due or to become due it hereunder without the prior
consent of the Company. The Company may freely assign this Agreement without the
consent of the Contractor.
11. PROTECTION OF COMPANY'S PROPERTY
Wherever the Work embraced under this Agreement is or shall be near the workings
or operations of the Company, or near the property or operations of others, the
Contractor shall be especially careful to avoid injury to such property whether
of the Company or others, and to persons thereupon or in the vicinity thereof.
Contractor shall accommodate its operations to the reasonable convenience of the
Company and others, and the Contractor's Work must be so conducted as not to
interfere with the operations of the Company or others, and if in such case
interference shall be necessary, the Contractor shall not proceed until it shall
have first obtained specific authority and directions therefor from the Company,
and Contractor shall proceed in accordance with the directions so given and
received.
<PAGE> 6
Contractor shall at its own expense, repair or replace to the satisfaction of
Company any damage to materials, supplies, equipment and other property
necessary for the Work and any damage to property of Company resulting directly
or indirectly from Contractor's operations under this Agreement. Contractor will
reimburse Company for loss of use of Company's property arising out of the
Contractor's performance of the Work under this Agreement, excluding, however,
any loss caused by the sole negligence or willful misconduct of Company.
Company may require the Contractor and any subcontractors of the Contractor to
use a separate or reserved gate in connection with the furnishing of labor or
materials called for under this Agreement, in and at the sole and absolute
discretion of the Company.
12. PATENT INDEMNITY
Contractor shall protect, defend, indemnify, and hold harmless Company and
Company's parent corporation, Company's subsidiary corporations and all other
corporations and entities affiliated with Company either directly or indirectly
and the respective officers, doctors, agents, servants and employees of each of
them from and against any and all suits, actions, legal proceedings, claims,
demands, damage, costly expenses and attorney fees incident to any infringement
or to any claimed infringement of any patent or patents related in any manner to
the subject matter of the Contract Documents, or in any way connected therewith
or with the use thereof by Company; provided, however that Company, at its
option, may be represented in any such suits, actions or legal proceedings by
attorneys of its own selection at its own expense. In case said subject matter
of the Contract Documents or any part thereof is held in such suit to constitute
infringement of any patent or patents and its use enjoined, Contractor shall at
its own expense either procure for Company the right to continue using said
equipment and/or facilities or replace the same with non-infringing equipment
and/or facilities or modify it so it becomes non-infringing.
13. INDEMNIFICATION
Contractor agrees to protect, defend, indemnify and hold harmless Company and
Company's parent corporation, Company's subsidiary corporations and all other
corporations and entities affiliated with Company either directly or indirectly
and the respective officers, directors, agents, servants and employees of each
of them (collectively and individually referred to herein as "Indemnities")
against any and all claims, demands, causes of action, costs, losses or
expenses, including without limitation attorneys' fees and other legal expenses,
or other liabilities for damage to property and injury to, harassment of or
death of any person or persons, including the servants, agents and employees of
Contractor and the servants, agents and employees of all subcontractors of
Contractor, brought by any state, county or other governmental agency, or by any
person or entity against the Indemnities arising out of or in consequence of the
performance of the Work called for by this Agreement or otherwise attributable
to the acts or omissions on the part of the Contractor, any of its
subcontractors, the Company or the servants, agents or employees of any of them
or any other person or organization, including any act or omission involving the
use of any equipment which the Company furnishes or lends to the Contractor or
any subcontractor, whether or not such injury, harassment or death to persons or
damage to property arises or is claimed to have arisen in whole or in part out
of the negligence or any other
<PAGE> 7
grounds of legal liability including any violation of duty imposed by a statute,
ordinance or regulation, on the part of the Contractor, a subcontractor, the
Indemnities, the servants, employees or agents of any of them or any other
person or organization, including but not limited to payments made under
worker's compensation laws, but excluding any liability caused by the sole
negligence or willful misconduct of the Company.
This indemnification agreement by the Contractor in favor of the Indemnities
shall provide the Indemnities with full and complete indemnification including
defense of any suits, actions or other legal proceedings resulting from any
claims for damages to property or harassment, injury or death to persons and
shall apply to all claims, demands, suits, and judgments of whatever nature
which are made or assessed against Indemnities and shall survive the termination
of this Agreement.
14. INSPECTION OF WORK
Company will at any time have access to the Work in preparation or progress, and
Contractor will provide proper facilities for such access and inspection.
15. USE OF COMPLETED PORTIONS
Company may take possession of and use any completed portions of the Work, but
such taking possession or use will not be deemed an acceptance of any Work not
completed in accordance with this Agreement. If such use increases the cost of
or delays the Work, Contractor may request from Company extra compensation or an
extension of time for completion of the Work, or both. Any such extra
compensation or extension of time agreed to by Company shall be evidenced by a
change order executed by Company and Contractor.
16. CLEANUP
During operations, Contractor will keep the site of the Work neat and orderly,
store materials neatly and remove rubbish and debris resulting from its
operations as often as may be required for safety of workers and property and to
prevent delays in Company's operations, but not less often than once each week.
At the completion of the Work, Contractor will remove its equipment, temporary
structures, debris and excess materials not desired by Company from Company's
property and leave the site of the Work in a neat and clean condition.
17. INCORPORATION BY REFERENCE
Any clause required to be included in an Agreement of this type by any
applicable federal, state or local law or administrative rule or regulation
having the effect of law shall be deemed to be incorporated herein.
<PAGE> 8
18. GOVERNING LAW
This Agreement shall be deemed to be made under and shall be governed by the
laws of the State of Utah in all respects, including matters of construction,
validity and performance.
19. NON-WAIVER
Failure by Company to insist upon strict performance of any of the terms and
conditions hereof, or failure or delay by Company to exercise any rights or
remedies provided herein or by law or to properly notify Contractor in the event
of breach, or the acceptance of, or payment for any goods and services hereunder
by Company or review of design, shall not release Contractor from any of the
warranties or obligations arising under this Agreement and shall not be deemed a
waiver of any rights of Company to insist upon strict performance thereof or any
of its rights or remedies or as to any prior to subsequent default hereunder,
nor shall any termination of this Agreement by Company operate as a waiver of
any of the terms hereof.
20. CORRECTION OF DEFECTIVE WORK
At any time during construction, should Company's inspection disclose any
installed material or workmanship of lesser quality than that specified in the
Contract Documents, Contractor shall, upon receipt of Company's notice, remove
the unacceptable Work and replace it, using new materials of acceptable quality,
all without additional cost to Company. Company shall have the option to
withhold all or any part of the payment due Contractor until such replacement
Work has been completed. This Article is complementary to, and is to be taken in
conjunction with Section 6 entitled, "WARRANTY" and shall not be construed as
limiting Company's rights or remedies as provided herein.
Re-examination of questioned Work may be ordered by Company and, if so ordered,
the Work shall be disclosed by Contractor, if necessary. If disclosed Work is
found to be in accordance with the Contract Documents and design, Company will
pay the cost of disclosing and covering such Work. If the disclosed Work is
found not to be in accordance with the Contract Documents and design, Contractor
shall pay all costs of disclosing and covering such Work in addition to the
costs of correcting the unsatisfactory Work disclosed.
21. COMPANY'S RIGHT TO TERMINATE AGREEMENT
If any proceeding is instituted by or against Contractor seeking to adjudicate
it as bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, or relief from or composition of its debts
under any law relating to bankruptcy, insolvency, reorganization, debt relief or
the appointment of a receiver, trustee or other similar official for it or any
substantial part of its property or if Contractor shall admit its inability or
fails to pay its debts generally or shall make a general assignment for the
benefits of its creditors, or if the Contractor at any time should fail, refuse
or neglect to supply sufficient properly skilled personnel, or if Contractor
should fail to make prompt payments to subcontractors, or disregard applicable
laws or ordinances or the inspections of the Company, or should Contractor
otherwise
<PAGE> 9
violate any provision of this Agreement and fail to correct such violation
promptly after service of written notice thereof by the Company, then the
Company may, without prejudice to any of its other rights or remedies, terminate
the employment of the Contractor, take possession of materials, calculations,
data, etc. and finish the Work by whatever method the Company may deem
expedient.
22. COMPANY'S RIGHT TO TERMINATE AGREEMENT WITHOUT CAUSE
The Company may at any time terminate Contractor's services under this Agreement
for any reason whatsoever by giving Contractor not less than five (5) days'
written notice of termination setting forth the effective date of termination.
In the event of such termination, Company shall pay to Contractor (a) its
reimbursable costs for services performed prior to the effective date of such
termination, less payments previously paid by Company on account thereof, (b)
all other reimbursable costs and expenses which Contractor may incur as a result
of such termination and such other costs and expenses as may be approved by the
Company. Payment to be made by Company to Contractor as a result of termination
of this Agreement without cause shall be due and payable within thirty (30) days
after Company's receipt of Contractor's invoices therefor, less any funds
advanced to the Contractor by Company for such purposes. Except as may be
otherwise expressly provided herein, Contractor shall not be entitled to demand
any damages, compensation or indemnity of any kind as a consequence of such
termination.
23. ACCIDENT PREVENTION
Contractor will comply, and will enforce compliance by all subcontractors, with
the highest standards of safety and accident prevention found in any of the
following: (a) applicable laws, ordinances, building and construction codes,
orders, rules, and regulations; (b) the latest edition of the "Mammal of
Accident Prevention in Construction", as public by the Associated General
Contractors of America, Inc.; (c) the latest edition of the "Accident Prevention
Manual for Industrial Operations" as published by the National Safety Council,
Inc.
Contractor shall submit a written Contract-specific Safety, Health and
Environmental Action Plan prior to mobilization, complying with Company's
overall project safety and health program, with details commensurate with the
Work to be performed, for Company's review. Such renew and approval shall not
relieve Contractor of its responsibility for safety, nor shall such approval be
construed as limiting in any manner Contractor's obligation to undertake any
action which may be necessary or required to establish and maintain safe working
conditions at the Work site.
Unless otherwise approved by Company, Contractor shall appoint a qualified
safety representative who may have other duties. Such safety representative
shall attend all project safety meetings and participate fully in all activities
outlined in the project safety program.
Contractor shall maintain accurate accident and injury reports in accordance
with Company's procedures and shall otherwise comply with all applicable safety
requirements. Contractor shall furnish Company a monthly summary of injuries and
man hours lost due to injuries.
<PAGE> 10
Contractor shall hold weekly scheduled meetings to instruct its personnel on
safety practices and the requirements of the project safety program. Should
Contractor be cited for any violation of its safety related obligations,
Contractor shall discharge any responsibility in connection with such violation
at its own expense.
24. VEHICULAR REQUIREMENTS
The following traffic regulations must be obeyed by Contractor:
(a) All vehicles must come to a complete stop at all gates, building
entrances, stop signs, and posted railroad crossings.
(b) All vehicular equipment operating on Company's plant roadways must be
operated within posted speed limits, and seat belts must be worn at all
times while on site.
(c) When necessary for trucks to stop on tracks for loading and unloading,
the tracks must be properly flagged.
(d) Vehicles must have their lights turned on and horns sounded when
entering buildings. When the driver's vision is obscured, an observer
must be assigned to the vehicle to keep all personnel in the clear.
(e) Parking areas shall be designated by the Company.
25. SAFETY
To begin Work on the Company's property under this Agreement, the "Lost Time
Accident Rate" (LTA) for the Contractor and each subcontractor at any tier must
be at least fifteen percent (15%) below the national average as found in the
Department of Labor Occupational Injury and Illness Incidence Rates Schedule.
The Company shall not be responsible for any charges, contract price
adjustments, or liabilities for failure of any subcontractor at any tier to meet
this standard.
During and throughout the term of this Agreement, the Contractor and each
subcontractor at any tier must be at least fifteen percent (15%) below the LTA
of any new rate schedules on the incidents of injury and illness that the
Department of Labor publishes. If the Contractor or any subcontractor at any
tier fails to meet this new standard as reported by the Department of Labor,
they may, at Company's option be removed from Work on Company's property under
this Agreement, and the Company shall not be responsible for any charges,
contract price adjustments, or liabilities for such removal.
Company reserves the right to consider any relevant criteria on the Contractor
or any of the subcontractors on any tier, such as MSHA/OSHA citation history,
accident severity, etc., reflecting on the risk of injury or illness to
Company's property or employees.
<PAGE> 11
Company may, at its option, refuse or have removed any subcontractor at any tier
which, in the opinion of Company, poses an unacceptable risk of injury or
illness to Company's property or employees, and Company shall not be responsible
for any charges, contract price adjustments, or liabilities for such refusal or
removal.
To protect persons from injury and to avoid property damage, adequate
barricades, construction signs, flashers, or guards shall be placed and
maintained by Contractor during the progress of the Work, including after
regular working hours and on weekends. In addition, when required, watchmen or
flagmen shall be posted by Contractor to prevent accidents.
Adequate guards will be installed on exposed moving parts of power tools and
equipment. Contractor must comply and require all subcontractors to comply with
the applicable statutes, rules, regulations, or orders in effect in the State of
Utah.
Contractor's personnel are not to work from scaffolding until it is ready for
use and has been inspected by Company. Contractor shall be liable for the
careful, proper, safe erection and maintenance of scaffolding. Inspection by
Company will neither impute responsibility on Company nor relieve Contractor
from liability for the careful, proper, and safe erection and maintenance of the
scaffolding.
Contractor shall furnish respirators for its employees to be available when
required. Such respirators must meet with the approval of Company.
Contractor acknowledges and agrees that it has assumed the sole obligation and
duty to provide a safe place to work for its employees and its subcontractor's
employees in the work area on Company's premises, and agrees that Company has no
responsibility therefor, and that any claim for damages by employees of
Contractor or its subcontractors against Company alleging that Company failed to
furnish a safe place to work, shall not be construed as relieving Contractor of
its indemnity obligations to Company under this Agreement.
26. CONTRACTOR SUBSTANCE ABUSE PROGRAM
Contractor for and on behalf of itself and its subcontractors at all tiers shall
conduct, in accordance with the Utah Drug and Alcohol Testing Act, a urine
substance abuse Screening Test utilizing a National Institute of Drug Abuse
("NIDA") approved laboratory and NIDA approved methodology (immunoassay screens
with gas chromatographic mass spectrometry confirmatory testing) for each agent
or employee, or proposed agent or employee of Contractor and its subcontractors
within twelve (12) months prior to the commencement of Work by such individual
on any Company project or property, and Contractor and its subcontractors will
not hire, employ, or utilize for Work on any Company project or property any
individual who tests positive under a Screening Test or who unreasonably refuses
to undergo a Screening Test. Screening Tests shall conform to Company's
standards of detection as set out below. In the event Contractor and its
subcontractors have an existing substance abuse program with detection limits
lower or equivalent to those set out below, then such limits shall be acceptable
to Company.
<PAGE> 12
<TABLE>
<CAPTION>
Initial Levels Confirmatory Test
Substance (ng/ml) Levels(ng/ml)
----------------- --------------------
<S> <C> <C>
Marijuana Metabolites 50 15
Cocaine Metabolites 300 150
Opiate Metabolites 300 300
Phencyclidine 25 25
Amphetamines 1,000 500
Barbiturate Metabolites 300 300
Benzodiazepine Metabolites 300 300
Propoxyphene 300 Qualitative
Methadone 300 Qualitative
</TABLE>
The standard of detection listed above shall be subject to change by Company, as
technical advancement or other considerations warrant, upon reasonable written
notice to Contractor, who shall promptly informs its subcontractors of such
changes. Blood alcohol testing is not required as part of the Screening Test;
however, no employee or agent of Contractor and its subcontractors shall work on
Company's project or property if the individual has, or has to Contractor's
knowledge or to its subcontractors' knowledge, been identified to have had a
positive "under the influence," blood alcohol test or a positive Screening Test
or comparable test at any time within a period of twelve (12) months immediately
prior to commencement of Work by such person on Company's project or property.
In this respect, a blood value equal to or greater than 0.04% is defined as
"under the influence," and is considered to be a positive blood alcohol test.
Before allowing any person to commence work on Company's project or property,
Contractor and its subcontractors will supply in a timely fashion to Company, a
list of the names of each person whose Screening Test has proven negative,
together with the date such test was administered. Such list shall be prepared
on the Contractor's and its subcontractors' letterhead paper, and the details
thereon shall be verified and attested to by the signature of a duly authorized
officer of Contractor or subcontractor.
CONTRACTOR AND ITS SUBCONTRACTORS WILL NOT SUPPLY TO COMPANY A LIST OF THE NAMES
OF INDIVIDUALS WHOSE SUBSTANCE ABUSE SCREENING TESTING OR BLOOD ALCOHOL TESTING
HAS PROVEN POSITIVE. NOR WILL THEY, IN ANY WAY COMMUNICATE OR ATTEMPT TO
COMMUNICATE ANY DETAIL OF SUCH INDIVIDUAL TO COMPANY.
Contractor shall ensure, by exercising all reasonable means, that its agents and
employees and those of its subcontractors are neither under the influence of,
nor do they use, possess, consume, transfer, manufacturer, or sell or attempt to
sell any form of alcohol, intoxicant, narcotic, depressant, stimulant,
hallucinogen, or illegal drug or mind-or-perception-altering substance except
the taking of those prescribed drugs under the direction of a licensed,
qualified physician while engaged on Company's project or property, or while
performing Work or engaged in activities under. this Agreement. In the event
that prescription or over-the-counter medication could have an effect upon an
individual's ability to perform Work on Company's project or property,
Contractor shall satisfy Company that it has taken appropriate and adequate
measures
<PAGE> 13
to assure that such medication will not impair the individual's work performance
or create a risk to the individual or to others engaged on Company's project or
present on Company's property, or create a risk of damage to or impairment of
property and the environment.
In the event that Contractor and its subcontractors in any way breach the
provisions of this Agreement, Company may, at its sole option, either require
Contractor and its subcontractors to remedy such breach to its satisfaction, or
Company may terminate this Agreement with immediate effect, and Contractor for
itself and on behalf of its subcontractors hereby agrees that no claim
whatsoever shall be brought or maintained against Company in respect of such
termination, and further, Contractor shall hold Company indemnified against all
costs, claims, and expenses, howsoever and wheresoever arising and brought by a
subcontractor, agent, employee, or any third party in respect of or associated
with such termination.
27. PROTECTIVE EQUIPMENT
Hard hats, meeting ANSI Z.89 standards, safety glasses, meeting ANSI Z.87
standards, and steel-toed leather work boots, meeting ANSI Z.41 standards, (6"
high minimum) shall be provided by Contractor and shall be worn at all times by
Contractor's personnel, its subcontractors' personnel, and any other person
entering Company's property on behalf of Contractor. Other protective equipment
shall be utilized as specified in applicable federal, state and local statues,
rules, or orders, or as specified by Company.
28. FIRST AID, HOSPITAL, MEDICAL
Contractor shall provide and maintain adequate first aid facilities at the
jobsite and arrange for emergency treatment of injuries by doctors in private
practice. Company will not assume any responsibility, financial or otherwise,
for any hospital, medical or surgical care or treatment which Contractor, or any
of its subcontractors, or their agents or employees may require during the
course of the Work or at any time thereafter. In the event of the use of any of
Company's first aid, hospital, or medical facilities or medical personnel by
Contractor, or any of its subcontractors, or their agents or employees,
Contractor will pay the reasonable value of any such use or services, and agrees
to indemnify and hold Company harmless from any damage, claim, expense, or
liability which may arise out of or be incidental to such use of facilities or
services.
29. INDEPENDENT CONTRACTOR
It is understood and agreed that in the performance of the Work herein
specified, the Contractor is an independent contractor, responsible to the
Company only as to the results to be obtained in the Work herein specified, and
to the extent that the Work shall be done in accordance with the terms, plans
and specifications furnished by the Company.
During the term of this Agreement, Company shall have prerogative to request
changes in personnel of Contractor's employees assigned to the Work when in the
opinion of the Company their work is not conducive to the required scope of the
Work.
<PAGE> 14
30. COMPLIANCE WITH LAWS, ORDINANCES, PERMITS, LICENSES AND TAXES
Contractor will comply with all present and future laws, orders, rules,
regulations and requirements of every duly constituted government authority,
agency or instrumentality, which may be applicable in respect of this Agreement
or its subject matter, including but not limited to, the Fair Labor Standards
Act of 1938, as amended. Contractor shall, to the extent Contractor shall have
actual or constructive notice thereof, comply with such requirements of Company
in respect of equal employment opportunity and any other matter as Company shall
from time to time be required by any such governmental authority, agency or
instrumentality, whether by contact or otherwise, to cause Contractor to comply
with, including but not limited to, the requirements of Section 202 of Executive
Order No. 11246, entitled "Equal Employment Opportunity," all of the provisions
of which shall be deemed to be incorporated herein, and Contractor shall
promptly furnish to the Company such certification in respect of any and all of
the foregoing as Company shall reasonably request from time to time by written
notice to Contractor.
Contractor will manage any hazardous waste it generates in compliance with all
applicable federal, state and local statutes, ordinances, orders, rules and
regulations.
Contractor will obtain and pay for required permits and licenses, including
without limitation building permits, make all contributions in respect of
employment and pay any taxes imposed including, if not otherwise stipulated
herein, sales and use taxes which pertain to the performance of the Work under
this Agreement. No tax imposed upon the sale, transfer of possession, use or
consumption of the articles or materials purchased hereunder, or services
rendered in connection therewith, shall be charged or collected by the
Contractor without the prior express consent of the Company. The Contractor
shall separately state on its invoices to the Company any charges for freight,
installation or repair service, sales and use taxes, or Federal Manufacturers
Excise Tax and any credits for purchase discounts and exchange allowances.
Contractor will be responsible for and shall indemnify and save Company harmless
from and against all damage and liability which may arise out of the failure of
Contractor to obtain and pay for such licenses and permits or to comply fully
with any and all applicable laws, ordinances and regulations.
All articles and materials furnished hereunder and the use of such articles and
materials by Company and its agents and other employees shall comply with all
provisions of the Utah Occupational Safety and Health Act of 1973, and the Mine
Safety and Health Amendments Act of 1977. In addition, Contractor shall advise
Company of any hazardous or toxic substance which is present in or may be
encountered by Company and its agents and employees in using or possessing the
articles or materials furnished by Contractor hereunder, and Contractor shall
remediate, cure or correct the hazard or toxicity thereof.
The Contractor agrees to comply fully with all Worker's Compensation, all other
applicable State and Federal laws and regulations, and municipal ordinances. The
Contractor further agrees to
<PAGE> 15
comply fully with the Occupational Safety and Health Act of 1970, all
regulations issued thereunder, and all state laws and regulations enacted and
adopted pursuant thereto.
The Contractor agrees to pay all State and Federal Social Security, unemployment
insurance and other taxes, assessments or contributions due and payable to the
State and/or the United States in connection with the Work to be performed under
this Agreement, and the Contractor shall hold the Company harmless from any and
all liability on account of any such taxes or assessments.
31 INSURANCE
Prior to commencement of any of the Work, Contractor shall, at its sole cost and
expense, obtain and keep in force during the term of this Agreement and during
the warranty period under this Agreement, the following insurance coverages
containing the special provisions or clauses as hereinafter specified.
Worker's Compensation and Occupation Disease Insurance covering all employees of
Contractor in compliance with the laws of the applicable state and federal
jurisdictions where the Work is performed. Such insurance shall cover claims
filed under the worker's compensation laws of the state in which the Work is to
be performed and/or under any law of any state under which liability or any
compensation claims may arise. The policy will contain coverage extensions as
follows:
(a) Employers Liability coverage with limits of not less than $1,000,000
per occurrence, which includes coverage of claims based on statutory and common
law filed by Contractor's employees, including claims for traumatic injuries and
occupational disease and death.
(b) "Borrowed Servant" endorsement providing that a Worker's
Compensation claim brought against Company by a Contractor's employee will be
treated as a claim against the Contractor.
Comprehensive General Liability Insurance, including contractual liability
covering the indemnity obligations assumed by Contractor in this Agreement, with
combined single limits of $2,000,000 per occurrence for injuries to or death of
persons or damage to property.
Comprehensive Automobile Liability Insurance for liability arising out of all
owned, non-owned, and hired vehicles with combined single limits of $1,000,000
per occurrence for injuries to or death of persons and damage to property.
Excess liability coverage with limits of $1,000,000 per occurrence in excess of
all liability insuring coverages specified herein.
All insurance policies carried by Contractor pursuant to this Agreement and any
policies of insurance carried by Contractor covering its owned or leased
property, tools and equipment shall
<PAGE> 16
contain endorsements waiving the insurer's rights of subrogation against
Company, its subsidiaries, agents, affiliated companies, and their employees,
officers and directors.
All liability insurance policies carried by Contractor as specified in this
section shall contain an endorsement naming Company as an additional insured
thereunder in connection with liability arising out of Work performed by
Contractor or any of its subcontractors pursuant to this Agreement and providing
that such insurance is primary to any similar insurance carried by Company.
Contractor shall be responsible for compliance by all subcontractors with the
foregoing insurance requirements and shall furnish certificates as required
herein evidencing the required insurance for the subcontractors.
Prior to the commencement of any Work under this Agreement, Contractor and all
of its subcontractors shall provide Company with Certificates of Insurance
evidencing that Contractor and its subcontractors are in compliance with all of
the above requirements. Said Certificate will provide that Company will be given
thirty (30) days prior notice of cancellation or material alteration of any of
the insurance policies specified in the Certificate. Upon request, Contractor
shall permit Company to examine any of the insurance policies specified herein.
Contractor shall not commence Work at the site until a certificate in evidence
of insurance coverage has been delivered to and approved by Company, nor shall
Contractor allow any subcontractors to commence activities at the site until
similar evidence for each subcontractor has been delivered to and approved by
Company.
Certificates shall be made out to:
Kennecott Utah Copper Corporation
c/o Engineering Services
ATTN: Contracts Manager
P. O. Box 569
Magna, Utah 84044
Certificates shall be furnished to Company promptly and must reflect both the
endorsement provisions requiring thirty (30) days prior written notice to be
given before cancellation or material change, and the additional interest where
applicable. Each certificate shall specify the types and limits of coverage of
such policy and the date when such benefits and insurance expire. Contractor
agrees that such benefits and insurance, as specified above, shall be provided
and maintained until the entire Work under this Agreement has been completed and
accepted by Company and until the applicable warranty period for the Work has
expired. An original copy of each certificate shall be mailed or delivered to:
Kennecott Utah Copper Corporation
c/o Engineering Services
ATTN: Contracts Manager
<PAGE> 17
P. O. Box 569
Magna, Utah 84044
It shall be a condition of approval that the required insurance must be arranged
with insurance companies authorized to do business in the State of Utah.
Company's approval or failure to disapprove insurance certificates furnished by
Contractor or subcontractors shall not release Contractor or the subcontractor
from full responsibility for liability, damage, and accidents as set forth
herein. If at any time the required insurance policies should be canceled,
terminated, or modified so that the insurance is not in full force and effect as
required herein, Company may terminate this Agreement for default or obtain
insurance coverage equal to that required herein and recover costs therefor from
Contractor.
Contractor and its subcontractor shall, as they deem necessary, carry fire,
theft, physical damage, or other insurance on their own and their employees'
tools, equipment, reusable materials (such as metal forms and metal
scaffolding), trailers, sheds and clothing. Company and all its subsidiary,
associated, and affiliated companies and their officers, directors, agents and
employees shall be released and held harmless by Contractor and subcontractors
for all loss or damage to Contractor's or any subcontractor's sheds, tools,
equipment, and/or materials, or to any property of their employees.
Exhibit C, which is incorporated herein, is a "Certificate of Insurance" sample
form. Contractor shall, at all times during this Agreement, maintain insurance
as prescribed in Exhibit C.
32. AUDIT
Company shall have the right, to be exercised in writing not later than six (6)
months after receipt of final invoicing from Contractor, to have its auditors
review such records of Contractor as may be necessary to substantiate
calculations and figures utilized by Contractor in determining billing
procedures and amount.
33. WAIVER OF LIENS
Contractor for itself and for its subcontractors and for its and their
materialmen and employees and for all other persons performing any labor or
furnishing any labor or materials for any of the Work covered by this Agreement
hereby waives to the full extent permitted by law, all mechanics' and other
liens, or payment bond claims for or on account of the Work done or materials
furnished hereunder so that the improvements of structures wherein the same may
be incorporated and the land to which they are appurtenant shall at all times be
free and clear of all such liens and claims.
If such liens or claims are placed on Company's property by any person
performing any labor or furnishing any labor or materials for any of the Work
covered by this Agreement, Contractor will, upon the request of the Company,
have such liens or claims removed at Contractor's expense, and Contractor shall
indemnify Company from any liabilities associated with such lien.
<PAGE> 18
Contractor agrees that it shall include in every subcontract related to the Work
a provision under which the subcontractor waives any mechanics', other liens, or
payment bond claims it may have under law.
34. ENTIRE AGREEMENT AND AMENDMENTS
This Agreement (including Exhibits A, B. C, D, and E) and the Contact Documents
contains the entire agreement between the parties covering the subject matter
hereof. No subsequent modification or amendments shall be valid unless in
writing and signed by both parties.
35. SEVERABILLTY
If any portion of this Agreement is found to be invalid or unenforceable, the
validity of the remaining provisions of this Agreement shall not be affected.
36. COMMENCEMENT, PROSECUTION AND COMPLETION OF THE WORK
Time is of the essence with respect to this Agreement. The dates listed on Work
Orders are critical to the project schedule and are contractual obligations of
Contractor. Contractor shall furnish sufficient forces, facilities and equipment
and shall work such hours, including extra days and shifts to achieve the
schedule on each Work Order.
37. DISPUTES
In the event of a dispute between the Company and the Contractor regarding the
interpretation or enforcement of this Agreement or the performance by either
party of its obligations hereunder, the Company and the Contractor shall
endeavor in good faith to resolve the dispute by negotiation. If the parties are
unable to resolve any such dispute to their mutual satisfaction through
negotiation, then the dispute shall be resolved, at the sole option of the
Company, either (a) by means of binding arbitration conducted in a city to be
designated by Company in accordance with the rules and regulations of the
American Arbitration Association, or (b) by means of litigation which shall be
commenced in a court of competent jurisdiction. Each party agrees to submit to
the jurisdiction of the Utah State courts and to the jurisdiction of the United
States District Court for the District of Utah in connection with any litigation
arising out of or related to this Agreement. Following written notice from
either party hereto to the other party hereto that the negotiation of any such
dispute has been unsuccessful, the Company shall advise the Contractor in
writing of the Company's election either to resolve the dispute by arbitration
or litigation.
In the event of a dispute between the Company and Contractor regarding the
interpretation or enforcement of this Agreement or the performance by either
party of its obligations hereunder, which results in either arbitration or
litigation as provided above, the prevailing party shall be entitled to recover
from the nonprevailing party all costs and expenses, including, without
limitation, court costs, costs of arbitration, and attorneys' fees, incurred by
the prevailing party
<PAGE> 19
in enforcing its rights under this Agreement, in addition to any other remedies
available to such prevailing party at law or in equity.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
KENNECOTT UTAH COPPER CORPORATION
(Owner)
Witness for Owner By _____________________________________
Its ______________________________
________________________ Date ______________________________
W. W. CLYDE & COMPANY
(Contractor)
Witness for Owner By _____________________________________
Its ______________________________
________________________ Date ______________________________
<PAGE> 20
EXHIBIT A
SCOPE OF WORK
CONTRACT NO. ES-01
ENGINEERING CIVIL SERVICES
1.1 SCOPE OF WORK AND DRAWINGS
The work includes furnishing all labor, supervision, tools,
equipment, technical and professional services, materials (unless
specifically listed as furnished by Owner), supplies, and
articles, and the performance of all operations and incidentals
necessary to complete the scope of work in the time frames
allowed in accordance with these contract documents including
technical specification and drawings.
1.1.1 WORK INCLUDED:
1.1.1.1 Delivery to the jobsite of equipment, tools and materials,
erection of temporary work facilities, if required, and
establishment of a work force sufficient to commence and sustain
activity by the Company.
1.1.1.2 Contractor shall furnish all temporary utilities required for the
duration of this contract, except those utilities specifically
listed as furnished by the Company.
1.1.1.3 Contractor shall perform all the work in strict compliance with
all federal, state, and local rules and regulations covering the
activities described in this Contract Documents, providing the
level of protection required to assure the health and safety of
all individuals exposed to the work and to prevent any impairment
whatsoever to the environment.
1.1.1.4 Contractor shall notify Company's Representative of any
discrepancies, omissions or conflicts between the various
elements of the directions, drawings and/or specifications before
proceeding with any work involved. In all cases, unless otherwise
directed, the most stringent requirements shall govern and be
performed.
1.1.1.5 Contractor shall verify all conditions, dimensions, etc., at the
site and shall coordinate work performed with all other trades.
1.1.1.6 The Company will attempt to schedule work in advance as much as
possible.
<PAGE> 21
1.1.1.7 Upon completion of each segment of work, Contractor shall clean
the site of his debris and store materials, supplies, tools, etc.
safely in an area and facility approved by the Company.
1.1.1.8 Company will approve in advance any and all material and
equipment to be used on the job.
1.1.1.9 All work shall be performed by employees who are skilled in the
use and application of the specific materials.
1.1.1.10 Upon completion of the Contract, the removal from the jobsite and
property of all equipment, the dismantling or demobilization and
removal of any field office, or shop and cleanup of all project
areas as directed by the Company.
1.2 WORK ORDER PROCEDURE FOR ES SITE SERVICES
1.2.1 OVERVIEW
This system has been established to provide a control system for
cost evaluation, estimating, monitoring, control and tracking of
cost reimbursable work performed by a contractor who has provided
competitive rates for those services, and has been issued general
site service contact. The contract number is as follows:
ES 01 ENGINEERING CIVIL SERVICES
Examples of the type of work performed includes, but not limited
to:
Excavation
Cut to Fill
Grading
Road Work
Concrete Work
1.2.2 REQUESTING WORK
In general, this work is intended to be limited to those jobs
that are difficult to measure quantities, that have special
quality results or special safety concerns or verified timing
requirements that can't be met by other techniques, and finally
those jobs that can be performed more cost effectively.
1.2.3 REQUISITIONER
Requisitioner determines the material, labor and equipment
required for the job, then contracts the contractor to determine
the availability. Requisitioner also
<PAGE> 22
discusses with the contractor the possibility of doing the work
by an alternative pay method, i.e: Lump Sum or Unit Rate.
After accomplishing this, the Requisitioner fills out the Input
Sheet form and attaches any contractor written quotes if
applicable. The input sheet will include the following:
- Detailed Scope of Work
- List specific equipment involved
- List equipment required and hours
- Area of Work, access, safety, quality and timing
requirements for job
- Estimated quantity of material
- Tentative schedule for work to be performed
Fill in the estimate in the appropriate area for material and
equipment.
At the bottom of the form, provide the information requested
concerning Area for use, Required for use and Scope of Work.
- Deliver completed Requisition to Contract/Costs
Representative (T.L. Towns)
- WORK CANNOT START UNTIL THE REQUISITION IS APPROVED
1.2.4 COSTING (COMPLETED BY CONTRACTS/COSTS REPRESENTATIVE)
- Run a work release cost tabulation sheet.
- Deliver to Contracts Manager (W. H. Ungerer) who will
deliver it to the Superintendent/Director
- Director, Engineering Services (H. B. Van Dyken) and/or
Superintendent (R. C. Burton or R Burris) for final
approval.
1.2.5 APPROVAL
- Approved Work Release, with details forwarded to Cost
Engineering for cost coding and on the Contracts Manager for
Work Order number assignment and award of work to
contractor.
- Contractor notification and scheduling details handled by
Construction Coordinator/Originator.
- File goes to Contract Manager for filing
- Contract Manager copies completed work order to Contractor,
Originator, Costs and Accounting.
1.2.6 MANAGING THE JOB
<PAGE> 23
1.2.6.1 CONSTRUCTION COORDINATOR (REQUISITION ORIGINATOR) IS FULLY
RESPONSIBLE FOR MANAGING THE COSTS AND QUALITY OF THE JOB. One of
the principal reasons that the work is performed this way is that
the coordinator can employ his skills to save money using T & M
over what the Contractor would charge using fixed unit rates. The
Coordinator should regularly gather the necessary information to
determine what his unit costs are.
1.2.6.2 DAILY TIME SHEET APPROVAL
- Contractor will generate a daily time sheet for each Work
Order worked on each day.
- Changes in equipment utilization shall be approved by the
coordinator prior to incurring any cost. If changes are
required and approved, the Contractor should so note in his
daily field report.
- Coordinator will be given the time sheet by the Contractor
for approval.
- After reviewing and determining all information on the time
sheet is correct, Coordinator will sign the time sheet and
return to the Contractor. If the time sheet is not
completely correct, the Coordinator will return it unsigned
to the Contractor for correction.
- Contractor will deliver original of time sheets to Contracts
Manager, copy to originator and retain a copy for their
files. Contractor will also complete a "Daily Field Report"
each day for each job.
1.2.6.3 COST RECORDS MANAGEMENT
- Coordinator maintains a file of his copies of the time
sheets for each of his Work Order's. This file will be used
for reference and control.
- Contracts Manager maintains a file of the original time
sheets. Contractor will maintain the following:
- A list of charges by day for each Work Order.
- Total costs to date on each Work Order.
1.2.6.4 COST CONTROL
- COORDINATOR IS FULLY RESPONSIBLE FOR COST CONTROL.
CONTRACTOR IS RESPONSIBLE FOR RECORD KEEPING AND NOT COST
CONTROL.
- Coordinator contacts Contractor at any time for status of
Costs-To-Date.
1.2.6.5 COMPLETING THE JOB
- Coordinator will inform Contractor when job is complete.
Coordinator should write "Job Complete" on the last daily
time sheet and the last daily field report for the Work
Order.
<PAGE> 24
- Upon being informed that the job is complete, Contractor
will prepare an invoice and recap sheet which will be sent
to the Contracts Manager.
- Contracts Manager will attach invoice to original time
sheets and deliver to Contract/Cost Representative.
- If an invoice matches the total of the time sheets, the
invoice will be audited, then approved and processed for
payment. (Any errors will be corrected before payment is
made)
- If invoice differs from original TVO amount by over 10%,
the Coordinator writes Work Order Revision.
- If invoice differs from the total of time sheets, it
will be worked out with Contractor.
- Work Order Revision will be written by Coordinator listing
total material, labor and equipment hours and costs by
classification, total and final cost, and reasons for
overrun/underrun. This revision will be given to Contracts
Manager who will review it, approve invoice for payment, and
deliver package to Director, Engineering Services, for
approval.
- A comparison of actual equipment and man-hour usage against
the original estimate will be done. The Originator will then
have the opportunity to make any comments necessary to
explain the variances. This comparison with comments will
then be filed in the contract files.
1.2.7 MISCELLANEOUS REQUIREMENTS
- NO WORK CAN PROCEED WITHOUT PROPER AUTHORIZATION (except in
situations threatening to life, property, equipment, the
environment, or production loss.)
- CHANGING WORK ORDER NUMBERS ON TIME SHEETS AFTER THE FACT
MERELY FOR COST CONTROL IS NOT ALLOWED.
- Individuals should apply charges to another individuals Work
Order by having the accepting party co-sign the time sheet
indicating his acceptance.
- COST TRACKING IS VERY IMPORTANT. UNRELATED WORK SHOULD NOT
BE ADDED ON TO AN EXISTING WORK ORDER.
- Work Order requests must be submitted well in advance of
anticipated start of work. Allow 2 to 3 working days for
Work Order processing.
<PAGE> 25
- Coordinator (Originator) has complete responsibility for
Work Order cost control.
- Documenting explanations and notes to aid in supporting
recovery from third parties will be written.
<PAGE> 26
EXHIBIT B
COMPENSATION
Compensation will be done in accordance with the procedure outlined in Section
5, COMPENSATION FOR PERFORMANCE OF THE WORK.
Subject to changes, additions, and deletions in accordance with Section 8
entitled, "CHANGES", Owner will pay Contractor for performance of this Contract
as provided herein, in accordance with the Total Price set forth herein below.
Said price, not subject to escalation, include all applicable taxes and
constitute full payment for the work specified. The TOTAL PRICE adjusted for
changes, additions, and deletions made in accordance with this AGREEMENT and the
Section enabled, "CHANGES", shall constitute the TOTAL CONTRACT PRICE.
Contractor shall submit the original of all billings to:
Kennecott Utah Copper Corporation
Engineering Services
ATTN: Accounts Payable
P.O. Box 569
Magna, Utah 84044
The total not-to-exceed value of this agreement is Five Hundred Thousand
Dollars, ($500,000.00), which is non-guaranteed and with the understanding that
the contract can be terminated by the Company at any time with no guaranteed
value to Contractor. Company alone shall determine the quantity of work to be
performed for the duration of the contract.
Contractor will be issued releases against the Total Contract Value in the form
of individual Work Orders. All jobs or projects must be pre-approved in writing
by Owner.
Contractor will maintain accurate records by Work Order to include but not
limited to total labor hours and costs by classification, total equipment hours
and costs by classification, total material costs, and costs to date on a daily
basis and total final costs.
Contractor will invoice by Work Order only after the job or project is
satisfactorily complete as determined by the Company and Contractor has been
given notice to close the Work Order by the Company.
Reimbursement to the Contractor shall be based on the attached Time and Material
(T&M) rates. The rates enclosed herewith shall remain in effect for the duration
of the contract. Company will accept a decrease in rates at any time.
Compensation for work shall be based on the description for the pay items as
listed hereunder. Payments shall only be made for materials satisfactorily
installed.
<PAGE> 27
LABOR
Payment for this item shall be full compensation, on an hourly basis by labor
classification, for base wages, vacation, taxes, insurance, profit, overhead,
trailers and fringe benefits. Straight time shall be defined as up to forty
hours per week. Overtime shall be defined as over forty hours per week and major
holidays. All overtime will be paid at the heretofore stated rates.
Owner cannot guarantee any quantity of work or that a minimum work force will be
kept working on-site or that any minimum hours per week will be provided to
Contractor's employees.
Under no circumstances will Company pay doubletime labor rates unless approved
in advance and in writing by Company.
EQUIPMENT
Payment for this item shall be full compensation, on hourly, daily, weekly or
monthly basis by equipment classification.. The unit rate shall include fuel,
rental, insurance, profit, overhead and maintenance. Contractor will only charge
for actual equipment time used.
MATERIALS
Payment for this item shall be actual invoice, including sales tax, plus Ten
percent (10%) for administrative costs.
OUTSIDE SERVICE
Payment for this item shall be actual invoice, including sales tax, plus Ten
percent (10%) for administrative costs.
THIRD PARTY EQUIPMENT
See attachment from Contractor.
<PAGE> 28
W. W. CLYDE & CO.
General Contractors
P.O. Box 350
Springville, Utah 84663
(801) 489-5616 / Fax 489-7653
July 18, 1997
Mr. Harold Ungerer
Kennecott Utah Copper Corporation
Engineering Services
12000 West 2100 South
P.O. Box 569
Magna, Utah 84044
Ref: Contract ES-01
Engineering Civil Services
Sub: Rental Rates
Dear Harold:
Pursuant to your request, we submit the following:
LABOR AND RATES:
<TABLE>
<CAPTION>
Regular Overtime
----------- -----------
<S> <C> <C>
Foreman $39.50 $54.00
Operator $34.50 $48.30
Teamster $27.60 $38.30
Laborer $23.65 $32.95
Carpenter $32.60 $46.75
Cement Mason $32.60 $46.75
Timekeeper $17.00 N/A
Mechanic $35.75 $50.10
</TABLE>
<TABLE>
<CAPTION>
EQUIPMENT RATES:
Rate per Hour
-------------
<S> <C>
D10N Dozer w/ripper $146.50
D9L Dozer w/ripper $126.00
</TABLE>
<PAGE> 29
<TABLE>
<S> <C>
D9N Dozer w/ripper $126.00
D8L Dozer $97.00
D8N Dozer $97.00
D6H Dozer $57.75
824 Rubber-tired Dozer $70.80
631 Scraper $114.00
633 Elevating Scraper $109.00
988B Loader $92.00
980C Loader $73.00
966 Loader $58.20
950 Loader $46.50
930 Loader $39.75
426 Rubber-tired Backhoe $32.00
EL200 Hydraulic Backhoe $51.90
225 Hydraulic Backhoe $51.50
235 Hydraulic Backhoe $64.00
245 Hydraulic Backhoe $111.00
330 Hydraulic Backhoe $64.00
Vibratory Compactor $45.50
825 Compactor $76.60
Walk Behind Compactor $7.00
773 Rock Trucks $75.60
773B Rock Trucks $124.00
Transport $56.25
Tractor $45.40
Belly Dump $52.00
End Dump $42.80
D3 Dozer $24.25
225 Excavator w/Breaker $95.00
Fuel Truck/Mechanic Truck $34.00
Pickup $9.50
Water Truck $37.80
Water Magnum $66.90
One Ton Flatbed $11.65
16G Motor Grader $82.50
14G Motor Grader $51.40
150 CFM Compressor $7.00
22 Ton Rough Terrain Crane $58.20
Welder Truck $29.10
Screen Plant $45.00
500 KW Generator $40.00
Conveyor Belts $2.00
Stacker Belt $10.00
</TABLE>
<PAGE> 30
All other equipment rates will be assigned at time of request.
Exhibit B - Compensation
Materials 10% (Ten Percent)
Outside Services 10% (Ten Percent)
Third Party Equipment - If Contractor-Owned equipment is not available
and equipment must be rented via outside sources (third-party-owned construction
equipment), then Owner will request Contractor to propose a price for the
equipment. Rental rates for non-owned equipment must be approved in advance by
Owner.
The above rates will remain in effect until July 1, 1998.
If additional information is required, please feel free to contact me at
our Springville office.
Sincerely,
W. W. Clyde & Co.
David R. Hales
Project Manager
<PAGE> 31
EXHIBIT D
KENNECOTT UTAH COPPER CORPORATION
CONTRACTOR SAFETY REQUIREMENTS
A. PRIOR TO JOB START-UP:
1. Certification of hazard communication training.
2. List of employees including age, number of years working
experience, social security number, name and date of drug test.
3. List of materials/equipment brought on site.
4. Copy of specific Safety, Health and Environmental Action Plan.
5. Respirator Protection Plan, if required.
6. All employees working on Kennecott Property must have current
OSHA and MSHA Training.
7. List of products and substances, quantities and types of
containers intended to use on the job. The list will include,
but not be limited to, acids, caustics, petroleum products,
solid and liquid reagents, etc. Additionally, a copy of the
appropriate manufacturers Material Safety Data Sheet (MSDS) will
be provided for each product. The list shall be updated prior to
new products being brought onto Kennecott property.
B. DURING THE JOB:
1. Tool box safety meeting.
2. Copy of employee's first report of injury (by end of shift).
3. Copy of medical reports as received.
4. Property damage reports by end of shift.
5. "Near miss" accident reports by end of shift.
6. Copies of completed burn permits.
7. Copies of completed confined space permits.
8. Copies of completed excavation permits.
9. Copies of completed close proximity permits.
<PAGE> 1
[EXHIBIT 10.13]
AGREEMENT
THIS AGREEMENT is made and entered into this ____ day of September,
1997, by and between W. W. CLYDE & CO., a Utah corporation, hereinafter referred
to as "CLYDE", and SUN RIVER ST. GEORGE DEVELOPMENT, L.C., a Utah limited
liability company, hereinafter referred to as "SRSG":
WHEREAS SRSG is developing a residential project in St. George, Utah
known as the Atkinville Property for which it has obtained preliminary master
plan approval form the City of St. George and CLYDE has agreed to perform the
construction of required public improvements for Plats 1a and 1b of the project
including the access road and required utilities to serve the project;
NOW, THEREFORE, in consideration of the mutual covenants herein, it is
hereby agreed between the parties hereto as follows:
1. SRSG shall proceed to obtain final approval of Plats 1a and 1b
of the project, as shown on the proposed plat attached hereto as Exhibit "a",
and to record such plats as soon as possible.
2. CLYDE agrees to perform the construction and installation of all
of the improvements for Plats 1a and 1b and the access road thereto including
all required utilities, on the terms and conditions and for the prices and on
the time schedule set forth in the Construction Agreement, a copy of which is
attached hereto as Exhibit "B: and hereby incorporated herein as a part of this
agreement. Such work shall be performed in accordance with all requirements,
standards and specifications and subject to the approval of the City of St.
George and any and all other governmental units having jurisdiction over the
project. CLYDE shall diligently commence, pursue and complete such work in order
to meet SRSG's construction and sales requirements.
3. CLYDE agrees to extend credit to SRSG for the work performed
hereunder up to a maximum amount of $2,000,000.00, unless otherwise approved in
writing by CLYDE, but shall submit monthly billings to SRSG by the 15th of each
month for all work performed in the prior month, such billings to be consistent
with the unit prices attached to Exhibit "B", and to show the total amount due
CLYDE for all work performed to the end of the prior month. SRSG agrees to
execute a promissory note to CLYDE for the amount of each monthly billing, plus
interest thereon at the rate of ten (10%) percent per annum from the date each
billing statement is due (the 15th of each month for all work performed in the
prior month) payable as set forth hereinafter. Such monthly promissory notes may
be consolidated into one master promissory note upon the redelivery, marked
"paid in full" of each prior monthly note.
4. In order to secure the amounts due from SRSG to CLYDE, SRSG
shall execute and deliver to CLYDE a first trust deed on the property included
within Plats 1a and 1b described as Parcels 1 and 2 on Exhibit "C" attached
hereto. CLYDE, as the beneficiary of such trust deed, agrees to execute the
subdivision plats to be recorded in order to dedicate all roadways and other
public areas shown on such plats.
5. SRSG shall pay to CLYDE the amounts due under the promissory
note or notes by payment of $23,000.00 from the closing of the sale of each lot
in Plats 1a and 1b upon reconveyance of each such lot from the effect of the
trust deed to CLYDE. Such reconveyances are to be given in the order in which
lots are sold and closed and such lots need not be contiguous to previously sold
lots. In
<PAGE> 2
order to facilitate closings, both parties agree to deliver blanket instructions
to Southern Utah Title Company to pay such amounts directly form the closing of
each lot and to reconvey each lot from the effect of the trust deed as closings
take place so that separate instructions are not required for each closing.
6. In the event the amounts due CLYDE under the promissory note or
notes have not been paid in full prior thereto, SRSG shall pay the remaining
balance due on or before two years from the date hereof.
7. If SRSG desires that CLYDE provide performance bonds covering
the work to be performed hereunder, SRSG shall reimburse CLYDE for the premiums
required to obtain such bonds.
8. Upon the consent of both parties and assuming successful sale of
the lots in Plats 1a and 1b, this agreement may be extended to cover subsequent
plats in the project and both agree to act in good faith to accomplish that
extension. SRSG agrees to use its best efforts to obtain for CLYDE the contract
to perform the improvements for the golf course associated with the project.
9. It is understood that some of the work contemplated by this
agreement is already being performed by Bear River Contractors under preliminary
agreements which are subject to termination. This agreement is subject to the
successful termination of those agreements so as to avoid conflict in the
performance of the work. SRSG agrees to move expeditiously to terminate those
agreements and CLYDE agrees to move expeditiously to commence and complete the
work on the project upon receiving notice from SRSG that the termination has
been accomplished.
10. This agreement is binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns, shall be
interpreted in accordance with the laws of the State of Utah and, in the event
of any default in the performance hereof, the defaulting party shall pay all
costs, including reasonable attorney's fees, incurred in the enforcement hereof
or in pursuing any remedy available under the law.
IN WITNESS WHEREOF, the parties hereto have caused the names of their
duly authorized officers, managers or agents to be signed hereunder.
W. W. CLYDE & CO. SUN RIVER ST. GEORGE, L.C.
a Utah Corporation a Utah limited liability company
Richard C. Clyde, President Darcy A. Stewart, Manager
<PAGE> 1
[EXHIBIT 10.14]
DOCUMENT 00500
AGREEMENT
THIS AGREEMENT is dated as of the 23rd day of July in the Year 1997 by and
between USPCI, a Laidlaw Environmental Services. Inc. Company (hereinafter
called OWNER) and. W.W. Clyde & Co. (hereinafter called CONTRACTOR).
OWNER and CONTRACTOR, in consideration of the mutual covenants hereinafter set
forth, agree as follows:
ARTICLE 1. WORK
CONTRACTOR shall complete all work as specified or indicated in the Contract
Documents. The Work is generally described as follows:
The construction of Industrial Waste Cell 1 Closure, Industrial Waste
Cell 2 Closure, and Landfill Cell Y Closure complete and associated
drainage facilities at the Grassy Mountain Facility near Knolls, Utah,
with the exception of the geosynthetic clay liner, high density
polyethylene (HOPE) liner, drainage net, and filter fabric. The Work
shall also consist of providing all surveying associated with the
construction and grade checking of these cell closures. The geosynthetic
liner, HOPE synthetic liner, drainage net and filter fabric will be
furnished and installed by an independent liner contractor, under a
separate contract with the Owner. The independent liner contractor is to
be:
Polyflex Construction, Inc.
c/o Morris Jett/Kent Jett
2000 West Marshal Drive
Grand Prairie, Texas 75051
(800)527-3322 ext 256 or 393
Fax (214) 988-8331
The above explanation is intended to give a general understanding of the scope
of the work under these specifications, and shall not be construed to be an
itemized listing of each element of work required. The Contractor shall be
responsible for construction of complete facilities conforming in all respects
to the details and requirements of the specifications, drawings, and other
contract documents.
<PAGE> 2
ARTICLE 2. ENGINEER
The Owner shall assume all duties and responsibilities and have the rights and
authority assigned to ENGINEER in the Contract Documents in connection with
completion of the Work in accordance with the Contract Documents.
ARTICLE 3. CONTRACT TIMES, LIQUIDATED DAMAGES, OTHER DAMAGES, AND INCENTIVE
PROGRAM FOR EARLY COMPLETION
3.1 Contract Times. All work under this contract will be completed and
ready for final payment in accordance with paragraph 14.13 of the
General Conditions within 137 calendar days after the date when the
Contract Time commences to run as defined in the Notice to Proceed.
The Contract Time provided above shall also include the time required
for the liner contractor (under separated contract with USPCI) to
install the geosynthetic clay liner, the HDPE synthetic liner, the
drainage net, and the filter fabric. THE TIME REQUIRED BY THE LINER
CONTRACTOR SHALL BE DETERMINED DURING A SCHEDULING MEETING FOR
CONSTRUCTION SEQUENCING WITH THE LINER CONTRACTOR, WHICH WILL TAKE PLACE
WITH THE APPARENT SUCCESSFUL BIDDER AND THE LINER CONTRACTOR PRIOR TO
ISSUANCE OF THE NOTICE OF AWARD. AWARD OF THE CONTRACT WILL BE DEPENDENT
ON THE DEVELOPMENT OF A SCHEDULE (ACCEPTABLE TO THE OWNER) BETWEEN THE
CONTRACTOR AND THE LINER CONTRACTOR. THE TIME DETERMINED FOR THIS
CONSTRUCTION SEQUENCE SHALL BE SUMMARIZED IN SCHEDULE FORMAT AND
PROVIDED TO THE OWNER. DOCUMENTATION SHALL BE PROVIDED WHICH INDICATES
ACCEPTANCE OF THIS SCHEDULE BY BOTH THE CONTRACTOR AND THE LINER
CONTRACTOR. This documentation shall become part of this Agreement. The
time schedule shall include the following:
3.1.1 The time schedule shall indicate start/finish dates,
times and duration allotted for each component of
construction (including geosynthetics installation tasks
performed by the liner contractor) in detail (i.e.,
material shipments complete for each type of material by
liner contractor; anchor trench excavation and backfill
throughout by Contractor; geosynthetic clay liner, HDPE
synthetic liner, drainage net, and filter fabric
installation by liner contractor; followed by imported
soil cover by Contractor; and which 1/2 of each cell
closure is to be finished first, the next 1/2 and so on
from start to finish). Any changes to this schedule
shall be made AT LEAST SEVEN (7) DAYS IN ADVANCE IN
WRITING.
3.2 Liquidated Damages. OWNER and CONTRACTOR recognize that time is of
the essence of this Agreement and that OWNER will suffer damages if the
Work is not completed within the times specified in paragraph 3.1 above,
plus any extensions thereof allowed in accordance with Article 12 of the
General Conditions. They also recognize the delays, expense and
difficulties involved in proving the actual loss suffered by OWNER if
the Work is not completed on time. Accordingly, instead of requiring any
such proof, OWNER AND CONTRACTOR AGREE THAT AS LIQUIDATED DAMAGES FOR
DELAY (BUT NOT AS
2
<PAGE> 3
A PENALTY) CONTRACTOR SHALL PAY OWNER TWO-THOUSAND FIVE HUNDRED DOLLARS
($2.500.00) FOR EACH DAY THAT EXPIRES AFTER THE TIME SPECIFIED IN
PARAGRAPH 3.1 FOR FINAL COMPLETION UNTIL THE WORK IS COMPLETE AND READY
FOR FINAL PAYMENT.
3.3 Other Damages. OWNER and CONTRACTOR recognize that OWNER will suffer
damages, in addition to those covered under liquidated damages, if 1)
actual work hours incurred by CONTRACTOR exceed those defined by
CONTRACTOR in the time scaled precedence diagram provided in
CONTRACTOR'S Bid, wherein CONTRACTOR has defined the number of shifts
per day, work hours per shift, and number of days per week within which
work is to be accomplished; or if 2) CONTRACTOR causes a delay to the
liner contractor, resulting in standby or other charges being assessed
to OWNER by the liner contractor and resulting in additional inspection
costs. ACCORDINGLY, OWNER AND CONTRACTOR AGREE THAT AS DAMAGES FOR
ACTUAL WORK HOURS INCURRED BY CONTRACTOR WHICH EXCEED THOSE DEFINED BY
CONTRACTOR IN THE TIME SCALED PRECEDENCE DIAGRAM PRODDED IN CONTRACTOR'S
BID, CONTRACTOR SHALL PAY OWNER ALL ADDITIONAL INSPECTION COSTS INCURRED
BY OWNER. OWNER AND CONTRACTOR ALSO AGREE THAT AS DAMAGES FOR CAUSING
DELAYS TO THE LINER CONTRACTOR, CONTRACTOR SHALL PAY OWNER THE LINER
CONTRACTOR'S STANDBY CHARGES ($2,500.00 PER DAY) OR THE LINER
CONTRACTOR'S REMOBILIZATION FEES (IF REMOBILIZATION OF THE LINER
CONTRACTOR WOULD BE LESS COSTLY THAN HOLDING THE LINER CONTRACTOR ON
STANDBY), PLUS ALL ADDITIONAL INSPECTION COSTS INCURRED BY OWNER AS A
RESULT OF THE DELAY.
3.4 Incentive Program for Early Contract Completion. OWNER and
CONTRACTOR recognize that time is of the essence of this Agreement and
that OWNER will benefit from early completion of the Work. ACCORDINGLY,
OWNER AND CONTRACTOR AGREE THAT AS INCENTIVE FOR EARLY COMPLETION OF THE
WORK, OWNER SHALL PAY CONTRACTOR TWOTHOUSAND FIVE HUNDRED DOLLARS
($2,500.00) FOR EACH DAY THAT THE WORK IS COMPLETED PRIOR TO THE TIME
SPECIFIED IN PARAGRAPH 3.1 FOR COMPLETION AND READINESS FOR FINAL
PAYMENT, NOT TO EXCEED $50,000 IN TOTAL INCENTIVE BONUS PAID.
ARTICLE 4. CONTRACT PRICE
OWNER shall pay CONTRACTOR for completion of the Work in accordance with the
Contract Documents an amount in current funds pursuant to paragraphs 4.1 and 4.2
below:
4.1 for all Work other than Unit Price Work, a Lump Sum of:
See Bid Schedule attached in Exhibit D.
All specific cash allowances are included in the above price and have
been computed in accordance with paragraph 11.8 of the General
Conditions;
plus
3
<PAGE> 4
4.2 for all Unit Price Work, an amount equal to the sum of the
established unit price for each separately identified item of Unit Price
Work times the actual quantity of that item completed as indicated in
this paragraph 4.2:
See Bid Schedule attached in Exhibit D.
As provided in paragraph 11.9 of the General Conditions estimated quantities are
not guaranteed, and determinations of actual quantities and classification are
to be made by ENGINEER as provided in paragraph 9.10 of the General Conditions.
Unit prices have been computed as provided in paragraph 11.9.2 of the General
Conditions.
ARTICLE 5. PAYMENT PROCEDURES
CONTRACTOR shall submit applications for Payment in accordance with Article 14
of the General Conditions. Applications for Payment will be processed by
ENGINEER as provided in the General Conditions.
5.1 Progress Payments; Retainage. OWNER shall make progress payments on
account of the Contract Price on the basis of CONTRACTOR's proper
Applications for Payment as recommended by ENGINEER during construction
as provided in paragraphs 5.1.1 and 5.1.2 below. All such payments will
be measured by the schedule of values established in paragraph 2.9 of
the General Conditions (and in the case of Unit Price Work based on the
number of units completed) or, in the event there is no schedule of
values, as provided in the General Requirements.
5.1.1 Prior to Substantial Completion, progress payments will be
made in an amount equal to the percentage indicated below, but in
each case, less the aggregate of payments previously made and
less such amounts as ENGINEER shall determine, or OWNER may
withhold, in accordance with paragraph 14.7 of the General
Conditions.
90% of the Work completed (with the balance being
retainage).
90% (with the balance being retainage) of materials and
equipment not incorporated in the Work (but delivered,
suitably stored and accompanied by documentation
satisfactory to OWNER as provided in paragraph 14.2 of the
General Conditions).
5.1.2 Upon Substantial Completion, in an amount sufficient to
increase total payments to CONTRACTOR to 90% of the Contract
Price (with the balance being retainage), less such amounts as
ENGINEER shall determine, or OWNER may withhold, in accordance
with paragraph 14.7 of the General Conditions and less previously
paid amount.
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<PAGE> 5
5.2 Final Payment. Upon final completion and acceptance of the Work in
accordance with paragraph 14.13 of the General Conditions, OWNER shall
pay the remainder of the Contract Price as recommended by ENGINEER as
provided in said paragraph 14.13.
ARTICLE 6. INTEREST
All moneys due and unpaid over 21 days after the date as provided in Article 14
of the General Conditions shall bear interest at six percent (6%) per annum or
part thereof until full payment shall have been made.
ARTICLE 7. CONTRACTOR'S REPRESENTATIONS
In order to induce OWNER to enter into this Agreement CONTRACTOR makes the
following representations:
7.1 CONTRACTOR has examined and carefully studied the Contract Documents
(including the Addenda listed in paragraph 8) and the other related data
identified in the Bidding Documents including Technical datable.
7.2 CONTRACTOR has visited the site and become familiar with and is
satisfied as to the general, local and site conditions that may affect
cost, progress, performance or furnishing of the Work.
7.3 CONTRACTOR is familiar with and is satisfied as to all federal,
state and local Laws and Regulations, including those of the U.S.
Environmental Protection Agency and/or applicable state environmental
regulations, that may affect cost, progress, performance or furnishing
of the Work.
7.4 CONTRACTOR has carefully studied all reports of exploration and
tests of subsurface conditions at or contiguous to the site and all
drawings of physical conditions in or relating to existing surface or
subsurface structures at or contiguous to the site (except Underground
Facilities) which have been identified in the Supplementary Conditions
as provided in paragraph 4.2.1 of the General Conditions. CONTRACTOR
accepts the determination set forth in paragraph SC 4.2 of the
Supplementary Conditions of the extent of the Technical data contained
in such reports and drawings upon which CONTRACTOR is entitled to rely
as provided in paragraph 4.2 of the General Conditions. CONTRACTOR
acknowledges that such reports and drawings are not Contract Documents
and may not be complete for CONTRACTOR's purposes. CONTRACTOR
acknowledges that OWNER and ENGINEER do not assume responsibility for
the accuracy or completeness of information and data shown or indicated
in the Contract Documents with respect to Underground Facilities at or
contiguous to the site. CONTRACTOR has obtained and carefully studied
(or assumes responsibility for having done so) all such additional
supplementary examinations, investigations, explorations, tests, studies
and data concerning conditions (surface, subsurface and Underground
Facilities) at or contiguous to the site or otherwise which may affect
cost, progress, performance or furnishing of the Work or which relate to
any aspect of the means,
5
<PAGE> 6
methods, techniques, sequences and procedures of construction to be
employed by CONTRACTOR and safety precautions and programs incident
thereto. CONTRACTOR does not consider that any additional examinations,
investigations, explorations, tests, studies or data are necessary for
the performance and furnishing of the Work at the Contract Price, within
the Contract Times and in accordance with the other terms and conditions
of the Contract Documents.
7.5 CONTRACTOR is aware of the general nature of the work to be
performed by OWNER and others at the site that relates to the Work as
indicated in the Contract Documents.
7.6 CONTRACTOR has correlated the information known to CONTRACTOR,
information and observations obtained from visits to the site, reports
and drawings identified in the Contract Documents and all additional
examinations, investigations, explorations, tests, studies and data with
the Contract Documents.
7.7 CONTRACTOR has given ENGINEER written notice of all conflicts,
errors, ambiguities or discrepancies that CONTRACTOR has discovered in
the Contract Documents and the written resolution thereof by ENGINEER is
acceptable to CONTRACTOR, and the Contract Documents are generally
sufficient to indicate and convey understanding of all terms and
conditions for performance and furnishing of the Work.
ARTICLE 8. CONTRACT DOCUMENTS
The Contract Documents which comprise the entire agreement between OWNER and
CONTRACTOR concerning the Work consist of the following:
8.1 This Agreement (pages 1 to 9 inclusive).
8.2 Exhibits to this Agreement (Exhibits 0 to 0, inclusive).
8.3 Certificate of Insurance, identified as Exhibit A.
8.4 Notice of Award, identified as Exhibit B.
8.5 Addenda number 1 to 2 inclusive, identified as Exhibit C.
8.6 CONTRACTOR's Bid marked Exhibit D, consisting of the Bid Form (pages
1 to 4 inclusive) and the Bid Schedule (pages 1 to 5 inclusive).
8.7 Documentation submitted by CONTRACTOR prior to Notice of Award
(pages __ to __ inclusive) marked Exhibit E.
8.8 General Conditions (pages 1 to 45 inclusive).
8.9 Supplementary Conditions (pages 1 to 13 inclusive).
6
<PAGE> 7
8.10 Specifications bearing the title L and consisting of _ divisions
and _ pages, as listed in table of contents thereof.
8.11 Drawings, with each sheet bearing the following general title:
Grassy Mountain Facility
Industrial Waste Cell 1 - Closure,
Grassy Mountain Facility
Industrial Waste Cell 2 - Closure, or
Grassy Mountain Facility Landfill Cell Y - Closure.
8.12 The following which may be delivered or issued after the Effective
Date of the Agreement and are not attached hereto: All Written
Amendments and other documents amending, modifying, or supplementing the
Contract Documents pursuant to paragraphs 3.5 and 3.6 of the General
Conditions.
The documents listed in paragraphs 8.2 et seq. above are attached to this
Agreement (except as expressly noted otherwise above).
There are no Contract Documents other than those listed above in this Article 8.
The Contract Documents may only be amended, modified or supplemented as provided
in paragraphs 3.5 and 3.6 of the General Conditions.
ARTICLE 9. MISCELLANEOUS
9.1 Terms used in this Agreement which are defined in Article 1 of the
General Conditions will have the meanings indicated in the General
Conditions.
9.2 No assignment by a party hereto of any rights under or interests in
the Contract Documents will be binding on another party hereto without
the written consent of the party sought to be bound; and, specifically
but without limitation, moneys that may become due and moneys that are
due may not be assigned without such consent (except to the extent that
the effect of this restriction may be limited by law), and unless
specifically stated to the contrary in any written consent to an
assignment no assignment will release or discharge the assignor from any
duty or responsibility under the Contract Documents.
9.3 OWNER and CONTRACTOR each binds itself, its partners, successors,
assigns and legal representatives to the other party hereto, its
partners, successors, assigns and legal representatives in respect to
all covenants, agreements and obligations contained in the Contract
Documents.
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<PAGE> 8
9.4 Any provision or part of the Contract Documents held to be void or
unenforceable under any Law or Regulation shall be deemed stricken, and
all remaining provisions shall continue to be valid and binding upon
OWNER and CONTRACTOR, who agree that the Contract Documents shall be
reformed to replace such stricken provision or part thereof with a valid
and enforceable provision that comes as close as possible to expressing
the intention of the stricken provision.
9.5 OTHER PROVISIONS.
8
<PAGE> 9
IN WITNESS WHEREOF, OWNER and CONTRACTOR have signed this Agreement in
triplicate. One counterpart each has been delivered to OWNER, CONTRACTOR and
ENGINEER. All portions the Contract Documents have been signed, initialed or
identified by OWNER and CONTRACTOR or identified by ENGINEER on their behalf.
This Agreement will be effective on ______________________________, 1997.
OWNER CONTRACTOR
------------------------------ -------------------------
------------------------------ -------------------------------
By By
------------------------------ -------------------------------
(CORPORATE SEAL) (CORPORATE SEAL)
Attest Attest
------------------------------ ------------------------------
Address for giving notices Address for giving notices
- ------------------------------------ ------------------------------------
- ------------------------------------ ------------------------------------
License No.
-------------------------
Agent for service of process
------------------------------------
(If CONTRACTOR is a corporation,
attach evidence of authority to
sign.)
9
<PAGE> 1
[EXHIBIT 10.15]
OVERLAND TRAILS LLC.
PROFIT PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into this 23 day of September, 1997, by and
between Overland Trails, L.L.C., a Utah Corporation (hereinafter referred to as
"Overland") and W.W. Clyde, Inc., a Utah Corporation (hereinafter referred to as
"Clyde")
WHEREAS, Overland is a corporation involved in the development and sale of real
property in the Town of Eagle Mountain, Utah County, State of Utah,
WHEREAS, Clyde desires to provide labor and materials to Overland in connection
with development of the real estate project above referenced, in the Town of
Eagle Mountain,
WHEREAS, Overland desires to further compensate Clyde based upon CLYDE's
agreement to accept payment for its material and labor when the building lots
are sold.
NOW THEREFORE, in consideration of the mutual covenants and promises hereinafter
set forth, and other good and valuable consideration, the parties hereby agree
as follows:
1) Clyde will provide goods and services to Overland for use in the real estate
development project located in the Town of Eagle Mountain. Clyde will be
compensated for its services as provided in other agreements as per Exhibit 1
Overland Trails, L.L.C. Owner-Contractor Agreement. Clyde will further be
compensated and receive Twenty Three percent (23%) of the net profits derived
from the sale of the building lots up to and not to exceed the sum of One
Hundred Thousand Dollars ($100,000.00). Upon receipt by Clyde of the sum of One
Hundred Thousand Dollars ($100,000.00), Clyde shall have no further claim for
profits pursuant to this Agreement.
2) The profit participation payments, above referenced, shall be due and payable
upon the closing of the sale of the last building lot within the project.
3) Clyde shall receive payment for labor and materials on the project, as
referenced in other agreements, as each individual lot sale is closed and Clyde
shall receive a pro rate payment on its contract computed by taking the total
amount of contract as divided by the total number of lots. Said payments are
separate and exclusive to this Profit Participation Agreement.
4) The parties acknowledge that this Agreement does not provide to Clyde any
ownership interest in Overland or in the project, other than such rights as may
accrue pursuant to Mechanic's liens.
5) Entire Agreement. This Agreement comprises the entire agreement between the
parties and may not be modified or altered except by mutual agreement' in
writing, signed by all parties concerned.
<PAGE> 2
6) Governing Law. The laws of the State of :Utah shall govern the construction
and interpretation of this Agreement.
7) Severability. All agreements and covenants contained herein are coverable,
and in the event any of them shall be held to invalid by any competent Court,
this contract shall be interpreted as if such invalid agreements or covenants
were not contained herein.
8) Enforcement. In the event of any action to enforce one or more of the terms
of this Agreement, the party against whom enforcement is sought agrees that the
party enforcing the agreement shall be entitled to an award of all costs of
court, including costs of court and reasonable attorney's fees.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year
first above written.
OVERLAND TRAILS LLC
W.W. CLYDE & CO.
2
<PAGE> 3
THE AMERICAN INSTITUTE OF ARCHITECTS
- --------------------------------------------------------------------------------
AIA Document A107
ABBREVIATED FORM OF AGREEMENT
BETWEEN OWNER AND CONTRACTOR
For CONSTRUCTION PROJECTS OF LIMITED SCOPE where
the Basis of Payment is a STIPULATED SUM
1987 EDITION
THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES; CONSULTATION WITH
AN ATTORNEY IS ENCOURAGED WITH RESPECT TO ITS COMPLETION OR
MODIFICATION.
This document includes abbreviated General Conditions and should not be
used with other general conditions. It has been approved and endorsed
by The Associated General Contractors of America.
- --------------------------------------------------------------------------------
AGREEMENT
made as of the day of September in the year Nineteen
Hundred and Ninety-Seven
BETWEEN the Owner: Overland Trails, L.C.
(Name and address) 130 West Main Street
Lehi, Utah 84043
and the Contractor: W. W. Clyde & Co.
(Name and address) P.O. Box 350
Springville, Utah 84663
The Project is: Overland Trails Estate at Eagle Mountain
(Name and location)
The Architect is: acknowledged to be the Owner's Designated
(Name and address) Representative. Accordingly, any references in this
Agreement to Architect shall mean Owner's
Designated Representative. Owner's Designated
Representative: MCM Engineering, P.O. Box 189,
Heber City, Utah 84032
The Owner and Contractor agree as set forth below.
Copyright 1936, 1951, 1958, 1961, 1963, 1966, 1974, 1978, (C)1987 by Else Anon
Institute of Architects, 1735 New York Avenue, N.W., Washington, D.C. 20006.
Reproduction of the material herein or substantial quotation of its provisions
without written permission of the AIA violates the copyright laws of the United
States and will be subject to legal prosecution.
3
<PAGE> 4
ARTICLE 1
THE WORK OF THIS CONTRACT
1.1 The Contractor shall execute the entire Work described in the Contract
Documents, except to the extent specifically indicated in the Contract Documents
to be the responsibility of others, or as follows:
See Attachment #l: W. W. Clyde & Co.'s letter dated 02 Sept 1997 to complete the
grading for the Outland Trails Estate.
ARTICLE 2
DATE OF COMMENCEMENT AND SUBSTANTIAL COMPLETION
2.1 The date of commencement is the date from which the Contact Time of
Paragraph 2.2 is measured, and shall be the date of this Agreement, as first
written above, unless a different date is stated below or provision is made for
the date to be fixed in a notice to proceed issued by the Owner.
Within three (3) days after execution of this contract.
2.2 The Contractor shall achieve Substantial Completion of the entire Work not
later than
, subject to adjustments of this Contract Time as provided in the Contract
Documents.
ARTICLE 3
CONTRACT SUM
3.1 The Owner shall pay the Contractor in current funds for the Contractor's
performance of the Contract the Contract Sum of Six Hundred Thirty Seven
Thousand and 00/100 ------------------------Dollars ($ 637 000.00 ), subject to
additions and deductions as provided in the Contact Documents.
3.2 The Contract Sum is based upon the following alternates, if any, which are
described in the Contract Documents and are hereby accepted by the Owner:
None
3.3 Unit prices, if any, are as follows:
None
4
<PAGE> 5
ARTICLE 4
PROGRESS PAYMENTS
4.1 Based upon Applications for Payment submitted to owner by the Contractor,
the Owner shall make progress payments on account of the Contract Sum to the
Contractor as provided below and elsewhere in the Contract Documents. The period
covered by each Application for Payment shall be one calendar month ending on
the last day of the month, or as follows: Contractor shall by the tenth day of
each month, deliver to Owner an Application for Payment showing in complete
detail all monies paid out or cost incurred by Contractor during the period.
Retainage will be in the amount of 5%. Retention will be released 30 days after
completion of Project and acceptance of Owner. Owner shall make progress
payments per Owner's Cash Flow Analysis dated 26 August 1997 (see attachment #2)
4.2 Payments due and unpaid under the Contract shall bear interest from the date
payment is due at the rate stated below, or in the absence thereof, at the legal
rate prevailing from time to time at the puce where the Project is located.
Finance Charges will be assessed on a monthly basis on balance owed 30 calendar
days after the work has been completed. A rate of (8%) per annum, which is
(0.66%) per month will be assessed.
ARTICLE 5
FINAL PAYMENT
5.1 Final payment, constituting the entire unpaid balance of the Contact Sum,
shall be made by the Owner to the Contractor when the Work has been completed,
the Contact fully performed,
ARTICLE 6
ENUMERATION OF CONTRACT DOCUMENTS
6.1 The Contact Documents are listed in Article 7, and except for Modifications
issued after execution of this Agreement, are enumerated as follows:
6.1.1 The Agreement is this executed Abbreviated Form of Agreement Between Owner
and Contractor, AIA Document A107, 1987 Edition.
6.1.2 The Supplementary and other Conditions of the Contract are those contained
in the Project Manual dated
and are as follows: None
6.1.3 The Specifications are those contained in the Project Manual dated as in
Subparagraph 6.1.2, and are as follows:
5
<PAGE> 6
None
6.1.4 The Drawings are as follows, and are dated 28 July 1997 unless a different
date is shown below
Number Title Date
1 - 16 Overland Trails Estate 28 July 1997
6.1.5 The Addenda, if any, are as follows:
None
Portions of Addenda relating to bidding requirements are not part of the
Contract Documents unless the bidding requirements are also enumerated in this
Article 6.
6.1.6 Other documents, if any, forming part of the Contract Documents are as
follows:
(1) W.W. Clyde & Co. letter dated 02 Sept 1997. Proposal for Overland Trails
Estate
(2) Cash Flow Analysis dated 26 August 1997, Overland Trails Estate Cash Flow
Analysis, page 1
- --------------------------------------------------------------------------------
GENERAL CONDITIONS
- --------------------------------------------------------------------------------
ARTICLE 7
CONTRACT DOCUMENTS
7.1 The Contract Documents consist of this Agreement with Conditions of the
Contract (General, Supplementary and other Conditions), Drawings,
Specifications, addenda issued prior to the execution of this Agreement, other
documents listed in this Agreement and Modifications issued after execution of
this Agreement. The intent of the Contract Documents is to include all items
necessary for the proper execution and completion of the Work by the Contractor.
The Contract Documents are complementary, and what is required by one shall be
as binding as if required by all; performance by the Contractor shall be
required only to the extent consistent with the Contract Documents and
reasonably inferable from them as being necessary to produce the intended
results.
7.2 The Contract Documents shall not be construed to create a contractual
relationship of any kind (1) between the Architect and Contractor, (2) between
the Owner and a Subcontractor or Sub-subcontractor or (3) between any persons or
entities other than the Owner and Contractor.
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<PAGE> 7
7.3 Execution of the Contract by the Contractor is a representation that the
Contractor has visited the site and become familiar with the local conditions
under which the Work is to be performed.
7.4 The term "Work" means the construction and services required by the Contract
Documents, whether completed or partially completed , and includes all other
labor, materials, equipment and services provided or to be provided by the
Contractor to fulfill the Contractor's obligations. The Work may constitute the
whole or a part of the Project.
ARTICLE 8
OWNER
8.1 The Owner shall furnish surveys and a legal description of the site.
8.2 Except for permits and fees which are the responsibility of the Contractor
under the Contract Documents, the Owner shall secure and pay for necessary
approvals, easements, assessments and charges required for the construction, use
or occupancy of permanent structures or permanent changes in existing
facilities.
8.3 If the Contractor fails to correct Work which is not in accordance with the
requirements of the Contract Documents or persistently fails to carry out the
Work in accordance with the Contract Documents, the Owner, by a written order,
may order the Contractor to stop the Work, or any portion thereof, until the
cause for such order has been eliminated; however, the right of the Owner to
stop the Work shall not give rise to a duty on the part of the Owner to exercise
this right for the benefit of the Contractor or any other person or entity.
ARTICLE 9
CONTRACTOR
9.1 The Contractor shall supervise and direct the Work, using the Contractor's
best skill and attention. The Contractor shall be solely responsible for and
have control over construction means, methods, techniques, sequences and
procedures and for coordinating all portions of the Work under the Contract,
unless Contract Documents give other specific instructions concerning these
matters.
9.2 Unless otherwise provided in the Contract Documents, the Contractor shall
provide and pay for labor, materials, equipment, tools, construction equipment
and machinery, water, heat, utilities, transportation, and other facilities and
services necessary for the proper execution and completion of the Work, whether
temporarily or permanent and whether or not incorporated or to be incorporated
in the Work.
9.3 The Contractor shall enforce strict discipline and good order among the
Contractor's employees and other persons carrying out the Contract. The
Contractor shall not permit employment of unfit persons or persons not skilled
in tasks assigned to them.
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<PAGE> 8
9.4 The Contractor warrants tot he Owner and Architect that materials and
equipment furnished under the Contract will be of good quality and new unless
otherwise required or permitted by the Contract Documents, that the Work will be
free from defects not inherent in the quality required or permitted, and that
the Work will conform with the requirements of the Contract Documents. Work not
conforming to these requirements, including substitutions not properly approved
and authorized, may be considered defective. The Contractor's warranty excludes
remedy for damage or defect caused by abuse, modifications not executed by the
Contractor, improper of insufficient maintenance, improper operation, or normal
wear and tear under normal usage. If required by the Architect, the Contractor
shall furnish satisfactory evidence as to the kind and quality of materials and
equipment.
9.5 Unless otherwise provided in the Contract Documents, the Contractor shall
pay sales, consumer, use, and other similar taxes which are legally enacted when
bids are received or negotiations concluded, whether or not yet effective or
merely scheduled to go into effect, and shall secure and pay for the building
permit and other permits and governmental fees, licenses and inspections
necessary for proper execution and completion of the Work.
9.6 The Contractor shall comply with and give notices required by laws,
ordinances, rules, regulations, and lawful orders of public authorities bearing
on performance of the Work. The Contractor shall promptly notify the Architect
and Owner if the Drawings and Specifications are observed by the Contractor to
be at variance therewith.
9.7 The Contractor shall be responsible to the Owner for the acts and omissions
of the Contractor's employees, Subcontractors and their agents and employees,
and other persons performing portions of the Work under a contract with the
Contractor.
. . . the arbitrator or arbitrators shall be final, and judgment may be entered
upon it in accordance with applicable law in any court having jurisdiction
thereof. Except by written consent of the person or entity sought to be joined,
no arbitration arising out of or relating to the Contract Documents shall
include, by consolidation, joinder or in any other manner, any person or entity
not a party to the Agreement under which such arbitration arises, unless it is
shown at the time the demand for arbitration is filed that (1) such person or
entity is substantially involved in a common question of fact or law, (2) the
presence of such person or entity is required if complete relief is to be
accorded in the arbitration, (3) the interest or responsibility of such person
or entity in the matter is not insubstantial, and (4) such person or entity is
not the Architect or any of the Architect's employees or consultants. The
agreement herein among the parties to the Agreement and any other written
agreement to arbitrate referred to herein shall be specifically enforceable
under applicable law in any court having jurisdiction thereof.
ARTICLE 11
SUBCONTRACTS
11.1 A Subcontractor is a person or entity who has a direct contract with the
Contractor to perform a portion of the Work at the site.
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<PAGE> 9
11.2 Unless otherwise stated in the Contract Documents or the bidding
requirements, the Contractor, as soon as practicable after award of the
Contract, shall furnish in writing to the Owner through the Architect the names
of the Subcontractors for each of the principal portions of the Work. The
Contractor shall not contract with any Subcontractor to whom the Owner or
Architect has made reasonable and timely objection. The Contractor shall not be
required to contract with anyone to whom the Contractor has made reasonable and
timely objection. Contracts between the Contractor and Subcontractors shall (1)
require each Subcontractor, to the extent of the Work to be performed by the
Subcontractor, be bound to the Contractor by the terms of the Contract
Documents, and to assume toward the Contractor all the obligations and
responsibilities which the Contractor, by the Contract Documents, assumes toward
the Owner and Architect, and (2) allow to the Subcontractor the benefit of all
rights, remedies and redress afforded to the Contractor by these Contract
Documents.
ARTICLE 12
CONSTRUCTION BY OWNER OR
BY SEPARATE CONTRACTORS
12.1 The Owner reserves the right to perform construction or operations related
to the Project with the Owner's own forces, and to award separate contracts in
connection with other portions of the Project or other construction or
operations on the site under conditions of the contract identical or
substantially similar to these, including those portions related to insurance
and waiver of subrogation. If the Contractor claims that delay or additional
cost is involved because of such action by the Owner, the Contractor shall make
such claim as provided elsewhere in the Contract Documents.
12.2 The Contractor shall afford the Owner and separate contractors reasonable
opportunity for the introduction and storage of their materials and equipment
and performance of their activities, and shall connect and coordinate the
Contractor's construction and operations with theirs as required by the Contract
Documents.
12.3 Costs caused by delays, improperly timed activities or defective
construction shall be borne by the party responsible therefor.
ARTICLE 13
CHANGES IN THE WORK
13.1 The Owner, without invalidating the Contract, may order changes in the Work
consisting of additions, deletions or modifications, the Contract Sum and
Contract Time being adjusted accordingly. Such changes in the Work shall be
authorized by written Change Order signed by the Owner, Contractor and
Architect, or by written Construction Change Directive signed by the Owner and
Architect.
13.2 The Contract Sum and Contract Time shall be changed only by Change Order.
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<PAGE> 10
13.3 The cost or credit to the Owner from a change in the Work shall be
determined by mutual agreement.
ARTICLE 14
TIME
14.1 Time limits stated in the Contract Documents are of the essence of the
Contract. By executing the Agreement the Contractor confirms that the Contract
Time is a reasonable period for performing the Work.
14.2 The date of Substantial Completion is the date certified by the Architect
in accordance with Paragraph 15.3.
14.3 If the Contractor is delayed at any time in progress of the Work by changes
ordered in the Work, by labor disputes, fire, unusual delay in deliveries,
abnormal adverse weather conditions not reasonably anticipatable, unavoidable
casualties or any causes beyond the Contractor's control, or by other causes
which the Architect determines may justify delay, then the Contract Time shall
be extended by Change Order for such reasonable time as the Architect may
determine.
ARTICLE 15
PAYMENTS AND COMPLETION
15.1 Payments shall be made as provided in Articles 4 and 5 of this Agreement.
15.2 Payments may be withheld on account of (1) defective Work not remedied, (2)
claims filed by third parties, (3) failure of the Contractor to make payments
properly to Subcontractors or for labor, materials or equipment, (4) reasonable
evidence that the Work cannot be completed for the unpaid balance of the
Contract Sum, (5) damage to the Owner or another contractor, (6) reasonable
evidence that the Work will not be completed within the Contract Time and that
the unpaid balance would not be adequate to cover actual or liquidated damages
for the anticipated delay, or (7) persistent failure to carry out the Work in
accordance with the Contract Documents.
15.3 When the Architect agrees that the Work is substantially complete, the
Architect will issue a Certificate of Substantial Completion.
15.4 Final payment shall not become due until the Contractor has delivered to
the Owner a complete release of all liens arising out of this Contract or
receipts in full covering all labor, materials and equipment for which a lien
could be filed, or a bond satisfactory to the Owner to indemnify the Owner
against such . . .
. . . completion of the Contract or by terms of an applicable special warranty
required by the Contract Documents. The provisions of this Article 18 apply to
Work done by Subcontractors as well as to Work done by direct employees of the
Contractor.
10
<PAGE> 11
18.2 Nothing contained in this Article 18 shall be construed to establish a
period of limitation with respect to other obligations which the Contractor
might have under the Contract Documents. Establishment of the time period of one
year as described in Paragraph 18.1 relates only to the specific obligation of
the Contractor to correct the Work, and has no relationship to the time with
which the obligation to comply with the Contract Documents may be sought to be
enforced, nor to the time within which proceedings may be commenced to establish
the Contractor's liability with respect tot he Contractor's obligations other
than specifically to correct the Work.
ARTICLE 19
MISCELLANEOUS PROVISIONS
19.1 The Contract shall be governed by the law of the place where the Project
is located.
19.2 As between the Owner and the Contractor, any applicable statue of
limitations shall commence to run and any alleged cause of action shall be
deemed to have accrued.
.1 not later than the date of Substantial Completion for acts or
failures to act occurring prior to the relevant date of Substantial Completion;
.2 not later than the date of issuance of the final Certificate for
Payment for acts or failures to act occurring subsequent to the relevant date of
Substantial Completion and prior to issuance of the final Certificate for
Payment; and
.3 not later than the date of the relevant act or failure to act by the
Contractor for acts or failures to act occurring after the date of the final
Certificate for Payment.
ARTICLE 20
TERMINATION OF THE CONTRACT
20.1 If the Architect fails to recommend payment for a period of 30 days through
no fault of the Contractor, or if the Owner fails to make payment thereon for a
period of 30 days, the Contractor may, upon seven additional days' written
notice to the Owner and the Architect, terminate the Contract and recover from
the Owner payment for Work executed and for proven loss with respect to
materials, equipment, tools, and construction equipment and machinery, including
reasonable overhead, profit and damages applicable to the Project.
20.2 If the Contractor defaults or persistently fails or neglects to carry out
the Work in accordance with the Contract Documents or fails to perform a
provision of the Contract, the Owner, after seven days' written notice tot he
Contractor and without prejudice to any remedy the Owner may have, may make good
such deficiencies and may deduct the cost thereof, including compensation for
the Architect's services and expenses made necessary thereby, from the payment
then or thereafter due the Contractor. Alternatively, at the Owner's option, and
upon certification by the Architect that sufficient cause exists to justify such
action, the Owner may terminate the Contract and take possession of the site and
of all materials, equipment, tools,
11
<PAGE> 12
and construction equipment and machinery thereon owned by the Contractor and may
finish the Work by whatever method the Owner may deem expedient. If the unpaid
balance of the Contract Sum exceeds costs of finishing the Work, including
compensation for the Architect's services and expenses made necessary thereby,
such excess shall be paid to the Contractor, but if such costs exceed such
unpaid balance, the Contractor shall pay the difference to the Owner.
12
<PAGE> 1
[EXHIBIT 10.16]
CONTRACT
THIS AGREEMENT, made and executed in Four (4) original counterparts this
28th day of April A.D. 1997 between the Utah Department of Transportation,
hereinafter called "Department," first party, and W. W. Clyde & Co. hereinafter
called "Contractor," second party.
WITNESSETH, That for and in consideration of payments, hereinafter
mentioned, to be made by the Department, the Contractor agrees to furnish all
labor and equipment; to furnish and deliver all materials not specifically
mentioned as being furnished by the Department and to do and perform all work in
the Construction of Roadway, Structures and Signs in Grand County, State of
Utah, the same being identified as STP-1712(1)0 for the approximate sum of One
Million Five Hundred Nine Thousand Four Hundred Eighty-Six and 40/100 Dollars
($1,509,486.40).
The Contractor further covenants and agrees that all of said work and
labor shall be done and performed in the best and most workmanlike manner and in
strict conformity with the plans, and specifications. The said plans and
specifications and the notice to contractors, instruction to bidders, the
proposal, special provisions and contract bond are hereby made a part of this
agreement as fully and to the same effect as if the same had been set forth at
length herein.
In consideration of the foregoing premises, the Department agrees to pay
to Contractor in the manner and in the amount provided in the said specification
and proposal.
IN WITNESS WHEREOF, the parties hereto have subscribed their names
through their proper officers thereunto duly authorized as of the day and year
first above written.
UTAH DEPARTMENT OF TRANSPORTATION
W. W. CLYDE & CO.
<PAGE> 1
[EXHIBIT 10.17]
Contract No. DTFH68-97-C-00029
Account No. 4-H-X18F-050-14-0-18F054164900-D 2490051001HO
Department of Transportation
Federal Highway Administration
Central Federal Lands Highway Division
Utah PLH 5-1(1)
Wolf Creek Road
Proposal and Contract
This contract cites Federal Highway Administration
Specifications FP-92, 192
Proposal of W. W. Clyde & Co.
P.O. Box 350, Springville, Utah 84663
<PAGE> 2
<TABLE>
<CAPTION>
- -------------------------------- ----------------- ------------------ ------------- ------------
SOLICITATION, OFFER, AND AWARD 1. Solicitation 2. Type of 3. Date Page of
(Construction, Alteration, or No. Solicitation Issued Pages
Repair)
<S> <C> <C> <C> <C>
UT PLH 5-1(1) Sealed Bid 8/4/97 1 of 3
- -------------------------------- ----------------- ------------------ ------------- ------------
IMPORTANT - the "offer" section on the reverse must be fully completed by
offeror.
- -------------------------------- ------------------------------- -------------------------------
4. Contract No. 5. Requisition/Purchase 6. Project No.
DTFH68-97-C-00029 Request No. UT PLH 5-1(1)
- -------------------------------- ------------------------------- -------------------------------
7. Issued by Code 8. Address Offer to
---------------
U.S. Department of Transportation Division Administrator
Federal Highway Administration Federal Highway Administration
Central Federal Lands Highway Division 2520 West 4700 South, Suite 9A
P.O. Box 25246 Salt Lake City, Utah 84118
Denver, CO 80225 Attention: Mr. Dick Laubsch
- -------------------------------- ------------------------------- -------------------------------
9. For information A. Name B. Telephone No.
call See continuation of SF 1442 See continuation of SF1442
- -------------------------------- ------------------------------- -------------------------------
SOLICITATION
- ------------------------------------------------------------------------------------------------
NOTE: In sealed bid solicitations "offer" and "offeror" mean "bid" and "bidder".
- ------------------------------------------------------------------------------------------------
</TABLE>
10. THE GOVERNMENT REQUIRES PERFORMANCE OF THE WORK DESCRIBED IN THESE DOCUMENTS
For Construction of Utah PFH 5-1(1), Wolf Creek Road, in Strict Accordance With:
1. Far Contract Clauses
2. Minimum Wage Schedule
3. Standard Specifications for Construction of Roads and Bridges on Federal
Highway Projects, FP-92 (1992)
4. Special Contract Requirements
5. Bid Schedule
6. Plans
*Completion Date: 9/15/98
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C>
11. The contractor shall begin performance within 10 calendar days and complete
it within * calendar days after receiving notice to proceed. This performance
period is mandatory.
- ------------------------------------------------ -----------------------------------------------
12A. The contractor must furnish any required 12B. Calendar days - 15
performance and payment bonds - Yes
- ------------------------------------------------------------------------------------------------
13. Additional Solicitation Requirements:
A. Sealed offers in original and 0 copies to perform the work are required are due at the
place specified in item 8 by 2:00 p.m. local time September 10, 1997. If this is a sealed bid
solicitation, offers will be publicly opened at that time. Sealed envelopes containing offers
shall be marked to show the offeror's name and address, the solicitation number,
and the date and time offers are due.
B. An offer guarantee is required. See continuation of SF1442
C. All offers are subject to the (1) work requirements, and (2) other provisions and clauses
incorporated in the solicitation in full text or by reference.
D. Offers providing less than 35 calendar days for government acceptance after
the date offers are due will not be considered and will be rejected.
- ------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
OFFER (Must be fully completed by offeror)
- ------------------------------------------------------------------------------------------------
<S> <C>
14. Name and Address of Offeror 15. Telephone No.
(801) 489-5616
-----------------------------------------------
W. W. Clyde & Co. 16. Remittance Address
P.O. Box 350
Springville, Utah 84663
- ------------------------------------------------
Code Facility Code
- ------------------------------------------------ -----------------------------------------------
17. The offeror agrees to perform the work required at the prices specified
below in strict accordance with the terms of this solicitation. If this offer is
accepted by the Government in writing within 35 calendar days after the date
offers are due.
AMOUNTS SEE BID SCHEDULE
- ------------------------------------------------------------------------------------------------
18. The offeror agrees to furnish any required performance and payment bonds.
- ------------------------------------------------------------------------------------------------
19. ACKNOWLEDGMENT OF AMENDMENTS
(The offeror acknowledges receipt of amendments to the solicitation - give number and date of
each)
- ------------------------------------------------------------------------------------------------
AMENDMENT NO.
- ----------------- ------- ------- ------- ------- ------ ------- ------- ------- ------- -------
DATE
- ----------------- ------- ------- ------- ------- ------ ------- ------- ------- ------- -------
20A. NAME AND TITLE OF PERSON AUTHORIZED TO 20B. SIGNATURE 20C. OFFER
SIGN OFFER DATE
Paul B. Clyde, Vice President
- ------------------------------------------------- ------------------------------- --------------
AWARD (To be completed by Government)
- ------------------------------------------------------------------------------------------------
21. ITEMS ACCEPTED:
ALL ITEMS SCHEDULE B
- ------------------------------------------------------------------------------------------------
22. AMOUNT 23. ACCOUNTING AND APPROPRIATION DATA
$742,006.40
4-H-X18F-050-14-0-18F05416400-D 2490051001HO
- ------------------------------- ----------------------------------------------------------------
24. SUBMIT INVOICES TO ADDRESS SHOWN IN ITEM 25. OTHER THAN FULL AND OPEN COMPETITION
PURSUANT TO 10 U.S.C. 2304(C)
- ---------------------------------------- ----------- -------------------------------------------
26. ADMINISTERED BY CODE 27. PAYMENT WILL BE MADE BY
-----------------
SEE CONTINUATION OF SF 1442 Federal Highway Administration
Central Federal Lands Highway Division
555 Zang St., P.O. Box 25246
Denver, CO 80225-0246
- ------------------------------------------------------------------------------------------------
CONTRACTING OFFICER WILL COMPLETE ITEM 28 OR 29 AS APPLICABLE
- ------------------------------------------------------------------------------------------------
28. NEGOTIATED AGREEMENT Contractor is 29. AWARD Contractor is not required to
required to sign this document and return sign this document. Your offer on this
_____ copies to issuing office. Contractor solicitation is hereby accepted as to the
agrees to furnish and deliver all items or terms listed. This award consummates the
perform all work requirements identified on contract, which consists of (a) the
this form and any continuation sheets for the Government solicitation and your offer, and
consideration stated in this contract. The (b) this contract award. No further
rights and obligations of the parties to this contractual document is necessary. This
contract shall be governed by (a) this award is being issued pursuant to the Small
contract award, (b) the solicitation, and (c) Business Competitiveness Demonstration
the clauses, representations, certifications, Program.
and specifications incorporated by reference
in or attached to this contract.
- ------------------------------------------------ -----------------------------------------------
30A. NAME AND TITLE OF CONTRACTOR OR PERSON 31A. NAME OF CONTRACTING OFFICER
AUTHORIZED TO SIGN
JAMES D. ROLLER
- ------------------------------------------------ -----------------------------------------------
30B. SIGNATURE 30C. DATE 31B. UNITED STATES OF AMERICA 31C. AWARD DATE
9/22/97
- ---------------------------------- ------------- ------------------------------ ----------------
</TABLE>
3
<PAGE> 4
AWARDED BIDDER REPORT
PROJECT: WOLF CREEK ROAD
UT 5-1(1) B
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
PAY ITEM NO. ESTIMATED QUANTITY UNIT BID AMOUNT
PRICE BID
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
15101 MOBILIZATION
ALL LUMP SUM $75,000.00
Required --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
15202 SLOPE, REFERENCE, AND CLEARING AND GRUBBING STAKES
0.429 $6,850.00 $2,938.65
Mile --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
15203 CENTERLINE RE-ESTABLISHMENT
0.429 $6,850.00 $2,938.65
Mile --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
15204 DRAINAGE STRUCTURE SURVEY AND STAKING
3 $470.00 $1,410.00
Each --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
15205 BRIDGE SURVEY AND STAKING
ALL LUMP SUM $6,000.00
Required --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
15207 GRADE FINISHING STAKES
0.625 $4,700.00 $2,937.50
Mile --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
15209 MISCELLANEOUS SURVEY AND STAKING
100 $120.00 $12,000.00
Hour --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 5
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
15219 DETOUR ROAD STAKING
ALL LUMP SUM $3,500.00
Required --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
15301 CONTRACTOR QUALITY CONTROL
ALL LUMP SUM $6,000.00
Required --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
15401 CONTRACTOR TESTING
ALL LUMP SUM $20,000.00
Required --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
15603 CONSTRUCT, MAINTAIN, AND OBLITERATE DETOUR ROAD
ALL LUMP SUM $8,200.00
Required --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
15703 SILT FENCE
3,400 $3.00 $10,200.00
Linear Foot --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
15708 STRAW BALES
100 $12.00 $1,200.00
Each --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
15709 CHECK DAMS
16 $80.00 $1,280.00
Each --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
15721 INLET SEDIMENT TRAP
10 $60.00 $600.00
Each --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 6
<TABLE>
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
20101 CLEARING AND GRUBBING
5.4 $1,850.00 $9,900.00
Acre --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
20301 REMOVAL OF EXISTING STRUCTURES AND OBSTRUCTIONS
ALL LUMP SUM $900.00
Required --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
20304J REMOVAL OF BRIDGE
ALL LUMP SUM $30,000.00
Required --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
20401 ROADWAY EXCAVATION
25,000 $3.90 $97,500.00
Cubic Yard --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
20402 SUBEXCAVATION
4,800 $5.00 $24,000.00
Cubic Yard --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
20601 WATERING
100 $38.00 $3,800.00
M-Gallon --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
20701E EARTHWORK GEOTEXTILE, TYPE 5
430 $2.20 $946.00
Square Yard --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
20801 STRUCTURE EXCAVATION
170 $7.50 $1,275.00
Cubic Yard --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 7
<TABLE>
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
25101B LOOSE RIPRAP, CLASS 2
12 $72.00 $864.00
Cubic Yard --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
25101D LOOSE RIPRAP, CLASS 4
210 $60.00 $12,600.00
Cubic Yard --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
30101H AGGREGATE BASE, GRADING H
2,100 $15.00 $31,500.00
Ton --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
41801 ASPHALT MATERIAL, GRADE MC-250
7 $415.00 $2,905.00
Ton --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
40802H AGGREGATE COVER, GRADING H
78 $17.20 $1,341.60
Ton --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
55201AF STRUCTURAL CONCRETE, CLASS A (AE) F'C=4000 PSI
230 $365.00 $83,950.00
Cubic Yard --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
55301ACD PRECAST PRESTRESSED CONCRETE STRUCTURAL MEMBERS,
I-BEAMS, AASHTO TYPE 3, 82-FOOT 0-INCH
5 $11,200.00 $56,000.00
Each --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
55402 EPOXY COATED REINFORCING STEEL
46,400 $0.74 $34,336.00
Pound --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 8
<TABLE>
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
60101 CONCRETE
2 $510.00 $1,020.00
Cubic Yard --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
60201M 24-INCH PIPE CULVERT
202 $60.00 $12,120.00
Linear Foot --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
60201ZJ 24-INCH CORRUGATED STEEL PIPE CULVERT, 0.064-INCH
12 $71.00 $852.00
Linear Foot --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
60206M END SECTION FOR 24-INCH PIPE CULVERT
6 $300.00 $1,800.00
Each --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
61102GC 2-INCH WATERLINE, GALVANIZED STEEL
20 $35.00 $700.00
Linear Foot --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
61701DAAB GUARDRAIL SYSTEM G4, TYPE 1, CLASS A (WOOD POSTS)
182 $21.00 $3,822.00
Linear Foot --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
61702BAT TERMINAL SECTION, BAT
1 $1,620.00 $1,620.00
Each --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
61702SRT TERMINAL SECTION, SRT
3 $2,600.00 $7,800.00
Each --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
<TABLE>
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
61708 BRIDGE TRANSITION RAILING
75 $50.00 $3,750.00
Linear Foot --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
61901CG FENCE, CHAIN LINK TYPE, 72-INCH HEIGHT
50 $17.30 $865.00
Linear Foot --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
61901FA FENCE, TEMPORARY CONSTRUCTION
100 $3.55 $355.00
Linear Foot --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
61901JB FENCE, WIRE, TYPE C STL POST
4,800 $3.55 $17,040.00
Linear Foot --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
61902BH GATE, METAL TYPE, 16-FOOT WIDTH
5 $300.00 $1,500.00
Each --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
62201AE DUMP TRUCK, 10-12 CUBIC YARD CAPACITY
20 $71.25 $1,425.00
Hour --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
62201B BACKHOE
20 $64.65 $1,293.00
Hour --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
62201CD LOADER, WHEEL TYPE, 3 CUBIC YARD MINIMUM CAPACITY
20 $104.20 $2,084.00
Hour --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
<TABLE>
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
62201DC BULLDOZER (120 HP MINIMUM)
20 $150.00 $3,000.00
Hour --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
62201LA MOTOR GRADER, WITH 8 FOOT BLADE
20 $101.00 $2,020.00
Hour --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
62201M HYDRAULIC EXCAVATOR
20 $112.10 $2,242.00
Hour --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
62301 GENERAL LABOR
80 $26.30 $2,104.00
Hour --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
62406 PLACING CONSERVED TOPSOIL
2,000 $5.50 $11,000.00
Cubic Yard --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
62501B SEEDING, HYDRAULIC METHOD
3 $1,470.00 $4,410.00
Acre --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
62504B MULCHING, HYDRAULIC METHOD
3 $1,470.00 $4,410.00
Acre --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
62601PANC POPULUS ANGUSTIFOLIA, NARROWLEAF COTTONWOOD, 1
GALLON, CONTAINER GROWN
10 $53.00 $530.00
Each --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
<TABLE>
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
62601SABC SALIX BOOTHII, BOOTH'S WILLOW, 1 GALLON, CONTAINER
GROWN
10 $53.00 $530.00
Each --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
63201 TEMPORARY DETOUR BRIDGE
ALL LUMP SUM $52,000.00
Required --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
63302 SIGN INSTALLATION
31 $30.00 $930.00
Square Foot --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
63504C BARRICADE, TYPE 3
72 $26.00 $1,872.00
Linear Foot --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
63506 CONE
50 $15.00 $750.00
Each --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
63507 CONSTRUCTION SIGN
364 $13.50 $4,914.00
Square Foot --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
63508 DRUM
20 $72.00 $1,440.00
Each --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
63509 FLAGGER
1,460 $16.00 $23,360.00
Hour --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
<TABLE>
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
63511 TEMPORARY CONCRETE BARRIER
80 $33.00 $2,640.00
Linear Foot --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
63520 VERTICAL PANEL
20 $61.00 $1,220.00
Each --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
63521A WARNING LIGHT, TYPE A
6 $36.00 $216.00
Each --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
63521B WARNING LIGHT, TYPE B
2 $190.00 $380.00
Each --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
63521C WARNING LIGHT, TYPE C
20 $44.00 $880.00
Each --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
63522 TEMPORARY TRAFFIC SIGNAL SYSTEM
ALL LUMP SUM $17,000.00
Required --------------------------- -------------------
- -------------------------------------------------------------------------------------------------
TOTAL $742,006.40
</TABLE>
Submitted by: W. W. Clyde & Co.
Awarded Bidder Report
Project: Wolf Creek Road
UT 5-1(1) B
12
<PAGE> 1
[EXHIBIT 10.18]
SUPPLY CONTRACT
Dated 7/2/90
1. PREMISES AND TERM.
MIKE PETERSON OIL COMPANY, INC. ("Peterson"), agrees to sell to Utah
Service, ("Retailer") and Retailer agrees to purchase from Peterson such
quantities of the Chevron brand gasolines and diesel fuel ("Chevron motor
fuels") sold by Peterson generally to motor fuel retail outlets in Retailer's
locality as are necessary to serve customer demand for Chevron motor fuels at
Retailer's premises at 395 South Main, Springville, State of Utah 84663, (the
"premises") for a term commencing on 7/2/90 and continuing thereafter until
terminated as provided herein. "Chevron" as used herein shall mean Chevron
Products Company, Chevron U.S.A., Inc. and their affiliates.
2. USE OF PREMISES
(a) Chevron Products. Retailer acknowledges that there is a
demand for Chevron motor fuels and Chevron brand motor oils (hereinafter
sometimes collectively referred to as "Chevron products") at the premises, and
agrees continuously to stock at the premises and to offer for sale such
quantities of Chevron products as are necessary to serve customer demand
therefor. Retailer acknowledges the financial benefit to Retailer of selling and
prominently displaying Chevron products due to the high regard of the motoring
public for retail outlets selling under the Chevron trademarks and trade names,
and Retailer agrees at all times to give the dispensing equipment, displays and
advertisements for Chevron products and brands as prominent and convenient
positions as those for any other product offered for sale on the premises and
not to disparage or diminish in any way by act or omission the good reputation
of such trademarks, trade names, products or retail outlets.
Retailer acknowledges that Peterson has invested time, resources,
training, etc. in the establishment of the supply relationship and branding of
Retailer's premises. In consideration of the covenants and agreements contained
herein, Retailer agrees to purchase all of its Chevron products only from
Peterson. In the event of a termination of this Contract, Retailer agrees for a
period of two years from such termination, not to purchase any Chevron products
for resale at the premises from anyone other than Peterson.
(b) Operating Requirements. Retailer agrees to devote sufficient
time to the personal management of the premises so as to provide for the
continued proper operation thereof as a first-class motor fuel retail outlet; to
maintain and operate the premises in a clean, safe and healthful manner with a
neat and uncluttered appearance that is inviting to the motoring public; to
offer air, water and windshield cleaning materials for use by motorists; to
render prompt professional and courteous service to customers by providing
personnel in numbers adequate to handle available business who are properly
trained, well-groomed and dressed in Chevron-
<PAGE> 2
approved uniforms; to operate and manage the premises and cause customers to be
treated in a manner which engenders customer satisfaction and eliminates
customer complaints to the extent possible; to comply with all applicable
Federal, state and local laws and regulations relevant to the use and operation
of the premises or the resale of all products purchased by Retailer under this
Contract; and to supply Peterson with all information which Peterson shall
reasonably request to enable Peterson to comply with all applicable Federal,
state and local laws and regulations. Peterson and its authorized
representatives shall have the right at any time to enter upon the premises to
confirm the performance by Retailer of Retailer's obligations under this
Contract.
(c) Price Signs. Except as may be otherwise specified by
Peterson, Retailer shall display Retailer's retail prices for all Chevron motor
fuels sold at the premises on one or more Chevron-approved motor fuel price
signs. If Retailer offers different levels of refueling service to motorists and
charges different Chevron motor fuel prices depending upon the level of service
provided, Retailer shall clearly indicate on such price signs the level of
service associated with the Chevron motor fuel prices displayed.
(d) Each of the following petroleum products shall be
continuously stocked and offered for sale at the premises in such quantities as
are necessary to meet the demand therefor:
Chevron Unleaded Gasoline; and
Chevron Regular Gasoline or Chevron Plus Unleaded Gasoline; and
Chevron Supreme Unleaded Gasoline; and
Chevron brand motor oils; and
If you offer fast lubrication services for automotive vehicles at the premises
(generally performed while the customer waits at the premises), you shall also
continuously stock and offer for sale at the premises at least one
single-viscosity Chevron brand motor oil and at least one multi-viscosity
Chevron brand motor oil in bulk storage tanks having a capacity of at least five
hundred (500) gallons each with appropriate piping for the convenient delivery
of such motor oils to all automotive lubricating locations on the premises. You
shall cause the dispensing equipment, displays and advertisements for Company's
products and brands at the premises to be as prominent and in as convenient
positions as those for any other product offered for sale on the premises.
(e) Restricted Uses. The premises shall not be used for the sale
of drug-related paraphernalia or equipment. Nor shall the premises be used for
the sale or rental of adult magazines, movies, video tapes or similar items
featuring nudity, unless such materials are handled discreetly in recognition
that they are not intended for viewing by minors and are offensive to many
adults. This means that such adult materials shall not be offered prominently at
the premises or displayed in a manner which would expose minors and adult
customers who are not interested in buying such materials to nudity or vulgar or
obscene language or images.
3. DELIVERIES-PRICES-TAXES.
2
<PAGE> 3
(a) Deliveries. Peterson shall deliver or arrange for the
delivery of Chevron motor fuels to Retailer at the premises. Orders for
deliveries of Chevron motor fuels shall be placed by Retailer with such advance
notice and in such manner as Peterson may from time to time designate.
Deliveries shall be made (except at Peterson's option) in full bulk transport
quantities in Peterson's customary manner using equipment selected by Peterson.
Retailer shall provide Peterson with unimpeded and adequate ingress to and
egress from the premises twenty-four (24) hours per day. Retailer shall comply
with such reasonable rules and regulations as Peterson may from time to time
establish regarding deliveries by Peterson at the premises. If there is
inadequate storage capacity to accept any delivery of Chevron motor fuels
ordered by Retailer and the delivery vehicle must leave the premises without
delivering all of the products ordered, Retailer shall be subject to an
additional handling fee in the amount of $250.00, or in such other amount as
Peterson may from time to time designate. Retailer shall also reimburse Peterson
on demand for any demurrage or other charges incurred by Peterson by reason of
Retailer's failure to unload any delivery vehicle or release the same within the
time allowed therefor without demurrage or other charge.
(b) Prices. The prices Retailer shall pay Peterson for Chevron
motor fuels hereunder shall be Peterson's prices to Retailer, as established by
Peterson from time to time, for the particular product, grade, quantity and type
of delivery involved. Retailer shall, except at Peterson's option, pay Peterson
cash before delivery for Chevron motor fuels and any other resale merchandise
which Retailer may purchase from Peterson. Except as otherwise agreed by
Peterson, all amounts payable under this Contract shall be paid by electronic
funds transfer from Retailer's designated bank account to such Peterson bank
account as may be designated by Peterson from time to time. Retailer shall
provide such information and shall execute such authorizations as Peterson may
from time to time request to allow Peterson to withdraw payments due hereunder
directly from Retailer's designated bank account. If credit is extended to
Retailer by Peterson, Retailer shall furnish Peterson with such information
regarding Retailer's financial condition as Peterson may reasonably request from
time to time. Peterson's terms of payment are subject to change without notice
at discretion of Peterson.
(c) Taxes. Any tax, duty, toll, fee, impost, charge or other
exaction, or the amount equivalent thereto, and any increase thereof now or
hereafter imposed, levied or assessed by any governmental authority upon,
measured by, incident to or as a result of the transactions herein provided for
(other than local, state and Federal net income taxes measured by the net income
of Peterson from all sources), or the transportation, importation, production,
manufacture, use or ownership of the goods the subject of this Contract shall,
if collectible or payable by Peterson, be paid by Retailer on demand by
Peterson. Any such payment shall be in addition to the prices otherwise herein
provided for.
4. TRADEMARKS. TRADE NAMES. COLOR SCHEMES AND IMAGE REQUIREMENTS.
(a) The products purchased by Retailer under this Contract shall
be sold by Retailer as the products of Chevron and only under the trademark and
trade names authorized for
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such products by Chevron. Retailer shall not at any time offer for sale under
such trademarks and trade names any product not authorized by Chevron to be sold
thereunder. Retailer shall conduct Retailer's business so as to eliminate any
likelihood of confusion between Chevron's products and those of others and so as
to eliminate any likelihood of substitution or commingling of the products of
others as or with those of Chevron. Retailer agrees to abide by such reasonable
regulations to this end as Chevron may from time to time establish by written
notice to Retailer. Without limitation on the foregoing, Peterson shall have the
right at any time to take samples of Chevron motor fuels from the premises for
testing purposes, compensating Retailer (at Retailer's cost, which for this
purpose shall be based on Peterson's prices to Retailer hereunder in effect at
the time the product is taken, or, at Peterson's option, in kind) for any
products so taken.
(b) Retailer recognizes Chevron's right to use and authorize
others to use all trademarks, service marks, trade names, color schemes and
service station designs (collectively "insignia") utilized by Chevron to
identify products and services, and Retailer agrees not to claim any right,
title or interest therein. Retailer acknowledges the need to control Retailer's
use of such insignia in order to maintain the validity thereof and to assure the
continued recognition of, acceptance by and high regard of the motoring public
for products and services identified by such insignia. Accordingly, Retailer
agrees that Retailer shall use such insignia only in such manner as may be
approved by Chevron and that Chevron may from time to time change such insignia
and its promotional materials as it sees fit. Retailer shall not use any such
insignia in Retailer's company name if Retailer is a corporation or limited
liability company ("LLC"), nor permit the use of any such insignia in the name
of any corporation or LLC in which Retailer has an interest. All signs
advertising Chevron's products and all signs in the colors used by Chevron to
identify its products or the places at which its products are sold and all
rights therein are and shall continue to be the property of Chevron. Retailer
shall not use any such signs except in connection with products manufactured or
handled by Chevron and only in such manner as may be approved by Chevron.
Chevron may, during the term of this Contract, and within a reasonable period
thereafter, remove or obliterate such signs, and repaint so much of the premises
as it elects, in a color or colors selected by it. If Chevron removes or
obliterates any signs or repaints any of the premises, Chevron need not restore
any pre-existing signs on or paint schemes of the premises. Retailer may not use
other signs to advertise products purchased from Peterson without Peterson's
prior written consent. No other signs (except motor fuel price signs) shall be
placed on a sign pole containing a sign advertising a product manufactured or
handled by Chevron. Retailer shall not, during the term of this Contract or
thereafter, simulate in any way any insignia identifying Chevron's products or
the places or outlets where they are sold or marketed. Upon termination of this
Contract, Retailer shall immediately return to Peterson all signs supplied to
Retailer by Chevron or Peterson and shall immediately discontinue any and all
use of such insignia and shall obliterate such insignia from all real or
personal property utilized by Retailer. Retailer likewise shall obliterate such
insignia from any real or personal property of Retailer before selling any such
property to a third party.
(c) Chevron shall have the right at any time during the term of
this Contract to change, alter or amend any of the trademarks and trade names
under which the motor fuels covered by this Contract are now or may hereafter be
sold. If Peterson shall at any time during the term of this Contract discontinue
the marketing in Retailer's locality of any or all of the motor
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fuels covered by this Contract, Peterson shall be relieved of all obligation to
sell or deliver such discontinued product to Retailer and, if Peterson shall
market any other product in lieu of the discontinued product, this Contract
shall embrace the new product and all of the terms and conditions hereof
previously applicable to the discontinued product shall apply to the new
product.
(d) Retailer shall cause the premises at all times to comply with
Chevron's image standards for branded retail outlets, as established by Chevron
from time to time. Peterson shall give Retailer at least one hundred twenty
(120) days' prior written notice of any change in Chevron's image standards for
branded retail outlets.
5. CONDUCT OF RETAILER'S BUSINESS.
(a) Retailer is engaged in an independent business and nothing
herein contained shall be construed as granting to Peterson any right to control
Retailer's business or operations or the manner in which the same shall be
conducted, Retailer's obligation to Peterson hereunder being the performance of
the terms and conditions of this Contract. Peterson has no right to hire or fire
any employees of Retailer or to exercise any control over any of Retailer's
employees, all of whom are entirely under the control and direction of Retailer,
who shall be responsible for their acts and omissions. Retailer accepts
exclusive liability for all contributions and payroll taxes required under
Federal Social Security laws and State Unemployment Compensation laws or other
payments under any laws of similar character as to all persons employed by or
working for Retailer. Retailer is not limited in the customers to whom or the
geographic area in which Retailer may sell goods or services from the premises.
Retailer is not granted any territorial rights by Peterson whatsoever (such as
any exclusive area or territory). Peterson reserves the right to establish
additional motor fuel retail outlets or service stations anywhere it chooses for
operation under the Chevron brand (or another brand) by other dealers, by
jobbers or by Peterson itself through its employees or agents.
(b) Retailer shall indemnify, defend and hold harmless Peterson,
Chevron, Chevron's parent company, Chevron Corporation, the subsidiary and
affiliated companies of each of them (collectively "Chevron and its
affiliates"), and their respective directors, officers, agents and employees,
from and against all expense (including attorneys' fees), liability and claims
of whatsoever kind and nature, including but not limited to those for damage to
property (including Retailer's property) or injury to or death of persons
(including Retailer), directly or indirectly resulting, or alleged to result,
from anything occurring from any cause on or about or in connection with the
maintenance, upkeep, repair, replacement, operation or use of the premises, or
anything located thereon. The foregoing indemnity shall not apply where such
expense, liability or claims result from Peterson's sole negligence or willful
misconduct.
6. PREVENTION OF PERFORMANCE-SHORTAGE OF SUPPLY.
(a) There shall be no obligation to sell or deliver or to receive
or use the petroleum products covered by this Contract when and while, and to
the extent that, the receiving or using or manufacture or making deliveries in
the customary manner are prevented or hindered
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by act of God, fire, riot, labor disturbances (whether involving employees of
the party affected or of others and regardless of whether the disturbance could
be settled by acceding to the demands of a labor group), accident, war or the
acts of any government (whether foreign or domestic, Federal, state, county or
municipal) or any causes beyond the reasonable control of the party affected,
whether or not similar to any of the foregoing causes. In cases of partial or
total interruption or loss or shortage of transportation facilities or supplies,
or shortage of products deliverable hereunder, Peterson may allocate deliveries
of available products among Retailer, Peterson's other customers, contract or
otherwise, and Peterson for its own use, on any basis which in Peterson's sole
judgment is fair and reasonable, allowing for such priorities as Peterson deems
appropriate.
(b) Due to uncertainties in the supply/demand situation (which
may include a decision by Peterson that the costs of some petroleum products
which might be available are unreasonable), Peterson may not have sufficient
supplies of one or more of the petroleum products covered by this Contract to
meet the full requirements of Retailer, of Peterson's other customers, contract
or otherwise, and of Peterson for its own use. Whenever that situation exists
and Peterson's performance hereunder is not otherwise excused, Peterson may
allocate deliveries of available products on any basis which in Peterson's sole
judgment is fair and reasonable, allowing for such priorities as Peterson deems
appropriate.
7. TERMINATION.
(a) Retailer may terminate this Contract without cause at any
time during the term hereof upon giving Peterson sixty (60) days' written notice
of such termination.
(b) Peterson may, in addition to such other remedies as Peterson
may have (including but not limited to the right to terminate this Contract as
otherwise provided herein) and subject to any valid requirements of any
applicable statute, terminate this Contract upon giving Retailer ninety (90)
days' prior written notice of such termination or, if it would not be reasonable
for Peterson to give ninety (90) days' prior written notice, at Peterson's
election upon giving Retailer prior written notice for such lesser period as is
reasonable in the circumstances, if any one of the following occurs:
(1) Retailer by act or omission breaches or defaults on
any covenant, condition or other provision of this Contract; or
(2) Retailer fails to exert good faith efforts to carry
out the provisions of this Contract following written notice to Retailer from
Peterson of such failure and a reasonable opportunity to exert good faith
efforts to carry out such provisions; or
(3) Retailer fails to pay to Peterson in a timely manner
when due all sums to which Peterson is legally entitled (whether or not such
sums are owed to Peterson under this Contract); or
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(4) Retailer knowingly fails to comply with Federal, state
or local laws or regulations relevant to the use or operation of the premises;
or
(5) Willful adulteration, commingling, mislabeling or
misbranding of motor fuels or other violations by Retailer of trademarks
utilized by Chevron; or
(6) This Contract, or any interest therein, is assigned or
otherwise transferred contrary to the provisions of section 9 hereon or
(7) Retailer vacates, abandons, transfers or is deprived
of possession of the premises; or
(8) Unlawful, fraudulent or deceptive acts or practices or
criminal misconduct by Retailer relevant to the operation of the premises; or
(9) Continuing severe physical or mental disability of
Retailer of three (3) months' duration which renders Retailer unable to provide
for the continued proper operation of the promises as a motor fuel retail
outlet; or
(10) Failure by Retailer to operate the premises as a
motor fuel retail outlet for seven (7) consecutive days, or such lesser period
which under the facts and circumstances constitutes an unreasonable period of
time; or
(11) Conviction of Retailer of any felony involving moral
turpitude; or
(12) Retailer's death; or
(13) Any other event which is relevant to the relationship
between Peterson and Retailer and as a result of which termination of this
Contract is reasonable.
Without limitation on the foregoing, it is agreed that upon the occurrence of
any of the events specified in clauses (3) through (12) of this subsection (b)
it would not be reasonable for Peterson to give ninety (90) days' prior written
notice, that ten (10) days' notice would be reasonable in such circumstances,
and that in any such circumstance Peterson may elect to terminate this Contract
upon giving Retailer ten (10) instead of ninety (90) days' prior written notice
of such termination.
(c) If during the term hereof Peterson decides to withdraw from
marketing motor fuels in the relevant geographic market area in which the
premises are located, Peterson may terminate this Contract by giving Retailer
one hundred eighty (180) days' prior written notice of such termination and
otherwise complying with any applicable requirements of law, including the
Federal Petroleum Marketing Practices Act.
(d) Waiver by Peterson or Retailer of one or more breaches or
defaults hereunder shall not be deemed to be a waiver of any other or continuing
breach or default
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hereunder. No modification of this Contract, and no waiver of any provision
hereof, shall be binding on Peterson or Retailer unless in writing and signed by
Peterson and Retailer. Termination of this Contract shall not relieve Peterson
or Retailer of responsibility for obligations incurred prior to termination.
Upon termination of this Contract, subject to any valid requirements of any
applicable statute, neither Peterson nor any incoming Retailer shall have any
obligation to purchase from Retailer any of Retailer's inventory, tools,
equipment or supplies.
(e) If Peterson continues to accept orders from Retailer for
motor fuels following termination of this Contract, such sales shall be upon all
of the terms and conditions hereof; provided that such sales shall not be
construed to evidence a renewal of this Contract by operation of law or
otherwise, but shall imply only an agreement from day to day, which Peterson may
(subject to any valid requirements of any applicable statute) terminate without
cause at any time upon giving Retailer written notice of such termination.
(f) Retailer's obligations, duties and responsibilities,
including without limitation, any amounts owed to Peterson by Retailer pursuant
to this Contract or that may accrue as a result of Retailer's breach of this
Contract shall be secured by a Trust Deed on the Premises.
8. ASSIGNMENT.
This Contract is personal to Retailer, and Dealer shall not, without
Peterson's prior written consent: assign this Contract, or any interest therein
(either voluntarily or by operation of law) by assignment or other arrangements
having similar effect; or become associated with any other person, directly or
indirectly, as a partner or otherwise in regard to Retailer's interest or
operations under this Contract. Subject to any valid requirements of any
applicable statute, Peterson reserves the right in its sole discretion
arbitrarily to withhold its consent to any such assignment or other transfer by
Retailer. Peterson shall have the right at anytime to assign its rights and
delegate its duties under this Contract without Retailer's consent. In the event
of any such assignment by Peterson, the prices to be paid by Retailer pursuant
to section 3(b) hereof shall be such prices as may be set in good faith by the
transferee. Any such assignment or other transfer by Retailer or Peterson shall
not relieve Retailer or Peterson of their obligations hereunder.
9. INSURANCE.
(a) Retailer shall maintain, at Retailer's own expense during the
term hereof, insurance with respect to Retailer's business, the premises and all
activities on or about or in connection with the premises of the types and in
the minimum amounts described generally as follows:
(1) Garage Liability Insurance or Comprehensive General
Liability Insurance (bodily injury and property damage) of not less than
$500,000.00 combined single limit per occurrence, including the following
coverages: explosion hazard, personal injury,
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premises-operations, products and completed operations, blanket contractual and
independent contractors liability, and liquor liability (if alcoholic beverages
are sold from the premises); and
(2) Business Auto Liability Insurance (bodily injury and
property damage) of not less than $500,000.00 combined single limit per
occurrence on all nonowned automobiles, all tow trucks and service vehicles
which are owned, hired or leased by Retailer, and all vehicles bearing the
hallmark or other insignia used by Chevron, which are owned, hired or leased by
Retailer; and
(3) Environmental Impairment Liability Insurance (bodily
injury and property damage) of not less than $500,000.00 combined single limit
of liability, including gradual seepage, pollution and cleanup costs; and
(4) Worker's Compensation and Employer's Liability
Insurance as prescribed by applicable law; and
(5) Any other insurance or surety bonding that may be
required by applicable Federal, state and local laws and regulations; and
(6) Excess liability insurance of not less than
$1,000,000.00 per occurrence in excess of the insurance required under clauses
(1), (2), (4) (except Worker's Compensation) and (5) above, affording not less
than the same coverage and including personal injury and property damage
coverage.
(b) The insurance required under clauses (1), (2), (3), (5) and
(6) of subsection (a) above shall include Peterson, Chevron and its affiliates
as additional insureds except with regard to occurrences that are the result of
their sole negligence.
(c) The insurance required under clauses (1), (2), (3), (5) and
(6) of subsection (a) above shall provide that it is primary coverage with
respect to Retailer, Peterson, Chevron and all other additional insureds.
(d) The insurance required above shall be issued by insurance
companies which meet Peterson's financial standards for insurers (as established
by Peterson from time to time) and shall provide that no cancellation or
material change in any policy shall become effective except upon thirty (30)
days' prior written notice to Peterson.
(e) The insurance companies shall have no recourse against
Peterson, Chevron, or any other additional insured, for payment of any premiums
or assessments under any policy issued by a mutual insurance company.
(f) shall furnish certificates satisfactory to Peterson as
evidence that the insurance required under this section 10 above is being
maintained.
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(g) Retailer shall be responsible for all deductibles in all of
Retailer's insurance policies.
(h) Retailer's indemnity and other obligations shall not be
limited by the foregoing insurance requirements.
10. CORPORATE/LLC RETAILER -- OPERATOR.
(a) The personal qualifications of each Chevron retailer are of
material significance to Peterson, other retail outlets displaying Chevron
insignia, and the motoring public. When Peterson accommodates an individual's
desire to do business in corporate or limited liability company ("LLC") form by
entering into this Contract with the corporation/LLC, this is done with the
understanding that, although it is only the corporate/LLC Retailer that enjoys
rights under this Contract, those rights are conditioned on the individual
remaining actively involved with and responsible for the operation of the
premises and retaining control of the corporation/LLC. Accordingly, if Retailer
is a corporation/LLC and subject to any valid requirements of any applicable
statute, Retailer agrees that the references to "Retailer" in clauses (8), (9),
(11) and (12) of subsection 7(b) hereof are amended hereby to read Retailer or
any Operator. and that Retailer's rights under this Contract are subject to the
following conditions being met throughout the term of this Contract, which
Retailer shall cause the following named individual Dave Cook, ("Operator") to
meet:
(1) Operator shall perform Retailer's obligations under
subsection 2(b) hereof to devote sufficient time to the personal management of
the premises so as to provide for the continued proper operation thereof as a
motor fuel retail outlet.
(2) This clause (2) applies if Retailer is a
corporation. Operator shall own all right, title and interest, legal and
beneficial, in and to a majority of the voting stock and any other stock of
Retailer (as well as a majority thereof after giving effect to the conversion of
all securities convertible into stock of Retailer and taking into account the
issuance of any additional stock or securities convertible into stock) and
Operator shall not pledge or otherwise hypothecate any such stock or securities,
or permit or suffer any lien or encumbrance to be placed thereon, or grant
proxies or enter into stockholder or other agreements which limit in any manner
Operator's control of Retailer, or otherwise create, permit or suffer legal,
beneficial or other rights or interests to exist in others with regard to any
such stock or securities.
(3) This clause (3) applies if Retailer is an LLC.
Operator shall own all right, title and interest, legal and beneficial, in and
to a majority voting interest, majority profit interest and majority capital
interest in Retailer. Operator shall not pledge or otherwise hypothecate any
such interests, or permit or suffer any lien or encumbrance to be placed
thereon, or grant proxies or enter into operating or other agreements which
limit in any manner Operator's control of Retailer, or otherwise create, permit
or suffer legal, beneficial or other rights or interests to exist in others with
regard to any such interests of Operator in Retailer.
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(4) Operator shall guarantee the performance of all of
Retailer's obligations under this Contract.
(b) The occurrence of any event, whether voluntary, involuntary,
direct or indirect, by operation of law, by merger or other corporate/LLC
proceedings or otherwise caused, which results in any of the following shall be
construed as an assignment of this Contract for the purposes of section 9
hereof:
(1) Operator having less than a majority of the voting and
other stock of Retailer as required by clause (2) of subsection (a) above, or
any action otherwise in breach of clause (2) of subsection (a) above; or
(2) Operator having less than a majority of the voting
interest, profit interest or capital interest in Retailer as required by clause
(3) of subsection(a) above, or any action otherwise in breach of clause (3) of
subsection (a) above.
11. MOTOR FUEL REGULATIONS.
(a) The motor fuels covered by this Contract are subject to
Federal air pollution laws and regulations controlling fuels and fuel additives
for use in motor vehicles and motor vehicle engines. Those laws and regulations
require motor fuels to meet product specifications designed to minimize harmful
emissions, and impose directly on Retailer and Chevron specific legal
obligations regarding the quality control, distribution, sale and dispensing of
regulated motor fuels. Chevron has established certain programs and procedures
for handling regulated motor fuels to achieve compliance with these governmental
requirements and reduce liability exposure for noncompliance. Retailer
recognizes the importance to Chevron, Peterson, Retailer and the public of
Retailer meeting fully all governmental motor fuel requirements. Accordingly,
Retailer shall comply fully with Chevron's current and future programs and
procedures for handling regulated motor fuels, as set forth in Chevron's Retail
Facility Compliance Guide and in all other manuals and written communications
pertaining to regulated motor fuels that Chevron has distributed or may in the
future distribute to Retailer. Chevron does not represent or warrant that
following its programs and procedures for handling regulated motor fuels will
ensure compliance with all governmental motor fuel requirements. Retailer is
independently responsible for complying fully with all applicable Federal, state
and local laws and regulations pertaining to motor fuels.
(1) prohibit the sale, dispensing or offering for sale
of gasoline represented to be unleaded gasoline unless it meets the requirements
for unleaded gasoline defined in the Federal regulations;
(2) prohibit introduction, or causing or allowing
introduction of leaded gasoline into any motor vehicle which is labeled
"unleaded gasoline only", or which is equipped with a gasoline tank filler inlet
which is designed only for the introduction of unleaded gasoline;
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(3) require that all gasoline pumps, from which leaded
gasoline is introduced into motor vehicles, be equipped with a nozzle spout
having a terminal end with an outside diameter of not less than 0.930 inch
(2.363 centimeters);
(4) require that all gasoline pumps, from which unleaded
gasoline is introduced into motor vehicles, be equipped with a nozzle spout
which meets the following specifications: (i) the outside diameter of the
terminal end shall not be greater than 0.840 inch (2.134 centimeters); (ii) the
terminal end shall have a straight section of at least 2.5 inches (6.34
centimeters) in length; and (iii) the retaining spring shall terminate 3.0
inches (7.6 centimeters) from the terminal end;
(5) require that the following notice be displayed in the
immediate area of each pump
Federal Law Prohibits the Introduction of Any Gasoline Containing Lead or
Phosphorus Into Any Motor Vehicle Labeled UNLEADED GASOLINE ONLY.;
(6) require that unleaded gasoline pumps have affixed a
label stating: "Unleaded Gasoline"; and
(7) require that leaded gasoline pumps have affixed a
label stating: "Contains lead antiknock compounds".
You shall also comply fully with all documents, manuals and other written
communications pertaining to unleaded gasoline, which Jobber or Company have
distributed to you or may distribute to you at any time in the future.
(b) Retailer shall promptly advise Peterson if Retailer has any
indication that contamination of motor fuel at the premises may have occurred in
order that Peterson may, at its option, conduct a test of such product.
Peterson's representatives shall have the right at any time to enter upon the
premises and to take such quantities of such products as they deem necessary to
check the quality of the product, compensating Retailer for any product so
taken.
(c) Retailer's indemnity obligation under section 5(b) of this
Contract shall include, but not be limited to, any and all expense (including
attorneys' fees), liability, claims, fines, civil penalties or demands which may
arise or be assessed as a result of any act or omission of Retailer, or
Retailer's agents or employees in handling motor fuel purchased hereunder, or as
a result of failure by any of them to follow Chevron's programs and procedures
for handling motor fuel.
(d) If Retailer fails to comply with the requirements of this
section 12 with regard to any particular motor fuel product, then Peterson, in
addition to such other remedies as it may have, shall have the right to
terminate delivery to Retailer of the motor fuel product in question or to
suspend such delivery until Peterson is satisfied that Retailer is again in
compliance herewith.
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12. INCENTIVE AND PROMOTIONAL PROGRAMS.
(a) Chevron may offer to Peterson and Retailer from time to time
incentive, promotional or other development programs. The terms and conditions
of such incentive, promotional and development programs including the Hallmark
21 Program (attached hereto marked Exhibit "A" and by reference made a part
hereof) are hereby incorporated herein.
(b) Such incentive, promotional and development programs may be
amended, modified or terminated upon thirty (30) days' prior written notice to
Retailer.
(c) The obligations, responsibilities and duties imposed on
Retailer pursuant to the incentive, promotional or development programs
including any reimbursement, credit, refund, or adjustment shall be secured by a
Trust Deed and lien on Retailer's premises.
13. RIGHT OF FIRST REFUSAL.
It is agreed that should Retailer or Retailer's heirs, executors,
grantees, successors or assigns, at any time during the term of this Supply
Contract or within one (1) year after the termination of this Supply Contract,
regardless of the grounds of said termination, receive an offer to purchase the
premises or any part thereof, and Retailer desires to accept said offer; or
should Retailer during any such time make an offer to sell the premises, or any
part thereof, Retailer shall give Peterson forty-five (45) days' notice in
writing of such offer setting forth the name and address of the proposed
purchaser, the amount of the proposed purchase price, and all other terms and
conditions of such offer, and Peterson shall have the first option to purchase
the premises which are the subject of the offer by giving written notice to
Retailer of its intention to purchase within said forty-five (45) day period at
the same price and on the same terms of any such offer. If Peterson does not
exercise such Right of First Refusal, Retailer may, at any time within three (3)
months after the expiration of such forty-five day period, but no later, sell or
otherwise transfer such interest, but only to the original offeror and only upon
the terms of the offer submitted by Retailer to Peterson. It being understood
that in the event Peterson does not give notice of its intention to exercise
said option to purchase within said period, the provisions of this Supply
Contract and all of its terms and conditions shall nevertheless remain in full
force and effect and Retailer and any purchaser or purchasers of the premises
shall be bound thereby. In the event the premises set forth in the offer are not
sold for any reason, Peterson shall have the continuing Right of First Refusal
to purchase the premises or any part thereof upon any terms of any subsequent
offer or offers to purchase during the term of the Contract and for one (1) year
after any termination of this Supply Contract.
In the event the foregoing option is exercised, Retailer shall convey a
merchantable title and fee simple to said real estate by good and sufficient
warranty deed, free from any and all encumbrances whatsoever. Within thirty (30)
days of the exercise of such option, Retailer will furnish to Peterson a
guaranteed title insurance policy of a company acceptable to Peterson, in its
usual form, insuring Peterson against loss or damage to the extent of the
purchase price by reason of defects and/or liens upon Retailer's title, subject
to only the usual exceptions contained in title
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policies of the issuing company. Settlement of the purchase price and conveyance
to Peterson shall be made within ninety (90) days from said date of exercise.
Taxes, utilities, rents, and other expenses shall be adjusted as of the date of
settlement.
Nothing herein shall be construed as a consent by Peterson to any such
sale or transfer or waiver of any of Peterson's rights under this Supply
Contract. An offer by a third-party to exchange other property interests owned
or to be acquired by it or any interest of Retailer shall be deemed to
constitute an offer to purchase for price equal to the fair market value of the
property offered in exchange.
14. PRIOR AGREEMENTS.
Effective as of the commencement of the term hereof, this Contract
supersedes and terminates all prior supply contracts between Peterson and
Retailer covering the delivery of motor fuels to the premises, provided that any
outstanding breach by Retailer of any such prior Supply Contract shall be deemed
to be a breach of this Contract and the occurrence of any event authorizing the
termination of any such prior Supply Contract shall authorize the termination of
this Contract. This Contract and other written agreements between Peterson and
Retailer constitute the entire agreement between Peterson and Retailer with
regard to the premises. Retailer acknowledges and agrees that there are no
understandings or agreements between Peterson and Retailer with regard to the
premises except as set forth in such written agreements and that Retailer has
not relied on any oral statements or representations by Peterson or on
Peterson's behalf in connection with the premises.
15. NOTICE.
All notices to be given under this Contract shall be in writing and
shall be posted by United States mail or personally delivered to Peterson at
P.O. Box 858, Provo, Utah 84603, and to Retailer at the premises or such other
address as either party may designate by written notice to the other in the
manner herein provided.
16. EXECUTION OF DOCUMENTS.
Retailer agrees to execute any and all documents, instruments,
agreements, deeds, or other workings that may be necessary to implement the
terms and conditions of this Contract.
17. ATTORNEYS' FEES.
In the event of any lawsuit between Peterson and Retailer arising out of
or relating to the transactions or relationship contemplated by this Contract
(regardless whether such action alleges breach of contract, tort, violation of a
statute or any other cause of action), the substantially prevailing party shall
be entitled to recover its reasonable costs of suit including its reasonable
attorneys' fees. If a party substantially prevails on some aspects of such
action but not others, the court may apportion any award of costs or attorneys'
fees in such manner as it deems equitable.
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<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have executed this Contract as of the
date first above written.
MIKE PETERSON OIL COMPANY, INC. Dave Cook
PERSONAL GUARANTY
In consideration of the covenants and agreements contained herein,
whereby Peterson agrees to extend credit and supply petroleum products to
Retailer, the undersigned do hereby jointly and severally guaranty payments of
any and all obligations arising out of the Supply Contract together with any
obligations, payments, refunds or adjustments pursuant to any incentive,
promotional or development program offered thereunder which may now exist, or
hereinafter arise, of whatever nature and however represented and whether
secured or unsecured. This agreement is continuing in nature, and it is
specifically understood that this agreement is to encompass any and all future
sales, accommodations and indebtedness of Retailer to Peterson, as well as any
existing indebtedness of Retailer and that any obligations or indebtedness may
be changed, modified, increased, renewed, paid or reinstated all without notice
to guarantors or any of them. This Guaranty shall remain in full force and
effect until terminated in writing, even though from time to time, there may be
no outstanding balance or obligation owed by Retailer to Peterson. This
agreement is severable as to each guarantor, it being specifically understood
that no one guarantor is relying upon the obligations of any other guarantor and
Peterson may release or modify this agreement and relationship to the
obligations of one or more guarantors without effecting the liability of any
other guarantor. Each guarantor agrees to pay all costs and expenses including a
reasonable attorneys' fee incurred in enforcing this Guaranty. This Guaranty
shall be binding upon the heirs, personal representatives, successors and
assigns of the Guarantor and shall inure to the benefit of Peterson, its
successors and assigns. This Contract and Guaranty is assignable by Peterson in
whole or in part without notice to guarantors.
GUARANTORS
15
<PAGE> 16
EXHIBIT "A"
HALLMARK 21 INVESTMENT INCENTIVE PROGRAM
Chevron U.S.A. Products Company (.Chevron.) has created the Hallmark 21
Investment Incentive Program to promote the development by Chevron branded
jobbers of new and rebuilt convenience stores and conventional service stations
following Chevron's Hallmark 21 designs. Pursuant to said Program, Retailer has
proposed to construct or completely reconstruct the above-noted service station
(the "premises") under this Program. Peterson hereby approves Retailer's
proposal and agrees to partially reimburse Retailer for the costs of
constructing or reconstructing the premises on the following terms and
conditions:
1. The premises shall be constructed or reconstructed to
Chevron's Hallmark 21 specifications, in accordance with plans which Retailer
shall purchase from Chevron. The required Hallmark 21 elements are set forth in
Chevron's Hallmark 21 Retail Image Guidelines manual, which Peterson has
provided to Retailer.
2. This approval and agreement shall terminate and be of no
further force or effect unless the construction or reconstruction work at the
premises is commenced within twelve (12) months of the date hereof, prosecuted
diligently and completed to Chevron's satisfaction.
3. Subject to the limitations set forth below, Peterson shall pay
Retailer $.02 per gallon for each gallon of Chevron brand gasoline sold at the
premises during the three-year period commencing on the first day of the first
full month after the construction or reconstruction work has been completed and
the premises have opened or reopened for business (the "start date"). Peterson
shall make such payments to Retailer monthly on the basis of the prior month's
sales at the premises by credits to Retailer's petroleum products account with
Peterson, provided that Retailer furnishes Peterson with satisfactory proof of
such sales in accordance with paragraph 6 of this letter. The maximum amount of
such payments shall be $200,000.00.
4. If Retailer so elects by indicating "Yes" below, Peterson
shall make a lump sum payment to Retailer in the amount of $_____________
promptly following the start date, in lieu of making monthly payments to
Retailer under paragraph 3 above. The lump sum payment amount shall be adjusted
in the following manner at the end of each of the first four years after the
start date, if the Chevron gasoline sales volume at the premises during each
such year (the "actual volume") is more or less than ________________ gallons
(the "base volume"). If the base volume exceeds the actual volume, Retailer
shall promptly pay to Peterson an amount equal to $.02 times the difference (in
gallons) between the base and actual volumes. If the actual volume exceeds the
base volume, Peterson shall promptly pay to Retailer an amount equal to $.02
times the difference (in gallons) between the actual and base volumes; provided
that in no event shall the aggregate of the lump sum payment amount and the
amount of any adjustment payments by Peterson to Retailer under this paragraph 4
exceed the sum of $160,000.00.
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<PAGE> 17
5. Please indicate by "Yes" or "No" below whether Retailer is
also electing the "DCR option". Choosing this option means that Retailer will
equip all of the self-service motor fuel dispensers at the premises with
Chevron-approved dispenser card readers for processing credit card sales
directly at the dispensers ("DCR's"). Provided that Retailer completes the
installation of DCR's at the premises by the start date, Peterson will reimburse
Retailer for thirty percent (30%) of Retailer's DCR costs up to a maximum
reimbursement limit of $15,000.00.
The undersigned elects the DCR option YES.
6. Retailer shall keep such records and submit to Peterson such
reports and other documentation as shall be satisfactory to Peterson regarding
the quantities of Chevron brand gasoline sold at the premises during the
four-year period in question. Peterson shall be permitted to inspect and audit
such records at any time during Retailer's business hours on reasonable notice
to Retailer. Retailer shall also grant Peterson the right at any time to enter
upon the premises for the purpose of reading the meters of the dispensers for
Chevron brand gasoline in order to verify the quantities of such products sold
at the premises. If Retailer has elected the DCR option under paragraph 4 above,
Retailer shall also submit to Peterson original paid invoices documenting
Retailer's costs of installing DCR's at the premises.
7. If for any reason Retailer's authorization to use Chevron's
trademarks and other insignia at the premises is terminated or not renewed at
any time during the ten-year period after the start date, then Retailer shall
reimburse to Peterson the total sum paid to Retailer by Peterson under this
agreement (including any sum for DCR's), less 1/120 of such sum for each month
elapsed during such ten-year period.
8. Any breach of this agreement and incentive program shall
constitute a breach of the Supply Contract between Peterson and Retailer and any
agreement authorizing the use of Chevron's trademarks and other insignia at the
premises then operative between Retailer and Peterson.
17
<PAGE> 1
[EXHIBIT 10.19]
ACE DEALER FRANCHISE AGREEMENT
This Franchise Agreement made and entered into by and between ACE HARDWARE
CORPORATION, a Delaware corporation, having its general offices at 2200
Kensington Court, Oak Brook, Illinois 60521, hereinafter referred to as the
"Company" and Utah Service, Inc., an independent merchant operating a retail
business at 35 East 400 South, Springville, Utah 84663, hereinafter referred to
as the "Dealer";
WITNESSETH:
In consideration of the premises and the mutual covenants herein contained, the
Company and the Dealer hereby agree as follows:
ARTICLE I
DUTIES AND OBLIGATIONS OF THE COMPANY
The Company agrees to:
1. permit, authorize and allow the Dealer to use the name "ACE Hardware" in
connection with the business operated by the Dealer at the above
location, and to use the ACE Hardware trademark and other trademarks and
service marks belonging to or registered by the Company and to
prominently display the ACE Hardware group identification sign and
emblem in connection with said business;
2. sell to the Dealer for resale by the Dealer at the business operated by
the Dealer at the above location such merchandise as the Company
regularly carries for sale, including all items carried under the ACE
Brand Name;
3. prepare and make available to the Dealer at the lowest possible cost for
use in connection with the business operated by the Dealer at the above
location advertising circulars, newspaper mats, ACE identification signs
and other promotional materials, provided that the Dealer, at the
Dealer's option, agrees to purchase or subscribe for said materials and
to pay a reasonable charge therefore;
4. hold ACE Hardware Corporation Conventions and Meetings from time to time
and to display at such Conventions and Meetings merchandise offered for
sale by the Company;
5. provide the Dealer with Bulletins for special purchases from time to
time and prepare and make available to the Dealer at a reasonable charge
either catalogue checklist service or microfiche film service in order
that the Dealer may have available at all time updated information to
enable the Dealer to order a wide range of merchandise for the conduct
of his business (it being understood that all such checklists and
microfiche films are the
<PAGE> 2
property of the Company and that they can be removed from the Dealer's
place of business immediately upon termination of this Agreement);
6. distribute to the Dealer as patronage dividends within 8 -1/2 months
following the close of each year, in accordance with the applicable
provisions of Article XXIV of the Company's By-laws and the then
effective patronage dividend distribution plan of the Company, the
proportionate share allocable to the Dealer's place of business
described above of the net savings and earnings effected by or resulting
from operations carried on by the Company in connection with each
category of sales of merchandise made by it to all Dealers to whom the
Company is obligated to pay patronage dividends.
ARTICLE II
DUTIES AND OBLIGATIONS OF THE DEALER
The Dealer agrees to:
1. subscribe and pay for the appropriate number of shares of capital stock
of the Company in accordance with the accompanying Subscription for
Capital Stock Agreement which shall be deemed to be a part of this
Agreement; (except that where any such capital stock has been
transferred, with the Company's consent, to the Dealer by a former
Dealer, the Dealer shall assume all obligations under the Subscription
for Capital Stock Agreement executed or assumed by such former Dealer
for which the former Dealer was liable at the time of such transfer of
said capital stock to the Dealer);
2. give first and careful consideration to all merchandise lines and items
offered for sale by the Company and to purchase an adequate volume of
merchandise (including items carried under the ACE private label) from
the Company's distribution centers, from its special Bulletin Program
and from its Supplier-Direct Shipment Program in order to maintain the
quality image of the ACE franchise and to ensure that the Dealer's
allocation under the Company's Patronage Dividend Program will not
inequitably favor the Dealer in relation to the Company's costs of
serving the Dealer;
3. make payment of all amounts shown as currently due on all billing
statements rendered by the Company to the Dealer for purchases of
merchandise, supplies and services from the Company with sufficient
promptness for the checks of the Dealer in payment of such amounts to be
received by the Company no later than the tenth day following the date
of the statement and to pay a service charge equal to 1% per bi-weekly
billing statement period on any past due balance (it being understood
that any invoices for purchases of merchandise on which extended terms
have been granted shall automatically become due when other items billed
are not paid by the due date and it being further understood that the
percentage for determining the service charge on past due balances may
be changed from time to time by the Company);
4. return no merchandise purchased by the Dealer from the Company without
the written consent of the Company first being obtained;
2
<PAGE> 3
5. pay to the Company a handling charge in the amount of Three Hundred
Dollars ($300.00) upon acceptance by the Company of the retail business
operated by the Dealer at the location described in this Agreement as an
authorized ACE retail outlet in order to partially defray the costs
incurred by the Company in processing this Agreement and the
accompanying Subscription for Capital Stock Agreement, or Agreement
assuming the obligations of a former Dealer under a previously executed
Subscription for Capital Stock Agreement;
6. pay such reasonable charge as the Company regularly assesses against all
ACE dealers as a percent of their volume of purchases from the Company
in order to fund the Company's national and regional advertising
programs;
7. keep in strict confidence all ACE Checklists, Microfiche Films,
Bulletins, Catalogs, Order Forms, equipment, correspondence, and other
Company documents and information furnished to the Dealer by the Company
in connection with the place of business covered by this Agreement and,
upon termination of said Agreement, to immediately return to the Company
or its agent all such Checklists, Microfiche Films, Bulletins, Catalogs,
Order Forms, and equipment which had been provided by the Company, and
to immediately remove all ACE Hardware signs and emblems from the place
of business covered by this Agreement and to refrain from thereafter
using the name "ACE" in any way in connection with such business (it
being further understood that this also requires that the name "ACE" be
eliminated if it has been used as a part of the Dealer's corporate name
or trade name at such place of business);
8. at not time adopt or use, without the Company's prior written consent,
any name, word or mark which is likely to be similar to or confusing
with any trade name, trademark or service mark belonging to or
registered by the Company (it being understood and agreed that all
variations or adaptations of any trademarks or service marks owned or
registered by the Company shall be the exclusive property of the Company
and that the Company shall have the exclusive right to register the same
and to license the use thereof);
9. assume liability for and indemnify the Company and hold it harmless from
and against any and all claims which may be asserted against the Company
and from any losses sustained by the Company (including attorneys' fees
and expenses incurred by the Company in defending such claims or in
attempting to avoid or mitigate such losses) in connection with or
resulting from billings by suppliers of merchandise purchased by the
Dealer, or at the request of the Dealer, from or through the Company in
cases where such merchandise is not to be supplied from the Company's
own inventories;
10. immediately inform the Company of any change in the form of ownership of
the Dealer (such as a change from individual or partnership form to
corporate form, or vice versa), or of the death of any partner having an
interest in any partnership by which the Dealer is owned or of the death
of any stockholder owning fifty percent (50%0 or more of the voting
stock of the Dealer if the Dealer is incorporated;
3
<PAGE> 4
11. commencing with the first bi-weekly billing period following the date
which is one year after the date of the Company's acceptance of this
Agreement, pay a special service charge of $15 for each such period
during which the Dealer's purchases of merchandise (exclusive of carload
lumber purchases) from the Company are less than $1,500, provided,
however, that when the Dealer's qualifying purchases during any calendar
year reach a total of $39,000 (or a pro-rata portion of $39,000 during
the portion of a calendar year remaining after the date as of which the
Dealer first becomes subject to the possible imposition of such charge),
no further charges of such type will be assessed against the Dealer
during the calendar year and the Dealer will be given credit on his next
bi-weekly billing statement for any such charges theretofore added to
his account during the year (it being understood that the amount of such
special charge and the required minimum amounts of bi-weekly and
calendar year purchases to avoid the charge are subject to being changed
annually by the Board of Directors of the Company);
12. comply with all provisions of the Bylaws of the Company, as amended from
time to time, which apply in any way to any of the relationships between
the Dealer and the Company.
ARTICLE III
MISCELLANEOUS
1. It is understood and agreed that the signing of this Agreement by the
Dealer constitutes an application only and that this Agreement shall
have no force or effect unless and until the same has been duly accepted
and countersigned by the Company at its principal offices in Oak Brook,
Illinois, and that all orders for merchandise, supplies and services
placed by the dealer pursuant to this Agreement are to be transmitted to
the Company at its principal office in Illinois. Accordingly, all
provisions hereof shall be interpreted and construed in accordance with
the laws of Illinois, but if any provision hereof shall be held illegal
or void it shall not affect the validity or the legality of the
remaining portion of this Agreement.
2. Neither this Agreement nor any interest of the Dealer therein shall be
assignable or subject to transfer, assignment or encumbrance by the
Dealer at any time.
3. This Agreement may be terminated at any time by either of the parties
hereto by giving of written notice of such intention to terminate to the
other party not less than thirty (30) days in advance of the termination
date set forth in the notice. The Company also reserves the right to
terminate this Agreement upon three (3) days' advance notice to the
Dealer in the event that any payment owing to the Company for
merchandise or services supplied to the Dealer is not received by the
Company within fifteen (15) days after the date on which such payment is
due. Any notice of termination hereunder shall be effective if
personally delivered by the terminating party to the other party or if
mailed to the other party by registered or certified mail at the address
of such party set forth herein or at such other address as such party
shall have specified in writing. Such notice shall be
4
<PAGE> 5
deemed to have been given on the date of such personal delivery or on
the date of such mailing, as the case may be.
4. It is understood and agreed that, whenever in the reasonable opinion of
the Company it shall appear that the financial condition of the Dealer
may be incapable of supporting the continued extension of normal credit
to the Dealer by the Company, the Company shall have the right to limit
the quantities of merchandise purchased by the Dealer from the Company
(including the right to prohibit the Dealer from placing any orders with
or through the Company which are not to be filled from the warehouse
inventories of the Company).
5. The patronage dividends to be distributed to the Dealer pursuant to
Paragraph 6 of Article I hereof shall be distributed each year to the
Dealer in cash or money to the extent of not less than twenty percent
(20%) thereof (30% thereof if the franchised location is in a foreign
country or is located in Puerto Rico and is owned by a Dealer other than
an individual who is a U.S. citizen) and the balance thereof shall be
distributed in "written notices of allocation", as defined in Section
1388 of the U.S. Internal Revenue Code, as amended, in accordance with
the Plan for the distribution of patronage dividends as adopted by the
Board of Directors of the Company with respect to such distributions for
the year involved. Among other things, such Plan may provide that the
portion of the patronage dividends distributed in "written notices of
allocation" may consist partly of patronage refund certificates having a
fixed maturity date and partly of shares of Class "C" non-voting stock
of the Company, or entirely of patronage refund certificates or entirely
of shares of Class "C" non-voting stock, and such Plan may provide for
greater percentages of the total annual patronage dividends
distributable to dealers whose total patronage dividends for the year
exceed certain amounts to be paid in cash than the percentages to be
paid in cash to dealers whose total annual patronage dividends do not
exceed such amounts. The Dealer hereby acknowledges that the Dealer is
familiar with the terms of the Patronage Dividend Plan of the Company
currently in effect as described in the accompanying Prospectus
descriptive of the offering of the shares of stock of the Company
subscribed for by the Dealer in the accompanying Subscription for
Capital Stock Agreement or referred to in the Agreement of the Dealer
assuming the obligations of a former Dealer under a previously executed
Subscription for Capital Stock Agreement. Notwithstanding the terms of
any provision of any such Plan, however, the portion of any patronage
dividends which would otherwise be distributable to the Dealer in cash
for the place of business described above will instead be applied
against any indebtedness owing by the Dealer to the Company to the
extent of such indebtedness upon termination of this Agreement at any
time after May 19, 1980 unless at timely request for the payment of such
amount in cash is submitted to the Company by the Dealer.
6. In the event that the Dealer desires to sell the retail business covered
by this Agreement, the Dealer shall give the Company written notice of
the proposed sale, together with the name and address of the proposed
purchaser, at least thirty (30) days prior to the closing of such sale
by registered or certified mail at the address of the Company set forth
herein,
5
<PAGE> 6
or at such other address as shall have been specified in writing by the
Company. However, no such purchaser shall be entitled to operate such
business as a franchised ACE dealer unless such purchaser executes an
appropriate Subscription for Capital Stock Agreement which is accepted
by the Company or purchases from the selling Dealer (with the consent of
the Company) the shares of capital stock of the Company owned by the
selling Dealer with respect to such business, and also executes an ACE
Dealer Franchise Agreement with respect to such business which is
accepted and countersigned by the Company.
7. The closing down of the business covered by this Agreement shall
automatically cause this Agreement to be terminated unless the business
operated by the Dealer at the location covered by this Agreement is
moved to another location to which the Company consents. This Agreement
shall also automatically terminate if the Dealer, or the business
operated by the Dealer at the location covered by this Agreement,
becomes insolvent, makes an assignment for the benefit of creditors, or
files a voluntary Petition in Bankruptcy, or if an involuntary Petition
in Bankruptcy is filed against the Dealer or against said business.
8. Unless the Company shall expressly consent to the continuation of this
Agreement after such time, this Agreement shall automatically be deemed
to have terminated as of the time when any of the shares of capital
stock of the Company purchased by the Dealer with respect to the
Dealer's place of business described herein, or any shares of capital
stock of the Company at any time hereafter distributed to the
undersigned as a part of any patronage dividend distribution to which
the undersigned shall be entitled with respect to such business, are
transferred (with the consent of the Company) to another eligible holder
of said shares or are purchased back from the Dealer by the Company.
9. If the business operated at the location covered by this Agreement is
owned by an individual proprietor, this Agreement shall automatically
terminate upon the death of such individual, or if the business operated
at the location covered by this Agreement is owned by a partnership,
this Agreement shall automatically terminate upon the death of a member
of such partnership, provided, however, that, with the approval of the
Company (which approval shall not be unreasonably withheld), such
business may continue to be operated under this Agreement by the estate
of such deceased individual proprietor or by the person or persons to
whom ownership of said business is to be distributed by the estate of
such deceased individual or by the person or partnership succeeding to
the interest of such deceased member of a partnership owning such
business.
IN WITNESS WHEREOF, the Dealer has caused this Agreement to be executed on this
____ day of _____________, 19____.
Signature(s) of Dealer:
Utah Service, Inc.
Fed. Emp. Ident. No. _____________________
6
<PAGE> 7
(If the Dealer is a Corporation, the Corporate
name should be written hereon followed by the
signature and title of an appropriate officer.
If the Dealer is a Partnership, the partnership
name should be written hereon followed by the
signature of all partners.)
ACCEPTED for ACE Hardware Corporation at Oak
Brook, Illinois this _____ day of
_______________ 19____.
By: _______________________________________
7
<PAGE> 1
[EXHIBIT 10.20]
- --------------------------------------------------------------------------------
The ST PAUL
AGENCY AGREEMENT
- --------------------------------------------------------------------------------
Each of the Companies designated below is a party to this Agreement and is
referred to as "the Company."
St. Paul Fire and Marine Insurance Company
St. Paul Mercury Insurance Company
- --------------------------- ---------------------------------------------------
Agency Number Agency Name
430154 Beehive Insurance Agency Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Agency Address
Salt Lake City, Utah 84101
- --------------------------------------------------------------------------------
an independent contractor, is a party to this Agreement and is referred to as
"the Agent." This Agreement shall become effective on the 1 day of January,
1994. This Agreement shall be effective only if an Agency Agreement Addendum is
attached. Pursuant to the Agent's request for underwriting facilities and other
services, the Company and the Agent agree as follows:
- --------------------------------------------------------------------------------
ARTICLE I
AUTHORITY OF THE AGENT
- --------------------------------------------------------------------------------
Subject to legal requirements and to the terms and conditions of this Agreement,
the Agent has authority on behalf of the Company to do the following:
1. To accept applications for insurance; to bind the Company on coverages; and
to issue, endorse, provide certificates of insurance and cancel contracts of
insurance; all subject to the letter of authority and subject to the
underwriting rules and requirements of the Company.
2. To pay claims within the specific authority granted by the Company.
- --------------------------------------------------------------------------------
ARTICLE II
RESPONSIBILITIES
- --------------------------------------------------------------------------------
The Agent agrees to make the Agent's financial and account records on Company
business available to the Company for inspection and audit; to promptly report
all claims and deliver all relevant claims information involving coverages
placed with the Company to the nearest Company Claims Office or authorized
representative; to provide reliable underwriting information; and to submit
written binders to the Company within three working days of
<PAGE> 2
coverage inception. To notify the Company prior to the pledging or granting of a
security interest in the expirations on Company's business.
- --------------------------------------------------------------------------------
ARTICLE III
PREMIUM COLLECTION
- --------------------------------------------------------------------------------
A. Agency Billed Business
1. On all business, except direct bill business, the Agent is responsible for
the collection of premiums and all such premiums are to be held in trust for and
on behalf of the Company. The Agent may retain out of premiums collected, as
full compensation, commissions as indicated on commission schedules furnished by
the Company. If permitted by law, the Agent may retain any income earned on the
premiums held in trust.
2. The Agent shall prepare, or have the Company prepare, a monthly account of
money due the Company on business transacted during the month. The account is to
be received by the Company within 10 days after the end of the month for which
the account is rendered. All balances shown to be due on the account shall be
paid by the Agent on or before the 15th day of the second month following the
month for which the account is rendered. These balances shall be payable whether
or not collected from the policyholder.
3. The Agent is responsible for returning premiums, including commission at the
same rate as originally retained, to the customer on all policy amendments or
cancellations.
4. The Agent shall pay balances developed by audit or report of values. This
requirement is waived if the Agent notifies the Company in writing within 45
days of the Company billing date or revised billing date, if any, of these
additional premiums that the item has not and cannot be collected by the Agent.
The Company will then attempt to collect directly from the insured. Commissions
will not be paid to the Agent on any premiums collected by the Company.
5. For agency billed retrospective rated policies and large deductible policies
the Company and the Agent shall set forth under a separate agreement each of the
parties' responsibilities for the collection of retrospective rated adjustments
and deductibles.
B. Direct Bill Business
1. For all risks which are billed and/or renewed directly with the policyholder
by the Company, the Company is responsible for billing and collecting all
premiums. The Agent, however, is responsible for the prompt submission of
completed applications and any earned premium which was collected or should have
been collected. Any commission due the Agent shall be payable monthly within 15
days after the end of the month in which the amount becomes due.
2
<PAGE> 3
2. The Agent's name shall be displayed prominently on all policies, renewal
certificates and bills. The Agent will also be named as a source for additional
information and services when the Company makes changes that affect direct bill
policies.
3. If requested, the Company will furnish to the Agent a complete list of direct
bill policyholders together with expiration dates on an annual basis.
- -------------------------------------------------------------------------------
ARTICLE IV
REVISIONS TO AGREEMENT
- --------------------------------------------------------------------------------
This Agreement may be revised at any time by mutual written agreement of the
Agent and the Company.
A. Commission Revisions
1. The Company may revise any rate of commission specified in any Commission
Schedule by giving 90 days written notice to the Agent. After the first 12
months of this Agreement, no change in a commission rate may be made until such
rate has been in effect for 12 months.
B. Letter of Authority Revisions
1. The Company may revise the Agent's letter of authority at any time by giving
30 days written notice to the Agent.
C. Other Revisions
1. The Company may revise any provision of this Agreement upon 90 days written
notice to the Agent.
All revisions allowed under paragraph A, B and C of this Article IV will be
communicated to the Agent by a representative of the Company and the Agent shall
be given an opportunity to discuss the revisions. Nothing in this Article IV
shall affect the Company's right to terminate or suspend this Agreement pursuant
to Article V.
- --------------------------------------------------------------------------------
ARTICLE V
TERMINATION AND SUSPENSION
- --------------------------------------------------------------------------------
A. Termination
1. If this Agreement or its predecessor has been in effect for five or more
years and there has not been a majority ownership change in the Agent, then
before taking any steps to terminate this Agreement, (except termination for
cause), the Company will try to work with the Agent to avoid
3
<PAGE> 4
termination by establishing a period of reconciliation, provided that the Agent
and the Company agree on a written plan for reconciliation outlining specific
goals and time periods within which these goals must be achieved.
2. This Agreement may be terminated by the Agent at any time by written notice
to the Company. The Company may terminate this Agreement at any time upon at
leat 90 days written notice to the Agent. Upon the Agent's receipt of the
termination notice, all binding authority for new business is rescinded. After
the 90 days notice period, all binding authority for renewal business is
rescinded. All other provisions of this Agreement shall remain in full force
until all policies have expired or been terminated and all balances paid to the
Company.
3. In the event of termination, the Company agrees to notify all direct bill
policyholders of the Company's intent not to renew. This notice shall be
forwarded directly to the policyholder 30 days prior to the renewal date or such
other time as required by law.
The notice to the policyholder shall make no reference to the reasons for the
termination of this Agreement. The notice will refer the policyholder to the
Agent.
4. The Company will renew at the Agent's request any policy having an expiration
date or anniversary date during the 12 months after the date the Agent receives
the termination notice, provided that such renewals meet the Company's normal
underwriting standards. Such renewals shall be at the then current rate of
commission and shall be for one additional term not to exceed one year. The
renewal for continuous policies shall be for one year beyond the anniversary
date.
5. The Agent shall be entitled to commission at the current rate for one year on
those policies which must be continued indefinitely such as policies continued
by government authority. After the one year period, commissions, if any, shall
be determined by the Company.
6. Upon termination of this Agreement by the Company, and if a risk meets the
Company's then current underwriting standards, the Company will not cancel the
risk except for the following reasons:
a) Non-payment of premium.
b) An increase in hazard.
c) Fraud or material misrepresentation.
7. If the Agent terminates this Agreement, the Company may cancel a risk for any
reason allowed by law.
B. Termination for Cause
The Company may immediately terminate this Agreement and the rights granted to
the Agent by this Agreement do not apply before or after termination if the
Agent:
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1. Loses its license to engage in the business of insurance.
2. Fails to pay balances due according to the terms of this Agreement.
3. Engages in fraudulent or otherwise illegal activities of any kind whether
involving the business of insurance or not.
4. Violates the terms of this Agreement or engages in the unauthorized use of
powers of attorney.
C. Suspension
By written notice the Company may suspend, rather than terminate this Agreement
if the Agent breaches any term of this Agreement. During the suspension period
the Agent has not authority to receive and accept proposals of insurance or to
bind the Company on coverages. As a condition for reinstatement, the Agent
agrees to provide the Company, fit he Company so requests, with personal
indemnities from individuals designated by the Company.
- --------------------------------------------------------------------------------
ARTICLE VI
OWNERSHIP OF EXPIRATIONS
- --------------------------------------------------------------------------------
A. Subject to the provisions of this paragraph the use and control of
expirations, including those on direct bill business, the records thereof, and
the Agent's work product, shall remain in the undisputed possession and
ownership of the Agent, and the Company shall not use its records of those
expirations in any marketing method for the sale, service, or renewal of any
form of insurance coverage, or other product which shall abridge the Agent's
right of ownership, use, and control, nor shall the Company refer or communicate
this expiration information or work product to any other agent or broker.
If the Agent has not properly accounted for and paid all premiums due to the
Company, the ownership and control of the Agent's expirations shall be vested in
the Company as of the date of the notice of termination. The Agent hereby grants
to Company a security interest in the Agent's expirations. If the Company
assumes control of the Agent's expirations, it will use reasonable business
judgment in attempting to negotiate their sale. The Company will be accountable
to the Agent for any sums collected, less expenses, in excess of the
indebtedness. The Agent agrees that this Agreement may be used as a security
agreement and that the Company may file this Agreement as a Uniform Commercial
Code Financing Statement (UCC-1).
B. The Agent shall remain liable for any indebtedness exceeding the net amount
received by the Company for the sale of the expirations.
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<PAGE> 6
C. The Company will not knowing take any action that could be construed as
moving a policy from one Agent of the Company to another without direction from
the policyholder, or unless required to do so by law. A policyholder's statement
designating an Agent shall be binding on the Agent and the Company.
1. If a conflict exists as to whether the Agent or another agent of the Company
is authorized to represent an existing or prospective policyholder, the
policyholder's written producer of record designation signed by the policyholder
shall be final and binding upon the parties.
2. The parties shall comply with the Company's policies and procedures governing
the designation of producers of record.
- --------------------------------------------------------------------------------
ARTICLE VII
INDEMNIFICATION OF AGENT
- --------------------------------------------------------------------------------
The Company will defend and indemnify the Agent against any liability, including
defense costs, which are imposed on the Agent by law for damages caused by acts
or omissions of the Company, provided the Agent did not cause, contribute to or
compound such liability by its own acts or omissions. The Agent shall give the
Company prompt notice of any such claim and allow the Company to direct the
investigation, settlement and defense of any such claim. The Company has the
express right to settle any said indemnified act whether or not the Agent
consents thereto.
- --------------------------------------------------------------------------------
ARTICLE VIII
OTHER CONDITIONS
- --------------------------------------------------------------------------------
A. The Company is not responsible for any expense incurred by the Agent.
B. Money due the Agent on policies other than direct bill policies shall be
payable monthly. The payments shall be paid or credited against outstanding
balances, if any, by the Company not later than the 15th day of the second month
following the month for which the account is rendered.
C. All supplies furnished to the Agent by the Company shall remain the property
of the Company.
D. The Company will send to the Agent a copy of all engineering recommendations,
audit reports and cancellation notices sent to the policyholder.
E. The company will credit the Agent's experience records for subrogation and
salvage recoveries in computing the Agent's loss ratio.
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<PAGE> 7
f. The Agent shall not broadcast, publish or distribute any advertisements or
other matter referring to the Company or to the Company's contracts of
insurance, not originated by the Company, without first securing the Company's
approval. The Company may send sales promotion material to then current insureds
provided by the Company sends the Agent an advance copy of any such material.
The Company may also provide direct bill policyholders information of general
interest such as broader perils, available options for deductibles, loss
reduction information or other optional coverages.
G. Except for the St. Paul/Seaboard agreement this Agreement supersedes all
previous Agency Agreements, between the Company and the Agent. This Agreement
may be assigned by the Agent or the Company only upon written consent of the
other.
The Company and the Agent have executed this Agreement this Seventh day of
September, 1993
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<PAGE> 1
[EXHIBIT 10.21]
RELIANCE
AGENCY-COMPANY
AGREEMENT
<PAGE> 2
AGENCY-COMPANY AGREEMENT
This Agreement is effective December 27, 1994, between Beehive Insurance Agency,
Inc. ("You, Your") and Our companies designated below ("We, Us, Our").
I. AUTHORITY AND RESPONSIBILITY
A. Subject to the conditions and obligations contained in this Agreement
and imposed by law, We hereby appoint You as Our agent and You agree to
faithfully perform the duties of Our agent.
B. Subject to Your obligations to Us under this Agreement, You are an
independent contractor who will exercise Your judgment in the conduct of
Your business. You are not an employee of the Company and are free to
represent other companies as You consider appropriate. You have
exclusive control of Your time and You are responsible for all expenses
incurred in the operation of Your agency.
C. You will during the term of this Agreement:
1. In good faith, actively solicit on Our behalf and submit applications
to Us for insurance policies ("policies") and fidelity and surety
bonds ("bonds") that meet Our underwriting standards and for which a
rate of commission is specified in Your current Commission
Schedule(s) or Addendum thereto attached to the Agreement;
2. Issue policies, endorsements and certificates as authorized by Us in
manual rules and rates, underwriting guides, bulletins or other
written instructions;
3. Execute bonds as authorized in powers of attorney and letters of
limitation provided by Us to You;
4. Cancel policies on Our behalf at Your reasonable discretion where
cancellation is legally and contractually permissible and consistent
with Our policy;
5. Bind on Our behalf insurance coverage on classes and types of risks
that are acceptable to Us and as are so designated in Your current
Commission Schedule(s) subject always to Our underwriting manuals and
supplementary written instructions pertaining thereto;
6. Pursuant to Your binding authority, not bind coverage nor issue,
renew or deliver on Our behalf any policy or bond covering a risk
located in a state in which You are not Our licensed and appointed
agent unless You are otherwise lawfully authorized to engage in the
insurance business in that state for Us; and
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<PAGE> 3
7. Not alter, modify, waive or change any of the provisions or
conditions of Our insurance contracts, bonds, rates, rating rules or
rating plans without Our consent.
D. You will during the term of this Agreement and thereafter;
1. Collect, receipt for, and pay premium to Us on agency-billed business
or as otherwise provided for herein or in Our manuals;
2. Comply with Our underwriting, accounting and other rules, manuals,
regulators and directives;
3. Forward copies of all Our policies, bonds, certificates and binders
issued by You and notify Us in writing of all liability accepted by
You on Our behalf, not later than the seventh day following the
inception date of coverage or the date of acceptance of coverage,
whichever occurs first;
4. Account for and return upon Our request Our manuals, policy, bond,
endorsement, binder forms and other property furnished to You by Us
which will always remain Our property;
5. Permit Us, so long as We consider necessary to protect Our interests
and property, through any person(s) designated by Us, at those times
and as often as We may deem appropriate, with or without prior
notice, to visit, inspect, examine, audit and verify, at Your
office(s) or elsewhere, any of the properties, original policies,
accounts, tales, documents, books, reports, work papers and other
records belonging to You or in Your possession or control or any
other person relating to the business covered by this Agreement
whether or not the same are co-mingled with unrelated business
records and to make copies thereof and extracts therefrom;
6. Not publish or distribute any advertisements, circulars or other
materials, electronic, written or otherwise, referring to Us or
containing Our name or logo without first securing Our written
approval; and
7. Represent, protect and safeguard as a fiduciary Our best interests in
all matters arising in connection with Your relationship with and
actions on Our behalf.
E. This Agreement does not give You the exclusive right to represent Us in
any area.
II. UNDERWRITING CONTROL.
We reserve at all times the complete and unfettered right to underwrite or
to refuse to issue any policy or bond at any time, to establish premium and
rates for any policy in accordance with Our rating manuals and pricing
standards and to cancel or non-renew any policy, binder or bond subject to
the provisions of Section VI.
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<PAGE> 4
III. INDEMNIFICATION.
A. We will indemnify and hold You harmless against any civil liability for
damages and settlements, including the cost of defense, You may become
obligated to pay as a direct result of:
1. Loss to policyholders caused directly by Our error in processing
policies or bonds under this Agreement except to the extent You have
caused, contributed to, or compounded the loss by Your act, error or
omission;
2. Our failure to comply with the requirements of the Fair Credit
Reporting Act, Federal Truth in Lending Law and Fair Credit Billing
Act, and federal and state privacy laws where You have used forms
supplied or instructions established by Us except to the extent You
have caused, contributed to, or compounded the loss by Your act,
error or omission;
3. Loss to policyholders caused directly by Our acts or omissions in
connection with the performance of loss control counseling,
inspections or similar related work, or preparation of appraisals for
Your clients or customers, except to the extent You have caused,
contributed to, or compounded the loss by Your act, error or
omission;
4. Loss to policyholders caused directly by Your authorized use of Our
forms supplied by or written instructions given by Us except to the
extent You have caused, contributed to, or compounded the loss by
Your act, error or omission; and
5. Loss to others causes directly by Our act, error or omission in
investigating, settling or paying claims except to the extent You
have caused, contributed or compounded the loss by Your act, error or
omission.
B. Our obligation to indemnify is always conditioned upon Your prompt and
immediate notification to Us of any claim made or legal action brought
against You that is subject to indemnification as set forth above and
Your full cooperation. We will have the right to direct the
investigation, settlement and defense of any claim or action. Where You
have contributed through Your own act, error or omission to any civil
liability, any indemnification will be reduced to the extent that Your
act, error or omission contributed to the civil liability.
IV. COMMISSION.
A. As sole and full compensation for Your faithful performance hereunder,
We will pay commissions to You in accordance with the rates and
conditions set forth in Our then current Commission Schedule(s). The
Commission Schedule(s) referred to in this Agreement are those latest
Commission Schedule(s) issued by Us to You.
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<PAGE> 5
B. Commission rates may be revised by our mutual agreement or by Us giving
You at least ninety (90) days advance notice of the revisions and the
effective date thereof, except that changes with respect to bonds will
require only sixty (60) days advance notice. Commission changes for
bonds or individual lines of business for an operating division (e.g.,
Commercial Lines or Personal Lines) will be limited to once a year
except where mutually agreed upon or mandated by governmental authority.
C. You agree that undistributed commissions in Our hands at any time may be
applied to and constitute an offset against any monies due Us.
D. In the event We, either during the term of this Agreement or after its
termination, refund premiums under any policy or bond by reason of
cancellation or otherwise, You will immediately ratably return to Us the
commission received on the amount of premium refunded in each case at
the same rate at which the commissions were originally payable.
E. Nothing contained in this section will prohibit the negotiation of
special commission rates on an individual policy and bond.
V. PREMIUM COLLECTION.
A. You have the responsibility to collect, receive and receipt for premiums
on business written by or placed through You. You may retain out of the
premiums collected commissions at the rate indicated in Your current
Commission Schedule(s) or at a rate mutually agreed upon if different
from the published rate. However, this provision does not apply to
business direct-billed to the insured by Us.
You assume the obligation for and will be fully responsible to Us for
the payment of all premiums, whether advance, deposit, developed,
audited, additional renewal or otherwise, due under business not
direct-billed to the insured by Us whether those premiums are obtained
from business produced by You or through You by brokers or other
producers. You will timely pay the same to Us whether or not You have
actually collected the premium due. If We assume the obligation to
collect premium directly from an insured due to Your failure, neglect or
inability to do so, no commission will be due or payable to You on any
premium so collected.
B. You will pay Us all net premiums due on all insurance, including bonds,
placed by or through You with Us not later than forty-five (45) days
after the close of the month in which the coverage was made effective or
from the date of Our billing for any additional premium developed by
audit or retrospective adjustment.
C. If You, after diligent effort, are unable to collect an additional
premium developed by audit, or a renewal premium on a noncancellable
bond, and provided there is no premium development on other policies or
bonds issued by Us to the insured which may be used as an off-set, You
may request Us, in writing within forty-five (45) days from the date You
receive written notification that the additional premium is due, to
undertake direct
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<PAGE> 6
collection of that premium and relieve You of the responsibility for
that premium. You must upon request provide Us with proof of a diligent
effort. No commission will be due or paid to You on any premium referred
by You to Us for direct collection. Your failure to request direct
collection of any audit additional or noncancellable bond renewal
premiums within that forty-five (45) day period will obligate You to
remit the full net premium due regardless of whether or not You collect
the premium from the insured.
D. All premiums received by You will be held by You in a fiduciary capacity
as trustee for Us and will not be co-mingled with Your operating funds.
The privilege of deducing commissions from premium monies received by
You will not be construed as an alteration of this fiduciary capacity.
E. With respect to policies direct billed to the insured ("direct-billed
business"):
1. You agree to collect and remit to Us the initial premium together
with the completed application-declaration within the time period set
forth in Our established procedures.
2. We will bill all renewal or adjustment premiums directly to the
insured or to a designated lending institution or servicing agency
holding premiums in escrow or reserve. These premiums are payable to
Us in gross.
3. Should any renewal, additional or endorsement premiums on business
written pursuant to this Agreement come into Your hands, You will
remit the premium in gross to Us within the time period set forth in
Our established procedures.
4. We will pay You, as full compensation on premiums remitted to or
collected by Us, commissions at the rates specified on Your
Commission Schedule(s). We will pay those specified commissions to
You within thirty (30) days after the end of the month in which the
premiums are received by Us.
5. You will not be responsible for bad debts which arise from direct
billed business nor will We be responsible for commission to You on
that business.
F. We will usually clearly and prominently identify You by name when
transmitting policies, endorsements, premium notices and cancellation
notices to individual policyholders, including those resulting from
changes in statutes, coverages or forms, and for outlining any options
available to policyholders as a result of changes in statute, coverage
or form. We will also provide You with a copy of all those items sent to
policyholders. This provision does not apply to mass mailings to all
applicable policyholders.
G. Unless authorized in writing by You, We will not use or permit the use
of the records of Your business with Us to solicit individual
policyholders for the sale of other lines of insurance or other products
or services. When that authorization is granted, You will be
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<PAGE> 7
entitled to the agreed commission or fee (subject to any applicable law
to the contrary) on those sales resulting from the use of Your records.
H. In the event of termination of this Agreement, provided You are not in
default, We will at Your request furnish a list of policyholders with
the expiration date of the policies, and will mail appropriate
non-renewal notification to policyholders except as may otherwise be
required by law or regulation.
VI. CANCELLATIONS.
A. We will honor any reasonable request by You for cancellation of any
insurance contract provided that the cancellation is not in violation of
either statutory, regulatory or policy provisions or Our policy.
B. We will not initiate cancellation during the term of any insurance
policy or bond renewed for a six-month or annual term, except;
1. For failure to furnish reports required by the policy terms; or
2. For non-payment of premium; or
3. When, in Our opinion, there is a material change or increase in the
risk, hazard or the exposure to Us, including an increase in Our net
exposure, or a material fact has been either misrepresented or not
disclosed to Us.
C. Policies and bonds written for a term longer than one year will, for the
purposes of sub-section VI(B) above, be considered to have an expiration
date at the end of each twelve (12) months following the inception date
of the policy and will be subject to all the terms of this section
applicable to contracts written for an annual term.
VII. EXPIRATIONS.
In the event of suspension or termination of any part of Your authority or
of this Agreement:
A. If You have then and continue to properly account for and pay all
premiums to Us when due for which You are responsible, then the use and
control of expirations, including those on direct billed business, the
records thereof, and Your work product will remain in Your possession,
and We will not use Our records of those expirations in any marketing
method for the sale, service or renewal of any form of insurance
coverage, or other product which will abridge Your right of use and
control, nor will We refer or communicate this expiration information or
work product to any other agent or broker. Otherwise, the use and
control of those expirations, including all right, title and interest in
and to those records, will be vested in Us.
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<PAGE> 8
B. In the exercise of Our right to collect any indebtedness due from You
through use and control of expirations, We will use reasonable business
judgment in selling expirations and will be accountable to You for any
sums received which, net of expenses, exceed the amount of indebtedness
over the sums received by Us. A difference of opinion with respect to
small balances owed by You does not constitute a failure to pay and does
not have the effect of vesting title to expirations in Us.
C. Nothing in this Agreement will interfere with Our obligation to renew
policies containing contractual renewal guarantees or that must be
renewed or offered renewal pursuant to law, regulation or by order of
governmental authority.
VIII. REHABILITATION.
Prior to taking any steps to terminate this Agreement pursuant to Section
IX(A)(3) or (B), we may by mutual agreement enter into a rehabilitation
program to avoid termination. This program will specify what You must do to
avoid termination and how We intend to assist You to avoid termination.
IX. TERMINATION AND SUSPENSION.
A. This Agreement will terminate:
1. Automatically if any public authority suspends, revokes, cancels or
declines to renew Your license or any certificate of authority;
2. Automatically on the effective date of sale, transfer or merger of
Your business provided, however, that We may offer an Agency-Company
Agreement to any successor who meets Our requirements for
appointment;
3. Upon either of us giving at least 120 days advance written notice to
the other. However, with respect to bonds, Your authority will
terminate immediately upon receipt of written notice of termination
of the Agreement; or
4. Immediately upon either of us giving written notice to the other in
the event of abandonment, fraud, insolvency, material failure
(including accounting or payment delinquency) or willful misconduct
on the part of the other party.
B. We or any of Our operating divisions may terminate any portion of Your
authority under this Agreement by giving at least 120 days advance
written notice. However, with respect to bonds, Your authority will
terminate immediately upon receipt of written notice of termination.
C. Subject to requirements imposed by law, if this Agreement or any portion
of Your authority is terminated by Us as provided in subsection A(3) or
B above:
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<PAGE> 9
1. We will not, except at the Your authorized request, refuse to renew
any affected policy for one renewal term commencing immediately
following termination of this Agreement, except when in Our opinion:
a. There is an increase in hazard, or a change or increase in the
risk or the exposure to Us including an increase in Our net
exposure;
b. The risk does not meet Our then current underwriting standards at
the time of renewal; or
c. A material fact was misrepresented or not disclosed to Us.
2. On the first renewal of an affected policy following termination, as
commission We will pay You either:
a. The prevailing commission rate applicable to active agents in
effect at Your termination date; or
b. The prevailing commission rate applicable to active agents on the
policy renewal date following termination, whichever is lesser.
3. Following termination of this Agreement, or any portion of Your
authority, as referenced in Section IX (B), all provisions of this
Agreement not affected by the termination shall remain in full force
and effect until all insurance contracts written by or through You
have expired or been terminated and all premiums have been collected
and paid to Us.
4. You are authorized to issue and countersign appropriate endorsements
on contracts of insurance in force through You excepting endorsements
on fidelity or surety bonds. The endorsements, however, will not
change, increase or extend Our liability nor extend the term of any
insurance contract without Our prior written approval.
5. We will continue to provide to policyholders all normal and
appropriate services on all in-force insurance contracts without
interruption.
D. If You have been cited by any authority for any cause that could result
in suspension or revocation of Your license, if You are in default of
any provision of this Agreement or are delinquent in either accounting
for or payment of any monies due, We may, by written notice to You,
immediately suspend or modify any authority under or any provision of
this Agreement. We will not take that action where only small
differences occur between Our and Your accounting records. Where major
differences occur between accounting systems, We will not take that
action without an opportunity for an exchange of information with You
concerning those differences.
X. ARBITRATION
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<PAGE> 10
A. In the event of a good faith dispute with a reasonable basis arising out
of the interpretation of this Agreement, We and You will make every
effort to meet informally and resolve the dispute. If we cannot agree on
a settlement to the dispute within thirty (30) days after it arises, or
within a longer period agreed on by us, then we may agree to settle the
matter in controversy, by arbitration, in Philadelphia, PA.
We and You may agree to submit the dispute to one arbitrator, otherwise,
three (3) arbitrators would be selected: one by You, one by Us, and the
third by the other two arbitrators or, should they disagree, from a
panel of the Board of Governors, Insurance Arbitration Forums. The
determination of any two of the arbitrators will be final and binding
provided it is made in writing and signed by a majority of the
arbitrators, and judgment upon the determination may be entered in any
court having jurisdiction. All arbitrators will be disinterested parties
to the dispute.
B. The costs of arbitration will be borne equally by us, provided however
that the arbitrators may assess one of us more heavily than the other
for these costs upon a finding that either You or We did not have a
reasonable basis for its position. The arbitrators will have no
authority to award punitive or exemplary damages.
C. This section "Arbitration" is inapplicable to Section I(D), Section II,
Section IV, Section V and Section IX.
XI. GENERAL PROVISIONS.
A. This Agreement, other than with respect to authority for bonds, may be
assigned provided the successor or successors meet Our requirements for
appointment and obtain Our prior written consent.
B. This Agreement may be supplemented, amended or revised only in writing
by mutual agreement of You and Us or by Us giving You ninety (90) days
advance notice; however, for bonds this provision will require only
thirty (30) days advance notice.
C. Our failure for any reason to insist upon compliance by You with the
provisions of this Agreement or Our rules and regulations will not be
construed as or constitute a waiver thereof.
D. We will include all credits for salvage and subrogation recoveries on
Your premium and loss experience exhibits.
E. Should a conflict arise as to which producer is authorized to represent
an insured with respect to any policy or bond issued by Us, Our Producer
of Record procedures will be applied to resolve the conflict.
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<PAGE> 11
F. You will have no authority to admit liability on Our part and will not
otherwise compromise, hinder, or participate in Our claims settlement
efforts in any manner except in accordance with Our specific claim
settlement directions or authority extended to You in writing by Us. You
will immediately forward all claim notices and accompanying documents to
Us.
G. You will comply with all laws affecting Your operation, and with all
manuals, rules, regulations and directives issues by Us and will
maintain Your qualifications for licensing by appropriate authorities.
H. If any provision of this Agreement should be invalid under or in
conflict with current, valid and applicable laws of any state, those
laws will control, but in all other respects the remainder of this
Agreement will not be affected.
I. Nothing in this Agreement will in any manner create or be construed to
create any obligations to or establish any rights against either of us
in favor of any third parties or other persons not a party to this
Agreement.
J. Paragraphs I(C)(5), IV(A), IV(B), V(A) and V(B) will not be applicable
to business submitted or written through Our specialty operating
divisions such as: Reliance Specialty Programs, Inc.; Reliance Special
Risk, Inc.; United Pacific Special Risk; Reliance Risk Management; Large
Account Division and Reliance National Risk Specialists. The premiums
written through these operating divisions will be submitted under terms
specially applicable to those accounts and determined by those operating
divisions. Commission rates and conditions will be determined by those
operating divisions.
K. This Agreement supersedes, merges with and nullifies any and all
previous agency agreements, whether written or oral, between us and
constitutes, together with any addenda, schedules and agreements
expressly made supplementary to this Agreement, the full agreement
between us.
Executed this 28th day of December, 1994
AGENT: RELIANCE INSURANCE COMPANY
UNITED PACIFIC INSURANCE COMPANY
BEEHIVE INSURANCE AGENCY, INC. PLANET INSURANCE COMPANY
PRIMARY AGENCY CODE: 72-0122 By Lawrence W. Carlstrom, Vice President
11
<PAGE> 1
[EXHIBIT 10.22]
AGENCY AGREEMENT
1. This agreement is executed by the undersigned Agent or Agency (hereinafter
called "Agent") and the respective insurance companies whose names are
subscribed hereto (hereinafter called "Company").
2. This agreement consists of this page and the following pages:
<TABLE>
<CAPTION>
PAGE NUMBER FORM & AND REVISION DATE
----------- ------------------------
<S> <C>
1 9600(1-95)
2-6 9600(1-95)
7 9600(1-95)
8 9600(1-95)
9 9600(1-95)
</TABLE>
3. This agreement is effective the first day of January, 1995 and supersedes all
previous agreements, whether oral or written between Company and Agent and shall
remain in full force and effect until suspended or terminated as provided
hereinafter.
Executed this 22nd day of September, 1994
The Ohio Casualty Insurance Company Beehive Insurance Agency, Inc.
American Fire & Casualty Company P.O. Box 386
West American Insurance Company Salt Lake City, Utah 84110
Ohio Security Insurance Company Salt Lake County
By Branch Manager By President
<PAGE> 2
AGENCY AGREEMENT
The following provisions apply to all companies designated on Page 1 of this
agreement, except that specific provisions which vary from these, contained in
other sections and applying to a designated company, shall supersede to the
extent of the specific modifications.
AGENT'S AUTHORITY AND DUTIES
1. The Agent, an independent contractor, not an employee of the Company,
is authorized by the Company:
(a) to solicit and accept proposals for insurance covering such
classes of risks as the Company and Agent are licensed to write and which the
Company has authorized the Agent to write, subject to any restrictions imposed
by law or by this contract on the Agent.
The Company shall have authority to expand or restrict the
Agent's authority effective upon written notice to the Agent.
(b) to collect premiums, deposits and other payments for
insurance accepted by the Company except for Company billed business described
in paragraph 3.
(c) to retain out of premiums so collected as sole and full
compensation on business so placed with the Company, commissions at the rates or
terms specified in the commission schedules that are a part or hereafter made a
part of this Agreement. All premiums received by the Agent shall be held by the
Agent as trustee for the Company until delivered to it; and the privilege of
retaining commissions shall not be construed as changing that relationship.
Authority to deduct commission from premiums shall not extend to policies for
which other provision is hereinafter made.
2. The Agent agrees:
(a) to remit to the Company all premiums received as authorized
under 1.(b) and 1.(c) according to the Premium Accounting provisions of this
Agreement.
(b) to assume full responsibility for payment to the Company of
premiums on all policies and endorsements placed by or through the Agent with
the Company, whether or not such premiums have been collected.
(c) the payment of commission by the Company to the Agent is
contingent upon the Agent being legally licensed.
(d) to refund to the Company the unearned commissions on canceled
policies and on return premiums by endorsements or audits.
2
<PAGE> 3
(c) within 7 days after inception of coverage, to forward to the
Company copies of any and all binders, policies, certificates and endorsements
and maintain a complete record, open to the Company's inspection, of all
transactions with the Company and the policyholders. Such inspection, shall be
made during business hours after notice to the Agent. In the event of a dispute,
the Agent shall have the right to review the information that the Company is
relying upon.
(f) not to bind the Company on coverage with an effective date
and time prior to the date that the request for coverage was received by the
Agent.
(g) to promptly report all claims and losses of which the Agent
has knowledge and promptly notify the Company when it receives notice of the
commencement of any legal action or lawsuit relating thereto. To refrain from
admitting or denying liability on the part of the Company in connection with any
claim or loss, unless the Agent has been specifically authorized to do so in
writing by the Company.
(h) the Company shall not be responsible for agency expenses such
as rent, transportation, employee hire or solicitor's fees, postage, telegrams,
telephone, expressage, advertising, personal local license fees or any other
agency expenses whatsoever.
(i) not to undertake or initiate advertising of any nature in
connection with policies or business related to the Company without approval of
the Company.
(j) any unused policy forms, applications or endorsement forms
and other unused Company supplies furnished by the Company to the Agent shall
always remain the property of the Company, and shall be returned to the Company
upon demand.
(k) to maintain a valid errors and omissions policy of insurance
with minimum limits of liability of Five Hundred Thousand Dollars ($500,000) or
such other amount as the Company may approve, covering the agent, solicitors,
and each of it's employees. At the Company's option, the Company may obtain from
the Agent a copy of the then current errors and omissions policy.
PREMIUM ACCOUNTING
3. COMPANY BILLED PREMIUMS
(a) The Company, on behalf of the Agent, shall bill the insured
for all premiums on policies that the Company has designated as Company billed.
The Agent agrees to remit promptly to the Company in gross (without deduction of
commissions) any and all premium payments on such business which may come into
the Agent's possession.
(b) The Company agrees to compute and remit the applicable
commissions to the Agent no later than the 15th day following the close of each
month. Return premium charges
3
<PAGE> 4
will result in an offsetting return commission to the Company. If return
commissions exceed commissions due the Agent in any month, the difference must
be remitted to the Company.
(c) In the event a Company-billed final audit or other
outstanding earned premium is not paid within the normal billing cycle, the
Company shall have the right to begin collection procedures. Commission
previously paid to the Agent on premium under collection will be shown as a
deduction on the next commission statement.
4. AGENCY BILLED PREMIUMS
(a) Payments for amounts billed by the Company must be received
in the Company's office no later than the 15th day of the second month after the
end of the accounting month for which such amounts were first charged on the
Company's billing statement. Example - Payment for amounts charged in January
must be received by March 15th.
Agent's rendered account balances must be received in the
Company's office no later than the 15th day of the second month after the end of
the accounting month for which the account was rendered. However, amounts billed
by the Company prior to reporting on the Agent's rendered account are due in
accordance with the Company's billing statement.
Revised audits are due no later than the 15th day after
the end of the accounting month when charged on the Company's billing statement.
The Company may suspend or cancel this agreement for
non-payment of balances due the Company by the Agent. In the event of
cancellation, suspension or non-payment of balances due, Company billed
commissions payable to the Agent may be applied against balances due to the
extent of the indebtedness. If this Agreement is canceled due to non-payment of
balances due, reasonable and necessary legal fees and court costs incurred by
the Company may be added to and become part of such balances.
The Agent may turn over to the Company responsibility for
collection of any additional premium developed by final audit on any policy, and
renewal premiums on non-cancellable bonds, provided
(1) The Agent shall notify the Company in writing by
the 15th day of the second month after the end of the accounting month in which
the initial final audit premium was charged on the Company's billing statement
for Audited policies, or for non-cancellable bonds, that such premiums cannot be
collected by the agent and
(2} The Agent shall submit to the Company copies of
billings or letters indicating the Agent's efforts to collect all amounts due
the Company.
No commission shall be paid to the Agent on such premiums
collected under this provision.
4
<PAGE> 5
5. The Agent authorizes the Company to set off and apply any and all
commissions or other amounts owing by the Company or any other member of the
Ohio Casualty Group to the Agent against any and all amounts now or hereafter
owing by the Agent to any member of The Ohio Casualty Group, payment of which
has not been made when due. The Company shall have such right of setoff whether
or not the Company or any other member of The Ohio Casualty Group shall have
made any demand for payment of such indebtedness.
AMENDMENT
6. This Agreement including any schedule attached hereto may be amended
as follows:
(a) At any time by a written Agreement signed by both the Agent
and the Company.
(b) By the Company giving the Agent 90 days prior written notice
which sets forth the proposed revision and its effective date provided that
commission rates once established in any one line of insurance shall remain in
effect for at least one (1) year.
Such amendments shall be effective after the required
notice, regardless of whether they are signed by the Agent.
TERMINATION/ SUSPENSION
7. This Agreement shall terminate as follows
(a) At any time by either party giving 180 days prior written
notice or prior written notice as required by law.
(b) Automatically upon the sale or transfer of the Agent's book
of business or consolidation with a successor firm, unless as stated in
paragraph 11, this agreement has been assigned to the successor firm with the
consent of the Company. Such consent will not be unreasonably withheld.
(c) Immediately by the Company, upon written notice to the Agent,
if the Agent has not accounted for and paid all premiums for which the Agent is
liable.
(d) Immediately upon giving written notice to the Agent if the
Agent's license to engage in the business of insurance is canceled, suspended,
revoked or not renewed; or the Agent commits gross negligence or willful
misconduct related to the business of insurance.
(e) At any time by mutual agreement.
5
<PAGE> 6
8. If this agreement is terminated pursuant to paragraph 7 and the Agent
has properly accounted for and paid all premiums for which the Agent is liable,
the Company shall place in effect its Limited Agency Agreement authorizing the
Agent to service in force business meeting current underwriting standards of the
Company until the first expiration date following the termination date. However,
the authority of the Agent to bind any new risk or add insurance or increase
limits on existing policies without the approval of the Company shall cease
immediately upon notification of termination.
The Company shall be responsible for notifying insureds of its
intent not to renew policies following the Agent's termination.
The commission rates in effect prior to termination shall apply
to inforce business serviced under this Agreement.
9. If the Agent fails to pay the Company any premiums or other funds
when due, the Company may suspend the Agent's authority to bind any new or
renewal business or increase coverage on any policy. The suspension shall take
effect immediately upon giving notice to the Agent.
10. The Agent's records and use and control of expiration records shall
remain the Agent's property and be left in the Agent's undisputed possession;
provided, however, in the event of termination of this agreement, if the Agent
has not properly accounted for and paid all premiums for which the Agent is
liable, the Agent's records as respects business placed with the Company shall
become the property of the Company. The Company shall have sole right to use and
control such expiration record. to the extent of the Agent's total indebtedness
to the Company, unless the Agent provides other security acceptable to the
Company.
The Company, in the exorcise of the right reserved to it above,
may, at its option, retain all commissions which are payable or which may become
payable under contracts of insurance represented by such expiration records, or
renewals thereof, and apply same against the amount of the Agent's indebtedness
to the Company or may sell, assign, transfer or otherwise dispose of such
expiration records to any other agent or broker. If, in either event, the
Company does not realize sufficient return to satisfy the Agent's indebtedness
to the Company in full, the Agent shall remain liable for the unpaid balance
Amounts realized by the Company in excess of such indebtedness less expenses
incurred by the Company in the handling or other disposition of such expiration
records, shall be paid to the Agent.
SALE, TRANSFER OR MERGER
11. The Agent agrees to notify the Company as soon as practicable of any
sale or transfer of the Agent's business or consolidation with a successor firm.
Upon receipt of this notice, the Company may, at its election:
(a) Assign this Agreement to the successor; or
6
<PAGE> 7
(b) Enter into a new Agreement with the successor; or
(c) Terminate the Agreement pursuant to paragraph 7.
INDEMNIFICATION
12. The Company shall indemnify and hold the Agent harmless against all
civil liability, including attorney's fees and costs of investigation and
defense incident thereto and reasonably incurred, arising as a direct result of:
(a) Company act or omission, except to the extent the Agent has
caused, compounded, or contributed to such error;
(b) failure of the insured to receive notice of cancellation,
non-renewal or any other notice affecting coverage where such notices are sent
directly to the insured by the Company;
(c} any action or inaction of the Agent based upon the Agent's
use of forms supplied by the Company, or following instructions or procedures
established by the Company, except to the extent the Agent has caused
compounded, or contributed to such failure; and
(d) damages sustained by any person as a result of information
furnished by the Agent to the Company unless the Agent furnished false
information with malice or willful intent to injure.
The Agent shall promptly notify the Company upon receiving notice
of the commencement of any action relating to such liabilities, and the Company
shall be entitled to participate in such action or to assume the defense of any
such action, with counsel satisfactory to the Agent. If the Company assumes the
defense of any such action, it shall not be liable to the Agent for any legal or
other expenses subsequently incurred by the Agent in connection with such action
without the Company's approval of such expenses.
13. The Agent shall indemnify and hold the Company harmless against all
liability arising out of the Agent's act or omission, to the extent the Agent is
legally liable to the Company by common law, statute or regulation.
ARBITRATION
14. If any dispute or disagreement shall arise in connection with any
interpretation of this Agreement, its performance or nonperformance, or the
figures and calculations used, the parties shall make every effort to meet and
settle their dispute in good faith informally. If the parties cannot agree on a
written settlement to the dispute within 30 days after it arises, or within a
longer period agreed upon by the parties, then the matter in controversy shall
be settled by arbitration, in accordance with the rules of the American
Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction.
7
<PAGE> 8
The parties may agree to submit the dispute to one arbitrator;
otherwise, there shall be three, one named in writing by each party within 20
days after notice of arbitration is served by either party upon the other, and a
third arbitrator selected by these two arbitrators within 20 days thereafter. If
the arbitrators are unable to agree upon a third arbitrator, then the third
arbitrator shall be chosen impartially by the American Arbitration Association.
The arbitrator(s) shall follow and apply the law and/or the insurance trade
practices. Depositions can be taken at the request of either party, prior to the
arbitration.
The determination of the arbitrator(s) shall be final and binding
on all parties, provided such determination is made in writing and signed by a
majority of the arbitrator(s). The arbitrator(s) shall provide a short, written
statement explaining the reasons for the determination. Where arbitration
results in an award, such award shall include interest in the amount of Ten
percent (10%) per annum running from the date when the amount that is the
subject of the award first became due.
The costs of arbitration shall be borne equally by the parties,
provided, however, that the arbitrators may assess one party more heavily than
the other for these costs upon a finding that the party did not make a good
faith effort to settle the dispute informally when it first arose. Each party
shall be responsible for its own attorneys' fees.
MISCELLANEOUS
15. The operations, conduct and pursuits of the Agent, except as
provided in the terms and conditions of this Agency Agreement, shall not be
controlled in any manner by the Company. Nothing contained herein shall be
construed to create the relation of employer and employee between the Company
and the Agent.
16. This Agreement shall be interpreted under the laws of the State of
Ohio. Any provisions of this Agreement, or any amendments to the Agreement that
are, or become in conflict with any applicable statutes or regulations, shall be
deemed to be amended to conform to those statutes or regulations.
17. In the event the Company or the Agent does not insist upon strict
compliance with any of the terms of this Agreement, such failure shall not
constitute a waiver or relinquishment on the part of the Company or the Agent to
insist upon such compliance at any other time.
8
<PAGE> 1
[EXHIBIT 10.23]
Appleton & Cox
John H. Crowther
Fort Hill Insurance Agency
I West Insurance Managers
Montgomery General Agency
Dana Roehrig & Associates
Swett & Crawford
PRODUCER AGREEMENT
This agreement is made and entered into by and between:
(Producer) Beehive Insurance
(Address) P.O. Box 386 Salt Lake City, Utah 84110
-------------------------------------------
hereinafter referred to as "The Producer" and John H. Crowther, Inc., a
wholly-owned subsidiary(ies) of the Swett & Crawford Group, Inc., hereinafter
referred to as "The Company."
Whereas the Producer desires to effect business with the Company and the Company
desires to arrange acceptable offerings, now, therefore, the Producer and the
Company agree to be bound by the following terms with respect to such business
as is accepted:
SECTION I - PREMIUM REMITTANCE
In consideration of the acceptance of insurance business form the Producer by
the Company, it is agreed and understood that the Producer will pay to the
Company, at the Company's principal place of business the balance due on all
certificates, policies and other balances relating to insurance arranged by the
Company.
Based upon agreement between the Company and Producer, THE PRODUCER WILL REMIT
TO THE COMPANY BY PAYMENT OF THE "STATEMENT TOTAL DUE" FROM THE COMPANY'S
STATEMENT NO LATER THAN TEN DAYS AFTER THE STATEMENT DATE.
In the event of a sale of the Producer's business to a party unknown to the
Company, at the time of this agreement's execution, all responsibility for
premium remittance as agreed under this document, shall remain the
responsibility of the undersigned Producer, personally, and not that of the
purchasing third party. The new ownership of the Producer's business must sign
and execute a new Swett & Crawford Group Producer Agreement in order to continue
the agreement.
SECTION II - RESPONSIBILITY FOR PAYMENT
Execution of this agreement will serve as a guarantee by the Producer to pay all
premiums earned (including applicable taxes) on insurance contracts arranged by
the Company, regardless of the collectability or collection status of the
account by the Producer. The officers of the Producer's agency may be personally
responsible to satisfy any outstanding premiums.
The Company shall be entitled to reimbursement covering cost of collections,
including but not limited to reasonable attorney's fees, incurred in efforts to
collect unpaid premiums. The Company is also entitled to reimbursement of any
penalties levied by a governmental agency or Surplus Lines Association due to
failure of the Producer to remit proper taxes and/or fees.
SECTION III - COMMISSIONS
The Company shall allow the Producer, as commission, a percentage of the premium
on each policy written and paid for under this agreement at a rate mutually
agreed upon by the Company and Producer. The Producer shall be
<PAGE> 2
obligated to pay return commission at the same rate on any return premiums,
including but not limited to, return premiums on cancellations or reductions
ordered and return premiums payable as a result of amended policy terms.
SECTION IV - ERRORS AND OMISSIONS
The Company requires that Errors and Omissions Insurance Coverage be maintained
by the Producer. THE UNDERSIGNED PRODUCER HEREBY VERIFIES THAT SUCH COVERAGE
EXISTS AND IS IN GOOD STANDING AND IS MAINTAINED TO A LIMIT OF LIABILITY OF ONE
MILLION DOLLARS ($1,000,000). It is further understood that evidence of such
coverage may be requested from time to time by the Company's Errors and
Omissions Administrator.
SECTION V - TERMINATION OF AGREEMENT
This agreement may be canceled at any time by either party hereto upon written
notice to the other.
The Company expressly recognizes the independent ownership of the insurance
business placed under this agreement; however, in the event the Company elects
to cancel this agreement for violation of its terms by the Producer, the
Producer relinquishes all rights or claim to subsequent commissions or
additional premium commissions insofar as such may be necessary to satisfy the
interest of the Company under this agreement.
It is agreed that commissions or return commissions as the case may be, shall be
paid or allowed on additional premiums payable, or on return premiums on
adjustments, or on cancellations made, after the time of cancellation of this
agreement, applying to any transaction for which an original commission was
allowed under the terms of this agreement. Subject to the conditions in Section
III of this agreement.
SECTION VI - REPRESENTATION
The Producer shall not bind the Company as respects any insurance without the
prior authorization of the Company in each case; nor shall he place any
advertisement respecting the Company in any publication, or issue or distribute
any circular or paper referring to the Company without the prior consent of the
Company in writing. In case of unauthorized action of the Producer, the Producer
agrees to pay all costs and damages arising therefrom.
The Producer, in acknowledging this agreement, certifies that he is properly
licensed to conduct the business to be arranged and will act in accordance with
all applicable State laws.
SECTION VII - EXECUTION
Execution of this agreement constitutes full agreement and understanding between
the parties with each of the six sections above. Proper execution requires that
if the Producer is doing business as an individual, he must personally sign the
agreement in his own name and not in his name as an Agent. If the Producer is a
co-partnership, this agreement must be executed by the firm and by each member
thereof in his individual capacity. If the Producer is a Corporation, the
agreement must be executed by an authorized Corporate Officer.
Witnesseth this 16th day of May, 1988 in duplicate by Producer:
Beehive Insurance Agency, Inc.
Brenda Nielson Pierce - Branch Manager J. Richard Walton -President
Legal entity of Producer's business: corporation (incorporated in the
state of Utah)
Please forward the original and branch copy of this executed form to the office
address below:
John H. Crowther, Inc.
495 East 4500 South, Suite 106
Salt Lake City, Utah 84107
2
<PAGE> 1
[EXHIBIT 10.24]
SOBIESKI & BRADLEY
- -------------------------
Wholesale Insurance Brokers
Excess & Surplus Lines Brokers
Managing General Agents
PRODUCER AGREEMENT
BETWEEN: SOBIESKI & BRADLEY, INC.
650 EAST 4500 SOUTH, STE. 140
SALT LAKE CITY, UTAH 84107
(Hereafter referred to as "The Broker")
AND: BEEHIVE INSURANCE AGENCY, INC.
227 WEST 600 SOUTH
CEDAR CITY, UTAH 84101
(Hereafter referred to as "The Producer")
EFFECTIVE DATE: JANUARY 1, 1993
WHEREAS the Producer, subject to the requirements imposed by law in the
jurisdiction(s) the Producer is authorized to operate in, is desirous of placing
contracts of insurance with the Broker;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter expressed, it is mutually agreed that:
A. OWNERSHIP OF THE BUSINESS: The Broker recognizes the Producer owns the
business subject to this agreement. However, in the event this agreement is
canceled, ownership and control of the business shall be vested in the Broker to
the extent necessary to satisfy the Producer's outstanding obligations to the
Broker.
B. COMPLIANCE WITH STATUTES: The Producer warrants compliance with all
applicable laws governing the conduct of business subject to this agreement,
including payment of premium taxes and stamping fees, licensing, maintenance of
trust funds in a fiduciary capacity, and all other applicable state and federal
statutes.
C. AUTHORITY OF THE PRODUCER: The Producer is not an agent or an employee of the
Broker. Unless given specific, prior authorization in writing by the Broker, the
Producer is not permitted to:
<PAGE> 2
1) Quote, bind, issue, amend or cancel any policy, contract,
certificate, endorsement or other evidence of insurance on behalf of the Broker.
2) Extend the due date for any monies owed to the Broker for business
produced under this agreement.
3) In any way obligate the Broker or any of the insurance carriers the
Broker represents.
4) Use or permit the use of the Broker's name or the name of the
insurance carriers the Broker represents in any statement, advertisement,
letter, circular, pamphlet, publication, document, or other literature.
5) Assign claims adjusters or adjust losses.
D. PREMIUMS AND ACCOUNTS: The Broker shall furnish the Producer with invoices on
each premium bearing transaction and, at the beginning of each month, a
statement which indicates the net balance owed by the Producer. The Producer
agrees to remit the net balance to the Broker by the date specified on the
invoice.
The producer will be allowed to return uncollectible audit additional premiums
and retrospective rating adjustments to the Broker only to the extent that the
Broker is permitted to do so by the insurance carrier.
The Producer agrees to promptly reimburse the Broker for all costs and expenses
incurred by the Broker in the collection of money owed by the Producer
including, but not limited to, attorney's fees and interest at the rate of
1-1/2% of the outstanding net balance per month.
E. CLAIMS: The Producer shall immediately report all claims, suits and notices
of loss to the Broker in writing and shall cooperate fully in the investigation,
adjustment, settlement and payment of all claim. The Producer shall not make any
statement or commit either the Broker or the insurance carrier in any way with
respect to any claim arising out of business subject to this agreement.
F. PRODUCER'S INSURANCE: The Producer agrees to maintain errors and omissions
insurance with limits of not less than $500,000 each claim and in the aggregate
with an insurance company acceptable to the Broker.
G. CANCELLATION OF THE AGREEMENT: This agreement may be canceled at any time by
either party by giving written notice to the other. After the date of this
agreement, unless otherwise stipulated by the Broker, the Producer shall
complete the normal services including the collection and payment to the Broker
of all money owed on business subject to the agreement. In the event the Broker
shall find it necessary to perform any of the services required of the Producer
under this agreement, the Producer shall be liable all cost incidental thereto;
IN WITNESS THEREOF, THE PARTIES HEREBY HAVE SET THEIR HANDS IN SIGNATURE THIS
DATE:
THE BROKER: THE PRODUCER:
2
<PAGE> 3
SOBIESKI & BRADLEY
BY MICHAEL SOBIESKI
DATED 1/6/93
3
<PAGE> 1
[EXHIBIT 10.25]
ROYAL INSURANCE
AGENCY-COMPANY AGREEMENT
American and Foreign Insurance Company
Globe Indemnity Company
Royal Insurance Company of America
The above-designated member company or companies of Royal Insurance, hereafter
referred to as "Company," and Beehive Insurance. Inc. with its principal place
of business at 227 West 600 South, Salt Lake City, UT 84101, hereafter referred
to as "Agent," are parties to this Agency-Company Agreement.
Company and Agent, in consideration of the mutual covenants and promises
contained herein, agree as follows:
1
DEFINITIONS
The following definitions shall apply to this Agreement and all amendments to
this Agreement:
A. BINDER - An agreement to provide coverage prior to actual issuance of a
written policy, bond, endorsement or other contract. This term shall include
"cover notes."
B. POLICY - All contracts of insurance and suretyship and other agreements
expanding or contracting coverage afforded under such contracts.
C. COMMISSION SCHEDULE - That schedule setting forth the commission rate to be
paid on a given line or classification of business and any amendments to such
schedule.
D. SCHEDULE OF BINDING AUTHORITY - That schedule which specifies the Agent's
authority or lack of authority to bind risks or coverage on behalf of Company
and any amendments to such schedule.
2
AGENT'S AUTHORITY
Agent is an independent contractor, not an employee of the Company, and nothing
in this Agreement shall be construed to create an employer/employee relationship
between Company and Agent. Subject to requirements imposed by law, the terms of
this Agreement and the
<PAGE> 2
underwriting policies, rules and guidelines of the
Company, Agent is authorized by the Company to:
A. Issue Binders and Policies within the lawful purview of Company in those
states where the Agent is properly licensed to negotiate and solicit insurance,
subject to the restrictions established by the Company in its Schedule of
Binding Authority or otherwise conveyed to the Agent in writing. Agent shall
promptly notify the Company of any such issuance by furnishing Company with a
written copy of-the Binder or Policy within five (5) working days of issuance.
B. Effect the cancellation of Binders and Policies unless prohibited by their
terms. Agent shall promptly notify the Company in writing when such
cancellations are effected.
C. Collect and receipt for premiums on Policies written by Agent pursuant to
this Agreement and to retain commissions out of premiums so collected as
compensation for Agent's services.
D. Provide all usual and customary services of an insurance agent on all
Policies placed by Agent with Company.
3
AGENT'S DUTIES AND
RESPONSIBILITIES
Agent shall be obligated to:
A. Maintain complete and current records and accounts relating to Policies
written under the Agreement.
B. Pay all premiums due the Company in a timely manner as required under
Sections 5 through 7 of this Agreement.
C. Hold all premiums collected by Agent or returned to Agent in a fiduciary
capacity as trustee for Company. Agent shall maintain premium monies in a bank
account in accordance with local statutory requirements.
D. Immediately notify Company of all claims, suits or losses under Policies
written pursuant to this Agreement and to cooperate in the Company's
investigation, adjustment, settlement and payment of claims.
E. Comply with all regulatory requirements including, but not limited to, those
addressing cancellation, nonrenewal or conditional renewal of Policies.
F. Return, upon demand, all unused policy forms or other property furnished to
Agent by Company and to cooperate with and assist Company in recovering such
items from any third parties.
2
<PAGE> 3
Agent's duties and responsibilities shall survive the termination of this
Agreement.
4
COMMISSIONS
A. Agent shall receive a commission for each Policy issued under this Agreement
which shall constitute full compensation for the services performed by Agent on
behalf of Company, unless otherwise specifically agreed by Company and Agent.
B. Commissions shall be paid at the rates indicated on the Commission Schedule
in effect on the inception date of the Policy or as otherwise agreed to in
writing by Company and Agent.
C. Rates under the Commission Schedule shall be subject to revision provided
Company gives Agent at least ninety (90) days prior written notice of such
revision. A revised commission rate shall remain in effect for at least twelve
(12) months following the effective date of such revision.
D. Agent shall promptly return to Company commissions on unearned premiums upon
return of any unearned premium to a policyholder by the Company.
E. Agent shall waive the right to receive commissions on any and all premiums
for which the Company has initiated collection proceedings and shall return any
such commissions to Company promptly upon notice that Company has initiated such
proceedings.
F. If Company is unsuccessful in collecting premiums that it has directly
billed, the Agent shall upon demand immediately return to the Company any
commissions that have been advanced on such uncollectible premiums.
5
COLLECTION AND REMITTANCE
OF PREMIUMS
A. Agent shall be responsible for the collection and remittance to the Company
of all premiums on Policies placed in effect under this Agreement, except as
provided for in Sections 5B and 5C.
B. Company shall be responsible for collecting premiums on business that is
directly billed by Company.
C. When additional premiums are due as the result of a final audit, or premiums
are due on a reporting-form policy or a non-cancellable bond, the Company shall
be responsible for collection of premiums provided the following conditions have
been met:
1. Agent has made a reasonable effort to collect the premiums and has
failed, and
3
<PAGE> 4
2. Agent has notified the Company in writing of its inability to collect
within forty-five (45) days of the end of the month in which the billing was
issued.
D. The Company shall have access at all reasonable times to the Agent's books
and records for the purpose of determining any fact relating to money due the
Company on business placed with the Company by the Agent.
6
AGENCY BILLED PREMIUMS
Business placed by Agent that has not been directly billed by Company shall be
governed by the following provisions:
A. Itemized monthly accounts shall be prepared by Company unless Company and
Agent mutually agree that such monthly accounts shall be prepared by Agent.
B. When Company prepares monthly accounts, Company shall submit the account so
that it is received by Agent no later than the tenth (10th) day of each month.
Monthly accounts shall include all premium transactions effective during the
month preceding account submission plus outstanding premium transactions from
prior months and shall indicate the premium balance due Company after retention
by Agent of the appropriate commission. Agent shall remit the premium balance
due Company so that it is received by Company no later than the fifteenth (15th)
day of the month following the month in which the account is submitted to Agent.
When Agent prepares monthly accounts, Agent shall submit the account so that it
is received by Company no later than the tenth (10th) day of each month. Monthly
accounts shall include all premium transactions effective during the month
preceding account submission plus outstanding premium transactions from prior
months and shall indicate the premium balance due Company after retention by
Agent of the appropriate commission. Agent shall remit the premium balance due
Company so that it is received by Company no later than the fifteenth (15th) day
of the month following the month in which the account is due for submission by
Agent.
D. Company may, at its discretion, bill the Agent for premiums on transactions
which should have been included but were omitted from any monthly account
submitted by the Agent. Any such premiums shall be remitted by Agent no later
than the date designated by Company, which shall not be earlier than the date
such premiums would have been due if properly reported under Section 6C.
E. If Company and Agent disagree on the amount of Policy premium, Agent may
delay the payment of only that portion of the premium specifically contested in
writing by the Agent until such disagreement is resolved. All premiums not
subject to disagreement shall be remitted in accordance with all other
provisions set forth in this section of the Agreement.
F. Occasional omissions of premium and premium disagreements as addressed in
Section 6E shall be considered as usual to the accounting procedures. However,
any failure by the Agent to
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remit uncontested premiums shall be grounds for termination of this Agreement
and application of Company's rights under Sections 9A4 and 10C of this
Agreement.
7
DIRECT BILLED PREMIUMS
Business placed by Agent that has been directly billed by Company shall be
governed by the following provisions:
A. Company shall be responsible for collecting all premiums billed directly to
policyholders and shall, within thirty (30) days after the close of each month,
submit to Agent an accounting of such premiums and payment of the commissions
due Agent.
B. Any premiums remitted to the Agent on direct billed business shall be
promptly forwarded to the Company with proper identification.
8
INDEMNIFICATION OF AGENT
A. Company shall indemnify and hold Agent harmless from all civil liability,
including attorney's fees and costs of investigation and defense arising as a
direct result of:
1. Company's error or omission in the preparation, processing, handling
or billing of business placed with Company by Agent, except to the extent that
Agent has caused or contributed to such error or omission;
2. A policyholder's failure to receive notice of cancellation,
non-renewal or any other notice affecting coverage when sent directly by
Company, except to the extent that Agent has caused or contributed to such
failure;
3. Company's actual or alleged failure to comply with the requirements
of any Federal or State consumer protection or privacy laws or any other law
where Agent is using forms supplied by Company or following procedures
established by Company, except to the extent that Agent has caused or
contributed to such failure;
4. Damages sustained and caused by acts or omissions of Company in
connection with claim handling, the performance of loss control counseling,
inspections or similar related work, or the preparation of appraisals for
Agent's policyholders or clients, except to the extent that Agent has caused or
contributed to such acts or omissions;
5. Any other action or inaction of Agent based upon Agent's use of forms
supplied by Company or following instructions and procedures specifically
established in writing by the Company, except to the extent that Agent has
caused or contributed to such civil liability.
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<PAGE> 6
B. Agent shall promptly notify Company when it receives notice of the
commencement of any action relating to liabilities within the scope of Section
8A and Company shall be entitled to participate in such action or to assume the
defense of any such action, with counsel satisfactory to Agent. If Company
assumes the defense of any such action, it shall not be liable to Agent for any
legal or other expenses subsequently incurred by Agent in connection with such
action absent Company's approval of such expenses.
9
TERMINATION OF AGREEMENT
A. This Agreement may be terminated by Company effective upon receipt by Agent
of written notice from Company in the event of:
1. Fraud by Agent;
2. The gross negligence or willful misconduct of the Agent;
3. Flagrant violation by Agent of Company's underwriting rules or the
terms of this Agreement;
4. Failure of Agent to pay Company all monies due under this Agreement;
5. The inability of the Agent to pay debts as they mature; an assignment
by the Agent for the benefit of creditors; the dissolution or liquidation of the
Agent; the appointment of a receiver or liquidator for a substantial part of the
Agent's property; the insolvency, bankruptcy, reorganization of the Agent, or
the institution of such or similar proceedings by or against the Agent;
B. This Agreement shall terminate automatically and without notice if:
1. Any public authority suspends, revokes or declines to renew the
Agent's license or certificate of authority or if the Agent's license or
certificate of authority is not renewed or the Agent otherwise allows its
license or certificate to lapse.
2. There is a change of control of the Agent unless Company has
consented in writing to such change. A change of control shall include but not
be limited to:
a. the sale or transfer of substantially all of the Agent's
assets; or
b. the sale or transfer of the Agent's expirations or book of
business; or
c. the sale or transfer of a majority ownership interest in the
Agent; or
d. the consolidation with or merger of the Agent into another
firm.
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3. There is abandonment of this Agreement by Agent.
C. This Agreement may be terminated:
1. Upon either party giving at least ninety (90) days advance written
notice to the other, subject to applicable statutory or regulatory require
meets.
2. At any time by mutual written agreement.
10
AFTER TERMINATION
A. If this Agreement is terminated pursuant to Section 9C and all premiums due
Company have been remitted by Agent, Company shall recognize Agent as its
limited agent and the following provisions shall apply:
1. Agent's records, ownership, and use and control of expirations of
Company Policies shall remain Agent's property.
2. Agent shall be authorized to provide routine services on Policies in
effect on the date of termination and Policies renewed pursuant to Section
10A3b. Agent shall not issue Binders increasing or extending the coverage
provided under these Policies without the Company's prior written approval.
3. Within fifteen (15) days of Agent's receipt of the notice of
termination, the Agent may request:
a. that Company notify all Agent's policyholders of Company's
intent not to renew, or
b. that all Policies in effect on the termination date and
expiring within twelve (12) months of that date be considered for renewal. Upon
such request, Company shall renew qualifying policies for one (1) term which
shall not exceed twelve (12) months provided such Policies meet Company's then
current underwriting criteria.
In the absence of the above requests, Company shall follow its then standard
procedures for non-renewal of all Agent's policyholders.
4. Agent may request that the Company provide a list of policyholders
indicating policy numbers, expiration dates and other policy writing data that
is readily available through the Company's electronic processing facilities.
5. Agent shall continue to collect and remit premiums pursuant to the
requirements set forth in Sections 5 through 7, and Company shall continue to
pay commissions at the rates
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<PAGE> 8
prevailing on the date of termination. Commission rates on Policies renewed
after the one year period contemplated under Section 10A3 due to guaranteed
renewal provisions or statutory requirements may be reasonably reduced upon
receipt by Agent of written notice from Company.
6. If Agent fails to collect and remit premiums as required under
Section 10A5, Agent's records, ownership, use and control of all Policies and
expirations, notwithstanding the provisions of Section 10A1, shall become vested
in Company upon the date of default in remittance of premium.
7. Agent's authority to act as Company's limited agent under this
Section shall automatically terminate upon the final expiration, cancellation or
nonrenewal of all Policies in effect upon termination and renewed pursuant to
this Section or upon Agent engaging in any conduct which would be cause for
termination under Section 9A or 9B.
B. If this Agreement is terminated pursuant to Section 9A or 9B, all authority
granted Agent under this Agreement shall be terminated immediately upon the
effective date of such termination.
C. If this Agreement is terminated and all premiums due Company have not been
remitted by Agent, the following provisions shall apply:
1. Agent's records, ownership, use and control of all Policies and
expirations and renewals of such Policies under this Agreement shall, upon
termination, become vested in Company, and none of the provisions under Section
10A of the Agreement shall apply.
2. The sale of rights to all Policies, expirations and renewals shall be
at the sole discretion of Company. In the event of such sale, proceeds of the
sale shall be applied first against any amounts owed by Agent to Company under
this Agreement plus any legal fees incurred by Company relative to such sale.
Proceeds of the sale in excess of such indebtedness and legal fees shall be paid
to Agent, and Agent shall remain liable for any deficiency remaining after
application of the proceeds of sale.
3. The Company shall have the right to offset any commissions,
contingent commissions, or profit sharing payments due and payable to the Agent
under this Agreement or any other agreement between the parties, against premium
balances that the Agent has failed to remit under this Agreement.
11
REHABILITATION
Prior to issuing a notice of termination pursuant to Section 9C1, the Company
may, at its sole discretion, offer the Agent a written rehabilitation plan. If
offered by Company, the rehabilitation plan shall provide objectives that Agent
must accomplish during specified periods of time in order to keep this Agreement
in effect and shall indicate how Company will assist Agent in accomplishing such
objectives. If the Agent refuses to accept
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<PAGE> 9
the rehabilitation plan or accepts the rehabilitation plan but fails to achieve
the objectives within the specified periods of time, the Company may issue its
notice of termination.
12
ADDITIONAL PROVISIONS
A. The Agent shall not have authority to represent the Company on an exclusive
basis with respect to any form, line, class or subclass of business, unless
otherwise authorized in writing by the Company.
B. The Company shall not be responsible for any expenses of the Agent unless
previously agreed to in writing by the Company.
C. If a conflict exists as to whether Agent or another agent of Company is
authorized to represent an existing or prospective policyholder, the
policyholder's written designation of agent of record shall be binding upon
Agent and Company.
D. All Company reports addressing the Agent's loss ratio shall include credits
for subrogation and salvage recoveries received by the Company.
E. Company shall print Agent's name prominently on all Policies, renewal
certificates and bills that are sent to policyholders.
F. The Company shall not use its listings of the Agent's policyholders for any
solicitation of business without the Agent's prior consent.
G. The Company may cancel or non-renew any binder or policy unless prohibited by
their terms and shall notify Agent of its action.
H. Failure of either party to enforce compliance with any term or condition of
this Agreement shall not constitute a waiver of such term or condition. No
waiver of any breach or default hereunder shall be valid unless in writing and
signed by the party giving such waiver, and no such waiver shall be deemed a
waiver of any subsequent breach or default of the same or similar nature.
I. With the exception of those authorities granted under Section 2, Agent shall
not commit Company to liability in any manner without the prior written consent
of Company.
J. All records of the Agent pertaining to any aspect of the Company's business
shall be made available for inspection by Company at any reasonable time.
13
AMENDMENT
This Agreement may be amended in writing upon the mutual consent of Agent and
Company.
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14
CONFORMANCE WITH STATE LAW
This Agreement shall be deemed amended where necessary to conform with the
statutory provisions of the state(s) in which Agent is transacting business.
15
SUPERSESSION
This Agreement supersedes all previous agency agreements, oral or written,
between Company and Agent except agreements covering "Business Guard Insurance
Plans" or similar affinity group marketing programs which are covered under
separate specific agreements.
IN WITNESS WHEREOF, the parties to this Agreement hereby cause this Agreement to
be executed effective as of the 15th day of December, 1992
AGENT COMPANY
By: M. Douglas Snow By: K. B. Patterson
President General Manager - Resident Vice President
<PAGE> 1
[EXHIBIT 10.26]
Unigard Insurance Group
Unigard Insurance Company
Unigard Indemnity Company
INDEPENDENT AGENCY AGREEMENT
UTAH
THIS AGREEMENT MADE this 1st day of January, 1997, by and between BEEHIVE
INSURANCE AGENCY, INC., City of Salt Lake City, State of Utah, (hereinafter
called "Agent"/"Agency") and each of the insurance companies designated above
which are licensed to write insurance in that state and to the extent of that
license, severally (hereinafter called "Company").
Agent is a Corporation.
I. AGENT'S AUTHORITY
The Agent is an independent contractor not an employee of the Company. The
Agent, subject to requirements and prohibitions imposed by law, the terms of
this Agreement, and the underwriting rules, regulations and instructions of the
Company, is authorized to:
A. Solicit, receive, and transmit to the Company proposals for insurance
contracts for the lines of business for which a commission is specified in
Addendum Number Three and/or Addendum Number Four or such other lines of
business the Company may designate in writing.
B. Bind insurance contracts to the extent permitted by Addendum Number One
and/or Addendum Number Two. The Agent does not have the authority to alter,
modify, waive or change any provision or condition of the Company's insurance
contracts, rates, rating rules or rating plans.
C. Provide all usual and customary services of an insurance agent on all
insurance contracts placed by the Agent with the Company.
D. Collect, account, retain and receipt for premiums as a fiduciary in trust for
the Company, until paid to the Company, the Company's insureds, or the insured's
premium finance company, in accordance with Section II.
E. The Agent is authorized to retain commission out of premiums collected
pursuant to Paragraph D above. In the event of policy cancellations or
reductions in premium, the Agent agrees to refund commissions to the Company at
the rate commissions were originally retained by the Agent The Agent is not
authorized to retain commission out of direct bill business.
<PAGE> 2
F. Exercise authority per this Agreement personally or through authorized
employees, or through sub-agents or affiliates approved by the Company.
G. Represent other insurance companies.
H. Exercise exclusive and independent control of the Agent's time and the
conduct of the Agency.
II. AGENT'S PREMIUM ACCOUNTING
A. Except for direct-billed business as described in Section III and audits
turned back for direct collection under Paragraph D of this Section II, the
Agent is liable for and agrees to pay to the Company all premiums and related
surcharges on insurance contracts placed by the Agent with the Company whether
or not collected by the Agent, including advance, deposit, installment, audit,
additional, and renewal premium.
B. As provided in Section I, Paragraph D, the Agent has the authority to
collect, account, retain and receipt for premiums on insurance contracts
solicited by the Agent and accepted by the Company. All premium or return
premium received by the Agent on any Company policy, net of commission, shall be
received and held by the Agent for the Company as trust funds. The Agent and the
Company agree that:
1. Such funds shall be deposited and held in a trust account insured by
an entity of the federal government. Trust funds held by the Agent for the
Company may be commingled in the same trust account with trust funds held for
other parties.
2. Funds in the trust account shall not be used to pay expenses or other
costs of operation of the Agency.
3. The Agent may retain any interest earned on the trust account
4. The Agent must properly end promptly remit to the Company's insureds
or the insured's premium finance company return premium held as trust funds.
5. The making of payments or rendering of accounts pursuant to this
Agreement does not convert the Company-Agent relationship to debtor and creditor
as to trust funds.
C. The Agent and the Company shall comply with the following accounting
procedures for premium and related surcharges due the Company for insurance
contracts placed by the Agent with the Company for which the Agent is liable.
1. Itemized statements of premium and related surcharges due the Company
will be prepared monthly by the Company, or when mutually agreed upon, by the
Agent. These statements will be mailed by the Company on or before the 15th day
of each month.
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2. Each item owed by the Agent to the Company will be due 45 days after
the end of the month in which the Company issued the transaction, or within the
maximum time permitted by law, whichever occurs first: except, premium and
related surcharges for policies issued by the Company with future effective
dates will be due 45 days after the end of the month in which the policy becomes
effective.
3. The omission of any premium and related surcharges from the monthly
itemized statement will not affect the responsibility of either party to account
for and pay all amounts due to the other party.
D. The Agent may turn over to the Company for collection additional premium
developed by final or interim audits, except for premium adjustments made to an
insured's current policy term based upon the findings of a prior-term audit, if
the Agent has complied with Paragraphs D.1 and D.2 below. The Agent agrees that
no commission will be due the Agent on audit premium turned back to the Company
for collection. To be relieved of liability for payment of such audit premium,
the Agent must have:
1. made a good faith effort to collect the additional premium; and
2. provided written notice to the Company within 60 days after the issue
date of the audit premium statement that the Agent is turning back the audit for
collection by the Company. This notice must include an explanation of why the
premium is uncollectible, the specific basis of any dispute regarding the audit,
last known mailing address and telephone number of the insured, and any other
information known by the Agent which will assist the Company in the collection
of the audit premium.
E. Except for final and interim audits as set forth in Paragraph D of this
Section 11, no other premium balances may be turned over to the Company for
collection.
III. DIRECT BILL POLICY PROCEDURES
The following procedures apply on business placed by the Agent with the Company
and designated by the Company as direct bill business:
A. A completed policy application, the initial deposit premium, and any matured
installment premiums, without deduction of commission, shall be submitted to the
Company in accordance with the provisions of the Company's direct bill program.
B. The Company will be responsible for all premium billing and collection,
except for audit premiums billed on the Agent's monthly itemized statement,
unless otherwise mutually agreed upon by the Agent and the Company.
C. Any application received without deposit premium, other than Mortgagee billed
policies, will be billed on the Agent's monthly itemized statement in accordance
with Section 11 of this Agreement, unless otherwise mutually agreed upon by the
Agent and the Company; provided,
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<PAGE> 4
however, that if the Agent submits an application for personal lines coverage
without deposit premium and requests 'Direct Bill' on the application, the
Company will bill the insured for the required deposit premium and any matured
installment premiums. If the Company is unable to collect such deposit premium
and any matured installment premiums from the insured, the Agent is liable for
all premium earned until the effective date of cancellation of the policy.
D. Commissions will be paid to the Agent within 30 days after the end of the
month in which the policy is either effective or issued, if the policy is issued
after its effective date; provided, however, that commission on a policy win not
be paid the Agent until the initial deposit premium has been received by the
Company. The Company has the right to offset any return commissions due the
Company from the commissions due the Agent. No commission will be paid to the
Agent on uncollectible premium on direct-billed policies.
E. The Agent's name will be clearly and prominently displayed on renewal
policies, continuation notices, renewal certificates, and premium statements.
F. The Company will send the Agent a copy of all written correspondence with
insureds on direct bill, except budget and monthly billing notices.
G. The Company will furnish the Agent expiration information on direct-billed
policies upon request within a reasonable period of time.
IV. DELINQUENCY IN PAYMENT
In the event of delinquency in payment of monies due and owing the Company, the
Agent and the Company agree as follows:
A. The Agent agrees to execute a UCC-1 Financing Statement at the written
request of the Company and hereby authorizes the Company to file same on all of
the insurance policies, expirations, and daily records of business placed by the
Agent with the Company, including direct-billed business.
B. The Company may place all eligible policies placed by the Agent with the
Company on mandatory direct bill for all transactions.
C. The Company may send a letter requesting confirmation of payment directly to
insureds on all unpaid items.
D. The Agent will not be considered delinquent in payment of monies due the
Company, if the Agent has a good faith dispute as to the amount due; provided
that the Agent has promptly paid to the Company all items or portions thereof
that are not in dispute.
E. The Agent must promptly provide written notification to the Company
of any disputed item and the specific basis for the dispute.
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<PAGE> 5
V. OPERATING INSTRUCTIONS
Agent's authority shall be subject to the following instructions:
A. Policies shall be written using only the approved rates, rules and forms of
the Company.
B. Applications, policy orders, daily reports, and binders shall be mailed to
the Company no later than five working days following acceptance by the Agent of
each risk.
C. The Agent shall not bind the Company on a risk concurrently with any other
insurance company without the prior written consent of the Company.
D. Credited insured dividends and return premium not disbursable to the insured
shall be returned to the Company.
E. If the Company uses, or permits use of, its records of business placed by the
Agent with the Company to individually solicit insureds for the sale of other
lines of insurance, the Agent will be allowed the regular commission on sales
resulting from the use of these records and will retain ownership and control of
any expirations arising from these sales.
F. The Agent will be sent a copy of informational material designed for sales
promotion which is mailed to insureds.
G. The Agent shall not be credited for any cancellation until the Company has
acceptable proof of cancellation. A policy on which a loss has been sustained
cannot be canceled flat. All policies ordered canceled flat by the Agent must be
either returned to the Company or canceled by written notice signed by the named
insured. A new policy canceling and replacing another policy or binder shall so
state.
H. Flat cancellation of policies or binders shall follow the Company's specific
manual instructions for each type of policy. Where no such instructions have
been issued, flat cancellation must be effected no later than 30 days after the
effective date of the policy. However, if the applicable Rating Bureau requires
a shorter time limit for flat cancellation than that set forth above, the rules
and regulations of the Rating Bureau must be followed.
I. The Agent's advertisements and other displays of the Company name or symbol
must comply with the Company's requirements.
J. At the sole option of the Company, an Agent may be granted claims settlement
and draft authority by the Company's Home Office Claim Department. If the Agent
is granted claim and draft authority, the Agent must exercise such authority in
accordance with Unigard's Agency Draft Authority Program and the Agent's Claim
and Draft Authority Agreement. The Company may at its option suspend or
terminate the Agent's claim and draft authority immediately upon notice to the
Agent.
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<PAGE> 6
K. In the event of knowledge of a potential loss or claim, the Agent must
immediately notify the Company. All occurrences which may result in a liability
claim against an insured or the Company must be reported immediately. A claim
report must be made even though the Agent may have reason to believe that no
claim may be made together with the Agent's explanation of possible no claim
circumstances. The Claim Report must include the name of the insured, policy
number, Agent's record of applicable coverage, essential details of the
potential claim or loss and identity of parties involved. The Agent shall not
commit the Company to coverage, liability or payment, or adjust losses without
prior specific instructions and written permission from the Company.
L. Any policy forms and other Company supplies furnished to the Agency by the
Company shall remain the property of the Company and shall be returned to the
Company promptly upon demand or immediately upon termination of the Agent's
authority as set forth in Section I of this Agreement {"Agent's Authority"), or,
if applicable, the Agent's Limited Agency Authority.
M. The Agent may exercise the authority granted herein as the Company's agent in
the state where the Agent's office is located or where the Agent holds a
Non-Resident Agent license, subject to any restrictions that state law may
impose on Agent or Company. A copy of any Non-Resident Agent license must be
placed on file with the Company.
VI. OWNERSHIP OF EXPIRATIONS
The Agent's daily records, policies, and use, control, and ownership of all
expirations, including direct billed business, will remain the property of the
Agent and be left in the Agent's undisputed possession, except as set forth in
Paragraphs A and B below.
A. If the Agent has violated this Agreement by misrepresentation, fraudulent
act, or being out of trust with respect to funds held for and due the Company,
or if the Agent's authority has automatically terminated pursuant to Section
VIII, Paragraph A, then the Company may immediately and without notice take
possession and ownership of all new and renewal policies, daily records and
expirations on business placed by the Agent with the Company. Taking possession
of such policies, daily records and expirations under such circumstances does
not affect the Company's termination or suspension rights.
B. If upon the effective date of Termination of the Agent's Authority as set
forth in Section VIII of this Agreement, the Agent has not properly accounted
for and paid to the Company the premiums and related surcharges for which the
Agent is liable, the daily records, policies and use, control, and ownership of
all expirations of business placed with the Company become vested in the
Company. If, in disposing of these daily records, policies and use, control and
ownership of all expirations, the Company does not realize sufficient money to
discharge in full the Agent's indebtedness to the Company, the Agent will remain
liable for the balance of the indebtedness. Any amount realized in excess of the
indebtedness, less the expense of disposing of the daily records, policies and
expirations, will be resumed to the Agent.
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<PAGE> 7
VII. AGENCY SALE OR TRANSFER
A. The Agent may not assign any rights or interests under the Agreement unless
the Agent receives prior written consent from the Company.
B. If reasonably practicable, the Agent agrees to give at least 30 days advance
written notice to the Company of any proposed sale, change in majority
ownership, assignment, transfer or merger of the Agency, including the sale,
assignment or transfer of a substantial portion of the Agency's expirations or
book of business placed with the Company.
C. Upon written request signed by the parties in interest, the Company may, at
its option:
1. Consent to an assignment of the Agreement;
2. Enter into a new Agency Agreement with the Agent's successor or
3. Place in effect a Limited Agency Agreement with the Agent's
successor.
D. In the event of the sale, change in majority ownership, transfer or merger of
the Agency, including the sale, or transfer of a substantial portion of the
Agency's expirations or book of business placed with the Company, or the
unauthorized assignment of this Agreement, the Company may, at its option,
provide written notice of immediate termination of the Agent's Authority.
E. Agent shall institute such procedures as are necessary to ensure that there
is no interruption in service to insureds upon the sale or transfer of the
Agent's business or termination of the Agent's Authority.
VIII. TERMINATION AND SUSPENSION PROCEDURES
A. The Agent's Authority shall automatically terminate without notice to the
Agent, upon the effective date of:
1. The termination, cancellation, revocation, nonrenewal or suspension
of the Agent's license or certificate of authority by any public authority; or
2. The surrender of the Agency license to a public authority.
In the event of automatic termination, the Agent shall have no further
authority to act on behalf of the Company.
B. The Agent's Authority may be terminated immediately by the Company upon
written notice to the Agent in the event of any of the following occurrences:
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<PAGE> 8
1. Agent's violation of binding or underwriting authority as set forth
in this Agreement and Addendum;
2. Agent is out of trust with respect to funds held for and due the
Company;
3. Agent's misrepresentation or fraudulent act affecting the Agent's
relationship with the Company or the Company's insureds;
4. Agent's failure to pay amounts due and owing the Company in
accordance with the time limits set forth in the Agreement, or within 30 days
after written demand where the Agreement does not set forth a time limit;
5. Agent's material breach of this Agreement;
6. Agent's insolvency, bankruptcy, reorganization, receivership or
similar action;
7. Agency is abandoned; or
8. The sale, change in majority ownership, transfer or merger of the
Agency, including the sale, or transfer of a substantial portion of the Agency's
expirations or book of business placed with the Company, or the unauthorized
assignment of this Agreement.
C. The Agent's Authority may also be terminated:
1. By mutual written agreement; or
2. By either party after giving at least 120 days advance written notice
to the other.
D. Upon receipt of written Notice of Termination of the Agent's Authority, the
Agent shall not solicit or bind any new risks on behalf of the Company, or
otherwise increase the obligations of the Company, without the express approval
of the Company or in accordance with the terms of an existing policy.
E. If Agent is entitled to the ownership, use and control of expirations upon
the effective date of Termination of the Agent's Authority in accordance with
Paragraph B of this Section VIII, the Agent and the Company agree as follows:
1. The Company may place all eligible policies placed by the Agent with
the Company on mandatory direct bill for all transactions.
2. Any premium and related surcharges for which the Agent is liable
whether or not collected, shall be paid to the Company immediately.
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<PAGE> 9
3. The Agent will use best efforts to replace all policies issued by the
Company pursuant to this agreement with policies of other insurance companies.
The Company will notify all insureds of its intent not to renew their policies
as soon as permitted by applicable state law.
4. No commission will be paid on policies requiring renewal following
termination, unless required by applicable state law.
5. The Company shall have such other rights as permitted under
applicable state law.
F. If the Agent is enabled to ownership, use and control of expirations upon the
effective date of Termination in accordance with Paragraph C of this Section
Vet, the Company will:
1. Place into effect Limited Agency Authority as set forth in Section
IX. which authorizes the Agent to service and renew business which was placed by
the Agent with the Company prior to receipt of a Notice of Termination and
arrange for appropriate underwriting, claims, audit, and other necessary Company
services on such policies; or
2. At the Agent's written request, authorize the coinsurance of all
existing policies with another insurance company. In such event the Agent shall,
at no cost to the Company, arrange with another insurance company acceptable to
the Company for the prompt assumption of such risks on terms acceptable to the
Company and the Agent. The reinsurance will be effective not later than the
termination date of this Agreement. The Company agrees to promptly deliver to
the assuming company a bordereau of the business reinsured.
3. Upon receipt of the Agent's written request, provide the Agent with a
complete list of existing policies placed by the Agent with the Company,
including the expiration dates of such polices.
G. On or prior to the effective date of Termination of the Agent's Authority,
the Agent agrees to pay in full an obligations due the Company, including those
relating to special programs or due under agreements between the Agent and the
Company such as producer financing and promissory notes.
H. In lieu of immediate Termination of the Agent's Authority for an occurrence
set forth in Paragraph B of this Section VIII, the Company may in its sole
discretion, by written notice to the Agent, suspend some or all of the Agent's
authority under Section 1, Paragraphs A, B. C, D, E, and F. Any decision to
suspend some or all of the Agent's authority under this Agreement shall in no
way waive the Company's right to terminate the Agent's Authority in accordance
with any of the provisions of Section VIII of this Agreement.
IX. LIMITED AGENCY AUTHORITY
A. Following the effective date of termination of the Agent's Authority, in
accordance with Paragraph C of Section VII, a run-off period of 90 days shall be
provided during which the
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Company will, subject to law and underwriting acceptability, permit the renewal
for an additional policy period at the Agent's option.
B. Throughout the 90-day run-off period described in Paragraph A above, the
Agent will be required to fulfill the duties relating to servicing the needs of
insureds, but shall have "Limited Agency Authority" as described in this Section
IX, subject to all the requirements of this Agreement.
C. Throughout the 90 day run-off period, the Agent is authorized to:
1. Represent the Company for the sole purpose of servicing and renewing
insurance contracts, including fidelity and surety bonds, placed by the Agent
with the Company which are in force upon receipt of Notice of Termination.
2. Issue and countersign appropriate endorsements on such contracts of
insurance, except for endorsements on fidelity and surety bonds. Such
endorsements shall not increase the Company's liability or extend the term of
any insurance contract without the Company's prior written approval.
3. Collect, account, retain and receipt for premiums as a fiduciary in
trust for the Company, until paid to the Company, the Company's insured, or the
insured's premium finance company in accordance with Section II.
4. The Agent is authorized to retain commission out of premiums
collected pursuant to Subparagraph 3 above. In the event of policy cancellations
or reductions in premium, the Agent agrees to refund commissions to the Company
at the rate commissions were originally retained by the Agent. The Agent is not
authorized to retain commission out of direct bill business.
5. Exercise authority per this Agreement personally or through
authorized employees, or through subagents or affiliates approved by the
Company.
6. Represent other insurance companies.
7. Exercise exclusive and independent control of the Agent's time and
conduct of the Agency.
D. On all policies renewed and endorsed during the 90-day run-off period, the
commission rate payable to the Agent shall be no less than the commission rate
provided for that line of business in Addendum Numbers Three and Four.
E. On all policies containing contractual guarantees of renewal or subject to
laws requiring renewal beyond the 90 day run-off period, the terminated Agent's
vested interest in commissions payable on such policies shad be reduced as
indicated in Section XI, Paragraph D.
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<PAGE> 11
F. The Agent's Limited Agency Authority may be terminated automatically in
accordance with Section VIII, Paragraph A or immediately upon written notice to
the Agent in the event of any of the occurrences listed in Section VIII,
Paragraph B.2 - 8. If the Agent is entitled to the ownership, use and control of
expirations upon termination of its Limited Agency Authority, the Agent and the
Company agree to abide by the provisions set forth in Section VIII, Paragraph E.
X. INDEMNIFICATION OF AGENT
A. The Company shall indemnify the Agent from liability for claims for damage,
including reasonable attorney's fees and costs of investigation of such claim,
arising directly out of:
1. Company error or omission in the preparation, handling, or billing
for any insurance contract to which this Agreement applies, except to the extent
that the Agent has caused, contributed to or compounded the error or omission;
or
2. Company failure to comply with the requirements of Public Law 91-508
(The Fair Credit Reporting Act) or applicable state law in the procurement or
use of consumer reports ordered by the Company except to the extent that the
Agent has caused, contributed to or compounded such failure.
B. The Agent agrees, as a condition to such indemnification, to immediately
notify the Company of any claim or legal action to which Paragraph A of this
Section X applies.
C. The Company will have the right but not the obligation to assume or associate
in the defense of such claim or legal action. If the Company assumes the entire
defense of any such action, it shall not be liable to the Agent for any legal or
other expenses subsequently incurred by the Agent in connection with such action
without the Company's prior written approval.
D. The Agent shall not, except at the Agent's own expense, voluntarily make any
payment, assume any liability, or incur any expense, related to such claim or
legal action without the prior written consent of the Company.
XI. COMMISSIONS
A. The Agent's commission rate for each line of business written in the Agent's
resident state shall be as specified in Addendum Numbers Three and Four or as
otherwise mutually agreed to in writing by the Company and the Agent.
B. The Agent's commission rate for each line of business written in a state in
which the Agent has a nonresident agent's license on file with the Company shall
be as specified in the Company's Standard Commission Schedule for that state.
C. Commissions paid to the Agent or retained by the Agent as set forth in this
Agreement shall be the Agent's sole and full compensation on the business placed
by the Agent with the Company.
11
<PAGE> 12
D. The commission rate paid to a terminated Agent on policies subject to laws
requiring renewal beyond the run-off period of 90 days as set forth in Section
IX shall be two percent (2%) or such other rate required by applicable state
law.
XII. CHANGES IN AGREEMENT
A. This Agreement, including any Addendum, may be revised at any time by mutual
written agreement of the Agent and the Company.
B. Alternatively, this Agreement, including any addendum, may be revised by the
Company after the Company gives the Agent at least 60 days advance written
notice which sets forth the proposed revision and its effective date.
XIII. GENERAL PROVISIONS
A. Upon written notice to the Agent, the Agent's financial and accounting
records pertaining to Company business will be available for inspection and
audit by Company representatives during nominal business hours. The Agent agrees
to cooperate with all reasonable requests of the Company in performance of such
inspection or audit.
B. The Agent must maintain appropriate amounts of Errors and Omissions insurance
coverage throughout the term of this Agreement. The Agent must provide the
Company proof of such insurance upon written request. The Company may, at its
option, continue the appointment of an Agent who self insures.
C. The Agency assumes full responsibility and liability for the performance of
all duties and obligations as set forth in this Agreement by all of the Agency's
partners, associates, officers, employees, agents, producers, and subagents or
affiliates who have not entered into a separate agency agreement with the
Company. Any act or omission, or breach of this Agreement, by any such partner,
associate, officer, employee, agent, producer, subagent or affiliate shall be
deemed an act, omission or breach by the Agency, and the Company may exercise
its rights under this Agreement as if such act, omission or breach had been
committed by the Agency.
D. The Company has the right to offset against any sums due the Agency, any sums
the Agency owes the Company or the Company's affiliates.
E. The provisions of this Agreement will not apply to business subject to the
administration or control of any underwriting association, pool, plan, or
syndicate.
F. This Agreement supersedes all previous agency agreements, including any
amendments, whether written or oral, between the Company and the Agent.
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<PAGE> 13
G. If any part of this Agreement conflicts with applicable law, regulation,
directive or order, that part of this Agreement will be deemed modified to
conform with such law, regulation, directive, or order. No other provisions of
this Agreement will be affected.
H. Any notices required under this Agreement are deemed received upon the
earlier of five (5) business days after mailing or actual receipt.
I. The Agent is authorized to represent the Company as an independent insurance
agent in accordance with this Agreement for
Both Personal and Commercial lines.
The following Addenda, which are incorporated by reference into this Agreement,
are applicable to the Agent's authority and are attached:
Addendum Number One, Agent's Basic Binding Authorization, Personal Lines
Addendum Number Two, Agent's Basic Binding Authorization, Commercial Lines
Addendum Number Three, Commission Schedule, Personal Lines
Addendum Number Four, Commission Schedule, Commercial Lines
FOR THE AGENT: FOR THE COMPANY:
W. Douglas Snow Sherida Bradley
Manager Northwest Regional Sales Manager
13
<PAGE> 1
[EXHIBIT 10.27]
LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease") is made and entered into as of the 31st
day of October, 1997, by and between GENEVA ROCK PRODUCTS, INC., a Utah
corporation (hereinafter referred to as the "Landlord"), and Beehive Insurance
Agency, a Utah Corporation (hereinafter referred to as the "Tenant," whether one
or more).
The Landlord and the Tenant hereby agree as follows:
1. FUNDAMENTAL LEASE PROVISIONS.
1.1. Description of Premises. The Premises consist of approximately
1,291 square feet of finished useable area (hereinafter the "Useable Area") in
the Plaza 5300 Office Building (hereinafter the "Building") situated on certain
real property (hereinafter the "Property") located at 302 West 5400 South, Salt
Lake City, Salt Lake County, State of Utah. The Premises consist of the area
cross-hatched on the floor plan attached as Exhibit A hereto.
1.2. Rentable Area. The Premises are deemed to consist of 1,490 square
feet of rentable area (hereinafter the "Rentable Area"), which Rentable Area
consists of the Useable Area plus a portion of the Common Areas (as defined in
Section 1.12 hereof) which have been attributed to the Premises.
1.3. Parking. For purposes of Section 2.2 hereof, the parking stalls
consist of five (5) unidentified and unreserved parking stalls located in the
Parking Areas located upon the Property (hereinafter the "Parking Areas") and
related to the Building. Parking stalls located in the Parking Areas are
hereinafter sometimes referred to as the "Parking Stalls."
1.4. Landlord's Finishing Allowance. N/A.
1.5. Term. N/A
1.6. Rent. The annual rent under this Lease shall be the sum of Nineteen
Thousand Three Hundred Seventy Dollars ($19,370.00) per year, computed at the
rate of $13.00 per year per square foot of Rentable Area included in the
Premises. The annual rent shall be paid in monthly installments of One Thousand
Six Hundred Fourteen and 17/100 Dollars ($1,614.17) each as provided in Section
4.1 hereof.
1.7. Prepaid Rent. N/A.
1.8. Security Deposit. N/A.
1.9. Addresses for Notices. The initial addresses of the Landlord and
the Tenant for notices, demands, and other communications under this Lease as
provided in Section 13.1 hereof are as follows:
(a) Landlord's Address:
Geneva Rock Products, Inc.
1565 West 400 North
Orem, Utah 84057
Attn: Mr. Albert T. Schellenberg
<PAGE> 2
(b) Tenant's Address:
Beehive Insurance Agency
302 W. 5400 S., Suite 109
Murray, Utah 84107
Attn: Doug Snow
1.10. Brokers. The names of all Real Estate Brokers involved with this
Lease are as follows:
- None - .
1.11. Common Areas. "Common Areas" means all areas, space, equipment,
and special services provided for the joint or common use and benefit of the
tenants or occupants of the Building and Property or portions thereof, and their
employees, agents, licensees, and other invitees (collectively referred to
herein as "Occupants"), including without limitation, the following: Parking
Areas, access roads, driveways, retaining walls, landscaped areas, serviceways,
pedestrian walks, courts, stairs, ramps, sidewalks, common corridors, restrooms,
air conditioning, fan, janitorial, electrical, and telephone rooms or closets,
elevators, and all other areas within the Building which are not intended for
exclusive use or occupancy by the Landlord or any tenant (whether or not at the
time leased or occupied).
1.12. Improvements. "Improvements" shall mean the Building, the Parking
Areas, and all other improvements on the Property necessary or appropriate to
enable use of the Building as contemplated from time to time.
1.13. Exhibits and Riders. Exhibits A through D, inclusive, attached
hereto are by this reference made a part hereof.
1.14. Deadline for Acceptance. N/A.
1.15. References. All references in this Section 1 to other sections of
this Lease are for convenience and designate only some of the other sections
where references to particular Fundamental Lease Provisions appear. Each
reference in this Lease to any of the Fundamental Lease Provisions contained in
this Section 1 shall be construed to incorporate all of the terms provided under
each such Fundamental Lease Provision. In the event of conflict between any
Fundamental Lease Provision and the balance of the Lease, the latter shall in
all events control.
2. PREMISES.
2.1. Premises. For and in consideration of the rents herein reserved and
the covenants and agreements herein contained on the part of the Tenant to be
performed and observed, the Landlord hereby leases and demises to the Tenant,
and the Tenant hereby takes from the Landlord, the Premises described in Section
1.1 hereof.
2.2. Parking Stalls. During the term of this Lease and subject to
reasonable rules and regulations from time to time adopted by the Landlord, the
Tenant shall have the nonexclusive right to use, on an unreserved basis up to,
but not exceeding, the number of Parking Stalls specified in Section 1.3. In
addition to other reasonable rules and regulations relating to parking, the
Landlord shall have the right to designate specific Parking Stalls or areas in
the Parking Areas located upon the Property for exclusive use by visitors or by
other lessees, occupants, or users of the Improvements. Automobiles of the
Tenant and all Occupants associated with the Tenant shall be parked only in
Parking Stalls designated by the Landlord for use by the Tenant and not
otherwise reserved by the Landlord for use by visitors or by any other tenant or
Occupant associated with any other tenant. The Landlord shall have no obligation
to
15
<PAGE> 3
ensure that the parking rights of the Tenant provided for in this Section 2.2
are not impaired or violated by other parties, including without limitation
other lessees, occupants, and users of the Improvements. In no event shall
automobiles, trucks, or vehicles of any nature be parked at any time in access
roads, driveways, serviceways, or loading docks (except for such periods of time
as are reasonably necessary for loading or unloading such trucks or vehicles and
not prohibited by the rules and regulations established by the Landlord).
2.3. Use of Additional Areas. During the term of this Lease and subject
to reasonable rules and regulations from time to time adopted by the Landlord,
the Tenant shall have the non-exclusive right to use the Common Areas with
respect to the Building and the Property as may be reasonably necessary for
access to and egress from the Premises and the Parking Areas.
2.4. No Airspace or Subsurface Rights. This Lease confers no rights with
respect to the subsurface of the Property below the lowest level of the floor of
the Premises, or with respect to airspace more than one (1) foot above the
interior ceiling of the top floor of the Premises.
2.5. Finishing of Premises. The arrangement that is to apply relative to
improvement and finishing of the Premises is described in Exhibit B attached
hereto. The monetary contribution that is to be made by the Landlord toward the
cost of such improvement and finishing (which is referred to in Exhibit B as the
"Landlord's Finishing Allowance"), if any, is the sum specified in Section 1.4
hereof as the Landlord's Finishing Allowance. The Landlord's Finishing Allowance
shall be disbursed to the contractors who have accomplished the improvement and
finishing of the Premises in accordance with the procedures and guidelines set
forth in Exhibit B attached hereto. The Tenant shall be solely responsible for
all other amounts expended or incurred in connection with improvement and
finishing of the Premises.
3. TERM AND OCCUPANCY.
3.1. Term. The term of this Lease shall be for the period specified in
Section 1.5 hereof.
4. RENT AND PAYMENT OF RENT.
4.1. Basic Rent. The Tenant shall pay to the Landlord as annual rent, in
excess of any other charge to be paid by the Tenant under this Lease, the sum
per year specified in Section 1.6 hereof, which annual rent shall be payable in
equal consecutive monthly installments each in the amount specified in said
Section 1.6, in advance on the first day of each and every calendar month
throughout the term hereof; (provided, however, that if the commencement date of
the term is other than the first day of a calendar month, then the Tenant shall
pay to the Landlord, on such date, a pro rata share of the monthly rent amount
as rent for the fractional calendar month with which the term hereof begins).
Any rent or other charges under this Lease not paid by the Tenant when due shall
bear interest from the due date thereof until paid at the rate of eighteen
percent (18%) per annum.
4.2. Prepaid Rent. Concurrently with the Tenant's execution of this
Lease, the Tenant shall pay to the Landlord the sum specified in Section 1.7
hereof as prepaid monthly rent for the calendar month(s) specified in said
Section 1.7, to the extent such sum is sufficient therefor.
4.3. Adjustment of Basic Rent. As of January 1 of each year during the
term hereof and every January 1 thereafter (hereinafter the "Adjustment
Date(s)"), including the option term, the amount of the basic rent under Section
4.1 hereof (including the annual rent and the monthly installments) shall be
increased as provided in this Section 4.3. The base for computing the increase
shall be the United States Consumer Price Index--All Items (for all urban
consumers) published by the United States Department of Labor, Bureau of Labor
Statistics (hereinafter the "Index"), which is published nearest the date on
which the term of this Lease commences (hereinafter the "Base Index"). If the
Index published nearest the
16
<PAGE> 4
respective Adjustment Date (hereinafter the "Extension index") has increased
over the Base Index, then the basic rent under Section 4.1 hereof for the term
of this Lease remaining after the respective Adjustment Date shall be determined
by multiplying the basic rent by a fraction, the numerator of which is the
Extension Index and the denominator of which is the Base Index. If the Extension
Index has not increased over the Base Index, then the basic rent for the term of
this Lease remaining after the Adjustment Date (until the next Adjustment Date)
shall remain unchanged from the amount of basic rent immediately preceding such
Adjustment Date. Promptly following adjustment of the basic rent hereunder, the
Landlord and the Tenant shall execute an amendment to this Lease stating the new
basic rent; provided, however, failure of the parties to execute such amendment
shall not relieve the Tenant of its obligation to pay increases in back rent
pursuant to this Section 4.3. If publication of the Index is discontinued, the
Landlord and the Tenant agree to accept comparable statistics on the average
cost of living for urban areas or cities in the United States computed and
published by an agency of the United States or a responsible financial
periodical of recognized authority to be selected by the Landlord and approved
by the Tenant, such approval not to be unreasonably withheld by the Tenant.
4.4. Place of Payment. All payments of rent, additional rent, and other
amounts to be paid to the Landlord under the terms of this Lease shall be made
in lawful money of the United States, free from all claims, demands, set-offs,
and counterclaims of any kind or nature whatsoever, and shall be delivered to
the Landlord at such place as the Landlord may from time to time designate in
writing.
4.5. Option Term Rent. Basic rent under Section 4.1 hereof shall, during
the Option Term, be equal to the basic rent payable at the expiration of the
initial term of this Lease, subject to periodic adjustment during the Option
Term in accordance with Section 4.3 hereof.
5. SECURITY DEPOSIT.
5.1. Amount of Deposit. The Tenant, contemporaneously with the execution
of this Lease, shall deposit with the Landlord a security deposit in the sum
specified in Section 1.8 hereof. Such deposit shall be held by the Landlord,
without liability for interest, as security for the faithful performance by the
Tenant of all of the terms, covenants, and conditions of this Lease on the part
of the Tenant to be observed or performed during the term hereof. If at any time
during the term of this Lease any of the rent herein provided shall be overdue
and unpaid, or any other sum to be paid hereunder by the Tenant to the Landlord
shall be overdue and unpaid, then the Landlord shall at its option have the
right, but not the obligation, to appropriate and apply any portion of said
deposit to the payment of any such overdue rent or other sum. If the entire
deposit, or any portion thereof, should be appropriated and applied by the
Landlord for the payment of overdue rent or other sums to be paid hereunder by
the Tenant to the Landlord, then the Tenant shall immediately upon demand remit
to the Landlord a sufficient amount in cash to restore said security deposit to
the sum specified in Section 1.8 hereof, and the Tenant's failure to do so
within ten (10) days after receipt of such demand shall constitute a default
under this Lease. If the Tenant complies with all of said terms, covenants, and
conditions and promptly pays all of the rent herein provided for and all other
sums to be paid by the Tenant to the Landlord hereunder, then the said security
deposit shall be returned in full to the Tenant within thirty (30) days after
the termination of this Lease. The Landlord's obligations with respect to the
security deposit are those of a debtor, and not of a trustee.
5.2. Transfer of Deposit. In the event of an assignment or transfer of
the Landlord's interest in the Premises, the Landlord shall have the right to
transfer the security deposit or remaining balance thereof to the assignee or
transferee of the Landlord's interest, and the Landlord shall thereupon be
released and discharged from all liability for return of such deposit. In the
event of any permitted assignment of this Lease by the Tenant, the security
deposit shall be deemed to be held by the Landlord as a deposit made by the
assignee, and the Landlord shall have no further liability with respect to
return of said deposit to the assignor.
17
<PAGE> 5
6. USE OF PREMISES.
6.1. Use. The Tenant shall use the Premises only as general office space
(excluding medical and dental offices) and for purposes ordinarily incidental to
such use. The business to be conducted from the Premises shall be only the
insurance business; no other business or activity shall be conducted upon the
Premises without the prior written consent of the Landlord, which the Landlord
may withhold in its sole discretion. The Tenant shall not make any use of the
Premises which would in any way increase the cost of fire or other insurance on
the Building or limit any portion of the coverage thereunder. The Tenant shall
not commit any waste upon the Premises and shall not conduct or allow any
business, activity, or thing on the Premises which is or becomes unlawful,
prohibited, or a nuisance or which may be an annoyance or cause damage to the
Landlord or other lessees, occupants, or users of the Improvements. The Tenant
shall comply with and abide by all laws, ordinances, and regulations of all
municipal, county, state, and federal authorities which are now in force or
which may hereafter become effective with respect to use and occupancy of the
Premises, including without limitation all requirements imposed under the
Americans with Disabilities Act. The Tenant shall not overload the floor of the
Premises. The Tenant shall not obstruct or use for other than their intended
purposes any part of the Property, Parking Areas, or Common Areas.
6.2. Rules and Regulations. The Tenant shall comply with the rules and
regulations attached hereto as Exhibit C. In addition, the Landlord shall have
and reserves the right from time to time to adopt, promulgate, amend, and
supplement rules and regulations applicable to the Property, the Improvements,
and the use and operation thereof. Provided that such additional rules and
regulations are reasonable and do not discriminate against the Tenant in favor
of other lessees of space in the Building (other than the designation of
reserved Parking Stalls), the Tenant agrees to comply with and observe all such
rules and regulations. The Tenant's failure to do so shall constitute a default
under the terms of this Lease just as if such rules and regulations were
contained herein as covenants. The Landlord shall not be responsible to the
Tenant for enforcement of any such rules and regulations against other parties,
including other lessees of space in the Building.
6.3. Access to Premises. The Landlord shall have the right and the
Tenant shall permit the Landlord to enter the Premises at reasonable times for
the purpose of inspecting, altering, and repairing the Premises and ascertaining
compliance with the provisions of this Lease by the Tenant; provided, that such
right of access shall not create any duty or obligation of maintenance or repair
by the Landlord other than as expressly provided in this Lease. The Landlord may
show the Premises to prospective purchasers, lessees, or mortgagees at
reasonable times. During the nine months prior to the expiration of the term of
this Lease or any renewal term or any time the Tenant is in default, the
Landlord may exhibit the Premises to prospective tenants and place upon the
Premises the usual notices "To Let" or "For Rent," which notices the Tenant
shall permit to remain thereon without molestation. The Landlord may enter the
Premises without notice to the Tenant in the event of an emergency affecting the
Building.
6.4. Rights upon Termination. All alterations, additions, and fixtures,
other than the Tenant's movable personal property, which have been made or
installed by either the Landlord or the Tenant in the Premises shall be the
Landlord's property and shall be surrendered with the Premises as a part
thereof. Notwithstanding termination of the term of this Lease, the Tenant shall
be and remain liable to fully perform and fulfill all of its obligations under
this Lease relating to events occurring, circumstances existing, or obligations
or claims arising or attributable to, the period prior to the date of
termination.
6.5. Signs and Advertising. The Tenant, at its sole cost and expense,
shall have the right to place, construct, and maintain an interior sign on the
door to the Premises. Such interior sign shall be placed in the location in the
Building, in conformity with the size, location, construction, and style
specifications, and installed in accordance with the specifications set forth in
Exhibit B attached hereto. Except for the sign approved in Exhibit B, the Tenant
shall not have the right to place, construct, or
18
<PAGE> 6
maintain any other sign, advertisement, awning, banner, or other decoration
visible from the exterior of the Premises without the Landlord's prior written
consent, which consent may be withheld in the sole discretion of the Landlord.
Upon termination of this Lease, the Tenant shall, at the Tenant's sole cost and
expense, remove all signage from the Building, repair any damage occasioned by
or resulting from the installation and/or removal of such signage, and restore
the Building to the condition as existed prior to installation of the Tenant's
sign.
6.6. Hazardous Substances. The Tenant represents, warrants, and
covenants that the Tenant will not permit the Premises to be used to generate,
manufacture, refine, transport, store, use, handle, dispose of, transfer,
produce, process, or contain any "Hazardous Substances," as defined below. The
Tenant shall hold harmless, indemnify, and defend the Landlord and its
shareholders, officers, directors, employees, representatives, successors, and
assigns from and against any and all claims, fines, penalties, costs, injury,
expenses (including costs and expenses of remediation or clean-up), losses,
liabilities, and damages of any nature, arising from or related to any Hazardous
Substances brought upon the Premises during the term of this Lease or any
extensions hereof. The Tenant will not permit any petroleum products or
Hazardous Substances to be brought upon, stored, used, located, or installed in
or upon the Premises. As used herein, "Hazardous Substances" shall mean any
substances or material defined or designated as hazardous or toxic waste,
hazardous or toxic chemical, hazardous or toxic material, hazardous or toxic
substance, or other similar term, by any federal, state, or local environmental
statute, regulation, or ordinance presently in effect or coming into effect
prior to the termination of this Lease and surrender of the Premises by the
lessee pursuant to Section 13.4 hereof, and, as to the substances and materials
which are not specifically identified in any such statute, regulation, or
ordinance by name, which are known to be toxic or hazardous under presently
existing and generally accepted scientific knowledge.
7. UTILITIES, MAINTENANCE, AND ALTERATIONS.
7.1. Tenant's Maintenance.
The Tenant shall, at the Tenant's sole cost and expense, keep and
maintain the Premises in good condition and repair, and shall suffer no waste
with respect thereto. The Tenant shall, at the Tenant's sole cost and expense,
make all needed repairs and replacements, ordinary and extraordinary, including,
but not limited to replacement of cracked or broken glass, and shall keep the
plumbing units, pipes, and connections free from obstruction and protected
against ice and freezing. The Tenant shall replace or repair, at the Tenant's
sole cost and expense, any damage caused to any portion of the Property, the
Building, or any other Improvement by the Tenant, its employees, contractors,
representatives, or invitees. All repairs by the Tenant shall be at the Tenant's
sole expense, under the Landlord's supervision. These repairs and replacements
will be of a quality equal to the original work. Although the Landlord shall
have no duty or obligation to notify the Tenant of needed repairs or
maintenance, if any repairs or maintenance required to be made by the Tenant
hereunder are not made within ten (10) days after written notice delivered to
the Tenant by the Landlord designating the need for such repairs or maintenance,
the Landlord may, at its option, make such repairs, and the Tenant shall pay to
the Landlord, upon demand, as additional rent hereunder, the cost of such
repairs plus fifteen percent (15%) as an administration fee to the Landlord. At
the expiration of this Lease, the Tenant shall surrender the Premises in the
same condition in which they existed at the commencement of this Lease,
reasonable wear excepted, and shall surrender all keys for the Premises to the
Landlord and shall inform the Landlord of all combinations on locks, safes, and
vaults, if any, in or upon the Premises.
7.2. Alterations. The Tenant shall not make any alterations to the
Premises without the Landlord's prior written consent. Any alterations shall
remain on and be surrendered with the Premises on expiration or termination of
the termination of the term of this Lease, except that the Landlord can elect
prior to expiration of the term, or within ninety (90) days after termination of
the term, to require the Tenant to remove any alternations that the Tenant has
made to the Premises. If the Landlord elects to
19
<PAGE> 7
require the Tenant to remove any alterations from the Premises, the Tenant, at
its sole cost and expense, shall remove such alternations and restore the
premises to their condition existing prior to the Tenant's alterations, before
the last day of the term, or within twenty (20) days after notice of election as
given, whichever is later. If the Tenant makes any alterations to the Premises
as provided in this Section 7.2, the alterations shall not be commenced until
ten (10) days after the Landlord has received written notice from the Tenant
stating the date the installation of the alterations is to commence, describing
in detail the alterations to be made, and providing satisfactory evidence to the
Landlord of arrangements for payment for such alterations. All alterations by
the Tenant must be made by a contractor licensed to perform such work in the
State of Utah. This notice shall not relieve the Tenant of the necessity for
obtaining the consent of the Landlord as provided in this Section 7.2.
7.3. Mechanic's Liens. The Tenant shall pay all costs for construction
done by it or caused to be done by it on the Premises as permitted by this
Lease. The Tenant shall keep the Premises free and clear of all mechanic's liens
or other liens or encumbrances resulting from construction by or for the Tenant.
The Tenant shall have the right to contest the correctness or validity of any
such lien if, immediately on demand by the Landlord, the Tenant procures and
records a lien release bond issued by a corporation authorized to issue surety
bonds in Utah and reasonably acceptable to the Landlord in an amount equal to
two (2) times the amount of the claim of lien. The bond shall provide for the
payment of any sum that the claimant may recover on the claim (together with
attorneys' fees and costs of suit, if it recovers in the action). In the event
such bond is insufficient to cause the lien to be released from the Property,
the Tenant shall be required to make payment of the claims as necessary to
release and discharge the liens from the Property.
7.4. Utilities and Services. In addition to the rent and additional rent
as provided herein, the Tenant shall make all arrangements for and pay for all
utilities and services furnished to or used on or in the Premises at the request
of the Tenant, including without limitation telephone, cable, and internet
service, and hook-up and connection charges. In the event that the Tenant fails
to pay any charges for utilities to be paid by it pursuant to this Lease, such
payment may, but need not, be made by the Landlord and upon such payment, the
amount paid by the Landlord plus fifteen percent (15%) for administration, shall
be treated as additional rent due from and immediately payable by the Tenant to
the Landlord hereunder.
The Landlord shall provide heat and air conditioning as required for the
comfortable occupancy of the Demised Premises under normal business conditions,
daily from 7:00 a.m. to 6:00 p.m., Saturdays, Sundays, and holidays excepted.
Further, the foregoing refers to heating and air conditioning under normal use
and does not include any areas which develop excessive heat from machines,
lights, or other sources. The air conditioning and heating in all such areas
which require special treatment shall, upon the Landlord's written consent as to
the design and quality thereof, be installed and paid for by the Tenant and the
additional electrical or gas consumption shall be paid by the Tenant at the
utility rates in effect from time to time.
The Landlord may, at its option, but at the Tenant's expense, install
appropriate meters to properly record the Tenant's utility useage. The Tenant
agrees to pay the Landlord for any electrical consumption in excess of
electrical consumption customary for other tenants in the Building for normal
business hours.
7.5 Janitorial Services. Janitorial services shall be provided by the
Landlord in the attached Exhibit D entitled "JANITORIAL SERVICES", which by this
reference is incorporated as part of this Lease. Janitorial services shall be
provided in the evening, Monday through Friday, and shall be of the same quality
as other Class B buildings located in the geographical area of the Building.
These services shall be provided to the Premises and all Common Areas in the
Building.
8. INDEMNITY AND EXCULPATION; INSURANCE.
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8.1. Exculpation of Landlord. The Landlord shall not be liable to the
Tenant for any damage to the Tenant or the Tenant's property from any cause. The
Tenant waives all claims against the Landlord for damage to person or property
arising for any reason, except that the Landlord shall be liable to the Tenant
for damage to the Tenant resulting from the negligent or wrongful acts or
omissions of the Landlord or its authorized representatives.
8.2. Indemnity. The Tenant shall release, defend, indemnify and hold the
Landlord and its officers, shareholders, directors, employees, agents,
representatives, successors, and assigns harmless from all claims, injury, loss,
liability, judgments, or damages arising out of any damage to any person or
property occurring in, on, or about the Premises, except that the Landlord shall
be liable to the Tenant for damage resulting from the gross negligence or
intentional wrongful acts or omissions of the Landlord or its authorized
representatives. The Landlord shall hold the Tenant harmless from all damages
arising out of any such damage resulting solely from its gross negligence or
intentional wrongful acts or omissions with respect to the Premises.
8.3. Insurance to be Provided by Tenant. The Tenant shall maintain the
insurance described below throughout the Term of this Lease, all extensions
thereof, and during any period when the Premises is in the possession of the
Tenant, and each policy of such insurance will name, as insureds, the Tenant,
the Landlord, and any lender or mortgagee of the Landlord as their respective
interests may appear. The insurance which the Tenant is required to maintain is
as follows:
(i) Insurance on all Improvements erected by the Tenant on the Premises
and all personal property, equipment, fixtures, or inventory of the
Tenant located upon the Premises against loss or damage by fire and such
other risks as are now or hereafter included in an extended coverage (all
risks) endorsement in common use for commercial structures, including
vandalism, malicious mischief, and theft. The amount of such all risks
property insurance shall be sufficient to prevent either the Landlord or
the Tenant from becoming a co-insurer under the provisions of the
policies, but in no event shall the amount be less than ninety percent
(90%) of the then actual replacement cost of such Improvements, personal
property, equipment, fixtures, or inventory on the Premises, without
deduction for depreciation. Such policies shall include an agreed amount
endorsement.
(ii) Commercial general liability insurance, including without
limitation, public liability and property damage insurance, personal
injury liability, broad form contractual liability (sufficient to cover
the Tenant's indemnification obligations under this Lease), employer's
liability, and owner's and contractor's protective insurance coverage, as
well as owned and nonowned auto liability, with respect to the Premises
and those areas of the Property used by the Tenant as Common Areas, and
all Improvements located thereon or therein, with coverage including the
activities and operations conducted by the Tenant and any other person on
the Premises and by the Tenant and any other person performing work on
behalf of the Tenant and those for whom the Tenant is in law responsible.
These policies will be (1) written with limits of at least One Million
and No/100 Dollars ($1,000,000.00) per occurrence for bodily injury and
property damage combined, and aggregate coverage limits of at least One
Million and No/100 Dollars ($1,000,000.00) for bodily injury and for any
one or more persons, or property damage (but the Landlord, acting
reasonably, or the mortgagee of the Landlord, may require higher limits
from time to time), and (2) containing a severability of interests clause
and cross-liability clauses.
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(iii) All statutory workman's compensation insurance, including without
limitation all employer's liability coverage and other employer's
insurance commonly insured against by prudent tenants.
(iv) Automobile liability insurance, with a minimum combined single
limit coverage of Three Hundred Thousand and No/100 Dollars ($300,000.00)
or greater.
8.4. Insurance Requirements. The policies of insurance required under
Section 8.3 above will contain the mortgagee's standard mortgage clause and may
have reasonable deductibles of up to Five Thousand and No/100 Dollars
($5,000.00). If there is a dispute as to the amount of the replacement cost, the
Landlord shall reasonably determine such amount. All policies will (i) be taken
out with insurers acceptable to the Landlord, having a Best rating of A- or
better; (ii) be in a form reasonably satisfactory to the Landlord; and (iii)
contain an undertaking and agreement by the insurers to notify the Landlord and
the Landlord's mortgagee(s) in writing not less than thirty (30) days before any
material change, cancellation, or termination of any such insurance. The policy
shall name the Landlord and the Tenant as insureds, and shall contain a clause
that the insurer will not cancel or materially change the insurance pertaining
to the Premises without first giving the Landlord and the Landlord's lender, if
any, thirty (30) days written notice of change or cancellation. In addition to
delivery of evidence of insurance as provided in Section 8.6 hereof, the Tenant
shall at all times during the term hereof provide the Landlord with evidence of
current insurance coverage within ten (10) days of the Landlord's written
request for the same. All public liability, property damage, and other liability
policies shall be written as primary policies, not contributing with coverage
which the Landlord may carry. All such policies shall contain a provision that
the Landlord, although named as an insured, shall nevertheless be entitled to
recover under said policies for any loss occasioned to it, its representatives,
agents, and employees by reason of the negligence of the Tenant. All such
insurance shall specifically insure the performance by the Tenant of the
indemnity agreement as to liability for injury to or death of persons or injury
to or damage to property contained in Section 8.2 hereof.
8.5. Waiver of Subrogation. Each party shall cause each insurance policy
obtained by it to provide that the insurance company waives all right of
recovery by way of subrogation against either party in connection with any
damage covered by any policy. Neither party shall be liable to the other for any
damage caused by fire or any of the risks insured against under any insurance
policy required by this Lease. If any insurance policy cannot be obtained with a
waiver of subrogation, or is obtainable only by the payment of an additional
premium charge above that charged by insurance companies issuing policies
without waiver of subrogation, the party undertaking to obtain the insurance
shall notify the other party of this fact. The other party shall have a period
of ten (10) days after receiving the notice either to place the insurance with a
company that is reasonably satisfactory to the other party and that will carry
the insurance with a waiver of subrogation, or to agree to pay the additional
premium if such a policy is obtainable at additional cost. If the insurance
cannot be obtained or the party in whose favor a waiver of subrogation is
desired refuses to pay the additional premium charged, the other party is
relieved of the obligation to obtain a waiver of subrogation rights with respect
to the particular insurance involved.
8.6. Evidence of Insurance. The Tenant shall deliver certificates of
insurance, reasonably acceptable to the Landlord, executed by the Tenant's
insurers evidencing that the required insurance is in force, or, if required by
the Landlord or the Landlord's mortgagee, the Tenant will deliver certified
copies of each insurance policy as soon as possible after the placing of the
insurance. No review or approval of any insurance certificate or insurance
policy by the Landlord derogates from or diminishes the Landlord's rights under
this Lease.
8.7. Cancellation of Insurance. The Tenant shall not do or permit
anything to be done that results in the cancellation or threatened cancellation
or the reduction of coverage, or the threatened
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reduction of coverage, or the increase in the cost of premiums, under any
insurance policy on the Property, the Building, or the Improvements.
9. DAMAGE, DESTRUCTION, AND CONDEMNATION.
9.1. Except as otherwise provided in this Lease, in the event the
Premises are damaged by fire or other casualty, such damages shall be repaired
by and at the expense of the Landlord, but only to the extent that insurance
proceeds are available to the Landlord in an amount sufficient to accomplish
such repairs.
In the event such repairs cannot, in the reasonable opinion of the
Landlord, be substantially completed within sixty (60) days after the occurrence
of such damage (without the payment of overtime or other premiums) or with the
amount of insurance proceeds paid to the Landlord, the Landlord may, at its
option, exercisable by giving written notice to the Tenant within thirty (30)
days after the occurrence of such damage, make such repairs within a reasonable
time. In such event, this Lease shall continue in full force and effect and the
rent payable by the Tenant hereunder shall be reduced in accordance with the
provisions of this Section 9, until such repairs are completed.
In the event the Landlord determines in its reasonable opinion that such
repairs cannot be substantially completed within such sixty (60) day period, or
with the amount of insurance proceeds paid to the Landlord, and the Landlord
does not elect within thirty (30) days after the occurrence of such damage to
make such repairs, then either the Landlord or the Tenant may, by written notice
given to the other party within forty (40) days after the occurrence of such
damage, terminate this Lease. Such termination shall not release or discharge
the Tenant from its obligations to indemnify the Landlord pursuant to Section
8.2 hereof or its obligations resulting from a breach of the provisions of this
Lease occurring prior to termination.
Notwithstanding anything contained in this Lease to the contrary, the
Landlord shall not be responsible for any repairs or replacements caused by or
resulting from the negligence or wrongful acts of the Tenant or the Tenant's
employees, invitees, agents, or representatives. The Tenant shall be responsible
to repair and restore all damages caused by or resulting from the negligence or
wrongful acts of the Tenant or the Tenant's employees, invitees, agents, or
representatives. The Tenant shall not be entitled to terminate this Lease or to
obtain a reduction in rent pursuant to the provisions of this Section 9 if the
damage or destruction to the Premises is caused by or results from the
negligence or wrongful acts of the Tenant or the Tenant's employees, invitees,
agents, or representatives.
The Landlord shall not be required to make any repairs to or
replacements of any property installed in the Premises by the Tenant. Unless
this Lease is terminated by the Landlord, the Tenant shall repair and refixture
the interior of the Premises in a manner and in at least a condition equal to
that existing prior to the destruction or casualty, and the proceeds of all
insurance carried by the Tenant on its property and fixtures shall be held in
trust by the Tenant for the purpose of said repair and replacement.
To the extent covered by insurance, the Landlord and the Tenant hereby
release each other from responsibility from loss or damage occurring on or to
the Premises or to the contents thereof, caused by fire or other hazards covered
by the fire and extended coverage insurance policies in force on the Premises
and each waives all rights of recovery against the other for such loss or
damage. Willful misconduct lawfully attributable to either party, whether in
whole or in part a contributing cause of the casualty giving rise to the loss or
damage, shall not be excused under the foregoing release and waiver.
9.2. Tenant Finish. The Landlord shall not be required to repair any
damage by fire or other cause to, or to make any repairs or replacements of, any
panels, decorations, office fixtures, floor coverings, partitions, or other
property installed in the Premises by the Tenant. The Tenant shall not be
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entitled to any compensation or damages from the Landlord for loss of the use of
the whole or any part of the Premises, or the Tenant's personal property, or any
inconvenience or annoyance occasioned by such damage, repair, reconstruction, or
restoration.
9.3. Abatement. In the event the Landlord elects to undertake repair of
the Premises in accordance with the provisions of Section 9.1 hereof, any
abatement of rent shall end five (5) days after notice by the Landlord to the
Tenant that the Premises have been repaired to the condition existing
immediately prior to the date of such damage. If the damage is caused by the
negligence or wrongful conduct of the Tenant or its employees, agents, invitees,
or concessionaires, there shall be no abatement of rent.
9.4. Condemnation. As used in this section, the term "Condemnation
Proceeding" shall mean any action or proceeding in which any interest in the
Property or in the Improvements is taken for any public or quasi-public purpose
by any lawful authority through exercise of the power of eminent domain or by
purchase or otherwise in lieu thereof. If the whole of the Premises is taken
through Condemnation Proceedings, then this Lease shall automatically terminate
as of the date of taking. If part, but not all, of the Premises is taken, either
the Landlord or the Tenant may terminate this Lease. The Landlord shall have the
right to terminate this Lease in the event any portion of the Improvements
(whether or not including the Premises) or of the Property is taken which, in
the Landlord's reasonable judgment, substantially interferes with the ability to
operate or use the Property and Improvements for the purposes for which they
were intended. Any such right of termination must be accomplished through
written notice to the other party given no later than sixty (60) days after the
later of the date of taking or the date on which the condemning authority takes
possession. In all other cases, or if neither party exercises its right to
terminate, this Lease shall remain in effect. If a portion of the Premises is
taken, the rent payable hereunder shall be reduced in the proportion that the
Useable Area taken bears to the original total Useable Area included in the
Premises. Whether or not this Lease is terminated as a consequence of
Condemnation Proceedings, all damages or compensation awarded for a partial or
total taking, including any award for severance damages and any sums
compensating for diminution in the value of or deprivation of the leasehold
estate under this Lease, shall be the sole and exclusive property of the
Landlord; provided, however, that the Tenant shall be entitled to any award for
the loss of or damage to the Tenant's alterations approved hereunder, trade
fixtures, and removable personal property.
10. ASSIGNMENT AND SUBLETTING.
10.1. Assignment and Subletting. The Tenant shall not, either
voluntarily or by operation of law, assign, transfer, mortgage, or encumber this
Lease or any interest herein, or sublet the Premises or any part thereof,
without first obtaining the written consent of the Landlord, which consent the
Landlord may grant or withhold in its sole and absolute discretion. A consent to
one such transaction shall not be deemed to be a consent to any subsequent
transaction. Consent to any assignment or subletting shall in no way relieve the
Tenant of any of its obligations under this Lease. Any assignment or subletting
without the Landlord's written consent shall constitute a default under this
Lease. The Landlord's acceptance of rent hereunder from any party other than the
Tenant shall in no event be or be deemed to be a waiver by the Landlord of any
provision of this Lease or a consent by the Landlord to any assignment,
transfer, mortgage, encumbrance, or subletting.
Any dissolution, merger, consolidation, or other reorganization of the
Tenant, or the sale or other transfer of a controlling percentage of the capital
stock or other ownership interests of the Tenant, or the sale of at least
fifty-one percent (51%) of the value of the assets of the Tenant, shall be
deemed a voluntary assignment. The phrase "Controlling Percentage" means the
ownership of, and the right to vote, stock possessing at least fifty-one percent
(51%) of the total combined voting power of the governing body of the Tenant.
This section shall not apply to corporations, the stock of which is traded
through an exchange or over the counter.
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The Tenant immediately and irrevocably assigns to the Landlord, as
security for the Tenant's obligations under this Lease, all rent from any
subletting of all or a part of the Premises as permitted by this Lease, and the
Landlord, as the assignee and as attorney-in-fact for the Tenant, or a receiver
for the Tenant appointed on the Landlord's application, may collect such rent
and apply it toward the Tenant's obligations under this Lease; except that,
until the occurrence of an act of default by the Tenant, the Tenant shall have
the right to collect such rent.
If the Tenant requests the Landlord to consent to a proposed assignment
or subletting, the Tenant shall pay the Landlord, whether or not consent is
ultimately given, the Landlord's reasonable attorneys' fees incurred in
connection with each such request.
11. DEFAULT AND REMEDIES.
11.1. Default by Tenant. The occurrence of any one or more of the
following events shall constitute a default and breach of this Lease by the
Tenant: (a) The vacating or abandonment of the Premises; (b) the failure by the
Tenant to make any payment of rent hereunder within five (5) days after such
payment falls due; (c) the failure by the Tenant to make any other payment
required to be made by the Tenant hereunder, as and when due, where such failure
shall continue for a period of five (5) days after notice from the Landlord that
said payment is due and payable; or (d) the failure by the Tenant to observe or
perform any of the covenants, conditions, or provisions of this Lease to be
observed or performed by the Tenant, other than those described above, where
such failure shall continue for a period of thirty (30) days after written
notice thereof by the Landlord to the Tenant.
11.2. Remedies for Tenant's Default. In the event of any default under
this Lease by the Tenant, the Landlord shall have the following remedies:
(a) At its option and without waiving any default by the Tenant, the
Landlord shall have the right to continue this Lease in full force and effect
and to collect all rent, additional rent, and other amounts to be paid by the
Tenant hereunder as and when due. During any period that the Tenant is in
default hereunder, the Landlord shall also have the right, pursuant to legal
proceedings or pursuant to any notice provided for by law, to enter and take
possession of the Premises, without terminating this Lease, for the purpose of
reletting said Premises or any part thereof and making any alterations and
repairs that may be necessary or desirable in connection with such reletting.
Any such reletting or relettings may be for such term or terms (including
periods that would exceed the remaining term hereof), and at such rent or rents,
and upon such other terms and conditions as the Landlord may in its sole
discretion deem advisable. The Tenant agrees to pay to the Landlord the cost of
recovering possession of the Premises, all expenses of reletting (including
without limitation broker's commissions, expenses of remodeling the Premises
required by the reletting, and like costs), and any other costs or damages
arising out of the Tenant's default. Notwithstanding any reentry, the liability
of the Tenant for the rent provided for herein shall not be extinguished for the
balance of the term of this Lease; and the Tenant agrees to pay to the Landlord
any deficiency arising from reletting the Premises at a lesser rent than applies
under this Lease. No act by the Landlord nor entry or taking possession of the
Premises by the Landlord shall be construed as an election by the Landlord to
terminate this Lease, unless the Landlord gives written notice of such election
to the Tenant or unless such termination shall be decreed by a court of
competent jurisdiction. Notwithstanding any reletting by the Landlord without
termination, the Landlord may at any time thereafter terminate this Lease for
such previous default by giving written notice thereof to the Tenant. If the
Landlord elects to relet the Premises as provided in this Section 11.2(a), rent
that the Landlord receives from reletting shall be applied to the payment of:
(i) first, any indebtedness from the Tenant to the Landlord other than rent due
from the Tenant; (ii) second, all costs, including maintenance, incurred by the
Landlord in reletting; and (iii) third, rent, additional rent, and other amounts
due and unpaid under this Lease. After deducting the payments referred to in
this Section 11.2(a), any sum remaining from the
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rent the Landlord receives from reletting shall be held by the Landlord and
applied in payment of future rent as rent becomes due under this Lease. In no
event shall the Tenant be entitled to any excess rent received by the Landlord.
If, on the date rent is due under this Lease, the rent received from the
reletting is less than the rent or other costs or indebtedness due on that date
as provided in this Section 11.2(a), the Tenant shall pay such deficiency to the
Landlord immediately upon demand therefor by the Landlord.
(b) The Landlord shall have the right at its option to terminate this
Lease and the Tenant's right to possession hereunder by giving notice thereof to
the Tenant, in which case this Lease shall terminate and the Tenant shall
immediately surrender possession of the Premises to the Landlord. In such event
the Landlord shall be entitled to recover from the Tenant all damages incurred
by the Landlord by reason of the Tenant's default, determined as follows: (i)
The worth, at the time of the award, of the unpaid rent, additional rent, and
other amounts payable under the terms and provisions of this Lease that had been
earned and were unpaid at the time of termination of this Lease; (ii) the worth,
at the time of the award, of the amount by which the unpaid rent, additional
rent, and other amounts that would have been earned after the date of
termination of this Lease until the time of award exceeds the amount of the loss
of such rent, additional rent, and other amounts that the Tenant proves could
have been reasonably avoided; (iii) the worth, at the time of the award, of the
amount by which the unpaid rent, additional rent, and other amounts for the
balance of the term of the Lease after the time of the award exceeds the amount
of the loss of rent, additional rent, and other amounts that the Tenant proves
could have been reasonably avoided; and (iv) any other amount, and court costs,
necessary to compensate the Landlord for all detriment, injury, or loss
proximately caused by the Tenant's default. "The worth, at the time of the
award," as used in (i) and (ii) of this Section 11.2(b), is computed by allowing
interest at the lesser of eighteen percent (18%) per annum or the maximum rate
an individual is permitted by law to charge "the worth, at the time of the
aware," as referred to in (iii) of this Section 11.2(b), is to be computed by
discounting the amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of the award, plus one percent (1%).
(c) The Landlord, at any time after the Tenant commits a default and has
failed to perform within fifteen (15) days of notice of such default from the
Landlord, can cure the default at the Tenant's cost. If the Landlord, by reason
of the Tenant's default, pays any sum or does any act that requires the payment
of any sum, the sum paid by the Landlord shall be immediately due from the
Tenant to the Landlord at the time the sum is paid, and if paid at a later date
shall bear interest at the lesser of eighteen percent (18%) per annum or the
maximum rate an individual is permitted by law to charge from the date the sum
is paid by the Landlord until the Landlord is reimbursed by the Tenant. The sum,
together with interest on it, shall be additional rent.
(d) In addition to the remedies provided in Sections 11.2(a) and (b)
hereof, the Landlord shall have all remedies now or hereafter provided by law
for enforcing the provisions of this Lease and the Landlord's rights hereunder.
In the event of any default hereunder by the Tenant, the Landlord shall be
entitled to recover from the Tenant all costs and expenses (including reasonable
attorneys' fees and court costs) incurred by the Landlord, with or without suit,
in obtaining possession of the Premises, in collecting any rent, additional
rent, or other amount due hereunder, or in enforcing or interpreting the
provisions of this Lease or any right of the Landlord hereunder.
11.3. Late Charge. The Tenant hereby acknowledges that late payment by
the Tenant to the Landlord of rent or other sums due hereunder will cause the
Landlord to incur costs not contemplated by this Lease, the exact amount of
which will be extremely difficult to ascertain. Such costs include, but are not
limited to, processing and accounting charges and late charges which may be
imposed upon the Landlord under the terms of any mortgage or deed of trust
affecting real property that includes the Premises. Accordingly, if any payment
of rent or any other sum due from the Tenant is not received by the Landlord or
the Landlord's designee within five (5) days after said amount is due, the
Tenant shall pay to the Landlord a late charge equal to the greater of $ 161.42
or ten percent (10%) of such overdue
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amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the cost that the Landlord will incur by reason of the
late payment by the Tenant. Such late charge shall be in addition to, and not in
lieu of, interest at the rate of eighteen percent (18%) per annum until paid on
any delinquent amounts owing in connection with this Lease and any and all costs
and expenses, including attorneys' fees, incurred by the Landlord in collecting
or attempting to collect any such delinquent amounts.
11.4. Default by Landlord. The Landlord shall not be in default under
this Lease unless the Landlord fails to perform an obligation required of it
within thirty (30) days after written notice by the Tenant to the Landlord and
to the holder of any first mortgage or deed of trust covering the real property
of which the Premises are a part, whose name and address have theretofore been
furnished to the Tenant in writing, specifying the respects in which the
Landlord has failed to perform such obligation; provided, however, that if the
nature of the Landlord's obligation is such that more than thirty (30) days are
reasonably required for performance or cure, then the Landlord shall not be in
default if the Landlord or such holder commences performance within such 30-day
period and thereafter diligently prosecutes the same to completion. In no event
shall the Tenant have the right to terminate this Lease or to withhold the
payment of rent or other charges provided for herein as a result of the
Landlord's default.
12. FINANCING AND SUBORDINATION.
12.1. Subordination. The Tenant agrees that this Lease shall
automatically be subordinate to the lien of any first-position mortgage or deed
of trust now or hereafter placed against the real property of which the Premises
comprise a part and to all renewals, modifications, supplements, consolidations,
and extensions thereof; provided, however, that in the event the holder of any
such mortgage or deed of trust shall so elect, its mortgage or deed of trust
shall, upon the terms required by such holder, be subordinate to this Lease.
Notwithstanding any of the foregoing, so long as the Tenant is not in default
hereunder, the Tenant shall not be disturbed in its possession of the Premises
during the full term of this Lease. The Tenant agrees to execute such further
documents in addition to this Lease as may be desired by the Landlord or by the
holder of any first-position mortgage or deed of trust with respect to the
subordination arrangement that is provided for above.
12.2. Attornment. In the event any proceedings are brought for
foreclosure of, or in the event of the exercise of the power of sale under, any
mortgage or deed of trust covering the Premises, the Tenant shall attorn to the
purchaser and shall recognize such purchaser as the Landlord under this Lease.
12.3. Financing Requirements. The Tenant recognizes that the Landlord's
ability from time to time to obtain mortgage loan financing for the real
property of which the Premises comprise a part may in part be dependent upon the
acceptability of the terms of this Lease to the lender concerned. Accordingly,
the Tenant agrees that from time to time it shall, if so requested by the
Landlord and if doing so will not substantially and adversely affect the
Tenant's economic interests hereunder, join with the Landlord in amending this
Lease so as to meet the needs or requirements of any lender which is considering
making or which has made a loan secured by a mortgage or deed of trust affecting
the Premises.
12.4. Estoppel Certificates. The Tenant shall from time to time, within
ten (10) business days after receiving written request therefor from the
Landlord, execute, acknowledge, and deliver to the Landlord a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease as so modified is in full force and effect), (ii) certifying the
date to which rent and other charges hereunder are paid in advance, (iii)
acknowledging that there are no uncured defaults under this Lease on the part of
the Landlord (or specifying such defaults if any are claimed), (iv)
acknowledging the commencement date and termination date of the term of this
Lease, (v) certifying the amount of the security deposit held by the Landlord,
and (vi) stating such other information as the Landlord may request. Any such
statement may be conclusively
27
<PAGE> 15
relied upon by any prospective purchaser or encumbrancer of the real property of
which the Premises are a part or any portion thereof or interest therein. The
Tenant's failure to deliver any such statement within such time shall be
conclusive upon the Tenant that (i) this Lease is in full force and effect,
without modification except as represented by the Landlord, (ii) not more than
one month's rent has been paid in advance, except as represented by the
Landlord, (iii) there are no uncured defaults hereunder in the Landlord's
performance, (iv) the commencement and termination dates are as represented by
the Landlord, (v) the amount of the security deposit is as represented by the
Landlord; and (vi) such other information requested is as represented by the
Landlord.
13. GENERAL PROVISIONS.
13.1. Notices. Any notice, demand, or other communication required
hereunder shall be in writing and shall be sufficient for all purposes if
personally delivered or if sent by certified or registered U.S. mail, return
receipt requested, postage prepaid, and addressed to the Landlord or to the
Tenant, as the case may be, at their respective addresses specified in Section
1.9 hereof or at such other address as either party may hereafter designate by
notice to the other party as herein provided. Notices, demands, and other
communications under this Lease shall be deemed to have been given and received
and shall be effective when personally delivered or two (2) business days after
deposited in the U.S. mail in the form herein provided, whichever first occurs.
13.2. Taxes on Tenant's Property. The Tenant shall pay or cause to be
paid, before delinquency, any and all taxes payable during or attributable to
any period during the term hereof which are levied or assessed upon the Tenant's
leasehold improvements, equipment, furniture, fixtures, or personal property
located in the Premises. In the event any or all of the Tenant's leasehold
improvements, equipment, furniture, fixtures, and personal property shall be
assessed and taxed with the Building, the Tenant shall pay to the Landlord its
share of such taxes within ten (10) days after the Landlord's delivery to the
Tenant of a written statement setting forth the amount of such taxes applicable
to the Tenant's property.
13.3. Limitation of Recourse. Anything in this Lease to the contrary
notwithstanding, the Tenant agrees that it shall look solely to the estate and
interest of the Landlord in the Property and Improvements, subject to prior
rights of the holder of any mortgage or deed of trust, for the collection of any
judgment (or other judicial process) requiring the payment of money by the
Landlord in the event of any default or breach by the landlord with respect to
any of the terms, covenants, and conditions of this Lease to be observed and/or
performed by the Landlord, and no other assets of the Landlord shall be subject
to levy, execution, or other procedures for the satisfaction of the Tenant's
remedies.
13.4. Surrender of Premises. At the expiration of this Lease, the Tenant
shall surrender the Premises in the same condition, less reasonable wear and
tear, as they were in upon delivery of possession of the Premises to the Tenant,
and shall deliver all keys to the Landlord. Before surrendering the Premises,
the Tenant shall remove all of its personal property and trade fixtures. The
Tenant shall restore and repair all damage occasioned by or resulting from the
removal of such property and fixtures. If the Tenant fails to remove its
personal property and fixtures upon the expiration of this Lease, the same shall
be deemed abandoned and shall, at the election of the Landlord, become the
property of the Landlord. In the event the Landlord does not elect to treat the
abandoned property as property of the Landlord, the Landlord shall have the
right to remove the Tenant's property and fixtures and store the same, at the
Tenant's cost and expense, or cause the same to be disposed of at the cost and
expense of the Tenant.
13.5. Tenant to Notify Landlord of Damage, Accidents, or Defects. The
Tenant shall give immediate notice to the Landlord in case of fire or other
physical damage or accidents in the Premises or the Building in which the
Premises are located or in areas adjacent to the Premises. The Tenant shall also
give immediate notice to the Landlord of any defects in the Premises, in the
Building in which the Premises are located, or in areas adjacent to the
Premises, and in any fixtures or equipment.
28
<PAGE> 16
13.6. Waiver. The waiver by the Landlord of the breach of any term,
covenant, or condition herein contained shall not be deemed to be a waiver of
such term, covenant, or condition or any subsequent breach of the same or any
other term, covenant, or condition. The subsequent acceptance of rent by the
Landlord shall not be deemed to be a waiver of any preceding default by the
Tenant of any term, covenant, or condition of this Lease, other than the failure
of the Tenant to pay the particular rent so accepted, regardless of the
Landlord's knowledge of such preceding default at the time of acceptance of such
rent.
13.7. Multiple Parties Tenant. If there is or comes to be more than one
party that constitutes the Tenant hereunder: (a) Their obligations shall be
joint and several; and (b) any notice required or permitted to be given to the
Tenant may be given by or to any one of such parties and shall have the same
force and effect as if given by or to all of such parties.
13.8. Quiet Enjoyment. The Landlord covenants and agrees that if the
Tenant pays the annual rent, additional rent, and other charges herein provided
and shall perform all of the covenants and agreements herein stipulated to be
performed on the Tenant's part, the Tenant shall, at all times during said term,
have the peaceable and quiet enjoyment and possession of said Premises without
any manner of hindrance from the Landlord or any persons lawfully claiming
through or under the Landlord, except as to such portion of the demised Premises
as shall be taken under the power of eminent domain.
13.9. Entire Agreement and Amendments. This Lease contains all of the
agreements of the parties hereto with respect to any matter covered or mentioned
in this Lease, and no prior agreements or understandings pertaining to any of
such matters shall be effective for any purpose. No provision of this Lease may
be amended or added to except by an agreement in writing signed by the parties
hereto or their respective successors in interest. This Lease shall not be
effective or binding on either party until fully executed by both.
13.10. Inability to Perform. In the event that either party hereto shall
be delayed or hindered in or prevented from the performance of any act required
hereunder by reason of strikes, lockouts, other labor troubles, inability to
procure materials, failure of power, restrictive governmental laws or
regulations, riots, insurrection, war, or other reason not the fault of the
party delayed, then performance of the action in question shall be excused for
the period of delay and the period for the performance of such act shall be
extended for a period equivalent to the period of such delay. The provisions of
this Section 13.10 shall not, however, operate to excuse the Tenant from the
prompt payment of rent, additional rent, or any other payments required by the
terms of this Lease.
13.11. Authority of Signatories. Each person executing this Lease on
behalf of the Tenant individually and personally represents and warrants that he
is duly authorized to execute and deliver the same on behalf of the entity for
which he is signing (whether it be a corporation, general or limited
partnership, or otherwise), and that this Lease is binding upon said entity in
accordance with its terms.
13.12. Attorneys' Fees. If any action is brought to recover any rent or
other amount under this Lease, or because of any default under or to enforce or
interpret any of the provisions of this Lease, or for recovery of possession of
the Premises, the party prevailing in such action shall be entitled to recover
from the other reasonable attorneys' fees (including those incurred in
connection with any appeal or bankruptcy proceedings), the amount of which shall
be fixed by the court and made a part of any judgment rendered.
13.13. Sale of Premises by Landlord. In the event of any sale or
transfer by the Landlord of the real property of which the Premises are a part,
the Landlord shall be entirely freed and relieved of all
29
<PAGE> 17
liability under any and all of its covenants and obligations contained in this
Lease arising out of any act, occurrence, or omission occurring after the
consummation of such sale or transfer.
13.14. Brokers. The Tenant warrants that it has had no dealings with any
real estate brokers or agents in connection with this Lease, excepting only any
persons named in Section 1.10 hereof, and that it knows of no other real estate
broker or agent who may be entitled to a commission in connection with this
Lease. The Tenant agrees to indemnify the Landlord from and against any and all
commissions, fees, and compensation that may be due to or claimed by any real
estate broker or agent (other than any person named in Section 1.10 hereof, if
such person was retained by the Landlord) in connection with this Lease, and
from and against all costs, expenses, and attorneys' fees which the Landlord may
incur as a result of any such claim.
13.15. Holding Over. Any holding over after the expiration of the term
of this Lease with the consent or approval of the Landlord shall be construed to
be a tenancy from month to month at the rents herein specified (pro rated on a
monthly basis) and shall otherwise be on the terms herein specified so far as
possible.
13.16. Interpretation. The Tenant shall not record this Lease or any
memorandum or short form hereof without the written consent of the Landlord. Any
provision of this Lease which may prove to be invalid shall in no way affect or
invalidate any other provision hereof, and such other provision shall be valid
to the maximum extent permitted by law. The headings and titles of the various
provisions of this Lease shall have no effect upon the construction or
interpretation of any part hereof. As used in this Lease, the singular shall
include the plural, the plural shall include the singular, the whole shall
include each part thereof, any gender shall include both other genders, and the
term "person" shall include any individual, partnership (general or limited),
limited liability company, association, trust, or corporation or any combination
of the foregoing. The covenants and conditions herein contained shall, subject
to the provisions of Section 10 hereof, apply to and bind the heirs, personal
representatives, successors, and assigns of the parties hereto. Time is the
essence of this Lease and of each and all of its provisions in which performance
is a factor. This Lease shall be governed by and construed in accordance with
the internal substantive laws of the State of Utah.
13.17. No Smoking Building. In order to maintain building indoor air
quality, the Building has been designated a non-smoking building. Any variation
to this policy must be approved in writing by the Landlord, and must be in
accordance with the Utah Indoor Clean Air Act or any amendment thereto.
IN WITNESS WHEREOF, the Landlord and the Tenant have executed this Lease
as of the day and year first above written.
LANDLORD: TENANT:
GENEVA ROCK PRODUCTS, INC., Beehive Insurance Agency,
a Utah corporation, a Utah corporation,
By __________________________________ By _____________________________
Albert T. Schellenberg Its ______________________
Vice President
30
<PAGE> 18
GUARANTY
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of
which are hereby acknowledged, and for the purpose of inducing GENEVA ROCK
PRODUCTS, INC., a Utah corporation (hereinafter the "Landlord"), to enter into
the foregoing Lease Agreement for office space in that certain office building
located at 302 West 5400 South, Salt Lake City, Salt Lake County, Utah with
Beehive Insurance Agency, a Utah corporation (hereinafter the "Tenant", whether
one or more), the undersigned unconditionally guarantees to the Landlord the
full, prompt, and complete payment and performance by the Tenant of all of the
terms, obligations, covenants, and conditions of said Lease to be paid, kept, or
performed by the Tenant, including the payment of all rent, additional rent, and
other charges thereunder. This is a guaranty of prompt payment and not of
collection. The undersigned shall pay all of the Landlord's expenses, including
attorneys' fees, incurred in enforcing the obligations of the Tenant under said
Lease or in enforcing this Guaranty.
The undersigned hereby waive all requirements of notice of acceptance of
this Guaranty and all requirements of notice of default or non-performance by
the Tenant. The obligations of the undersigned under this Guaranty shall remain
fully binding although the Landlord may have waived one or more defaults by the
Tenant, extended the time of performance by the Tenant, modified or amended said
Lease, released, returned, or misapplied other collateral given as additional
security (including other guaranties), or released the Tenant from the
performance of its obligations under said Lease. In the event any right of
action accrues to the Landlord under said Lease, the Landlord may, at its
option, proceed directly against the undersigned without first having commenced
any action, first having pursued any remedy, or first having obtained any
judgment, against the Tenant.
If this Guaranty is signed by more than one person, their obligations
shall be joint and several, and the release of one guarantor shall not release
any other guarantor. This Guaranty shall inure to the benefit of the Landlord
and its successors and assigns and shall be binding upon the undersigned and
their respective heirs, personal representatives, successors, and assigns.
EXECUTED by the undersigned guarantor(s) as of the ____ day of
_______________, 19____.
---------------------- ---------------------------------
---------------------- ---------------------------------
<PAGE> 19
EXHIBIT C
BUILDING RULES AND REGULATIONS
1. All loading and unloading of goods shall be done through the loading
dock designated for use by tenants of the Building and their invitees, and shall
be done only at such times designated for such purposes by the Landlord. The
deliveries shall then be carted to the basement of the Building and taken to
their destination via the freight elevator. No other elevators shall be used for
deliveries without prior approval from the Landlord.
2. No freight deliveries will be permitted through the Main Lobby
without prior approval from the Landlord. In addition, such deliveries will not
be permitted during business hours as defined in the Lease. Arrangements for
delivery transport through the Main Lobby must be scheduled with the Landlord at
least 24 hours prior to the time use of the Main Lobby is expected.
3. Unless special arrangements have been made with the Landlord,
delivery personnel are not allowed exclusive use of the freight elevator.
Arrangements for exclusive use of the freight elevator must be scheduled with
the Landlord at least 24 hours prior to the time use of the freight elevator is
required.
4. The delivery or shipping of merchandise, supplies, and fixtures, to
and from the Demised Premises, shall be subject to such rules and regulations as
the Landlord deems necessary for the proper operation of the Building.
5. No aerial shall be erected on the roof or exterior walls of the
Demised Premises, or on the grounds, without, in each instance, the written
consent of the Landlord. Any aerial so installed without such written consent
shall be subject to removal without notice by the Landlord, and at the Tenant's
expense.
6. No loud speakers, televisions, electronic equipment, radios, or other
devices shall be used in manner so as to be heard or seen outside of the Demised
Premises without the prior written consent of the Landlord.
7. The plumbing facilities shall not be used for any other purpose than
that for which they are constructed, and no refuse of any kind shall be thrown
therein. The expense of any breakage, stoppage, or damage resulting from a
violation of this provision shall be borne by the Tenant, who shall, or whose
employees, agents, or invitees shall, have caused it.
8. The Tenant may choose to use non-standard lighting in the Demised
Premises. However, the Tenant will be responsible to pay the difference in bulb
replacement costs and the number of hours that bulb will burn when compared with
the standard lighting bulb cost and life of that bulb.
9. Surge suppressors are required on all copiers.
10. No canvassing, soliciting, or peddling shall be permitted in the
Building. Please report any violation immediately to the Landlord.
11. The Landlord reserves the right to approve all telecommunications
carriers that may be granted access to the Building.
<PAGE> 20
EXHIBIT D
JANITORIAL SERVICES
The cleaning specifications are as follows:
The Main Lobby area will be maintained by the Landlord's personnel. This
area will be maintained in keeping with a Class B office building on a daily
basis (Monday through Friday). The landscaping will be well taken care of in the
appropriate seasons.
1. SERVICES OF ELEVATORS, LOBBIES, AND CORRIDORS
A. Daily Services:
1. Vacuum all carpet. Clean carpet as needed.
2. Clean drinking fountain tops, sides, and fronts.
B. Elevators Inside:
1. Vacuum daily.
2. Keep elevator thresholds clean.
3. Clean light covers as needed.
4. Clean metal around buttons as needed.
5. Clean walls and doors as needed.
2. OFFICE AREAS
A. Daily Services:
1. Empty all trash cans.
2. Mop all spills on resilient floors.
3. Vacuum all carpet.
4. Daily clean sinks, tables, and counters.
5. Clean all drinking fountains.
B. Weekly Services:
1. Dust all desk tops.
2. WE WILL NOT CLEAN TERMINALS, COMPUTERS, OR CALCULATORS.
3. Dust all horizontal surfaces, shelves, and molding
that cannot be reached without using a ladder.
3. RESTROOM SERVICES
A. Daily Services:
1. Empty and remove trash.
2. Replenish supplies (towels, toilet paper, soap, bags).
3. Mop floor with a germicidal cleaner, including toilet and
urinal surfaces.
4. Clean all horizontal surfaces with disinfectant
strength germicidal cleansers.
<PAGE> 21
5. Keep walls clean.
6. Clean mirrors.
4. STAIRWAYS AND CORRIDORS LEADING TO STAIRWAYS
A. As Needed Services:
1. Remove trash.
2. Mop floors and/or vacuum carpet.
5. WINDOWS
A. Clean inside and outside of windows semi-annually.
2
<PAGE> 1
[EXHIBIT 10.28]
AMENDMENT NO. XI
TO THE
RETIREMENT PLAN FOR EMPLOYEES OF
W.W. CLYDE & CO.
GENEVA ROCK PRODUCTS, INC.
AND BEEHIVE INSURANCE AGENCY, INC.
The Employer (as referred to above) hereby adopts and publishes this amendment
to be effective --------------------.
Article XIII, titled "Miscellaneous" is hereby amended in its entirety to read
as follows:
"ARTICLE XIII"
MISCELLANEOUS
1. Inclusion in this Plan shall not be construed as giving the Participant any
right to be retained in the service of the Employer without the Employer's
consent, nor shall it interfere with the right of the Employer to discharge
the Participant, nor shall it give the Participant any right, claim or
interest in any Retirement Benefits herein described except upon
fulfillment of the provisions and requirements of this Plan.
2. If a vested Participant terminates employment, and the present value of
such Participant's nonforfeitable Accrued Benefit does not exceed (or at
the time of any prior distribution did not exceed) $3,500, the
Participant or the person designated by him to receive payments upon his
death, if applicable, shall receive a lump sum settlement of such
present value and any nonvested portion of his Accrued Benefit will be
forfeited. For purposes of the preceding sentence, if the present value
of a Participant's vested Accrued Benefit is zero, the Participant shall
be deemed to have received a lump sum settlement of such present value.
No distribution may be made under the preceding provisions of this
Section 2 after a Participant's Annuity Starting Date unless the
Participant and, if applicable, his Spouse (or where the Participant has
died, the surviving Spouse) consent, pursuant to a Qualified Election,
to such distribution within 90 days of the distribution date. For
purposes of this Section 2, "Annuity Starting Dates", "Spouse", and
"Qualified Election" shall have the respective meaning set forth in
Article VI hereunder. A lump sum settlement shall be made any time after
the Participant's termination of participation but prior to the close of
the second Plan Year following the Plan Year in which the termination
occurs, even though the Participant or the person designated by him to
receive payments upon his death, if applicable, is not otherwise
entitled to commencement of benefit payments at such time under other
provisions of the Plan.
<PAGE> 2
For purposes of this Section, termination of participation shall mean:
(a) the day such lump sum is distributed for all Participants who
terminated employment prior to the adoption date of this amendment,
provided that such distribution occurs within one year following the
adoption date of this amendment; or
(b) the day employment is terminated for all Participants who terminated
employment on or subsequent to the adoption date of this amendment.
The present value shall be determined without regard to the Participant's
sex based upon the interest rate and mortality assumptions, determined as
of the first day of the Plan Year that contains the Annuity Starting Date,
used by the Pension Benefit Guaranty Corporation for single employer plan
terminations.
If the Plan is amended to change the time for determining the Pension
Benefit Guaranty Corporation interest rate and mortality assumptions then
any lump sum settlement in the one year period commencing at the time such
amendment is effective (if the amendment is effective on or after the
adoption date) shall be based on the interest rate and mortality
assumptions determined under the Plan, either before or after the
amendment, which will result in the larger benefit. If such amendment is
adopted retroactively (i.e. the amendment is effective prior to the
adoption date) then the interest rate and mortality assumptions which will
result in the larger benefit shall be used for any lump sum settlement made
in the period beginning with the effective date of the amendment and ending
one year after the amendment's adoption date.
In addition, in no event shall an amendment changing the method for
determining a lump sum settlement (as a result of retirement or death)
deprive a Participant of his lump sum settlement so determined to the later
of the effective date or adoption date of any such amendment. Should an
amendment be adopted which directly or indirectly affects the computation
of a Participant's lump sum settlement, such Participant's lump sum
settlement so determined shall be equal to or greater than the lump sum
settlement determined (without regard to such amendment) as of the later of
the amendment's adoption date or effective date.
If a vested Participant receives a lump sum settlement pursuant to this
Section 2 which is equal to the present value of his entire Accrued Benefit
and subsequently is reemployed by the Employer, his Participation Service
(if applicable) and Vesting Service completed prior to such payment shall
be counted for purposes of determining such Participant's rights to
benefits under the Plan upon his reemployment. However, Credited Service
with respect to which such Participant has received a lump sum settlement
upon termination of employment will be disregarded for purposes of
determining his Accrued Benefit under the Plan upon his reemployment.
3. No person entitled to benefits under this Plan shall have the right assign,
commute or encumber the benefits herein provided. To the maximum
extent permitted by law, the benefits or payments herein provided shall
not in any way be liable to attachment,
2
<PAGE> 3
garnishment or other process, or to be seized, taken, appropriated or
applied by any legal or equitable process, to pay any debt or liability
of such person. The preceding also applies to the creation, assignment
or recognition of a right to any benefit payable with respect to a
Participant pursuant to a domestic relations order, unless such order is
determined to be a qualified domestic relations order as defined in
Section 414(p) of the Internal Revenue Code or any domestic relations
order entered before January 1, 1985. Upon receipt of a domestic
relations order, the Administrator shall, within a reasonable period of
time, review the domestic relations order to determine whether it is a
qualified domestic relations order. The Administrator shall promptly
notify the Participant and the alternate payee(s) of the procedures for
determining whether such order is qualified. Until such determination
has been made, the Administrator shall defer the payment of any disputed
benefits.
<TABLE>
<S> <C>
Executed this _____________ day of ________________________, 19__.
ATTEST: W.W. Clyde & Co.
By _________________________________ By ____________________________________
Official Title _________________________ Official Title ____________________________
ATTEST: Geneva Rock Products, Inc.
By _________________________________ By ____________________________________
Official Title _________________________ Official Title ____________________________
ATTEST: Beehive Insurance Agency, Inc.
By _________________________________ By ____________________________________
Official Title _________________________ Official Title ____________________________
</TABLE>
3
<PAGE> 4
AMENDMENT NO. X
Amendment and Restatement of The Retirement Plan for Employees of W.W.
Clyde & Co., Geneva Rock Products, Inc. and Beehive Insurance Agency, Inc.
WHEREAS W.W. Clyde & Co., Geneva Rock Products, Inc. and Beehive Insurance
Agency, Inc. adopted The Retirement Plan for Employees of W.W. Clyde & Co.,
Geneva Rock Products, Inc. and Beehive Insurance Agency, Inc. effective April 1,
1965; and
WHEREAS Article X of the Plan reserves the right to amend the Plan; and
WHEREAS compliance with The Tax Reform Act of 1986 requires revisions of the
Plan; and
WHEREAS compliance with The Omnibus Budget Reconciliation Act of 1986 requires
revisions of the Plan; and
WHEREAS compliance with the Age Discrimination in Employment Act, as amended,
requires revisions of the Plan; and
WHEREAS compliance with The Omnibus Budget Reconciliation Act of 1987 requires
revisions of the Plan; and
WHEREAS compliance with The Technical and Miscellaneous Revenue Act of 1988
requires revisions of the Plan; and
WHEREAS it is intended to bring the Plan into compliance with the above-named
Acts;
NOW, THEREFORE, the Employer amends and restates the Plan in its entirety as
follows:
Except as specifically provided herein, the provisions of this restatement shall
become effective as of January 1, 1989.
<PAGE> 5
<TABLE>
TABLE OF CONTENTS
<S> <C> <C>
ARTICLE I Definitions.....................................................l
ARTICLE II Types of Service................................................5
ARTICLE III Participation...................................................7
ARTICLE IV Retirement Dates................................................9
ARTICLE V Accrued Benefits and Retirement Benefits.......................11
ARTICLE VI Form and Payment of Benefits...................................21
ARTICLE VII Termination of Employment......................................37
ARTICLE VIII Funding........................................................40
ARTICLE IX Administration.................................................41
ARTICLE X Discontinuance of Employer Contributions
Plan Amendments and Mergers....................................42
ARTICLE XI Plan Termination Procedures....................................44
ARTICLE XII Restricted Benefits to Certain Participants....................46
ARTICLE XIII Miscellaneous..................................................49
ARTICLE XIV Top-Heavy Provisions...........................................51
</TABLE>
<PAGE> 6
ARTICLE I
DEFINITIONS
1. ADMINISTRATOR means the body which is to the administrative functions of
this Plan, as established in accordance with the Article of this Plan
entitled Administration.
2. EFFECTIVE DATE means April 1, 1965.
3. EMPLOYEE means any person enrolled on the active employment rolls of the
Employer on or after the Effective Date of this Plan and shall include
leased employees within the meaning of Section 414(n)(2) of the Internal
Revenue Code. Notwithstanding the foregoing, if such leased employees
constitute less than twenty percent of the Employer's non highly
compensated work force within the meaning of Section 414(n)(5)(C)(ii) of
such Code, the term Employees shall not include those leased employees
covered by a plan described in Section 414(n)(5) of such Code unless
otherwise provided by the terms of the Plan.
4. EMPLOYER means W.W. Clyde & Co., Geneva Rock Products, Inc. and Beehive
Insurance Agency, Inc.
5. HOUR OF SERVICE means
(a) Each hour for which an Employee is paid, or entitled to payment by the
Employer for the performance of duties. Hours under this paragraph
shall be credited to the Employee for the computation period or periods
in which the duties are performed; and
(b) Each hour for which an Employee is paid, or entitled to payment by the
Employer on account of a period of time during which no duties are
performed (irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty or leave of absence. No
more than 501 hours shall be credited under this paragraph for any
single period (whether or not such period occurs in a single
computation period). Hours under this paragraph shall be credited to
the Employee for the computation period or periods in which the period
during which no duties are performed occurs; and
(c) Each hour for which back pay, irrespective of mitigation of damages, is
either awarded or agreed to by the Employer. The same hours shall not
be credited under both paragraph (a) or paragraph (b), as the case may
be, and this paragraph (c). Hours under this paragraph shall be
credited to the Employee for the computation period or periods to which
the award or agreement pertains rather than the computation period in
which the award or agreement is made.
Solely for purposes of determining whether a break in service, as
defined in Article II, Section 2, for participation and vesting
purposes has occurred in a computation period, an individual who is
absent from work for maternity or paternity reasons shall receive
<PAGE> 7
credit for the Hours of Service which would otherwise have been
credited to such individual but for such absence, or in any case in
which such hours cannot be determined, eight Hours of Service per day
of such absence. For purposes of this paragraph, an absence from work
for maternity or paternity reasons means an absence (1) by reason of
the pregnancy of the individual, (2) by reason of a birth of a child of
the individual, (3) by reason of the placement of a child with the
individual in connection with the adoption of such child by such
individual, or (4) for purposes of caring for such child for a period
beginning immediately following such birth or placement. The Hours of
Service credited under this paragraph shall be credited (1) in the
computation period in which the absence begins if the crediting is
necessary to prevent a break in service in that period, or (2) in all
other cases, in the following computation period.
Each Hour of Service shall be credited in accordance with Section
2530.200b-2 of the Department of Labor Regulations. Hours of Service
will be credited for employment with other members of an affiliated
service group (under the Internal Revenue Code Section 414(m)), a
controlled group of corporations (under Section 414(b)), or a group of
trades or businesses under common control (under Section 414(c)), of
which the Employer is a member.
Hours of Service will also be credited for any leased employee
considered an Employee for purposes of this Plan under the Internal
Revenue Code Section 414(n). Where the Employer maintains the plan of a
predecessor employer, Hours of Service for such predecessor employer
shall be treated as Hours of Service for the Employer.
6. PARTICIPANT means an Employee or former Employee who has, on or after the
Effective Date of this Plan, met the requirements of Article III hereof.
7. PLAN means the Retirement Plan for Employees of W.W. Clyde & Co., Geneva
Rock Products, Inc. and Beehive Insurance Agency, Inc. as it may from time
to time be amended which is established by the Employer for the purpose of
providing Retirement Benefits for Employees of the Employer who are
eligible to participate herein in accordance with the provisions of this
Plan.
8. PLAN YEAR means the period of twelve consecutive months beginning each
January 1.
9. QUALIFIED EARLY RETIREMENT AGE means the latest of:
(a) the earliest date under the Plan on which the Participant could elect
to receive Retirement Benefits (other than, if applicable, disability
benefits); or
(b) the first day of the 120th month preceding the Participant's Normal
Retirement Age; or
(c) the Participant's date of inclusion in this Plan.
2
<PAGE> 8
10. RETIREMENT BENEFIT means the monthly payments to which a Participant shall
become entitled hereunder.
11. RETIRED PARTICIPANT means a former Participant who is retired under this
Plan and who is receiving Retirement Benefits provided for hereunder.
12. Wherever used herein a pronoun in the masculine gender shall be considered
as including the feminine gender unless the context clearly indicates
otherwise, and wherever used herein a pronoun in the singular form shall be
considered as being in the plural form unless the context clearly indicates
otherwise.
13. AVERAGE MONTHLY EARNINGS means 1/l2th of a Participant's salary or wage
exclusive of bonuses, paid or accrued as reported by the Employer to the
Internal Revenue Service for Income Tax purposes averaged over the last 5
years of his employment with the Employer, including the years which
include the dates of hire and determination.
If, however, the Participant is not employed by the Employer for at least
60 months, the average will be taken over the number of months that the
Participant has been employed with the Employer. Further, if the
Participant is employed by the Employer for more than 60 months but has not
been employed by the Employer for 5 complete years, the average will be
taken over the last 60 consecutive months. For both of these situations, it
will be assumed that the salary or wage paid or accrued as reported by the
Employer to the Internal Revenue Service for Income Tax purposes for each
year was earned equally during each month of employment w ith the Employer
in that year.
The amount of annual compensation taken into account for any calendar year
after 1988 shall not exceed $200,000 (unless adjusted in such manner as
permitted under Section 415(d) of the Internal Revenue Code). In
determining the compensation of an Employee, the rules of Internal Revenue
Code Section 414(q)(6) shall apply, except that in applying such rules, the
term Family shall include only the spouse of the Employee and any lineal
descendants of the Employee who have not attained age 19 before the close
of the year.
14. PRIOR CONTRACT means Group Annuity Contract GR-4110 which became effective
April 1, 1965.
15. PRIOR CONTRACT ANNUITY means that annuity purchased and in force under the
Prior Contract for those Employees covered under such contract as of March
31, 1979, as provided in Exhibit A.
16. AVERAGE MONTHLY COMPENSATION means the wage or salary paid to the Employee
as reported to the Internal Revenue Service for the calendar year that ends
with or within the Plan Year averaged over the five consecutive years when
the employee had the highest aggregate compensation from the Employer. The
annual Compensation taken into account with respect to any Employee under
this Article shall not exceed $200,000 (or such other amount as may be
specified pursuant to Section 416(d) of the Internal Revenue Code). If
3
<PAGE> 9
the Employer is a member of a controlled group of corporations,
Compensation paid to an Employee by any member of the controlled group
is considered to be Compensation from the Employer during the Limitation
Year. Compensation in years before January 1, 1984 shall be disregarded.
4
<PAGE> 10
ARTICLE II
TYPES OF SERVICE
For purposes of this Plan an Employee's years of service with the Employer shall
be determined and reported by the Administrator in accordance with the
following:
1. PARTICIPATION SERVICE
Participation Service shall be any 12 month period determined from the
Employee's date of hire or anniversary thereof in which he completes at
least 1,000 Hours of Service for the Employer regardless of employment
classification. For purposes of this Section, date of hire shall mean the
date the Employee first performs an Hour of Service for the Employer.
2. VESTING SERVICE
Vesting Service for a Participant shall be the sum of all 12 month periods
during which the Participant has completed at least 1,000 Hours of Service
for the Employer regardless of employment classification. Such 12 month
periods shall be computed from a Participant's date of hire to the
anniversary of his date of hire coincident with or next following the date
of his termination of employment. For purposes of this Section, date of
hire shall mean the date the Employee first performs an Hour of Service for
the Employer.
In determining the years of Vesting Service completed by a Participant, any
12 month period computed from a Participant's date of hire to the
anniversary of his date of hire next preceding the Participant's 18th
birthday shall be excluded from consideration.
A break in Vesting Service shall occur when a Participant completes less
than 500 Hours of Service during any 12 month period as set forth above.
Should a break in Vesting Service actually occur, Vesting Service completed
prior to such break shall not be counted until such time as the Participant
completes one full year of Participation Service subsequent to such break.
If, however, a Participant does not have a nonforfeitable right to any
Accrued Benefits as set forth in Article VII before a break in Vesting
Service occurs, the years of Vesting Service completed prior to the break
in Vesting Service shall not be taken into account if the number of
consecutive one year breaks in Vesting Service equals or exceeds the
greater of 5 or the aggregate number of years of Vesting Service completed
prior to such break.
If any break in Vesting Service occurs as a result of a Qualified Leave of
Absence, it shall not restrict any Participant from immediately beginning
to receive credit for Vesting Service immediately upon his return from such
Qualified Leave of Absence.
3. CREDITED SERVICE
5
<PAGE> 11
Credited Service shall be determined in the same manner as Vesting Service.
Anything to the contrary notwithstanding, for benefit purposes, Credited
Service will only be counted from the date the Employee satisfies the
conditions for Participation as outlined in Article III as if this Plan had
always been in effect.
The above not withstanding, Credited Service for an Employee who was
prohibited from becoming a Participant in the Plan prior to the Plan Year
beginning on or after January 1, 1988 due to his date of hire occurring
within 5 years of what otherwise would have been his Normal Retirement Date
shall be computed from the anniversary of his date of hire immediately
preceding the date his participation in the Plan begins.
4. QUALIFIED LEASE OF ABSENCE
A Qualified Leave of Absence shall consist of one of the following:
(a) Absence with the consent of the Administrator during a period not
in excess of one year except that the Administrator may consent to
extend the period of leave.
(b) Absence from work because of occupational injury or disease
incurred as a result of employment with the Employer, for which
absence a Participant shall be entitled to Workers' Compensation
payments.
(c) Absence in the service of the armed forces of the United States
provided the Participant shall re-enter the employ of the Employer
within the statutory period during which his right to reemployment
is guaranteed after he has first become eligible for discharge or
separation from active duty.
In interpreting this Section 4, the Administrator will apply uniform rules
in a like manner to all Participants under similar circumstances.
6
<PAGE> 12
ARTICLE III
PARTICIPATION
1. CONDITIONS FOR PARTICIPATION
(a) Any Employee who was a Participant under the Prior Contract prior to
April 1, 1979 will automatically be included in this Plan as of April
1, 1979.
(b) Any Employee who was not included in the Prior Contract as of April 1,
1979 will be included in this Plan as a Participant on the first day of
the month coincident with or next following the later of his attainment
of age 25 or the completion of one year of Participation Service
completed from and after the Participant's latest date of hire.
However, no employee will be included in this Plan if at the date of
his hire he is within 5 years of what would otherwise have been his
Normal Retirement Date.
(c) Any Employee who was not included in the Prior Contract or this Plan as
of April 1, 1985 will be included in this Plan as a Participant on the
first day of the month coincident with or next following the later of:
(i) his attainment of age 21; or
(ii) the completion of one year of Participation Service completed
from and after the Participant's latest date of hire; or
(iii) April 1, 1985.
However, no employee will be included in this Plan if at the date of
his hire he is within 5 years of what would otherwise have been his
Normal Retirement Date.
(d) Any Employee who was not a Participant in the Plan as of the day prior
to the first day of the Plan Year beginning on or after January 1, 1988
will be included in the Plan as a Participant on the first day of the
month coincident with or next following the latest of:
(i) the Employee's attainment of age 21,
(ii) the Employee's completion of one year of Participation Service,
(iii) the first day of the Plan Year beginning on or after January 1,
1988 for an Employee who was prohibited from becoming a
Participant in the Plan prior to such date due to his date of
hire occurring within 5 years of what otherwise would have been
his Normal Retirement Date.
7
<PAGE> 13
2. Anything to the contrary notwithstanding, Employees who are included in a
unit of Employees covered by an agreement between Employee representatives
and one or more Employers which
(a) the Secretary of Labor finds the agreement to be a collective
bargaining agreement; and
(b) includes Retirement Benefits as a subject of good faith bargaining (and
there is evidence to support this);
are not eligible to participate under this Plan.
3. If an Employee's employment terminates after such Employee has satisfied
the eligibility requirements in the Plan but prior to becoming a
Participant in the Plan and such Employee is reemployed subsequent to the
date he would have become a Participant without incurring a one-year break
in Vesting Service, such Employee shall be a Participant immediately upon
his completion of an Hour of Service.
4. If an Employee's employment terminates after such Employee has become a
Participant in the Plan and such Employee is reemployed, such Employee
shall be reinstated as a Participant immediately upon his completion of an
Hour of Service.
8
<PAGE> 14
ARTICLE IV
RETIREMENT DATES
1. NORMAL RETIREMENT DATE
The Normal Retirement Date for a Participant has satisfied the Normal
Retirement Date requirements (applicable to such Participant) as of the day
prior to the first day of the Plan Year beginning on or after January 1,
1988 shall be determined in accordance with the provisions of the Plan in
effect as of the date such requirements were satisfied.
The Normal Retirement Date for a Participant who has not satisfied the
Normal Retirement Date requirements (applicable to such Participant) as of
the day prior to the first day of the Plan Year beginning on or after
January 1, 1988 shall be determined in accordance with the following:
(a) The Normal Retirement Date for a Participant who is under age 60 on the
date he is included in this Plan shall be the first day of the month
coincident with or next following the 65th anniversary of the
Participant's date of birth or, if later, the first day of the Plan
Year beginning on or after January 1, 1988.
(b) The Normal Retirement Date for a Participant who is 60 or older on the
date he is included in this Plan shall be the first day of the month
coincident with or next following the fifth anniversary of the date he
became a Participant or, if later, the first day of the Plan Year
beginning on or after January 1, 1988.
A Participant's Normal Retirement Age shall be the earlier of:
(a) the Normal Retirement Date specified above; or
(b) the later of:
(1) attainment of age 65; or
(2) for a Participant who has not satisfied the Normal Retirement Date
requirements (applicable to such Participant) as of the day prior
to the first day of the Plan Year beginning on or after January 1,
1988, the 5th anniversary of the date the Employee first becomes a
Participant in the Plan; or
(3) in the case of a Participant not described in clause (2) above, the
10th anniversary of the date the Employee first becomes a
Participant in the Plan.
2. EARLY RETIREMENT DATE
9
<PAGE> 15
A Participant may elect to retire on an Early Retirement Date which shall
be the first day of any month (as specified by the Participant) coincident
with or next following the latest of:
(a) Completion of 10 years of Vesting Service,
(b) within 10 years of his Normal Retirement Date,
(c) termination of employment with the Employer.
3. DEFERRED RETIREMENT DATE
The Deferred Retirement Date of any Participant who is in employment beyond
his Normal Retirement Date shall be the first day of any month coincident
with or next following the date the Participant terminates employment with
the Employer.
4. NORMAL OR EARLY RETIREMENT DATE
The Normal or Early Retirement Date of any Participant who terminates
employment and retains a nonforfeitable right to a Retirement Benefit
hereunder shall be determined in accordance with the provisions of the Plan
in effect as of the date of such Participant's termination of employment.
10
<PAGE> 16
ARTICLE V
ACCRUED BENEFITS AND RETIREMENT BENEFITS
1. ACCRUED BENEFIT
A. For Employees of W.W. Clyde & Co., and Geneva Rock Products, the
Monthly Accrued Benefit as of any date of determination shall be an
amount equal to:
1.80 % of a Participant's Average Monthly Earnings at such date of
determination multiplied by the number of years of his Credited
Service at such date of determination.
B. For Employees of Beehive Insurance Agency, Inc., the Monthly Accrued
Benefit as of any date of determination shall be an amount equal to the
greater of (i) or (ii) as defined below:
(i) 1.80% of a Participant's Average Monthly Earnings at such date of
determination multiplied by the number of years of his Credited
Service at such date of determination.
(ii)1.82% of a Participant's Average Monthly Compensation multiplied by
years of vesting service. For purposes of this subparagraph (ii),
vesting service shall exclude years of service completed prior to
April 1, 1984, and is maximized at ten (10) years.
C. For paragraphs A & B above, the following apply:
(i) In no event, however, shall the Monthly Accrued Benefit be any less
than the amount of the Prior Contract Annuity, if any, in force for
any such employee as provided in Exhibit A.
(ii)In computing the Monthly Accrued Benefit it will be assumed that
such benefit shall be payable in accordance with the terms of the
Life Annuity Form with 120 Guaranteed Monthly Payments, as set
forth in Article VI, Section 1. Benefits payable in accordance with
any other form will be actuarially modified to reflect the
difference in the value of the form of payment chosen hereunder as
compared to the Life Annuity Form with 120 Guaranteed Monthly
Payments.
Under no circumstances, however, shall an amendment to the Accrued Benefit
provisions result in a Participant's Monthly Accrued Benefit so determined
being less than his Monthly Accrued Benefit determined (without regard to
such amendment) as of the later of the amendment's adoption date or
effective date.
11
<PAGE> 17
The Annual Accrued Benefit as of any date of determination shall be twelve
times the Monthly Accrued Benefit as determined above.
2. NORMAL RETIREMENT BENEFIT
The monthly amount of Normal Retirement Benefit payable to a Participant
retiring on his Normal Retirement Date shall be equal to the greater of his
Monthly Accrued Benefit determined as of such Participant's Normal
Retirement Date or his Early Retirement Benefit.
3. EARLY RETIREMENT BENEFIT
The monthly amount of Early Retirement Benefit payable to a Participant
retiring on his Early Retirement Date shall be equal to his Monthly Accrued
Benefit determined as of such Participant's Early Retirement Date
multiplied by the appropriate percentage below.
<TABLE>
Number of Years Early Retirement Date
Precedes Normal Retirement Date
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 1 2 3 4 5 6 7 8 9 10
----------------------------------- ----------------------------------- ----
100.0 93.3 86.6 79.9 73.2 66.5 63.2 59.9 56.6 53.3 50.0
</TABLE>
If the period between the Early Retirement Date and Normal Retirement Date
is not an integral number of years, the percentage to be applied shall be
the percentage for the next higher integral number of years, increased by a
proportionate part of the difference between that percentage and the
percentage for the next lower integral number of years.
4. DEFERRED RETIREMENT BENEFIT
(a) In the case of a Participant whose Normal Retirement Benefits are
suspended as provided under Section 5 below, the monthly amount of
Deferred Retirement Benefit payable to a Participant retiring on his
Deferred Retirement Date shall be equal to his Monthly Accrued Benefit
determined as of such Participant's Normal Retirement Date multiplied
by the appropriate percentage below:
NUMBER OF YEARS DEFERRED RETIREMENT DATE
FOLLOWS NORMAL RETIREMENT DATE
<TABLE>
<S> <C> <C> <C> <C> <C>
1 2 3 4 5
--------- --------- --------- --------- -----
106.0% 112.0% 118.0% 124.0% 130.0%
</TABLE>
If the period between the Deferred Retirement Date and Normal Retirement
Date is not an integral number of years, the percentage to be applied shall
be the percentage for the lower integral number of years, increased by a
proportionate part of the difference between that percentage and the
percentage for the next lower integral number of years.
12
<PAGE> 18
(b) In the case of a Participant whose Normal Retirement Benefits are not
suspended in accordance with Section 5 below, the monthly amount of
Deferred Retirement Benefit payable to such Participant retiring on his
Deferred Retirement Date shall be equal to the greater of his Monthly
Accrued Benefit determined in (a) above or the actuarial equivalent of
his Monthly Accrued Benefit determined as of his Normal Retirement Date
and computed without regard to any service during which such benefits
were suspended under the "Suspension of Benefits" Section below.
No amendment to the Deferred Retirement Benefit provisions shall have the
effect of decreasing a Participant's Deferred Retirement Benefit determined
(without regard to such amendment) as of the later of the date such
amendment is adopted or becomes effective.
5. SUSPENSION OF BENEFITS
For a Participant who has not reached his Annuity Starting Date (as defined
in Article VI hereunder), Normal Retirement Benefits will be suspended, as
limited by the provisions in Article VI, Section 6, for each calendar month
during which the Participant completes at least 40 Hours of Service with
the Employer in section 203(a)(3)(B) service as determined under the
Employee Retirement Income Security Act of 1974 and the Department of Labor
regulations issued thereunder.
No payment shall be withheld by the Plan pursuant to this Section unless
the Plan notifies the Participant by personal delivery or first class mail
during the first calendar month or payroll period in which the Plan
withholds payments that his benefits are suspended. Such notification shall
contain a description of the specific reason(s) why benefits are being
suspended, a general description of the Plan provision relating to the
suspension of benefits, a copy of such provisions, and a statement to the
effect that applicable Department of Labor regulations may be found in
section 2530.203-3 of the Code of Federal Regulations. In addition, the
notice shall inform the Participant of the Plan's procedures for affording
a review of the suspension of benefits as provided for in Article IX.
The provisions of this Section shall not apply to the minimum benefit, if
any, to which the Participant is entitled under the Top-Heavy provisions of
Article XIV.
6. EMPLOYMENT AFTER RETIREMENT BENEFITS COMMENCE
If a Retired Participant is employed by the Employer, he shall continue to
receive Retirement Benefit payments in the same form of annuity. The
Participant will be included in the Plan immediately upon the date he
completes an Hour of Service after his Early, Normal or Deferred Retirement
Date and will accrue additional benefits in accordance with this Article.
The amount of the adjusted Retirement Benefit will be based on the Accrued
Benefit as of the date of adjustment, using all Credited Service with the
Employer, reduced by the Actuarial Equivalent of all distributions made to
the Participant prior to the date of adjustment and on or after the
attainment of his Normal Retirement Date for which the Plan
13
<PAGE> 19
could have provided (without regard to Internal Revenue Code Section
401(a)(9) and the regulations thereunder) for the suspension of the
Participant's benefits in accordance with Section 203(a)(3)(B) of the
Employee Retirement Income Security Act of 1974 and the regulations
issued thereunder). This reduction shall be determined without regard to
any portion of the Participant's distributions exceeding the amount that
would have been paid under the Automatic Form of Retirement Benefit
described in Section 2 of Article VI of this Plan. Also, this reduction
shall not result in a Monthly Accrued Benefit at any time during a Plan
Year that is smaller than the Monthly Accrued Benefit determined as of
the end of the immediately preceding Plan Year. Such adjustments (which
shall be in the same form of annuity already in effect for the
Participant except as provided in Article VI, Section l(f)) shall occur
at the close of each Plan Year and shall be in compliance with Section
411(b)(1)(H) of the Internal Revenue Code and the regulations
thereunder.
7. MAXIMUM RETIREMENT BENEFITS
In accordance with the benefit limitations of Section 415 of the Internal
Revenue Code, each Participant's Annual Benefit shall be limited so that
the specified Maximum Permissible Benefit, as defined herein, is not
exceeded. If necessary, the Participant's Accrued Benefit shall be limited
in order to meet the requirements of Section 415.
With respect to each Participant, all qualified defined benefit plans ever
maintained by the Employer shall be treated as one defined benefit plan for
purposes of applying the limitations of Section 415 of the Internal Revenue
Code. In the event the Participant's Annual Benefit exceeds the Maximum
Permissible Benefit specified herein, the Participant's Accrued Benefit
shall be reduced to the extent necessary under this Plan if the required
reduction is not accomplished under the Employer's other defined benefit
plan or plans.
The sum of the Participant's Defined Benefit Plan Fraction and the Defined
Contribution Plan Fraction shall not exceed 1.0 with respect to such
Participant for any Limitation Year.
The following definitions shall be used solely for the purposes of this
Section 7:
(a) "Annual Additions" with respect to the Maximum Permissible Amount means
for any Limitation Year, the sum of the following:
(1) All Employer Contributions, if any, allocated to a Participant;
(2) All forfeitures, if any, allocated to a Participant;
(3) A Participant's Participant Contributions, if any.
Contributions do not fail to be Annual Additions merely because such
contributions are excess deferrals, excess contributions, or excess
aggregate contributions or merely because such contributions are
corrected through distribution or recharacterization.
14
<PAGE> 20
Amounts allocated, after March 31, 1984 to an individual medical
account, as defined in Section 415 (I) (1) of the Internal Revenue
Code, which is part of a defined benefit plan maintained by the
Employer are treated as Annual Additions to a defined contribution
plan. Also, amounts derived from contributions paid or accrued after
December 31, 198S, in taxable years ending after such date, which are
attributable to post-retirement medical benefits allocated to the
separate account of a key employee, as defined in Section 419A(d)(s),
under a welfare benefit fund, as defined in Section 419(e), maintained
by the Employer, are treated as Annual Additions to a defined
contribution plan.
(b) "Annual Benefits" means the amount of Accrued Benefit attributable to
Employer contributions which would be payable annually in the form of a
Life Annuity as of the date of determination, except however, that if
the Participant has not yet terminated employment with the Employer and
has not yet reached his Normal Retirement Age, the Annual Benefit shall
mean the amount of Accrued Benefit attributable to Employer
contributions projected to such Participant's Normal Retirement Age
assuming the Participant will continue working and Compensation will
remain the same until the Participant's Normal Retirement Age.
(c) "Compensation" for the purposes of applying the limitations of Section
415, shall include only those items specified in subparagraph (1) of
Section 1.415-2(d) of the Internal Revenue Service Regulations except
that, effective for Limitation Years beginning after December 31, 1988,
the amount of annual compensation taken into account for any year shall
not exceed $200,000 (unless adjusted in such manner as permitted under
Section 415(d) of the Internal Revenue Code).
(d) "Defined Benefit Plan Fractions" means for each limitation Year, a
fraction, the numerator of which is the sum of a Participant's
projected Annual Benefit under all qualified defined benefit plans
maintained by the Employer determined as of the end of the Limitation
Year, and the denominator of which, as of the end of the Limitation
Year, is the lesser of (I) or (2) below where:
(1) is equal to 1.25 times the Internal Revenue Code Section
415(b)(1)(A) defined benefit plan dollar limitation amount in
effect for such Limitation Year, and
(2) is equal to 1.___ times the Participant's average annual
compensation based on the three consecutive calendar year period
during which the Participant has the greatest aggregate
Compensation from the Employer.
(e) "Defined Contribution Plan Fractions" shall mean, for each Limitation
Year, a fraction, the numerator of which is the sum of the Annual
Additions with respect to any Participant as of the close of the
Limitation Year and all prior Limitation Years under this Plan and all
other qualified defined contribution plans maintained by the Employer,
and the denominator of which is the sum of the lesser of (1) or (2)
below for each Limitation Year during which the Participant is employed
by the Employer where:
15
<PAGE> 21
(1) is equal to 1.25 times the Internal Revenue Code Section
415(c)(1)(A) defined contribution plan dollar limitation amount
applicable to such Limitation Year (the prescribed dollar
limitation amount shall be equal to $30,000 or, if greater, 25% of
the defined benefit plan dollar limitation amount in effect under
Section 415(b)(1)(A) of such Code), and
(2) is equal to 1.4 times 25% of the Participant's Compensation for
such Limitation Year, except, however, any contribution for medical
benefits (within the meaning of Section 419(A)(f)(2)) after
separation from service which is treated as an Annual Addition
shall not apply.
(f) "Employer" means the Employer who adopts this Plan. In the event that
the Employer is a member of a group which constitutes a controlled
group of corporations (as defined in Section 414(b) of the Internal
Revenue Code as modified by Section 415(h)) or which constitutes trades
or businesses (whether or not incorporated) which are under common
control (as defined in Section 414(c) of the Internal Revenue Code as
modified by Section 415(h), all such employers shall be considered a
single employer for the purposes of applying the limitations of this
Article and the purposes of determining Compensation as defined in
subparagraph (c) above.
(g) "Limitation Years" means a Plan Year for this Plan. In lieu thereof the
Employer may adopt, by amending this Plan, any other 12 consecutive
month period. If the Employer is a member of a group which constitutes
a controlled group of corporations (as defined in Section 414(b) of the
Internal Revenue Code as modified by Section 415(h)) the election to
use a consecutive twelve month period other than the Plan Year must be
made by all members of the group that maintains the plan.
(h) "Maximum Permissible Amounts" means with respect to any Limitation Year
the lesser of:
(1) the Internal Revenue Code Section 415(c)(1)(A) defined contribution
plan dollar limitation amount applicable to such Limitation Year
(the prescribed dollar limitation amount shall be equal to $30,000
or, if greater, 25% of the defined benefit plan dollar limitation
amount in effect under Section 415(b)(1)(A) of such Code), or
(2) 25% of the Compensation actually paid to the Participant for such
Limitation Year, except, however, any contribution for medical
benefits (within the meaning of Section 419(A)(f)(2)) after
separation from service which is treated as an Annual Addition
shall not apply.
(i) "Maximum Permissible Benefit" means the maximum Annual Benefit to which
a Participant is entitled in accordance with the following provisions:
16
<PAGE> 22
(1) Maximum Permissible Benefit Applicable to Participants Who Have At
Least Ten Years Of Participation Service - The Maximum Permissible
Benefit applicable to any Participant who has at least ten years of
Participation Service with the Employer shall be limited to the
greater of (i) or (ii) below:
(i) the Internal Revenue Code Section 415(b)(1)(A) defined benefit
plan dollar limitation amount in effect for such Limitation
Year, or
(ii) 100% of the Participant's average annual Compensation based on
the three consecutive calendar year period during which the
Participant had the greatest aggregate Compensation from the
Employer.
(2) Adjustment to the Maximum Permissible Benefit - Adjustments shall
be made to the Maximum Permissible Benefit in accordance with
subparagraphs (i), (ii) or (iii) below:
(i) In the event the Participant's Accrued Benefit is determined
in a form of annuity other than a Life Annuity or the
Joint and Survivor Annuity form, as set forth in Section
1 of this Article, an adjustment shall be made to the
Maximum Permissible Benefit in order to determine the
actuarial equivalent amount of Maximum Permissible
Benefit when stated in the form of annuity in which the
Participant's Accrued Benefit is determined in
accordance with Section I of this Article. The actuarial
equivalent amount of benefit will be the lesser of the
actuarially adjusted benefit using a 5% interest
assumption and the Unisex UP 1984 Mortality Table or the
adjusted benefit according to the Plan's actuarial
equivalence definition for other than the Normal Form of
annuity.
(ii) In the event the Participant's Accrued Benefit becomes payable
prior to the Participant's attainment of the Social Security
Retirement Age, an adjustment shall be required to the Maximum
Permissible Benefit. Accordingly, the Maximum Permissible
Benefit payable prior to the Participant's attainment of the
Social Security Retirement Age but on or after the attainment
of age 62 shall be adjusted in a manner which is consistent
with the reduction for old age insurance benefits commencing
before the Social Security Retirement Age under the Social
Security Act. Thus, if a Participant's Social Security
Retirement Age is 65, the applicable dollar limitation for
benefits commencing on or after age 62 is reduced by 5/9 of 1%
for each month by which benefits commence before the month in
which the Participant attains age 65. If a Participant's
Social Security Age is greater than 65, the applicable dollar
limitation for benefits commencing at or after age 62 is
determined by reducing such limitation by 5/9 of 1% for each
of the first 36 months and 5/12 of 1% for each of the
additional months (up to 24 months) by which benefits commence
before the month of the Participant's Social Security
Retirement Age. Furthermore, the Maximum Permissible Benefit
payable prior to the Participant's attainment of age 62 shall
be adjusted so that it is the actuarial
17
<PAGE> 23
equivalent of the Maximum Permissible Benefit payable at age
62 using that which results in the lower benefit under (A) or
(B) below:
(A) the reduction factors based on a 5% interest assumption
and the Unisex UP-1984 Mortality Table; or
(B) the Early Retirement Benefit reduction factors or
percentages specified in Section 3 of this Article.
The adjustment set forth in this subparagraph (7)(i)(2)(ii)
shall not apply if the Maximum Permissible Benefit results
from the benefit limitation set forth in Section 7(i)(1)(ii).
(iii)In the event the Participant's Accrued Benefit becomes
payable after the Participant's attainment of the Social
Security Retirement Age, an adjustment shall be made to the
Maximum Permissible Benefit. Accordingly, the Maximum
Permissible Benefit payable after the Participant's attainment
of the Social Security Retirement Age shall be adjusted so
that it is the actuarial equivalent of the Maximum Permissible
Benefit payable at the Social Security, Retirement Age using
that which results in the lower benefit under (A) or (B)
below:
(A) adjustment factors based on a 5% interest assumption and
the Unisex UP-1984 Mortality Table; or
(B) the Deferred Retirement Benefit factors or percentages, if
any, specified in Section 4 of this Article.
The adjustment set forth in this subparagraph 7(i)(2)(iii)
shall not apply if the Maximum Permissible Benefit results
from the benefit limitation set forth in Section 7(i)(1)(ii).
(3) Except as provided in subparagraph 7(i)(4)(b) hereof, the Maximum
Permissible Benefit determined under subparagraphs (7)(i)(1) and
(7)(i)(2) and all other defined benefit plans of the Employer shall
never be deemed to be an amount which is less than $10,000,
provided the Participant is not, and has never been a participant
in any defined contribution plan of the Employer.
(4) Maximum Permissible Benefit Applicable to Participants Who Have
Less Than Ten Years Of Participation Service With The Employer -
The maximum Permissible Benefit applicable to any Participant who
has less than ten years of Participation Service with the Employer
shall be equal to the lesser of:
(a) the product of the Maximum Permissible Benefit amount which
would otherwise have been applicable in accordance with
subparagraphs (1)(i) and (a) of
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<PAGE> 24
paragraph (7)(i) hereof and a fraction, the numerator of
which is the number of the Participant's years (or part
thereof) of Participation Service in the Plan as of and
including the current Limitation Year, and the
denominator of which is ten, however, for purposes of
applying the requirements of subparagraph 7(d)(1)
hereof, the provisions of this subparagraph 7(i)(4)(a)
shall be amended by substituting Years (or part thereof)
of service with the Employers where "years (or part
thereof) of Participation Service in the Plan" is shown,
or
(b) the product of the Maximum Permissible Benefit amount which
would otherwise have been applicable in accordance with
subparagraph (1)(ii), (2)(i) and (3) of paragraph (7)(i)
hereof and a fraction, the numerator of which is the number of
the Participant's years (or part thereof) of service with the
Employer as of and including the current Limitation Year, and
the denominator of which is ten.
(5) If the Participant's Annual Benefit exceeds the Maximum Permissible
Benefit after the application of the appropriate adjustments
hereof, such Participant's Accrued Benefit shall be limited to an
amount which produces an Annual Benefit equal to the Maximum
Permissible Benefit.
(6) Notwithstanding the foregoing provisions of this paragraph 7(i), in
the case of an individual who was a Participant as of the first day
of the first Limitation Year beginning after December 31, 1986, the
application of the appropriate adjustments hereof shall not cause
the Maximum Permissible Benefit for such Participant to be less
than the Participant's Accrued Benefit determined as if the
Participant had separated from service as of the close of the last
Limitation Year beginning before January 1, 1987 and without regard
to any Plan amendments or cost-of-living adjustments occurring
after May 5, 1986. The preceding sentence applies only if the Plan
was in existence on May 6, 1986 and satisfied the applicable
requirements of Internal Revenue Code Section 415 for all
limitation Years beginning before January 1, 1987.
(j) To the extent provided by the Secretary of the Treasury, subparagraph
7(i)(4)(a) hereof (other than for purposes of subparagraph 7(d)(1))
shall be applied separately with respect to each change in the benefit
structure of the Plan.
(k) The defined benefit plan dollar limitation amount prescribed under
subparagraphs (d), (e), (h),and (i) above shall be effective as of the
first day of each calendar year end shall apply to the Limitation Year
that ends in such calendar year. Said limitation shall be adjusted
annually in accordance with Section 415(d) of the Internal Revenue
Code.
(1) "Participation Service" means any 12 month period determined from the
Participant's date of inclusion in the Plan or anniversary thereof
during which he completes at least 1,000 Hours of Service for the
Employer regardless of Employment Classification. A Participant who is
permanently and totally disabled within the meaning of Internal
19
<PAGE> 25
Revenue Code Section 415(c)(3)(C)(i) during any such period shall
receive a year of Participation Service with respect to that period.
(m) "Social Security Retirement Age" means the age used as the retirement
age under Section 216(1) of the Social Security Act, except that such
Section shall be applied:
(1) without regard to the age increase factor, and
(2) as if the early retirement age under Section 216(1)(2) of such Act
were 62.
8. FORFEITURES
No part of any forfeitures resulting from the application of any provisions
of this Plan shall be applied to increase the benefits any Participant
would otherwise receive under this Plan.
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<PAGE> 26
ARTICLE VI
FORM AND PAYMENT OF BENEFITS
1. DEFINITIONS
The following definitions shall be used solely for the purposes of this
Article:
(a) "Election Period" means the period which begins on the first day of the
Plan Year in which the Participant attains age 35 and ends on the date
of the Participant's death. If a Participant separates from service
prior to the first day of the Plan Year in which age 35 is attained,
with respect to benefits accrued prior to separation, the Election
Period shall begin on the date of separation.
(b) "Earliest Retirement Age" means the earliest Early Retirement Date on
which, under the Plan, a Participant who separates from service
(including death) could receive Retirement Benefits assuming, if
appropriate under the circumstances, he would have survived to such
date or, in the case of a Participant who separates from service
(including death) and who would not be eligible to receive Retirement
Benefits on an Early Retirement Date, his Normal Retirement Age.
(c) "Normal Form of Retirement Benefit" means the Life Annuity with 120
Monthly Payments Guaranteed form. This form of benefit shall provide
for the payment of Retirement Benefits to the Retired Participant
during his lifetime with the guarantee that no less than a total of 120
monthly Retirement Benefit payments will be made to the Retired
Participant and his named beneficiary.
If the Retired Participant dies prior to the receipt of the specified
number of monthly payments, the balance of the guaranteed number of
monthly payments will be paid to the Retired Participant's named
beneficiary until a total of the specified number of monthly payments
has been made to the Retired Participant and his named beneficiary. The
first such payment to the beneficiary shall be due and payable as of
the first day of the month following the Retired Participant's death.
In the event there is no named beneficiary living at the death of the
Retired Participant the balance of the specified number of guaranteed
monthly payments, which would otherwise have become payable to the
Retired Participant's beneficiary, shall be commuted to a single sum
and shall be paid to the executors or administrators of the Retired
Participant's estate.
If the beneficiary of a deceased Retired Participant should die prior
to receiving the balance of the specified number of guaranteed monthly
payments, the balance of the specified number of guaranteed monthly
payments, which would otherwise have become payable to the Retired
Participant's beneficiary, shall be commuted to a single
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<PAGE> 27
sum and shall be paid to the beneficiary's executors administrators of
the beneficiary's estate.
No monthly benefit will be payable under this form to a beneficiary if
the Participant dies before his actual retirement date except as
provided in Section 5 hereof. If a Participant, however, who has
elected this form should die after his actual retirement date and prior
to the commencement of monthly payments, his beneficiary shall become a
beneficiary annuitant and shall be entitled to benefits payable for the
specified number of months in an amount equal to the amount which would
have been payable to the Participant had the Participant retired on the
date of his death with this form effective.
(d) "Qualified Elections" means a waiver of a Joint and Survivor Annuity or
a Qualified Pre-Retirement Survivor Annuity. For this purpose, a Joint
and Survivor Annuity for a Participant who is not married means the
Normal Form of Retirement Benefit. The waiver must be in writing and
must be consented to by the Participant's Spouse. Further, such waiver
must designate a specific alternate beneficiary and, in the case of a
waiver of a Joint and Survivor Annuity, an optional form of benefit.
The Spouse's consent to a waiver must be witnessed by the Plan
Administrator or notary public, notwithstanding this consent
requirement, if the Participant establishes to the satisfaction of the
Plan Administrator that such written consent may not be obtained
because there is no Spouse or the Spouse cannot be located, such will
be deemed a Qualified Election. Any consent necessary under this
provision will be valid only with respect to the Spouse who signs the
consent, or in the event of a deemed Qualified Election, the designated
Spouse. Additionally, a revocation of a prior waiver may be made by a
Participant without the consent of the Spouse at any time before the
commencement of benefits. The number of revocations shall not be
limited.
(e) "Spouse" means the Spouse or surviving Spouse of the Participant,
provided that a former Spouse will be treated as the Spouse or
surviving Spouse to the extent provided under a qualified domestic
relations order as described in Section 414(p) of the Internal Revenue
Code. The Spouse, to be eligible, must be married to the Participant on
the earlier of the day on which the Participant dies or retires and
begins to receive Retirement Benefit payments. It shall be the
Participant's sole responsibility to keep the Administrator informed of
his marital status.
(f) "Annuity Starting Date" is the first day of the first period for which
an amount is paid as an annuity or any other form. For purposes of
determining a Participant's Annuity Starting Date, the payment of any
Disability Benefits pursuant to Article XV shall be disregarded. In the
case of an Annuity Starting Date that occurs on or after the
Participant's Normal Retirement Age, such date shall apply to any
additional benefit accruals after the Annuity Starting Date. In the
case of an Annuity Starting Date that occurs prior to the Participant's
Normal Retirement Age, such date shall not apply to any additional
benefit accruals after the Annuity Starting Date.
2. AUTOMATIC FORMS OF RETIREMENT BENEFIT
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<PAGE> 28
(a) Except as provided in Article XIII, Section 2, if a Participant has a
Spouse upon attainment of his Annuity Starting Date his vested Accrued
Benefit will be paid in the form of a Joint and Survivor Annuity unless
an Optional Annuity Form is selected, pursuant to a Qualified Election,
within the 90-day period ending on the Annuity Starting Date. The
selection of an Optional Annuity Form shall be valid only if the
Participant has previously received the information described in
Section 8(a) of this Article.
(b) Except as provided in Article XIII, Section 2, if a Participant has no
Spouse upon attainment of his Annuity Starting Date his vested Accrued
Benefit will be paid in the Normal Form of Retirement Benefit unless,
pursuant to a Qualified Election, an Optional Annuity Form is selected
within the 90-day period ending on the Annuity Starting Date. The
selection of an Optional Annuity Form shall be valid only if the
Participant has previously received the information described in
Section 8(a) of this Article.
3. JOINT AND SURVIVOR ANNUITY
The provisions of this Section 3 shall apply to any participant who is
credited with at least one Hour of Service with the Employer on or after
August 23, 1984, and such other Participants as provided in Section 10.
The Joint and Survivor Annuity shall provide for an annuity for the life of
a Participant with a survivor annuity for the life of such Participant's
Spouse which is not less than one-half, or greater than the amount of the
annuity payable during the joint lives of the Participant and such
Participant's Spouse. Unless the Participant specifies otherwise, the
survivor annuity payable to the Participant's Spouse will equal one-half
the amount of the annuity payable during the joint lives of the Participant
and such Participant's Spouse.
(a) The Joint and Survivor Annuity shall provide for the payment of
Retirement Benefits in an amount which shall be the Actuarial
Equivalent, as determined in Section 7 below, of the Accrued Benefit as
determined in Article V, Section 1. Retirement Benefits payable to the
Retired Participant shall commence on the first day of the month
coincident with or next following the date on which the Participant
actually retires.
(b) If the Spouse pre-deceases the Retired Participant, the Retirement
Benefit payments will continue to the Retired Participant in exactly
the same amount as determined in Subsection (a) above. Retirement
Benefit payments will cease, in this instance, upon the death of the
Retired Participant.
(c) No Retirement Benefits will be payable under this form to a Spouse if
the Participant dies before his Early Retirement Age. If, however,
benefits become payable under this Section upon the death of a
Participant, then the Spouse, if living, shall be entitled to
Retirement Benefits in an amount equal to the amount which would have
been payable
23
<PAGE> 29
to the Spouse had the Participant retired on the date of
his death with the Joint and Survivor Annuity operative. Such
Retirement Benefits shall be payable for the Spouse's further lifetime
and shall cease upon the Spouse's death.
(d) A Participant to whom this Section applies and who is eligible to
retire on an Early or Normal Retirement Date may make a Qualified
Election not to receive the Joint and Survivor Annuity. Such election
shall be made within the 90 day period ending on the Annuity Starting
Date. The selection of an Optional Annuity Form shall be valid only if
the Participant has previously received the information described in
Section 8(a) of this Article.
4. OPTIONAL ANNUITY FORMS
a. CONTINGENT ANNUITANT OPTION
(1) In lieu of the Automatic Forms of Retirement Benefit called for in
Section 2 above, a Participant may elect a Contingent Annuitant
Option which provides for an actuarially adjusted benefit payable
to the Retired Participant during his lifetime and for the
continuance of such Retirement Benefits in 50% of such amount to a
Contingent Annuitant, if living, after the Retired Participant's
death, with the further guarantee that at least 120 monthly
payments shall be made.
(2) The benefit payable under this option to the Contingent Annuitant
shall be limited so that the value of the annuity payable to the
Contingent Annuitant shall be less than fifty percent (50%) of the
value of the Retired Participant's total original benefit, both
calculated as of the Retired Participant's actual retirement date.
(3) The monthly payment to the Contingent Annuitant shall commence on
the first day of the month following the month in which the Retired
Participant dies, if the Contingent Annuitant is then living, and
shall continue monthly with the last payment due for the month in
which the Contingent Annuitant's death occurs; provided, however,
that if the Retired Participant shall have not received at least a
total of 120 monthly payments, the remainder of the 120 monthly
payments will be payable to the Contingent Annuitant in the same
amount previously paid to the Retired Participant. After a total of
120 monthly payments have been made, the amount of monthly benefit
payable to Contingent Annuitant shall be equal to 50% of the amount
previously paid.
(4) If both the Retired Participant and Contingent Annuitant should die
prior to receipt of 120 monthly payments, the balance of the
guaranteed number of monthly payments will be paid to the Retired
Participant's named Beneficiary until a total of the number of
specified monthly payments has been made to the Retired Participant
and his named Beneficiary. The first such payment to the
Beneficiary shall be due and payable as of the first day of the
month following the Retired Participant's death.
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<PAGE> 30
In the event there is no named Beneficiary living at the death of
the Retired Participant the balance of the specified number of
guaranteed monthly payments which would otherwise have become
payable to the Retired Participant's Beneficiary shall be commuted
to a single sum and shall be paid to the Retired Participant's
executors or administrators.
If the Beneficiary of a deceased Retired Participant should die
prior to receiving the balance of the specified number of
guaranteed monthly payments, the balance of the specified number of
guaranteed monthly payments which would otherwise have become
payable to the Retired Participant's Beneficiary shall be commuted
to a single sum and shall be paid to the Beneficiary's executors or
administrators.
(5) If a Contingent Annuitant dies before the Participant's Early or
Formal Retirement Age is attained, the Formal Form of Retirement
Benefit Payments will, if applicable, automatically become payable
as if a Contingent Annuitant Option had not been elected.
(6) If a Participant who has elected this option should die after his
actual retirement date and prior to the commencement of monthly
payments, the Contingent Annuitant, if living, shall become a
Survivor Annuitant and shall be entitled to benefits, payable for
such Survivor Annuitant's further lifetime, in a monthly amount
equal to the amount which would have been payable to the Contingent
Annuitant had the Participant retired on the date of his death with
the Contingent Annuitant Option operative.
b. LIFE ANNUITY WITH GUARANTEED NUMBER OF MONTHLY PAYMENTS
(1) In lieu of the Automatic Forms of Retirement Benefit called for in
Section 2 above, a Participant may elect a Life Annuity with a
specified number (60 or 180) of monthly payments guaranteed. This
form would provide for an actuarially adjusted Retirement Benefit
payable to the Retired Participant during his lifetime with the
guarantee that not less than a total of the specified number of
monthly Retirement Benefit payments will be made to the Retired
Participant and his named beneficiary.
(2) If this form is elected and the Retired Participant dies prior to
the receipt of the specified number of monthly payments, the
balance of the guaranteed number of monthly payments will be paid
to the Retired Participant's named beneficiary until the total of
the specified number of monthly payments has been made to the
Retired Participant and his named beneficiary. The first such
payment to the beneficiary shall be due and payable as of the first
day of the month following the Retired Participant's death.
25
<PAGE> 31
(3) In the event there is no named beneficiary living at the death of
the Retired Participant, the balance of the specified number of
guaranteed monthly payments, which would otherwise have become
payable to the Retired Participant Beneficiary shall be commuted to
a single sum and shall be paid to the executors or administrators
of the Retired Participant's estate.
(4) If the beneficiary of a deceased Retired Participant should die
prior to receiving the balance of the specified number of
guaranteed monthly payments, the balance of the specified number of
guaranteed monthly payments, which would otherwise have become
payable to the Retired Participant's beneficiary, shall be commuted
to a single sum and shall be paid to the beneficiary's executors or
administrators of the beneficiary's estate.
(5) No monthly benefit will be payable under this form to a beneficiary
if the Participant dies before his actual retirement date. If a
Participant, however, who has elected this form should die after
his actual retirement date and prior to the commencement of monthly
payments, his beneficiary shall become a beneficiary annuitant and
shall be entitled to benefits payable for the specified number of
months in an amount equal to the amount which would have been
payable to the Participant had the Participant retired on the date
of his death with this form effective.
c. LIFE ANNUITY
In lieu of the Automatic Forms of Retirement Benefit called for in
Section 2 above, a Participant may elect a Life Annuity form which
shall provide for the payment of an actuarially adjusted Retirement
Benefit to the Retired Participant during his, lifetime. If this form
is elected, Retirement Benefits shall commence on the first day of the
month coincident with or next following the date the Participant
actually retires and shall cease upon his death. No Retirement Benefit
will be payable under this form if the Participant dies before his
first Retirement Benefit becomes due.
d. CASH SETTLEMENT OPTION
In lieu of the Automatic Forms of Retirement Benefit called for in
Section 2 above, a Participant may elect a Cash Settlement Option which
provides for a single sum cash payment to the Participant in an amount
which is the actuarial equivalent of his Accrued Benefit determined as
of April 1, 1979. A Participant's Accrued Benefit earned after April 1,
1979 is not eligible for this option.
e. ELECTION OF OPTIONAL ANNUITY FORMS
(1) Any Optional Annuity Form may be elected by the Participant by
written notice to the Administrator at any time prior to his actual
retirement date. Such election must indicate that the Participant
has made a Qualified Election to revoke the
26
<PAGE> 32
Automatic Form of Retirement Benefit, as it pertains to him, and
that in its place has elected the Optional Annuity Form chosen
by him.
(2) Once an election of an Optional Annuity Form is made in accordance
with Subsection (1) above and accepted by the Administrator it may
be rescinded by the Participant. In no event shall the consent of
any person entitled to receive payments upon the death of the
Participant be required as a condition to the right of a
Participant to revoke or change any option previously elected.
5. QUALIFIED PRE-RETIREMENT SURVIVOR ANNUITY
The provisions of this Section 5, subject to the terms of Section 11 of
this Article, shall apply to any Participant who is credited with at least
one Hour of Service with the Employer on or after August 23, 1984, and such
other Participants as provided in Section 10.
(a) Except as provided in Article XIII, Section 2, if a vested Participant
who has not yet attained his Annuity Starting Date, dies after his
Earliest Retirement Age, the Participant's Spouse (if any) will receive
the same Retirement Benefit that would be payable if the Participant
had retired with an immediate Joint and Survivor Annuity on the day
before the Participant's date of death unless an election not to be
covered by the Qualified Pre-Retirement Survivor Annuity is made within
the Election Period pursuant to a Qualified Election. Such election may
be made only with respect to the Qualified Pre-Retirement Survivor
Annuity coverage for the period beginning after the Participant's
Earliest Retirement Age. Retirement Benefits payable under this
subparagraph (a) will be reduced by a Monthly Percentage Reduction
Factor (as determined below) to reflect the period during which the
Qualified Pre-Retirement Survivor Annuity coverage was in effect
beginning on the Participant's Earliest Retirement Age and ending OR
the Participant's date of death or, if earlier, his Normal Retirement
Age. In no event, however, shall such adjustment be made for any period
prior to the date the notice of the right to waive the Qualified
Pre-Retirement Survivor Annuity is provided to the Participant pursuant
to Section 8(b) of this Article. The preceding sentence does not apply
to any adjustments prior to the first Plan Year beginning after
December 31, 1988.
Age Range in which Monthly Percentage Reduction
Earliest Retirement Age Factor applicable during
is attained such Age Range
55-59 .03
60 or over .05
The Monthly Percentage Reduction Factor applicable to a Participant
upon his attainment of any age subsequent to his Earliest Retirement
Age shall be the Monthly Percentage Reduction Factor in effect for the
Age Range containing the attained age.
27
<PAGE> 33
(b) Except as provided in Article XIII, Section 2, if a vested Participant
who has not yet attained his Annuity Starting Date, dies on or before
his Earliest Retirement Age, the Participant's Spouse (if any) will
receive the same Retirement Benefit that would be payable if the
Participant had:
(i) separated from service at the earlier of the actual time of
separation or the date of death,
(ii) survived to the Earliest Retirement Age,
(iii)retired with an immediate Joint and Survivor Annuity at the
Earliest Retirement Age, and
(c) In the case of a vested Participant who dies on or after his Normal
Retirement Age but prior to his Annuity Starting Date, such
Participant's Spouse will begin to receive benefit payments on the
first day of the month coincident with or next following the date of
the Participant's death unless the Spouse elects in writing, to
commence payments on a later date (but not later than the date the
Participant would have attained age 70 1/2). In the case of a vested
Participant who dies before his Normal Retirement Age but prior to his
Annuity Starting Date, such Participant's Spouse will begin to receive
benefit payments on the first day of the month coincident with or next
following the date that would have been the Participant's Normal
Retirement Age unless the Spouse elects, in writing, to commence
payments on an earlier date (but not earlier than the later of the
Participant's date of death or the date the Participant would have
attained his Earliest Retirement Age) or a later date (but not later
than the date the Participant would have attained age 70 1/2). Such
benefit payments shall be the Actuarial Equivalent of the applicable
benefit described in subparagraphs (a) or (b) of this Section 5.
(d) If a vested Participant is covered by the Qualified Pre-Retirement
Survivor Annuity and later attains his Annuity Starting Date, then
Retirement Benefits shall be payable in accordance with the form of
annuity in Sections 2, 3 or 4, whichever is applicable. Retirement
Benefits payable hereunder will be reduced by a Monthly Percentage
Reduction Factor (as indicated in subparagraph (a) above) to reflect
the period during which the Qualified Pre-Retirement Survivor Annuity
coverage was in effect beginning on the Participant's Earliest
Retirement Age and ending on the Participant's Annuity Starting Date
or, if earlier, his Normal Retirement Age. In no event, however, shall
such adjustment be made for any period prior to the date the notice of
the right to waive the Qualified Pre-Retirement Survivor Annuity is
provided to the Participant pursuant to Section 8(b) of this Article.
The preceding sentence does not apply to any adjustments prior to the
first Plan Year beginning after December 31, 1988.
6. PAYMENT OF BENEFITS
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<PAGE> 34
Unless a Participant elects otherwise, in writing, distribution of his
Retirement Benefits will begin no later than the 60th day after the latest
of the close of the Plan Year in which:
(1) the Participant attains age 65 (or Normal Retirement Age, if earlier);
(2) occurs the 10th anniversary of the year in which the Participant
commenced participation in the Plan, or
(3) the Participant terminates service with the Employer.
However, this election may not be made if the exercise of such Section will
cause Retirement Benefits payable under the Plan with respect to the
Participant:
(1) to begin later than the required beginning date under subparagraph
(a)(1) below (except as provided under subparagraph (d) of this Section
6), or
(2) in the event of the Participant's death, to be more than "incidental"
within the meaning of paragraph (b)(1)(i) of Internal Revenue Service
Regulation 1.401-1.
(a) REQUIRED BENEFIT DISTRIBUTIONS
(1) A distribution of the Participant's Retirement Benefits must be
made or commence to be made not later than April 1 of the calendar
year following the calendar year in which the Participant attains
age 70 1/2. For purposes of the preceding sentence, a Participant
who has attained age 70 1/2 in the 1988 calendar year, who is not a
5 percent owner (as defined in Internal Revenue Code Section
416(i)), and who has not retired by January 1, 1989 shall be deemed
to have attained age 70 1/2 in the 1989 calendar year. Furthermore,
Participants who have attained age 70 1/2 before January 1, 1988
and who are not 5 percent owners (as defined in Internal Revenue
Code Section 416 (i) (1) (B)) in the Plan Year ending with or
within the calendar year in which the individual attains age 66 1/2
or in any succeeding Plan Year, may defer the distribution of
Retirement Benefits until April 1 of the calendar year following
the calendar year in which the Participant attains age 70 1/2 or
terminates employment with the Employer, whichever is later.
(2) The distribution of the Participant's Retirement Benefits, shall be
made over one of the following periods:
(i) the life of the Participant,
(ii) the life of the Participant and a designated beneficiary,
(iii) a period not extending beyond the life expectancy of the
Participant, or
29
<PAGE> 35
(iv) a period not extending beyond the life expectancy of the
Participant and a designated beneficiary.
(b) REQUIRED DISTRIBUTIONS UPON DEATH
(1) If the Participant dies after the distribution of Retirement
Benefits commence, the distribution of such Retirement Benefits
will be continued in accordance with the form of Retirement Benefit
in effect prior to the Participant's death.
(2) If the Participant dies before Retirement Benefits commence, the
entire death benefit, if any, due as a result of the Participant's
death, will be distributed no later than 5 years after the
Participant's death except to the extent that a written election is
made to receive distributions in accordance with (i) or (ii) below:
(i) If any portion of the Participant's benefit is payable to a
designated beneficiary, distributions may be made in
substantially equal installments over the life or life
expectancy of the designated beneficiary commencing no later
than one year after the Participant's death;
(ii) If the designated beneficiary is the Participant's surviving
Spouse, the date distributions are required to begin in
accordance with (i) above shall not be earlier than the date
on which the Participant would have attained age 70 l/2, and,
if the Spouse dies before payments begin, subsequent
distributions shall be made as if the Spouse had been the
Participant.
(c) For purposes of subparagraphs (a)(3) and (b)(2) above, payments will be
determined in accordance with the Actuarial Equivalent Section of this
Article.
(d) TRANSITIONAL RULES
If the Participant elected a method of distribution under a written
designation which was made before January 1, 1984, and such method of
distribution meets the requirements of Internal Revenue Code Section
401(a)(9) as in effect prior to January 1, 1984, then any distributions
can be made without regard to this Section 6. If this designation is
revoked, any subsequent distribution must satisfy the requirements of
this Section 6(a) and (b).
If a designation is revoked, any subsequent distribution must satisfy
the requirements of Section 401(a)(9) as amended. Any charges in the
designation will be considered to be a revocation of the designation.
However, the mere substitution or addition of another beneficiary (one
not named in the designation) under the designation will not be
considered to be a revocation of the designation, so long as such
substitution or addition does not alter the period over which
distributions are to be made under the designation, directly or
indirectly (for example, by altering the relevant measuring life).
30
<PAGE> 36
(e) Any distribution required under the incidental death benefit
requirements of Section 401(a) of the Internal Revenue Code shall be
treated as a distribution required under Section 401(a)(9) of such
Code.
(f) Notwithstanding any provision of this Plan to the contrary, payment of
benefits will be made in accordance with Internal Revenue Code Section
401(a)(9) and the regulations thereunder (including Section
1.401(a)(9)-2 of such regulations).
7. ACTUARIAL EQUIVALENT
The amount of benefit payable in any form of benefit other than the Life
Annuity with 120 Monthly Payments Guaranteed form, shall be the Actuarial
Equivalent of the amount payable in the Life Annuity with 120 Monthly
Payments Guaranteed form. Actuarial Equivalent shall be the adjusted
benefit payable hereunder as of any Participant's Retirement Date which
would provide for equality in value of the aggregate amount expected to be
received under the Life Annuity with 120 Monthly Payments Guaranteed form
as compared to the value of the aggregate amount expected to be received
under another form of benefit. The Actuarial Equivalent shall be determined
without regard to the Participant's sex and based upon the interest and
mortality assumptions which are consistent with those used in determining
the annuity purchase rates used in conjunction with the Group Annuity
Contract under which the Plan is being funded as of the point in time that
such benefit is being determined. In no case shall the Actuarial Equivalent
benefit so determined be less than the Actuarial Equivalent benefit
determined on July 31, 1983 using Plan language in effect on that date.
Furthermore, in no event shall an amendment to the Actuarial Equivalent
benefit provisions deprive a Participant of his Actuarial Equivalent
benefit so determined to the later of the effective date or adoption date
of any such amendment. Should an amendment be adopted which directly or
indirectly affects the computation of a Participant's Actuarial Equivalent
benefit, such Participant's Actuarial Equivalent benefit so determined
shall be equal to or greater than the Actuarial Equivalent benefit
determined (without regard to such amendment) as of the later of the
effective date or adoption date of the amendment.
The amount payable as a lump sum settlement of a Participant's Retirement
Benefit shall be an Actuarial Equivalent determined without regard to the
Participant's sex based upon the interest and mortality assumptions which
are consistent with the non-participating annuity purchase rates from the
Insurance Company for the purchase of such annuities and currently In
effect at the time of the lump sum settlement provided, however, that such
lump sum settlement shall not be less than that computed by using the
interest rate and mortality assumptions, determined as of the first day of
the Plan Year that contains the Annuity Starting Date, used by the Pension
Benefit Guaranty Corporation for plan terminations.
For purposes of the Lump Sum death benefit under Section 1la(2) of this
Article, actuarial equivalence is based upon the ten year certain and life
deferred single premium rate using a 5.5% interest rate and 1974 GAM(o)
Projection D mortality. A 6-year setback is used for females. In no case
shall the lump sum settlement so determined be less than the lump sum
settlement so determined on 3-31-85 using the plan language in effect on
that date.
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<PAGE> 37
If the Plan is amended to change the time for determining the Pension
Benefit Guaranty Corporation interest rate and mortality assumptions then
any lump sum settlement in the one year period commencing at the time such
amendment is effective (if the amendment is effective on or after the
adoption date) shall be based on the interest rate and mortality
assumptions determined under the Plan, either before or after the
amendment, which will result in the larger benefit. If such amendment is
adopted retroactively (i.e. the amendment is effective prior to the
adoption date) then the interest rate and morality assumptions which will
result in the larger benefit shall be used for any lump sum settlement made
in the period beginning with the effective date of the amendment and ending
one year after the amendment's adoption date.
In addition, in no event shall an amendment to the lump settlement
provisions deprive a Participant of his lump sum benefit so determined to
the later of the effective date or adoption date of any such amendment.
Should an amendment be adopted which directly or indirectly affects the
computation of a Participant's lump sum settlement, such Participant's lump
sum settlement so determined shall be equal to or greater than the lump sum
settlement determined (without regard to such amendment) as of the later of
the effective date or adoption date of the amendment.
8. INFORMATION TO BE PROVIDED BY ADMINISTRATOR
(a) The Administrator shall provide each Participant (excluding nonvested
Participants who are no longer employed by the Employer) or, if
applicable, such Participant's Spouse or beneficiary with a written
non-technical explanation of the forms of annuity available under this
Plan, including the Joint and Survivor Annuity; the terms and
conditions of a Joint and Survivor Annuity; the Participant's right to
make and the effect of an election to waive the Joint and Survivor
Annuity form of benefit; the rights of a Participant's Spouse; the
right to make, and the effect of a revocation of a previous election to
waive the Joint and Survivor Annuity; and the relative financial effect
on the Participant's annuity of such election. For purposes of the
preceding sentence, a Joint and Survivor Annuity for a Participant who
is not married means the Normal Form of Retirement Benefit. Said
explanation shall also include a general description of the eligibility
conditions and other material features of the optional forms of benefit
available under this Plan (including sufficient additional information
to explain the relative values of the optional forms of benefit). The
information described above shall be provided no less than 30 days and
no more than 90 days before the Annuity Starting Date.
(b) The Administrator shall provide each Participant (excluding nonvested
Participants who are no longer employed by the Employer), within
whichever of the following applicable periods ends last, with a written
explanation of the Qualified Pre-Retirement Survivor Annuity in such
terms and in such manner as would be comparable to the explanation
provided for meeting the requirements of subparagraph (a) above
applicable to a Joint and Survivor Annuity:
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<PAGE> 38
(i) the period beginning on the first day of the Plan Year in which
the Participant attains age 32 and ending with the close of the
Plan Year preceding the Plan Year in which the Participant
attains age 35;
(ii) a reasonable period ending after the individual becomes a
Participant;
(iii) a reasonable period ending after the Qualified Pre-Retirement
Survivor Annuity ceases to be a fully subsidized benefit (where
applicable);
(iv) a reasonable period ending after Section 401(a)(11) of the
Internal Revenue Code applies to the Participant;
(v) a reasonable period ending after the Participant separates from
service before attaining age
For purposes of applying this subparagraph (b), a reasonable period
ending after the events described in (b)(ii) through (v) means the end
of the one year period beginning with the date the applicable event
occurs. The applicable period for such events begins one year prior to
the occurrence of the enumerated events. In addition, if a Participant
described in (b)(v) returns to service with the Employer, the
Administrator shall also comply with the provisions of (b)(i), (ii),
(iii), and (iv), as applicable.
(c) The information described in subparagraphs (a) and (b) above shall
include a statement informing each Participant of the availability of
additional information and how such information may be obtained.
(d) A Participant may request the information described in subparagraph (c)
above at any time prior to the Participant's actual retirement date.
The Administrator shall be required to provide such information within
30 days of receipt of the Participant's written request and such
information shall be in the form of a written explanation in
non-technical language. The Administrator shall not be required to
comply with any more than one request from any Participant.
9. Anything in this Plan to the contrary notwithstanding, the Participant
shall not have the right prior to his retirement irrevocably to elect to
have all or part of his interest in this Plan, which would otherwise become
available to him during his Lifetime, paid only to his beneficiary after
his death.
10. TRANSITIONAL RULES
(a) Any living Participant not receiving benefits on August 23, 1984, who
would otherwise not receive the benefits prescribed under Sections 2
and 5 of this Article must be given the opportunity to elect to have
such Sections apply if such Participant is credited with at least one
Hour of Service under this Plan or a predecessor plan in a Plan Year
33
<PAGE> 39
beginning on or after January 1, 1976, and such Participant had at
least 10 years of Vesting Service when he separated from service.
(b) Any living Participant not receiving benefits on August 23, 1984, who
was credited with at least one Hour of Service under this Plan or a
predecessor plan on or after September 2, 1974, and who is not
otherwise credited with any service in a Plan Year beginning on or
after January 1, 1976, must be given the opportunity to have his
benefits paid in accordance with subparagraph (d) of this Section.
(c) The respective opportunities to elect (as described in subparagraphs
(a) and (b) above) must be afforded to the appropriate Participants
during the period commencing on August 23, 1984, and ending on the date
benefits would otherwise commence to such Participants.
(d) Any Participant who has elected pursuant to subparagraph (b) of this,
Section, and any Participant who does not elect under subparagraph (a)
or who meets the requirements of subparagraph (a) except that such
Participant does not have at least 10 years of Vesting Service when he
separates from service, shall have his benefits distributed in
accordance with all of the following requirements if benefits would
have been payable in the form of a Life Annuity:
(i) Automatic Joint and Survivor Annuity. If benefits in the form of a
Life Annuity become payable to a married Participant who:
(1) begins to receive payments under the Plan on or after Normal
Retirement Age; or
(2) dies on or after Normal Retirement Age while still working for
the Employer; or
(3) begins to receive payments on or after the Qualified Early
Retirement Age; or
(4) separates from service on or after attaining Normal Retirement
Age (or the Qualified Early Retirement Age) and after
satisfying the eligibility requirements for the payment of
benefits under the Plan and thereafter dies before beginning
to receive such benefits;
then such benefits will be received under this Plan in the form of
a Joint and Survivor Annuity, unless the Participant has elected
otherwise during the election period. The election period must
begin at least 6 months before the Participant attains Qualified
Early Retirement Age and end not more than 90 days before the
commencement of benefits. Any election hereunder will be in writing
and may be changed by the Participant at any time.
34
<PAGE> 40
(ii)Election of early survivor annuity. A Participant who is employed
after attaining the Qualified Early Retirement Age will be given
the opportunity to elect, during the election period, to have a
survivor annuity payable on death. If the Participant elects the
survivor annuity, payments under such annuity must not be less than
the payments which would have been made to the Spouse under the
Joint and Survivor Annuity if the Participant had retired on the
day before his death. Any election under this provision will be in
writing and may be changed by the Participant at any time. The
election period begins on the later of (1) the 90th day before the
Participant attains the Qualified Early Retirement Age, or (2) the
date on which participation begins, and ends on the date the
Participant terminates employment.
11. SPECIAL DEATH BENEFIT
If a Participant elects to retire on his Deferred Retirement Date and makes
such an election in accordance with Article IV, Section 3 hereof and dies
subsequent to his Normal Retirement Date but prior to his Deferred
Retirement Date, there shall be payable a Special Death Benefit in
accordance with the following:
a. If a Participant is not married at the date of his death, does not have
a qualified spouse living at the date of his death or has elected prior
to the date of his death to receive his Retirement Benefit in a form
other than the Joint and Survivor Annuity Form, then
(1) there shall be a lump sum death benefit payable to the
Participant's named Beneficiary or if there be no named Beneficiary
to the Participant's estate.
(2) the amount of such lump sum death benefit shall be the actuarial
equivalent of that portion of the Participant's Accrued Benefit
determined as of the date of his death.
b. If a Participant is married, has a qualified spouse as determined in
Article VI or whose benefit would have been payable in the Joint and
Survivor Annuity Form had he retired on the date of his death, then
(1) there shall be payable to such qualified spouse a monthly life
annuity,
(2) the payment of such monthly life annuity shall commence on the
first day of the month following the death of the Participant and
shall cease upon the qualified spouse's death,
(3) the amount of such monthly life annuity shall be equal to the
amount of a monthly life annuity which can be purchased by 105% of
the lump sum death benefit as computed in a(2) above and based upon
the following table:
35
<PAGE> 41
<TABLE>
<CAPTION>
Amount of Monthly Life Annuity
Spouse's Age Purchased by each $1,000 of Lump Sum
Nearest Birthday Death Benefit Applied-First Payment at
at Date of Death Date of Purchase
Male Female
---- ------
<S> <C> <C>
65 $8.12 $6.89
66 8.38 7.06
67 8.65 7.25
68 8.95 7.44
69 9.26 7.65
70 9.59 7.88
</TABLE>
In no event will the death benefit determined in accordance with this
Section 11 be less than the Qualified Pre-Retirement Survivor Annuity
described in Article VI Section 5.
36
<PAGE> 42
ARTICLE VII
TERMINATION OF EMPLOYMENT
1. A Participant shall be fully vested in his Monthly Accrued Benefit upon
attaining his Normal Retirement Age as set forth in Article IV and, upon
termination of employment thereafter, he shall be entitled to receive his
Monthly Accrued Benefit determined as of the date of his termination of
employment.
2. A. For employees of W.W. Clyde & Co., and Geneva Rock Products, Inc., the
following applies:
A Participant who terminates his employment prior to the termination of
this Plan with less than 5 years of Vesting Service With the Employer
shall forfeit all rights to benefits under this Plan. A Participant who
has completed 5 years or more of Vesting Service and who terminates his
employment with the Employer prior to his Normal Retirement Age shall
retain a nonforfeitable right to his Monthly Accrued Benefit determined
as of his date of termination of employment. Except as provided in
Article XIII, Section 2, the Participant's nonforfeitable Monthly
Accrued Benefit shall be payable on either the first day of the month
coincident with or next following the Participant's Normal Retirement
Age in a form as determined in accordance with Article VI or his Early
Retirement Date in an amount as determined in accordance with Article
V, Section 3, and in a form as determined in accordance with Article
VI.
B. For employees of Beehive Insurance Agency, Inc., the following applies:
A Participant who terminates his employment prior to the termination of
this Plan with less than 2 years of Vesting Service with the Employer
shall forfeit all rights to benefits under this Plan. A Participant who
has at least 2 years of Vesting Service and who terminates his
employment with the Employer prior to his Normal Retirement Age, shall
retain a nonforfeitable right to a percentage of his Monthly Accrued
Benefit determined as of his date of termination of employment. Such
percentage shall be determined in accordance with the Vesting Schedule
below based on the years of Vesting Service completed by the
Participant at his date of termination of employment. Except as
provided in Article XIII, Section 2, the Participant's nonforfeitable
Monthly Accrued Benefit shall be payable on either the first day of the
month coincident with or next following the Participant's Normal
Retirement Age in a form as determined in accordance with Article VI
or, his Early Retirement Date in an amount as determined in accordance
with Article V, Section 3 in a form as determined in accordance with
Article VI.
37
<PAGE> 43
<TABLE>
<CAPTION>
VESTING SCHEDULE
Years of Vesting Vesting
Service Percentage
------- ----------
<S> <C>
0-1 0
2 20
3 40
4 60
5 80
6 100
</TABLE>
3. Should a Participant's termination of employment with the Employer be
caused by the Participant's death or should the Participant die subsequent
to his date of termination and prior to his Early Retirement Date or Normal
Retirement Age he shall not, in the absence of any contrary provision of
Article VI, retain any nonforfeitable rights hereunder.
4. Any provision of this Article to the contrary notwithstanding, if an
initial formal determination shall be made that this Plan does not qualify
under the terms of Section 401 of the Internal Revenue Code no Participant
shall retain a nonforfeitable right to his Accrued Benefit.
5. Subject to the provisions of Article XIII, Section 2, if a Participant
meets the years of Vesting Service requirement as set forth in Article
IV, Section 2(a) at the date of his termination of employment and
further provided that such Participant subsequently enters the period as
specified in Article IV, Section 2(b), said Participant may elect, in
lieu of a benefit payable on the first day of the month coincident with
or next following his Normal Retirement Age, to receive a benefit
payable on an Early Retirement Date. Such Early Retirement Benefit will
be payable in accordance with Article V, Section 3 and will be payable
in a form as determined in accordance with Article VI.
6. No amendment to the vesting provisions shall deprive a Participant of his
nonforfeitable right accrued (without regard to such amendment) as of the
later of the adoption date or effective date of the amendment.
In the event an amendment is adopted which directly or indirectly affects
the computation of a Participant's nonforfeitable percentage, each
Participant with at least 3 years of Vesting Service with the Employer may
elect to have his nonforfeitable percentage computed under the Plan without
regard to such amendment.
Such election may be made in writing to the Plan Administrator any time
after the adoption of any such amendment, provided, however, that the
election period shall end no earlier than the latest of 60 days following
the date the amendment is adopted, effective or the date the Participant is
given written notification of the amendment by the Employer or Plan
Administrator.
38
<PAGE> 44
7. A Participant who terminates employment and retains nonforfeitable right to
a Retirement Benefit hereunder shall have the amount of nonforfeitable
benefit determined in accordance with the provisions of the Plan in effect
as of the date of such Participant's termination of employment.
39
<PAGE> 45
ARTICLE VIII
FUNDING
1. The Employer shall adopt a funding policy for this Plan which is consistent
with the requirements of the Internal Revenue Code.
2. For the purpose of carrying out any such funding policy, the Employer may
enter into and make periodic payments under a group annuity contract. Any
amounts so paid may, at the direction of the Employer be held in an equity
account maintained in conjunction therewith. The Employer expressly
reserves the right to change funding agencies or vehicles at any time at
its own election and without the consent of any person or organization.
3. No part of the funds held under this Plan shall be used for or diverted to
purposes other than for the exclusive benefit of Participants, their
spouses, or their beneficiaries covered under this Plan prior to the
satisfaction of all liabilities hereunder with respect to them, provided
that any funds under this Plan may be used to pay reasonable Plan
administration expenses.
Any provisions of this Plan to the contrary notwithstanding, Employer
contributions under this Plan are expressly conditioned upon the initial
qualification of the Plan under Section 401 of the Internal Revenue Code
and upon the deductibility of such contributions under Section 404 of such
Code. Upon the Employer's written request, a contribution which was made by
a mistake of fact, or conditioned upon the initial qualification of the
Plan, or upon the deductibility of the contribution shall be returned to
the Employer within one year after the mistaken payment of such
contribution, denial of the initial qualification, or the disallowance of
the deduction (to the extent disallowed), whichever is applicable. Earnings
attributable to a contribution which occurred due to a mistake of fact or
conditioned upon deductibility may not be returned to the Employer and
losses attributable thereto shall reduce the amount to be so returned. The
return of a contribution to the Employer conditioned upon initial
qualification of the Plan shall apply only if the application for the
determination is made by the time prescribed by law, for filing the
Employer's tax return for the taxable year in which the Plan was adopted,
or such later date as the Secretary of the Treasury may prescribe.
4. No person shall have any interest in or right to any of the funds
contributed to or held under this Plan except as expressly provided in this
Plan and the group annuity contract and then only to the extent that such
funds have been contributed by the Employer.
5. The Employer shall pay any and all other costs required for the operation
of this Plan.
40
<PAGE> 46
ARTICLE IX
ADMINISTRATION
1. This Plan shall be administered by the Employer in accordance with this
Plan and the group annuity contract and for purposes of such Plan
administration, the Employer is hereby deemed to be Plan Administrator and
Named Fiduciary.
2. The Administrator shall determine the benefits payable under this Plan,
shall administer the Plan in accordance with the terms of the Plan,
shall have the power to determine all questions arising in connection
with the administration, interpretation, and application of the terms of
this Plan (subject to the provision that such power shall be
consistently applied in a nondiscriminatory manner among all
Participants), and may require Participants to apply in writing to the
Administrator for benefits hereunder and to furnish satisfactory
evidence of their date of birth and marital status and such other
information as may from time to time be deemed necessary.
3. If a Participant's application for Retirement Benefits has been rejected by
the Administrator, then the Administrator shall notify the Participant of
such rejection in writing setting forth the specific reasons for such
rejection. Such written explanation shall be written in a manner calculated
to be understood by the Participant.
4. The Administrator shall also afford to any Participant whose claim for
Retirement Benefits has been rejected a reasonable opportunity for a full
and fair review of the rejection decision.
41
<PAGE> 47
ARTICLE X
DISCONTINUANCE OF EMPLOYER CONTRIBUTIONS
-PLAN AMENDMENTS AND MERGERS
1. The Employer intends to continue its sponsorship of this Plan and payment
of contributions to this Plan indefinitely; but continuance of such
sponsorship and such contributions is not assumed as a contractual
obligation, or other obligation, of the Employer and the right is reserved
by the Employer to cease its sponsorship of this Plan or to reduce,
suspend, or discontinue its contributions hereunder at any time. In the
event of a suspension of contributions which ripens into a discontinuance,
such discontinuance shall be retroactive to the date the last suspension of
contributions commenced.
2. The Employer shall have the right to amend this Plan at any time and to any
extent that it may deem advisable. No such amendment, however, shall:
(a) vest in the Employer any interest in or control over the funds
accumulated in accordance with this Plan or the Retirement Benefits
provided hereunder, or,
(b) deprive any Participant who has retired under this Plan, prior to the
date of amendment, of any Retirement Benefit under this Plan or change
the provisions thereof, provided, however, that any change or
modification for the purpose of conforming this Plan to the
requirements of the Internal Revenue Code of the United States or of
any other pertinent provisions of Federal or State Law, or of any
regulation or ruling of any duly constituted authority in connection
therewith, may be made effective at any time with retroactive effect,
or
(c) be adopted which results in significant underfunding of the Plan
unless, prior to the effective date of such amendment, the Employer
provides security to the Plan. The determination of significant
underfunding and security shall be made in compliance with Section
401(a)(29) of the Internal Revenue Code, or
(d) be effective to the extent that any change contained therein (including
a change in the actuarial basis for determining optional or early
retirement benefits) has the effect of decreasing a Participant's
Accrued Benefit determined (without regard to such amendment) as of the
later of the adoption date or effective date of the amendment.
Notwithstanding the preceding sentence, a Participant's Accrued Benefit
may be reduced to the extent permitted under Internal Revenue Code
Section 412(c)(8) or under regulations promulgated by the Secretary of
the Treasury. For purposes of this subparagraph (d), an amendment which
has the effect of eliminating or reducing an early retirement benefit,
a retirement-type subsidy, or an optional form of benefit, with respect
to benefits accrued before the later of the amendment's effective date
or adoption date shall be treated as impermissible reducing a
Participant's Accrued Benefit. In the case of a retirement-type
subsidy, the preceding sentence shall apply only with respect
42
<PAGE> 48
to a Participant who satisfies (either before or after the amendment)
the pre-amendment conditions for the subsidy.
3. This Plan may not be merged or consolidated with any other plan, nor may
any assets or liabilities of this Plan be transferred to any other plan on
or after September 2, 1974 unless each Participant in this Plan would (if
such other plan then terminated) receive a benefit immediately after such
merger, consolidation or transfer which is equal to or greater than the
benefit he would have been entitled to receive immediately before such
merger, consolidation or transfer (if this Plan had then terminated).
43
<PAGE> 49
ARTICLE XI
PLAN TERMINATION PROCEDURES
1. The terms termination, partial termination and date thereof, as used in
this Plan, shall have the same meaning imparted under the Internal Revenue
Code and any further regulatory changes thereto. If the termination or
partial termination of this Plan occurs, the procedures as may be required
in accordance with the Employee Retirement Income Security Act (ERISA)
Title IV, the Single-Employer Pension Plan Amendments Act of 1986 (SEPPA),
the Pension Protection Act of 1987, and/or any other pertinent laws or
regulations, shall be carried out with respect to those Participants
affected by such termination or partial termination.
2. If the termination or partial termination of this Plan occurs, the benefit
payments otherwise payable under this Plan may be subject to suspension
until such time as the proper authority under the Employee Retirement
Income Security Act of 1974 approves the distribution of Plan assets.
3. If the termination or partial termination of this Plan occurs, the
provisions of Article XII hereof, if not previously carried out, shall then
be carried out.
4. If the termination or partial termination of this Plan occurs, all benefits
then in pay status with respect to Retired Participants, their spouses, or
beneficiaries under this Plan may be subject to reduction. Further, with
respect to benefits under this Plan which commenced within the three year
period ending on the date of termination or partial termination of this
Plan, such previously paid benefits may be subject to recovery from the
Retired Participant for the benefit of this Plan, to the extent that such
previously paid benefit amounts exceed limitations applicable thereto.
5. If the termination or partial termination of this Plan occurs, the assets
of this Plan available to provide benefits shall be allocated among those
Participants, spouses and beneficiaries affected by such termination or
partial termination in accordance with procedures set forth under the
applicable regulations.
6. If the Secretary of the Treasury determines that the allocation made
pursuant to this Article (without regard to this Section) results in
discrimination prohibited by Section 401(a)(4) of the Internal Revenue Code
of 1986 then, if required to prevent the disqualification of this Plan
under Section 401(a) or 403(a) of such Code, the assets allocated under
this Article shall be reallocated to the extent necessary to avoid such
discrimination.
7. The allocation procedures described in this Article may be carried out by
means of the annuities purchased under the group annuity contract prior to
the date of termination or partial termination of this Plan as well as by
means of further purchases of annuities under the group annuity contract
after such date.
44
<PAGE> 50
8. Any assets of this Plan which remain after provision has been made to
satisfy all liabilities of this Plan shall, unless in contravention of any
provision of law, be deemed to have become available as a result of
actuarial error and shall be distributed to the Employer in cash.
45
<PAGE> 51
ARTICLE XII
RESTRICTED BENEFITS TO CERTAIN PARTICIPANTS
1. With a view to preventing any discrimination in favor of highly compensated
Participants as required by Section 1.401-4(c) of the Federal Tax
Regulations and notwithstanding any other provisions in this Plan to the
contrary, the allocation of annual contributions to such Participants will
be subject to the following:
(a) During the first ten years after the Effective Date or if later the
period from the Effective Date to the date on which the full current
costs of the Plan are first met, the benefits payable to the
twenty-five most highly compensated Participants of the Employer will
be subject to certain restrictions as set forth in (b) below. In
determining the twenty-five most highly compensated Participants, all
Employees as of the Effective Date whether or not actually eligible to
participate as of such Effective Date shall be considered. Any
Employee, however, whose annual Retirement Benefit will not exceed
$1,500 will be excluded from such consideration.
(b) Subject to the condition as set forth in (a) above the benefits payable
to any highly compensated Participant shall be restricted and the
restricted portion shall be equal to the excess of (1) over (2) as set
forth below:
(1) the benefit payable to such Participant determined in accordance
with Article V of this Plan, over,
(2) a benefit which has a value no greater than the largest of:
a. $20,000 of Employer Contributions, or
b. The amount computed by multiplying 20% of the annual
compensation of such Participant as defined in Section
1.401-4(c) of the Federal Tax Regulations not in excess of
$50,000 by the lesser of the number of years the Plan has been
in effect computed from the Effective Date or the number of
years the full current costs have been met computed from the
Effective Date, or
c. With respect to a Participant who is a substantial owner (as
defined in Section 4022(b)(5) of the Employee Retirement
Income Security Act of 1974 (ERISA)) an amount equal to the
present value of the benefit guaranteed for such Participant
under Section 4022 of ERISA, or if the Plan has not
terminated, the present value of the benefit that would be
guaranteed if the Plan terminated on the date the benefit
commences determined in accordance with regulations issued by
the Pension Benefit Guaranty Corporation (PBGC).
46
<PAGE> 52
d. With respect to a Participant who is not a substantial owner
(as defined in Section 4022(b)(5) of ERISA) an amount equal to
the present value of the maximum benefit described in Section
4022(b)(3)(b) of ERISA (determined on the date the Plan
terminates or on the date benefits commenced, whichever is
earlier and determined in accordance with regulations issued
by the PBGC) without regard to any other limitations of
Section 4022 of ERISA.
2. While this Plan is in full effect and its full current costs are being met,
any Participant described in Section l(a) above may receive his full
benefits as set forth in Article V subject to no restriction as provided
for in Section 1(b).
3. If this Plan is terminated within the ten year period subsequent to the
Effective Date or if the full current costs attributable to such period are
not being met, no Participant described in Section 1(a) above shall receive
any benefits subject to the restrictions as provided for in Section 1(b).
4. Any funds not allocated to a Participant described in Section 1 above as a
result of this provision shall be used to increase the amounts of the
Retirement Benefits of all other surviving Participants under this Plan.
Such funds shall be allocated to each Participant based on the proportion
of each Participant's Retirement Benefits to the extent they are unfunded
to the total of all Retirement Benefits due hereunder to the extent they
are unfunded.
5. If this Plan is, at any time, amended to substantially increase the
benefits payable hereunder, the provisions of this Article shall be
applicable to such additional benefits and the allocation of such
additional annual contributions to highly compensated Participants will be
subject to the following:
(a) During the first ten years after the effective date of an applicable
amendment or after the period from the effective date of the amendment
to the date on which the full current costs of the Plan are first met,
the benefits payable to the twenty-five most highly compensated
Participants of the Employer will be subject to certain restrictions as
set forth in (b) below. In determining the twenty-five most highly
compensated Participants of the Employer all Employees as of the
effective date of the amendment whether or not actually eligible to
participate as of such effective date shall be considered. Any
Employee, however, whose annual Retirement Benefit will not exceed
$1,500 will be excluded from consideration.
(b) Subject to the conditions as set forth in (a) above, the benefits
payable to any highly compensated Participant shall be restricted and
the restricted portion shall be equal to the excess of (1) over the sum
of (2) plus (3) as set forth below:
(1) the benefit payable to such Participant determined in accordance
with Article V of the Plan, over
47
<PAGE> 53
(2) a benefit which has a value no greater than the largest of
a. $20,000 of Employer contributions made since the effective
date of the applicable amendment, or
b. the sum of
i. the Employer's contributions for benefits accrued prior to
the date of the applicable Plan amendment and
ii. 20% of the first $50,000 of the annual compensation of the
Participant as defined in Section 1.401-4(c) of the
Federal Tax Regulations multiplied by the lesser of the
number of years since the date of the applicable plan
amendment or the number of years the full current costs
have been met computed from such date, or
c. With respect to a Participant who is a substantial owner (as
defined in Section 4022(b)(5) of ERISA) an amount equal to the
present value of the benefit guaranteed for such Participant
under Section 4022 of ERISA, or if the Plan has not
terminated, the present value of the benefit that would be
guaranteed if the Plan terminated on the date the benefit
commences determined in accordance with regulations issued by
the Pension Benefit Guaranty Corporation.
With respect to a Participant who is not a substantial owner
(as defined in Section 4022(b)(S) of ERISA) an amount equal to
the present value of the maximum benefit described in Section
4022(b)(3)(b) of ERISA (determined on the date the Plan
terminates or on the date benefits commence, whichever is
earlier and determined ID accordance with regulations issued
by the PBGC) without regard to any other limitations of
Section 4022 of ERISA.
(3) the Employer contribution which would have been applied to provide
for the Employee if this Plan had been continued without change.
6. While this Plan is in full effect and its full current costs are being met,
any Participant described in Section 5(a) above may receive his full
benefits as set forth in Article V subject to no restrictions as provided
for in Section 5(b).
7. If this Plan is terminated within the ten year period subsequent to the
Effective Date or if the full current costs attributable to such period are
not being met, no Participant described in Section 5(a) above shall receive
any benefits subject to the restrictions as provided for in Section 5(b).
8. Any funds not allocated to a Participant described in Section 5 above as a
result of this Provision shall be used to increase the amounts of the
Retirement Benefits of all other
48
<PAGE> 54
surviving Participants under this Plan. Such funds shall be allocated to
each Participant based on the proportion of each Participant's
Retirement Benefits to the extent they are unfunded to the total of all
Retirement Benefits due hereunder to the extent they are unfunded.
49
<PAGE> 55
ARTICLE XIII
MISCELLANEOUS
1. Inclusion in this Plan shall not be construed as giving the Participant any
right to be retained in the service of the Employer without the Employer's
consent, nor shall it interfere with the right of the Employer to discharge
the Participant, nor shall it give the Participant any right, claim or
interest in any Retirement Benefits herein described except upon
fulfillment of the provisions and requirements of this Plan.
2. If a vested Participant terminates employment, and the present value of
such Participant's nonforfeitable Accrued Benefit is not greater than
$3,500, the Participant or the person designated by him to receive
payments upon his death, if applicable, shall receive a lump sum
settlement of such present value. No distribution may be made under the
preceding provisions of this Section 2 after a Participant's Annuity
Starting Date unless the Participant and, if applicable, his Spouse (or
where the Participant has died, the surviving Spouse) consent, pursuant
to a Qualified Election, to such distribution within 90 days of the
distribution date. For purposes of this Section 2, "Annuity Starting
Date", "Spouse", and "Qualified Election" shall have the respective
meaning set forth in Article VI hereunder. A lump sum settlement shall
be made any time after the Participant's termination of participation
but prior to the close of the second Plan Year following the Plan Year
in which the termination occurs, even though the Participant or the
person designated by him to receive payments upon his death, if
applicable, is not otherwise entitled to commencement of benefit
payments at such time under other provisions of the Plan.
For purposes of this Section, "Termination of Participation" shall mean:
(a) the day such lump sum is distributed for all Participants who
terminated employment prior to the adoption date of this amendment,
provided that such distribution occurs within one year following the
adoption date of this amendment; or
(b) the day employment is terminated for all Participants who terminated
employment on or subsequent to the adoption date of this amendment.
The present value shall be determined without regard to the Participant's
sex based upon the interest rate and mortality assumptions, determined as
of the first day of the Plan Year that contains the Annuity Starting Date,
used by the Pension Benefit Guaranty Corporation for plan terminations. If
the Plan is amended to change the time for determining the Pension Benefit
Guaranty Corporation interest rate and mortality assumptions then any lump
sum settlement in the one year period commencing at the time such amendment
is effective (if the amendment is effective on or after the adoption date)
shall be based on the interest rate and mortality assumptions determined
under the Plan, either before or after the amendment, which will result in
the larger benefit. If such amendment is adopted retroactively (i.e. the
amendment is effective prior to adoption date) then the interest rate and
mortality assumptions which will result in the larger benefit shall be used
for any lump sum settlement
50
<PAGE> 56
made in the period beginning with the effective date of the amendment
and ending one year after the amendment's adoption date.
In addition, in no event shall an amendment changing the method for
determining a lump sum settlement (as a result of retirement, disability,
or death) deprive a Participant of his lump sum settlement so determined to
the later of the effective date or adoption date of any such amendment.
Should an amendment be adopted which directly or indirectly affects the
computation of a Participant's lump sum settlement, such Participant's lump
sum settlement so determined shall be equal to or greater than the lump sum
settlement determined (without regard to such amendment) as of the later of
the amendment's adoption date or effective date.
If a vested Participant receives a lump sum settlement pursuant to this
Section 2 which is equal to the present value of his entire Accrued Benefit
and subsequently is reemployed by the Employer, his Participation Service
(if applicable) and Vesting Service completed prior to such payment shall
be counted for purposes of determining such Participant's rights to
benefits under the Plan upon his reemployment. However, Credited Service
with respect to which such Participant has received a lump sum settlement
upon termination of employment will be disregarded for purposes of
determining his Accrued Benefit under the Plan upon his reemployment.
3. No person entitled to benefits under this Plan shall have the right to
assign, commute or encumber the benefits herein provided. To the maximum
extent permitted by law, the benefits or payments herein provided shall
not in any way be liable to attachment, garnishment or other process, or
to be seized, taken, appropriated or applied by any legal or equitable
process, to pay any debt or liability of such person. The preceding also
applies to the creation, assignment or recognition of a right to any
benefit payable with respect to a Participant pursuant to a domestic
relations order, unless such order is determined lo be a qualified
domestic relations order as defined in Section 414(p) of the Internal
Revenue Code or any domestic relations order entered before January 1,
1985. Upon receipt of a domestic relations order, the Administrator
shall, within a reasonable period of time, review the domestic relations
order to determine whether it is a qualified domestic relations order.
The Administrator shall promptly notify the Participant and the
alternate payee(s) of the procedures for determining whether such order
is qualified. Until such determination has been made, the Administrator
shall defer the payment of any disputed benefits.
51
<PAGE> 57
ARTICLE XIV
TOP-HEAVY PROVISIONS
1. The provisions of this Article become operative for any Plan Year which
begins after 1983 in which this Plan is deemed to be a Top-Heavy Plan in
accordance with Section 3 below. However, the Plan shall not be considered
a Top-Heavy Plan and the provisions of this Article, except as provided in
Section 8 shall not become operative for any Plan Year in which the Plan is
part of a Permissive Aggregation Group which is not deemed to be Top-Heavy.
2. For the purposes of this Article, the following definitions shall apply:
(a) Actuarial Assumptions means the mortality and interest assumptions
which are consistent with those used in the actuarial valuation.
(b) Compensation means the wage or salary paid to the Employee as reported
to the Internal Revenue Service for the calendar year that ends with or
within the Plan Year. The annual Compensation taken into account with
respect to any Employee under this Article shall not exceed $200,000
(or effective for Plan Years beginning after December 31, 1988, such
other amount as may be permitted under Section 415(d) of the Internal
Revenue Code). For Plan Years beginning after December 31, 1988 the
rules of Internal Revenue Code Section 414(q)(6) shall apply in
determining the Compensation of an Employee, except that in applying
such rules, the term "family" shall include only the spouse of the
Employee and any lineal descendants of the Employee who have not
attained age 19 before the close of the year. If the Employer is a
member of a controlled group of corporations, Compensation paid to an
Employee by any member of the controlled group is considered to be
Compensation from the Employer during the Limitation Year.
(c) Determination Date means the date on which the Plan Administrator tests
the Plan to determine if the Plan is Top-Heavy. In the first Plan Year
the Determination Date shall be the last day of such Plan Year. In all
other Plan Years, the Determination Date shall be the last day of the
Plan Year which precedes the Plan Year for which the test is being
made.
(d) Key Employee means any Employee or former Employee who at any time
during the Plan Year or any of the four preceding Plan Years is:
(i) an officer of the Employer having an annual Compensation, while an
officer, greater than 50% of the amount in effect under Section 415
(b)(1)(A) of the Internal Revenue Code (the defined benefit plan
dollar limitation) for the calendar year in which such Plan Year
ends;
52
<PAGE> 58
(ii) one of the ten Employees owning the largest interests in the
Employer and having annual Compensation from the Employer of more
than the limitation in effect under Section 415(c)(1)(A) of the
Internal Revenue Code (the defined contribution plan dollar
limitation) for the calendar year in which such Plan Year ends.
However, any Employee included in this category must own more
than one-half percent interest in the Employer. If two Employees
have the same interest in the Employer, the Employee having the
greater annual Compensation from the Employer shall be treated
as having a larger interest;
(iii) a five (5) percent owner of the Employer;
(iv) a one (1) percent owner of the Employer having an annual
Compensation (within the meaning of Section 414(q)(7) of the
Internal Revenue Code) from the Employer of more than $150,000;
with the meaning set forth in Section 416(i)(1) of the Internal Revenue
Code. The Beneficiary of a Key Employee is treated as a Key Employee
and the Beneficiary of a former Key Employee is treated as a former Key
Employee.
(e) Participant includes any Plan Participant as well as any Employee who
is otherwise excluded from participating in this Plan merely because
the Employee's Compensation is less than a specified amount, if
applicable, as well as any Employee who is otherwise excluded from
participating in this Plan due to a failure to make mandatory Employee
contributions, if applicable.
(f) Permissive Aggregation Group means the group of plans of the Employer
that are required to be aggregated, plus one or more plans of the
Employer which are not part of a Required Aggregation Group but which
satisfy the requirements for qualification under Section 401(a)(4) and
Section 410 of the Internal Revenue Code when considered together with
the Required Aggregation Group, as long as the benefits provided under
such plan or plans are comparable to the benefit provided under this
Plan. The plans shall be aggregated by adding the results of each plan
as of the determination date for each such plan that falls within the
same calendar year.
(g) Required Aggregation Group means the group of plans of the Employer in
which any Key Employee of the Employer participates or participated at
any time during the determination period (regardless of whether a plan
terminated). In addition, any other plan or plans of the Employer
combined with this Plan in order to satisfy the requirements for
qualification under Section 401(a)(4) or Section 410 of the Internal
Revenue Code shall be included in the Required Aggregation Group. The
plans shall be aggregated by adding the results of each plan as of the
determination date for each such plan that falls within the same
calendar year.
3. As of each Determination Date the Plan Administrator shall determine if the
Plan or Required Aggregation Group is Top-Heavy by comparing the present
value of the cumulative benefits under the Plan or plans for Key
Employees to the present value of the
53
<PAGE> 59
cumulative benefits for all Employees covered under the Plan or plans.
If the present value of such cumulative benefits for the Key Employees
exceeds 60% of the present value of such cumulative benefits for all
Employees the Plan is deemed to be Top-Heavy. Such present value of
cumulative benefits shall include distributions made within the Plan
Year that includes the Determination Date and the four preceding Plan
Years but, shall not include the present value of benefits for former
Key Employees, and for Plan Years beginning after December 31, 1984
shall not include the present value of benefits for any Employees who
have not performed an Hour of Service for the Employer during the Plan
Year that includes the Determination Date and the four immediately
preceding Plan Years.
4. For the purposes of this Article, the present value of benefits shall be
the amounts calculated as of the most recent valuation date which is within
the twelve month period ending with the Determination Date as if each
Participant terminated employment with the Employer as of such valuation
date, and the present value of such amount shall be based on the Actuarial
Assumptions.
5. Accrued Benefits for determining whether the plan is Top-Heavy shall be
calculated using the same accrual rule for all defined benefit plans of the
Employer. If no single accrual rule is used for all such plans, the
fractional accrual method as described in Section 411(b)(1)(C) shall be
used.
6. The minimum Employer derived Accrued Benefit for each Participant who is
not a Key Employee must equal the lesser of the product of 2% of
Compensation per year of Vesting Service or 20% of Compensation. For
purposes of this minimum benefit, any Vesting Service earned before a
Participant's anniversary of his date of hire immediately preceding the
Plan Year beginning on or after January 1, 1984 in which the Plan is
first deemed to be Top-Heavy shall be excluded as well as those years of
Vesting Service earned by a Participant from his anniversary of his date
of hire immediately preceding each Plan Year when the Plan was not
Top-Heavy. The Compensation which will be used for the purposes of this
Section 6 shall be equal to the Participant's average Compensation for
the five consecutive years when the Employee had the highest aggregate
Compensation from the Employer. However, Compensation in years before
January 1, 1984 and Compensation in years after the last Plan Year in
which the Plan is Top-Heavy shall be disregarded.
In computing the minimum benefit under this Section 6 it will be assumed
that such benefit shall be payable at the Participant's Normal Retirement
Age in accordance with the terms of the Life Annuity form.
7. If the form of benefit determined in accordance with Article V of this Plan
is in a form of annuity other than a Life Annuity, the Participant must
receive the greater of:
(a) the Participant's Accrued Benefit determined under Article V; or
54
<PAGE> 60
(b) an amount which is the Actuarial Equivalent of the Participant's
minimum benefit determined under this Article XIV. For this purpose,
Actuarial Equivalent means a conversion factor as set forth in Revenue
Ruling 76-47.
If a benefit becomes payable to a Participant at a date other than on such
Participant's Normal Retirement Age, the Participant must receive the
greater of:
(a) the participant's accrued Benefit determined under Article V, Section 3
or Section 4 whichever is applicable; or
(b) an amount which is the Actuarial Equivalent of the Participant's
minimum benefit determined under this Article XIV.
8. With respect to each Plan Year for which this Plan is deemed to be
Top-Heavy in accordance with Section 3 of this Article, Compensation in
excess of $200,000 per year (or, effective for Plan Years beginning
after December 31, 1988, such other amount as may be permitted under
Section 415(d) of the Internal Revenue Code) shall be disregarded for
the purposes of computing benefits in accordance with Section 1 of
Article V or Section 6 of this Article, provided, however, that such
change shall not cause any reduction in the amount of Accrued Benefit to
which any Participant is entitled under this Plan on the day before the
Plan Year in which the Plan first became Top-Heavy.
9. With respect to any Plan Year for which this Plan is first deemed to be
Top-Heavy in accordance with Section 3 of this Article and all subsequent
Plan Years thereafter, the provisions of Article VII, Section 2 shall read
as follows:
"2. A Participant who terminates his employment prior to the
termination of this Plan with less than 2 years of Vesting Service with
the Employer shall forfeit all rights to benefits under this Plan. A
Participant who has at least 2 years of Vesting Service and who
terminates his employment with the Employer prior to his Normal
Retirement Age, shall retain a nonforfeitable right to a percentage of
his Monthly Accrued Benefit determined as of his date of termination of
employment. Such percentage shall be determined in accordance with the
Vesting Schedule below based on the years of Vesting Service completed
by the Participant at his date of termination of employment. Except as
provided in Article XIII Section 2, the Participant's nonforfeitable
Monthly Accrued Benefit shall be payable on either the first day of the
month coincident with or next following the Participant's Normal
Retirement Age in a form as determined in accordance with Article VI or
his Early Retirement Date in an amount as determined in accordance with
Article V, Section 3, and in a form as determined in accordance with
Article VI."
55
<PAGE> 61
<TABLE>
<CAPTION>
VESTING SCHEDULE
Years of Vesting Vesting
Service Percentage
------- ----------
<S> <C>
0-1 0
2 20
3 40
4 60
</TABLE>
56
<PAGE> 62
<TABLE>
<S> <C>
5 80
6 100
</TABLE>
The foregoing provision shall apply only to Participants whose employment
is terminated after working one (1) Hour of Service after the Plan is
deemed to be Top-Heavy.
No amendment to the vesting provisions shall deprive a Participant of his
nonforfeitable right accrued (without regard to such amendment) as of the
later of the adoption date or effective date of the amendment.
In the event an amendment is adopted which directly or indirectly affects
the computation of a Participant's nonforfeitable percentage, each
Participant with at least 3 years of Vesting Service with the Employer may
elect to have his nonforfeitable percentage computed under the Plan without
regard to such amendment.
Such election may be made in writing to the Plan Administrator any time
after the adoption of any such amendment, provided, however, that the
election period shall end no earlier than the latest of 60 days following
the date the amendment is adopted, effective or the date the Participant is
given written notification of the amendment by the Employer or Plan
Administrator.
10. With respect to any Plan Year for which this Plan is deemed to be Top-Heavy
in accordance with Section 3 of this Article, the provisions of subsections
(d) and (e) of Article V, Section 7 shall be amended by substituting the
number "1.0" where the number "1.25" is shown; provided however, that such
substitution shall not cause any reduction in the amount to which any
Participant was entitled under this Plan on the day before the Plan Year in
which the Plan first became Top-Heavy.
11. During any Plan Year in which the Plan Administrator determines that the
Plan is Top-Heavy, the benefit required under Section 6 shall not be
required if an Employee who is not a Key Employee is included in another
qualified defined benefit or qualified defined contribution plan maintained
by the Employer provided an appropriate minimum required contribution or
benefit is made on behalf of such Employee under the other qualified
defined benefit or defined contribution plan.
Executed this _____________ day of ________________________, 19__.
ATTEST: W.W. Clyde & Co.
By _________________________________ By _____________________________
Official Title _________________________ Official Title _________________
57
<PAGE> 63
ATTEST: Geneva Rock Products, Inc.
By _________________________________ By _____________________________
Official Title _________________________ Official Title _________________
ATTEST: Beehive Insurance Agency, Inc.
By _________________________________ By _____________________________
Official Title _________________________ Official Title _________________
58
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Name State of Incorporation Business Name
- ---- ---------------------- -------------
<S> <C> <C>
W.W. Clyde & Co. Utah W.W. Clyde & Co.
Geneva Rock Products, Inc. Utah Geneva Rock Products, Inc.
Utah Service, Inc. Utah Utah Service, Inc.
Beehive Insurance Agency, Inc. Utah Beehive Insurance Agency, Inc.
</TABLE>
11
<PAGE> 1
EXHIBIT 23.1
CONSENT OF HOULIHAN VALUATION ADVISORS
CONSENT
To the Board of Directors of
Clyde Companies Inc.
Gentlemen:
We hereby consent to the references to our firm which appear in the
Registration Statement of Clyde Companies, Inc. on Form S-4 and the Proxy
Statement/Prospectus. We also consent to the following reports prepared by our
firm being filed as annexes to the Proxy Statement/Prospectus:
1. Valuation of W.W. Clyde & Co. dated October 23, 1997.
2. Valuation of Geneva Rock Products, Inc. dated October 23, 1997.
3. Valuation of Utah Service, Inc. dated October 23, 1997.
4. Valuation of Beehive Insurance Agency, Inc. dated October 23, 1997.
Date: December 2, 1997 /s/ David Dorton
For: Houlihan Valuation Advisors
12
<PAGE> 1
EXHIBIT 23.3
CONSENT
-------
We have issued our report dated October 14, 1997, except for Note D for which
the date is November 13, 1997, accompanying the financial statements of Clyde
Companies, Inc. contained in the Registration Statement and Prospectus. We
consent to the use of the aforementioned report in the Registration Statement
and Prospectus and to the use of our name as it appears under the captions
"Selected Financial Information", "Summary Historical Financial Information" and
"Experts".
/s/ GRANT THORNTON LLP
----------------------
Salt Lake City, Utah
December 8, 1997
<PAGE> 1
EXHIBIT 23.4
CONSENT OF DAINES ASSOCIATES LLC
CONSENT
We have issued our report dated October 21, 1997 accompanying the
financial statements of Beehive Insurance Agency, Inc. contained in the
Registration Statement on Form S-4 of Clyde Companies, Inc. and the Proxy
Statement/Prospectus. We consent to the use of the aforementioned report in the
Registration Statement and the Proxy Statement/Prospectus and to the use of our
name as it appears in the Registration Statement and the Proxy
Statement/Prospectus.
Date: December 2, 1997 /s/ Brent Daines
14
<PAGE> 1
EXHIBIT 23.5
CONSENT OF SQUIRE & COMPANY, PC
CONSENT
We have issued our report dated February 15, 1997 accompanying the
consolidated financial statements of Geneva Rock Products, Inc. contained in the
Registration Statement on Form S-4 of Clyde Companies, Inc. and the Proxy
Statement/Prospectus. We consent to the use of the aforementioned report in the
Registration Statement and the Proxy Statement/Prospectus and to the use of our
name as it appears in the Registration Statement and the Proxy
Statement/Prospectus.
Date: December 2, 1997 /s/ Squire & Co.
15
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 SEP-30-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 SEP-30-1997
<CASH> 27 108
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 31 124
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 25,088 27,270
<CURRENT-LIABILITIES> 5 0
<BONDS> 0 0
0 0
0 0
<COMMON> 707 707
<OTHER-SE> 15,930 17,377
<TOTAL-LIABILITY-AND-EQUITY> 25,088 27,270
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 5 5
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 2,712 2,196
<INCOME-TAX> 998 789
<INCOME-CONTINUING> 1,714 1,408
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,714 1,408
<EPS-PRIMARY> 0.74 0.61
<EPS-DILUTED> 0 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 SEP-30-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 SEP-30-1997
<CASH> 3,617 2,251
<SECURITIES> 0 0
<RECEIVABLES> 2,738 3,589
<ALLOWANCES> 0 0
<INVENTORY> 177 199
<CURRENT-ASSETS> 16,357 16,287
<PP&E> 40,520 38,742
<DEPRECIATION> 31,843 30,164
<TOTAL-ASSETS> 44,916 47,231
<CURRENT-LIABILITIES> 1,092 1,126
<BONDS> 0 0
0 0
0 0
<COMMON> 1,000 1,000
<OTHER-SE> 34,648 35,895
<TOTAL-LIABILITY-AND-EQUITY> 44,916 47,231
<SALES> 1,940 243
<TOTAL-REVENUES> 19,056 9,696
<CGS> 17,116 9,452
<TOTAL-COSTS> 1,443 1,108
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 4,197 2,295
<INCOME-TAX> 1,510 858
<INCOME-CONTINUING> 2,687 1,437
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,687 1,437
<EPS-PRIMARY> 28.42 15.20
<EPS-DILUTED> 0 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
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<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 SEP-30-1997
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<CURRENT-ASSETS> 35,240 42,113
<PP&E> 67,337 74,170
<DEPRECIATION> 30,809 34,428
<TOTAL-ASSETS> 74,848 84,598
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0 0
0 0
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<TOTAL-LIABILITY-AND-EQUITY> 74,848 84,598
<SALES> 17,441 15,176
<TOTAL-REVENUES> 116,349 94,736
<CGS> 98,907 79,560
<TOTAL-COSTS> 4,979 4,143
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<INCOME-TAX> 4,809 4,143
<INCOME-CONTINUING> 8,434 7,145
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<CHANGES> 0 0
<NET-INCOME> 8,434 7,145
<EPS-PRIMARY> 386.85 327.72
<EPS-DILUTED> 0 0
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
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0 0
0 0
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<S> <C> <C>
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<PP&E> 133 133
<DEPRECIATION> 91 73
<TOTAL-ASSETS> 756 945
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0 0
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<PAGE> 1
[EXHIBIT 99.1]
FORMS OF PROXY CARDS
[Begins on next page.]
<PAGE> 2
PROXY
CLYDE COMPANIES, INC.
1423 Devonshire Drive
Salt Lake City, Utah 84108
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF CLYDE
COMPANIES, INC. FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON
_________, _________, 1998.
The undersigned hereby constitutes and appoints Carol C. Salisbury and Ila
C. Cook or either of them, with full power of substitution, attorneys, and
proxies of the undersigned, to represent the undersigned and vote all shares of
the common stock of Clyde Companies, Inc. ("CCI") which the undersigned would be
entitled to vote if personally present at CCI's Special Meeting of Shareholders
to be held at the offices of Geneva Rock Products, Inc., 1565 W. 400 N., Orem,
Utah on ______________, _________, 1998 at 9:30 a.m., local time, and at any
postponement or adjournment thereof, in the following manner:
1. To approve the Agreement and Plan of Merger dated as of November 13, 1997
providing for the merger ("Merger") of wholly owned subsidiaries of CCI
with W.W. Clyde & Co. ("Clyde"), Geneva Rock Products, Inc. ("Geneva
Rock"), Utah Service, Inc. ("Utah Service") and Beehive Insurance Agency,
Inc. ("Beehive Insurance"), each of which will become wholly owned
subsidiaries of CCI. Upon the effective date of the Merger, each issued
and outstanding share of common stock of Clyde, Geneva Rock, Utah Service
and Beehive Insurance will be converted into, respectively, 33.93, 239.27,
43.43 and 4.33 shares of common stock, no par value, of CCI.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Other Matters. The proxies are authorized to vote upon such other business
as may properly come before the Special Meeting, or any postponement or
adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ITEM 1.
WHEN THIS PROXY IS PROPERLY EXECUTED AND RETURNED, THE SHARES IT
REPRESENTS WILL BE VOTED AT THE SPECIAL MEETING IN ACCORDANCE WITH THE CHOICE
SPECIFIED ABOVE. IF NO CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED FOR
PROPOSAL ONE. THE PROXY WILL BE VOTED IN ACCORDANCE WITH THE BEST JUDGMENT OF
THE DESIGNATED INDIVIDUALS WITH RESPECT TO MATTERS INCIDENT TO THE CONDUCT OF
THE SPECIAL MEETING AND ANY OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE
SPECIAL MEETING OR ANY POSTPONEMENT OR ADJOURNMENT THEREOF.
Please date and sign exactly as your name or names appear hereon. If more
than one owner exists, all should sign. When signing as attorney, executor,
trustee, or guardian, give your full title as such. If the signatory is a
corporation or partnership, sign the full corporate or partnership name by a
duly authorized officer or partner.
Dated: _________________, 1998
------------------------------
Signature
------------------------------
Signature
------------------------------
Type or Print
PLEASE PROMPTLY COMPLETE, DATE, SIGN, AND RETURN
THIS PROXY CARD USING THE ENCLOSED ENVELOPE
<PAGE> 3
PROXY
W.W. CLYDE & CO.
1375 North Main Street
Springville, Utah 84663
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF W.W.
CLYDE & CO. FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON _________,
_________, 1998.
The undersigned hereby constitutes and appoints Richard C. Clyde and Paul
B. Clyde or either of them, with full power of substitution, attorneys, and
proxies of the undersigned, to represent the undersigned and vote all shares of
the common stock of W.W. Clyde & Co. ("Clyde") which the undersigned would be
entitled to vote if personally present at Clyde's Special Meeting of
Shareholders to be held at the offices of Geneva Rock Products, Inc., 1565 W.
400 N., Orem, Utah on ______________, _________, 1998 at 10:00 a.m., local time,
and at any postponement or adjournment thereof, in the following manner:
1. To approve the Agreement and Plan of Merger dated as of November 13, 1997
providing for the merger ("Merger") of wholly owned subsidiaries of Clyde
Companies, Inc. ("CCI") with Clyde, Geneva Rock Products, Inc. ("Geneva
Rock"), Utah Service, Inc. ("Utah Service") and Beehive Insurance Agency,
Inc. ("Beehive Insurance"), each of which will become wholly owned
subsidiaries of CCI. Upon the effective date of the Merger, each issued
and outstanding share of common stock of Clyde, Geneva Rock, Utah Service
and Beehive Insurance will be converted into, respectively, 33.93, 239.27,
43.43 and 4.33 shares of common stock, no par value, of CCI.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Other Matters. The proxies are authorized to vote upon such other business
as may properly come before the Special Meeting, or any postponement or
adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ITEM 1.
WHEN THIS PROXY IS PROPERLY EXECUTED AND RETURNED, THE SHARES IT
REPRESENTS WILL BE VOTED AT THE SPECIAL MEETING IN ACCORDANCE WITH THE CHOICE
SPECIFIED ABOVE. IF NO CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED FOR
PROPOSAL ONE. THE PROXY WILL BE VOTED IN ACCORDANCE WITH THE BEST JUDGMENT OF
THE DESIGNATED INDIVIDUALS WITH RESPECT TO MATTERS INCIDENT TO THE CONDUCT OF
THE SPECIAL MEETING AND ANY OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE
SPECIAL MEETING OR ANY POSTPONEMENT OR ADJOURNMENT THEREOF.
Please date and sign exactly as your name or names appear hereon. If more
than one owner exists, all should sign. When signing as attorney, executor,
trustee, or guardian, give your full title as such. If the signatory is a
corporation or partnership, sign the full corporate or partnership name by a
duly authorized officer or partner.
Dated: _________________, 1998
------------------------------
Signature
------------------------------
Signature
------------------------------
Type or Print
PLEASE PROMPTLY COMPLETE, DATE, SIGN, AND RETURN
THIS PROXY CARD USING THE ENCLOSED ENVELOPE
<PAGE> 4
PROXY
GENEVA ROCK PRODUCTS, INC.
1565 West 400 North
Orem, Utah 84057
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF GENEVA
ROCK PRODUCTS, INC. FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON
_________, ________, 1998.
The undersigned hereby constitutes and appoints Wilford W. Clyde and
Albert T. Schellenberg or either of them, with full power of substitution,
attorneys, and proxies of the undersigned, to represent the undersigned and vote
all shares of the common stock of Geneva Rock Products, Inc. ("Geneva Rock")
which the undersigned would be entitled to vote if personally present at Geneva
Rock's Special Meeting of Shareholders to be held at the offices of Geneva Rock,
1565 W. 400 N., Orem, Utah on ______________, _________, 1998 at 10:30 a.m.,
local time, and at any postponement or adjournment thereof, in the following
manner:
1. To approve the Agreement and Plan of Merger dated as of November 13, 1997
providing for the merger ("Merger") of wholly owned subsidiaries of Clyde
Companies, Inc. ("CCI") with W.W. Clyde & Co. ("Clyde"), Geneva Rock, Utah
Service, Inc. ("Utah Service") and Beehive Insurance Agency, Inc.
("Beehive Insurance"), each of which will become wholly owned subsidiaries
of CCI. Upon the effective date of the Merger, each issued and outstanding
share of common stock of Clyde, Geneva Rock, Utah Service and Beehive
Insurance will be converted into, respectively, 33.93, 239.27, 43.43 and
4.33 shares of common stock, no par value, of CCI.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Other Matters. The proxies are authorized to vote upon such other business
as may properly come before the Special Meeting, or any postponement or
adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ITEM 1.
WHEN THIS PROXY IS PROPERLY EXECUTED AND RETURNED, THE SHARES IT
REPRESENTS WILL BE VOTED AT THE SPECIAL MEETING IN ACCORDANCE WITH THE CHOICE
SPECIFIED ABOVE. IF NO CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED FOR
PROPOSAL ONE. THE PROXY WILL BE VOTED IN ACCORDANCE WITH THE BEST JUDGMENT OF
THE DESIGNATED INDIVIDUALS WITH RESPECT TO MATTERS INCIDENT TO THE CONDUCT OF
THE SPECIAL MEETING AND ANY OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE
SPECIAL MEETING OR ANY POSTPONEMENT OR ADJOURNMENT THEREOF.
Please date and sign exactly as your name or names appear hereon. If more
than one owner exists, all should sign. When signing as attorney, executor,
trustee, or guardian, give your full title as such. If the signatory is a
corporation or partnership, sign the full corporate or partnership name by a
duly authorized officer or partner.
Dated: _________________, 1998
------------------------------
Signature
------------------------------
Signature
------------------------------
Type or Print
PLEASE PROMPTLY COMPLETE, DATE, SIGN, AND RETURN
THIS PROXY CARD USING THE ENCLOSED ENVELOPE
<PAGE> 5
PROXY
UTAH SERVICE, INC.
35 East 400 South
Springville, Utah 84663
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF UTAH
SERVICE, INC. FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON
_________, ________, 1998.
The undersigned hereby constitutes and appoints Vernon O. Cook and David
O. Cook or either of them, with full power of substitution, attorneys, and
proxies of the undersigned, to represent the undersigned and vote all shares of
the common stock of Utah Service, Inc. ("Utah Service") which the undersigned
would be entitled to vote if personally present at Utah Service's Special
Meeting of Shareholders to be held at the offices of Geneva Rock Products,
Inc.,1565 W. 400 N., Orem, Utah on ______________, _________, 1998 at 11:00
a.m., local time, and at any postponement or adjournment thereof, in the
following manner:
1. To approve the Agreement and Plan of Merger dated as of November 13, 1997
providing for the merger ("Merger") of wholly owned subsidiaries of Clyde
Companies, Inc. ("CCI") with W.W. Clyde & Co. ("Clyde"), Geneva Rock
Products, Inc. ("Geneva Rock"), Utah Service and Beehive Insurance Agency,
Inc. ("Beehive Insurance"), each of which will become wholly owned
subsidiaries of CCI. Upon the effective date of the Merger, each issued
and outstanding share of common stock of Clyde, Geneva Rock, Utah Service
and Beehive Insurance will be converted into, respectively, 33.93, 239.27,
43.43 and 4.33 shares of common stock, no par value, of CCI.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Other Matters. The proxies are authorized to vote upon such other business
as may properly come before the Special Meeting, or any postponement or
adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ITEM 1.
WHEN THIS PROXY IS PROPERLY EXECUTED AND RETURNED, THE SHARES IT
REPRESENTS WILL BE VOTED AT THE SPECIAL MEETING IN ACCORDANCE WITH THE CHOICE
SPECIFIED ABOVE. IF NO CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED FOR
PROPOSAL ONE. THE PROXY WILL BE VOTED IN ACCORDANCE WITH THE BEST JUDGMENT OF
THE DESIGNATED INDIVIDUALS WITH RESPECT TO MATTERS INCIDENT TO THE CONDUCT OF
THE SPECIAL MEETING AND ANY OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE
SPECIAL MEETING OR ANY POSTPONEMENT OR ADJOURNMENT THEREOF.
Please date and sign exactly as your name or names appear hereon. If more
than one owner exists, all should sign. When signing as attorney, executor,
trustee, or guardian, give your full title as such. If the signatory is a
corporation or partnership, sign the full corporate or partnership name by a
duly authorized officer or partner.
Dated: _________________, 1998
------------------------------
Signature
------------------------------
Signature
----------------------------
Type or Print
PLEASE PROMPTLY COMPLETE, DATE, SIGN, AND RETURN
THIS PROXY CARD USING THE ENCLOSED ENVELOPE
<PAGE> 6
PROXY
BEEHIVE INSURANCE AGENCY, INC.
302 West 5400 South, Suite 109
Murray, Utah 84107
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF BEEHIVE
INSURANCE AGENCY, INC. FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON
_________, _________, 1998.
The undersigned hereby constitutes and appoints W. Douglas Snow and Carol
C. Salisbury or either of them, with full power of substitution, attorneys, and
proxies of the undersigned, to represent the undersigned and vote all shares of
the common stock of Beehive Insurance Agency, Inc. ("Beehive Insurance") which
the undersigned would be entitled to vote if personally present at Beehive
Insurance's Special Meeting of Shareholders to be held at the offices of Geneva
Rock Products, Inc., 1565 W. 400 N., Orem, Utah on ______________, _________,
1998 at 11:30 a.m., local time, and at any postponement or adjournment thereof,
in the following manner:
1. To approve the Agreement and Plan of Merger dated as of November 13, 1997
providing for the merger ("Merger") of wholly owned subsidiaries of Clyde
Companies, Inc. ("CCI") with W.W. Clyde & Co. ("Clyde"), Geneva Rock
Products, Inc. ("Geneva Rock"), Utah Service, Inc. ("Utah Service") and
Beehive Insurance, each of which will become wholly owned subsidiaries of
CCI. Upon the effective date of the Merger, each issued and outstanding
share of common stock of Clyde, Geneva Rock, Utah Service and Beehive
Insurance will be converted into, respectively, 33.93, 239.27, 43.43 and
4.33 shares of common stock, no par value, of CCI.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Other Matters. The proxies are authorized to vote upon such other business
as may properly come before the Special Meeting, or any postponement or
adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ITEM 1.
WHEN THIS PROXY IS PROPERLY EXECUTED AND RETURNED, THE SHARES IT
REPRESENTS WILL BE VOTED AT THE SPECIAL MEETING IN ACCORDANCE WITH THE CHOICE
SPECIFIED ABOVE. IF NO CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED FOR
PROPOSAL ONE. THE PROXY WILL BE VOTED IN ACCORDANCE WITH THE BEST JUDGMENT OF
THE DESIGNATED INDIVIDUALS WITH RESPECT TO MATTERS INCIDENT TO THE CONDUCT OF
THE SPECIAL MEETING AND ANY OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE
SPECIAL MEETING OR ANY POSTPONEMENT OR ADJOURNMENT THEREOF.
Please date and sign exactly as your name or names appear hereon. If more
than one owner exists, all should sign. When signing as attorney, executor,
trustee, or guardian, give your full title as such. If the signatory is a
corporation or partnership, sign the full corporate or partnership name by a
duly authorized officer or partner.
Dated: _________________, 1998
------------------------------
Signature
------------------------------
Signature
------------------------------
Type or Print
PLEASE PROMPTLY COMPLETE, DATE, SIGN, AND RETURN
THIS PROXY CARD USING THE ENCLOSED ENVELOPE
<PAGE> 1
EXHIBIT 99.2
VALUATION
W. W. CLYDE & CO.
AS OF JUNE 30, 1997
PREPARED BY:
HOULIHAN VALUATION ADVISORS
OCTOBER 23, 1997
<PAGE> 2
October 23, 1997
Shareholders
W. W. Clyde & Co.
1375 North Main Street
P.O. Box 350
Springville, Utah 84663
Dear Shareholders:
Attached is the valuation report on W. W. Clyde & Co. (hereinafter also
referred to as "the Company"), which Houlihan Valuation Advisors ("HVA") has
completed at your request. The purpose of the report is to render an opinion as
to the fair market enterprise (controlling interest) value of W. W. Clyde & Co.
as of June 30, 1997.
The term "fair market value" is defined as that value at which a willing
buyer and willing seller, neither being compelled to act and both being well
informed of the relevant facts and conditions which might be anticipated, would
effect a sale of an asset at "arm's length" on a given date.
Our study was undertaken using widely accepted principles of financial
analysis and valuation. In particular, we observed the principles set forth in
Internal Revenue Ruling 59-60, 1959-1 CB 237. The book/liquidation value,
transaction value, market value, and income value methods of valuation were
utilized in arriving at an estimate of the fair market enterprise value of W. W.
Clyde & Co.
In preparing this valuation, we used information provided by W. W. Clyde
& Co. Company management has represented the information as being reasonably
complete and accurate. We did not make independent examinations of any financial
statements or other information prepared by management which was relied upon
and, accordingly, we make no representations or warranties nor do we express any
opinion regarding the accuracy or reasonableness of such. All of the information
made available to us was carefully analyzed and reasonable attempts were made to
find additional information which would be helpful in this study.
<PAGE> 3
Page 2
Financial projections utilized in the valuation were prepared based on
analysis of the Company's historical operating results and conversations with
Company management. It should be emphasized that forecasting the future is at
best a difficult and tenuous process. There will undoubtedly be disparities
between the projected figures and actual results, since events and circumstances
frequently do not occur as expected, and those disparities may be material.
This report has been prepared for the specific purpose of valuing the
common stock of W. W. Clyde & Co. on an enterprise value basis pursuant to and
in anticipation of a proposed merger and consolidation into a company to be
newly formed of W. W. Clyde & Co. with three other related companies: Geneva
Rock Products, Inc., Utah Service, Inc., and Beehive Insurance Agency, Inc. The
report is intended for no other use, and is not to be copied or given to
unauthorized persons without the direct written consent of HVA.
Since valuation is an imprecise science, HVA does not purport to be a
guarantor of value. Value is a question of informed judgment, and reasonable
persons can differ in their estimates of value. HVA does certify that this
valuation study was conducted and the conclusions arrived at independently using
conceptually sound and commonly accepted methods of valuation.
Our study has concluded that a reasonable estimate of the fair market
enterprise value of W. W. Clyde & Co. as of June 30, 1997 (upon the contemplated
consolidation of the Company with the three other aforementioned related
companies) is $62,100,000 or $657.00 per share, based on 94,544 shares
outstanding.
Neither HVA or its principals have any present or intended interest in
W. W. Clyde & Co. HVA's fees for this valuation are based on professional time
charges, and are in no way contingent upon the final valuation figure arrived
at.
It has been a pleasure to perform this analysis for you. We look forward
to serving you in the future.
Houlihan Valuation Advisors
by: David Dorton, CFA, ASA
Accredited Senior Appraiser
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
I. PREFACE 1
II. BASIC PRINCIPLES OF VALUATION 2
III. INTRODUCTION 4
A. Purpose 4
B. Scope 4
C. Methodology 4
IV. COMPANY BACKGROUND 5
A. Overview 5
B. Employees and Management 7
C. Ownership 9
V. ECONOMIC OVERVIEW AND OUTLOOK 10
A. National - June 1997 10
B. Utah - 1997 14
VI. INDUSTRY OVERVIEW 19
A. National Engineering and Construction Industry 19
B. The Utah Commercial Construction Industry 28
VII. FINANCIAL REVIEW 31
VIII. CROSS-SECTIONAL ANALYSIS 35
IX. ESTIMATES OF VALUE 37
A. Nature of the Security 37
1. Control 37
2. Marketability 37
B. Normalization of Earnings 38
1. Regression Analysis 38
2. Past Averages 39
3. Company Projections 39
4. Projected Earnings 39
C. Book/Liquidation Value 40
D. Transaction Value 41
E. Market Value 41
F. Income Value 45
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C>
X. SUMMARY AND CONCLUSION 48
XI. EXHIBITS 49
</TABLE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
APPENDIX A: W. W. Clyde & Co. - Financial Statement Summary
APPENDIX B: Robert Morris Associates Industry Ratios -
Contractors - Bridge, Tunnel & Elevated Highway Construction
APPENDIX C: Statement of Limiting Conditions
APPENDIX D: Professional Qualifications
APPENDIX E: Internal Revenue Ruling 59-60, 1959-1 CB 237
</TABLE>
<PAGE> 6
1
PREFACE
This valuation study was conducted at the request of the shareholders of
W. W. Clyde & Co. (also referred to hereinafter as "the Company") to provide an
estimate as to the fair market enterprise (controlling interest) value of the
Company as of June 30, 1997. In preparing this report, information provided by
the Company was used. Company management has represented the information as
being reasonably complete and accurate, and as fairly presenting the financial
position, prospects and related facts of the Company. Houlihan Valuation
Advisors ("HVA") is not in a position to certify the accuracy of basic data
provided by the Company, and the validity of this valuation study is dependent
upon the accuracy of such data. HVA does certify that conceptually sound methods
were used in the valuation.
<PAGE> 7
2
BASIC PRINCIPLES OF VALUATION
The principles which have governed this analysis provide a basis for the
determination of value where an active market for a company's securities is
lacking. The valuation procedure attempts to analyze the earning power of a
company and the ability of the company to convert this earning power into value.
Earning power is related to the rates of return expected in the financial
markets for various types of investment alternatives, with consideration given
to past history, expected growth rates and risk. This report provides a direct
comparison between W. W. Clyde & Co.'s operations and those of companies
operating in the same industry. From this comparison, certain reasonable
conclusions concerning the relative financial position and performance of the
Company may be drawn. Fair market value is that value at which a willing buyer
and willing seller, neither being compelled to act and both being well informed
of the relevant facts and conditions which might be anticipated, would effect a
sale of an asset at "arm's length" on a given date. The value of securities of a
corporation in the hands of its stockholders and the value of the underlying
assets of the corporation are usually only incidentally related. The value of
securities which are freely traded in a public market is influenced as much by
external factors beyond the control of the company as it is by internal factors
within the control of management. Such external factors include:
a. General economic conditions;
b. Conditions existing within a specific industry (e.g., degree of risk,
stability or rate of growth);
c. Public attitude and investor sentiment toward particular industries and
companies.
<PAGE> 8
3
Fair market value of securities which enjoy an active public market is
determined by actual market quotations on a particular date, unless the market
for a security is affected by some abnormal influence or condition.
Determination of fair market value of securities of a closely held corporation,
however, cannot be determined as precisely, thus creating a need for independent
professional business valuation. Principal weight must be given to evidences of
earning power, book value, dividend paying capacity, financial and competitive
position, and other facts and circumstances which a potential buyer and seller
would consider. Also, prices realized in actual sales of similar companies on or
about the valuation date afford a realistic measure of value.
Professional valuation of a closely held company cannot be considered an
exact science; however, experience has shown that comprehensive and thorough
valuation analyses can generate ranges of value which are reasonable and
relevant.
The various techniques used in this report are based on different
concepts and assumptions. As a result, their application produces a range of
possible values. A single number within that range is given as a reasonable
estimate of value as of the valuation date. It should be emphasized that, as is
the case with publicly traded securities, when expectations for W. W. Clyde &
Co. change over time, so does its value. Further, the value of a firm may
fluctuate over time even though its internal operating characteristics remain
essentially unchanged. The securities market places different significance on
income and risk properties of companies as general economic conditions vary.
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INTRODUCTION
Purpose
The purpose of this report is to determine the fair market enterprise
(controlling interest) value of W. W. Clyde & Co. as of June 30, 1997, pursuant
to and in anticipation of a proposed merger and consolidation into a company to
be newly formed of W. W. Clyde & Co. with three other related companies: Geneva
Rock Products, Inc., Utah Service, Inc., and Beehive Insurance Agency, Inc.
Scope
Both internal and external factors which influence the value of W. W.
Clyde & Co. are analyzed and interpreted. Internal factors include the Company's
performance and financial structure, as well as the size and marketability of
the interest being valued. External factors include, among others, the health of
the industry and the position of the Company therein, economic trends, and
conditions in the securities markets.
Methodology
The report first looks at the background and operating characteristics
of W. W. Clyde & Co. It next provides overviews of the national and Utah
economies and the engineering and construction industry, each important as a
description of the environment in which the Company operates. A financial
analysis of the Company, as well as a comparative analysis of the results of the
Company with those of the industry, follows. Finally, the report determines
explicit controlling interest values for the Company via the application of
alternative valuation techniques. Four valuation methods are employed:
book/liquidation value, transaction value, market value (derived from market
value ratios of similar firms), and income value (based on the present value of
future benefits). After considering the
<PAGE> 10
5
assumptions and relative justification of each valuation method, the results are
synthesized into a final value estimate on a controlling interest basis of the
common stock of the Company.
COMPANY BACKGROUND
Overview
W. W. Clyde & Co. was founded in approximately 1926 by W. W. Clyde and
was incorporated in 1933. Since that time, the company has been involved in the
construction of interstate highways, bridges, dams, airports, mines, golf
courses, environmental reclamation projects, large sitework/site preparation,
and other types of large construction projects in the Intermountain region
requiring massive earth moving and professional management. More miles of
interstate highway construction have been built in the state of Utah by the
Company than by any other contractor, and the Company has completed more than
$400 million of construction projects throughout the Intermountain West.
Examples of recent projects performed by W. W. Clyde & Co. include the
Jordanelle Highway Relocation Project, which consisted of two projects totaling
$32 million and involving 7.5 million cubic yards of excavation, drainage, and
paving; the Cottonwood Preparation Plant, a $2.2 million project consisting of
pouring concrete foundations for a truck dump, reclaiming conveyor multiplate,
and erecting three 100 foot tall 14 foot diameter stacking/reclaim tubes; the
USPCI Toxic Landfill Cell Z, Greyback Mountain Facility, a $3.6 million project
involving constructing embankment, claylining cell, and covering HDPE liner
(installed by others) with sand cover; and the Butterfield Canyon Reclamation
Project, a $3.4 million project involving construction of a repository, leachate
collection system, and cutoff wall, and placement of 750,000 cubic yards of mine
waste rock in the repository.
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Other projects in which the Company is currently involved include
environmental reclamation at the Bingham Canyon Mine for Kennecott Copper
Corporation; a federal highway job over Wolf Creek Pass near Kamas, Utah; a
project at the Winter Sports Park near Park City, Utah, which includes the
earthwork and site drainage package for the Olympic bobsled/luge track; the
South Mountain Development in Draper, Utah, including construction of the
four-lane Highland Drive highway extension, residential roads, an equestrian
center, a ballfield, an amphitheater, an 18-hole golf course, and all site storm
drainage and detention basin construction; construction of a leach pad at
Barneys Canyon Mine for Kennecott Barneys Canyon Mining Company; and
construction of Hazardous Waste Cell Number 7 for USPCI/Laidlaw Environmental,
Inc.
W. W. Clyde & Co. has extensive experience in site work/site development
projects. The Company recently completed three projects for expansion of the
South Towne Mall, located in Sandy, Utah. Each of these projects required
subexcavation and dynamic compaction of soils in the building areas, as well as
other site development activities. The Company also recently completed the
Western Distribution Project in Spanish Fork, Utah, a one million square foot
warehouse/distribution center for Fingerhut Companies. This project included
site preparation, site storm drainage, and concrete footing and foundation work.
Other projects include building the Bonanza Power Plant base, a substation pad
and binwall at the SUFCO mine, site work for the Hunter Coal Preparation and
Blending Facility, and railroad grade and site preparation for Intermountain
Power Agency. The Company has also been involved in a number of pipe
installation projects for Intermountain Power Agency, USPCI, Kennecott Copper,
the Bureau of Reclamation, Deseret Generation and Transmission Cooperative,
Western Fuels-Utah, and Garkane Power Association.
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W. W. Clyde & Co. has numerous clients in both the public and private
sector, including the Federal Highway Administration, the Utah Department of
Transportation (UDOT), the U.S. Bureau of Reclamation, U.S. Pollution Control,
Inc., Utah Power & Light (Pacificorp), Kennecott Corporation, the Wyoming
Department of Transportation, Brush Wellman, Burns McDonnell, and many others.
In 1995, the revenue mix between the public and private sectors was
approximately 30% public/70% private; however, this mix can change significantly
from year to year. For example, UDOT generated some 70% - 80% of the Company's
total revenue up through the mid-1980s; this percentage has gone down
dramatically since that time. The Company performs construction work throughout
the Intermountain Area, primarily in Utah, Wyoming, Arizona, and Nevada. Most of
the projects bid on by the Company are competitive bid projects. The Company's
work is obviously seasonal, slowing down significantly during the winter months.
W. W. Clyde & Co. purchases most of its concrete and other materials
used for construction projects from Geneva Rock Products, Inc., a related
company in which the Company owns a 34.77% equity interest. The Company also
produces a limited supply of its own aggregates through two portable asphalt
plants and three concrete vacuum plants which it owns.
W. W. Clyde & Co.'s primary competitors are Gibbons & Reed, Gilbert
Western, LeGrande Johnson, Harpers Excavating, and Ames Construction. Since
these firms are similar in terms of performing high quality work, bid awards are
usually granted to the low cost bidder. The Company's competitive strengths
include its excellent reputation as a firm which has been a major player in the
industry for over 60 years; its excellent financial strength (the Company is
debt-free); its large, modern equipment fleet; its experienced and dedicated
employee base (field and office supervisors average over
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20 years of experience); its excellent safety record; and its commitment to
quality work and environmental sensitivity.
Employees and Management
W. W. Clyde & Co. currently has approximately 150 employees; this number
varies substantially depending on workload and seasonality, increasing to over
200 at times. The Company has contracts with several unions, including the
Operating Engineers Union, the Teamsters Union, the Laborers Union, the Cement
Masons Union, and the Carpenters Union. All of these contracts contain "no
strike" provisions. The Company considers its relationship with its employees to
be generally excellent.
The key members of the Company's management team are as follows:
* Richard C. Clyde, President and General Manager. Mr. Clyde has over 30
years of experience in the construction industry. He is the third
generation of the Clyde family to be President and General Manager of
the Company, being named to that position in 1986. Prior to that time,
he was Vice President and Treasurer of the Company from 1982 to 1986,
and Project Manager/Superintendent from 1976 to 1982. Mr. Clyde holds a
B.S. degree from Brigham Young University. He is Past President and
Director of the Utah Chapter of the Associated General Contractors of
America; Past National Director of the Associated General Contractors of
America; on the National Board of Directors of the American Road and
Transportation Builders Association; and Director of the Utah Highway
Users Federation. He is responsible for the management and business
development of the Company.
* Paul B. Clyde, Vice President of Construction. Mr. Clyde has been Vice
President of Construction of the Company since 1992. Prior to that, he
was Vice President of Marketing, Estimating and Safety from 1986 to
1992; Vice President of Marketing and Estimating from 1983 to 1992;
Chief Estimator from 1982 to 1983; and Project Manager/ Superintendent
from 1969 to 1982. Mr. Clyde holds a B.S. degree in construction
engineering and management from Arizona State University. He is past
Chairman of the Highway Committee, past Director and past Chairman of
the Safety Committee, and past Chairman of the Political Action
Committee of the Utah Chapter of the Associated General Contractors of
America. He is responsible for field construction, estimating and
bidding of all projects performed by the Company.
<PAGE> 14
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* David R. Hales, Project Manager. Mr. Hales has been employed by the
Company since 1982. Prior to that, he worked for Peter Kiewit & Sons for
3 1/2 years. Mr. Hales is the Company's Chief Estimator and Project
Manager. Mr. Hales holds a B.S. degree from the Oregon Institute of
Technology.
* Martin L. Schellenberg, Project Engineer. Mr. Schellenberg has worked
for the Company as an engineer for over 20 years. His responsibilities
have included project engineer, safety engineer, E.E.O. representative,
surveyor, and estimator. He is currently responsible for estimating and
all subcontract administration, and is project engineer on several small
projects. His current emphasis is in the areas of reinforced concrete
structures, small buildings, and pipeline construction. Prior to joining
the Company in 1974, he worked as an Engineer for the Utah Department of
Transportation for four years. Mr. Schellenberg holds a B.S. degree in
civil engineering from Brigham Young University. He is a member of the
American Society of Civil Engineers.
Other key employees of W. W. Clyde & Co. are Rodney L. Burt, Project
Superintendent, who has been with the Company on a full-time basis for 35 years;
Coombs T. Hall, Project Superintendent, who joined the Company in 1988 after 22
years as Laborer Foreman and Vice President of H. E. Lowdermilk, Inc.; F. Allan
Scheib, Project Superintendent, who has been with the Company since 1970;
Jeffrey R. Clyde, Project Superintendent, who has been with the Company since
1986; Steven L. Clyde, Project Superintendent; and Bruce W. Dallin, who as
Health and Safety Director since 1993 is responsible for loss control in
conjunction with all liability claims, industrial hygiene in relation to
workmen's compensation, occupational health, and safety management.
Company management feels that it has adequate management succession in
place, with the loss of any of these key employees not having a material
long-term detrimental impact on the Company's operations.
Ownership
W. W. Clyde & Co. has a total of 94,544 common shares issued and
outstanding, held by 98 shareholders. There are no controlling shareholders; the
largest shareholder is W.W. Clyde Investment
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Co., which owns 31,935 shares (or 33.8% of the total). The next largest
shareholder owns only 4,580 shares (or only 4.8% of the total).
ECONOMIC OVERVIEW AND OUTLOOK
National - June 1997
To a greater extent than not, it is still the best of all possible
worlds. For example, the economic uptrend, which is now in its seventh year,
gives no sign of drawing to a close, notwithstanding some recent figures that
suggest a moderately slower pace of growth in the months ahead. Inflation, at
both the producer and consumer levels, is still muted, with most price indexes
showing inflation at its lowest sustained levels in three decades. Short- and
long-term interest rates remain relatively low, even after an earlier monetary
tightening maneuver by a worried Federal Reserve Board. Corporate earnings
continue to push higher, buoyed by rising demand and increasing productivity.
And the stock market, an occasional setback aside, is still setting all-time
highs with some regularity.
The status quo, however, doesn't persist indefinitely. Thus, sooner or
later, even the most carefully scripted scenario will come undone, or at least
be modified sufficiently to change the prevailing assumptions. In fact, as noted
above, we may already be seeing the first small cracks in the nation's economic
armor, with recent figures showing an easing in retail sales, a flattening in
industrial production, and a slight diminution in the growth of housing demand.
Then too, while recent inflation figures have been generally reassuring, there
is also no denying that selective pricing pressures are starting to build in the
commodity area, with coffee, oil, and tobacco quotations all up sharply over the
past several weeks. Finally, the Federal Reserve - which attempts to keep the
economy and inflation on
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an even keel - is currently in a somewhat more cautious mood than it was three
or six months ago. In all, then, with the economy still apparently in good
health, with a few clouds starting to appear in an otherwise bright inflation
picture, and with Fed Chairman Alan Greenspan not backtracking from his earlier
warnings about an excess of exuberance in the stock market, the penalties for
the lead bank erring on the side of not lifting interest rates in the months
ahead may now well exceed those for standing pat. And should the Fed, which saw
prior long business expansions (in the 1960s and 1980s) end with a bout of
rising inflation, fear a replay and raise rates once or twice more, economic
growth would likely slow sufficiently to put a damper on corporate profits. The
stock market, which is now trading at near-record levels and at lofty
valuations, in part because of the almost uninterrupted growth in corporate
earnings, might then face its first serious test in several years.
The economy put on quite a show during the final three months of 1996,
with real, inflation-adjusted gross domestic product (GDP) advancing at a
scintillating 4.7% rate. The expansion then, to the surprise of many, picked up
additional strength in the opening quarter of 1997, as higher levels of consumer
spending and strength in the construction and industrial sectors helped produce
growth that was close to 6%. Clearly, however, this stepup in economic activity
was unnerving to the Federal Reserve, as the bank presumably saw in this
acceleration the potential to bring about a much higher level of inflation. The
rationale for this point of view is that such strong economic activity would
sooner or later induce shortages of labor, materials, and manufacturing
capacity. These shortages, in turn, would presumably lead to increased pricing
pressures.
The question now is whether or not we will see an encore in the second
quarter. It is not likely that we will, since the retail, manufacturing, and
construction sectors all appear to be leveling off. That
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having been said, however, it should also be noted that there is no full-scale
retreat in prospect either. Moreover, such a pullback is not anticipated to take
hold in the near term, given the high levels of consumer confidence and the
two-decade low in the unemployment rate. Instead, an orderly slowing in growth
over the next four to six quarters is likely, with GDP increases averaging
between 2.0% and 2.5%. Inflation and interest rates, meanwhile, should also hold
at moderate levels, although with some upward bias. Corporate profit growth is
likely to slow, in the meantime, but not turn down unless the economy slackens
more than is now anticipated.
Peering further out, Value Line projects the above tends to largely
continue, with economic growth and inflation stepping up a bit, to around 3%,
and with interest rates probably not veering appreciably from present levels.
Corporate profits, fueled by increased productivity, additional technological
innovation, and fairly steady growth in demand, are expected to rise at a
mid-to-high single-digit percentage in most years. As always, though, these
long-range projections do not allow for exogenous shocks, such as political
upheavals, military flareups, oil embargoes, or ruinous trade wars, none of
which can be predicted with any degree of assurance as to timing or even
occurrence.
As noted above, the U.S. economy really came on strongly during the
final quarter of 1996 and the opening three months of this year. However, there
are already signs that the economy got off to a rockier start in the second
quarter. For example, retail sales declined in April; auto and truck sales fell
as well; the nation's factories used less of their capacity in the most recent
month; and housing starts, albeit up in the latest survey, were still below
their earlier peak, while building permits, a harbinger of future construction
activity, actually edged downward. All of this having been said, however, the
U.S. economy continues to be remarkably resilient. In fact, with the consumer
continuing to be optimistic
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and with improving employment figures further underpinning this confidence, the
case for sustained 2.0% - 2.5% growth over the balance of this year is still
quite strong.
The inflation news continues to be good as well, with wholesale and
consumer inflation steadfastly holding at modest levels. Moreover, no basic
change in trend over the next year or so is likely, although higher commodity
prices and the ability of certain industries (such as steel) to consistently
raise prices suggest at least an interim upward bias. However, with industrial
raw materials still in adequate supply, with turmoil around the globe at a
minimum, and with the nation's factories, aided by new technology and better
inventory methods, operating without serious production bottlenecks, the
potential for the kinds of energy and industrial materials shortages that
produced rampant price inflation two decades ago is rather limited. Overall,
producer prices are projected by Value Line to rise by 0.5% in 1997 and by 2.2%
in 1998, with consumer prices expected to increase by 2.5% this year and by 2.9%
in 1998. This pattern of restrained inflation is furthermore anticipated to
carry over to the turn of the century.
Interest rates have remained stable, with long-term rates (as
represented by the 30-year Treasury bond) holding within a 6.0% - 8.0% band
during the past several years. This stability is an outgrowth of the absence of
severe pricing pressures. Moreover, with the economy likely to grow more slowly
in the next 12 to 18 months, and with the Fed probably following a slightly
tighter monetary course - in an effort to avoid the need for more drastic action
later on - inflation should stay fairly subdued. All of this suggests that
business spending will not be constrained by high borrowing costs, nor should
potential homebuyers be priced out of the residential market by unaffordable
mortgage rates.
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The final factor in sustaining the bull market continues to be rising
corporate income. Profits in certain areas (like semiconductors, computers,
financial services, and pharmaceuticals) have been literally on a
several-year-long tear. Overall, profits - backed by strong demand and better
cost management - have now risen for five straight years, with double-digit
percentage growth rather commonplace for much of this period. A respectable,
though quite modest, 5% to 7% increase is likely this year, given the reasonable
first-quarter gains and the solid order and pricing trends generally now in
place. A further, but smaller, 3% to 5% gain is likely in 1998, as GDP growth
slows to perhaps 2%. As the rate of economic improvement steps up a notch by the
close of the century, income growth could quicken moderately as well.
Buoyed by the best economic and inflation news in a generation, by a
generally neutral to accommodative Fed, and further underpinned by the strongest
profit growth in years, the stock market has been on a virtual six-year-long
joyride. In the process, the Dow Jones Industrial Average has nearly tripled,
surpassing five thousand-point milestones. Further, the trends that have
sustained this long price advance remain in place by and large. Indeed, with few
alternate investments around (e.g., gold, real estate, or art) that offer
anywhere near the historical returns of stocks, many investors continue to look
to the equity market for capital appreciation. And, given the apparently
favorable prospects for the economy, inflation, interest rates, and corporate
profits during the next three to five years, such confidence would seem
warranted, at least on a long-term basis. This good long-term potential aside,
the stock market has come a long way in a very short time. Indeed, at current
historically rich valuation levels, there would seem to be at least the chance
of a market setback at
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15
some point. The easy money has likely already been made this year, and investors
will need to exercise restraint until a correction takes place or profits rise
sufficiently to bring valuation levels better into line.
Source: Value Line Investment Survey
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16
Utah - 1997
Utah's overall 1996 economic performance was again spectacular. The
state was either the first- or second-fastest job producing state in the nation
for the fourth consecutive year. Favorable interest rates enhanced residential
construction activity, which, when combined with booming commercial building,
contributed significant economic stimulus. The quality of Utah's labor force,
the favorable business and education climate, and the desirable lifestyle
support the favorable economic environment.
The state's 1997 economic outlook remains solid, but forecasted
aggregate growth rates will likely moderate relative to the impressive gains
recorded in 1995 and 1996. 1997 will be the ninth consecutive year of strong
economic growth. There are as yet no serious excess supply or overbuilt
conditions identifiable. A tight labor market and higher employee turnover will
be constraining growth factors. The state's Middle Market Business Index in the
third quarter of 1996 showed sales up 9% and employment gains of 2.5%.
Utah is about to embark upon a huge project to expand and modernize its
transportation infrastructure. Highway and light-rail expenditures are projected
to be $4 billion over the next ten years, to be partially funded through
increased taxes and bonding. The net impact on the local economy is not yet
clear, as disruption to the flow of commerce will partially offset the
stimulative spending effect.
The Utah state government budget in fiscal year 1997 has projected a $24
million surplus and $194 million of additional revenues, following surpluses of
$120 million in fiscal 1994, $72 million in 1995, and $131 million in 1996. Utah
is one of only a handful of states with a solid AAA bond rating.
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The 2002 Winter Olympics, awarded to Salt Lake City in the summer of
1995, will be extremely important to Utah's economy over the next six years. A
$1 billion Olympic budget, along with the ongoing associated growth in Utah's
winter tourism industry, will be an important sustaining growth factor.
Consumer prices in 1996 along the Wasatch Front rose by 3.9%, compared
with a 1995 annual increase of 4.9% and a 1994 increase of 4.2%. The 1996
second-quarter ACCRA cost of living index as a percent of the national average
was 96.9% in Salt Lake City/Ogden, 102.3% in Provo/Orem, 106.2% in Logan, 94.7%
in Cedar City, and 103.7% in St. George.
Utah's population is projected to reach 2,043,000 in 1997, an increase
of 42,000 people, or 2.1%, from the 1996 figure. Population growth in 1996 of
43,000 people, or 2.2%, was below the 2.6% increase experienced in 1995. The
1996 gain was, nevertheless, the third-fastest nationally, behind Nevada and
Arizona. 1996 was the third consecutive year in which the state's population
increase was equal to or less than the number of new jobs. Net in-migration is
expected to slip only modestly to 13,000 people in 1997 from the 1996 figure of
13,400. Net in-migration occurred for the sixth consecutive year in 1996;
however, the 1996 figure was the smallest annual total during the six year
period. The total net in-migration for the six year period was 108,000, with an
average annual growth of 18,000. In 1996, net in-migration accounted for 31% of
the total population gain, a somewhat smaller proportion than the 40% average of
the prior three years. The number of households in Utah during 1996 was
estimated to be 640,000, with an average of 3.13 persons per household.
<PAGE> 23
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Utah's personal income is projected to reach $41.5 billion in 1997, or
an increase of 7.7% from the 1996 figure, following gains of 8.2% in 1996, 9.4%
in 1995, and 8.5% in 1994. The 1997 personal income gain should be only
moderately below the highly favorable 1996 growth performance. The state's 1997
personal income growth will likely keep it among the top five in the nation. The
state's 1996 second quarter personal income gain of 8.6% ranked Utah
third-highest nationally, well above the national average growth rate of 5.5%.
Average personal income growth in Utah during the 1991-95 period was 8.1%,
compared with the national average of 5.5%. This ranked the state third in
personal income growth during the period, behind only Nevada and Arizona.
Preliminary data shows that Utah's 1996 average wages rose by
approximately 4.1%, exceeding the 3.7% increase in 1995. However, entry-level
wages and certain industrial segments (particularly technology and
construction-related) are experiencing significant upward wage pressure. Wage
increases will continue in 1997, perhaps at a rate equal to or even exceeding
the 1996 growth rate. Utah's total personal income per household was estimated
at $60,150 in 1996, approximately 92% of the national average. Per capita
personal income in the state during 1996 was $19,289, or 80% of the national
average, up from 73% in 1989.
Utah is expected to generate 41,100 new nonagricultural jobs in 1997, an
increase of 4.3% from the 1996 level, following job gains of 48,100 (or 5.3%) in
1996 and 48,300 (or 5.6%) in 1995. The state's 1997 unemployment rate is
expected to average 3.4%, unchanged from the 1996 figure, which was the lowest
annual level of unemployment in four decades. Because the statewide unemployment
rate stayed at near 3% for much of 1996, Utah's labor market was very tight,
with significant employee turnover and rising wages. An important business
decision in 1997 will be wage
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19
administration, attempting to reward and encourage productivity and efficiency,
while at the same time reducing employee turnover.
Utah's 1996 job growth of 5.3% ranked second to that of Nevada as the
highest in the nation. For the fourth consecutive year, the state's job growth
exceeded 5%, an unprecedented accomplishment in the post-World War II era.
During the 1991-95 period, the state's average annual job growth rate was a
remarkable 5.1%, also second highest nationally. The 1997 forecast gain of 4.3%
is below that five-year trend. During the past five years, 211,000 jobs have
been created in Utah, equivalent to 22% of the 1996 total nonagricultural
employment. The state's labor force participation rate is considerably higher
than the national average, with 83% of the state's men working and 61% of the
state's women working, compared with the national averages of 75% of men and 59%
of women. Accordingly, labor market tightness in several industries will remain
evident in 1997.
New employment gains were diversified in 1996. The construction
employment surge of 12% (or 6,500 new jobs) followed gains of 14% in 1995 and
21% in 1994. A manufacturing jobs gain of 4.4% (or 5,500 jobs) was also very
impressive. Service sector employment rose by 7.2%, while new jobs in trade grew
by 4.8%. Government employment rose by only 1.5% and, as a percentage of total
employment, was only 17% in 1996 compared with 22% in 1986. The state's federal
defense employment of 11,300 jobs was down only 600 jobs, or 5%, from the
previous year. Apparently, most of Utah's defense-related employment reduction
is behind us. Conversion of military facilities to private industry, as is
essentially complete in Tooele and beginning in Ogden, holds the promise of
significant future job growth.
<PAGE> 25
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Single-family building permits are expected to decrease by 5.1% (or by
775 units) in 1997, totaling 14,500 compared with 15,275 in 1996 and 13,904 in
1995. Total construction value in 1997 is projected to be $3.2 billion, a
decline of 11% from the 1996 figure. The housing financing opportunities appear
to be favorable in 1997. Slower net in-migration and employment growth, together
with some indicators of softening in the housing market in late 1996, should
combine to reduce the number of single-family housing starts by 5%.
Multi-family building permits reached nearly 7,400 units in 1996, a gain
of 15%. Salt Lake apartment vacancy rates apparently edged higher in 1996. In
the second half of the year, apartment rental rates were about 3% higher than in
the prior year. In 1997, construction of perhaps 6,000 apartment units is
expected. While an oversupply of housing is not anticipated, a modestly reduced
annual production in 1997 is appropriate.
Real estate sales value in the Salt Lake City Multiple Listing Service
during the January - November 1996 period was up 0.6% (to $1.37 billion), while
the number of single-family homes and condominiums sold dropped 6% (to 9,616).
Available inventory for sale in November 1996 was up more than 50%. Mortgage
recordings during the first nine months of 1996 for new home and resale
financings were $1.522 billion in Salt Lake County, an increase of 27%; $413
million in Utah County, an increase of 8%; $242 million in Weber County, an
increase of 19%; and $130 million in Washington County, an increase of 16%.
The median existing home sales price during the 1996 third quarter in
the Salt Lake/ Ogden area was $123,100, an increase of 5.3% over the prior year,
compared with a 16% gain in 1995. The average 1996 third-quarter residential
sales price in the Salt Lake multiple listing area was $154,676, a
<PAGE> 26
21
gain of 7.0% from the year-earlier figure; however, that gain narrowed to only
1.2% in November. A First Security Bank analysis of housing affordability in
Salt Lake County, using married filing jointly adjusted gross income, indicated
that affordability in 1995 was generally the same as in 1988. The 1996 second
quarter level of housing costs (ACCRA data) was 94.8% of the national average
for Salt Lake City/Ogden, 114.9% for Provo/Orem, 119.0% for Logan, 84.3% for
Cedar City, and 111.4% for St. George. The state's gross mortgage delinquency
rate was 3.6% in September 1996, down from the year-earlier figure of 3.9% and
slightly below the Mountain States' average of 3.8%.
The commencement of the $4 billion, 10-year highway improvement and
transportation project, combined with numerous other large commercial projects
either announced or underway, should sustain rapid growth in Utah's commercial
construction industry. A high level of construction activity is anticipated in
1997 for all major categories of commercial and industrial space. Commercial
real estate vacancy rates in Salt Lake City in the third quarter of 1996 were
5.3% for office space, 4.4% for retail space, and 3.7% for industrial space.
These rates are extremely low, suggesting the likelihood of additional space
being constructed.
Utah's taxable retail sales are forecast to increase by 6.7% in 1997,
significantly below the 11% gain in 1996 and the 8.1% increase in 1995. New
automobile sales may edge slightly higher in 1996, by 1.2%, following the 5.8%
gain achieved in 1996. During the first 11 months of 1996, there were 278,247
tourism room night bookings that the Salt Lake Area Convention and Visitors
Bureau sold to 292 groups. Plans have been completed for a $100 million retail
shopping mall in Provo, with an expected opening in late 1998. Construction has
begun on the $185 million Little America Hotel/Convention Center expansion.
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22
Utah bankruptcies during the first ten months of 1996 jumped by 26%,
following a 12% decline in 1995. Higher debt levels and rising housing costs
contributed to the increase. The consumer credit delinquency rate in Utah
(indirect auto loans) in the third quarter of 1996 was 3.22%, higher than the
2.3% national average and significantly above the state's year-earlier level of
1.79%.
Hotel and motel room tax collections for the January - September 1996
were approximately 6% above those of the prior year. The state's hotel occupancy
rate during the first 11 months of 1996 was 74%, unchanged from the 1995 figure.
Passenger totals at the Salt Lake International Airport rose by 15% during the
first ten months of 1996, following a 5% annual increase in 1995.
In conclusion, Utah's 1997 economic outlook remains highly favorable,
but aggregate economic growth rates likely will not duplicate the extraordinary
gains of the past two years. Interestingly, the modestly slower growth may help
solve Utah's two most evident economic problems: an excessively tight labor
market and escalating single-family home prices.
Source: First Security Corporation
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23
INDUSTRY OVERVIEW
National Engineering and Construction Industry
According to the U.S. Department of Commerce, aggregate spending for
residential, nonresidential, and public construction rose by about 4% in 1996 to
an estimated $588 billion (in constant 1992 dollars) from $567 billion in 1995.
This was the fifth consecutive year of increased construction spending after the
recession low of $485 billion in 1991, which in turn was down from a 1986 peak
of $556 billion. Strong construction spending was tied to three main factors:
low interest rates, increased housing starts, and a robust economy with high
capacity utilization resulting in facility expansion and additions. There has
also been increased spending on highway repairs and reconstruction.
In 1996, engineering and construction firms in the Standard & Poor's
index, including such firms as Fluor Corp., Foster Wheeler, and Jacobs
Engineering, had combined revenues of $22.3 billion, up 9.8% from the 1995
figure. These firms benefitted from gains in overseas revenues; growth in Asia
boosted results and more than made up for flat demand in the domestic markets.
Faster growth over the next few years should continue to be derived from
overseas markets, especially from the emerging growth nations in the
Asia-Pacific region.
On a macroeconomic level, demand for engineering and construction
services mirrors construction spending. For government reporting purposes,
construction spending is classified as either public sector construction or
private sector residential or nonresidential construction. On a more detailed
microeconomic level, these two categories can be subdivided by the size and
intensity of the projects. The particular nature of various projects can
influence demand for specific categories of
<PAGE> 29
24
equipment or services. Equipment and service needs for public construction can
vary depending on whether buildings are being erected, tunnels are being dug, or
roads are being built. In the private nonresidential sector, construction is
divided into industrial, office, and other commercial purposes.
Overall construction demand tracks the economy; it has a lag similar to
the delay that affects most capital goods sectors in the nonresidential sector
of private construction. Reviewing construction spending for the last decade,
the lag is evident following the relatively short recession of 1991. Spending on
nonresidential private construction declined in 1991 and continued to decline in
1992, even though the recession was long past and residential construction had
already recovered. In fact, spending on nonresidential construction remained
below peak spending levels of 1990 right through 1995.
This persistent weakness reflected not only the impact of the recession,
which left unutilized capacity, but also a greater industry reluctance to
construct new capacity that would remain a costly burden in a downturn. Instead,
industrial companies tried to squeeze more output from their existing
facilities. Production lines were revised, new and more efficient production
equipment was bought, and labor strategies were changed to effectively increase
capacity by using overtime or adding second or third shifts in factories.
New industrial plants - or investment in "bricks and mortar", as new
facility construction is often referred to - was only a last alternative in the
latest economic cycle. Construction of new office space was deemed even less of
a priority. As recently as 1995, construction of offices has remained at about a
third below the 1989 cyclical peak.
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25
Although the engineering and construction industry is primarily a
service industry, its fortunes are closely tied to capital spending. Engineering
and construction companies are general contractors. They accept responsibility
for the planning, execution, and completion of projects involving construction
of facilities for diverse industries, utilities, waste management, and
remediation. Projects undertaken by these firms are diverse and can range in
cost from as little as a few hundred thousand dollars to billions of dollars.
These firms employ engineers who plan projects, submit competitive bids
and proposals, and - upon receipt of contracts - engage the myriad
subcontractors who provide the services needed to complete the project. The
engineering firms assume responsibility for controlling the projects' costs and
for their timely completion.
Engineering and construction firms typically enter into one of two kinds
of contracts. Fixed-cost contracts bind the firm to a total cost to complete a
project. Under such a contract, a firm assumes at least part of the risk of cost
overruns, although there are usually protective clauses in contracts to let the
firm recover overruns that weren't directly the fault of the engineering firm.
Still, under a fixed-cost contract, a firm has the opportunity to earn a larger
profit by holding its costs as low as possible. The second type of contract is a
cost-plus contract, in which a firm receives a fixed percentage of profit on top
of the costs it incurs to complete the project. A cost-plus contract is less
risky because costs are borne by the customer and a fixed percentage margin is
established for the contractor.
Traditionally, engineering and construction firms have preferred to
enter into cost-plus contracts, which serve to protect them from the ravages of
inflation, which could erode and even wipe
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26
out the profit that would be earned on a job if the contract were fixed-cost.
However, the actual nominal profits the contractor can earn from these types of
contracts can be restrictive due to improvements in technology and efficiency
that reduce the hours of billable labor needed to execute a contract. As a
result, in recent years many engineering firms have preferred to engage in
fixed-cost contracts or to propose cost-plus contracts that include elaborate
incentives to compensate the engineering firm for holding down project costs or
for speeding a project's completion. Engineering and construction firms are now
pressing customers to enter into fixed-price contracts instead of the cost-plus
type for several reasons. First, inflation has been low for several years, so
the fear of an inflation-driven cost spiral that destroys profits has
diminished. Of course, there is still the peril of cost overruns due to
miscalculations, but the overall current risk is still lower than it was in
times of high inflation. Second - and more importantly for engineering and
construction services firms - is the impact that productivity and automation had
on reducing construction costs. Large engineering firms such as Fluor have
provided their engineers with sophisticated computer technology that has
substantially reduced the time required to plan and design a job. This has
served to reduce the number of billable hours of work for engineers. Under a
cost-plus contract, this effectively reduces a contract's value. In addition,
under a cost-plus contract, an engineering firm receives no benefits from its
investment in technology that provides customers with more accurate and
efficient job performance. Thus, engineering firms are now arguing for
fixed-cost contracts, which are designed to share the rewards of efficiency
between the engineering firms and their customers.
The industry's smallest players may employ just a few engineers and
tackle only small or simple projects for private or municipal customers. The
largest firms are global behemoths that operate on
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27
several continents and execute multibillion-dollar projects such as the
construction of refineries, power generation plants, pipelines, and seaports;
some also provide hazardous waste remediation at highly polluted sites. Some
players are extensively involved in development in Asia and other developing
parts of the world, as well as in the reconstruction of nations such as Kuwait
that have suffered tragic devastation as a result of war. Many are also working
with post-communist Eastern European nations. Worldwide competition for the
large U.S.-based global companies comes from equally large firms based in Japan,
Germany, and South Korea.
Engineering and construction companies have relatively low levels of
fixed costs. They don't have manufacturing plants, since they contract with
suppliers for the specific materials and assemblies needed to complete a
contract. They also have a high proportion of variable costs because labor is a
large part of the operating costs of an engineering and construction firm.
Compared with other kinds of capital goods companies, the gross profit margin of
a typical engineering and construction firm will be smaller but more stable over
time, because most costs related to generating revenues or providing contracted
services are variable. Therefore, an engineering and construction firm's cost of
goods sold tends to rise (or fall) commensurately with its sales. The remaining
items in the income statement tend to be heavily influenced by a company's
particular financial and operating structure. Items such as selling, general and
administrative expense may follow an industry pattern, but wide differences
often occur. The differences can be the result of a particular company's
decision to use either a highly centralized or decentralized administrative
structure. Different companies may also use varied accounting methods. Another
overhead cost, interest expense, is a function of a company's capital
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structure. Finally, taxes can be influenced by the geographic location of a
company's operating subsidiaries or the parent company's state or country of
domicile.
Key indicators of an engineering and construction company's health or
prospects are new orders and order backlogs, which are among the most closely
watched data in the industry, and the book-to-bill ratio, which compares the
value of a company's new contracts (bookings) to the value of its services
provided (billings). Some engineering and construction firms will also disclose
on a quarterly or annual basis the volume of bids placed in competition for
orders, along with the volume of new orders received. The ratio calculated by
dividing new orders received by bids prepared is called the success ratio. This
is an interesting figure because it provides insight into the efficiency of a
company's order procurement process. A high success rate can indicate a company
that doesn't waste corporate resources bidding on contracts that it has a low
probability of winning. However, care must be taken in evaluating a bidding
success rate; a high rate may indicate a company that prices too aggressively.
Therefore, this ratio must be viewed in the context of both its relationship to
a company's profitability and the figure's stability over time. A sudden change
in the success rate may indicate change in the industry's competitive situation.
Consolidation remains a long-term trend for companies in many of the
capital goods sectors. Even though the largest segments or categories are highly
centralized, there remain opportunities for smaller acquisitions that bring
product/service line extensions or geographical expansion. Service companies,
such as those in engineering and construction, can expand their geographic range
or acquire specialty firms that expand their capabilities. Many of the larger
participants in the capital goods industries have begun to evaluate their
businesses from a perspective of portfolio management.
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29
Many consider their various operating subsidiaries to be a business "portfolio".
These portfolios are actively managed to optimize the use of the parent
company's capital and to provide the most favorable returns to investors. Such
companies often make acquisitions to round out product lines or deepen market
penetration. Lagging units are restructured or divested if they cannot provide
acceptable returns.
The capital goods industries are highly cyclical businesses. Their
fortunes tend to lag the U.S. and global economies because during the early
stages of economic expansion, there is normally considerable excess capacity
available in the diverse industries that capital goods companies serve. As the
economic cycle progresses and the economy expands, capacity utilization rises
and industry contemplates the conflicting issues regarding capacity expansion.
The conflict arises due to the murkiness of economic projections. If industry
chooses to expand capacity to meet bursts of peak near-term demand, will it be
saddled with costly excess capacity during a downturn? Ultimately, the decision
becomes whether to sacrifice short-term opportunity to ensure long-term
survival. Unfortunately for many industries, the choice of sacrificing short-
term opportunity isn't an acceptable alternative, because an inability to meet
customers' short-term demands often means the permanent loss of customers.
Therefore, as certain thresholds of capacity utilization are reached, orders for
new equipment, facility modernizations, and plant expansions ensue. On the
downside of the economy, as it becomes apparent that hard times are ahead, new
orders slow and existing orders are often canceled or deferred.
Thus, the fortunes of the capital goods industries soar and plummet with
the vicissitudes of the economy and the discrete sectors in which they compete.
The cyclical nature of business is a
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30
characteristic to which capital goods suppliers have become accustomed. The
best-managed companies develop the nimbleness to adjust employment levels and
overhead costs in line with industry fluctuations. To develop that nimbleness,
capital goods companies determine the key indicators that serve as early warning
signals about pending shifts in demand. They then watch them closely and act
quickly in response to clear signals. The specifics of customer demand, however,
vary for different sectors of the capital goods industries.
A mixed outlook appears for the engineering and construction services
industry. This reflects a combination of strong overseas demand, particularly in
the world's emerging regions, and a flat-to-lower outlook for North American
demand. One of the issues troubling the industry is the growing realization that
overseas growth is less profitable than once anticipated. The overseas troubles
stem in part from stiff competition from firms in lower labor-cost nations, such
as South Korea and India. One of the most promising markets, the People's
Republic of China, has made an art out of the bargaining process. By holding out
the promise of bountiful contracts, the Chinese government has been able to
attract intense competition for contracts, particularly in the power generation
and infrastructure projects that are among the most hotly contested
opportunities. In the race to gain a foothold in China, firms are often bidding
too aggressively and ending up with little margin for error. When projects have
gone awry, losses on specific contracts can occur and thinner overall profit
margins have resulted for U.S. participants.
Many firms in the industry also haven't retained a sufficient portion of
the savings that they've realized by automating the design process in
construction and engineering services. The use of "cost-plus" contracts, in
which a firm receives a fixed percentage of profit on top of the costs it incurs
to
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31
complete the project, has often conveyed virtually all of the savings from the
use of computerized design equipment to customers. This has created pressure
from engineering firms to shift to fixed-price contracts from cost-plus deals.
Overall, Standard & Poor's projects revenues to rise by 10% to 15% for
the domestic participants in the engineering and construction services industry
in 1997. However, a commensurate rise in profits is not expected. In fact,
margins are likely to narrow, and aggregate earnings may well turn lower in
1997. However, longer term, the economic cycle is expected to be prolonged, with
order backlog stabilizing and then turning up as manufacturers boost capital
spending to modernize and upgrade plant capabilities and capacity. The
fundamental outlook for the engineering and construction industry is positive.
Acquisitions, oil projects worldwide, together with continued strength in demand
from the chemical, pulp and paper, and power industries, should boost backlogs
and aid future industry sales. Industries are investing to modernize, maintain
facilities, and make modest capacity additions. In order to comply with the
requirements of the Clean Air Act of 1990, basic industrial companies are making
capital expenditures to upgrade waste processing facilities and add pollution
control devices.
Longer term, the reconstruction of Eastern Europe and the former Soviet
republics, expansion of process industries in Asia and the Pacific Rim, and
worldwide growth in electrical power demand are projected to enhance engineering
and construction industry growth. Further enhancing the long-term outlook is the
commitment expressed in many of these developing areas to make proper
investments in waste management and pollution control facilities so that they
avoid the remediation problems that have occurred elsewhere when shortsighted
alternatives were selected.
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In a business cycle's early or recovery stage, construction companies
can bring the benefits of their operating leverage directly to the bottom line
for several reasons. First, raw material costs and other expenses are generally
low or at least stable. Second, the rising demand that happens in the early part
of a recovery can result in sharply increased volumes and operating rates. Due
to this, profits tend to rise dramatically. As the business cycle matures,
however, costs for raw materials, financing, and depreciation begin to increase
at a faster pace than sales. This results in a squeeze on margins.
Although the current business cycle appears to be approaching its later
stages, it is likely that when the downturn does occur, industry profits will
hold up better than they have in the past. This optimism is based on a market
perceived as being less erratic and less cyclical than in the past. The previous
cycle lasted from 1982 to 1990 and saw total U.S. construction expenditures
increase with virtually no interruption. By contrast, the current cycle - which
dates from the trough experienced in 1991 - saw construction expenditures
plateau in 1994 and remain virtually unchanged in 1995. This slowdown so early
in the cycle has moderated the expectations of builders and equipment makers. So
far, there have not been any of the imbalances and excesses that characterized
the 1980s, and there is none of the excessive optimism and overconfidence that
often marks an upturn's final stage. Consequently, production and inventories
appear to be about in line with demand, and this should lessen the negative
impact on profits when the industry actually declines, as opposed to just
slowing down.
An economic slowdown is not altogether bad for the construction industry
anyway. Assuming an economic "soft landing", where the economy would slow enough
to ease inflationary pressures, but not enough to cause a full-fledged
recession, interest rates would likely fall, making it more attractive
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33
for both business and government to undertake various infrastructure projects.
Provided that the economy continues to plod along a mildly positive trend line,
the stage would be set for a prolonged period of demand.
Growth prospects for the construction industry for the balance of the
1990s and into the next century vary by market. In the new housing market, the
influence of demographic trends may continue to depress residential construction
through at least the end of the decade. Even though interest rates in 1993 and
1995 declined to levels not seen since the early 1970s - and far below the
sky-high rates of the late 1970s and early 1980s - housing starts for those two
years were 1.288 million and 1.351 million, respectively. In contrast, housing
starts had reached a peak level of 2.036 million in 1978. Housing starts
subsequently declined to 1.807 million units in 1986, despite the fact that
interest rates fell below their 1978 levels, signaling the first stages of a
secular decline in demand.
Demographics are the main factor behind the lower level of housing
starts. The rate of household formations among baby boomers - the huge
demographic group born between 1946 and 1964 - has peaked. As baby boomers age,
the rate of household formations will continue to decline, depressing demand for
housing for the balance of the 1990s and into the next century. Weakness in
housing starts also depresses nonresidential commercial construction spending on
such projects as shopping centers and schools.
Due to severe overbuilding in the 1980s, the outlook for office
construction in the near future isn't encouraging. The market has definitely
stabilized, but vacancy rates remain high by historical standards. Before the
1980s, a vacancy rate of more than 10% was considered high. The subsequent
building boom, however, resulted in rates higher than 20% in the 1980s and early
1990s. According to
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34
the real estate brokerage firm Cushman & Wakefield Inc., by year-end 1994 the
suburban office vacancy rate was at 17%, declining slightly to 15.2% at year-end
1995. The downtown office vacancy rate declined from 17.2% in 1994 to 16.1% at
year-end 1995. A growing economy helped increase absorption of existing space.
Combined with a virtual halt in building in 1993 and 1994 - and only a small
amount of building in 1995 - the stronger economy helped firm up vacancy rates.
Although vacancy rates have declined substantially from the skyscraping
levels seen in the 1980s and early 1990s, they are still high in view of the
secular change in demand for office space. Restructurings, downsizing, and
mergers are decreasing the need for both existing and new office space. Also, as
communication technology continues to improve, demand for office space will
decline. The growing use of computers and advances in data transmission have
made it possible for many employees to work outside of traditional business
offices. Accordingly, spending for new office space is likely to remain minimal.
In 1995, some 8.5 million square feet of office space was completed. In
contrast, during the peak years of the 1980s, about 100 million square feet of
space was completed each year. And for the balance of the 1990s and early next
century, construction of office space isn't expected to come close to levels
seen in the 1980s.
The outlook for mining industry construction is positive. Coal
production - which accounts for the bulk of mining industry equipment demand -
is forecast to grow both domestically and internationally. According to
Financial World, a New York-based investment publication, annual coal demand in
east Asia should increase by nearly 150% between 1991 and 2010. Improved living
standards and increased worldwide industrialization will boost coal mining.
Near-term, a pickup in U.S. coal demand could provide a boost to the industry.
Coal stockpiles in the United States were
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126.8 million tons at the end of 1995, vs. 158.0 million tons at year-end 1991.
The decline was mainly due to aggressive inventory management by the electric
utility industry and unusually mild weather in the early 1990s. Now electric
utilities may need to replenish their inventories, which would stimulate coal
production and demand for related construction equipment and services.
The Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA) has
to date had little impact on public construction expenditures, primarily because
projects funded by ISTEA typically require years to plan. As a result, actual
construction spending for ISTEA-funded projects has only recently begun to pick
up. In addition, some financially strapped states have not yet been able to
participate in ISTEA, which requires states to match federal funds. ISTEA is
expected to have a more significant impact on infrastructure development during
the next few years, as projects currently in the planning stages get underway.
In general, economic growth outside the United States, particularly in
Asia, is a promising source of long-term demand. For example, Caterpillar
expects its annual sales to China to increase to $500 million by the year 2000,
up from the 1993 estimated level of $50 to $100 million. By 2010, Caterpillar
expects 75% of its sales to be made outside the United States.
The earthmoving machinery segment of the construction industry comprises
a broad range of equipment, including crawler dozers, loaders, wheel loaders and
dozers, scrapers, graders, hydraulic excavators and backhoes, trenchers,
pipelayers, and off-highway trucks. Building construction (residential,
commercial, manufacturing, and institutional) is by far the leading source of
demand for earthmoving equipment. Historically, considerable demand has been
generated by road and dambuilding projects. With the interstate highway system
virtually completed, the major focus of this
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market will center on repair and maintenance. Domestic dam building has also
slowed, and a number of large projects are nearing completion in foreign
countries.
Source: Standard & Poor's Industry Surveys
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The Utah Commercial Construction Industry
The construction industry has the dubious distinction of being one of
the most volatile of industries. This volatility has numerous causes imbedded in
the construction process. Some of the most significant are the relationship
between interest rates and housing demand, the level of unsold inventory and
vacancy rates, and shifts in migration patterns and the formation of new
households. These factors, along with others, affect the amplitude of the
construction cycle.
There are two distinguishing characteristics of nonresidential
construction cycles in Utah. First, nonresidential construction has been much
less volatile than residential construction. Second, the nonresidential
construction cycle lags the residential construction cycle by about one year.
During the past 25 years, the most severe contraction in Utah
nonresidential construction activity lasted only three years (from 1986 through
1988), when nonresidential valuation fell by 53%. During the same period,
residential construction was suffering through a much deeper and longer
contraction, declining 70% over a five year period. The current nonresidential
expansion has run for some five years, thus becoming the longest nonresidential
expansion since the 1970s. Nonresidential construction in 1997 will be driven
primarily by construction activity at the $2.5 billion Micron facility. Although
construction valuation at Micron will be less than initially anticipated, it
will still amount to over $500 million. To date, in the present construction
boom, nonresidential valuation has increased by about 117%, considerably less
than the 265% recorded by the residential sector.
During expansions, nonresidential and residential construction are
closely associated. Utah residential construction peaked in 1972, 1977 and 1984,
followed by nonresidential construction peaks in 1973, 1979 and 1985. There has
typically been a lag of approximately one year between the two
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types of construction. The current expansion is very typical, with
nonresidential construction mirroring residential construction behavior. Both
are moving toward new peaks. In fact, it is very likely that residential
construction peaked in 1995 and that nonresidential construction peaked in 1996,
thus repeating the pattern of the past. It should be noted that nonresidential
construction, as measured in constant dollars, has yet to surpass the level of
activity in 1979; however, with several large projects currently underway, 1996
activity likely broke the 1979 all-time high of $783.2 million in constant 1992
dollars. Some economists have indicated that 1996 nonresidential construction
activity approached $1.3 billion.
Beyond 1996, nonresidential construction activity in Utah should average
between $550 million and $600 million a year, a level slightly higher than that
experienced during the 1991-95 period. Several large nonresidential projects are
planned in the next few years, including Micron, the Interstate 15 upgrade (an
estimated $1.09 billion project), the Kennecott Tailings Expansion ($500
million), the Little America Hotel/Convention Center ($185 million), the
Cottonwood Corporate Complex ($150 million), Wetlands Mitigation ($135 million),
the Salt Lake County Adult Detention Center ($70 million), Thanksgiving Point
($60 million), the Central Utah Project ($58 million), 5300 Corporate Center
($45 million), Huntsman Cancer Institute ($26 million), West Valley Hockey Arena
($26 million), Provo One Freedom Center ($25 million), Biology Research Building
at the University of Utah ($23 million), and the Airport Control Tower ($17.5
million).
Current market conditions for commercial, retail and industrial space
also suggest a strong nonresidential construction market for the next few years.
The 6% vacancy rate for office space in Salt Lake County is the lowest in ten
years, while the vacancy rate for retail space is even lower, at 5%.
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Industrial space is also in short supply. In 1995, over 4.7 million square feet
of industrial space was absorbed by the Salt Lake County real estate market.
Finally, heavy construction activity, which is not included in
nonresidential construction valuation data, should also have some very good
years between 1996 and 2000. Although heavy construction is less labor-intensive
than residential or nonresidential construction, the dollars spent are large.
Improving the transportation system is one of the highest priorities of Utah
state government. Governor Leavitt's Statewide Transportation Improvement Plan
(STIP) would require $1.09 billion to be spent over the next five years
upgrading Interstate 15 in Salt Lake County. In addition, the current STIP
identifies 72 projects, which will cost an estimated $2.5 billion, that should
be completed over the next decade to meet Utah's infrastructure needs.
Source: Utah Economic and Business Review
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FINANCIAL REVIEW
The financial performance of W. W. Clyde & Co. was quite volatile over
the time period examined in this report, comprised of the five years ended
December 31, 1992 through 1996. Selected financial ratios for the Company are
contained in Exhibit 1; financial statement summaries (including common size and
growth trend analyses) are contained in Appendix A.
As can be seen from Exhibit 1 and Appendix A, W. W. Clyde & Co.'s
construction revenues declined significantly over the 1992-96 period. Revenues
grew from $25.9 million in 1992 to $26.9 million (or by 4.0%) in 1993, declined
to $20.2 million (or by 24.9%) in 1994, increased slightly to $21.3 million (or
by 5.5%) in 1995, then fell again to a period low of $19.1 million (or by 10.6%)
in 1996. Revenues averaged $22.7 million over the 1992-96 period, and declined
at a compound annual rate of 7.4% during the period.
Certain adjustments have been made to the reported net income of W. W.
Clyde & Co. in each year of the 1992-96 period in an attempt to more accurately
ascertain the Company's actual income producing capacity. First, the gain on a
one-time, nonrecurring sale of investment property made in 1992 in the amount of
$315,900 was excluded from pre-tax income in that year. Second, a nonrecurring
charge of $321,190 made in 1993 for the cumulative effect of a change in
accounting for income taxes was excluded from pre-tax income in that year.
Third, equity in earnings of the Company's affiliate, Geneva Rock Products,
Inc., in which the Company owns a 34.77% equity interest, was excluded from the
Company's pre-tax earnings in each year of the 1992-96 period, since the
methodology employed in this report will add the estimated value of this
interest to the going concern value of the Company's operations in arriving at a
final value estimate of the Company.
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41
Finally, an assumed combined federal and state corporate income tax rate of 37%
has been applied to adjusted pre-tax earnings in each year of the 1992-96 period
in arriving at adjusted net income.
As was the case with revenues, W. W. Clyde & Co.'s adjusted net income
declined over the 1992-96 period. Adjusted net income fell from $2.27 million in
1992 to $2.02 million (or by 10.8%) in 1993 and to a period low of only $.61
million (or by 69.7%) in 1994, improved to $1.80 million (or by 193.2%) in 1995,
then fell again to $.80 million (or by 55.6%) in 1996. Adjusted net income
averaged $1.50 million over the 1992-96 period, and declined at a compound
annual rate of 23.0% during the period.
The Company's adjusted cash flow from operations (or adjusted net income
plus non-cash depreciation expense) likewise declined from $3.38 million in 1992
to $3.30 million (or by 2.4%) in 1993 and to $2.04 million (or by 38.0%) in
1994, improved to $3.49 million (or by 70.6%) in 1995, then fell again to $2.61
million (or by 25.1%) in 1996. Adjusted cash flow from operations averaged $2.96
million during the 1992-96 period, and declined at a compound annual rate of
6.2% over the period.
W. W. Clyde & Co.'s gross profit margin declined from 16.3% in 1992 to
14.0% in 1993 and only 8.1% in 1994, improved to 14.7% in 1995, then declined
again to 10.2% in 1996. Gross margin averaged 12.6% during the 1992-96 period.
The Company's operating expenses as a percent of revenues remained relatively
constant over the period, at 5.0% in 1992, 4.7% in 1993, 6.5% in 1994, 5.9% in
1995, and 7.6% in 1996, with a period average figure of 5.9%. The Company's
operating margin fell from 11.4% in 1992 to 9.3% in 1993 and to only 1.5% in
1994, recovered to 8.8% in 1995, then fell again to only 2.6% in 1996. Operating
margin averaged 6.7% over the 1992-96 period.
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Interest expense as a percent of revenues was negligible during the period,
resulting from the absence of long-term debt during the period. However, other
income (comprised primarily of interest income, with much lesser amounts of gain
on sale of property and equipment and miscellaneous income) was significant over
the 1992-96 period, at $678,000 in 1992, $704,000 in 1993, $663,100 in 1994,
$978,900 in 1995, and $767,900 in 1996. Other income averaged $758,400 (or 3.4%
of revenues) during the period.
W. W. Clyde & Co.'s adjusted total asset turnover ratio (excluding both
its investment in and its share of the sales of Geneva Rock Products), which
measures the efficiency with which the assets of the Company are utilized, fell
from 1.1 times in 1992 and 1993 to 0.9 times in 1994 and 1995 and 0.8 times in
1996. The Company's receivables turnover likewise declined somewhat over the
period (from 8.4 times in 1992 to 7.0 times in 1996), as did its fixed asset
turnover (from 4.7 times in 1992 to only 2.2 times in 1996).
The Company's adjusted net margin (adjusted net income as a percent of
revenues) fell from 8.8% in 1992 to 7.5% in 1993 and to only 3.0% in 1994,
recovered to 8.4% in 1995, then declined again to 4.2% in 1996. Adjusted net
margin averaged 6.4% during the 1992-96 period. Adjusted return on assets
(excluding both the Company's investment in and its share of the earnings of
Geneva Rock Products) likewise fell from 9.8% in 1992 to 8.4% in 1993 and to
only 2.6% in 1994, improved to 7.3% in 1995, then fell again to 3.2% in 1996,
with a period average figure of 6.3%. Adjusted return on equity (likewise
excluding both the Company's investment in and its share of the earnings of
Geneva Rock Products) was moderately low on average throughout the 1992-96
period, at 11.1% in 1992, 9.5% in 1993, 2.9% in 1994, 8.1% in 1995, and 3.5% in
1996, with a period average figure of
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7.0%. This moderately poor trend in return on invested equity capital was
attributable to a combination of (i) the Company's generally declining net
margin during the period; (ii) its declining total asset turnover ratio during
the period; and (iii) the very low level of financial leverage deployed in its
capital structure throughout the period.
W. W. Clyde & Co.'s financial risk was very low throughout the 1992-96
period. The Company's total debt as a percent of total assets averaged only 3.9%
during the period, with an even lower 1996 figure of 3.0%. The Company's
shareholders' equity as a percent of total assets was correspondingly very high
throughout the period, averaging 79.8%, with a similar 1996 figure of 77.8%.
Deferred income taxes constituted the remainder, averaging 16.3% of assets
during the period. The Company had no long-term debt during the period, although
it did record as a long-term liability on its 1996 balance sheet accrued pension
costs in the amount of $258,400 (or 0.6% of total assets and 0.7% of
shareholders' equity). The Company's liquidity, as measured by the current
ratio, was very high throughout the period, averaging 12.7 times, with an even
higher 1996 figure of 15.0 times. Finally, because of the absence of long-term
debt, the Company had virtually no interest expense to cover during the period.
As of December 31, 1996 (the date of the most recent balance sheet
available), W. W. Clyde & Co. had total assets of $44.9 million, comprised of
$16.3 million in current assets (in turn consisting of cash and securities of
$11.8 million, contracts receivable of $2.7 million, costs in excess of billings
on contracts of $1.2 million, and other current assets of $0.6 million), $8.7
million in depreciated property and equipment, and $19.9 million in investment
in affiliate (Geneva Rock Products). As of the same date, the Company had
current liabilities of $1.1 million, no long-term debt, accrued pension costs of
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$0.3 million, deferred income taxes of $8.6 million, shareholders' equity of
$34.9 million, and positive working capital of $15.3 million.
W. W. Clyde & Co. paid dividends to its shareholders in the amounts of
$850,900 in 1992, $945,400 in each of the years 1993 through 1995, and $567,300
in 1996, or an average of $850,900 over the 1992-96 period. These dividend
payments reflected a dividend payout ratio (or the ratio of dividends to
adjusted net income) of 37.5% in 1992, 46.8% in 1993, 154.4% in 1994, 52.6% in
1995, and 71.2% in 1996, with an average dividend payout ratio of 72.5% over the
period.
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CROSS-SECTIONAL ANALYSIS
To acquire a better impression of W. W. Clyde & Co.'s 1996 performance,
its record is compared with the average experience of other heavy construction
contractors with annual revenues of between $10 - $50 million. Financial data on
companies in the heavy construction contracting industry is collected by Robert
Morris Associates, Philadelphia, Pennsylvania, and published in that company's
Annual Statement Studies (see Appendix B). Although the activities of the
companies in the group may not be totally consistent with those of W. W. Clyde &
Co., the information is nevertheless considered representative of firms engaged
in the same types of activities as the Company. As such, the data provide a
reasonable backdrop for a comparative analysis of the Company's performance.
Exhibit 2 displays selected 1996 statistics for W. W. Clyde & Co. and
the average of other heavy construction contractors. Several differences are
evident. The Company had a different asset composition when compared with the
industry average, with much lower current assets (36.4% vs. 65.0%) and fixed
assets (19.3% vs. 29.8%) as a percent of total assets. The differential is
primarily the result of the Company's large investment in affiliate (Geneva Rock
Products), which comprised 44.3% of total assets in 1996. The Company had higher
cash (26.4% vs. 17.6%), but much lower receivables (6.1% vs. 35.3%), costs and
estimated earnings (2.6% vs. 5.6%), and inventory (0.4% vs. 1.9%) as a percent
of total assets relative to the industry average.
The Company had a much less leveraged 1996 capital structure when
compared with the industry average. The Company had much lower current
liabilities (2.4% vs. 46.0%), long-term debt (0.6% vs. 10.5%), and total debt
(3.0% vs. 56.5%) as a percent of total assets. The Company's net
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worth as a percent of total assets was correspondingly well above the industry
average figure (77.8% vs. 41.0%).
W. W. Clyde & Co.'s 1996 gross margin was slightly below that of the
industry average (10.2% vs. 11.3%). However, this negative gross margin
differential was offset by the Company's lower operating expenses as a percent
of revenues (7.6% vs. 8.7%), resulting in the Company's operating margin being
identical to the industry average figure (2.6% vs. 2.6%). However, the Company
had a much higher pre-tax net margin relative to that of the industry average
(6.6% vs. 2.8%), resulting from the Company's absence of interest expense and
much higher relative level of other income as a percent of revenues.
W. W. Clyde & Co.'s 1996 adjusted total asset turnover (excluding both
the Company's investment in and its share of the sales of Geneva Rock Products)
was well below that of the industry average (0.8 times vs. 2.4 times). The
Company had roughly similar receivables turnover (7.0 times vs. 8.1 times), but
much lower fixed asset turnover (2.2 times vs. 8.2 times) relative to the
industry average.
The Company's higher pre-tax margin was offset by its much lower total
asset turnover, resulting in a 1996 adjusted before-tax return on asset ratio
(excluding both the Company's investment in and its share of the earnings of
Geneva Rock Products) somewhat below that of the industry average (5.1% vs.
5.7%). The much lower relative level of financial leverage deployed in the
Company's capital structure resulted in a much larger disparity in the adjusted
before-tax return on equity ratio (again excluding the Company's investment in
and its share of the earnings of Geneva Rock Products), with the Company's
figure of 5.6% being well below the industry average figure of 17.6%.
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Finally, W. W. Clyde & Co.'s financial risk appears to be well below
that of the industry average, as reflected by the Company's much lower 1996
total debt to equity ratio (0.0 times vs. 1.9 times), its much higher liquidity
(a current ratio of 15.0 times vs. the industry average figure of 1.3 times),
and its absence of long-term debt and resultant interest expense to cover (the
industry had a 1996 interest coverage ratio of 5.3 times).
In summary, W. W. Clyde & Co.'s 1996 financial performance appeared to
be generally superior to that of the average firm in the industry in terms of
return on revenues and financial strength, similar in terms of return on total
invested capital, but inferior in terms of return on invested equity capital and
asset utilization efficiency.
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ESTIMATES OF VALUE
Four widely recognized approaches are utilized to estimate the fair
market enterprise value of W. W. Clyde & Co. as of June 30, 1997: book value
(including liquidation value), transaction value, market value (derived from
market value ratios of similar firms), and income value (based on the present
value of future benefits). As previously stated, the uncertainty inherent in the
valuation process most likely will cause these differing methods of valuation to
produce different estimates of value. Before estimates of value can be made, the
nature of the security being valued and the expected income of the subject
security must be discussed.
Nature of the Security
The value of a security is influenced by many of its characteristics,
including control and marketability.
Control
The market value of public securities normally reflects the minority
interest being traded. The price of a successful tender offer seeking control is
usually higher than previous minority trades and reflects the value of the
premium for control. The purpose of this report is to estimate the fair market
enterprise value of W. W. Clyde & Co. Therefore, a premium for control is
applicable.
Marketability
The market value and income value methods of valuation are based on
comparisons with current values of securities traded on national exchanges.
There are, however, certain marketability differences between W. W. Clyde & Co.
securities and publicly traded securities. An owner of publicly
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traded securities can know at all times the market value of his holding. He can
sell that holding on virtually a moment's notice and receive cash net of
brokerage fees within three working days.
Such is not the case with an investment in the common stock of W. W.
Clyde & Co., being a privately held company. There is no ready market for the
Company's common stock, and no assurance of finding a buyer at any price.
Consequently, liquidating a position in the Company could well be a more costly
and time-consuming process than liquidating stock in publicly traded firms.
Therefore, a discount relative to the values of publicly traded securities
should be applied to the value of W. W. Clyde & Co. securities to reflect this
limited marketability.
Normalization of Earnings
The reported net income of a typical firm is subject to random
fluctuations as well as external and internal shocks. Thus, some "normalization"
procedure generally must be applied to smooth the data series and reveal the
underlying, stabilized trend in net income. Normalization of net income is
required to project earnings figures to be used in calculating the income value
estimate, as well as in providing a realistic earnings figure to apply the
market value approach to.
Normalization of earnings involves two steps. The first is the
elimination of extraordinary items which impact the firm's earnings but which
are not expected to repeat or persist. As previously discussed in the Financial
Review section of this report (see page 31), certain adjustments have been made
to the reported net income of W. W. Clyde & Co. in each year of the 1992-96
period in an attempt to more accurately portray the Company's earnings
generating capability. The second step involves identification of the trend in
the normalized earnings to eliminate random fluctuations in any particular year
and to project future expected earnings.
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50
Several procedures are used to normalize and project earnings. These
approaches include statistical trend line and logarithmic analysis of past
earnings (regression analysis), past net margins applied to statistically
derived revenue estimates, and Company projections.
Regression Analysis
Regression analysis is a statistical method which fixes a trend line to
actual data over time. Income estimates can be made by extending the trend line
into the future. A trend line correlation coefficient near 1.0 means that there
is a close association between the trend line and the actual data and suggests
that the data have a high degree of predictability. There are two types of trend
lines associated with regression analysis: a linear trend line, which assumes a
constant amount increase for each period; and a logarithmic trend line, which
assumes a constant percentage increase for each period.
Past Averages
The second method of normalizing and projecting income is to use past
averages, both an historical average growth rate and an average net margin.
Essentially, the procedure applies an historical average or expected future net
margin to revenue forecasts to derive net income forecasts. The rationale is
that revenues tend to be more stable than net income.
Company Projections
Income statement projections for the five year period 1997-2001 have
been prepared based on an analysis of W. W. Clyde & Co.'s historical operating
results and conversations with Company management. These projections, together
with the underlying assumptions made in forming them, are
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contained in Exhibit 3, with Exhibit 4 showing projected income statement items
as a percent of projected revenues and Exhibit 5 reflecting projected income
statement item growth rates.
Projected Earnings
The various approaches described above yield a range of prospective net
income figures, which are summarized in Exhibit 6 and graphically depicted in
Exhibit 7. The projections contained in Exhibit 3 are deemed to be the most
reliable estimates as to the future operating prospects of the Company, and are
therefore utilized for valuation purposes. This approach yields projected
earnings estimates for W. W. Clyde & Co. of $1,136,900 for 1997, $1,188,200 for
1998, $1,242,600 for 1999, $1,300,400 for 2000, and $1,361,600 for 2001. These
figures translate into earnings per share estimates of $12.03 for 1997, $12.57
for 1998, $13.14 for 1999, $13.75 for 2000, and $14.40 for 2001, based on 94,544
shares outstanding.
A graphical comparison of these projected earnings figures for the
1997-2001 period with the actual adjusted earnings generated by the Company over
the 1992-96 period is contained in Exhibit 8. It should be emphasized that
forecasting the future is at best a difficult and tenuous process. There will
undoubtedly be disparities between the projected figures and actual results,
since events and circumstances frequently do not occur as expected, and those
disparities may be material. This is particularly the case with W. W. Clyde &
Co., given the volatility of the Company's historical revenues and earnings.
Book/Liquidation Value
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The book value of a company, that is, the carrying balances of the
equity accounts on the company's records, normally bears only a tenuous
relationship to the market value of the firm's stock. A useful accounting
concept, it has a somewhat limited role in the valuation process. For
informational purposes, the book value of W. W. Clyde & Co. as of December 31,
1996, the date of the most recent balance sheet available, was $34,947,000 or
$370.00 per share, based on 94,544 shares outstanding.
A common alternative measure of book value is the liquidation value of
the business. A quitting concern concept, it is normally not entirely applicable
to the valuation of a typical going concern. The value of a company is typically
not a function of what the assets of the company could be sold for (net of
liabilities), but is rather a function of how those assets can be utilized in
generating revenue and net income. Furthermore, given that W. W. Clyde & Co. has
been in existence for some 71 years, it does not appear likely that the Company
will be liquidated in the foreseeable future. Company management has indicated
that it has no plans to liquidate the Company.
Nevertheless, liquidation value does serve a useful role as a valuation
benchmark. At the very least, it approximates the value of the residual assets
distributable to shareholders were the business to be wound up with all
obligations discharged. It is particularly germane in the case of W. W. Clyde &
Co., since the Company's liquidation value appears to well above its value as a
going concern (in the context of the contemplated consolidation of the Company
with the other three related companies), and is therefore deemed herein to be
the most appropriate measure of its fair market enterprise value.
Exhibit 9 contains a hypothetical liquidation value schedule for W. W.
Clyde & Co. as of December 31, 1996 (the date of the most recent balance sheet
available). Liquidation value is defined as the difference between the
realizable value of all assets and the realizable value of all liabilities,
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53
assuming an orderly liquidation of the Company. In reviewing Exhibit 9, the
assumptions that underlie the subjective estimates of the realization rates are
critical. Due care has been taken to keep these assumptions as reasonable as
possible, but precision is not implied. As can be seen, the liquidation value of
W. W. Clyde & Co. as of December 31, 1996 is estimated to be $62,100,000 or
$657.00 per share. As previously discussed, this figure is deemed to be the best
indicator of the fair market enterprise value of the Company as of June 30,
1997.
Transaction Value
Transaction value is the value at which shares of the subject security
were sold recently. A recent sale of a security is an indicator of value for
both legal and economic purposes. If an examination of all the relevant facts
reveals that the transaction took place at arm's length, i.e., that neither
buyer nor seller was forced to deal and both had adequate information and that
the transaction was for reasonable consideration, the value established in such
a transaction would be difficult to contest.
We are aware of no recent transactions involving the common stock of W.
W. Clyde & Co., nor of any acquisition offers for the Company. Consequently,
transaction value cannot be considered in arriving at a final estimate of the
fair market enterprise value of the Company as of June 30, 1997.
Market Value
The market value approach attempts to determine the value of W. W. Clyde
& Co. as if its shares were traded on an exchange in an active, public market.
This is accomplished by determining a comparative price-earnings ratio, which is
the ratio of the market price of a share of stock to the
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earnings per share; a comparative price to cash flow ratio, which is the ratio
of the market price of a share of stock to the operating cash flow (net income
plus depreciation) per share; a comparative price to revenue ratio, which is the
ratio of the market price of a share of stock to the dollar sales per share; and
a comparative price to book ratio, which is the ratio of the market price of a
share of stock to the book value per share. Appropriate ratios for W. W. Clyde &
Co. can be determined by comparing the firm with others in the same industry
and, from its relative standing in the industry, inferring market value ratios
based on ratios in the industry.
The price-earnings ratio is an important determinant of value because it
reflects the expectations of market participants. Generally speaking, investors
are willing to pay a higher price for today's earnings if they expect those
earnings to grow in the future. Conversely, they will pay a lower price if they
anticipate earnings to decline. Not only is the price-earnings ratio a reading
of the market's psychology, but it also represents the consensus of the market
place as to the worth of a security. This is significant for three reasons.
First, the market is competitive, with participant investors seeking to enhance
their wealth. Second, the market is informed, with investors seeking to deepen
their understanding of the companies and industries in which they have
positions. Finally, the market is rational, since investors act upon the
information acquired to further their objectives. All three factors contribute
much weight to the resulting valuation in spite of imperfections in the market.
Similar arguments can be made for the other market value ratios.
Ideally, market value ratios for W. W. Clyde & Co. should be inferred
from ratios of similar firms whose stocks are traded actively in public markets.
Unfortunately, many heavy construction contractors with operations similar to
those of W. W. Clyde & Co. are small, closely held businesses
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for which no market value has been established. Since these companies are not
publicly traded, it is impossible to use them as a basis for making inferences
regarding the market value of W. W. Clyde & Co. Therefore, a group of much
larger, publicly traded heavy construction contractors/engineering firms is
selected as being representative of the industry in which the Company operates.
Exhibit 10 presents the names and brief descriptions of a sample group
of 19 companies considered representative of the industry of which W. W. Clyde &
Co. is a member. Although these companies obviously differ from W. W. Clyde &
Co., the differences are not of prime significance here, since a direct
comparison is not intended but rather a relative comparison that reflects an
aggregate appraisal of the industry. To the extent that the firms in the
industry sample group and W. W. Clyde & Co. are affected by similar fundamental
economic factors, investors' expectations regarding the long-term growth and
success of the former are justifiably imputable to the future of the latter.
In 1996, W. W. Clyde & Co. had mixed profitability ratios when compared
with the average experience of the sample group of public companies. The
Company's net margin of 4.2% was well above the sample group average figure of
2.1%. The Company's adjusted return on assets was similar to that of the sample
group average (3.2% vs. 3.5%); however, its adjusted return on equity was
significantly below the sample group average figure (3.5% vs. 10.2%).
W. W. Clyde & Co. appears to have much lower financial risk when
compared with the average company in the sample group. The Company had a 1996
long-term debt to equity ratio of only 0.7%, well below the sample group average
figure of 42.5%. Furthermore, the Company's current ratio of 15.0 times was well
above the sample group average figure of 1.8 times, suggesting much better
relative liquidity.
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W. W. Clyde & Co.'s revenues declined by 10.6% in 1996 and at a compound
annual rate of 7.4% over the 1992-96 period. Conversely, the sample group
experienced average compound annual revenue growth of 7.8% per year over the
last five years and similar revenue growth of 7.9% in 1996. The Company's
revenues are projected to grow over the 1997-2001 period at a compound annual
rate of 5.0%, increasing from the 1996 figure of $19.1 million to a projected
level of $24.3 million in 2001. This projected growth rate is well below the
average compound annual revenue growth rate forecast for the companies in the
sample group by Value Line Investment Survey of 10.8% over the next five years.
W. W. Clyde & Co.'s adjusted net income declined by 55.6% in 1996 and at
a compound annual rate of 23.0% over the 1992-96 period. Conversely, the sample
group had average compound annual earnings growth of 7.8% per year over the last
five years and 3.4% during the most recent year. The Company's earnings are
projected to grow at a compound annual rate of 11.3% over the 1997-2001 period,
from the 1996 adjusted figure of $796,800 to a projected level of $1,361,600 in
2001. This projected growth rate is somewhat below the average compound annual
earnings growth rate projected by Wall Street analysts over the next five years
for the companies in the sample group of 14.2% (Source: First Call Earnings
Estimates).
In summary, W. W. Clyde & Co. appears to have somewhat inferior overall
investment quality when compared with the publicly traded firms in the sample
group, with its higher net margin and lower financial risk being more than
offset, in our opinion, by its smaller size, its relative absence of
geographical diversification, its lower return on invested equity capital, its
lower historical revenue and earnings growth, and its lower future revenue and
earnings growth prospects.
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Exhibit 11 displays the market value ratios of the companies in the
publicly traded sample group as of June 30, 1997. To the sample group's mean
price-earnings ratio of 15.0, mean price to cash flow ratio of 7.5, mean price
to revenue ratio of 32.9%, and mean price to book ratio of 149.5%, a 20%
discount is applied to reflect the inferior overall investment quality of W. W.
Clyde & Co. relative to that of the publicly traded firms in the sample group,
as discussed above. To the resulting figures is applied an additional 30%
discount to reflect the lack of marketability of the Company's shares, being
privately held, relative to the ready marketability of the publicly traded
shares of the sample group companies. Finally, a partially offsetting premium of
30% is applied to the resulting figures to reflect valuation of the Company on
an enterprise value (controlling interest) basis. The result is a net discount
of 27% deemed to be applicable to the mean market value ratios of the sample
group in valuing W. W. Clyde & Co. on an enterprise value basis.
Application of the resulting adjusted price-earnings ratio of 11.0 to W.
W. Clyde & Co.'s average adjusted net income over the 1992-96 period of
$1,498,700 (see Appendix A) yields a market value estimate of $16,486,000. To
this figure is added the estimated pro-rata value of the Company's 34.77% equity
interest in Geneva Rock Products. HVA has estimated the fair market enterprise
value of Geneva Rock Products to be $101,000,000 as of June 30, 1997. W. W.
Clyde & Co.'s pro-rata share of this total value is therefore $35,118,000 (or
$101,000,000 x .3477). Adding this figure to the above derived price-earnings
value of $16,486,000 yields a market value estimate of $51,604,000 or $546.00
per share.
Application of the resulting price to cash flow ratio of 5.5 times to W.
W. Clyde & Co.'s average adjusted operating cash flow (net income plus non-cash
depreciation expense) over the 1992-
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96 period of $2,963,500 yields a market value estimate of $16,299,000. Adding to
this figure the estimated value of the Company's equity interest in Geneva Rock
Products of $35,118,000 yields a market value estimate of $51,417,000 or $544.00
per share.
Application of the resulting price to revenue ratio of 24.0% to the
Company's average revenues over the 1992-96 period of $22,678,700 yields a
market value estimate of $5,443,000. Adding to this figure the estimated value
of the Company's equity interest in Geneva Rock Products of $35,118,000 yields a
market value estimate of $40,561,000 or $429.00 per share.
Finally, application of the resulting price to book ratio of 109.1% to
the Company's December 31, 1996 adjusted book value (excluding the book carrying
value of its investment in Geneva Rock Products of $19,882,000) of $15,065,000
(or $34,947,000 - $19,882,000) yields a market value estimate of $16,436,000.
Adding to this figure the estimated value of the Company's equity interest in
Geneva Rock Products of $35,118,000 yields a market value estimate of
$51,554,000 or $545.00 per share.
Each of these market value figures is as of June 30, 1997, and each will
be considered in arriving at a final estimate of the fair market enterprise
value of W. W. Clyde & Co. as of that date.
Income Value
The income approach to valuation estimates the worth of a company's
stock by determining the present value of the future income stream expected to
accrue to the stockholder. This is accomplished by, first, forecasting the
firm's future income stream and the disposition of such and, second, discounting
it at a rate commensurate with the risk to which it is exposed.
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The present value of future income depends on the amount and timing of
that income. Since both the amount and timing are uncertain - income might be
less than expected and/or income might materialize later than expected - this
uncertainty must be quantified and incorporated into a discount rate. Thus,
given the amount and timing of a future income stream, high uncertainty
necessitates a high discount rate and results in a relatively low present value,
while low uncertainty merits a low discount rate and a relatively high present
value.
The appropriate discount rate, that is, the minimum rate of return
required by an investor purchasing the firm's shares, must have as its
foundation the yields available on competing financial assets in the public
markets. This follows from the observations noted below.
1. Securities with different risk characteristics provide different
rates of return commensurate with those uncertainties. This
hierarchy of risk and reward furnishes benchmarks from which a
suitable discount rate may be selected for an income stream of
known risk properties.
2. A particular investor, due perhaps to his aversion to risk, may
find market returns inadequate at every level of risk. In a
competitive market, however, he is a "price taker" and, as such,
is limited to either investing at the going rates or not
investing at all.
3. On the other hand, there will always be a buyer and seller
willing to deal at the market rates, precisely because the
market rates represent the consensus of many investors.
Thus, it is possible to estimate an "objective" valuation of a security
based on a discount rate derived from the market.
Exhibit 12 presents an historical structure of rates of return
observable and available (and, in the long run, "required") on selected classes
of securities. As can be seen, the rate of return required on a typical common
stock is 9.0% above the prevailing rate of inflation (or 14.0%, assuming a
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60
long-term expected inflation rate of 5.0%). An investor would require from his
holding of a controlling interest in W. W. Clyde & Co. securities a return
estimated to be 2.0% above the average yield available in the common stock
market (or 16.0%). It is reasonable for him to require a premium on the general
market because of industry- and Company-specific risk characteristics (e.g., the
competitive and cyclical nature of the heavy construction industry; the smaller
size of the Company; the relative nonmarketability of its shares; its relative
absence of geographical diversification; and the uncertainty relating to its
ability to achieve future projected earnings levels, particularly given both the
cyclicality inherent in the construction industry and the declines in both
revenues and earnings which the Company has experienced over the last five
years). These risk factors are offset in part by a risk reduction for valuation
of the Company on an enterprise value (controlling interest) basis.
The estimated required rate of return of 16.0% is a function of the
returns available on the sample group of publicly traded heavy
construction/engineering firms referred to in the Market Value section of this
report, as quantitatively estimated by the Capital Asset Pricing Model and the
Gordon Growth Model, plus an additional risk premium for the Company-specific
risk characteristics previously alluded to, less a partially offsetting risk
reduction for valuation on a controlling interest basis.
The income valuation model used is based on the assumption that the
firm's earnings are retained in total and dividend payments deferred until a
specified year when the firm begins paying all of its earnings as dividends and
does so indefinitely into the future. Once these dividend payments begin to
occur, the basis for the firm's internally financed growth ceases. In the
absence of new external financing, the firm reaches a "steady state" and
earnings remain constant indefinitely thereafter,
<PAGE> 66
61
growing only in nominal terms in step with inflation. While it is not necessary
that the firm actually so behaves, this is a necessary specification for the
valuation formula to be technically correct. Basically, what is being specified
is the firm's dividend-paying ability. Only dividends can correctly be used in
the income valuation approach for a common stock.
If it is assumed that all of W. W. Clyde & Co.'s future projected net
income (see Exhibit 3) will be available to be paid out as dividends from the
valuation date forward, and if it is further assumed that post-2001 net income
will remain constant in real terms, or will grow in nominal terms at an expected
long-term rate of inflation of 5.0% from the 2001 projected figure of
$1,361,600, an income value estimate of $10,214,000 is derived. As was the case
with the values derived using the market value approach, to this figure is added
the estimated value of the Company's equity interest in Geneva Rock Products of
$35,118,000, resulting in a total income value estimate of $45,332,000 or
$479.00 per share. This figure will be considered in arriving at a final
estimate of the fair market enterprise value of the Company as of June 30, 1997.
<PAGE> 67
62
SUMMARY AND CONCLUSION
Four approaches have been utilized to estimate the fair market
enterprise value of W. W. Clyde & Co. as of June 30, 1997: book/liquidation
value, transaction value, market value, and income value. The outcomes are
summarized below:
<TABLE>
<CAPTION>
Value
Valuation Method Value Estimate Per Share Weight Contribution
- ---------------- -------------- ---------- ------ ------------
<S> <C> <C> <C> <C>
Book Value $34,947,000 $370.00 0% $ 0
Liquidation Value $62,100,000 $657.00 100% $62,100,000
Market Value:
Price-Earnings $51,604,000 $546.00 0% $ 0
Price to Cash Flow $51,417,000 $544.00 0% $ 0
Price to Revenue $40,561,000 $429.00 0% $ 0
Price to Book $51,554,000 $545.00 0% $ 0
Income Value $45,332,000 $479.00 0% $ 0
--- ----------
100%
====
Final Total Value Estimate $62,100,000
===========
Per Share (94,544 shares outstanding): $ 657.00
===========
</TABLE>
Considering the assumptions of each method and weighing the relative
justifications of each, it is our opinion that a reasonable estimate of the fair
market enterprise value of W. W. Clyde & Co. as of June 30, 1997 (upon
contemplated consolidation of the Company with the three other aforementioned
related companies, Geneva Rock Products, Inc., Utah Service, Inc., and Beehive
Insurance Agency, Inc.) is $62,100,000 or $657.00 per share, based on 94,544
shares outstanding. As previously mentioned, the Company's liquidation value has
been estimated to be well above its value as a going
<PAGE> 68
63
concern (in the context of the aforementioned consolidation), and has therefore
been deemed to be the most appropriate measure of its fair market enterprise
value.
<PAGE> 69
64
EXHIBITS
<PAGE> 70
65
EXHIBIT 1
W. W. CLYDE & CO.
SELECTED FINANCIAL RATIOS
<TABLE>
<CAPTION>
1992-96
1992 1993 1994 1995 1996 Average
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
GROWTH
Revenue Growth (%) -- 4.0 (24.9) 5.5 (10.6) (7.4)
Net Income Growth (%) -- (10.8) (69.7) 193.2 (55.6) (23.0)
Operating Cash Flow Growth (%) -- (2.4) (38.0) 70.6 (25.1) (6.2)
Dividend Growth (%) -- 11.1 0.0 0.0 (40.0) (9.6)
COST CONTROL
Cost of Construction/Revenues (%) 83.7 86.0 91.9 85.3 89.8 87.4
Gross Margin (%) 16.3 14.0 8.1 14.7 10.2 12.6
Operating Expenses/Revenues (%) 5.0 4.7 6.5 5.9 7.6 5.9
Operating Margin (%) 11.4 9.3 1.5 8.8 2.6 6.7
Interest Expense/Revenues (%) 0.1 0.0 0.0 0.0 0.0 0.0
TURNOVER
Revenues/Receivables (x) 8.4 4.8 10.3 7.9 7.0 7.7
Revenues/Fixed Assets (x) 4.7 4.5 3.7 2.6 2.2 3.5
Revenues/Total Assets (x) 1.1 1.1 0.9 0.9 0.8 1.0
PROFITABILITY
Net Margin (%) 8.8 7.5 3.0 8.4 4.2 6.4
Return on Assets (%) 9.8 8.4 2.6 7.3 3.2 6.3
Return on Equity (%) 11.1 9.5 2.9 8.1 3.5 7.0
Dividend Payout (%) 37.5 46.8 154.4 52.6 71.2 72.5
RISK
Total Debt/Total Assets (%) 5.7 4.6 3.3 3.1 3.0 3.9
Shareholders' Equity/Total Assets (%) 81.8 80.4 80.0 78.9 77.8 79.8
Long-Term Debt/Equity (%) 0.0 0.0 0.0 0.0 0.7 0.1
Current Ratio (x) 9.7 11.4 14.7 12.6 15.0 12.7
Revenue Correlation (0.868)
Net Income Correlation (0.670)
Operating Cash Flow Correlation (0.343)
</TABLE>
<PAGE> 71
66
EXHIBIT 2
SELECTED STATISTICS FOR W. W. CLYDE & CO.
AND OTHER HEAVY CONSTRUCTION CONTRACTORS
<TABLE>
<CAPTION>
Median
W. W. Clyde of Other
& Co.(a) Companies(b)
----------- ------------
<S> <C> <C>
Number of Companies 1 28
Total Assets ($000's) 44,916 8,348
BALANCE SHEET ITEMS
Current Assets as a % of Assets 36.4 65.0
Cash as a % of Assets 26.4 17.6
Accounts Receivable as a % of Assets 6.1 35.3
Costs & Est. Earnings as a % of Assets 2.6 5.6
Inventory as a % of Assets 0.4 1.9
Net Fixed Assets as a % of Assets 19.3 29.8
Current Liabilities as a % of Assets 2.4 46.0
Long-Term Debt as a % of Assets 0.6 10.5
Total Debt as a % of Assets 3.0 56.5
Net Worth as a % of Assets 77.8 41.0
INCOME STATEMENT ITEMS
Annual Revenues ($000's) 19,056 20,344
Gross Profit as a % of Revenues 10.2 11.3
Operating Expenses as a % of Revenues 7.6 8.7
Operating Income as a % of Revenues 2.6 2.6
Income Before Tax as a % of Revenues 6.6 2.8
TURNOVER RATIOS
Accounts Receivable Turnover (x) 7.0 8.1
Fixed Asset Turnover (x) 2.2 8.2
Total Asset Turnover (x) 0.8 2.4
PROFITABILITY
Before-Tax Return on Assets (%) 5.1 5.7
Before-Tax Return on Equity (%) 5.6 17.6
RISK
Current Ratio (x) 15.0 1.3
Interest Coverage Ratio (x) NM 5.3
Total Debt/Equity (x) 0.0 1.9
</TABLE>
Notes: (a) Year ended December 31, 1996
(b) Fiscal years ended April 1, 1995 through March 31, 1996
Source: Annual Statement Studies, 1996 edition, Robert Morris Associates,
Philadelphia, PA
<PAGE> 72
67
EXHIBIT 3
W. W. CLYDE & CO.
PROJECTED INCOME STATEMENTS
(in $000's)
<TABLE>
<CAPTION>
For Year Ending December 31:
1997 1998 1999 2000 2001
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSTRUCTION REVENUES 20,008.3 21,008.7 22,059.1 23,162.1 24,320.2
COST OF CONSTRUCTION 17,487.2 18,361.6 19,279.7 20,243.7 21,255.8
-------- -------- -------- -------- --------
GROSS PROFIT 2,521.0 2,647.1 2,779.4 2,918.4 3,064.3
OPERATING EXPENSES 1,486.5 1,531.1 1,577.0 1,624.3 1,673.1
-------- -------- -------- -------- --------
INCOME FROM OPERATIONS 1,034.5 1,116.0 1,202.4 1,294.1 1,391.3
INTEREST EXPENSE 0.0 0.0 0.0 0.0 0.0
OTHER INCOME 770.0 770.0 770.0 770.0 770.0
-------- -------- -------- -------- --------
EARNINGS BEFORE TAX 1,804.5 1,886.0 1,972.4 2,064.1 2,161.3
INCOME TAX 667.7 697.8 729.8 763.7 799.7
-------- -------- -------- -------- --------
NET INCOME 1,136.9 1,188.2 1,242.6 1,300.4 1,361.6
======== ======== ======== ======== ========
</TABLE>
<PAGE> 73
68
EXHIBIT 3
(continued)
W. W. CLYDE & CO.
ASSUMPTIONS TO PROJECTED INCOME STATEMENTS
1. Construction revenue is assumed to grow at a compound annual rate of 5.0%
from the 1996 figure of $19,055,500 throughout the forecast period. This
projected growth rate is well above the compound annual revenue decline
experienced by the Company over the 1992-96 period of 7.4%, but is similar to
the revenue growth generated by the Company in both 1993 and 1995 of 4.0% and
5.5%, respectively.
2. Cost of construction is assumed to remain constant at the 1992-96 average
figure of 87.4% of construction revenue throughout the forecast period.
3. Operating expenses are assumed to grow at a compound annual rate of 3.0%
from the 1996 figure of $1,443,200 throughout the forecast period, identical to
the compound annual growth rate in operating expenses experienced by the Company
over the 1992-96 period of 3.0% per year.
4. Interest expense is assumed to be negligible throughout the forecast
period, consistent with the virtual absence of interest expense over the 1992-96
period as well as the present absence of long-term debt.
5. Other income (comprised of interest income, gain on sale of fixed assets,
and miscellaneous income) is assumed to remain constant at the 1996 figure of
$770,000 (rounded) throughout the forecast period. This figure is also similar
to the 1992-96 period average figure of $760,000 (rounded).
6. Income tax is assumed to remain constant at a combined federal and state
corporate income tax rate of 37% of projected pre-tax earnings throughout the
forecast period.
7. Free cash flow is defined as net income plus non-cash depreciation expense
less capital expenditures. Depreciation expense and capital expenditures are
assumed to offset each other throughout the forecast period, consistent with the
experience of the Company throughout most of the 1992-96 period. With the
exception of 1995, during which the Company incurred very large capital
expenditures (totaling $4.55 million), the Company had average annual capital
expenditures of $1.53 million and very similar average non-cash depreciation
expense of $1.41 million. In other words, non-cash depreciation expense is
assumed to be sufficient in the future to fund required levels of capital
expenditures. Consequently, free cash flow is projected to be identical to net
income throughout the forecast period.
<PAGE> 74
69
EXHIBIT 4
W. W. CLYDE & CO.
PROJECTED INCOME STATEMENT ITEMS AS A % OF PROJECTED CONSTRUCTION REVENUES
<TABLE>
<CAPTION>
For Year Ending December 31:
1997-2001
1997 1998 1999 2000 2001 Average
------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
CONSTRUCTION REVENUES 100.0 100.0 100.0 100.0 100.0 100.0
COST OF CONSTRUCTION 87.4 87.4 87.4 87.4 87.4 87.4
----- ----- ----- ----- ----- -----
GROSS PROFIT 12.6 12.6 12.6 12.6 12.6 12.6
OPERATING EXPENSES 7.4 7.3 7.1 7.0 6.9 7.2
----- ----- ----- ----- ----- -----
INCOME FROM OPERATIONS 5.2 5.3 5.5 5.6 5.7 5.4
INTEREST EXPENSE 0.0 0.0 0.0 0.0 0.0 0.0
OTHER INCOME 3.8 3.7 3.5 3.3 3.2 3.5
----- ----- ----- ----- ----- -----
EARNINGS BEFORE TAX 9.0 9.0 8.9 8.9 8.9 8.9
INCOME TAX 3.3 3.3 3.3 3.3 3.3 3.3
----- ----- ----- ----- ----- -----
NET INCOME 5.7 5.7 5.6 5.6 5.6 5.6
===== ===== ===== ===== ===== =====
</TABLE>
<PAGE> 75
70
EXHIBIT 5
W. W. CLYDE & CO.
PROJECTED INCOME STATEMENT ITEM GROWTH RATES (%)
<TABLE>
<CAPTION>
1996-2001
For Year Ending December 31: Compound
Annual
1997 1998 1999 2000 2001 Growth
------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
CONSTRUCTION REVENUES 5.0 5.0 5.0 5.0 5.0 5.0
COST OF CONSTRUCTION 2.2 5.0 5.0 5.0 5.0 4.4
----- ----- ----- ----- ----- -----
GROSS PROFIT 30.0 5.0 5.0 5.0 5.0 9.6
OPERATING EXPENSES 3.0 3.0 3.0 3.0 3.0 3.0
----- ----- ----- ----- ----- -----
INCOME FROM OPERATIONS 108.2 7.9 7.7 7.6 7.5 22.9
INTEREST EXPENSE 0.0 0.0 0.0 0.0 0.0 0.0
OTHER INCOME 0.3 0.0 0.0 0.0 0.0 0.1
----- ----- ----- ----- ----- -----
EARNINGS BEFORE TAX 42.7 4.5 4.6 4.6 4.7 11.3
INCOME TAX 42.7 4.5 4.6 4.6 4.7 11.3
----- ----- ----- ----- ----- -----
NET INCOME 42.7 4.5 4.6 4.6 4.7 11.3
===== ===== ===== ===== ===== =====
</TABLE>
Note: Projected growth rates are from 1996 income statement data (see Appendix
A)
<PAGE> 76
71
EXHIBIT 6
W. W. CLYDE & CO.
NORMALIZED AND PROJECTED NET INCOME
<TABLE>
<CAPTION>
-----Net Income----- Implicit
(in $000's) Compound
Annual
Method 1997 1998 1999 2000 2001 Growth*
- ------ ---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Regression Analysis:
net income trend line 549 232 -84 -401 -717 NM
net income log trend line 681 546 438 351 281 -18.8%
Past Averages:
1992-96 average net
margin of 6.4% applied
to projected revenues 1,281 1,345 1,412 1,482 1,557 14.3%
Company Projections 1,137 1,188 1,243 1,300 1,362 11.3%
Final Projected Net Income 1,137 1,188 1,243 1,300 1,362 11.3%
Per Share ($0.00) 12.03 12.57 13.14 13.75 14.40 11.3%
</TABLE>
* from 1996 net income figure of $796,800
<PAGE> 77
72
EXHIBIT 7
BEEHIVE INSURANCE
INCOME PROJECTION ESTIMATES
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Trend 549 232 -84 -401 -717
Log Trend 681 546 438 351 281
Past Avgs. 1281 1345 1412 1482 1557
---- ---- ---- ---- ----
Final 1137 1188 1243 1300 1362
==== ==== ==== ==== ====
</TABLE>
[INCOME PROJECTION ESTIMATES CHART]
<PAGE> 78
73
EXHIBIT 8
BEEHIVE INSURANCE
HISTORICAL AND PROJECTED NET INCOME
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Income 2266.7 2021.9 612.5 1795.8 796.8 1136.9 1188.2 1242.6 1300.4 1361.6
</TABLE>
[HISTORICAL AND PROJECTED NET INCOME CHART]
<PAGE> 79
74
EXHIBIT 9
W. W. CLYDE & CO.
HYPOTHETICAL LIQUIDATION VALUE SCHEDULE
AS OF DECEMBER 31, 1996
(in $000's)
<TABLE>
<CAPTION>
Book Liquidation
ASSETS Value Value
---------- -----------
<S> <C> <C>
CASH & SECURITIES (1) 11,835.5 11,835.5
CONTRACTS RECEIVABLE (2) 2,737.9 2,737.9
OTHER CURRENT ASSETS (3) 1,783.3 1,783.3
GROSS PROPERTY & EQUIPMENT (4) 40,520.2 14,425.0
LESS: ACCUMULATED DEPRECIATION (4) (31,842.6) 0.0
---------- ----------
NET PROPERTY & EQUIPMENT (4) 8,677.6 14,425.0
INVESTMENT IN AFFILIATE (5) 19,881.8 35,118.0
---------- ----------
TOTAL ASSETS 44,916.1
==========
TOTAL ESTIMATED REALIZABLE
VALUE OF ASSETS 65,899.7
========
LIABILITIES AND EQUITY
CURRENT LIABILITIES (6) 1,091.9 1,091.9
ACCRUED PENSION COSTS (7) 258.4 258.4
DEFERRED INCOME TAXES (8) 8,618.6 1,194.6
STOCKHOLDERS' EQUITY 34,947.2 0.0
---------- ----------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY 44,916.1
==========
TOTAL ESTIMATED REALIZABLE
VALUE OF LIABILITIES 2,544.9
==========
ESTIMATED LIQUIDATION VALUE (rounded) $63,354.8
==========
LESS: LIQUIDATION COSTS (9) 1,231.3
----------
ESTIMATED NET LIQUIDATION VALUE (ROUNDED) $62,100.00
==========
PER SHARE (94,544 shares outstanding) $657.00
==========
</TABLE>
<PAGE> 80
75
EXHIBIT 9
(continued)
NOTES TO HYPOTHETICAL LIQUIDATION SCHEDULE
(1) Cash and securities are assumed realizable at aggregate book carrying value
of $11,835,500.
(2) Contracts receivable include current contracts of $2,191,900 and retentions
of $546,000, and are assumed realizable at aggregate book carrying value of
$2,737,900.
(3) Other current assets consist of costs and estimated earnings in excess of
billings (contracts in progress) of $904,100, costs and estimated earnings in
excess of billings (contracts completed) of $268,900, income taxes receivable of
$405,700, inventories of $176,700, deferred income taxes of $25,500, and prepaid
expenses of $2,400. Other current assets are assumed realizable at aggregate
book carrying value of $1,783,300.
(4) Property and equipment consists of land, buildings and improvements,
machinery and equipment, transportation equipment, and furniture and fixtures.
All of the Company's equipment was appraised by Ronald W. Liese, C.A.G.A., of
Equipment Consultants Co., a machinery and equipment appraisal and auction firm
located in Boise, Idaho, at an aggregate value of $16,268,000 as of October 30,
1996. The Company's operating facilities, consisting of an office, shops and an
equipment yard located on 10.71 acres of land in Springville, Utah, were assumed
to have a value equal to the 1996 property tax appraised value of $477,700. The
Company also owns 20 acres of undeveloped land (used by the Company to store
surplus equipment) on the Provo/Springville border. This property was assumed to
have a value equal to the 1996 property tax appraised value of $628,800.
Finally, the Company owns 18 acres of undeveloped land in Lehi, Utah, for which
it recently received a purchase offer (net of cost of water shares) of $425,000,
and which is assumed to have a value equal to this figure.
Consequently, the total value of the Company's property and equipment is
estimated to be $17,800,000 (rounded). It is assumed that liquidation of this
property and equipment would trigger capital gains taxes at an assumed combined
federal and state corporate income tax rate of 37% on an assumed capital gain of
$9,122,400 (or gross proceeds based on the above derived values of $17,800,000
less net depreciated book value of this property and equipment on the Company's
balance sheet of $8,677,600). This would result in income taxes of $3,375,000,
and net after-tax proceeds from the sale of the Company's property and equipment
of $14,425,000.
<PAGE> 81
76
EXHIBIT 9
(continued)
NOTES TO HYPOTHETICAL LIQUIDATION SCHEDULE
It is beyond both the scope of this study and the level of HVA's expertise
to make any independent investigations or verifications as to the values of the
property and equipment or to ascertain the accuracy or reliability of either the
machinery appraisal prepared by Mr. Liese or the property tax appraisals, and
nothing contained herein should be construed as doing so. We have assumed such
appraisals to be reasonably accurate, and as still reasonably reflecting the
fair market value of the property and equipment as of the June 30, 1997
valuation date. HVA is not a real property or equipment appraisal firm, and does
not hold itself out as having any expertise in these areas. The aforementioned
appraisals constitute an integral part of our valuation analysis.
(5) Investment in affiliate consists of the Company's 34.77% ownership interest
in Geneva Rock Products. HVA has estimated the fair market enterprise value of
Geneva Rock Products to be $101,000,000 as of June 30, 1997. W. W. Clyde & Co.'s
pro-rata share of this total value is therefore $35,118,000 (or $101,000,000 x
.3477). Within The context of a "normal" liquidation of the Company, sale of its
interest in Geneva Rock Products would trigger significant capital gains taxes.
However, the Company's legal counsel and accountants have represented to us that
the contemplated consolidation of the Company with the three other
aforementioned related companies (Geneva Rock Products, Utah Service, Inc., and
Beehive Insurance Agency, Inc.) will effectively preclude realization and
payment of this capital gains tax in the future. Consequently, it is assumed
that the Company would realize the full estimated pro-rata value of its
investment in Geneva Rock Products of $35,118,000.
(6) Current liabilities consist of accounts payable in the amount of $498,500,
subcontractors payable in the amount of $344,000, billings in excess of costs
and estimated earnings on contracts in progress in the amount of $96,500, and
other liabilities and accrued expenses in the amount of $152,900. Current
liabilities are assumed payable in full at book carrying values aggregating
$1,091,900.
(7) The Company has accrued pension costs in the amount of $258,400, assumed
payable in full at this figure upon liquidation,
(8) Of the total deferred income tax figure of $8,618,600 reflected on the
Company's books, $7,424,000 relates to the Company's unrealized capital gain on
its investment in Geneva Rock Products, which, as previously mentioned, is
expected to be permanently deferred upon the contemplated consolidation of the
Company with the other three related companies, and is therefore eliminated in
this analysis. The remaining deferred income taxes of $1,194,600 are assumed
payable in full upon liquidation of the Company.
<PAGE> 82
77
(9) It is assumed that the Company would incur liquidation costs (e.g.,
brokerage commissions, auction costs, ongoing general and administrative
expenses, etc.) equal to 4% of the estimated realizable value of the Company's
total assets (excluding its investment in Geneva Rock Products) of $30,781.700,
resulting in estimated liquidation costs of $1,231,300.
<PAGE> 83
78
EXHIBIT 10
W. W. CLYDE & CO.
INDUSTRY SAMPLE GROUP
AMERON INTERNATIONAL supplies products and services used in the construction of
pipeline facilities for various utilities. The company manufactures concrete
cylinder pipe, prestressed concrete cylinder pipe, steel pipe and reinforced
concrete pipe for water transmission, storm and industrial waste water and
sewage collection. The company also supplies ready-mix concrete, concrete pipe,
sand and aggregates, and box culverts to the construction industry, and
manufactures steel and concrete poles for highway, street and outdoor lighting
and for traffic signals.
ATKINSON (GUY F.) COMPANY provides a full range of construction, engineering,
and related services to clients in industry, power generation, commercial
building and government. The company provides construction and related
engineering services to heavy civil (projects such as dams, hydroelectric
developments, bridges, locks, tunnels, highways, and other large
infrastructure-related projects), industrial, commercial, energy, natural
resources, utility and government clients worldwide.
BAKER (MICHAEL) CORP. provides engineering consulting and design services,
construction services, and operations and maintenance services to government,
commercial and industrial clients. The company provides engineering and
construction services for heavy and highway construction and other
transportation infrastructure, general construction, and civil and water
resource projects.
BFC CONSTRUCTION (formerly Banister Foundation) is a Canadian construction
concern that specializes in civil, industrial, building, pipeline and
underground utilities construction. The company constructs large scale energy
developments, complex building structures, subways, bridges, dams and tunnels,
oil and gas pipelines, natural gas distribution systems, hydroelectric,
telephone and television conduits, water mains, sewers, nuclear projects, steam
generators, and steam turbine systems.
DAMES & MOORE provides integrated engineering and environmental services,
including civil and remedial design and construction services to its clients on
a global basis. The company serves clients in both the private and public
sectors, and over time has worked for roughly 31,000 clients. The company's
services include engineering, construction, and other specialized consulting
services, including civil and geotechnical engineering, seismic/earthquake
engineering, water supply, transportation design, planning, and process/chemical
engineering.
<PAGE> 84
79
EXHIBIT 10
(continued)
W. W. & CLYDE CO.
INDUSTRY SAMPLE GROUP
DEVCON INTERNATIONAL produces and distributes ready-mix concrete, crushed stone,
concrete block and asphalt, and distributes bulk and bagged cement in the
eastern Caribbean. The company also conducts earthmoving, excavating and filling
operations, and builds golf courses, roads and utility infrastructures in
Florida and the Caribbean. The company has quarries, rock crushing plants,
concrete batch plants, asphalt plants, and concrete block plants located
throughout the Caribbean.
FLUOR CORP. is the largest international engineering and construction company
based in the U.S. The company provides engineering, construction and related
services on a worldwide basis to clients in the process, industrial, power and
government, and diversified services business groups. Services provided include
feasibility studies, conceptual design, engineering and procurement, project and
construction management, construction, operation, maintenance and plant
operations, technical services, quality control, site evaluation, environmental,
and project financing.
FOSTER WHEELER is a diversified engineering and construction company. The
company designs and builds petroleum refineries, chemical, pharmaceutical, and
industrial plants, steam generators, pollution control equipment, and
cogeneration and resource recovery facilities.
GRANITE CONSTRUCTION is one of the largest heavy construction contractors in the
U.S. The company is also a large producer of sand, gravel, asphalt, and other
construction materials. The company focuses primarily on the West and Southwest,
and serves both public and private sector clients. Within the public sector, the
company concentrates on infrastructure projects, including the construction of
roads, highways, bridges, dams, tunnels, canals, mass transit facilities, and
airports, and provides related services, such as demolition, excavation, paving,
and tunneling. Within the private sector, the company performs site preparation
services for buildings, plants, subdivisions, and other facilities.
HARDING LAWSON ASSOCIATES provides engineering, environmental and construction
services. The company provides civil and geotechnical engineering services, as
well as services during construction, either independently or in support of the
company's other services. The company provides services for some 1,100 clients.
ICF KAISER INTERNATIONAL is one of the nation's largest engineering,
construction and consulting services companies, providing fully integrated
engineering, construction and consulting services to public and private sector
clients in the related markets of environment, infrastructure, energy, and
industry.
<PAGE> 85
80
EXHIBIT 10
(continued)
W. W. & CLYDE CO.
INDUSTRY SAMPLE GROUP
INSITUFORM TECHNOLOGIES is involved in the provision of trenchless pipeline
rehabilitation systems and technologies. The company utilizes state-of-the-art
processes to repair sewers, tunnels, and pipelines, usually without excavation
and with minimal disruption of traffic and commercial activity. The company
markets its services to governmental and industrial customers throughout the
world.
JACOBS ENGINEERING GROUP is one of the largest professional service firms in the
United States, providing engineering, design and consulting services,
construction and construction management services, and process plant maintenance
services to a wide range of industrial, commercial, and governmental clients in
the U.S., the United Kingdom, and Ireland.
MORRISON KNUDSEN (formed from the acquisition of Morrison Knudsen Corp. by
Washington Construction Group) is a construction company with operations in
infrastructure, contract mining, environmental remediation, and commercial
construction, serving government and private customers in the United States.
When providing construction services, the company enters into three basic types
of contracts: fixed-price or lump-sum contracts providing for a single price for
the total amount of work to be performed and unit-price contracts providing for
a fixed price for each unit of work performed; and cost-type contracts providing
for reimbursement of costs plus a fee. In June 1997, the company received two
contracts totaling $77 million to perform highway expansion projects from the
California Department of Transportation.
PERINI CORP. is one of the largest general contractors in all phases of the
construction industry, operating throughout the U.S., Canada, the Middle East,
the Pacific region, Africa, and South America. The company performs heavy
contracting, including civil construction and rehabilitation of highways,
subways, tunnels, dams, bridges, airports, marine projects, piers, and waste and
water treatment facilities. The company also provides general contracting
services for commercial construction projects, as well as management and
design/build services.
STONE & WEBSTER provides complete engineering, design, consulting and
construction services for refining, power, petrochemical, industrial,
governmental, transportation, and civil works projects throughout the world.
Consulting services are furnished to customers for plans developed by others.
<PAGE> 86
81
EXHIBIT 10
(continued)
W. W. & CLYDE CO.
INDUSTRY SAMPLE GROUP
STV GROUP provides engineering, consulting, design and construction services on
various projects for the U.S. federal government, state and local governments,
foreign governments, and private industry. The company's services include civil,
highway, bridge, airport, architectural, defense systems, industrial process,
and transportation engineering and construction. Approximately 50% of the
company's revenues are derived from state and local government contracts, 29%
from private contracts, and 19% from U.S. government contracts.
UNITED DOMINION INDUSTRIES provides construction and engineering products and
services. The company undertakes engineering and construction contracts
throughout the world for a variety of public and private sector clients.
URS CORP. offers a broad range of planning, design, and program- and
construction-management services for engineering, architectural, and
environmental projects. The company offers conceptual design and technical and
economic feasibility studies, computerized mapping, architectural and interior
design, civil and geotechnical engineering, process design, and seismic analysis
and design. The company also offers program and construction management
services, including master scheduling of both the design and construction
phases, construction and life-cycle cost estimating, cash flow analysis, value
engineering, constructability reviews, and bid management. The company's clients
include local, state, and federal government agencies and private-sector
businesses. The company focuses on the infrastructure market, which includes
surface and air transportation systems, institutional and commercial facilities,
and environmental programs. Surface and air transportation systems involve all
types of transportation systems and networks such as highways, bridges, mass
transit systems, airports, and marine facilities. The company also provides
architectural and engineering services toward the construction of low-
maintenance, energy-efficient commercial and industrial buildings.
Sources: Standard & Poor's Stock Reports
Value Line Investment Survey
Morningstar Equities
<PAGE> 87
82
EXHIBIT 11
W. W. CLYDE & CO.
MARKET VALUE RATIOS FOR
THE INDUSTRY SAMPLE GROUP
AS OF JUNE 30, 1997
<TABLE>
<CAPTION>
Price- Price to Price to Price to
Earnings Cash Flow Revenue Book
Ratio Ratio Ratio Ratio
Company (x) (x) (%) (%)
- ------- ------- --------- -------- --------
<S> <C> <C> <C> <C>
Ameron International 12.4 6.5 42.4 143.1
Atkinson (Guy F.) Company 15.8 7.2 12.8 71.1
Baker (Michael) Corp. 13.5 6.2 13.2 109.8
BFC Construction 15.6 7.8 17.0 104.9
Dames & Moore 13.6 9.2 49.1 152.0
Devcon International NE 5.2 30.3 34.0
Fluor Corp. 15.9 8.6 30.5 242.0
Foster Wheeler 17.3 9.8 37.7 232.8
Granite Construction 13.3 5.5 39.0 154.0
Harding Lawson Associates 10.9 5.9 27.8 70.6
ICF Kaiser International 15.8 4.9 4.8 181.6
Insituform Technologies 18.2 5.8 54.0 131.0
Jacobs Engineering 15.6 10.9 38.3 215.4
Morrison Knudsen NM NM 74.3 229.4
Perini Corp. 6.8 3.9 2.9 112.2
Stone & Webster 26.7 14.0 45.3 172.6
STV Group 19.4 8.1 15.1 130.5
United Dominion Industries 11.0 7.1 51.9 122.8
URS Corp. 14.0 9.1 38.7 231.3
----- ----- ----- -----
Mean 15.0 7.5 32.9 149.5
</TABLE>
NE = negative earnings
NM = not meaningful
Sources: Standard & Poor's Stock Reports
Value Line Investment Survey
Morningstar Equities
Barron's
<PAGE> 88
83
EXHIBIT 12
HISTORICAL STRUCTURE OF
YIELDS OBSERVABLE AND AVAILABLE
ON SELECTED SECURITIES
<TABLE>
<CAPTION>
Historical
Return (1) Differential
---------- ------------
<S> <C> <C>
Inflation 3.2%
Real Interest 0.6%
U.S. Treasury Bills 3.8%
Maturity Premium 1.7%
Long-Term Government Bonds 5.5%
Default Premium 0.5%
Long-Term Corporate Bonds 6.0%
Ownership Premium 6.5%
Common Stocks 12.5%
Total Differential 9.3%
====
</TABLE>
(1) Arithmetic Mean
Note: Differential represents difference between historical returns (e.g., real
interest = return on treasury bills less inflation)
Source: Ibbotson Associates, 1996 Stocks, Bonds, Bills and Inflation Yearbook
<PAGE> 89
APPENDIX A
W. W. CLYDE & CO.
FINANCIAL STATEMENT SUMMARY
<PAGE> 90
W. W. CLYDE & CO.
INCOME STATEMENTS (in $000's)
<TABLE>
<CAPTION>
For Year Ending December 31:
1992-96
1992 1993 1994 1995 1996 Average
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CONSTRUCTION REVENUE 25,879.1 26,911.0 20,222.2 21,325.5 19,055.5 22,678.7
COST OF CONSTRUCTION 21,658.2 23,139.0 18,590.2 18,198.9 17,115.5 19,740.4
-------- -------- -------- -------- -------- --------
GROSS PROFIT 4,220.9 3,772.0 1,632.0 3,126.6 1,940.0 2,938.3
OPERATING EXPENSES 1,283.4 1,266.7 1,321.3 1,255.0 1,443.2 1,313.9
-------- -------- -------- -------- -------- --------
INCOME FROM OPERATIONS 2,937.5 2,505.3 310.7 1,871.6 496.8 1,624.4
INTEREST EXPENSE 17.5 0.0 1.5 0.0 0.0 3.8
OTHER INCOME:
Interest Income 577.7 638.3 547.3 697.0 640.7 620.2
Gain on Sale of Fixed Assets 60.1 5.0 29.7 196.2 63.5 70.9
Other Income 40.2 60.7 86.1 85.7 63.7 67.3
-------- -------- -------- -------- -------- --------
TOTAL OTHER INCOME 678.0 704.0 663.1 978.9 767.9 758.4
EARNINGS BEFORE TAX 3,598.0 3,209.3 972.3 2,850.5 1,264.7 2,379.0
INCOME TAX (37%) 1,331.3 1,187.4 359.8 1,054.7 467.9 880.2
-------- -------- -------- -------- -------- --------
NET INCOME 2,266.7 2,021.9 612.5 1,795.8 796.8 1,498.7
======== ======== ======== ======== ======== ========
ADD: DEPRECIATION 1,110.5 1,275.2 1,431.0 1,691.2 1,815.7 1,464.7
-------- -------- -------- -------- -------- --------
OPERATING CASH FLOW 3,377.2 3,297.1 2,043.5 3,487.0 2,612.5 2,963.5
======== ======== ======== ======== ======== ========
DIVIDENDS 850.9 945.4 945.4 945.4 567.3 850.9
======== ======== ======== ======== ======== ========
</TABLE>
NOTES:
(1) 1992 data excludes gain of $315,900 on a one-time, nonrecurring sale of
investment property
(2) 1993 data excludes a nonrecurring charge of $321,190 for cumulative effect
of change in accounting for income taxes
(3) Equity in net earnings of affiliate (Geneva Rock Products, Inc.) is
excluded in each year
(4) An assumed combined federal and state corporate income tax rate of 37% is
applied to pre-tax earnings in each year
<PAGE> 91
W. W. CLYDE & CO.
INCOME STATEMENT ITEMS AS A % OF CONSTRUCTION REVENUE
<TABLE>
<CAPTION>
For Year Ending December 31:
1992-96
1992 1993 1994 1995 1996 Average
----- ----- ----- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C>
CONSTRUCTION REVENUE 100.0 100.0 100.0 100.0 100.0 100.0
COST OF CONSTRUCTION 83.7 86.0 91.9 85.3 89.8 87.4
----- ----- ----- ----- ----- -------
GROSS PROFIT 16.3 14.0 8.1 14.7 10.2 12.6
OPERATING EXPENSES 5.0 4.7 6.5 5.9 7.6 5.9
----- ----- ----- ----- ----- -------
INCOME FROM OPERATIONS 11.4 9.3 1.5 8.8 2.6 6.7
INTEREST EXPENSE 0.1 0.0 0.0 0.0 0.0 0.0
OTHER INCOME:
Interest Income 2.2 2.4 2.7 3.3 3.4 2.8
Gain on Sale of Fixed Assets 0.2 0.0 0.1 0.9 0.3 0.3
Other Income 0.2 0.2 0.4 0.4 0.3 0.3
----- ----- ----- ----- ----- -------
TOTAL OTHER INCOME 2.6 2.6 3.3 4.6 4.0 3.4
EARNINGS BEFORE TAX 13.9 11.9 4.8 13.4 6.6 10.1
INCOME TAX (37%) 5.1 4.4 1.8 4.9 2.5 3.7
----- ----- ----- ----- ----- -------
NET INCOME 8.8 7.5 3.0 8.4 4.2 6.4
===== ===== ===== ===== ===== =======
ADD: DEPRECIATION 4.3 4.7 7.1 7.9 9.5 6.7
----- ----- ----- ----- ----- -------
OPERATING CASH FLOW 13.1 12.3 10.1 16.4 13.7 13.1
===== ===== ===== ===== ===== =======
</TABLE>
NOTES:
(1) 1992 data excludes gain of $315,900 on a one-time, nonrecurring sale of
investment property
(2) 1993 data excludes a nonrecurring charge of $321,190 for cumulative effect
of change in accounting for income taxes
(3) Equity in net earnings of affiliate (Geneva Rock Products, Inc.) is
excluded in each year
(4) An assumed combined federal and state corporate income tax rate of 37% is
applied to pre-tax earnings in each year
<PAGE> 92
W. W. CLYDE & CO.
INCOME STATEMENT ITEM GROWTH RATES (%)
<TABLE>
<CAPTION>
1992-96
For Year Ending December 31: Compound
Annual
1992 1993 1994 1995 1996 Growth
------ ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
CONSTRUCTION REVENUE - 4.0 (24.9) 5.5 (10.6) (7.4)
COST OF CONSTRUCTION - 6.8 (19.7) (2.1) (6.0) (5.7)
------ ------ ------ ------ ------ ------
GROSS PROFIT - (10.6) (56.7) 91.6 (38.0) (17.7)
OPERATING EXPENSES - (1.3) 4.3 (5.0) 15.0 3.0
------ ------ ------ ------ ------ ------
INCOME FROM OPERATIONS - (14.7) (87.6) 502.4 (73.5) (35.9)
INTEREST EXPENSE - (100.0) NM (100.0) 0.0 NM
OTHER INCOME:
Interest Income - 10.5 (14.3) 27.4 (8.1) 2.6
Gain on Sale of Fixed Assets - (91.7) 494.0 560.6 (67.6) 1.4
Other Income - 51.0 41.8 (0.5) (25.7) 12.2
------ ------ ------ ------ ------ ------
TOTAL OTHER INCOME - 3.8 (5.8) 47.6 (21.6) 3.2
EARNINGS BEFORE TAX - (10.8) (69.7) 193.2 (55.6) (23.0)
INCOME TAX (37%) - (10.8) (69.7) 193.2 (55.6) (23.0)
------ ------ ------ ------ ------ ------
NET INCOME - (10.8) (69.7) 193.2 (55.6) (23.0)
====== ====== ====== ====== ====== ======
ADD: DEPRECIATION - 14.8 12.2 18.2 7.4 13.1
------ ------ ------ ------ ------ ------
OPERATING CASH FLOW - (2.4) (38.0) 70.6 (25.1) (6.2)
====== ====== ====== ====== ====== ======
DIVIDENDS - 11.1 0.0 0.0 (40.0) (9.6)
====== ====== ====== ====== ====== ======
</TABLE>
NOTES:
(1) 1992 data excludes gain of $315,900 on a one-time, nonrecurring sale of
investment property
(2) 1993 data excludes a nonrecurring charge of $321,190 for cumulative effect
of change in accounting for income taxes
(3) Equity in net earnings of affiliate (Geneva Rock Products, Inc.) is
excluded in each year
(4) An assumed combined federal and state corporate income tax rate of 37% is
applied to pre-tax earnings in each year
<PAGE> 93
W. W. CLYDE & CO.
BALANCE SHEETS (in $000's)
<TABLE>
<CAPTION>
As of December 31:
ASSETS 1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash & Securities 11,731.1 10,824.1 14,814.3 13,113.3 11,835.5
Contracts Receivable 3,066.6 5,633.4 1,954.6 2,685.4 2,737.9
Costs in Excess of Billings on Contracts 2,540.6 801.9 637.6 269.8 1,173.0
Other Current Assets 177.8 915.6 601.5 251.9 610.3
-------- -------- -------- -------- --------
TOTAL CURRENT ASSETS 17,516.1 18,175.0 18,008.0 16,320.4 16,356.7
PROPERTY & EQUIPMENT:
Land 285.0 285.0 285.0 285.0 285.0
Buildings & Improvements 295.0 295.0 295.0 313.8 328.3
Machinery & Equipment 25,769.4 26,915.6 27,442.7 31,676.8 33,033.8
Transportation Equipment 6,168.7 6,635.7 6,734.1 6,546.0 6,745.7
Furniture & Fixtures 180.6 182.8 212.2 92.5 127.4
Accumulated Depreciation (27,169.5) (28,331.0) (29,449.9) (30,585.7) (31,842.6)
-------- -------- -------- -------- --------
NET PROPERTY & EQUIPMENT 5,529.2 5,983.1 5,519.1 8,328.4 8,677.6
INVESTMENT IN AFFILIATE 8,592.5 10,730.2 13,587.0 17,176.7 19,881.8
-------- -------- -------- -------- --------
TOTAL ASSETS 31,637.8 34,888.3 37,114.1 41,825.5 44,916.1
======== ======== ======== ======== ========
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts Payable 1,006.7 1,234.8 525.9 610.0 498.5
Income Taxes Payable & Deferred 160.1 30.2 60.7 254.8 0.0
Billings in Excess of Costs on Contracts 60.5 31.6 281.0 195.6 96.5
Other Liabilities & Accrued Expenses 573.7 302.7 357.3 236.2 496.9
-------- -------- -------- -------- --------
TOTAL CURRENT LIABILITIES 1,801.0 1,599.3 1,224.9 1,296.6 1,091.9
ACCRUED PENSION COSTS 0.0 0.0 0.0 0.0 258.4
DEFERRED INCOME TAXES 3,969.1 5,229.7 6,190.3 7,539.3 8,618.6
STOCKHOLDERS' EQUITY 25,867.7 28,059.3 29,698.9 32,989.6 34,947.2
-------- -------- -------- -------- --------
TOTAL LIABILITIES & EQUITY 31,637.8 34,888.3 37,114.1 41,825.5 44,916.1
======== ======== ======== ======== ========
</TABLE>
<PAGE> 94
W. W. CLYDE & CO.
BALANCE SHEET ITEMS AS A % OF TOTAL ASSETS
<TABLE>
<CAPTION>
As of December 31:
1992-96
ASSETS 1992 1993 1994 1995 1996 Average
----- ----- ----- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash & Securities 37.1 31.0 39.9 31.4 26.4 33.1
Contracts Receivable 9.7 16.1 5.3 6.4 6.1 8.7
Costs in Excess of Billings on Contracts 8.0 2.3 1.7 0.6 2.6 3.1
Other Current Assets 0.6 2.6 1.6 0.6 1.4 1.4
----- ----- ----- ----- ----- -----
TOTAL CURRENT ASSETS 55.4 52.1 48.5 39.0 36.4 46.3
PROPERTY & EQUIPMENT:
Land 0.9 0.8 0.8 0.7 0.6 0.8
Buildings & Improvements 0.9 0.8 0.8 0.8 0.7 0.8
Machinery & Equipment 81.5 77.1 73.9 75.7 73.5 76.4
Transportation Equipment 19.5 19.0 18.1 15.7 15.0 17.5
Furniture & Fixtures 0.6 0.5 0.6 0.2 0.3 0.4
Accumulated Depreciation (85.9) (81.2) (79.3) (73.1) (70.9) (78.1)
----- ----- ----- ----- ----- -----
NET PROPERTY & EQUIPMENT 17.5 17.1 14.9 19.9 19.3 17.7
INVESTMENT IN AFFILIATE 27.2 30.8 36.6 41.1 44.3 36.0
----- ----- ----- ----- ----- -----
TOTAL ASSETS 100.0 100.0 100.0 100.0 100.0 100.0
===== ===== ===== ===== ===== =====
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts Payable 3.2 3.5 1.4 1.5 1.1 2.1
Income Taxes Payable & Deferred 0.5 0.1 0.2 0.6 0.0 0.3
Billings in Excess of Costs on Contracts 0.2 0.1 0.8 0.5 0.2 0.3
Other Liabilities & Accrued Expenses 1.8 0.9 1.0 0.6 1.1 1.1
----- ----- ----- ----- ----- -----
TOTAL CURRENT LIABILITIES 5.7 4.6 3.3 3.1 2.4 3.8
ACCRUED PENSION COSTS 0.0 0.0 0.0 0.0 0.6 0.1
DEFERRED INCOME TAXES 12.5 15.0 16.7 18.0 19.2 16.3
STOCKHOLDERS' EQUITY 81.8 80.4 80.0 78.9 77.8 79.8
----- ----- ----- ----- ----- -----
TOTAL LIABILITIES & EQUITY 100.0 100.0 100.0 100.0 100.0 100.0
===== ===== ===== ===== ===== =====
</TABLE>
<PAGE> 95
APPENDIX B
ROBERT MORRIS ASSOCIATES INDUSTRY RATIOS
CONTRACTORS - BRIDGE, TUNNEL & ELEVATED HIGHWAY CONSTRUCTION
<PAGE> 96
CONTRACTORS - BRIDGE, TUNNEL & ELEVATED HIGHWAY CONSTRUCTION SIC #1622
<TABLE>
<S> <C> <C> <C> <C>
CURRENT DATA SORTED BY REVENUE
13 3 1 17
TYPE OF STATEMENT
1 22 22 7 52
19 3 22
1 3 4
1 1
1 4 3 3 11
27(4/1-9/30/95) 63(10/1/95-3/31/96)
0-1MM 1-10MM 10-50MM 50 & OVER ALL
3 49 28 10 90
- --------------- ------------- ------------- -------------- -------------
% % % % %
18.9 17.6 21.9 19.7
28.3 28.5 22.7 27.2
2.8 6.8 8.5 4.8
2.4 1.9 2.3 2.1
4.0 5.6 8.4 5.1
4.8 4.7 2.7 4.4
61.1 65.0 66.5 63.2
30.2 29.8 19.4 28.8
1.4 .6 6.8 1.7
1.5 .2 4.4 1.3
5.8 4.3 2.8 4.9
100.0 100.0 100.0 100.0
- --------------- ------------- ------------- -------------- -------------
5.9 3.3 1.1 4.3
17.6 22.9 19.5 19.3
1.0 3.0 4.5 2.0
3.1 4.7 8.2 4.2
10. .9 .5 .9
4.4 3.8 1.8 3.8
6.8 7.3 7.7 7.1
39.8 46.0 43.3 41.5
10.7 10.5 7.5 10.1
2.0 1.1 1.4 1.6
3.8 1.3 3.2 2.8
43.7 41.0 44.6 44.0
100.0 100.0 100.0 100.0
- --------------- ------------- ------------- -------------- -------------
100.0 100.0 100.0 100.0
19.3 11.3 6.9 15.6
16.8 8.7 5.9 13.1
2.4 2.6 1.0 2.5
.1 -.2 -.3 .1
2.3 2.8 1.2 2.4
- --------------- ------------- ------------- -------------- -------------
2.5 1.9 2.5 2.3
1.7 1.3 1.6 1.5
1.2 1.1 1.1 1.2
- --------------- ------------- ------------- -------------- ------ ------
3.3 1.8 2.7 2.8
1.7 1.5 1.4 (89) 1.6
1.1 1.0 .9 1.1
- --------------- ------------- ------------- -------------- ------ ------
32 11.5 32 11.4 34 10.8 32 11.3
43 8.5 45 8.1 47 7.7 44 8.3
62 5.9 69 5.3 63 5.8 63 5.8
- --------------- ------ ------ ------ ------ ------- ------ ------ ------
18 20.3 21 17.2 15 25.0 18 20.1
30 12.2 38 9.6 36 10.2 33 11.2
45 8.1 63 5.8 52 7.0 49 7.4
- --------------- ------ ------ ------ ------ ------- ------ ------ ------
6.0 8.5 7.6 6.7
11.8 17.4 11.5 13.1
39.1 40.9 NM 31.7
- --------------- ------ ------ ------ ------ ------- ------ ------ ------
8.6 11.7 9.6
(46) 3.6 (26) 5.3 (84) 4.5
-.4 1.0 .8
- --------------- ------ ------ ------ ------ ------- ------ ------ ------
3.3 5.8 4.2
(28) 1.8\ (17) 2.4 (53) 2.1
.8 1.2 .8
- --------------- ------------- ------------- -------------- -------------
.4 .5 .3 .4
.6 .9 .5 .7
1.1 1.1 .9 1.0
- --------------- ------------- ------------- -------------- -------------
.7 .6 .7 .6
1.5 1.9 1.7 1.6
2.5 2.9 3.3 2.6
- --------------- ------ ------ ------ ------ ------- ------ ------ ------
26.1 28.0 15.7 25.5
- --------------- ------ ------ ------ ------ ------- ------ ------ ------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
COMPARATIVE HISTORICAL DATA
# POSTRETIREMENT BENEFITS 2 5 2 17
Unqualified 59 53 54 49 52
Reviewed 17 19 10 19 22
Compiled 1 3 1 4
Tax Returns 2 1
Other 6 6 7 11 11
4/1/91- 4/1/92- 4/1/93- 4/1/94- 4/1/95-
3/31/92 3/31/93 3/31/94 3/31/95 3/31/96
ALL ALL ALL ALL ALL
NUMBER OF STATEMENTS 83 81 71 82 90
- ----------------------------------------- -------------- ------------- ------------- -------------- -------------
ASSETS % % % % %
Cash & Equivalents 17.7 18.8 18.8 18.6 19.7
A/R - Progress Billings 26.9 28.3 31.0 31.4 27.2
A/R Current Retention 5.4 4.5 5.5 4.4 4.8
Inventory 3.0 1.6 2.6 2.3 2.1
Cost & Est. Earnings
In Excess of Billings 4.8 4.3 4.6 2.9 5.1
All Other Current 3.6 4.4 4.9 3.8 4.4
Total Current 61.4 61.9 67.3 62.5 63.2
Fixed Assets (net) 30.1 28.7 24.8 29.2 28.8
Joint Ventures & Investments 1.3 1.7 1.3 1.1 1.7
Intangibles (net) .3 1.1 .2 .7 1.3
All Other Non-Current 6.9 6.5 6.4 6.5 4.9
Total 100.0 100.0 100.0 100.0 100.0
- ----------------------------------------- -------------- ------------- ------------- -------------- -------------
LIABILITIES
Notes Payable - Short Term 4.5 4.7 5.8 3.8 4.3
A/P - Trade 16.3 18.1 21.4 18.3 19.3
A/R - Retention 1.2 1.0 2.3 1.3 2.0
Billings in Excess of Costs 3.7 4.3 3.6 3.8 4.2
& Est. Earnings
Income Taxes Payable .6 .6 .7 .3 .9
Cur. Mat. - L/T/D 4.9 4.3 3.1 4.2 3.8
All Other Current 5.5 5.5 4.9 6.0 7.1
Total Current 36.6 38.5 41.8 37.7 41.5
Long Term Debt 11.5 11.0 11.3 12.5 10.1
deferred Taxes 1.7 1.6 1.7 1.4 1.6
All Other Non-Current 1.5 2.1 .9 1.7 2.8
Net Worth 48.6 46.7 44.3 46.6 44.0
Total Liabilities & Net Worth 100.0 100.0 100.0 100.0 100.0
- ----------------------------------------- -------------- ------------- ------------- -------------- -------------
INCOME DATA
Contract Revenues 100.0 100.0 100.0 100.0 100.0
Gross Profit 15.3 18.0 13.9 16.0 15.6
Operating Expenses 13.1 16.8 12.8 13.4 13.1
Operating Profit -2.1 1.2 1.1 2.6 2.5
All Other Expenses (net) -.4 -.1 -.6 .1 .1
Profit Before Taxes 2.5 1.4 1.7 2.4 2.4
- ----------------------------------------- -------------- ------------- ------------- -------------- -------------
RATIOS
2.6 2.3 2.1 2.2 2.3
Current 1.6 1.5 1.6 1.6 1.5
1.2 1.2 1.2 1.2 1.2
- ----------------------------------------- -------------- ------------- ------------- ------- ------ ------ ------
3.3 2.7 2.8 3.0 2.8
Receivables/Payables 2.1 1.8 1.6 (80) 1.8 (89) 1.6
1.4 1.2 1.0 1.2 1.1
- ----------------------------------------- -------------- ------------- ------------- ------- ------ ------ ------
35 10.4 38 9.5 42 8.6 37 9.9 32 11.3
Revenues/Receivables 47 7.8 53 6.9 57 6.4 51 7.2 44 8.3
64 5.7 65 5.6 74 4.9 74 4.9 63 5.8
- ----------------------------------------- ------ ------- ------ ------ ------ ------ ------- ------ ------ ------
19 19.7 22 16.7 26 14.0 17 21.5 18 20.1
Cost of Revenues/Payables 27 13.5 34 10.6 39 9.3 33 11.0 33 11.2
41 8.9 54 6.7 66 5.5 51 7.2 49 7.4
- ----------------------------------------- ------ ------- ------ ------ ------ ------ ------- ------ ------ ------
5.9 5.8 5.8 5.8 6.7
Revenues/Working Capital 9.8 12.0 11.1 10.4 13.1
27.2 32.6 20.0 22.1 31.7
- ----------------------------------------- ------ ------- ------ ------ ------ ------ ------- ------ ------ ------
9.5 9.7 12.4 8.6 9.6
EBIT/Interest (76) 3.7 (71) 3.8 (66) 4.3 (77) 4.8 (84) 4.5
1.5 1.0 1.2 1.5 .8
- ----------------------------------------- ------ ------- ------ ------ ------ ------ ------- ------ ------ ------
3.5 4.0 10.4 5.3 4.2
Net Profit + Depr., Dep., (52) 1.8 (51) 1.6 (35) 3.8 (47) 2.4 (53) 2.1
Amort./Cur. Mat. L/T/D .9 .8 1.2 1.2 .8
- ----------------------------------------- -------------- ------------- ------------- -------------- -------------
.4 .4 .4 .4 .4
Fixed Worth .6 .6 .6 .6 .7
1.0 1.1 .8 1.0 1.0
- ----------------------------------------- -------------- ------------- ------------- -------------- -------------
.6 .8 .7 .7 .6
Debt/Worth 1.2 1.3 1.4 1.3 1.6
2.0 2.1 2.2 2.2 2.6
- ----------------------------------------- ------ ------- ------ ------ ------ ------ ------- ------ ------ ------
% Profit Before Taxes/ 29.9 21.7 21.5 24.1 25.5
- ----------------------------------------- ------ ------- ------ ------ ------ ------ ------- ------ ------ ------
</TABLE>
<PAGE> 97
<TABLE>
<S> <C> <C> <C> <C>
(48) 11.1 17.6 10.2 (89) 12.9
-3.8 -2.4 -22.2 -1.7
- --------------- ------ ------ ------ ------ ------- ------ ------ ------
14.4 12.7 7.7 12.9
5.4 5.7 5.0 5.4
-3.0 .9 -5.8 -..9
- ------- ------- ------ ------ ------ ------ ------- ------ ------ ------
1.5 1.9 .6 1.5
(47) 2.5 2.5 1.3 (87) 2.5
4.1 3.3 2.5 3.6
- --------------- ------------- ------------- -------------- -------------
2.3 1.1 1.7
(24) 3.4 (12) 1.6 (37) 2.6
5.0 2.5 4.6
- --------------- ------------- ------------- -------------- -------------
1918M 212552M 569624M 3331861M 4115955M
888M 99363M 233746M 1395581M 1729578M
- --------------- ------------- ------------- -------------- -------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Tangible Net Worth 15.2 (79) 7.4 (70) 8.7 (81) 11.9 (89) 12.9
1.9 -.3 1.0 2.4 -1.7
- ----------------------------------------- ------ ------- ------ ------ ------ ------ ------- ------ ------ ------
13.6 9.7 9.0 9.4 12.9
% Profit Before Taxes/ 6.3 3.9 3.8 5.1 5.4
Total Assets 1.1 -.3 .5 1.1 -.9
- ----------------------------------------- ------ ------- ------ ------ ------ ------ ------- ------ ------ ------
.9 1.4 1.4 1.7 1.5
% Depr., Dep., Amort./ (76) 2.3 (76) 2.5 (65) 2.6 (79) 3.0 (87) 2.5
Revenues 3.8 4.4 3.6 4.3 3.6
- ----------------------------------------- -------------- ------------- ------------- -------------- -------------
2.1 2.3 1.8 1.8 1.7
% Officers', Directors', (33) 3.1 (36) 3.6 (28) 2.6 (42) 2.5 (37) 2.6
Owners' Comp/Revenues 5.3 5.6 5.2 3.9 4.6
- ----------------------------------------- -------------- ------------- ------------- -------------- -------------
Contract Revenues ($) 1812640M 1716306M 2219162M 1713501M 4115955M
Total Assets ($) 625944M 876394M 928438M 749683 1729578M
- ----------------------------------------- -------------- ------------- ------------- -------------- -------------
(C)Robert Morris Associates 1996 M = $ THOUSAND MM = $ MILLION
156858 See Pages 1 through 21 for Explanation of Ratios and Data
</TABLE>
<PAGE> 98
APPENDIX C
STATEMENT OF LIMITING CONDITIONS
<PAGE> 99
STATEMENT OF LIMITING CONDITIONS
1. Neither HVA or its principals have any present or intended interest in the
Company. HVA's fees for this valuation are based on professional time charges,
and are in no way contingent upon the final valuation figure arrived at.
2. This report is intended only for the specific use and purpose stated
herein. It is intended for no other uses and is not to be copied or given to
unauthorized persons without the direct written consent of HVA. The value
opinion expressed herein is valid only for the stated purpose and date of the
valuation. The report and information and conclusions contained therein should
in no way be construed to be investment advice.
3. HVA does not purport to be a guarantor of value. Valuation is an imprecise
science, with value being a question of informed judgment, and reasonable
persons can differ in their estimates of value. HVA does certify that this
valuation study was conducted and the conclusions arrived at independently using
conceptually sound and commonly accepted methods of valuation.
4. In preparing the valuation report, we used information provided by the
Company. It has been represented by Company management that the information is
reasonably complete and accurate. We did not make independent examinations of
any financial statements, projections or other information prepared by Company
management which were relied upon and, accordingly, we make no representations
or warranties nor do we express any opinion regarding the accuracy or
reasonableness of such.
5. The valuation conclusions derived herein implicitly assume that the
existing management of the Company will maintain the character and integrity of
the Company through any sale, reorganization, or diminution of the owners'
participation.
6. Publicly available information utilized herein (e.g., economic, industry,
statistical and/or investment information) has been obtained from sources deemed
to be reliable. It is beyond the scope of this report to verify the accuracy of
such information, and we make no representation as to its accuracy.
7. This engagement is limited to the production of the report, conclusions and
opinions contained herein. HVA has no obligation to provide future services
(e.g., expert testimony in court or before governmental agencies) related to the
contents of the report unless arrangements for such future services have been
made.
8. This valuation report and the conclusions contained herein are necessarily
based on market and economic conditions as they existed as of the date of
valuation.
9. David Dorton, CFA, ASA has met all current certification standards and is
an accredited senior
<PAGE> 100
appraiser in good standing of the American Society of Appraisers, a national
organization that certifies business appraisers. HVA conforms to the Uniform
Standards of Professional Appraisal Practice for purposes of business
valuations. HVA also conforms to the Business Valuation Standards I through IX
set forth by the American Society of Appraisers in September 1992.
<PAGE> 101
APPENDIX D
PROFESSIONAL QUALIFICATIONS
DAVID DORTON, CFA, ASA
<PAGE> 102
DAVID L. DORTON, CFA, ASA
PROFESSIONAL DESIGNATIONS Chartered Financial Analyst (CFA)
Accredited Senior Appraiser (ASA)
Senior Member, American Society of Appraisers
ACADEMIC DEGREES B.S., University of Utah, Finance,
Magna Cum Laude
M.B.A., University of Utah
EMPLOYMENT HOULIHAN VALUATION ADVISORS
Principal - 1986 to Present
Houlihan Valuation Advisors provides
professional services relative to business
valuations, fairness and solvency opinions,
economic loss analyses, and other valuation
and economic issues. The firm has offices in
Los Angeles, Orange County, San Francisco,
San Carlos, Las Vegas, Salt Lake City,
Denver, Kansas City, Chicago and Atlanta.
WASATCH ADVISORS CONSULTING GROUP
Managing Analyst - 1984 to 1986
Wasatch Advisors provides investment advisory
services. Wasatch Advisors Consulting Group
provided corporate valuation, financial
analysis and consulting services.
JPS FINANCIAL CONSULTANTS Financial Analyst -
1981 to 1984
JPS Financial Consultants provided corporate
valuation and financial analysis services.
EXPERIENCE Has valued hundreds of privately held
companies and businesses since 1981, as well
as being a financial consultant for numerous
companies. Has prepared numerous valuation
studies, analyzed the relative merits of
merger/acquisition proposals, analyzed and
prepared opinion letters as to the fairness
of such proposals, prepared solvency
opinions,
<PAGE> 103
prepared ESOP feasibility studies, and been
involved in a wide array of other financial
analysis and consulting activities for
clients. Has served as an expert witness on
valuation, economic and financial matters in
federal and state district courts on numerous
occasions.
<PAGE> 104
Page 2
PROFESSIONAL SOCIETIES Salt Lake City Society of Financial Analysts
American Society of Appraisers, Past
President, Salt Lake City Chapter Association
for Investment Management and Research
OTHER Who's Who of Emerging Leaders in America
Who's Who of Finance
SPEAKING ENGAGEMENTS Has participated in many seminars and has
spoken on valuation issues on numerous
occasions.
<PAGE> 105
APPENDIX E
INTERNAL REVENUE RULING 59-60, 1959-1 CB 237
<PAGE> 106
INTERNAL REVENUE RULING 59-60
SECTION 2031. DEFINITION OF GROSS ESTATE
26 CFR 20.2031-2; Valuation of stocks and bonds
(Also Section 2512.)
(Also Part II, Sections 811 (k), 1005
Regulations 105, Section 81.10.)
In valuing the stock of closely held corporations, or the stock of
corporations where market quotations are not available, all other available
financial data, as well as all relevant factors affecting the fair market
value, must be considered for estate tax and gift tax purposes. No general
formula may be given that is applicable to the many different valuation
situations arising in the valuation of such stock. However, the general
approach, methods, and factors which must be considered in valuing such
securities are outlined.
Revenue Ruling 54-77, C.B. 1954-1, 187, superseded.
Section 1. Purpose
The purpose of this Revenue Ruling is to outline and review in general the
approach, methods and factors to be considered in valuing shares of the capital
stock of closely held corporations for estate tax and gift tax purposes. The
methods discussed herein will apply likewise to the valuation of corporation
stocks on which market quotations are either unavailable or are of such scarcity
that they do not reflect the fair market value.
Section 2. Background and Definitions
.01 All valuations must be made in accordance with the applicable
provisions of the Internal Revenue Code of 1954 and the Federal Estate Tax
and Gift Tax Regulations. Sections 2031(a), 2032 and 2512(a) of the 1954
Code (Sections 811 and 1005 of the 1939 Code) require that the property to
be included in the gross estate, or made the subject of a gift, shall be
taxed on the basis of the value of the property at the time of death of the
decedent, the alternate date if so elected, or the date of gift.
.02 Section 20.2031-1(b) of the Estate Tax Regulations (section 81.10 of
the Estate Tax Regulations 105) and section 25.2512-1 of the Gift Tax
Regulations (section 86.19 of Gift Tax Regulations 108) define fair market
value, in effect, as the price at which the property would change hands
between a willing buyer and a willing seller when the former is not under
any compulsion to buy and the latter is not under any compulsion to sell,
both parties having reasonable knowledge of relevant facts. Court decisions
frequently state an addition that the hypothetical buyer and seller are
assumed to be able, as well as willing, to trade and to be well informed
about the property and concerning the market for such property.
1
<PAGE> 107
.03 Closely held corporations are those corporations the shares of which
are owned by a relatively limited number of stockholders. Often the entire
stock issue is held by one family. The result of this situation is that
little, if any, trading in the shares takes place. There is, therefore, no
established market for the stock and such sales as occur at irregular
intervals seldom reflect all of the elements of the representative
transaction as defined by the term "fair market value".
Section 3. Approach to Valuation
.01 A determination of fair market value, being a question of fact, will
depend upon the circumstances in each case. No formula can be devised that
will be generally applicable to the multitude of different valuation issues
arising in the estate and gift tax cases. Often, an appraiser will find
wide differences, he should maintain a reasonable attitude in recognition
of the fact that valuation is not an exact science. As sound valuation will
be based upon all the relevant facts, but the elements of common sense,
informed judgment and reasonableness must enter into the process of
weighing those facts and determining their aggregate significance.
.02 The fair market value of specific shares of stock will vary as general
economic conditions change from "normal" to "boom" or "depression," that
is, according to the degree of optimism or pessimism with which the
investing public regards the future at the required date of appraisal.
Uncertainty as to the stability or continuity of the future income from a
property decreases its value by increase the risk of loss of earnings and
value in the future. The value of shares of stock of a company with very
uncertain future income from a property decreases its value by INCREASE the
risk of loss of earnings and value in the future. The value of shares of
stock of a company with very uncertain future prospects is highly
speculative. The appraiser must exercise his judgment as to the degree of
risk attaching to the business of the corporation which issued the stock,
but that judgment must be related to all of the other factors affecting
value.
.03 Valuation of securities is, in essence, a prophesy as to the future
and must be based on facts available at the required date of appraisal. As
a generalization, the prices of stocks which are traded in the volume in a
free and active market by informed persons best reflect the consensus of
the investing public as to what the future holds for the corporations and
industries represented. When a stock is closely held, is traded
infrequently, or is traded in an erratic market, some other measure of
value must be used. In many instances, the next best measure may be found
in the prices at which the stocks of companies engaged in the same or
similar line of business are selling in a free and open market.
Section 4. Factors to Consider
.01 It is advisable to emphasize that in the valuation of the stock of
closely held corporations or the stock of
2
<PAGE> 108
corporations where market quotations are either lacking or too scarce to be
recognized, all available financial data, as well as all relevant factors
affecting the fair market value, should be considered. The following
factors, although not all-inclusive, are fundamental and require careful
analysis in each case:
(a) The nature of the business and the history of the enterprise from
its inception.
(b) The economic outlook in general and the condition and outlook of
the specific industry in particular.
(c) The book value of the stock and the financial condition of the
business.
(d) The earning capacity of the company.
(e) The dividend-paying capacity.
(f) Whether or not the enterprise has goodwill or other tangible
value.
(g) Whether or not the enterprise has goodwill or other tangible
value.
(h) The market price of stocks of corporations engaged in the same or
a similar line of business having their stocks actively traded in
a free and open market, either on an exchange or
over-the-counter.
.02 The following is a brief discussion of each of the foregoing factors:
(a) The history of a corporate enterprise will show its past
stability or instability, its growth or lack of growth, the
diversity or lack of diversity of its operations, and other facts
needed to form an opinion of the degree of risk involved in the
business. For an enterprise which changed its form of
organization but carried on the same or closely similar
operations of its predecessor, the history of the former
enterprise should be considered. The detail to be considered
should increase with approach to the required date of appraisal,
since recent events are of the greatest help in predicting the
future; but a study of gross and net income, and of dividends
covering a long prior period, is highly desirable. The history to
be studied should include but need not be limited to the nature
of the business, its products or services, its operating and
investment assets, capital structure, plant facilities, sales
records and management, all of which should be considered as of
the date of the appraisal, with due regard for recent significant
changes. Events of the past that are unlikely to recur in the
future should be discounted, since value has a close relations to
future expectancy.
3
<PAGE> 109
(b) A sound appraisal of a closely held stock must consider current
and prospective economic conditions as of the date of appraisal,
both in the national economy and in the industry or industries
with which the corporation is allied. It is important to know
that the company is more or less successful that its competitors
in the same industry, or that it is maintaining a stable position
with respect to competitors. Equal or even greater significance
may attach to the ability of the industry with which the company
is allied to compete with other industries. Prospective
competition which has not been a factor in prior years should be
given careful attention. For example, high profits due to the
novelty of its product and the lack of competition often lead to
increasing competition. The public's appraisal of the future
prospects of competitive industries or of competitors within an
industry may be indicated by price trends in the markets for
commodities and for securities. The loss of the manager of a
so-called "one-man" business may have a depressing effect upon
the value of the stock of such business, particularly if there is
a lack of trained personnel capable of succeeding to the
management of the enterprise. In valuing the stock of this type
of business, therefore, the effect of the loss of the manager on
the future expectancy of the business and the absence of
management-succession potentialities are pertinent factors to be
taken into consideration. On the other hand, there may be factors
which offset, in whole or in part, the loss of the manager's
services. For instance, the nature of the business and of its
assets may be such that they will not be impaired by the loss of
the manager's services. Furthermore, the loss may be adequately
covered by life insurance, or competent management might be
employed on the basis of the consideration paid for covered by
life insurance, or competent management might be employed on the
basis of the consideration paid for the former manager's
services. These, or other offsetting factors, if found to exist,
should be carefully weighed against the loss of the manager's
services in valuing the stock of the enterprise.
(c) Balance sheets should be obtained, preferably in the form of
comparative annual statements for two or more years immediately
preceding the date of appraisal, together with a balance sheet at
the end of the month preceding that date, if corporate accounting
will permit. Any balance sheet descriptions that are not
self-explanatory and balance sheet items comprehending diverse
assets or liabilities should be clarified in essential detail by
supporting supplemental schedules. These statements usually will
disclose to the appraiser: (1) liquid position (ratio of current
assets to current liabilities); (2) gross and net book value of
principal classes of fixed assets; (3) working capital; (4)
long-term indebtedness; (5) capital structure; and (6) net worth.
Consideration also should be given to any
4
<PAGE> 110
assets not essential to the operation of the business, such as
investments in securities, real estate, etc. In general, such
nonoperating assets will command a lower rate of return than do
the operating assets, although in exceptional cases the reverse
may be true. In computing the book value per share of stock
assets of the investment type should be revalued on the basis of
their market price and the book value adjusted accordingly.
Comparison of the company's balance sheets over several years may
reveal, among other facts, such developments as the acquisition
of additional production facilities or subsidiary companies,
improvement in financial position, and details as to
recapitalizations and other changes in the capital structure of
the corporation. If the corporation has more than one class of
stock outstanding, the charter or certificate of incorporation
should be examined to ascertain the explicit rights and
privileges of the various stock issues, including: (1) voting
powers, (2) preference as to dividends, and (3) preference as to
assets in the event of liquidation.
(d) Detailed profit-and-loss statements should be obtained and
considered for a representative period immediately prior to the
required date of appraisal, preferably five or more years. Such
statements should show (1) gross income by principal items; (2)
principal deductions from gross income including major prior
items of operating expenses, interest and other expense on each
item of long-term debt, depreciation and depletion if such
deductions are made, officer's salaries, in total if they appear
to be reasonable are made, officers' salaries, in total if they
appear to be reasonable or in detail if they seem to be
excessive, contributions (whether or not deductible for tax
purposes) that the nature of its business and its community
position require the corporation to make, and taxes by principal
items, including income and excess profit taxes; (3) net income
available for dividends; (4) rates and amounts of dividends paid
on each class of stock; (5) remaining amount carried to surplus;
and (6) adjustments to and reconciliation and with surplus as
stated on the balance sheet. With profit and loss statements of
this character available, the appraiser should be able to
separate recurrent from nonrecurrent items of income and expense,
to distinguish between operating income and investment income,
and to ascertain whether or not any line of business in which the
company is engaged is operated consistently at a loss and might
be abandoned with benefit to the company. The percentage of
earnings retained for business expansion should be noted when
dividend-paying capacity is considered. Potential future income
is a major factor in many valuations of closely-held stocks, and
all information concerning past income which will be helpful in
predicting the future should be secured. Prior earnings records
usually are the most reliable guide as to the future expectancy,
but resort to arbitrary five- or ten-year averages without regard
to current trends or future prospects will not product a
realistic valuation. If, for instance, a record of
5
<PAGE> 111
progressively increasing or decreasing net income is found, then
greater weight may be accorded the most recent years' profits in
estimating earning power. It will be helpful, in judging risk and
the extent to which a business is marginal operations, to
consider deductions from income and net income in terms of
percentage of sales. Major categories of cost and expense to be
so analyzed include the consumption of raw materials and supplies
in the case of manufacturers, processors and fabricators; the
cost of purchased merchandise in the case of merchants; utility
services, insurance; taxes; depletion or depreciation; and
interest.
(e) Primary consideration should be given to the dividend-paying
capacity of the company rather than to dividends actually paid in
the past. Recognition must be given to the necessity of retaining
a reasonable portion of profits in a company to meet competition.
Dividend-paying capacity is a factor that must be considered in
an appraisal, but dividends actually paid in the past may not
have any relation to dividend-paying capacity. Specifically, the
dividends paid by a closely held family company may be measured
by the income needs of the stockholders or by their desire to
avoid taxes on the dividend receipts, instead of by the ability
of the company to pay dividends. Where an actual or effective
controlling interest in a corporation is to be valued, the
dividend factor is not a material element, since the payment of
such dividends is discretionary with the controlling
stockholders. The individual or group in control can substitute
salaries and bonuses for dividends, thus reducing net income and
understating the dividend-paying capacity of the company. It
follows, therefore, that dividends are less reliable criteria of
fair market value than other applicable factors.
(f) In the final analysis, goodwill is based upon earning capacity.
The presence of goodwill and its value, therefore, rests upon the
excess of net earnings over and above a fair return on the net
tangible assets. While the element of goodwill may be based
primarily on earnings, such factors as the prestige and renown of
the business, the ownership of a trade or brand name, and a
record of successful operation over a prolonged period in a
particular locality also may furnish support for the inclusion of
intangible value. In some instances it may not be possible to
make a separate appraisal of the tangible and intangible assets
of the business. The enterprise has a value as an entity.
Whatever intangible value there is, which supportable by the
facts, may be measured by the amount by which the appraised value
of the intangible assets exceeds the net book value of such
assets.
(g) Sales of stock of a closely held corporation should be carefully
investigated to determine whether they represent transactions at
arm's length. Forced
6
<PAGE> 112
or distress sales do not ordinarily reflect fair market value nor
do isolated sales in small amounts necessarily control as the
measure of value. This is especially true in the valuation of a
controlling interest in a corporation. Since, in the case of
closely held stocks, no prevailing market prices are available,
there is not basis for making an adjustment for blockage. It
follows, therefore, that such stocks should be valued upon a
consideration of all the evidence affecting the fair market
value. The size of the block of stock itself is a relevant factor
to be considered. Although it is true that a minority interest in
an unlisted corporation's stock is more difficult to sell than a
similar block of listed stock, it is equally true that control of
a corporation, either actual or in effect, representing as it
does an added element of value, may justify a higher value for a
specific block of stock.
(h) Section 2031(b) of the Code states, in effect, that in valuing
unlisted securities the value of stock or securities of
corporations engaged in the same or a similar line of business
which are listed on an exchange should be taken into
consideration along with all factors. An important consideration
is that the corporations to be used for comparisons have capital
stocks which are actively traded by the public. In accordance
with section 2031(b) of the Code, stocks listed on an exchange
are to be considered first. However, if sufficient comparable
companies whose stocks are listed on an exchange cannot be found,
other comparable companies which have stocks actively traded in
on the over-the-counter market also may be used. The essential
factor is that whether the stocks are sold on an exchange or
over-the-counter there is evidence of an active, free public
market for the stock as of the valuation date. In selecting
corporations for comparative purposes, care should be taken to
use only comparable companies. Although the only restrictive
requirement as to comparable corporations specified in the
statute is that their lines of business be the same or similar,
yet it is obvious that the consideration must be given to other
relevant factors in order that the most valid comparison possible
will be obtained. For illustration, a corporation having one or
more issues of preferred stock, bonds or debentures in addition
to its common stock should not be considered to be directly
comparable to one having only common stock outstanding. In like
manner. A company with a declining business and decreasing market
is not comparable to one with a record of current progress and
market expansion.
Section 5. Weight to be accorded Various Factors
The valuation of closely held corporation stock entails the consideration of all
relevant factors as stated in Section 4. Depending upon the circumstances in
each case, certain factors may carry more weight than others because of the
nature of the company's business. To illustrate:
7
<PAGE> 113
(a) Earnings may be the most important criterion of value in some
cases whereas asset value will receive primary consideration in
others. In general, the appraiser will accord primary
consideration to earnings when valuing stocks of companies which
sell products or services to the public; conversely, in the
investment or holding type of company, the appraiser may accord
the greatest weight to the assets underlying the security to be
valued.
(b) The value of the stock of a closely held investment or real
estate holding company, whether or not family owned, is closely
related to the value of the assets underlying the stock. For
companies of this type the appraiser should determine the fair
market values of the assets of the company. Operating expenses of
such a company and the cost of liquidating, if any, merit
consideration when appraising the relative values of the stock
and the underlying assets. The market values of the underlying
assets give due weight to potential earnings and dividends of the
particular items of property underlying the stock, capitalized at
rates deemed proper by the investing public at the date of
appraisal. A current appraisal by the investing public should be
superior to the retrospective opinion of an individual for these
reasons, adjusted net worth should be accorded greater weight in
valuing the stock of a closely held investment or real estate
holding company, whether or not family owned, than any of the
other customary yardsticks of appraisal, such as earnings and
dividend paying capacity
Section 6. Capitalization Rates
In the application of certain fundamental valuation factors, such as earnings
and dividends, it si necessary to capitalize the average or current results at
some appropriate rate. A determination or the proper capitalization rate
presents one of the most difficult problems in valuation. That there is no ready
or simple solution will become apparent by a cursory check of the rates of
return and dividend yields in terms of the selling prices of corporate shares
listed on the major exchanges in the country. While variations will be found
even for companies in the same industry. Moreover, the ration will fluctuate
from year to year depending upon economic conditions. Thus, no standard tables
of capitalization rates applicable to closely held corporations can be
formulated. Among the more important factors to be taken into consideration in
deciding upon a capitalization rate in a particular case are: (1) the nature of
the business; (2) the risk involved; and (3) the stability or irregularity of
earnings.
Section 7. Average of Factors
Because valuations cannot be made on the basis of a prescribed formula, there is
no means
8
<PAGE> 114
whereby the various applicable factors in a particular case can be assigned
mathematical weights in deriving the fair market value. For this reason, no
useful purpose is served by taking an average of several factors (for example,
book value, capitalized earnings and capitalized dividends) and basing the
valuation on the result cannot be supported by a realistic application of the
significant facts in the case except by mere chance.
Frequently, in the valuation of closely held stock for estate and gift tax
purposes, it will be found that the stock is subject to an agreement restricting
its sale or transfer. Where shares of a stock were acquired by a decedent
subject to an option reserved by the issuing corporation to repurchase at a
certain price, the option price is usually accepted as the fair market value for
estate tax purposes (see Revenue ruling 54-76, C.B. 1954-1, 194.) However, in
such cases the option price is not determinative of fair market value for gift
tax purposes. Where the option or buy and sell agreement is the result of
voluntary action by the stockholders and is binding during the life as well as
the death of stockholders, such agreement may or may not, depending upon the
circumstances of each case, fix the value for estate tax purposes. However, such
agreement is a factor to be considered, with other relevant factors, in
determining fair market value. Where the stockholder is free to dispose of his
shares during life and the option is to become effective only upon his death,
the fair market value is not limited to the option price. It is always necessary
to consider the relationship of the parties, the relative number of shares held
by the decedent, and other material facts, to determine whether the agreement
represents a bona fide business arrangement or is a device to pass the
decedent's shares to the natural objects of his bounty for less than an adequate
and full consideration in money or money's worth. (In this connection, see
Revenue Ruling 157 C.B. 1953-2, 255, and Revenue Ruling 189, C.B. 1953-2, 294.)
Section 9. Effect on Other Documents
Revenue Ruling 54-77, C.B. 1954-1, 187, is hereby superseded.1
- --------
1 Source: Internal Revenue Bulletin; Cumulative Bulletin 1959-1, January - June
1959, pp. 237-244.
9
<PAGE> 1
EXHIBIT 99.3
VALUATION
GENEVA ROCK PRODUCTS, INC.
AS OF JUNE 30, 1997
PREPARED BY:
HOULIHAN VALUATION ADVISORS
OCTOBER 23, 1997
<PAGE> 2
October 23, 1997
Shareholders
Geneva Rock Products, Inc.
1565 West 400 North
P.O. Box 538
Orem, Utah 84059
Dear Shareholders:
Attached is the valuation report on Geneva Rock Products, Inc.
(hereinafter referred to as "Geneva Rock Products" or "the Company"), which
Houlihan Valuation Advisors ("HVA") has completed at your request. The purpose
of the report is to render an opinion as to the fair market enterprise
(controlling interest) value of Geneva Rock Products as of June 30, 1997.
The term "fair market value" is defined as that value at which a willing
buyer and willing seller, neither being compelled to act and both being well
informed of the relevant facts and conditions which might be anticipated, would
effect a sale of an asset at "arm's length" on a given date.
Our study was undertaken using widely accepted principles of financial
analysis and valuation. In particular, we observed the principles set forth in
Internal Revenue Ruling 59-60, 1959-1 CB 237. The book/liquidation value,
transaction value, market value, and income value methods of valuation were
utilized in arriving at an estimate of the fair market enterprise value of
Geneva Rock Products.
In preparing this valuation, we used information provided by Geneva Rock
Products. Company management has represented the information as being reasonably
complete and accurate. We did not make independent examinations of any financial
statements or other information prepared by management which was relied upon
and, accordingly, we make no representations or warranties nor do we express any
opinion regarding the accuracy or reasonableness of such. All of the information
made available to us was carefully analyzed and reasonable attempts were made to
find additional information which would be helpful in this study.
<PAGE> 3
Page 2
Financial projections utilized in the valuation were prepared based on
analysis of the Company's historical operating results and conversations with
Company management. It should be emphasized that forecasting the future is at
best a difficult and tenuous process. There will undoubtedly be disparities
between the projected figures and actual results, since events and circumstances
frequently do not occur as expected, and those disparities may be material.
This report has been prepared for the specific purpose of valuing the
common stock of Geneva Rock Products on an enterprise value basis pursuant to
and in anticipation of a proposed merger and consolidation into a company to be
newly formed of Geneva Rock Products with three other related companies: W. W.
Clyde & Co., Utah Service, Inc., and Beehive Insurance Agency, Inc. The report
is intended for no other use, and is not to be copied or given to unauthorized
persons without the direct written consent of HVA.
Since valuation is an imprecise science, HVA does not purport to be a
guarantor of value. Value is a question of informed judgment, and reasonable
persons can differ in their estimates of value. HVA does certify that this
valuation study was conducted and the conclusions arrived at independently using
conceptually sound and commonly accepted methods of valuation.
Our study has concluded that a reasonable estimate of the fair market
enterprise value of Geneva Rock Products as of June 30, 1997 is $101,000,000 or
$4,633 per share, based on 21,802 shares outstanding.
Neither HVA or its principals have any present or intended interest in
Geneva Rock Products. HVA's fees for this valuation are based on professional
time charges, and are in no way contingent upon the final valuation figure
arrived at.
It has been a pleasure to perform this analysis for you. We look forward
to serving you in the future.
Houlihan Valuation Advisors
by: David Dorton, CFA, ASA
Accredited Senior Appraiser
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
I. PREFACE 1
II. BASIC PRINCIPLES OF VALUATION 2
III. INTRODUCTION 4
A. Purpose 4
B. Scope 4
C. Methodology 4
IV. COMPANY BACKGROUND 6
A. Overview 6
B. Competition 8
C. Company Management 8
D. Ownership 9
V. ECONOMIC OVERVIEW AND OUTLOOK 10
A. National - June 1997 10
B. Utah - 1997 15
VI. INDUSTRY OVERVIEW 22
A. National Engineering and Construction Industry 22
B. The Utah Commercial Construction Industry 35
C. The Cement and Aggregates Industry 37
VII. FINANCIAL REVIEW 40
VIII. CROSS-SECTIONAL ANALYSIS 44
IX. ESTIMATES OF VALUE 47
A. Nature of the Security 47
1. Control 47
2. Marketability 47
B. Normalization of Earnings 48
1. Regression Analysis 49
2. Past Averages 50
3. Company Projections 50
4. Projected Earnings 50
C. Book/Liquidation Value 51
D. Transaction Value 52
E. Market Value 53
F. Income Value 57
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C>
X. SUMMARY AND CONCLUSION 61
XI. EXHIBITS 62
APPENDIX A: Geneva Rock Products - Financial Statement Summary
APPENDIX B: Robert Morris Associates Industry Ratios -
Sand & Gravel Construction
APPENDIX C: Statement of Limiting Conditions
APPENDIX D: Professional Qualifications
APPENDIX E: Internal Revenue Ruling 59-60, 1959-1 CB 237
</TABLE>
<PAGE> 6
1
PREFACE
This valuation study was conducted at the request of the shareholders of
Geneva Rock Products, Inc. ("Geneva Rock Products" or "the Company") to provide
an estimate as to the fair market enterprise (controlling interest) value of the
Company as of June 30, 1997. In preparing this report, information provided by
the Company was used. Company management has represented the information as
being reasonably complete and accurate, and as fairly presenting the financial
position, prospects and related facts of the Company. Houlihan Valuation
Advisors ("HVA") is not in a position to certify the accuracy of basic data
provided by the Company, and the validity of this valuation study is dependent
upon the accuracy of such data. HVA does certify that conceptually sound methods
were used in the valuation.
<PAGE> 7
2
BASIC PRINCIPLES OF VALUATION
The principles which have governed this analysis provide a basis for the
determination of value where an active market for a company's securities is
lacking. The valuation procedure attempts to analyze the earning power of a
company and the ability of the company to convert this earning power into value.
Earning power is related to the rates of return expected in the financial
markets for various types of investment alternatives, with consideration given
to past history, expected growth rates and risk. This report provides a direct
comparison between Geneva Rock Products' operations and those of companies
operating in the same industry. From this comparison, certain reasonable
conclusions concerning the relative financial position and performance of the
Company may be drawn.
Fair market value is that value at which a willing buyer and willing
seller, neither being compelled to act and both being well informed of the
relevant facts and conditions which might be anticipated, would effect a sale of
an asset at "arm's length" on a given date.
The value of securities of a corporation in the hands of its
stockholders and the value of the underlying assets of the corporation are
usually only incidentally related. The value of securities which are freely
traded in a public market is influenced as much by external factors beyond the
control of the company as it is by internal factors within the control of
management. Such external factors include:
a. General economic conditions;
b. Conditions existing within a specific industry (e.g., degree of risk,
stability or rate of growth);
c. Public attitude and investor sentiment toward particular industries and
companies.
Fair market value of securities which enjoy an active public market is
determined by actual market quotations on a particular date, unless the market
for a security is affected by some abnormal influence or condition.
Determination of fair market value of securities of a closely held corporation,
<PAGE> 8
3
however, cannot be determined as precisely, thus creating a need for independent
professional business valuation. Principal weight must be given to evidences of
earning power, book value, dividend paying capacity, financial and competitive
position, and other facts and circumstances which a potential buyer and seller
would consider. Also, prices realized in actual sales of similar companies on or
about the valuation date afford a realistic measure of value.
Professional valuation of a closely held company cannot be considered an
exact science; however, experience has shown that comprehensive and thorough
valuation analyses can generate ranges of value which are reasonable and
relevant.
The various techniques used in this report are based on different
concepts and assumptions. As a result, their application produces a range of
possible values. A single number within that range is given as a reasonable
estimate of value as of the valuation date. It should be emphasized that, as is
the case with publicly traded securities, when expectations for Geneva Rock
Products change over time, so does its value. Further, the value of a firm may
fluctuate over time even though its internal operating characteristics remain
essentially unchanged. The securities market places different significance on
income and risk properties of companies as general economic conditions vary.
<PAGE> 9
4
INTRODUCTION
Purpose
The purpose of this report is to determine the fair market enterprise
(controlling interest) value of Geneva Rock Products as of June 30, 1997,
pursuant to and in anticipation of a proposed merger and consolidation into a
company to be newly formed of Geneva Rock Products with three other related
companies: W. W. Clyde & Co., Utah Service, Inc., and Beehive Insurance Agency,
Inc.
Scope
Both internal and external factors which influence the value of Geneva
Rock Products are analyzed and interpreted. Internal factors include the
Company's performance and financial structure, as well as the size and
marketability of the interest being valued. External factors include, among
others, the health of the industry and the position of the Company therein,
economic trends, and conditions in the securities markets.
Methodology
The report first looks at the background and operating characteristics
of Geneva Rock Products. It next provides overviews of the national and Utah
economies and the engineering/construction and cement/aggregates industries,
each important as a description of the environment in which the Company
operates. A financial analysis of the Company, as well as a comparative analysis
of the results of the Company with those of the industry, follows. Finally, the
report determines explicit controlling interest values for the Company via the
application of alternative valuation techniques. Four valuation methods are
employed: book/liquidation value, transaction value, market value (derived from
market value ratios of similar firms), and income value (based on the present
value of future benefits). After considering the assumptions and relative
justification of each valuation
<PAGE> 10
5
method, the results are synthesized into a final value estimate on a controlling
interest basis of the common stock of the Company.
<PAGE> 11
6
COMPANY BACKGROUND
Overview
Geneva Rock Products was incorporated on August 8, 1954 as a Utah
corporation. The Company was founded as a ready-mix concrete business by W. W.
Clyde. The Company is engaged in the manufacturing of construction materials and
aggregates consisting primarily of ready-mix concrete, asphalt, sand, and gravel
products. The Company also has a construction division, which does street and
road construction, asphalt paving, and excavation work. The Company's ready-mix
concrete operations generate approximately 50% of the Company's revenues, with
sand and gravel operations generating approximately 30% of revenues (25% to the
Company's own construction projects and 5% to outside contractors), and the
Company's recently acquired wholly-owned subsidiary, J & J Building Supply,
Inc., generating the remaining 20% of revenues. The Company's market is
primarily the Wasatch Front in Utah, including Utah, Salt Lake, Davis, Summit
and Wasatch counties. The Company is the largest producer of ready-mix concrete
and sand and gravel in the state of Utah, with an estimated 25% share of the
Wasatch Front ready-mix concrete market, a 15% share of the asphalt paving
market, a 10% share of the street reconstruction market, and a 15% - 20% share
of the aggregates market. The Company's ready-mix concrete is sold primarily to
contractors. Utah Department of Transportation is the Company's largest client;
however, the Company's client base is diversified, with no one client generating
a significant portion of the Company's total sales. The Company has done much of
the concrete work for many of the large commercial office buildings in the
downtown Salt Lake City market.
Geneva Rock Products has a number of operating facilities and sand and
gravel pits throughout Utah, including sand and gravel pits in Mapleton, Cedar
Hills, West Valley, and South Weber; sand, gravel, and concrete plants in Ogden,
Murray, Sandy, South Weber, and Price; a sand, gravel, dispatch,
<PAGE> 12
7
asphalt plant, and concrete plant at Point of the Mountain; sand, gravel,
concrete dispatch, concrete plant, and sales office in both Park City and
Layton; a concrete dispatch, concrete plant, and sales office in Salt Lake City;
and a temporary ready-mix concrete plant in Barrick, Nevada. In addition, the
Company's corporate offices are located in Orem, where the Company also has
concrete dispatch, concrete plant, sand, gravel, asphalt plant, and sales
operations. The Company was a team member of one of the three consortiums to bid
on the large I-15 freeway expansion project; although that consortium was not
awarded the bid, the Company anticipates receiving at least a portion of the
materials work on the project because of its excellent strategic locations along
I-15.
On June 28, 1996, Geneva Rock Products acquired J & J Building Supply,
Inc. for a total investment of $18.47 million. J & J Building Supply, Inc.,
located in St. George, Utah, operates a retail hardware and lumber yard, and
also owns and operates a masonry block manufacturing plant, a concrete batch
plant, and mining operations to supply aggregate required for the manufacturing
of concrete as well as other aggregate products. Company management estimates
that J & J Building Supply, Inc. operations will account for approximately 20%
of the Company's total revenues in the future. That company sells its product
primarily into the St. George, Cedar City, and Mesquite, Nevada markets. This
acquisition also included the operations of Quality Concrete, a ready-mix cement
producer located in Cedar City. The acquisition was one of several which the
Company has made in the 1990s, including Ajax, a Tooele company acquired in 1990
and later divested; Ideal Concrete, also acquired in 1990; the Price ready-mix
concrete operation, acquired in 1993; and Pioneer Sand and Gravel, a West Valley
company acquired in 1995. The Company continues to seek out other acquisitions
to round out its product lines in its existing market areas.
The business of Geneva Rock Products is seasonal, slowing during the
December through February period due to the winter weather. The Company
currently has approximately 700 employees,
<PAGE> 13
8
with an additional 170 employees at its wholly-owned subsidiary, J & J Building
Supply, Inc. However, the Company typically lays off a number of employees
during the slow winter months (depending on the severity of the weather), and/or
as workload varies.
Competition
Geneva Rock Products has a number of competitors in its various markets.
The Company's ready-mix concrete competitors include Westroc, Metro, Parsons,
Monroc, CPC, Valley Materials, Valley Ready Mix, Alta View/All American, and
Fife Rock Products. Construction/sand and gravel competitors include Valley
Asphalt, Staker Paving, Savage Asphalt, Miller Paving, Gibbons & Reed, Parsons,
Harper Excavating, Western Quality Concrete, H.E. Davis & Sons, and a number of
smaller competitors. Finally, J & J Building Supply, Inc. has a number of firms
competing with its St. George operations, including Western Rock, Anderson
Lumber, Burton Lumber, Dixie Lumber, WalMart, CSR, Amcor, Lehi Block, and
Buehner Block.
Geneva Rock Products' management has identified the Company's
competitive strengths as being (i) high-quality products and services; (ii)
honesty and integrity in dealing with customers; (iii) an excellent management
team; (iv) continual reinvestment of profits back into the Company's operations;
(v) low financial leverage and excellent financial strength; (vi) key strategic
locations of its operations; and (vii) key alliances with large contractors.
Company Management
The key members of Geneva Rock Products' management team are Wilford
Clyde, President; Al Schellenberg, Vice President; Ken Fisher, Director of Human
Resources; Carl Clyde, Sand & Gravel Division Manager; Kay Christofferson,
Construction Division Manager; John Young, Concrete Division Manager; Ray
Gammell, Equipment/Facilities Division Manager; Don McGee,
<PAGE> 14
9
Controller/Treasurer; Tony Christofferson, Property/Environmental Activities;
Rochelle Sink, Executive Secretary; and Brent Smith, Special Projects. The
Company appears to have adequate management succession in place, with the loss
of any of these key employees not having a material long-term detrimental impact
on the Company's operations. All of the Company's key employees receive fair
market compensation.
The Company's officers include Wilford Clyde, Al Schellenberg, William
Clyde (Secretary), and Don McGee (Assistant Secretary/Treasurer). The Company's
Board of Directors is comprised of William Clyde, Norman Clyde, Richard Clyde,
Paul Clyde, Wilford Clyde, Al Schellenberg, John Young, and Ray Gammell.
Ownership
Geneva Rock Products has a total of 21,802 common shares issued and
outstanding, held by 81 shareholders. There are no controlling shareholders; the
largest shareholders are W. W. Clyde & Co., which owns 7,581 shares (or 34.8% of
the total) and W. W. Clyde Investment Co., which owns 4,725 shares (or 21.7% of
the total). The next largest shareholder owns only 879 shares (or only 4.0% of
the total).
<PAGE> 15
10
ECONOMIC OVERVIEW AND OUTLOOK
National - June 1997
To a greater extent than not, it is still the best of all possible
worlds. For example, the economic uptrend, which is now in its seventh year,
gives no sign of drawing to a close, notwithstanding some recent figures that
suggest a moderately slower pace of growth in the months ahead. Inflation, at
both the producer and consumer levels, is still muted, with most price indexes
showing inflation at its lowest sustained levels in three decades. Short- and
long-term interest rates remain relatively low, even after an earlier monetary
tightening maneuver by a worried Federal Reserve Board. Corporate earnings
continue to push higher, buoyed by rising demand and increasing productivity.
And the stock market, an occasional setback aside, is still setting all-time
highs with some regularity.
The status quo, however, doesn't persist indefinitely. Thus, sooner or
later, even the most carefully scripted scenario will come undone, or at least
be modified sufficiently to change the prevailing assumptions. In fact, as noted
above, we may already be seeing the first small cracks in the nation's economic
armor, with recent figures showing an easing in retail sales, a flattening in
industrial production, and a slight diminution in the growth of housing demand.
Then too, while recent inflation figures have been generally reassuring, there
is also no denying that selective pricing pressures are starting to build in the
commodity area, with coffee, oil, and tobacco quotations all up sharply over the
past several weeks. Finally, the Federal Reserve - which attempts to keep the
economy and inflation on an even keel - is currently in a somewhat more cautious
mood than it was three or six months ago. In all, then, with the economy still
apparently in good health, with a few clouds starting to appear in an otherwise
bright inflation picture, and with Fed Chairman Alan Greenspan not backtracking
from his earlier warnings about an excess of exuberance in the stock market, the
penalties for the lead bank
<PAGE> 16
11
erring on the side of not lifting interest rates in the months ahead may now
well exceed those for standing pat. And should the Fed, which saw prior long
business expansions (in the 1960s and 1980s) end with a bout of rising
inflation, fear a replay and raise rates once or twice more, economic growth
would likely slow sufficiently to put a damper on corporate profits. The stock
market, which is now trading at near-record levels and at lofty valuations, in
part because of the almost uninterrupted growth in corporate earnings, might
then face its first serious test in several years.
The economy put on quite a show during the final three months of 1996,
with real, inflation-adjusted gross domestic product (GDP) advancing at a
scintillating 4.7% rate. The expansion then, to the surprise of many, picked up
additional strength in the opening quarter of 1997, as higher levels of consumer
spending and strength in the construction and industrial sectors helped produce
growth that was close to 6%. Clearly, however, this stepup in economic activity
was unnerving to the Federal Reserve, as the bank presumably saw in this
acceleration the potential to bring about a much higher level of inflation. The
rationale for this point of view is that such strong economic activity would
sooner or later induce shortages of labor, materials, and manufacturing
capacity. These shortages, in turn, would presumably lead to increased pricing
pressures.
The question now is whether or not we will see an encore in the second
quarter. It is not likely that we will, since the retail, manufacturing, and
construction sectors all appear to be leveling off. That having been said,
however, it should also be noted that there is no full-scale retreat in prospect
either. Moreover, such a pullback is not anticipated to take hold in the near
term, given the high levels of consumer confidence and the two-decade low in the
unemployment rate. Instead, an orderly slowing in growth over the next four to
six quarters is likely, with GDP increases averaging between 2.0% and 2.5%.
Inflation and interest rates, meanwhile, should also hold at moderate levels,
although with some
<PAGE> 17
12
upward bias. Corporate profit growth is likely to slow, in the meantime, but not
turn down unless the economy slackens more than is now anticipated.
Peering further out, Value Line projects the above tends to largely
continue, with economic growth and inflation stepping up a bit, to around 3%,
and with interest rates probably not veering appreciably from present levels.
Corporate profits, fueled by increased productivity, additional technological
innovation, and fairly steady growth in demand, are expected to rise at a
mid-to-high single-digit percentage in most years. As always, though, these
long-range projections do not allow for exogenous shocks, such as political
upheavals, military flareups, oil embargoes, or ruinous trade wars, none of
which can be predicted with any degree of assurance as to timing or even
occurrence.
As noted above, the U.S. economy really came on strongly during the
final quarter of 1996 and the opening three months of this year. However, there
are already signs that the economy got off to a rockier start in the second
quarter. For example, retail sales declined in April; auto and truck sales fell
as well; the nation's factories used less of their capacity in the most recent
month; and housing starts, albeit up in the latest survey, were still below
their earlier peak, while building permits, a harbinger of future construction
activity, actually edged downward. All of this having been said, however, the
U.S. economy continues to be remarkably resilient. In fact, with the consumer
continuing to be optimistic and with improving employment figures further
underpinning this confidence, the case for sustained 2.0% - 2.5% growth over the
balance of this year is still quite strong.
The inflation news continues to be good as well, with wholesale and
consumer inflation steadfastly holding at modest levels. Moreover, no basic
change in trend over the next year or so is likely, although higher commodity
prices and the ability of certain industries (such as steel) to consistently
raise prices suggest at least an interim upward bias. However, with industrial
raw materials still in adequate supply, with turmoil around the globe at a
minimum, and with the nation's
<PAGE> 18
13
factories, aided by new technology and better inventory methods, operating
without serious production bottlenecks, the potential for the kinds of energy
and industrial materials shortages that produced rampant price inflation two
decades ago is rather limited. Overall, producer prices are projected by Value
Line to rise by 0.5% in 1997 and by 2.2% in 1998, with consumer prices expected
to increase by 2.5% this year and by 2.9% in 1998. This pattern of restrained
inflation is furthermore anticipated to carry over to the turn of the century.
Interest rates have remained stable, with long-term rates (as
represented by the 30-year Treasury bond) holding within a 6.0% - 8.0% band
during the past several years. This stability is an outgrowth of the absence of
severe pricing pressures. Moreover, with the economy likely to grow more slowly
in the next 12 to 18 months, and with the Fed probably following a slightly
tighter monetary course - in an effort to avoid the need for more drastic action
later on - inflation should stay fairly subdued. All of this suggests that
business spending will not be constrained by high borrowing costs, nor should
potential homebuyers be priced out of the residential market by unaffordable
mortgage rates.
The final factor in sustaining the bull market continues to be rising
corporate income. Profits in certain areas (like semiconductors, computers,
financial services, and pharmaceuticals) have been literally on a
several-year-long tear. Overall, profits - backed by strong demand and better
cost management - have now risen for five straight years, with double-digit
percentage growth rather commonplace for much of this period. A respectable,
though quite modest, 5% to 7% increase is likely this year, given the reasonable
first-quarter gains and the solid order and pricing trends generally now in
place. A further, but smaller, 3% to 5% gain is likely in 1998, as GDP growth
slows to perhaps 2%. As the rate of economic improvement steps up a notch by the
close of the century, income growth could quicken moderately as well.
<PAGE> 19
14
Buoyed by the best economic and inflation news in a generation, by a
generally neutral to accommodative Fed, and further underpinned by the strongest
profit growth in years, the stock market has been on a virtual six-year-long
joyride. In the process, the Dow Jones Industrial Average has nearly tripled,
surpassing five thousand-point milestones. Further, the trends that have
sustained this long price advance remain in place by and large. Indeed, with few
alternate investments around (e.g., gold, real estate, or art) that offer
anywhere near the historical returns of stocks, many investors continue to look
to the equity market for capital appreciation. And, given the apparently
favorable prospects for the economy, inflation, interest rates, and corporate
profits during the next three to five years, such confidence would seem
warranted, at least on a long-term basis. This good long-term potential aside,
the stock market has come a long way in a very short time. Indeed, at current
historically rich valuation levels, there would seem to be at least the chance
of a market setback at some point. The easy money has likely already been made
this year, and investors will need to exercise restraint until a correction
takes place or profits rise sufficiently to bring valuation levels better into
line.
Source: Value Line Investment Survey
<PAGE> 20
15
Utah - 1997
Utah's overall 1996 economic performance was again spectacular. The
state was either the first- or second-fastest job producing state in the nation
for the fourth consecutive year. Favorable interest rates enhanced residential
construction activity, which, when combined with booming commercial building,
contributed significant economic stimulus. The quality of Utah's labor force,
the favorable business and education climate, and the desirable lifestyle
support the favorable economic environment.
The state's 1997 economic outlook remains solid, but forecasted
aggregate growth rates will likely moderate relative to the impressive gains
recorded in 1995 and 1996. 1997 will be the ninth consecutive year of strong
economic growth. There are as yet no serious excess supply or overbuilt
conditions identifiable. A tight labor market and higher employee turnover will
be constraining growth factors. The state's Middle Market Business Index in the
third quarter of 1996 showed sales up 9% and employment gains of 2.5%.
Utah is about to embark upon a huge project to expand and modernize its
transportation infrastructure. Highway and light-rail expenditures are projected
to be $4 billion over the next ten years, to be partially funded through
increased taxes and bonding. The net impact on the local economy is not yet
clear, as disruption to the flow of commerce will partially offset the
stimulative spending effect.
The Utah state government budget in fiscal year 1997 has projected a $24
million surplus and $194 million of additional revenues, following surpluses of
$120 million in fiscal 1994, $72 million in 1995, and $131 million in 1996. Utah
is one of only a handful of states with a solid AAA bond rating.
The 2002 Winter Olympics, awarded to Salt Lake City in the summer of
1995, will be extremely important to Utah's economy over the next six years. A
$1 billion Olympic budget, along
<PAGE> 21
16
with the ongoing associated growth in Utah's winter tourism industry, will be an
important sustaining growth factor.
Consumer prices in 1996 along the Wasatch Front rose by 3.9%, compared
with a 1995 annual increase of 4.9% and a 1994 increase of 4.2%. The 1996
second-quarter ACCRA cost of living index as a percent of the national average
was 96.9% in Salt Lake City/Ogden, 102.3% in Provo/Orem, 106.2% in Logan, 94.7%
in Cedar City, and 103.7% in St. George.
Utah's population is projected to reach 2,043,000 in 1997, an increase
of 42,000 people, or 2.1%, from the 1996 figure. Population growth in 1996 of
43,000 people, or 2.2%, was below the 2.6% increase experienced in 1995. The
1996 gain was, nevertheless, the third-fastest nationally, behind Nevada and
Arizona. 1996 was the third consecutive year in which the state's population
increase was equal to or less than the number of new jobs. Net in-migration is
expected to slip only modestly to 13,000 people in 1997 from the 1996 figure of
13,400. Net in-migration occurred for the sixth consecutive year in 1996;
however, the 1996 figure was the smallest annual total during the six year
period. The total net in-migration for the six year period was 108,000, with an
average annual growth of 18,000. In 1996, net in-migration accounted for 31% of
the total population gain, a somewhat smaller proportion than the 40% average of
the prior three years. The number of households in Utah during 1996 was
estimated to be 640,000, with an average of 3.13 persons per household.
Utah's personal income is projected to reach $41.5 billion in 1997, or
an increase of 7.7% from the 1996 figure, following gains of 8.2% in 1996, 9.4%
in 1995, and 8.5% in 1994. The 1997 personal income gain should be only
moderately below the highly favorable 1996 growth performance. The state's 1997
personal income growth will likely keep it among the top five in the nation. The
state's 1996 second quarter personal income gain of 8.6% ranked Utah
third-highest nationally, well above the
<PAGE> 22
17
national average growth rate of 5.5%. Average personal income growth in Utah
during the 1991-95 period was 8.1%, compared with the national average of 5.5%.
This ranked the state third in personal income growth during the period, behind
only Nevada and Arizona.
Preliminary data shows that Utah's 1996 average wages rose by
approximately 4.1%, exceeding the 3.7% increase in 1995. However, entry-level
wages and certain industrial segments (particularly technology and
construction-related) are experiencing significant upward wage pressure. Wage
increases will continue in 1997, perhaps at a rate equal to or even exceeding
the 1996 growth rate. Utah's total personal income per household was estimated
at $60,150 in 1996, approximately 92% of the national average. Per capita
personal income in the state during 1996 was $19,289, or 80% of the national
average, up from 73% in 1989.
Utah is expected to generate 41,100 new nonagricultural jobs in 1997, an
increase of 4.3% from the 1996 level, following job gains of 48,100 (or 5.3%) in
1996 and 48,300 (or 5.6%) in 1995. The state's 1997 unemployment rate is
expected to average 3.4%, unchanged from the 1996 figure, which was the lowest
annual level of unemployment in four decades. Because the statewide unemployment
rate stayed at near 3% for much of 1996, Utah's labor market was very tight,
with significant employee turnover and rising wages. An important business
decision in 1997 will be wage administration, attempting to reward and encourage
productivity and efficiency, while at the same time reducing employee turnover.
Utah's 1996 job growth of 5.3% ranked second to that of Nevada as the
highest in the nation. For the fourth consecutive year, the state's job growth
exceeded 5%, an unprecedented accomplishment in the post-World War II era.
During the 1991-95 period, the state's average annual job growth rate was a
remarkable 5.1%, also second highest nationally. The 1997 forecast gain of 4.3%
is below that five-year trend. During the past five years, 211,000 jobs have
been created in Utah,
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equivalent to 22% of the 1996 total nonagricultural employment. The state's
labor force participation rate is considerably higher than the national average,
with 83% of the state's men working and 61% of the state's women working,
compared with the national averages of 75% of men and 59% of women. Accordingly,
labor market tightness in several industries will remain evident in 1997.
New employment gains were diversified in 1996. The construction
employment surge of 12% (or 6,500 new jobs) followed gains of 14% in 1995 and
21% in 1994. A manufacturing jobs gain of 4.4% (or 5,500 jobs) was also very
impressive. Service sector employment rose by 7.2%, while new jobs in trade grew
by 4.8%. Government employment rose by only 1.5% and, as a percentage of total
employment, was only 17% in 1996 compared with 22% in 1986. The state's federal
defense employment of 11,300 jobs was down only 600 jobs, or 5%, from the
previous year. Apparently, most of Utah's defense-related employment reduction
is behind us. Conversion of military facilities to private industry, as is
essentially complete in Tooele and beginning in Ogden, holds the promise of
significant future job growth.
Single-family building permits are expected to decrease by 5.1% (or by
775 units) in 1997, totaling 14,500 compared with 15,275 in 1996 and 13,904 in
1995. Total construction value in 1997 is projected to be $3.2 billion, a
decline of 11% from the 1996 figure. The housing financing opportunities appear
to be favorable in 1997. Slower net in-migration and employment growth, together
with some indicators of softening in the housing market in late 1996, should
combine to reduce the number of single-family housing starts by 5%.
Multi-family building permits reached nearly 7,400 units in 1996, a gain
of 15%. Salt Lake apartment vacancy rates apparently edged higher in 1996. In
the second half of the year, apartment rental rates were about 3% higher than in
the prior year. In 1997, construction of perhaps 6,000
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apartment units is expected. While an oversupply of housing is not anticipated,
a modestly reduced annual production in 1997 is appropriate.
Real estate sales value in the Salt Lake City Multiple Listing Service
during the January -November 1996 period was up 0.6% (to $1.37 billion), while
the number of single-family homes and condominiums sold dropped 6% (to 9,616).
Available inventory for sale in November 1996 was up more than 50%. Mortgage
recordings during the first nine months of 1996 for new home and resale
financings were $1.522 billion in Salt Lake County, an increase of 27%; $413
million in Utah County, an increase of 8%; $242 million in Weber County, an
increase of 19%; and $130 million in Washington County, an increase of 16%.
The median existing home sales price during the 1996 third quarter in
the Salt Lake/ Ogden area was $123,100, an increase of 5.3% over the prior year,
compared with a 16% gain in 1995. The average 1996 third-quarter residential
sales price in the Salt Lake multiple listing area was $154,676, a gain of 7.0%
from the year-earlier figure; however, that gain narrowed to only 1.2% in
November. A First Security Bank analysis of housing affordability in Salt Lake
County, using married filing jointly adjusted gross income, indicated that
affordability in 1995 was generally the same as in 1988. The 1996 second quarter
level of housing costs (ACCRA data) was 94.8% of the national average for Salt
Lake City/Ogden, 114.9% for Provo/Orem, 119.0% for Logan, 84.3% for Cedar City,
and 111.4% for St. George. The state's gross mortgage delinquency rate was 3.6%
in September 1996, down from the year-earlier figure of 3.9% and slightly below
the Mountain States' average of 3.8%.
The commencement of the $4 billion, 10-year highway improvement and
transportation project, combined with numerous other large commercial projects
either announced or underway, should sustain rapid growth in Utah's commercial
construction industry. A high level of construction activity is anticipated in
1997 for all major categories of commercial and industrial space. Commercial
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real estate vacancy rates in Salt Lake City in the third quarter of 1996 were
5.3% for office space, 4.4% for retail space, and 3.7% for industrial space.
These rates are extremely low, suggesting the likelihood of additional space
being constructed.
Utah's taxable retail sales are forecast to increase by 6.7% in 1997,
significantly below the 11% gain in 1996 and the 8.1% increase in 1995. New
automobile sales may edge slightly higher in 1996, by 1.2%, following the 5.8%
gain achieved in 1996. During the first 11 months of 1996, there were 278,247
tourism room night bookings that the Salt Lake Area Convention and Visitors
Bureau sold to 292 groups. Plans have been completed for a $100 million retail
shopping mall in Provo, with an expected opening in late 1998. Construction has
begun on the $185 million Little America Hotel/Convention Center expansion.
Utah bankruptcies during the first ten months of 1996 jumped by 26%,
following a 12% decline in 1995. Higher debt levels and rising housing costs
contributed to the increase. The consumer credit delinquency rate in Utah
(indirect auto loans) in the third quarter of 1996 was 3.22%, higher than the
2.3% national average and significantly above the state's year-earlier level of
1.79%.
Hotel and motel room tax collections for the January - September 1996
were approximately 6% above those of the prior year. The state's hotel occupancy
rate during the first 11 months of 1996 was 74%, unchanged from the 1995 figure.
Passenger totals at the Salt Lake International Airport rose by 15% during the
first ten months of 1996, following a 5% annual increase in 1995.
In conclusion, Utah's 1997 economic outlook remains highly favorable,
but aggregate economic growth rates likely will not duplicate the extraordinary
gains of the past two years. Interestingly, the modestly slower growth may help
solve Utah's two most evident economic problems: an excessively tight labor
market and escalating single-family home prices.
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Source: First Security Corporation
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INDUSTRY OVERVIEW
National Engineering and Construction Industry
According to the U.S. Department of Commerce, aggregate spending for
residential, nonresidential, and public construction rose by about 4% to an
estimated $588 billion in 1996 (in constant 1992 dollars) from $567 billion in
1995. This was the fifth consecutive year of increased construction spending
after the recession low of $485 billion in 1991, which in turn was down from a
1986 peak of $556 billion. Strong construction spending was tied to three main
factors: low interest rates, increased housing starts, and a robust economy with
high capacity utilization resulting in facility expansion and additions. There
has also been increased spending on highway repairs and reconstruction.
In 1996, engineering and construction firms in the Standard & Poor's
index, including such firms as Fluor Corp., Foster Wheeler, and Jacobs
Engineering, had combined revenues of $22.3 billion, up 9.8% from the 1995
figure. These firms benefited from gains in overseas revenues; growth in Asia
boosted results and more than made up for flat demand in the domestic markets.
Faster growth over the next few years should continue to be derived from
overseas markets, especially from the emerging growth nations in the
Asia-Pacific region.
On a macroeconomic level, demand for engineering and construction
services mirrors construction spending. For government reporting purposes,
construction spending is classified as either public sector construction or
private sector residential or nonresidential construction. On a more detailed
microeconomic level, these two categories can be subdivided by the size and
intensity of the projects. The particular nature of various projects can
influence demand for specific categories of equipment or services. Equipment and
service needs for public construction can vary depending on
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whether buildings are being erected, tunnels are being dug, or roads are being
built. In the private nonresidential sector, construction is divided into
industrial, office, and other commercial purposes.
Overall construction demand tracks the economy; it has a lag similar to
the delay that affects most capital goods sectors in the nonresidential sector
of private construction. Reviewing construction spending for the last decade,
the lag is evident following the relatively short recession of 1991. Spending on
nonresidential private construction declined in 1991 and continued to decline in
1992, even though the recession was long past and residential construction had
already recovered. In fact, spending on nonresidential construction remained
below peak spending levels of 1990 right through 1995.
This persistent weakness reflected not only the impact of the recession,
which left unutilized capacity, but also a greater industry reluctance to
construct new capacity that would remain a costly burden in a downturn. Instead,
industrial companies tried to squeeze more output from their existing
facilities. Production lines were revised, new and more efficient production
equipment was bought, and labor strategies were changed to effectively increase
capacity by using overtime or adding second or third shifts in factories.
New industrial plants - or investment in "bricks and mortar", as new
facility construction is often referred to - was only a last alternative in the
latest economic cycle. Construction of new office space was deemed even less of
a priority. As recently as 1995, construction of offices has remained at about a
third below the 1989 cyclical peak.
Although the engineering and construction industry is primarily a
service industry, its fortunes are closely tied to capital spending. Engineering
and construction companies are general contractors. They accept responsibility
for the planning, execution, and completion of projects involving construction
of facilities for diverse industries, utilities, waste management, and
remediation. Projects
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undertaken by these firms are diverse and can range in cost from as little as a
few hundred thousand dollars to billions of dollars.
These firms employ engineers who plan projects, submit competitive bids
and proposals, and - upon receipt of contracts - engage the myriad
subcontractors who provide the services needed to complete the project. The
engineering firms assume responsibility for controlling the projects' costs and
for their timely completion.
Engineering and construction firms typically enter into one of two kinds
of contracts. Fixed-cost contracts bind the firm to a total cost to complete a
project. Under such a contract, a firm assumes at least part of the risk of cost
overruns, although there are usually protective clauses in contracts to let the
firm recover overruns that weren't directly the fault of the engineering firm.
Still, under a fixed-cost contract, a firm has the opportunity to earn a larger
profit by holding its costs as low as possible. The second type of contract is a
cost-plus contract, in which a firm receives a fixed percentage of profit on top
of the costs it incurs to complete the project. A cost-plus contract is less
risky because costs are borne by the customer and a fixed percentage margin is
established for the contractor.
Traditionally, engineering and construction firms have preferred to
enter into cost-plus contracts, which serve to protect them from the ravages of
inflation, which could erode and even wipe out the profit that would be earned
on a job if the contract were fixed-cost. However, the actual nominal profits
the contractor can earn from these types of contracts can be restrictive due to
improvements in technology and efficiency that reduce the hours of billable
labor needed to execute a contract. As a result, in recent years many
engineering firms have preferred to engage in fixed-cost contracts or to propose
cost-plus contracts that include elaborate incentives to compensate the
engineering firm for holding down project costs or for speeding a project's
completion. Engineering
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and construction firms are now pressing customers to enter into fixed-price
contracts instead of the cost-plus type for several reasons. First, inflation
has been low for several years, so the fear of an inflation-driven cost spiral
that destroys profits has diminished. Of course, there is still the peril of
cost overruns due to miscalculations, but the overall current risk is still
lower than it was in times of high inflation. Second - and more importantly for
engineering and construction services firms - is the impact that productivity
and automation have had on reducing construction costs. Large engineering firms
such as Fluor have provided their engineers with sophisticated computer
technology that has substantially reduced the time required to plan and design a
job. This has served to reduce the number of billable hours of work for
engineers. Under a cost-plus contract, this effectively reduces a contract's
value. In addition, under a cost-plus contract, an engineering firm receives no
benefits from its investment in technology that provides customers with more
accurate and efficient job performance. Thus, engineering firms are now arguing
for fixed-cost contracts, which are designed to share the rewards of efficiency
between the engineering firms and their customers.
The industry's smallest players may employ just a few engineers and
tackle only small or simple projects for private or municipal customers. The
largest firms are global behemoths that operate on several continents and
execute multibillion-dollar projects such as the construction of refineries,
power generation plants, pipelines, and seaports; some also provide hazardous
waste remediation at highly polluted sites. Some players are extensively
involved in development in Asia and other developing parts of the world, as well
as in the reconstruction of nations such as Kuwait that have suffered tragic
devastation as a result of war. Many are also working with post-communist
Eastern European nations. Worldwide competition for the large U.S.-based global
companies comes from equally large firms based in Japan, Germany, and South
Korea.
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Engineering and construction companies have relatively low levels of
fixed costs. They don't have manufacturing plants, since they contract with
suppliers for the specific materials and assemblies needed to complete a
contract. They also have a high proportion of variable costs because labor is a
large part of the operating costs of an engineering and construction firm.
Compared with other kinds of capital goods companies, the gross profit margin of
a typical engineering and construction firm will be smaller but more stable over
time, because most costs related to generating revenues or providing contracted
services are variable. Therefore, an engineering and construction firm's cost of
goods sold tends to rise (or fall) commensurately with its sales. The remaining
items in the income statement tend to be heavily influenced by a company's
particular financial and operating structure. Items such as selling, general and
administrative expense may follow an industry pattern, but wide differences
often occur. The differences can be the result of a particular company's
decision to use either a highly centralized or decentralized administrative
structure. Different companies may also use varied accounting methods. Another
overhead cost, interest expense, is a function of a company's capital structure.
Finally, taxes can be influenced by the geographic location of a company's
operating subsidiaries or the parent company's state or country of domicile.
Key indicators of an engineering and construction company's health or
prospects are new orders and order backlogs, which are among the most closely
watched data in the industry, and the book-to-bill ratio, which compares the
value of a company's new contracts (bookings) to the value of its services
provided (billings). Some engineering and construction firms will also disclose
on a quarterly or annual basis the volume of bids placed in competition for
orders, along with the volume of new orders received. The ratio calculated by
dividing new orders received by bids prepared is called the success ratio. This
is an interesting figure because it provides insight into the efficiency of a
company's order procurement process. A high success rate can indicate a company
that doesn't waste
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corporate resources bidding on contracts that it has a low probability of
winning. However, care must be taken in evaluating a bidding success rate; a
high rate may indicate a company that prices too aggressively. Therefore, this
ratio must be viewed in the context of both its relationship to a company's
profitability and the figure's stability over time. A sudden change in the
success rate may indicate change in the industry's competitive situation.
Consolidation remains a long-term trend for companies in many of the
capital goods sectors. Even though the largest segments or categories are highly
centralized, there remain opportunities for smaller acquisitions that bring
product/service line extensions or geographical expansion. Service companies,
such as those in engineering and construction, can expand their geographic range
or acquire specialty firms that expand their capabilities. Many of the larger
participants in the capital goods industries have begun to evaluate their
businesses from a perspective of portfolio management. Many consider their
various operating subsidiaries to be a business "portfolio". These portfolios
are actively managed to optimize the use of the parent company's capital and to
provide the most favorable returns to investors. Such companies often make
acquisitions to round out product lines or deepen market penetration. Lagging
units are restructured or divested if they cannot provide acceptable returns.
The capital goods industries are highly cyclical businesses. Their
fortunes tend to lag the U.S. and global economies because during the early
stages of economic expansion, there is normally considerable excess capacity
available in the diverse industries that capital goods companies serve. As the
economic cycle progresses and the economy expands, capacity utilization rises
and industry contemplates the conflicting issues regarding capacity expansion.
The conflict arises due to the murkiness of economic projections. If industry
chooses to expand capacity to meet bursts of peak near-term demand, will it be
saddled with costly excess capacity during a downturn? Ultimately, the
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decision becomes whether to sacrifice short-term opportunity to ensure long-term
survival. Unfortunately for many industries, the choice of sacrificing short-
term opportunity isn't an acceptable alternative, because an inability to meet
customers' short-term demands often means the permanent loss of customers.
Therefore, as certain thresholds of capacity utilization are reached, orders for
new equipment, facility modernizations, and plant expansions ensue. On the
downside of the economy, as it becomes apparent that hard times are ahead, new
orders slow and existing orders are often canceled or deferred.
Thus, the fortunes of the capital goods industries soar and plummet with
the vicissitudes of the economy and the discrete sectors in which they compete.
The cyclical nature of business is a characteristic to which capital goods
suppliers have become accustomed. The best-managed companies develop the
nimbleness to adjust employment levels and overhead costs in line with industry
fluctuations. To develop that nimbleness, capital goods companies determine the
key indicators that serve as early warning signals about pending shifts in
demand. They then watch them closely and act quickly in response to clear
signals. The specifics of customer demand, however, vary for different sectors
of the capital goods industries.
A mixed outlook appears for the engineering and construction services
industry. This reflects a combination of strong overseas demand, particularly in
the world's emerging regions, and a flat-to-lower outlook for North American
demand. One of the issues troubling the industry is the growing realization that
overseas growth is less profitable than once anticipated. The overseas troubles
stem in part from stiff competition from firms in lower labor-cost nations, such
as South Korea and India. One of the most promising markets, the People's
Republic of China, has made an art out of the bargaining process. By holding out
the promise of bountiful contracts, the Chinese government has been able to
attract intense competition for contracts, particularly in the power generation
and infrastructure
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projects that are among the most hotly contested opportunities. In the race to
gain a foothold in China, firms are often bidding too aggressively and ending up
with little margin for error. When projects have gone awry, losses on specific
contracts can occur and thinner overall profit margins have resulted for U.S.
participants.
Many firms in the industry also haven't retained a sufficient portion of
the savings that they've realized by automating the design process in
construction and engineering services. The use of "cost-plus" contracts, in
which a firm receives a fixed percentage of profit on top of the costs it incurs
to complete the project, has often conveyed virtually all of the savings from
the use of computerized design equipment to customers. This has created pressure
from engineering firms to shift to fixed-price contracts from cost-plus deals.
Overall, Standard & Poor's projects revenues to rise by 10% to 15% for
the domestic participants in the engineering and construction services industry
in 1997. However, a commensurate rise in profits is not expected. In fact,
margins are likely to narrow, and aggregate earnings may well turn lower in
1997. However, longer term, the economic cycle is expected to be prolonged, with
order backlog stabilizing and then turning up as manufacturers boost capital
spending to modernize and upgrade plant capabilities and capacity. The
fundamental outlook for the engineering and construction industry is positive.
Acquisitions, oil projects worldwide, together with continued strength in demand
from the chemical, pulp and paper, and power industries, should boost backlogs
and aid future industry sales. Industries are investing to modernize, maintain
facilities, and make modest capacity additions. In order to comply with the
requirements of the Clean Air Act of 1990, basic industrial companies are making
capital expenditures to upgrade waste processing facilities and add pollution
control devices.
Longer term, the reconstruction of Eastern Europe and the former Soviet
republics, expansion of process industries in Asia and the Pacific Rim, and
worldwide growth in electrical power demand
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are projected to enhance engineering and construction industry growth. Further
enhancing the long-term outlook is the commitment expressed in many of these
developing areas to make proper investments in waste management and pollution
control facilities so that they avoid the remediation problems that have
occurred elsewhere when shortsighted alternatives were selected.
In a business cycle's early or recovery stage, construction companies
can bring the benefits of their operating leverage directly to the bottom line
for several reasons. First, raw material costs and other expenses are generally
low or at least stable. Second, the rising demand that happens in the early part
of a recovery can result in sharply increased volumes and operating rates. Due
to this, profits tend to rise dramatically. As the business cycle matures,
however, costs for raw materials, financing, and depreciation begin to increase
at a faster pace than sales. This results in a squeeze on margins.
Although the current business cycle appears to be approaching its later
stages, it is likely that when the downturn does occur, industry profits will
hold up better than they have in the past. This optimism is based on a market
perceived as being less erratic and less cyclical than in the past. The previous
cycle lasted from 1982 to 1990 and saw total U.S. construction expenditures
increase with virtually no interruption. By contrast, the current cycle - which
dates from the trough experienced in 1991 - saw construction expenditures
plateau in 1994 and remain virtually unchanged in 1995. This slowdown so early
in the cycle has moderated the expectations of builders and equipment makers. So
far, there have not been any of the imbalances and excesses that characterized
the 1980s, and there is none of the excessive optimism and overconfidence that
often marks an upturn's final stage. Consequently, production and inventories
appear to be about in line with demand, and this should lessen the negative
impact on profits when the industry actually declines, as opposed to just
slowing down.
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An economic slowdown is not altogether bad for the construction industry
anyway. Assuming an economic "soft landing", where the economy would slow enough
to ease inflationary pressures, but not enough to cause a full-fledged
recession, interest rates would likely fall, making it more attractive for both
business and government to undertake various infrastructure projects. Provided
that the economy continues to plod along a mildly positive trend line, the stage
would be set for a prolonged period of demand.
Growth prospects for the construction industry for the balance of the
1990s and into the next century vary by market. In the new housing market, the
influence of demographic trends may continue to depress residential construction
through at least the end of the decade. Even though interest rates in 1993 and
1995 declined to levels not seen since the early 1970s - and far below the
sky-high rates of the late 1970s and early 1980s - housing starts for those two
years were 1.288 million and 1.351 million, respectively. In contrast, housing
starts had reached a peak level of 2.036 million in 1978. Housing starts
subsequently declined to 1.807 million units in 1986, despite the fact that
interest rates fell below their 1978 levels, signaling the first stages of a
secular decline in demand.
Demographics are the main factor behind the lower level of housing
starts. The rate of household formations among baby boomers - the huge
demographic group born between 1946 and 1964 - has peaked. As baby boomers age,
the rate of household formations will continue to decline, depressing demand for
housing for the balance of the 1990s and into the next century. Weakness in
housing starts also depresses nonresidential commercial construction spending on
such projects as shopping centers and schools.
Due to severe overbuilding in the 1980s, the outlook for office
construction in the near future isn't encouraging. The market has definitely
stabilized, but vacancy rates remain high by historical standards. Before the
1980s, a vacancy rate of more than 10% was considered high. The subsequent
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building boom, however, resulted in rates higher than 20% in the 1980s and early
1990s. According to the real estate brokerage firm Cushman & Wakefield Inc., by
year-end 1994 the suburban office vacancy rate was at 17%, declining slightly to
15.2% at year-end 1995. The downtown office vacancy rate declined from 17.2% in
1994 to 16.1% at year-end 1995. A growing economy helped increase absorption of
existing space. Combined with a virtual halt in building in 1993 and 1994 - and
only a small amount of building in 1995 - the stronger economy helped firm up
vacancy rates.
Although vacancy rates have declined substantially from the skyscraping
levels seen in the 1980s and early 1990s, they are still high in view of the
secular change in demand for office space. Restructurings, downsizing, and
mergers are decreasing the need for both existing and new office space. Also, as
communication technology continues to improve, demand for office space will
decline. The growing use of computers and advances in data transmission have
made it possible for many employees to work outside of traditional business
offices. Accordingly, spending for new office space is likely to remain minimal.
In 1995, some 8.5 million square feet of office space was completed. In
contrast, during the peak years of the 1980s, about 100 million square feet of
space was completed each year. And for the balance of the 1990s and early next
century, construction of office space isn't expected to come close to levels
seen in the 1980s.
The outlook for mining industry construction is positive. Coal
production - which accounts for the bulk of mining industry equipment demand -
is forecast to grow both domestically and internationally. According to
Financial World, a New York-based investment publication, annual coal demand in
east Asia should increase by nearly 150% between 1991 and 2010. Improved living
standards and increased worldwide industrialization will boost coal mining. Near
term, a pickup in U.S. coal demand could provide a boost to the industry. Coal
stockpiles in the United States were 126.8 million tons at the end of 1995, vs.
158.0 million tons at year-end 1991. The decline was mainly
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due to aggressive inventory management by the electric utility industry and
unusually mild weather in the early 1990s. Now electric utilities may need to
replenish their inventories, which would stimulate coal production and demand
for related construction equipment and services.
The Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA) has
to date had little impact on public construction expenditures, primarily because
projects funded by ISTEA typically require years to plan. As a result, actual
construction spending for ISTEA-funded projects has only recently begun to pick
up. In addition, some financially strapped states have not yet been able to
participate in ISTEA, which requires states to match federal funds. ISTEA is
expected to have a more significant impact on infrastructure development during
the next few years, as projects currently in the planning stages get underway.
In general, economic growth outside the United States, particularly in
Asia, is a promising source of long-term demand. For example, Caterpillar
expects its annual sales to China to increase to $500 million by the year 2000,
up from the 1993 estimated level of $50 to $100 million. By 2010, Caterpillar
expects 75% of its sales to be made outside the United States.
The earthmoving machinery segment of the construction industry comprises
a broad range of equipment, including crawler dozers, loaders, wheel loaders and
dozers, scrapers, graders, hydraulic excavators and backhoes, trenchers,
pipelayers, and off-highway trucks. Building construction (residential,
commercial, manufacturing, and institutional) is by far the leading source of
demand for earthmoving equipment. Historically, considerable demand has been
generated by road and dambuilding projects. With the interstate highway system
virtually completed, the major focus of this market will center on repair and
maintenance. Domestic dam building has also slowed, and a number of large
projects are nearing completion in foreign countries.
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Source: Standard & Poor's Industry Surveys
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The Utah Commercial Construction Industry
The construction industry has the dubious distinction of being one of
the most volatile of industries. This volatility has numerous causes imbedded in
the construction process. Some of the most significant are the relationship
between interest rates and housing demand, the level of unsold inventory and
vacancy rates, and shifts in migration patterns and the formation of new
households. These factors, along with others, affect the amplitude of the
construction cycle.
There are two distinguishing characteristics of nonresidential
construction cycles in Utah. First, nonresidential construction has been much
less volatile than residential construction. Second, the nonresidential
construction cycle lags the residential construction cycle by about one year.
During the past 25 years, the most severe contraction in Utah
nonresidential construction activity lasted only three years (from 1986 through
1988), when nonresidential valuation fell by 53%. During the same period,
residential construction was suffering through a much deeper and longer
contraction, declining 70% over a five year period. The current nonresidential
expansion has run for some five years, thus becoming the longest nonresidential
expansion since the 1970s. Nonresidential construction in 1997 will be driven
primarily by construction activity at the $2.5 billion Micron facility. Although
construction valuation at Micron will be less than initially anticipated, it
will still amount to over $500 million. To date, in the present construction
boom, nonresidential valuation has increased by about 117%, considerably less
than the 265% recorded by the residential sector.
During expansions, nonresidential and residential construction are
closely associated. Utah residential construction peaked in 1972, 1977 and 1984,
followed by nonresidential construction peaks in 1973, 1979 and 1985. There has
typically been a lag of approximately one year between the two types of
construction. The current expansion is very typical, with nonresidential
construction mirroring residential construction behavior. Both are moving toward
new peaks. In fact, it is very likely that
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residential construction peaked in 1995 and that nonresidential construction
peaked in 1996, thus repeating the pattern of the past. It should be noted that
nonresidential construction, as measured in constant dollars, has yet to surpass
the level of activity in 1979; however, with several large projects currently
underway, 1996 activity likely broke the 1979 all-time high of $783.2 million in
constant 1992 dollars. Some economists have indicated that 1996 nonresidential
construction activity approached $1.3 billion.
Beyond 1996, nonresidential construction activity in Utah should average
between $550 million and $600 million a year, a level slightly higher than that
experienced during the 1991-95 period. Several large nonresidential projects are
planned in the next few years, including Micron, the Interstate 15 upgrade (an
estimated $1.09 billion project), the Kennecott Tailings Expansion ($500
million), the Little America Hotel/Convention Center ($185 million), the
Cottonwood Corporate Complex ($150 million), Wetlands Mitigation ($135 million),
the Salt Lake County Adult Detention Center ($70 million), Thanksgiving Point
($60 million), the Central Utah Project ($58 million), 5300 Corporate Center
($45 million), Huntsman Cancer Institute ($26 million), West Valley Hockey Arena
($26 million), Provo One Freedom Center ($25 million), Biology Research Building
at the University of Utah ($23 million), and the Airport Control Tower ($17.5
million).
Current market conditions for commercial, retail and industrial space
also suggest a strong nonresidential construction market for the next few years.
The 6% vacancy rate for office space in Salt Lake County is the lowest in ten
years, while the vacancy rate for retail space is even lower, at 5%. Industrial
space is also in short supply. In 1995, over 4.7 million square feet of
industrial space was absorbed by the Salt Lake County real estate market.
Finally, heavy construction activity, which is not included in
nonresidential construction valuation data, should also have some very good
years between 1996 and 2000. Although heavy
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construction is less labor-intensive than residential or nonresidential
construction, the dollars spent are large. Improving the transportation system
is one of the highest priorities of Utah state government. Governor Leavitt's
Statewide Transportation Improvement Plan (STIP) would require $1.09 billion to
be spent over the next five years upgrading Interstate 15 in Salt Lake County.
In addition, the current STIP identifies 72 projects, which will cost an
estimated $2.5 billion, that should be completed over the next decade to meet
Utah's infrastructure needs.
Source: Utah Economic and Business Review
The Cement and Aggregates Industry
Cement is used in all types of construction. Approximately 60% of cement
shipped in the United States is used in buildings (25% residential, 10% public,
23% commercial, and 2% farm). Public works projects consume an additional 33% of
total cement shipments, of which streets and highways make up 21%, water and
waste systems 7%, and utilities and other 5%. Non-construction applications
account for another 2%, with maintenance and repair work comprising the
remaining 7%.
More than 90% of all cement is portland cement, with masonry, lime and
natural cements making up the rest. By far the largest customer for portland
cement is the ready-mix concrete industry, which purchases about 73% of total
shipments. The concrete product producers (block, pipe, precast, and
prestressed) account for 12%, highway contractors 5%, building materials dealers
4%, other contractors 3%, and all others (including government) 3%. Less than 5%
of portland cement shipped in the United States is bagged.
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There is no national cement market. Prices vary widely among hundreds of
local markets, primarily depending on the distance from the nearest cement mill.
Because cement is so heavy, shipping costs are a major factor in determining
prices in local markets.
The cement and aggregates industry should benefit from higher prices and
steady volume in 1997. The industry's earnings should benefit from the favorable
supply/demand situation in most U.S. regions. Strong demand over the past four
years has allowed cement manufacturers to raise their prices. Although demand
should remain at relatively high levels, price increases will probably be only
modestly higher in 1997. Consequently, earnings growth should slow from the
rapid pace of the past several years. Many companies in the industry should
generate significant amounts of cash flow in both 1997 and 1998. Most of these
funds will likely be used to improve balance sheets or repurchase stock, since
most firms do not anticipate adding significant levels of new capacity.
Demand for cement is higher than the domestic supply. Although the
official results have not yet been announced, it is believed that consumption
was about 10% to 15% above the domestic capacity level of 85.6 million tons in
1996. This situation should remain intact, as most companies have chosen not to
make meaningful additions to their capacity levels. Only one firm, Florida Rock,
plans to build a new mid-sized cement manufacturing facility. However, this
process is taking longer than originally expected due to the permitting process.
Moreover, once construction begins, it will probably take at least two years
before the plant is fully operational. This relatively small Florida plant will
produce 750,000 tons of cement annually. Several other companies have initiated
optimization programs that will add incremental capacity to existing plants. But
based on current plans, these additions are unlikely to upset the favorable
manufacturing environment.
In the late 1980s, foreign producers used their excess capacity to dump
cement into the U.S. market. This resulted in severe price deterioration and
hurt profits of the U.S. manufacturers. In
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response, the Federal Trade Commission enacted high tariffs that eliminated the
pressure these imports placed on the domestic market. The tariffs are set to be
reviewed by the Commerce Department during the year 2000. To satisfy customer
demand, though, many companies have been forced to import cement from foreign
manufacturers. These sales are only minimally profitable due to their high
tariffs and transportation costs imposed on the sales. Therefore, if demand for
cement fell, this would likely result in a decline in imported cement.
Public works construction is the largest end user of cement, accounting
for over half of the total consumption in 1996. Construction for public works
projects, such as highways, bridges, streets, and mass transportation systems,
is relatively insulated from swings in interest rates and business cycles. The
Federal Transportation legislation passed in 1991 has created a large portion of
this demand. The issue of balancing the federal budget may have some impact on
future infrastructure spending levels; however, this is not seen to be a serious
threat at this point.
Many of the publicly traded stocks in the industry are selling at
attractive multiples, which appears to reflect investor anticipation of a
downturn in the business cycle. An increase in interest rates would slow
residential building activity. However, this possibility would not have a severe
effect on cement demand, as the industry is more dependent on public works
construction.
Source: Value Line Investment Survey
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FINANCIAL REVIEW
The financial performance of Geneva Rock Products was generally
excellent over the time period examined in this report, comprised of the six
years ended December 31, 1991 through 1996. Selected financial ratios for the
Company are contained in Exhibit 1; financial statement summaries (including
common size and growth trend analyses) are contained in Appendix A.
As can be seen from Exhibit 1 and Appendix A, Geneva Rock Products'
revenues grew rapidly over the 1991-96 period, increasing at a compound annual
rate of 15.8% during the period. Revenues grew from $50.7 million in 1991 to
$56.5 million (or by 11.6%) in 1992, to $70.6 million (or by 24.9%) in 1993, to
$80.5 million (or by 14.1%) in 1994, to $100.4 million (or by 24.7%) in 1995,
and to $105.5 million (or by 5.0%) in 1996.
One adjustment has been made to the reported net income of Geneva Rock
Products in an attempt to more accurately reflect the Company's actual income
producing capacity. In 1996, the Company's newly acquired subsidiary, J & J
Building Supply, Inc., had a net loss of $363,300. This loss is deemed to be
extraordinary and nonrecurring; consequently, it has been eliminated from the
reported 1996 net income of the Company in arriving at adjusted net income.
As was the case with revenues, Geneva Rock Products' adjusted net income
grew rapidly over the 1991-96 period, increasing at a compound annual rate of
33.4% during the period. Adjusted net income grew from $2.09 million in 1991 to
$3.15 million (or by 51.0%) in 1992, to $6.63 million (or by 110.5%) in 1993, to
$8.81 million (or by 32.8%) in 1994, and to $10.98 million (or by 24.7%) in
1995, but then declined to $8.80 million (or by 19.9%) in 1996. Adjusted net
income averaged $6.74 million during the period.
The Company's adjusted cash flow from operations (or adjusted net income
plus non-cash depreciation expense) likewise increased rapidly over the 1991-96
period, growing from $5.58 million
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in 1991 to $6.44 million (or by 15.5%) in 1992, to $10.61 million (or by 64.7%)
in 1993, to $13.99 million (or by 31.9%) in 1994, and to $17.54 million (or by
25.3%) in 1995, before declining somewhat to $15.41 million (or by 12.1%) in
1996. Adjusted cash flow from operations grew at a compound annual rate of 22.5%
over the period, and averaged $11.59 million during the period.
Geneva Rock Products' gross profit margin improved from 9.6% in 1991 to
11.8% in 1992, 17.6% in 1993, 19.0% in 1994, and 19.5% in 1995, before falling
to 15.7% in 1996, similar to the 1991-96 period average figure of 15.5%. The
Company's operating expenses as a percent of revenues fell from 3.9% in 1991,
4.0% in 1992, and 4.1% in 1993 to only 3.3% in 1994, 3.1% in 1995, and 3.2% in
1996, with a period average figure of 3.6%. The combination of improving gross
margins with declining operating expenses as a percent of sales resulted in the
Company's operating margin increasing from 5.7% in 1991 to 7.8% in 1992, 13.5%
in 1993, 15.8% in 1994, and 16.4% in 1995, before falling back to 12.5% in 1996,
similar to the period average figure of 11.9%. The Company had no interest
expense at all during the 1992-96 period; interest expense averaged only 0.1% of
revenues during the 1991-96 period. The Company had other income averaging
$650,000 (or 0.8% of revenues) during the 1991-96 period, with a similar 1996
figure of $727,000 (0.7% of revenues).
Geneva Rock Products' total asset turnover ratio, which measures the
efficiency with which the assets of the Company are utilized, fell from 2.0
times in each of the years 1991 through 1993 to 1.8 times in 1994 and 1995 and
only 1.5 times in 1996. Total asset turnover averaged 1.9 times during the
1991-96 period. The Company's receivables turnover also declined somewhat over
the period, from 9.6 times in 1991 and 10.4 times in 1992 to 6.5 times in 1995
and 6.8 times in 1996, with a period average figure of 8.2 times. Inventory
turnover remained relatively stable over the period, ranging only between 23.5
times (in 1994) and 32.7 times (in 1995), with the 1996 figure of 28.1 times
being virtually identical to the period average figure of 28.8 times. Fixed
asset turnover also remained stable
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during the period, ranging only between 3.8 times (in 1991) and 4.6 times (in
1993), with the 1996 figure of 4.2 times being identical to both the period
average figure and the 1994 figure, and virtually identical to the 1995 figure
of 4.1 times.
The Company's adjusted net margin (adjusted net income as a percent of
revenues) improved from 4.1% in 1991 to 5.6% in 1992, 9.4% in 1993, and 10.9% in
both 1994 and 1995, then fell to 8.3% in 1996, virtually identical to the
1991-96 period average figure of 8.2%. Adjusted return on assets likewise
improved from 8.2% in 1991 to 11.1% in 1992, 18.5% in 1993, and 19.4% in both
1994 and 1995, before falling to 12.3% in 1996. Adjusted return on assets
averaged 14.8% over the period. Adjusted return on equity likewise improved from
9.5% in 1991 to 12.7% in 1992, 21.5% in 1993, 22.5% in 1994, and 22.2% in 1995,
before falling somewhat to 15.4% in 1996. Adjusted return on equity averaged an
excellent 17.3% during the period.
Geneva Rock Products' financial risk was very low throughout the 1991-96
period. The Company's total debt as a percent of total assets averaged only
14.6% during the period, although it was somewhat higher in 1996, at 20.4%. The
Company's shareholders' equity as a percent of total assets was correspondingly
very high throughout the period, averaging 85.4%, with a similar 1996 figure of
79.6%. The Company had no long-term debt at all during the 1991-93 period;
long-term debt was $751,400 in 1994, $667,300 in 1995, and $6.57 million in
1996. The Company's long-term debt to equity ratio was very low throughout the
1991-96 period, averaging only 2.5%, although it did increase from 0.0% in each
of the years 1991 through 1993 to 11.5% in 1996. The Company's liquidity (as
measured by the current and quick ratios) was very high during the period, with
the current ratio averaging 5.1 times and the quick ratio averaging 4.5 times
over the period, although the 1996 figures were somewhat lower, at 4.3 times and
3.8 times, respectively. Finally, the Company had no interest expense to cover
during the 1992-96 period; its 1991 interest coverage ratio was 14.0 times.
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As of December 31, 1996 (the date of the most recent balance sheet
available), Geneva Rock Products had total assets of $71.8 million, comprised of
$27.7 million in current assets (in turn consisting of cash of $7.0 million,
accounts receivable of $15.5 million, inventory of $3.2 million, and other
current assets of $2.0 million), $25.0 million in depreciated property, plant
and equipment, $18.7 million in investments (comprised almost entirely of $18.5
million in investment in its newly acquired subsidiary, J & J Building Supply,
Inc.), and $0.4 million in other assets. As of the same date, the Company had
current liabilities of $6.4 million, long-term debt of $6.6 million, deferred
income taxes of $1.6 million, total liabilities of $14.6 million, shareholders'
equity of $57.2 million, and positive working capital of $21.3 million.
Geneva Rock Products paid dividends to its shareholders in the amounts
of $327,000 (or 15.7% of earnings) in 1991, $436,000 (13.9%) in 1992, $479,600
(7.2%) in 1993, $588,700 (6.7%) in 1994, $654,100 (6.0%) in 1995, and $654,100
(7.4%) in 1996. Dividends averaged $523,300 during the 1991-96 period, with an
average dividend payout ratio of 9.5% during the period. The majority of the
Company's earnings were retained within the Company during the period to finance
its rapid growth.
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CROSS-SECTIONAL ANALYSIS
To acquire a better impression of Geneva Rock Products' 1996
performance, its record is compared with the average experience of other sand
and gravel producers. Financial data on companies in the sand and gravel
producing industry is collected by Robert Morris Associates, Philadelphia,
Pennsylvania, and published in that company's Annual Statement Studies (see
Appendix B). Although the activities of the companies in the group may not be
totally consistent with those of Geneva Rock Products, the information is
nevertheless considered representative of firms engaged in the same types of
activities as the Company. As such, the data provide a reasonable backdrop for a
comparative analysis of the Company's performance.
Exhibit 2 displays selected 1996 statistics for Geneva Rock Products and
the average of other sand and gravel producers. Several differences are evident.
The Company had a somewhat different asset composition when compared with the
industry average, with similar current assets (38.6% vs. 36.9%) but lower fixed
assets (34.7% vs. 51.3%) as a percent of total assets. The differential is
primarily the result of the Company's investments (primarily its 1996
acquisition of J & J Building Supply, Inc.), which constituted 26.1% of its 1996
assets. The Company had similar cash (9.7% vs. 8.8%), receivables (21.7% vs.
18.5%), and inventory (4.4% vs. 7.6%) as a percent of total assets relative to
the industry average.
The Company had a much less leveraged 1996 capital structure when
compared with the industry average. The Company had much lower current
liabilities (9.0% vs. 26.9%), long-term debt (9.1% vs. 22.2%), and total debt
(20.4% vs. 53.3%) as a percent of total assets. The Company's net worth as a
percent of total assets was correspondingly well above the industry average
figure (79.6% vs. 46.7%).
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Geneva Rock Products' 1996 gross margin was well below that of the
industry average (15.7% vs. 34.5%). This large differential is likely a function
of different accounting/cost classifications utilized by the Company relative to
the industry, as opposed to any inherent cost structure differences between the
Company and the industry group. In any event, this negative gross margin
differential was more than offset by the Company's much lower operating expenses
as a percent of revenues (3.2% vs. 27.6%), resulting in the Company's operating
margin being well above the industry average figure (12.5% vs. 6.9%). This
differential was further magnified in the before-tax return on revenue figure by
the Company's absence of interest expense, with the Company's pre-tax net margin
of 13.2% being well above the industry average figure of 6.4%.
Geneva Rock Products' 1996 total asset turnover was slightly above that
of the industry average (1.5 times vs. 1.3 times). The Company also had higher
inventory turnover (28.1 times vs. 13.6 times) and fixed asset turnover (4.2
times vs. 2.6 times), but slightly lower receivables turnover (6.8 times vs. 8.7
times) relative to the industry average.
The combination of the Company's much higher pre-tax margin with its
slightly higher total asset turnover ratio resulted in the Company's 1996
before-tax return on asset ratio being well above that of the industry average
(19.3% vs. 5.6%). This differential was reduced somewhat in the before-tax
return on equity ratio by the much lower relative level of financial leverage
deployed in the Company's capital structure; still, the Company's figure of
24.3% remained well above the industry average figure of 15.3%.
Finally, Geneva Rock Products' financial risk appears to be well below
that of the industry average, as reflected by the Company's much lower 1996
total debt to equity ratio (0.3 times vs. 1.2 times), its much higher liquidity
ratios (current ratio of 4.3 times and quick ratio of 3.8 times vs. the
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46
industry
average figures of 1.6 times and 1.1 times, respectively), and its absence of
interest expense (the industry had a 1996 interest coverage ratio of 2.7 times).
In summary, Geneva Rock Products' 1996 financial performance appeared to be
generally superior to that of the average firm in the industry when measured in
terms of profitability, financial strength, and asset utilization efficiency.
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ESTIMATES OF VALUE
Four widely recognized approaches are utilized to estimate the fair
market enterprise value of Geneva Rock Products as of June 30, 1997: book value
(including liquidation value), transaction value, market value (derived from
market value ratios of similar firms), and income value (based on the present
value of future benefits). As previously stated, the uncertainty inherent in the
valuation process most likely will cause these differing methods of valuation to
produce different estimates of value. Before estimates of value can be made, the
nature of the security being valued and the expected income of the subject
security must be discussed.
Nature of the Security
The value of a security is influenced by many of its characteristics,
including control and marketability.
Control
The market value of public securities normally reflects the minority
interest being traded. The price of a successful tender offer seeking control is
usually higher than previous minority trades and reflects the value of the
premium for control. The purpose of this report is to estimate the fair market
enterprise value of Geneva Rock Products. Therefore, a premium for control is
applicable.
Marketability
The market value and income value methods of valuation are based on
comparisons with current values of securities traded on national exchanges.
There are, however, certain marketability differences between Geneva Rock
Products' securities and publicly traded securities. An owner of publicly traded
securities can know at all times the market value of his holding. He can sell
that holding on virtually a moment's notice and receive cash net of brokerage
fees within three working days.
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Such is not the case with an investment in the common stock of Geneva
Rock Products, being a privately held company. There is no ready market for the
Company's common stock, and no assurance of finding a buyer at any price.
Consequently, liquidating a position in the Company could well be a more costly
and time-consuming process than liquidating stock in publicly traded firms.
Therefore, a discount relative to the values of publicly traded securities
should be applied to the value of Geneva Rock Products' securities to reflect
this limited marketability.
Normalization of Earnings
The reported net income of a typical firm is subject to random
fluctuations as well as external and internal shocks. Thus, some "normalization"
procedure generally must be applied to smooth the data series and reveal the
underlying, stabilized trend in net income. Normalization of net income is
required to project earnings figures to be used in calculating the income value
estimate, as well as in providing a realistic earnings figure to apply the
market value approach to.
Normalization of earnings involves two steps. The first is the
elimination of extraordinary items which impact the firm's earnings but which
are not expected to repeat or persist. As previously mentioned in the Financial
Review section of this report (see page 31), only one adjustment was deemed
necessary to the reported net income of Geneva Rock Products during the 1991-96
period, that being elimination of the 1996 net loss incurred by the Company's
newly acquired subsidiary, J & J Building Supply, Inc. The second step involves
identification of the trend in the normalized earnings to eliminate random
fluctuations in any particular year and to project future expected earnings.
Several procedures are used to normalize and project earnings. These
approaches include statistical trend line and logarithmic analysis of past
earnings (regression analysis), past net margins applied to statistically
derived revenue estimates, and Company projections.
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Regression Analysis
Regression analysis is a statistical method which fixes a trend line to
actual data over time. Income estimates can be made by extending the trend line
into the future. A trend line correlation coefficient near 1.0 means that there
is a close association between the trend line and the actual data and suggests
that the data have a high degree of predictability. There are two types of trend
lines associated with regression analysis: a linear trend line, which assumes a
constant amount increase for each period; and a logarithmic trend line, which
assumes a constant percentage increase for each period.
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Past Averages
The second method of normalizing and projecting income is to use past
averages, both an historical average growth rate and an average net margin.
Essentially, the procedure applies an historical average or expected future net
margin to revenue forecasts to derive net income forecasts. The rationale is
that revenues tend to be more stable than net income.
Company Projections
Income statement projections for the five year period 1997-2001 have
been prepared based on an analysis of Geneva Rock Products' historical operating
results and conversations with Company management. These projections, together
with the underlying assumptions made in forming them, are contained in Exhibit
3, with Exhibit 4 showing projected income statement items as a percent of
projected revenues and Exhibit 5 reflecting projected income statement item
growth rates.
Projected Earnings
The various approaches described above yield a range of prospective net
income figures, which are summarized in Exhibit 6 and graphically depicted in
Exhibit 7. The projections contained in Exhibit 3 are deemed to be the most
reliable estimates as to the future operating prospects of Geneva Rock Products,
and are therefore utilized for valuation purposes. This approach yields
projected earnings estimates for the Company of $9,670,000 for 1997, $10,682,000
for 1998, $11,800,000 for 1999, $13,036,000 for 2000, and $14,401,000 for 2001.
These figures translate into earnings per share estimates of $444.00 for 1997,
$490.00 for 1998, $541.00 for 1999, $598.00 for 2000, and $661.00 for 2001,
based on 21,802 shares outstanding.
A graphical comparison of these projected earnings figures for the
1997-2001 period with the actual adjusted earnings generated by the Company over
the 1991-96 period is contained in Exhibit 8.
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It should be emphasized that forecasting the future is at best a difficult and
tenuous process. There will undoubtedly be disparities between the projected
figures and actual results, since events and circumstances frequently do not
occur as expected, and those disparities may be material.
Book/Liquidation Value
The book value of a company, that is, the carrying balances of the
equity accounts on the company's records, normally bears only a tenuous
relationship to the market value of the firm's stock. A useful accounting
concept, it has a somewhat limited role in the valuation process. For
informational purposes, the book value of Geneva Rock Products as of December
31, 1996, the date of the most recent balance sheet available, was $57,179,000
or $2,623 per share, based on 21,802 shares outstanding.
A common alternative measure of book value is the liquidation value of
the business. A quitting concern concept, it is not entirely applicable to the
valuation of a typical going concern. The value of a company is typically not a
function of what the assets of the company could be sold for (net of
liabilities), but is rather a function of how those assets can be utilized in
generating revenue and net income. Furthermore, since the Company has been
operating for some 43 years, it appears unlikely that it will be liquidated in
the foreseeable future. Company management has indicated that there are no plans
to liquidate the Company.
Nevertheless, liquidation value does serve a useful role as a valuation
benchmark. At the very least, it approximates the value of the residual assets
distributable to shareholders were the business to be wound up with all
obligations discharged.
Exhibit 9 contains a hypothetical liquidation value schedule for Geneva
Rock Products as of December 31, 1996 (the date of the most recent balance sheet
available). Liquidation value is defined
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52
as the difference between the realizable value of all assets and the realizable
value of all liabilities, assuming an orderly liquidation of the Company. In
reviewing Exhibit 9, the assumptions that underlie the subjective estimates of
the realization rates are critical. Due care has been taken to keep these
assumptions as reasonable as possible, but precision is not implied. As can be
seen, the liquidation value of Geneva Rock Products as of December 31, 1996 is
estimated to be $90,730,000 or $4,162 per share. This figure will be considered
in arriving at a final estimate of the fair market enterprise value of the
Company as of June 30, 1997.
Transaction Value
Transaction value is the value at which shares of the subject security
were sold recently. A recent sale of a security is an indicator of value for
both legal and economic purposes. If an examination of all the relevant facts
reveals that the transaction took place at arm's length, i.e., that neither
buyer nor seller was forced to deal and both had adequate information and that
the transaction was for reasonable consideration, the value established in such
a transaction would be difficult to contest.
We are aware of no recent arm's-length transactions involving the common
stock of Geneva Rock Products, nor of any acquisition offers for the Company.
Consequently, transaction value cannot be considered in arriving at a final
estimate of the fair market enterprise value of the Company as of June 30, 1997.
Market Value
The market value approach attempts to determine the value of Geneva Rock
Products as if its shares were traded on an exchange in an active, public
market. This is accomplished by determining a
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comparative price-earnings ratio, which is the ratio of the market price of a
share of stock to the earnings per share; a comparative price to cash flow
ratio, which is the ratio of the market price of a share of stock to the
operating cash flow (net income plus depreciation) per share; a comparative
price to revenue ratio, which is the ratio of the market price of a share of
stock to the dollar sales per share; and a comparative price to book ratio,
which is the ratio of the market price of a share of stock to the book value per
share. Appropriate ratios for Geneva Rock Products can be determined by
comparing the firm with others in the same industry and, from its relative
standing in the industry, inferring market value ratios based on ratios in the
industry.
The price-earnings ratio is an important determinant of value because it
reflects the expectations of market participants. Generally speaking, investors
are willing to pay a higher price for today's earnings if they expect those
earnings to grow in the future. Conversely, they will pay a lower price if they
anticipate earnings to decline. Not only is the price-earnings ratio a reading
of the market's psychology, but it also represents the consensus of the market
place as to the worth of a security. This is significant for three reasons.
First, the market is competitive, with participant investors seeking to enhance
their wealth. Second, the market is informed, with investors seeking to deepen
their understanding of the companies and industries in which they have
positions. Finally, the market is rational, since investors act upon the
information acquired to further their objectives. All three factors contribute
much weight to the resulting valuation in spite of imperfections in the market.
Similar arguments can be made for the other market value ratios.
Ideally, market value ratios for Geneva Rock Products should be inferred
from ratios of similar firms whose stocks are traded actively in public markets.
Unfortunately, many construction materials and aggregates producers with
operations similar to those of Geneva Rock Products are small, closely held
businesses for which no market value has been established. Since these companies
are not publicly
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54
traded, it is impossible to use them as a basis for making inferences regarding
the market value of Geneva Rock Products. Therefore, a group of publicly traded
construction materials and aggregates producing firms and heavy construction
firms is selected as being representative of the industry in which the Company
operates.
Exhibit 10 presents the names and brief descriptions of the sample group
of 21 publicly traded companies considered representative of the industry of
which Geneva Rock Products is a member. Although these companies obviously
differ from Geneva Rock Products, the differences are not of prime significance
here, since a direct comparison is not intended but rather a relative comparison
that reflects an aggregate appraisal of the industry. To the extent that the
firms in the industry sample group and Geneva Rock Products are affected by
similar fundamental economic factors, investors' expectations regarding the
long-term growth and success of the former are justifiably imputable to the
future of the latter.
In 1996, Geneva Rock Products had somewhat better profitability ratios
when compared with the average experience of the sample group of public
companies. The Company's net margin of 8.3% was slightly above the sample group
average figure of 7.6%, as was its return on assets (12.3% vs. 7.9%) and return
on equity (15.4% vs. 13.7%).
Geneva Rock Products appears to have lower financial risk when compared
with the average company in the sample group, although the sample group likewise
has low financial risk. The Company had a 1996 long-term debt to equity ratio of
only 11.5%, well below the likewise low sample group average figure of 31.6%.
Furthermore, the Company's current ratio of 4.3 times was well above the sample
group average figure of 2.0 times, suggesting better relative liquidity.
Geneva Rock Products' revenues increased at a compound annual rate of
15.8% over the 1991-96 period, well above the average compound annual revenue
growth rate experienced by the
<PAGE> 60
55
sample group during the period of 8.4%. However, the Company's revenues grew by
only 5.0% in 1996; the sample group's average revenue growth rate likewise
slowed in 1996, to only 4.1%. The Company's revenues are projected to grow over
the 1997-2001 period at a compound annual rate of 10.0%, increasing from the
1996 figure of $105.5 million to a projected level of $169.8 million in 2001.
This projected growth rate is well above the average compound annual revenue
growth rate forecast for the companies in the sample group by Value Line
Investment Survey of 6.0% over the next five years.
Geneva Rock Products' net income grew at a compound annual rate of 33.4%
over the 1991-96 period, but declined by 19.9% in 1996. The sample group
likewise had excellent (albeit much lower) average compound annual earnings
growth of 13.8% per year over the last five years, and similarly lower average
earnings growth of 5.8% in 1996. The Company's earnings are projected to grow at
a compound annual rate of 10.4% over the 1997-2001 period, increasing from the
1996 adjusted figure of $8.8 million to a projected level of $14.4 million in
2001. This projected growth rate is similar to the average compound annual
earnings growth rate projected by Wall Street analysts over the next five years
for the companies in the sample group of 11.7% per year (Source: First Call
Earnings Estimates).
In summary, Geneva Rock Products appears to have roughly similar overall
investment quality when compared with the publicly traded firms in the sample
group, with its better profitability ratios, lower financial risk, and generally
higher historical sales and earnings growth being offset, in our opinion, by its
smaller size and its relative absence of geographical diversification. As
previously mentioned, the Company's future earnings growth prospects are
estimated to be similar to those of the average company in the sample group.
<PAGE> 61
56
Exhibit 11 displays the market value ratios of the companies in the
publicly traded sample group as of June 30, 1997. To the sample group's mean
price-earnings ratio of 13.5, mean price to cash flow ratio of 7.2, mean price
to revenue ratio of 95.3%, and mean price to book ratio of 180.3%, a 30%
discount is applied to reflect the lack of marketability of the Company's
shares, being privately held, relative to the ready marketability of the
publicly traded shares of the sample group companies. To the resulting figures
is applied a partially offsetting premium of 30% to reflect valuation of the
Company on an enterprise value (controlling interest) basis. The result is a net
discount of 9% deemed to be applicable to the mean market value ratios of the
sample group in valuing Geneva Rock Products on an enterprise value basis.
Application of the resulting adjusted price-earnings ratio of 12.3 to
Geneva Rock Product's 1996 adjusted net income of $8,797,000 (see Appendix A)
yields a market value estimate of $108,203,000 or $4,963 per share. Application
of the resulting price to cash flow ratio of 6.6 to the Company's 1996 adjusted
cash flow from operations (net income plus non-cash depreciation expense) of
$15,414,000 yields a market value estimate of $101,732,000 or $4,666 per share.
Application of the resulting price to revenue ratio of 86.7% to the Company's
1996 total revenues of $116,338,000 (or the Company's revenues of $105,451,000
plus the 1996 revenues of the Company's newly-acquired subsidiary, J & J
Building Supply, Inc., which were not consolidated with the Company's revenues
in the Company's 1996 income statement, of $10,887,000) yields a market value
estimate of $100,865,000 or $4,626 per share. Finally, application of the
resulting price to book ratio of 164.1% to the Company's December 31, 1996 book
value of $57,179,000 yields a market value estimate of $93,831,000 or $4,304 per
share.
Each of these market value figures is as of June 30, 1997, and each will
be considered in arriving at a final estimate of the fair market enterprise
value of Geneva Rock Products as of that date.
<PAGE> 62
57
Income Value
The income approach to valuation estimates the worth of a company's
stock by determining the present value of the future income stream expected to
accrue to the stockholder. This is accomplished by, first, forecasting the
firm's future income stream and the disposition of such and, second, discounting
it at a rate commensurate with the risk to which it is exposed.
The present value of future income depends on the amount and timing of
that income. Since both the amount and timing are uncertain - income might be
less than expected and/or income might materialize later than expected - this
uncertainty must be quantified and incorporated into a discount rate. Thus,
given the amount and timing of a future income stream, high uncertainty
necessitates a high discount rate and results in a relatively low present value,
while low uncertainty merits a low discount rate and a relatively high present
value.
The appropriate discount rate, that is, the minimum rate of return
required by an investor purchasing the firm's shares, must have as its
foundation the yields available on competing financial assets in the public
markets. This follows from the observations noted below.
<PAGE> 63
58
1. Securities with different risk characteristics provide different rates
of return commensurate with those uncertainties. This hierarchy of risk
and reward furnishes benchmarks from which a suitable discount rate may
be selected for an income stream of known risk properties.
2. A particular investor, due perhaps to his aversion to risk, may find
market returns inadequate at every level of risk. In a competitive
market, however, he is a "price taker" and, as such, is limited to
either investing at the going rates or not investing at all.
3. On the other hand, there will always be a buyer and seller willing to
deal at the market rates, precisely because the market rates represent
the consensus of many investors.
Thus, it is possible to estimate an "objective" valuation of a security
based on a discount rate derived from the market.
Exhibit 12 presents an historical structure of rates of return
observable and available (and, in the long run, "required") on selected classes
of securities. As can be seen, the rate of return required on a typical common
stock is 9.0% above the prevailing rate of inflation (or 14.0%, assuming a
long-term expected inflation rate of 5.0%). An investor would require from his
holding of a controlling interest in Geneva Rock Products' securities a return
estimated to be 2.0% above the average yield available in the common stock
market (or 16.0%). It is reasonable for him to require a premium on the general
market because of industry- and Company-specific risk characteristics (e.g., the
competitive nature of the markets in which the Company is involved, as well as
the cyclical nature of the construction industry, to which the Company sells its
construction materials and aggregates products and in which the Company is also
directly involved as a construction contractor; the smaller size of the Company;
the relative non- marketability of its shares; its relative absence of
geographical diversification; and the uncertainty relating to its ability to
achieve future projected earnings levels, particularly given the cyclicality
inherent in the construction industry and the decline in earnings experienced by
the Company in 1996). These risk factors are offset in part by a risk reduction
for valuation of the Company on an enterprise value (controlling interest)
basis.
<PAGE> 64
59
The estimated required rate of return of 16.0% is a function of the
returns available on the sample group of publicly traded construction materials
and aggregates producers and heavy construction firms referred to in the Market
Value section of this report, as quantitatively estimated by the Capital Asset
Pricing Model and the Gordon Growth Model, plus an additional risk premium for
the Company-specific risk characteristics previously alluded to, less a
partially offsetting risk reduction for valuation on a controlling interest
basis.
The income valuation model used is based on the assumption that the
firm's earnings are retained in total and dividend payments deferred until a
specified year when the firm begins paying all of its earnings as dividends and
does so indefinitely into the future. Once these dividend payments begin to
occur, the basis for the firm's internally financed growth ceases. In the
absence of new external financing, the firm reaches a "steady state" and
earnings remain constant indefinitely thereafter, growing only in nominal terms
in step with inflation. While it is not necessary that the firm actually so
behaves, this is a necessary specification for the valuation formula to be
technically correct. Basically, what is being specified is the firm's
dividend-paying ability. Only dividends can correctly be used in the income
valuation approach for a common stock.
If it is assumed that all of Geneva Rock Products' future projected net
income (see Exhibit 3) will be available to be paid out as dividends from the
valuation date forward, and if it is further assumed that post-2001 net income
will remain constant in real terms, or will grow in nominal terms at an expected
long-term rate of inflation of 5.0% from the 2001 projected figure of
$14,401,000, an income value estimate of $103,339,000 or $4,740 per share is
derived. This figure will be considered in arriving at a final estimate of the
fair market enterprise value of the Company as of June 30, 1997.
<PAGE> 65
60
SUMMARY AND CONCLUSION
Four approaches have been utilized to estimate the fair market
enterprise value of Geneva Rock Products as of June 30, 1997: book/liquidation
value, transaction value, market value, and income value. The outcomes are
summarized below:
<TABLE>
<CAPTION>
Valuation Method Value Estimate Per Share Weight Contribution
- ---------------- ------------------------ --------- ------ ------------
<S> <C> <C> <C> <C>
Book Value $ 57,179,000 $2,623 0% $ 0
Liquidation Value $ 90,730,000 $4,162 10% $ 9,073,000
Market Value:
Price-Earnings $108,203,000 $4,963 10% $ 10,820,000
Price to Cash Flow $101,732,000 $4,666 10% $ 10,173,000
Price to Revenue $100,865,000 $4,626 10% $ 10,087,000
Price to Book $ 93,831,000 $4,304 10% $ 9,383,000
Income Value $103,339,000 $4,740 50% $ 51,670,000
--- ------------
100%
===
Final Total Value Estimate $101,206,000
============
Rounded to: $101,000,000
============
Per Share (21,802 shares outstanding): $ 4,633
============
</TABLE>
Considering the assumptions of each method and weighing the relative
justifications of each, it is our opinion that a reasonable estimate of the fair
market enterprise value of Geneva Rock Products as of June 30, 1997 is
$101,000,000 or $4,633 per share, based on 21,802 shares outstanding.
<PAGE> 66
61
EXHIBITS
<PAGE> 67
62
EXHIBIT 1
GENEVA ROCK PRODUCTS
SELECTED FINANCIAL RATIOS
<TABLE>
<CAPTION>
1991-96
1991 1992 1993 1994 1995 1996 Average
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
GROWTH
Contract Income Growth (%) - 11.6 24.9 14.1 24.7 5.0 15.8
Net Income Growth (%) - 51.0 110.5 32.8 24.7 (19.9) 33.4
Operating Cash Flow Growth (%) - 15.5 64.7 31.9 25.3 (12.1) 22.5
COST CONTROL
Cost of Contracts/Contract Income (%) 90.4 88.2 82.4 81.0 80.5 84.3 84.5
Gross Margin (%) 9.6 11.8 17.6 19.0 19.5 15.7 15.5
Operating Expenses/Contract Income (%) 3.9 4.0 4.1 3.3 3.1 3.2 3.6
Operating Margin (%) 5.7 7.8 13.5 15.8 16.4 12.5 11.9
Interest Expense/Contract Income (%) 0.5 0.0 0.0 0.0 0.0 0.0 0.1
TURNOVER
Contract Income/Receivables (x) 9.6 10.4 8.0 7.7 6.5 6.8 8.2
Cost of Contracts/Inventory (x) 28.5 27.6 32.7 23.5 32.2 28.1 28.8
Contract Income/Fixed Assets (x) 3.8 4.1 4.6 4.2 4.1 4.2 4.2
Contract Income/Total Assets (x) 2.0 2.0 2.0 1.8 1.8 1.5 1.9
PROFITABILITY
Net Margin (%) 4.1 5.6 9.4 10.9 10.9 8.3 8.2
Return on Assets (%) 8.2 11.1 18.5 19.4 19.4 12.3 14.8
Return on Equity (%) 9.5 12.7 21.5 22.5 22.2 15.4 17.3
Dividend Payout (%) 15.7 13.9 7.2 6.7 6.0 7.4 9.5
RISK
Total Debt/Total Assets (%) 13.9 12.7 14.1 13.7 12.9 20.4 14.6
Shareholders' Equity/Total Assets (%) 86.1 87.3 85.9 86.3 87.1 79.6 85.4
Long-Term Debt/Equity (%) 0.0 0.0 0.0 1.9 1.4 11.5 2.5
Current Ratio (x) 4.3 5.3 4.9 5.9 5.9 4.3 5.1
Quick Ratio (x) 3.6 4.6 4.4 5.2 5.4 3.8 4.5
Interest Coverage (x) 14.0 NI NI NI NI NI NM
Contract Income Correlation 0.989
Net Income Correlation 0.906
Operating Cash Flow Correlation 0.939
</TABLE>
NM = not meaningful
NI = no interest expense
<PAGE> 68
63
EXHIBIT 2
SELECTED STATISTICS FOR GENEVA ROCK PRODUCTS
AND OTHER SAND & GRAVEL PRODUCERS
<TABLE>
<CAPTION>
Median
Geneva Rock of Other
Products(a) Companies(b)
------- -----
<S> <C> <C>
Number of Companies 1 88
Total Assets ($000's) 71,794 6,966
BALANCE SHEET ITEMS
Current Assets as a % of Assets 38.6 36.9
Cash as a % of Assets 9.7 8.8
Accounts Receivable as a % of Assets 21.7 18.5
Inventory as a % of Assets 4.4 7.6
Net Fixed Assets as a % of Assets 34.7 51.3
Current Liabilities as a % of Assets 9.0 26.9
Long-Term Debt as a % of Assets 9.1 22.2
Total Debt as a % of Assets 20.4 53.3
Net Worth as a % of Assets 79.6 46.7
INCOME STATEMENT ITEMS
Annual Sales ($000's) 105,451 8,366
Gross Profit as a % of Sales 15.7 34.5
Operating Expenses as a % of Sales 3.2 27.6
Operating Income as a % of Sales 12.5 6.9
Income Before Tax as a % of Sales 13.2 6.4
TURNOVER RATIOS
Accounts Receivable Turnover (x) 6.8 8.7
Inventory Turnover (x) 28.1 13.6
Fixed Asset Turnover (x) 4.2 2.6
Total Asset Turnover (x) 1.5 1.3
PROFITABILITY
Before-Tax Return on Assets (%) 19.3 5.6
Before-Tax Return on Equity (%) 24.3 15.3
RISK
Current Ratio (x) 4.3 1.6
Quick Ratio (x) 3.8 1.1
Interest Coverage Ratio (x) NI 2.7
Total Debt/Equity (x) 0.3 1.2
</TABLE>
Notes: (a) Year ended December 31, 1996
(b) Fiscal years ended April 1, 1995 through March 31, 1996
Source: Annual Statement Studies, 1996 edition, Robert Morris Associates,
Philadelphia, PA
<PAGE> 69
64
EXHIBIT 3
GENEVA ROCK PRODUCTS
PROJECTED INCOME STATEMENTS
(in $000's)
For Year Ending December 31:
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
SALES & CONTRACT INCOME 115,996 127,596 140,355 154,391 169,830
COST OF SALES & CONTRACTS 97,785 107,563 118,320 130,151 143,167
------- ------- ------- ------- -------
GROSS PROFIT 18,211 20,033 22,036 24,239 26,663
OPERATING EXPENSES 3,589 3,805 4,033 4,275 4,531
------- ------- ------- ------- -------
INCOME FROM OPERATIONS 14,622 16,228 18,003 19,965 22,132
INTEREST EXPENSE 0 0 0 0 0
OTHER INCOME 727 727 727 727 727
------- ------- ------- ------- -------
EARNINGS BEFORE TAX 15,349 16,955 18,730 20,692 22,859
INCOME TAX 5,679 6,273 6,930 7,656 8,458
------- ------- ------- ------- -------
NET INCOME 9,670 10,682 11,800 13,036 14,401
======= ======= ======= ======= =======
</TABLE>
<PAGE> 70
65
EXHIBIT 3
(continued)
GENEVA ROCK PRODUCTS
ASSUMPTIONS TO PROJECTED INCOME STATEMENTS
1. Sales and contract income are assumed to grow at a compound annual rate
of 10.0% from the 1996 figure of $105,451,000 throughout the forecast
period. This projected growth rate is below the compound annual sales
growth rate experienced by the Company over the 1991-96 period of 15.8%,
but is above the 1996 sales increase of 5.0%.
2. Cost of sales and contracts is assumed to remain constant at the 1996
figure of 84.3% of sales and contract income throughout the forecast
period. This figure is similar to the 1991-96 average cost of sales
figure of 84.5%.
3. Operating expenses are assumed to grow at a compound annual rate of 6.0%
from the 1996 figure of $3,386,000 throughout the forecast period. This
differential between projected sales growth and projected operating
expense growth of 4.0% (or 10.0% vs. 6.0%) is roughly consistent with
the differential experienced over the 1991-96 period of 4.6% (or 15.8%
compound annual sales growth vs. 11.2% compound annual operating expense
growth), and reflects the presence of operating leverage (or fixed
costs) in an environment of increasing sales.
4. Interest expense is assumed to be negligible throughout the forecast
period, consistent with the absence of interest expense throughout the
1992-96 period and the Company's virtual absence of long-term debt.
5. Other income (comprised primarily of miscellaneous income and net income
from investments less bad debt expense) is assumed to remain constant at
the 1996 figure of $727,000 throughout the forecast period. This figure
is also similar to the 1991-96 average figure of $650,000.
6. Income tax is assumed to remain constant at a combined federal and state
corporate income tax rate of 37% of projected pre-tax earnings
throughout the forecast period.
7. Free cash flow is defined as net income plus non-cash depreciation
expense less capital expenditures. Depreciation expense and capital
expenditures are assumed to offset each other throughout the forecast
period, consistent with the experience of the Company in 1996, during
which depreciation expense and capital expenditures were virtually
identical (at $6.62 million and $6.71 million, respectively). In other
words, non-cash depreciation expense is assumed to be sufficient in the
future to fund required levels of capital expenditures. Consequently,
free cash flow is projected to be identical to net income throughout the
forecast period.
<PAGE> 71
66
EXHIBIT 4
GENEVA ROCK PRODUCTS
PROJECTED INCOME STATEMENT ITEMS AS A % OF PROJECTED SALES & CONTRACT INCOME
For Year Ending December 31:
<TABLE>
<CAPTION>
1997-2001
1997 1998 1999 2000 2001 Average
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
SALES & CONTRACT INCOME 100.0 100.0 100.0 100.0 100.0 100.0
COST OF SALES & CONTRACTS 84.3 84.3 84.3 84.3 84.3 84.3
----- ----- ----- ----- ----- -----
GROSS PROFIT 15.7 15.7 15.7 15.7 15.7 15.7
OPERATING EXPENSES 3.1 3.0 2.9 2.8 2.7 2.9
----- ----- ----- ----- ----- -----
INCOME FROM OPERATIONS 12.6 12.7 12.8 12.9 13.0 12.8
INTEREST EXPENSE 0.0 0.0 0.0 0.0 0.0 0.0
OTHER INCOME 0.6 0.6 0.5 0.5 0.4 0.5
----- ----- ----- ----- ----- -----
EARNINGS BEFORE TAX 13.2 13.3 13.3 13.4 13.5 13.3
INCOME TAX 4.9 4.9 4.9 5.0 5.0 4.9
----- ----- ----- ----- ----- -----
NET INCOME 8.3 8.4 8.4 8.4 8.5 8.4
===== ===== ===== ===== ===== =====
</TABLE>
<PAGE> 72
67
EXHIBIT 5
GENEVA ROCK PRODUCTS
PROJECTED INCOME STATEMENT ITEM GROWTH RATES (%)
<TABLE>
<CAPTION>
1996-2001
For Year Ending December 31: Compound
Annual
1997 1998 1999 2000 2001 Growth
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SALES & CONTRACT INCOME 10.0 10.0 10.0 10.0 10.0 10.0
COST OF SALES & CONTRACTS 10.0 10.0 10.0 10.0 10.0 10.0
---- ---- ---- ---- ---- ----
GROSS PROFIT 10.0 10.0 10.0 10.0 10.0 10.0
OPERATING EXPENSES 6.0 6.0 6.0 6.0 6.0 6.0
---- ---- ---- ---- ---- ----
INCOME FROM OPERATIONS 11.1 11.0 10.9 10.9 10.9 10.9
INTEREST EXPENSE 0.0 0.0 0.0 0.0 0.0 0.0
OTHER INCOME 0.0 0.0 0.0 0.0 0.0 0.0
---- ---- ---- ---- ---- ----
EARNINGS BEFORE TAX 10.5 10.5 10.5 10.5 10.5 10.5
INCOME TAX 11.5 10.5 10.5 10.5 10.5 10.7
---- ---- ---- ---- ---- ----
NET INCOME 9.9 10.5 10.5 10.5 10.5 10.4
==== ==== ==== ==== ==== ====
</TABLE>
<PAGE> 73
68
EXHIBIT 6
GENEVA ROCK PRODUCTS
NORMALIZED AND PROJECTED NET INCOME
<TABLE>
<CAPTION>
- - - - - Net Income - - - -
(in $millions) Implicit
Compound
Annual
Method 1997 1998 1999 2000 2001 Growth*
----- ----- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Regression Analysis:
net income trend line 10.97 11.84 12.71 13.58 14.44 10.4%
net income log trend line 11.32 12.60 14.02 15.61 17.37 14.6%
Past Averages:
1991-96 average net
margin of 8.2% applied
to projected revenues 9.51 10.46 11.51 12.66 13.93 9.6%
Company Projections 9.67 10.68 11.80 13.04 14.40 10.4%
Final Projected Net Income 9.67 10.68 11.80 13.04 14.40 10.4%
Per Share ($0.00) 444 490 541 598 661 10.4%
</TABLE>
* from 1996 adjusted net income figure of $8,797,000
<PAGE> 74
69
EXHIBIT 7
GENEVA ROCK PRODUCTS
Income Projection Estimates
[Projection Chart]
<PAGE> 75
70
EXHIBIT 8
GENEVA ROCK PRODUCTS
Historical and Projected Net Income
[Projection Chart]
<PAGE> 76
71
EXHIBIT 9
GENEVA ROCK PRODUCTS
HYPOTHETICAL LIQUIDATION VALUE SCHEDULE
AS OF DECEMBER 31, 1996
(in $000's)
<TABLE>
<CAPTION>
Book Liquidation
ASSETS Value Value
---------- ---------
<S> <C> <C>
CASH (1) 6,959.4 6,959.4
ACCOUNTS RECEIVABLE (2) 15,550.8 15,550.8
INVENTORIES (3) 3,165.8 3,165.8
GROSS PROPERTY, PLANT & EQUIPMENT (4) 55,030.9 66,375.4
LESS: ACCUMULATED DEPRECIATION (4) (30,093.9) 0.0
---------- ---------
NET PROPERTY, PLANT & EQUIPMENT (4) 24,937.0 66,375.4
INVESTMENTS (5) 18,737.4 21,016.7
OTHER ASSETS (6) 2,443.6 2,290.4
---------- ---------
TOTAL ASSETS 71,794.0
==========
TOTAL ESTIMATED REALIZABLE
VALUE OF ASSETS 115,358.5
=========
LIABILITIES AND EQUITY
CURRENT LIABILITIES (7) 6,459.5 6,459.5
LONG-TERM DEBT (8) 6,566.5 6,566.5
OPERATING LEASES (9) 0.0 10,014.2
DEFERRED TAX LIABILITY (10) 1,589.2 1,589.2
STOCKHOLDERS' EQUITY 57,178.8 0.0
---------- ---------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY 71,794.0
==========
TOTAL ESTIMATED REALIZABLE
VALUE OF LIABILITIES 24,629.4
=========
ESTIMATED LIQUIDATION VALUE (rounded) $90,730.0
---------
PER SHARE (21,802 shares outstanding) $ 4,162
=========
</TABLE>
Notes: See following page
<PAGE> 77
72
EXHIBIT 9
(continued)
NOTES TO HYPOTHETICAL LIQUIDATION SCHEDULE
(1) Cash is assumed realizable at book carrying value of $6,959,400.
(2) Accounts receivable are assumed realizable at book carrying
value of $15,550,800, which is net of allowance for doubtful
accounts of $100,000.
(3) Inventories are assumed realizable at book carrying value of
$3,165,800, per conversations with Company management.
Inventories are comprised of sand and gravel having a book
carrying value of $1,462,400, cement and additives ($982,300),
truck repair and maintenance items ($708,400), and office
supplies ($12,700).
(4) Property, plant and equipment consists of land, buildings,
transportation equipment, machinery and equipment, batch plants,
office equipment, and wells. Company management has done a
detailed analysis which estimates the total realizable value of
property, plant and equipment to be $66,375,400 (or $30,807,100
for property and plants, $20,420,000 for transportation
equipment, $14,998,300 for machinery and equipment, and $150,000
for office furniture and equipment).
(5) Investments consist primarily of the Company's investment in its
wholly-owned subsidiary, J & J Building Supply, Inc. Because of
the relatively recent date of this acquisition (June 28, 1996),
this subsidiary is assumed to have realizable value equal to the
Company's investment in it of $18,466,700. Other investments
include an investment in Mt. Jordan (estimated by Company
management to have a value of $1,500,000), water shares and air
credits (valued by Company management at $1,000,000), and a
country club membership (valued by Company management at
$50,000). Total realizable value of investments, then, is
estimated to be $21,016,700.
(6) Other assets consist of federal income taxes receivable in the
amount of $1,830,800, prepaid expenses in the amount of
$211,100, miscellaneous assets in the amount of $248,500, and a
noncompete agreement (net of accumulated amortization) in the
amount of $153,200. These assets are assumed realizable at book
carrying values, with the exception of the noncompete agreement,
which, being an intangible asset, is assumed to have no
realizable value upon liquidation.
(7) Current liabilities consist of accounts payable in the amount of
$3,456,500, accrued liabilities in the amount of $1,392,100,
current portion of notes payable in the amount of $969,200, and
current portion of deferred tax liability in the amount of
$641,700. Current liabilities are assumed payable in full at
book carrying values aggregating $6,459,500.
<PAGE> 78
73
EXHIBIT 9
(continued)
NOTES TO HYPOTHETICAL LIQUIDATION SCHEDULE
(8) Long-term debt consists of notes payable (primarily for debt
assumed in the purchase of the Company's wholly-owned
subsidiary, J & J Building Supply, Inc.) in the amount of
$6,398,200 and long-term pension payable in the amount of
$168,300. Long-term debt is assumed payable in full at book
carrying values aggregating $6,566,500.
(9) The Company has noncancelable operating lease commitments on
trucks and other equipment totaling $5,570,700. In addition, the
Company's wholly-owned subsidiary, J & J Building Supply, Inc.,
has noncancelable operating lease commitments on real property,
machinery and equipment, and trucks and vehicles totaling
$4,443,500. These lease commitments, being operating leases, are
not recorded as liabilities on the Company's balance sheet, but
still reflect economic liabilities, since they are
noncancelable. Consequently, they are assumed payable in full at
the above figures aggregating $10,014,200.
(10) Deferred tax liability is assumed payable in full upon
liquidation of the Company at book carrying value of $1,589,200.
<PAGE> 79
74
EXHIBIT 10
GENEVA ROCK PRODUCTS
INDUSTRY SAMPLE GROUP
AMERON INTERNATIONAL supplies products and services used in the construction of
pipeline facilities for various utilities. The company manufactures concrete
cylinder pipe, prestressed concrete cylinder pipe, steel pipe and reinforced
concrete pipe for water transmission, storm and industrial waste water and
sewage collection. The company also supplies ready-mix concrete, concrete pipe,
sand and aggregates, and box culverts to the construction industry, and
manufactures steel and concrete poles for highway, street and outdoor lighting
and for traffic signals.
ATKINSON (GUY F.) COMPANY provides a full range of construction, engineering,
and related services to clients in industry, power generation, commercial
building and government. The company provides construction and related
engineering services to heavy civil (projects such as dams, hydroelectric
developments, bridges, locks, tunnels, highways, and other large
infrastructure-related projects), industrial, commercial, energy, natural
resources, utility and government clients worldwide.
CALMAT CO. produces hot-mix asphalt, ready-mixed concrete, aggregates, and other
construction materials in southern, central, and northern California, Arizona,
and New Mexico. The company's concrete and aggregates division mines aggregates
from 1.9 billion tons of reserves, which it processes at 30 plants. The company
also operates 28 ready-mix concrete plants and 375 mixer trucks. The company's
asphalt division operates 36 plants that manufacture hot-mix asphalt, in part
from aggregates and oil that have been salvaged from roads and other surfaces.
The company's primary customers are contractors who use its products to build
homes, commercial buildings, roads, and transit systems.
CENTEX CONSTRUCTION PRODUCTS is a producer of a variety of basic construction
products used in residential, industrial, commercial, and infrastructure
applications. The company produces and sells cement, aggregates, ready-mix
concrete, and gypsum wallboard. The company operates four quarrying and
manufacturing facilities and a network of 12 terminals for the production and
distribution of portland and masonry cement, primarily in Texas, northern
Illinois, the Rocky Mountains, Nevada, and northern California. The company's
four cement plants, which all use dry process technology, have a combined
clinker capacity of 3.3 million short tons. The company extracts and produces
aggregates from its deposits near Sacramento, California and Austin, Texas.
CONTINENTAL MATERIALS produces and sells limestone, sand, gravel, and other
aggregate materials, as well as ready-mix concrete, primarily in Colorado. The
company also manufactures heating and cooling equipment.
<PAGE> 80
75
EXHIBIT 10
(continued)
GENEVA ROCK PRODUCTS
INDUSTRY SAMPLE GROUP
DEVCON INTERNATIONAL produces and distributes ready-mix concrete, crushed stone,
concrete block and asphalt, and distributes bulk and bagged cement in the
eastern Caribbean. The company also conducts earthmoving, excavating and filling
operations, and builds golf courses, roads and utility infrastructures in
Florida and the Caribbean. The company has quarries, rock crushing plants,
concrete batch plants, asphalt plants, and concrete block plants located
throughout the Caribbean.
FLORIDA ROCK INDUSTRIES manufactures ready-mix concrete, concrete block, and
other concrete products and construction materials, and produces construction
aggregates, including sand, gravel, and crushed stone. The company operates six
limestone and four granite quarries in Florida and Georgia, with reserves of 266
million tons, as well as sand and base rock plants. Principal markets for the
company's products are in Florida, Georgia, Virginia, and Maryland. The
company's concrete blocks are used in building construction. It also makes
prestressed concrete products used in highway construction. The company has 80
plants producing ready-mix concrete, 30 other processing plants, and 850
delivery trucks.
GIANT CEMENT manufactures a complete line of portland and masonry cement used in
residential, commercial, and infrastructure construction applications. The
company's manufacturing facilities have an aggregate rated annual clinker
capacity of approximately 1.4 million tons. The company owns and operates two
limestone quarries and manufacturing facilities through its Giant Cement and
Keystone Cement subsidiaries. The company serves the south-Atlantic and
mid-Atlantic regions of the United States.
GRANITE CONSTRUCTION is one of the largest heavy construction contractors in the
U.S. The company is also a large producer of sand, gravel, asphalt, and other
construction materials. The company focuses primarily on the West and Southwest,
and serves both public and private sector clients. Within the public sector, the
company concentrates on infrastructure projects, including the construction of
roads, highways, bridges, dams, tunnels, canals, mass transit facilities, and
airports, and provides related services, such as demolition, excavation, paving,
and tunneling. Within the private sector, the company performs site preparation
services for buildings, plants, subdivisions, and other facilities.
GREEN (A.P.) INDUSTRIES mines and processes limestone for various industrial
applications, including steel and aluminum production, pulp and paper
processing, soil stabilization for road construction, and water and wastewater
treatment. The company is also a leader in the manufacturing of refractories.
The company operates 22 plants in the United States, Canada, the United Kingdom,
and Mexico.
<PAGE> 81
76
EXHIBIT 10
(continued)
GENEVA ROCK PRODUCTS
INDUSTRY SAMPLE GROUP
LAFARGE CORP. produces cement, ready-mixed concrete, precast and prestressed
concrete components, asphalt, and aggregates. The company has an annual clinker
capacity of 11.6 million tons. The company's operations consist of approximately
400 locations, including ready-mixed concrete plants, crushed stone and gravel
sites, concrete product plants, and asphalt plants. Approximately 69% of the
company's plants are located in Canada.
LONE STAR INDUSTRIES is a producer of cement, construction aggregates (sand,
gravel, and crushed stone), and ready-mixed concrete. The company's cement
operations consist of five cement plants in the Midwestern and Southwestern
regions of the U.S. The company's aggregates operations serve the construction
market in the New York metropolitan area, the East Coast and Gulf Coast regions
of the U.S., the Caribbean, Nova Scotia, and the Prince Edward Island area of
Canada. The company's ready-mixed concrete business operates in Illinois and
Tennessee. The company's customer base primarily consists of ready-mixed
concrete producers, prestressed concrete producers, and highway construction
firms. Production levels are estimated at 4 million tons of cement and 9 million
tons of construction aggregates.
MARTIN MARIETTA MATERIALS produces construction aggregate products used for the
construction industry, including highways, infrastructure, commercial, and
residential. The company's aggregates business is concentrated principally in
the Southeast and the Midwest, where granite, sandstone and limestone aggregate
products are produced and processed at approximately 211 quarries.
MEDUSA CORP. produces cement, aggregates, and industrial limestone products,
sold primarily in the eastern United States to 1,350 customers through 21
distribution terminals. The company's four cement plants are located in
Michigan, Georgia, Pennsylvania, and Alabama. Annual rated cement capacity of
the company's plants is 3.7 million tons. The company also has a subsidiary
(James H. Drew Corp.) which provides construction services for highway safety.
MONROC, INC. produces ready-mixed concrete, prestressed and precast concrete
building components, sand and gravel products, and related accessories. The
company, headquartered in Salt Lake City, owns 18 plants in Utah, Idaho, and
Wyoming. Its products are sold throughout the western United States to customers
in the construction industry. The company primarily sells its products to
contractors, mostly pursuant to bid proposals. The company derives about 66% of
its sales from ready-mix concrete, 25% from precast and prestressed concrete,
and 9% from sand and gravel aggregates.
<PAGE> 82
77
EXHIBIT 10
(continued)
GENEVA ROCK PRODUCTS
INDUSTRY SAMPLE GROUP
MORRISON KNUDSEN (formed from the acquisition of Morrison Knudsen Corp. by
Washington Construction Group) is a construction company with operations in
infrastructure, contract mining, environmental remediation, and commercial
construction, serving government and private customers in the United States.
When providing construction services, the company enters into three basic types
of contracts: fixed-price or lump-sum contracts providing for a single price for
the total amount of work to be performed and unit-price contracts providing for
a fixed price for each unit of work performed; and cost-type contracts providing
for reimbursement of costs plus a fee. In June 1997, the company received two
contracts totaling $77 million to perform highway expansion projects from the
California Department of Transportation.
PUERTO RICAN CEMENT is the largest producer of ready-mixed concrete in Puerto
Rico. Its cement operations produce portland grey cement, which is used
primarily in the construction of buildings and highways, and hydrated lime,
mainly for use in connection with chemical water purification. The company's
cement is sold to customers in Puerto Rico and the Caribbean.
SOUTHDOWN, INC. is the third largest cement producer in the United States. The
company has cement plants in California, Florida, Kentucky, Ohio, Tennessee,
Texas, Colorado, and Pennsylvania, and ready-mixed concrete and aggregates
operations in Florida and California. The company's annual rated cement capacity
is 6.5 million tons, with 1996 shipments of 6.3 million tons. The company
operates eight quarries and manufacturing facilities in eight states and a
distribution network of 19 terminals.
STV GROUP provides engineering, consulting, design and construction services on
various projects for the U.S. federal government, state and local governments,
foreign governments, and private industry. The company's services include civil,
highway, bridge, airport, architectural, defense systems, industrial process,
and transportation engineering and construction. Approximately 50% of the
company's revenues are derived from state and local government contracts, 29%
from private contracts, and 19% from U.S. government contracts.
TEXAS INDUSTRIES produces cement/concrete and steel products for the
construction and manufacturing industries. The company's annual rated cement
capacity is 2.2 million tons. The company operates about 50 cement and concrete
production plants in Louisiana and Texas that supply materials such as
aggregates, cement, gravel, ready-mix concrete, and sand to the construction
industry in Colorado, Louisiana, New Mexico, Oklahoma, and Texas.
<PAGE> 83
78
EXHIBIT 10
(continued)
GENEVA ROCK PRODUCTS
INDUSTRY SAMPLE GROUP
VULCAN MATERIALS is the nation's leading commercial producer of crushed stone.
The company produces aggregates at 121 limestone and granite quarries and 13
sand and gravel quarries in 13 states throughout the central and southeastern
regions and in Mexico. These materials are used to make construction aggregates,
ready-mix concrete, and asphalt paving materials.
Sources: Standard & Poor's Stock Reports
Value Line Investment Survey
Morningstar Equities
<PAGE> 84
79
EXHIBIT 11
GENEVA ROCK PRODUCTS
MARKET VALUE RATIOS FOR
THE INDUSTRY SAMPLE GROUP
AS OF JUNE 30, 1997
<TABLE>
<CAPTION>
Price- Price to Price to Price to
Earnings Cash Flow Revenue Book
Ratio Ratio Ratio Ratio
Company (x) (x) (%) (%)
---- --- ---- -----
<S> <C> <C> <C> <C>
Ameron INternational 12.4 6.5 42.4 143.1
Atkinson (Guy F.) Company 15.8 7.2 12.8 71.1
Calmat Co. 15.6 7.2 113.3 149.8
Centex Construction Products 10.6 8.0 185.0 190.2
Continental Materials 8.5 4.5 25.5 83.5
Devcon International NE 5.2 30.3 34.0
Florida Rock Industries 13.0 6.3 86.4 152.1
Giant Cement 12.0 7.5 159.6 235.5
Granite Construction 13.3 5.5 39.0 154.0
Green (A.P.) Industries 13.8 5.2 32.1 70.1
Lafarge Corp. 12.1 7.5 116.0 176.4
Lone Star Industries 10.8 7.1 132.9 189.2
Martin Marietta Materials 18.2 10.5 203.8 312.8
Medusa Corp. 11.9 9.5 198.8 432.1
Monroc, Inc. 21.1 10.0 59.9 243.4
Morrison Knudsen NM NM 74.3 229.4
Puerto Rican Cement 12.0 6.9 119.4 120.8
Southdown, Inc. 12.7 6.9 129.1 226.6
STV Group 19.4 8.1 15.1 130.5
Texas Industries 8.3 4.8 59.2 132.7
Vulcan Materials 14.5 9.0 166.7 309.0
---- --- ---- -----
Mean 13.5 7.2 95.3 180.3
</TABLE>
NE = negative earnings
NM = not meaningful
Sources: Standard & Poor's Stock Reports
Value Line Investment Survey
Morningstar Equities
Barron's
<PAGE> 85
80
EXHIBIT 12
HISTORICAL STRUCTURE OF
YIELDS OBSERVABLE AND AVAILABLE
ON SELECTED SECURITIES
<TABLE>
<CAPTION>
Historical
Return (1) Differential
---------- ------------
<S> <C> <C> <C>
Inflation 3.2%
Real Interest 0.6%
U.S. Treasury Bills 3.8%
Maturity Premium 1.7%
Long-Term Government Bonds 5.5%
Default Premium 0.5%
Long-Term Corporate Bonds 6.0%
Ownership Premium 6.5%
Common Stocks 12.5%
Total Differential 9.3%
===
</TABLE>
(1) Arithmetic Mean
Note: Differential represents difference between historical returns (e.g., real
interest = return on treasury bills less inflation)
Source: Ibbotson Associates, 1996 Stocks, Bonds, Bills and Inflation Yearbook
<PAGE> 86
APPENDIX A
GENEVA ROCK PRODUCTS
FINANCIAL STATEMENT SUMMARY
<PAGE> 87
GENEVA ROCK PRODUCTS
INCOME STATEMENTS (in $000's)
For Year Ending December 31:
<TABLE>
<CAPTION>
1991-96
1991 1992 1993 1994 1995 1996 Average
------ ------ ------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
SALES & CONTRACT INCOME 50,653 56,507 70,556 80,526 100,422 105,451 77,352
COST OF SALES & CONTRACTS:
Materials 15,840 16,264 19,345 21,621 28,910 31,039 22,170
Direct & Indirect Labor 8,536 9,657 11,521 12,429 14,946 16,670 12,293
Labor Burden 3,992 4,527 5,023 5,415 6,204 6,816 5,329
Subcontractors 3,550 3,911 4,612 4,016 4,559 4,682 4,222
Equipment Repairs & Maintenance 5,084 5,612 5,958 7,296 8,924 9,566 7,073
Fuel, Oil & Lube Expense 1,337 1,604 1,801 1,965 2,357 2,787 1,975
Equipment Lease 2,784 3,501 4,415 5,546 6,881 9,388 5,419
Depreciation on Machinery & Trucks 3,013 3,071 3,713 4,685 5,760 5,562 4,301
Other Cost of Sales & Contracts 1,631 1,709 1,745 2,232 2,272 2,390 1,996
------ ------ ------ ------ ------- ------- ------
TOTAL COST OF SALES & CONTRACTS 45,766 49,853 58,133 65,205 80,811 88,900 64,778
GROSS PROFIT 4,887 6,654 12,424 15,321 19,611 16,551 12,574
OPERATING EXPENSES:
Wages & Benefits 600 822 867 986 1,357 1,212 974
Taxes & Insurance 747 709 1,214 621 701 800 799
Office, Janitorial & Safety 145 215 267 378 385 468 310
Advertising & Promotion 204 192 212 247 276 392 254
Legal, Accounting & Computer 89 104 141 169 167 185 142
Utilities 85 103 101 122 137 184 122
Depreciation 105 90 90 78 78 113 92
Other Operating Expenses 15 18 15 25 44 32 25
------ ------ ------ ------ ------- ------- ------
TOTAL OPERATING EXPENSES 1,990 2,254 2,905 2,625 3,143 3,386 2,717
INCOME FROM OPERATIONS 2,897 4,401 9,518 12,695 16,468 13,164 9,857
INTEREST EXPENSE 239 0 0 0 0 0 40
OTHER INCOME 450 235 431 1,171 888 727 650
------ ------ ------ ------ ------- ------- ------
EARNINGS BEFORE TAX 3,109 4,636 9,949 13,867 17,356 13,891 10,468
INCOME TAX 1,024 1,488 3,321 5,062 6,378 5,094 3,728
------ ------ ------ ------ ------- ------- ------
NET INCOME 2,085 3,148 6,628 8,805 10,978 8,797 6,740
====== ====== ====== ====== ======= ======= ======
ADD: DEPRECIATION,
DEPLETION & AMORTIZATION 3,492 3,291 3,979 5,190 6,557 6,616 4,854
------ ------ ------ ------ ------- ------- ------
OPERATING CASH FLOW 5,576 6,439 10,607 13,994 17,535 15,414 11,594
====== ====== ====== ====== ======= ======= ======
</TABLE>
<PAGE> 88
GENEVA ROCK PRODUCTS
INCOME STATEMENT ITEMS AS A % OF SALES
For Year Ending December 31:
<TABLE>
<CAPTION>
1991-96
1991 1992 1993 1994 1995 1996 Average
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
SALES & CONTRACT INCOME 100.0 100.0 100.0 100.0 100.0 100.0 100.0
COST OF SALES & CONTRACTS:
Materials 31.3 28.8 27.4 26.8 28.8 29.4 28.8
Direct & Indirect Labor 16.9 17.1 16.3 15.4 14.9 15.8 16.1
Labor Burden 7.9 8.0 7.1 6.7 6.2 6.5 7.1
Subcontractors 7.0 6.9 6.5 5.0 4.5 4.4 5.7
Equipment Repairs & Maintenance 10.0 9.9 8.4 9.1 8.9 9.1 9.2
Fuel, Oil & Lube Expense 2.6 2.8 2.6 2.4 2.3 2.6 2.6
Equipment Lease 5.5 6.2 6.3 6.9 6.9 8.9 6.8
Depreciation on Machinery & Trucks 5.9 5.4 5.3 5.8 5.7 5.3 5.6
Other Cost of Sales & Contracts 3.2 3.0 2.5 2.8 2.3 2.3 2.7
----- ----- ----- ----- ----- ----- -----
TOTAL COST OF SALES & CONTRACTS 90.4 88.2 82.4 81.0 80.5 84.3 84.5
GROSS PROFIT 9.6 11.8 17.6 19.0 19.5 15.7 15.5
OPERATING EXPENSES:
Wages & Benefits 1.2 1.5 1.2 1.2 1.4 1.1 1.3
Taxes & Insurance 1.5 1.3 1.7 0.8 0.7 0.8 1.1
Office, Janitorial & Safety 0.3 0.4 0.4 0.5 0.4 0.4 0.4
Advertising & Promotion 0.4 0.3 0.3 0.3 0.3 0.4 0.3
Legal, Accounting & Computer 0.2 0.2 0.2 0.2 0.2 0.2 0.2
Utilities 0.2 0.2 0.1 0.2 0.1 0.2 0.2
Depreciation 0.2 0.2 0.1 0.1 0.1 0.1 0.1
Other Operating Expenses 0.0 0.0 0.0 0.0 0.0 0.0 0.0
----- ----- ----- ----- ----- ----- -----
TOTAL OPERATING EXPENSES 3.9 4.0 4.1 3.3 3.1 3.2 3.6
INCOME FROM OPERATIONS 5.7 7.8 13.5 15.8 16.4 12.5 11.9
INTEREST EXPENSE 0.5 0.0 0.0 0.0 0.0 0.0 0.1
OTHER INCOME 0.9 0.4 0.6 1.5 0.9 0.7 0.8
----- ----- ----- ----- ----- ----- -----
EARNINGS BEFORE TAX 6.1 8.2 14.1 17.2 17.3 13.2 12.7
INCOME TAX 2.0 2.6 4.7 6.3 6.4 4.8 4.5
----- ----- ----- ----- ----- ----- -----
NET INCOME 4.1 5.6 9.4 10.9 10.9 8.3 8.2
===== ===== ===== ===== ===== ===== =====
ADD: DEPRECIATION,
DEPLETION & AMORTIZATION 6.9 5.8 5.6 6.4 6.5 6.3 6.3
----- ----- ----- ----- ----- ----- -----
OPERATING CASH FLOW 11.0 11.4 15.0 17.4 17.5 14.6 14.5
===== ===== ===== ===== ===== ===== =====
</TABLE>
<PAGE> 89
GENEVA ROCK PRODUCTS
INCOME STATEMENT ITEM GROWTH RATES (%)
<TABLE>
<CAPTION>
1991-96
For Year Ending December 31: Compound
Annual
1991 1992 1993 1994 1995 1996 Growth
---- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
SALES & CONTRACT INCOME - 11.6 24.9 14.1 24.7 5.0 15.8
COST OF SALES & CONTRACTS:
Materials - 2.7 18.9 11.8 33.7 7.4 14.4
Direct & Indirect Labor - 13.1 19.3 7.9 20.2 11.5 14.3
Labor Burden - 13.4 11.0 7.8 14.6 9.9 11.3
Subcontractors - 10.2 17.9 (12.9) 13.5 2.7 5.7
Equipment Repairs & Maintenance - 10.4 6.2 22.5 22.3 7.2 13.5
Fuel, Oil & Lube Expense - 20.0 12.3 9.1 19.9 18.2 15.8
Equipment Lease - 25.7 26.1 25.6 24.1 36.4 27.5
Depreciation on Machinery & Trucks - 1.9 20.9 26.2 22.9 (3.4) 13.0
Other Cost of Sales & Contracts - 4.7 2.1 27.9 1.8 5.2 7.9
--- ----- ----- ----- ----- ----- -----
TOTAL COST OF SALES & CONTRACTS - 8.9 16.6 12.2 23.9 10.0 14.2
GROSS PROFIT - 36.2 86.7 23.3 28.0 (15.6) 27.6
OPERATING EXPENSES:
Wages & Benefits - 37.0 5.5 13.7 37.6 (10.6) 15.1
Taxes & Insurance - (5.1) 71.1 (48.9) 12.9 14.2 1.4
Office, Janitorial & Safety - 48.3 23.8 42.0 1.7 21.5 26.4
Advertising & Promotion - (5.5) 10.1 16.3 11.8 42.3 14.0
Legal, Accounting & Computer - 16.7 35.9 19.9 (1.2) 11.2 15.9
Utilities - 21.0 (2.3) 21.7 11.9 34.0 16.6
Depreciation - (14.4) 0.0 (13.3) (0.8) 45.8 1.4
Other Operating Expenses - 23.0 (19.8) 70.5 76.3 (27.3) 16.6
--- ----- ----- ----- ----- ----- -----
TOTAL OPERATING EXPENSES - 13.3 28.9 (9.6) 19.7 7.7 11.2
INCOME FROM OPERATIONS - 51.9 116.3 33.4 29.7 (20.1) 35.4
INTEREST EXPENSE - (100.0) 0.0 0.0 0.0 0.0 NM
OTHER INCOME - (47.7) 83.0 172.1 (24.2) (18.1) 10.1
--- ----- ----- ----- ----- ----- -----
EARNINGS BEFORE TAX - 49.1 114.6 39.4 25.2 (20.0) 34.9
INCOME TAX - 45.3 123.2 52.4 26.0 (20.1) 37.8
--- ----- ----- ----- ----- ----- -----
NET INCOME - 51.0 110.5 32.8 24.7 (19.9) 33.4
=== ===== ===== ===== ===== ===== =====
ADD: DEPRECIATION,
DEPLETION & AMORTIZATION - (5.8) 20.9 30.4 26.3 0.9 13.6
--- ----- ----- ----- ----- ----- -----
OPERATING CASH FLOW - 15.5 64.7 31.9 25.3 (12.1) 22.5
=== ===== ===== ===== ===== ===== =====
</TABLE>
<PAGE> 90
GENEVA ROCK PRODUCTS
BALANCE SHEETS (in $000's)
As of December 31:
<TABLE>
<CAPTION>
ASSETS 1991 1992 1993 1994 1995 1996
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash 3,022.5 5,342.8 8,180.6 11,973.1 11,924.2 6,959.4
Accounts Receivable 5,293.9 5,458.0 8,788.8 10,432.0 15,437.9 15,550.8
Inventory 1,608.4 1,805.0 1,780.2 2,778.8 2,511.8 3,165.8
Other Current Assets 579.2 638.2 596.3 189.4 1,356.3 2,041.9
-------- -------- -------- -------- -------- --------
TOTAL CURRENT ASSETS 10,504.0 13,244.0 19,345.9 25,373.3 31,230.2 27,717.9
PROPERTY, PLANT & EQUIPMENT:
Land 3,885.6 4,179.7 4,271.1 5,663.1 8,963.6 9,481.9
Buildings 1,261.2 1,260.4 1,231.6 1,210.2 1,294.0 1,769.5
Transportation Equipment 12,267.7 13,860.7 13,711.9 14,506.2 18,112.9 18,124.8
Machinery & Equipment 10,186.9 10,864.8 10,100.8 9,654.9 13,318.4 15,895.9
Batch Plants 7,276.3 7,251.4 6,699.9 7,445.7 8,004.4 9,095.7
Office Equipment 483.1 540.4 484.9 490.2 511.3 542.3
Wells 152.2 152.2 147.1 147.1 147.1 120.8
Accumulated Depreciation (22,098.9) (24,443.9) (21,237.4) (20,146.8) (25,771.9) (30,093.9)
-------- -------- -------- -------- -------- --------
NET PROPERTY, PLANT & EQUIPMENT 13,414.1 13,665.7 15,409.9 18,970.6 24,579.8 24,937.0
INVESTMENTS 264.4 268.0 268.1 286.3 303.0 18,737.4
OTHER ASSETS 1,362.8 1,111.9 894.8 663.4 588.8 401.7
-------- -------- -------- -------- -------- --------
TOTAL ASSETS 25,545.3 28,289.6 35,918.7 45,293.6 56,701.8 71,794.0
======== ======== ======== ======== ======== ========
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts Payable 1,706.1 1,784.9 2,738.5 3,192.3 3,647.0 3,456.5
Accrued Liabilities 741.2 675.3 855.8 912.1 1,417.7 1,392.1
Current Portion of Notes Payable 0.0 0.0 0.0 196.0 224.0 969.2
Other Current Liabilities 23.4 23.4 369.2 7.1 0.0 641.7
-------- -------- -------- -------- -------- --------
TOTAL CURRENT LIABILITIES 2,470.7 2,483.6 3,963.5 4,307.5 5,288.7 6,459.5
NOTES PAYABLE 0.0 0.0 0.0 751.4 667.3 6,566.5
DEFERRED REVENUE 69.1 40.7 12.2 0.0 0.0 0.0
DEFERRED TAX LIABILITY 1,006.9 1,054.8 1,084.2 1,159.9 1,346.9 1,589.2
-------- -------- -------- -------- -------- --------
TOTAL LIABILITIES 3,546.7 3,579.1 5,059.9 6,218.8 7,302.9 14,615.2
STOCKHOLDERS' EQUITY 21,998.6 24,710.5 30,858.8 39,074.8 49,398.9 57,178.8
-------- -------- -------- -------- -------- --------
TOTAL LIABILITIES & EQUITY 25,545.3 28,289.6 35,918.7 45,293.6 56,701.8 71,794.0
======== ======== ======== ======== ======== ========
</TABLE>
<PAGE> 91
GENEVA ROCK PRODUCTS
BALANCE SHEET ITEMS AS A % OF TOTAL ASSETS
As of December 31:
<TABLE>
<CAPTION>
1991-96
ASSETS 1991 1992 1993 1994 1995 1996 Average
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash 11.8 18.9 22.8 26.4 21.0 9.7 18.4
Accounts Receivable 20.7 19.3 24.5 23.0 27.2 21.7 22.7
Inventory 6.3 6.4 5.0 6.1 4.4 4.4 5.4
Other Current Assets 2.3 2.3 1.7 0.4 2.4 2.8 2.0
----- ----- ----- ----- ----- ----- -----
TOTAL CURRENT ASSETS 41.1 46.8 53.9 56.0 55.1 38.6 48.6
PROPERTY, PLANT & EQUIPMENT:
Land 15.2 14.8 11.9 12.5 15.8 13.2 13.9
Buildings 4.9 4.5 3.4 2.7 2.3 2.5 3.4
Transportation Equipment 48.0 49.0 38.2 32.0 31.9 25.2 37.4
Machinery & Equipment 39.9 38.4 28.1 21.3 23.5 22.1 28.9
Batch Plants 28.5 25.6 18.7 16.4 14.1 12.7 19.3
Office Equipment 1.9 1.9 1.3 1.1 0.9 0.8 1.3
Wells 0.6 0.5 0.4 0.3 0.3 0.2 0.4
Accumulated Depreciation (86.5) (86.4) (59.1) (44.5) (45.5) (41.9) (60.6)
----- ----- ----- ----- ----- ----- -----
NET PROPERTY, PLANT & EQUIPMENT 52.5 48.3 42.9 41.9 43.3 34.7 43.9
INVESTMENTS 1.0 0.9 0.7 0.6 0.5 26.1 5.0
OTHER ASSETS 5.3 3.9 2.5 1.5 1.0 0.6 2.5
----- ----- ----- ----- ----- ----- -----
TOTAL ASSETS 100.0 100.0 100.0 100.0 100.0 100.0 100.0
===== ===== ===== ===== ===== ===== =====
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts Payable 6.7 6.3 7.6 7.0 6.4 4.8 6.5
Accrued Liabilities 2.9 2.4 2.4 2.0 2.5 1.9 2.4
Current Portion of Notes Payable 0.0 0.0 0.0 0.4 0.4 1.3 0.4
Other Current Liabilities 0.1 0.1 1.0 0.0 0.0 0.9 0.4
----- ----- ----- ----- ----- ----- -----
TOTAL CURRENT LIABILITIES 9.7 8.8 11.0 9.5 9.3 9.0 9.6
NOTES PAYABLE 0.0 0.0 0.0 1.7 1.2 9.1 2.0
DEFERRED REVENUE 0.3 0.1 0.0 0.0 0.0 0.0 0.1
DEFERRED TAX LIABILITY 3.9 3.7 3.0 2.6 2.4 2.2 3.0
----- ----- ----- ----- ----- ----- -----
TOTAL LIABILITIES 13.9 12.7 14.1 13.7 12.9 20.4 14.6
STOCKHOLDERS' EQUITY 86.1 87.3 85.9 86.3 87.1 79.6 85.4
----- ----- ----- ----- ----- ----- -----
TOTAL LIABILITIES & EQUITY 100.0 100.0 100.0 100.0 100.0 100.0 100.0
===== ===== ===== ===== ===== ===== =====
</TABLE>
<PAGE> 92
APPENDIX B
ROBERT MORRIS ASSOCIATES INDUSTRY RATIOS
SAND & GRAVEL CONSTRUCTION
<PAGE> 93
NOT ELSEWHERE CLASSIFIED--SAND & GRAVEL--CONSTRUCTION SIC# 1442
<TABLE>
<CAPTION>
COMPARATIVE HISTORICAL DATA CURRENT DATA SORTED BY SALES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3 5 4 # POSTRETIREMENT BENEFITS 1 1 2
16 23 24 TYPE OF STATEMENT 5 2 5 8
23 22 23 Unqualified 2 8 9 2 2
13 15 16 Reviewed 3 4 6 3
2 2 3 Compiled 2 1
22 17 22 Tax Returns 2 6 6 4 3
Other
4/1/93- 4/1/94- 4/1/95- 17(4/1-9/30/95) 71(10/1/95-3/31/96)
3/31/94 3/31/95 3/31/96
- -----------------------------------------------------------------------------------------------------------------------------------
ALL ALL ALL NUMBER OF STATEMENTS 0-1MM 1-3MM 3-5MM 5-10MM 10-25MM 25MM & OVER
76 79 88 9 24 23 14 13
- -----------------------------------------------------------------------------------------------------------------------------------
% % % ASSETS % % % % %
7.9 9.0 8.8 Cash & Equivalents 9.2 8.8 9.9 7.4
19.3 17.8 18.5 Trade Receivables - (net) 19.0 21.6 18.5 19.3
7.6 8.1 7.6 Inventory 8.2 5.3 6.9 9.1
2.5 2.3 2.0 All Other Current 1.4 3.8 2.1 .9
37.3 37.1 36.9 Total Current 37.8 39.5 37.4 36.8
54.7 54.5 51.3 Fixed Assets (net) 49.9 50.6 46.9 52.2
1.3 1.9 1.7 Intangibles (net) 1.3 .8 1.3 1.2
6.6 6.5 10.1 All Other Non-Current 11.1 9.1 14.4 9.8
100.0 100.0 100.0 Total 100.0 100.0 100.0 100.0
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
5.1 4.7 5.3 Notes Payable-Short Term 5.3 6.8 6.2 3.1
6.0 6.6 5.8 Cur. Mat.-L/T/D 5.5 6.6 6.8 6.3
10.7 8.3 8.6 Trade Payables 7.8 9.7 7.7 11.6
.7 .2 .5 Income Taxes Payable .1 .4 .6 1.0
5.1 4.7 6.6 All Other Current 8.5 6.6 5.0 4.2
27.5 24.4 26.9 Total Current 27.3 30.2 26.4 26.1
20.7 20.8 22.2 Long Term Debt 22.2 19.1 23.0 24.0
.8 .5 1.0 Deferred Taxes .3 1.1 .9 1.3
4.9 3.6 3.2 All Other Non-Current 1.8 4.8 2.5 3.4
46.1 50.7 46.7 Net Worth 48.4 44.8 47.1 45.2
100.0 100.0 100.0 Total Liabilities & Net Worth 100.0 100.0 100.0 100.0
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME DATA
100.0 100.0 100.0 Net Sales 100.0 100.0 100.0 100.0
35.8 36.8 34.5 Gross Profit 41.3 26.2 28.0 30.2
28.3 28.5 27.6 Operating Expenses 34.9 21.5 19.7 20.8
7.6 8.3 6.9 Operating Profit 6.4 4.8 8.4 9.4
1.3 .9 .4 All Other Expenses (net) 1.8 .1 -.2 1.6
6.2 7.4 6.4 Profit Before Taxes 4.6 4.6 8.6 7.8
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS
2.6 2.7 2.3 2.5 2.3 2.5 1.9
1.4 1.6 1.6 Current 1.7 1.6 1.4 1.4
1.0 1.1 1.0 1.0 .7 1.0 1.1
- -----------------------------------------------------------------------------------------------------------------------------------
2.0 2.0 1.9 2.2 2.1 1.9 1.4
1.0 1.1 1.1 Quick 1.2 1.1 1.1 .9
.6 .8 .5 .5 .4 .7 .6
- -----------------------------------------------------------------------------------------------------------------------------------
27 13.3 30 12.1 29 12.5 26 14.1 23 15.7 33 11.2 42 8.7
45 8.1 45 8.1 42 8.7 Sales/Receivables 42 8.6 37 9.9 47 7.7 51 7.2
62 5.9 63 5.8 59 6.2 60 6.1 64 5.7 61 6.0 64 5.7
- -----------------------------------------------------------------------------------------------------------------------------------
5 68.1 0 999.8 0 788.8 0 UND 0 999.8 0 UND 26 13.9
26 13.8 23 16.1 27 13.6 Cost of Sales/Inventory 24 15.1 8 45.2 16 22.8 39 9.4
44 8.3 52 7.0 58 6.3 94 3.9 36 10.1 35 10.3 53 6.9
- -----------------------------------------------------------------------------------------------------------------------------------
17 21.0 16 22.9 14 26.9 13 27.6 10 36.5 16 23.1 14 25.7
28 12.9 23 15.6 24 15.1 Cost of Sales/Payables 29 12.5 24 15.3 23 15.6 23 15.6
60 6.1 45 8.2 54 6.8 70 5.2 41 9.0 34 10.6 61 6.0
- -----------------------------------------------------------------------------------------------------------------------------------
7.0 6.0 6.0 6.0 5.2 5.2 8.5
13.4 11.4 11.1 Sales/Working Capital 11.1 11.1 11.2 10.0
-151.2 73.6 -122.6 UND -20.2 NM 57.3
- -----------------------------------------------------------------------------------------------------------------------------------
6.6 10.0 8.6 8.3 11.1 5.8 7.8
(72) 2.5 (75) 3.7 (75) 2.7 EBIT/Interest (21) 2.5 (19) 2.9 (11) 3.0 (11) 2.3
1.5 1.9 1.3 .5 1.0 2.1 1.5
- -----------------------------------------------------------------------------------------------------------------------------------
3.1 5.2 3.5 2.9
(31) 1.8 (30) 2.0 (31) 2.0 Net Profit + Depr., Dep., (10) 2.2
1.0 1.4 1.2 Amort.,/Cur. Mat. L/T/D 1.3
- -----------------------------------------------------------------------------------------------------------------------------------
.8 .8 .7 .6 .7 .5 .8
1.2 1.1 1.0 Fixed/Worth .8 1.0 1.1 1.4
2.1 1.7 2.1 1.6 2.1 1.8 2.8
- -----------------------------------------------------------------------------------------------------------------------------------
.5 .5 .5 .5 .6 .9 .7
1.3 .8 1.2 Debt/Worth .8 1.2 1.5 1.3
3.2 2.2 2.5 2.2 2.5 2.4 3.2
- -----------------------------------------------------------------------------------------------------------------------------------
31.1 31.5 25.9 26.0 32.7 22.4 27.1
(74) 16.1 (76) 16.2 (84) 15.3 % Profit Before Taxes/ (23) 15.2 (22) 13.5 18.3 10.0
7.2 5.4 2.2 Tangible Net Worth -.9 -.7 13.0 4.1
- -----------------------------------------------------------------------------------------------------------------------------------
13.7 14.6 15.1 15.9 16.9 11.3 14.7
7.0 7.2 5.6 % Profit Before Taxes/Total 5.6 3.1 7.3 4.4
2.5 2.8 1.0 Assets -1.1 -1.8 4.5 1.6
- -----------------------------------------------------------------------------------------------------------------------------------
3.9 3.4 4.6 5.0 5.1 4.7 4.3
2.5 2.3 2.6 Sales/Net Fixed Assets 2.5 3.1 2.6 2.7
1.8 1.5 1.8 1.4 2.2 1.9 1.3
- -----------------------------------------------------------------------------------------------------------------------------------
1.8 1.9 1.9 2.3 2.3 1.8 1.4
1.2 1.2 1.3 Sales/Total Assets 1.1 1.6 1.4 1.2
1.0 .9 .9 .8 1.0 .8 .9
- -----------------------------------------------------------------------------------------------------------------------------------
4.9 5.1 4.7 4.5 4.6 4.6 4.8
(72) 7.7 (75) 7.2 (79) 6.9 % Depr., Dep., (20) 8.7 (21) 6.8 (12 6.7 (12) 5.9
11.1 10.7 10.5 Amort./Sales 11.6 10.1 10.4 11.1
- -----------------------------------------------------------------------------------------------------------------------------------
3.5 2.5 3.1 3.1
(26) 4.9 (25) 4.8 (27) 4.8 % Officers', Directors', (10) 4.5
11.5 10.4 9.5 Owners' Comp/Sales 6.5
- -----------------------------------------------------------------------------------------------------------------------------------
572455M 715598M 736209M Net Sales ($) 5637M 45836M 90595M 95424M 221671M 277046M
462487M 606506M 612974M Total Assets ($) 4856M 43291M 70138M 82293M 199005M 213391M
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(C)Robert Morris Associates 1996M = $ THOUSAND MM = $ MILLION
156858
<PAGE> 94
APPENDIX C
STATEMENT OF LIMITING CONDITIONS
<PAGE> 95
STATEMENT OF LIMITING CONDITIONS
1. Neither HVA or its principals have any present or intended interest in
the Company. HVA's fees for this valuation are based on professional
time charges, and are in no way contingent upon the final valuation
figure arrived at.
2. This report is intended only for the specific use and purpose stated
herein. It is intended for no other uses and is not to be copied or
given to unauthorized persons without the direct written consent of HVA.
The value opinion expressed herein is valid only for the stated purpose
and date of the valuation. The report and information and conclusions
contained therein should in no way be construed to be investment advice.
3. HVA does not purport to be a guarantor of value. Valuation is an
imprecise science, with value being a question of informed judgment, and
reasonable persons can differ in their estimates of value. HVA does
certify that this valuation study was conducted and the conclusions
arrived at independently using conceptually sound and commonly accepted
methods of valuation.
4. In preparing the valuation report, we used information provided by the
Company. It has been represented by Company management that the
information is reasonably complete and accurate. We did not make
independent examinations of any financial statements, projections or
other information prepared by Company management which were relied upon
and, accordingly, we make no representations or warranties nor do we
express any opinion regarding the accuracy or reasonableness of such.
5. The valuation conclusions derived herein implicitly assume that the
existing management of the Company will maintain the character and
integrity of the Company through any sale, reorganization, or diminution
of the owners' participation.
6. Publicly available information utilized herein (e.g., economic,
industry, statistical and/or investment information) has been obtained
from sources deemed to be reliable. It is beyond the scope of this
report to verify the accuracy of such information, and we make no
representation as to its accuracy.
7. This engagement is limited to the production of the report, conclusions
and opinions contained herein. HVA has no obligation to provide future
services (e.g., expert testimony in court or before governmental
agencies) related to the contents of the report unless arrangements for
such future services have been made.
8. This valuation report and the conclusions contained herein are
necessarily based on market and economic conditions as they existed as
of the date of valuation.
9. David Dorton, CFA, ASA has met all current certification standards and
is an accredited senior appraiser in good standing of the American
Society of Appraisers, a national organization that
<PAGE> 96
certifies business appraisers. HVA conforms to the Uniform Standards of
Professional Appraisal Practice for purposes of business valuations. HVA
also conforms to the Business Valuation Standards I through IX set forth
by the American Society of Appraisers in September 1992.
<PAGE> 97
APPENDIX D
PROFESSIONAL QUALIFICATIONS
DAVID DORTON, CFA, ASA
<PAGE> 98
DAVID L. DORTON, CFA, ASA
<TABLE>
<S> <C>
PROFESSIONAL DESIGNATIONS Chartered Financial Analyst (CFA)
Accredited Senior Appraiser (ASA)
Senior Member, American Society of Appraisers
ACADEMIC DEGREES B.S., University of Utah, Finance, Magna Cum Laude
M.B.A., University of Utah
EMPLOYMENT HOULIHAN VALUATION ADVISORS
Principal - 1986 to Present
Houlihan Valuation Advisors provides
professional services relative to business
valuations, fairness and solvency opinions,
economic loss analyses, and other valuation
and economic issues. The firm has offices in
Los Angeles, Orange County, San Francisco,
San Carlos, Las Vegas, Salt Lake City,
Denver, Kansas City, Chicago and Atlanta.
WASATCH ADVISORS CONSULTING GROUP
Managing Analyst - 1984 to 1986
Wasatch Advisors provides investment
advisory services. Wasatch Advisors
Consulting Group provided corporate
valuation, financial analysis and consulting
services.
JPS FINANCIAL CONSULTANTS
Financial Analyst - 1981 to 1984
JPS Financial Consultants provided corporate
valuation and financial analysis services.
EXPERIENCE Has valued hundreds of privately held companies and
businesses since 1981, as well as being a financial
consultant for numerous companies. Has prepared
numerous valuation studies, analyzed the relative merits
of merger/acquisition proposals, analyzed and prepared
opinion letters as to the fairness of such proposals,
prepared solvency opinions, prepared ESOP feasibility
studies, and been involved in a wide array of other
financial analysis and consulting activities for
</TABLE>
<PAGE> 99
<TABLE>
<S> <C>
clients. Has served as an expert witness on valuation,
economic and financial matters in federal and state
district courts on numerous occasions.
PROFESSIONAL SOCIETIES Salt Lake City Society of Financial Analysts
American Society of Appraisers, Past President, Salt
Lake City Chapter
Association for Investment Management and Research
OTHER Who's Who of Emerging Leaders in America
Who's Who of Finance
SPEAKING ENGAGEMENTS Has participated in many seminars and has spoken on valuation
issues on numerous occasions.
</TABLE>
<PAGE> 100
APPENDIX E
INTERNAL REVENUE RULING 59-60, 1959-1 CB 237
<PAGE> 101
INTERNAL REVENUE RULING 59-60
SECTION 2031. DEFINITION OF GROSS ESTATE
26 CFR 20.2031-2; Valuation of stocks and bonds (Also Section 2512.) (Also Part
II, Sections 811 (k), 1005
Regulations 105, Section 81.10.)
In valuing the stock of closely held corporations, or the stock of
corporations where market quotations are not available, all other
available financial data, as well as all relevant factors affecting the
fair market value, must be considered for estate tax and gift tax
purposes. No general formula may be given that is applicable to the many
different valuation situations arising in the valuation of such stock.
However, the general approach, methods, and factors which must be
considered in valuing such securities are outlined.
Revenue Ruling 54-77, C.B. 1954-1, 187, superseded.
Section 1. Purpose
The purpose of this Revenue Ruling is to outline and review in general the
approach, methods and factors to be considered in valuing shares of the capital
stock of closely held corporations for estate tax and gift tax purposes. The
methods discussed herein will apply likewise to the valuation of corporation
stocks on which market quotations are either unavailable or are of such scarcity
that they do not reflect the fair market value.
Section 2. Background and Definitions
.01 All valuations must be made in accordance with the applicable
provisions of the Internal Revenue Code of 1954 and the Federal Estate
Tax and Gift Tax Regulations. Sections 2031(a), 2032 and 2512(a) of the
1954 Code (Sections 811 and 1005 of the 1939 Code) require that the
property to be included in the gross estate, or made the subject of a
gift, shall be taxed on the basis of the value of the property at the
time of death of the decedent, the alternate date if so elected, or the
date of gift.
.02 Section 20.2031-1(b) of the Estate Tax Regulations (section 81.10 of
the Estate Tax Regulations 105) and section 25.2512-1 of the Gift Tax
Regulations (section 86.19 of Gift Tax Regulations 108) define fair
market value, in effect, as the price at which the property would change
hands between a willing buyer and a willing seller when the former is
not under any compulsion to buy and the latter is not under any
compulsion to sell, both parties having reasonable knowledge of relevant
facts. Court decisions frequently state an addition that the
hypothetical buyer and seller are assumed to be able, as well as
willing, to trade and to be well informed about the property and
concerning the market for such property.
.03 Closely held corporations are those corporations the shares of which
are owned by a relatively limited number of stockholders. Often the
entire stock issue is held by one family. The result of this situation
is that little, if any, trading in the shares takes place.
1
<PAGE> 102
There is, therefore, no established market for the stock and such sales
as occur at irregular intervals seldom reflect all of the elements of
the representative transaction as defined by the term "fair market
value".
Section 3. Approach to Valuation
.01 A determination of fair market value, being a question of fact, will
depend upon the circumstances in each case. No formula can be devised
that will be generally applicable to the multitude of different
valuation issues arising in the estate and gift tax cases. Often, an
appraiser will find wide differences, he should maintain a reasonable
attitude in recognition of the fact that valuation is not an exact
science. As sound valuation will be based upon all the relevant facts,
but the elements of common sense, informed judgment and reasonableness
must enter into the process of weighing those facts and determining
their aggregate significance.
.02 The fair market value of specific shares of stock will vary as
general economic conditions change from "normal" to "boom" or
"depression," that is, according to the degree of optimism or pessimism
with which the investing public regards the future at the required date
of appraisal. Uncertainty as to the stability or continuity of the
future income from a property decreases its value by increase the risk
of loss of earnings and value in the future. The value of shares of
stock of a company with very uncertain future income from a property
decreases its value by INCREASE the risk of loss of earnings and value
in the future. The value of shares of stock of a company with very
uncertain future prospects is highly speculative. The appraiser must
exercise his judgment as to the degree of risk attaching to the business
of the corporation which issued the stock, but that judgment must be
related to all of the other factors affecting value.
.03 Valuation of securities is, in essence, a prophesy as to the future
and must be based on facts available at the required date of appraisal.
As a generalization, the prices of stocks which are traded in the volume
in a free and active market by informed persons best reflect the
consensus of the investing public as to what the future holds for the
corporations and industries represented. When a stock is closely held,
is traded infrequently, or is traded in an erratic market, some other
measure of value must be used. In many instances, the next best measure
may be found in the prices at which the stocks of companies engaged in
the same or similar line of business are selling in a free and open
market.
Section 4. Factors to Consider
.01 It is advisable to emphasize that in the valuation of the stock of
closely held corporations or the stock of corporations where market
quotations are either lacking or too scarce to be recognized, all
available financial data, as well as all relevant factors affecting the
fair market value, should be considered. The following factors, although
not all-inclusive, are fundamental and require careful analysis in each
case:
2
<PAGE> 103
(a) The nature of the business and the history of the
enterprise from its inception.
(b) The economic outlook in general and the condition and
outlook of the specific industry in particular.
(c) The book value of the stock and the financial condition
of the business.
(d) The earning capacity of the company.
(e) The dividend-paying capacity.
(f) Whether or not the enterprise has goodwill or other
tangible value.
(g) Whether or not the enterprise has goodwill or other
tangible value.
(h) The market price of stocks of corporations engaged in
the same or a similar line of business having their
stocks actively traded in a free and open market, either
on an exchange or over-the-counter.
.02 The following is a brief discussion of each of the foregoing
factors:
(a) The history of a corporate enterprise will show its past
stability or instability, its growth or lack of growth,
the diversity or lack of diversity of its operations,
and other facts needed to form an opinion of the degree
of risk involved in the business. For an enterprise
which changed its form of organization but carried on
the same or closely similar operations of its
predecessor, the history of the former enterprise should
be considered. The detail to be considered should
increase with approach to the required date of
appraisal, since recent events are of the greatest help
in predicting the future; but a study of gross and net
income, and of dividends covering a long prior period,
is highly desirable. The history to be studied should
include but need not be limited to the nature of the
business, its products or services, its operating and
investment assets, capital structure, plant facilities,
sales records and management, all of which should be
considered as of the date of the appraisal, with due
regard for recent significant changes. Events of the
past that are unlikely to recur in the future should be
discounted, since value has a close relations to future
expectancy.
(b) A sound appraisal of a closely held stock must consider
current and prospective economic conditions as of the
date of appraisal, both in the national economy and in
the industry or industries with which the corporation is
allied. It is important to know that the company is more
or less successful that its competitors in the same
industry, or that it is maintaining a stable position
with respect to competitors. Equal or even
3
<PAGE> 104
greater significance may attach to the ability of the
industry with which the company is allied to compete
with other industries. Prospective competition which has
not been a factor in prior years should be given careful
attention. For example, high profits due to the novelty
of its product and the lack of competition often lead to
increasing competition. The public's appraisal of the
future prospects of competitive industries or of
competitors within an industry may be indicated by price
trends in the markets for commodities and for
securities. The loss of the manager of a so-called
"one-man" business may have a depressing effect upon the
value of the stock of such business, particularly if
there is a lack of trained personnel capable of
succeeding to the management of the enterprise. In
valuing the stock of this type of business, therefore,
the effect of the loss of the manager on the future
expectancy of the business and the absence of
management-succession potentialities are pertinent
factors to be taken into consideration. On the other
hand, there may be factors which offset, in whole or in
part, the loss of the manager's services. For instance,
the nature of the business and of its assets may be such
that they will not be impaired by the loss of the
manager's services. Furthermore, the loss may be
adequately covered by life insurance, or competent
management might be employed on the basis of the
consideration paid for covered by life insurance, or
competent management might be employed on the basis of
the consideration paid for the former manager's
services. These, or other offsetting factors, if found
to exist, should be carefully weighed against the loss
of the manager's services in valuing the stock of the
enterprise.
(c) Balance sheets should be obtained, preferably in the
form of comparative annual statements for two or more
years immediately preceding the date of appraisal,
together with a balance sheet at the end of the month
preceding that date, if corporate accounting will
permit. Any balance sheet descriptions that are not
self-explanatory and balance sheet items comprehending
diverse assets or liabilities should be clarified in
essential detail by supporting supplemental schedules.
These statements usually will disclose to the appraiser:
(1) liquid position (ratio of current assets to current
liabilities); (2) gross and net book value of principal
classes of fixed assets; (3) working capital; (4)
long-term indebtedness; (5) capital structure; and (6)
net worth. Consideration also should be given to any
assets not essential to the operation of the business,
such as investments in securities, real estate, etc. In
general, such nonoperating assets will command a lower
rate of return than do the operating assets, although in
exceptional cases the reverse may be true. In computing
the book value per share of stock assets of the
investment type should be revalued on the basis of their
market price and the book value adjusted accordingly.
Comparison of the company's balance sheets over several
years may reveal, among other facts, such developments
as the acquisition of additional production facilities
or subsidiary companies, improvement in financial
4
<PAGE> 105
position, and details as to recapitalizations and other
changes in the capital structure of the corporation. If
the corporation has more than one class of stock
outstanding, the charter or certificate of incorporation
should be examined to ascertain the explicit rights and
privileges of the various stock issues, including: (1)
voting powers, (2) preference as to dividends, and (3)
preference as to assets in the event of liquidation.
(d) Detailed profit-and-loss statements should be obtained
and considered for a representative period immediately
prior to the required date of appraisal, preferably five
or more years. Such statements should show (1) gross
income by principal items; (2) principal deductions from
gross income including major prior items of operating
expenses, interest and other expense on each item of
long-term debt, depreciation and depletion if such
deductions are made, officer's salaries, in total if
they appear to be reasonable are made, officers'
salaries, in total if they appear to be reasonable or in
detail if they seem to be excessive, contributions
(whether or not deductible for tax purposes) that the
nature of its business and its community position
require the corporation to make, and taxes by principal
items, including income and excess profit taxes; (3) net
income available for dividends; (4) rates and amounts of
dividends paid on each class of stock; (5) remaining
amount carried to surplus; and (6) adjustments to and
reconciliation and with surplus as stated on the balance
sheet. With profit and loss statements of this character
available, the appraiser should be able to separate
recurrent from nonrecurrent items of income and expense,
to distinguish between operating income and investment
income, and to ascertain whether or not any line of
business in which the company is engaged is operated
consistently at a loss and might be abandoned with
benefit to the company. The percentage of earnings
retained for business expansion should be noted when
dividend-paying capacity is considered. Potential future
income is a major factor in many valuations of
closely-held stocks, and all information concerning past
income which will be helpful in predicting the future
should be secured. Prior earnings records usually are
the most reliable guide as to the future expectancy, but
resort to arbitrary five- or ten-year averages without
regard to current trends or future prospects will not
product a realistic valuation. If, for instance, a
record of progressively increasing or decreasing net
income is found, then greater weight may be accorded the
most recent years' profits in estimating earning power.
It will be helpful, in judging risk and the extent to
which a business is marginal operations, to consider
deductions from income and net income in terms of
percentage of sales. Major categories of cost and
expense to be so analyzed include the consumption of raw
materials and supplies in the case of manufacturers,
processors and fabricators; the cost of purchased
merchandise in the case of merchants; utility services,
insurance; taxes; depletion or depreciation; and
interest.
5
<PAGE> 106
(e) Primary consideration should be given to the
dividend-paying capacity of the company rather than to
dividends actually paid in the past. Recognition must be
given to the necessity of retaining a reasonable portion
of profits in a company to meet competition.
Dividend-paying capacity is a factor that must be
considered in an appraisal, but dividends actually paid
in the past may not have any relation to dividend-paying
capacity. Specifically, the dividends paid by a closely
held family company may be measured by the income needs
of the stockholders or by their desire to avoid taxes on
the dividend receipts, instead of by the ability of the
company to pay dividends. Where an actual or effective
controlling interest in a corporation is to be valued,
the dividend factor is not a material element, since the
payment of such dividends is discretionary with the
controlling stockholders. The individual or group in
control can substitute salaries and bonuses for
dividends, thus reducing net income and understating the
dividend-paying capacity of the company. It follows,
therefore, that dividends are less reliable criteria of
fair market value than other applicable factors.
(f) In the final analysis, goodwill is based upon earning
capacity. The presence of goodwill and its value,
therefore, rests upon the excess of net earnings over
and above a fair return on the net tangible assets.
While the element of goodwill may be based primarily on
earnings, such factors as the prestige and renown of the
business, the ownership of a trade or brand name, and a
record of successful operation over a prolonged period
in a particular locality also may furnish support for
the inclusion of intangible value. In some instances it
may not be possible to make a separate appraisal of the
tangible and intangible assets of the business. The
enterprise has a value as an entity. Whatever intangible
value there is, which supportable by the facts, may be
measured by the amount by which the appraised value of
the intangible assets exceeds the net book value of such
assets.
(g) Sales of stock of a closely held corporation should be
carefully investigated to determine whether they
represent transactions at arm's length. Forced or
distress sales do not ordinarily reflect fair market
value nor do isolated sales in small amounts necessarily
control as the measure of value. This is especially true
in the valuation of a controlling interest in a
corporation. Since, in the case of closely held stocks,
no prevailing market prices are available, there is not
basis for making an adjustment for blockage. It follows,
therefore, that such stocks should be valued upon a
consideration of all the evidence affecting the fair
market value. The size of the block of stock itself is a
relevant factor to be considered. Although it is true
that a minority interest in an unlisted corporation's
stock is more difficult to sell than a similar block of
listed stock, it is equally true that control of a
corporation, either actual or in effect, representing as
it does an added element of value, may justify a higher
value for a specific block of stock.
6
<PAGE> 107
(h) Section 2031(b) of the Code states, in effect, that in
valuing unlisted securities the value of stock or
securities of corporations engaged in the same or a
similar line of business which are listed on an exchange
should be taken into consideration along with all
factors. An important consideration is that the
corporations to be used for comparisons have capital
stocks which are actively traded by the public. In
accordance with section 2031(b) of the Code, stocks
listed on an exchange are to be considered first.
However, if sufficient comparable companies whose stocks
are listed on an exchange cannot be found, other
comparable companies which have stocks actively traded
in on the over-the-counter market also may be used. The
essential factor is that whether the stocks are sold on
an exchange or over-the-counter there is evidence of an
active, free public market for the stock as of the
valuation date. In selecting corporations for
comparative purposes, care should be taken to use only
comparable companies. Although the only restrictive
requirement as to comparable corporations specified in
the statute is that their lines of business be the same
or similar, yet it is obvious that the consideration
must be given to other relevant factors in order that
the most valid comparison possible will be obtained. For
illustration, a corporation having one or more issues of
preferred stock, bonds or debentures in addition to its
common stock should not be considered to be directly
comparable to one having only common stock outstanding.
In like manner. A company with a declining business and
decreasing market is not comparable to one with a record
of current progress and market expansion.
Section 5. Weight to be accorded Various Factors
The valuation of closely held corporation stock entails the consideration of all
relevant factors as stated in Section 4. Depending upon the circumstances in
each case, certain factors may carry more weight than others because of the
nature of the company's business.
To illustrate:
(a) Earnings may be the most important criterion of value in
some cases whereas asset value will receive primary
consideration in others. In general, the appraiser will
accord primary consideration to earnings when valuing
stocks of companies which sell products or services to
the public; conversely, in the investment or holding
type of company, the appraiser may accord the greatest
weight to the assets underlying the security to be
valued.
(b) The value of the stock of a closely held investment or
real estate holding company, whether or not family
owned, is closely related to the value of the assets
underlying the stock. For companies of this type the
appraiser should determine the fair market values of the
assets of the company. Operating expenses of such a
company and the cost of liquidating, if any,
7
<PAGE> 108
merit consideration when appraising the relative values
of the stock and the underlying assets. The market
values of the underlying assets give due weight to
potential earnings and dividends of the particular items
of property underlying the stock, capitalized at rates
deemed proper by the investing public at the date of
appraisal. A current appraisal by the investing public
should be superior to the retrospective opinion of an
individual for these reasons, adjusted net worth should
be accorded greater weight in valuing the stock of a
closely held investment or real estate holding company,
whether or not family owned, than any of the other
customary yardsticks of appraisal, such as earnings and
dividend paying capacity
Section 6. Capitalization Rates
In the application of certain fundamental valuation factors, such as earnings
and dividends, it si necessary to capitalize the average or current results at
some appropriate rate. A determination or the proper capitalization rate
presents one of the most difficult problems in valuation. That there is no ready
or simple solution will become apparent by a cursory check of the rates of
return and dividend yields in terms of the selling prices of corporate shares
listed on the major exchanges in the country. While variations will be found
even for companies in the same industry. Moreover, the ration will fluctuate
from year to year depending upon economic conditions. Thus, no standard tables
of capitalization rates applicable to closely held corporations can be
formulated. Among the more important factors to be taken into consideration in
deciding upon a capitalization rate in a particular case are: (1) the nature of
the business; (2) the risk involved; and (3) the stability or irregularity of
earnings.
Section 7. Average of Factors
Because valuations cannot be made on the basis of a prescribed formula, there is
no means whereby the various applicable factors in a particular case can be
assigned mathematical weights in deriving the fair market value. For this
reason, no useful purpose is served by taking an average of several factors (for
example, book value, capitalized earnings and capitalized dividends) and basing
the valuation on the result cannot be supported by a realistic application of
the significant facts in the case except by mere chance.
Frequently, in the valuation of closely held stock for estate and gift tax
purposes, it will be found that the stock is subject to an agreement restricting
its sale or transfer. Where shares of a stock were acquired by a decedent
subject to an option reserved by the issuing corporation to repurchase at a
certain price, the option price is usually accepted as the fair market value for
estate tax purposes (see Revenue ruling 54-76, C.B. 1954-1, 194.) However, in
such cases the option price is not determinative of fair market value for gift
tax purposes. Where the option or buy and sell agreement is the result of
voluntary action by the stockholders and is binding during the life as well as
the death of stockholders, such agreement may or may not, depending upon the
circumstances of each case, fix the value for estate tax purposes. However, such
agreement is a factor to be considered, with other relevant factors, in
determining fair market value. Where the
8
<PAGE> 109
stockholder is free to dispose of his shares during life and the option is to
become effective only upon his death, the fair market value is not limited to
the option price. It is always necessary to consider the relationship of the
parties, the relative number of shares held by the decedent, and other material
facts, to determine whether the agreement represents a bona fide business
arrangement or is a device to pass the decedent's shares to the natural objects
of his bounty for less than an adequate and full consideration in money or
money's worth. (In this connection, see Revenue Ruling 157 C.B. 1953-2, 255, and
Revenue Ruling 189, C.B. 1953-2, 294.)
Section 9. Effect on Other Documents
Revenue Ruling 54-77, C.B. 1954-1, 187, is hereby superseded.(1)
- --------
(1) Source: Internal Revenue Bulletin; Cumulative Bulletin 1959-1, January -
June 1959, pp. 237-244.
9
<PAGE> 1
EXHIBIT 99.4
VALUATION
UTAH SERVICE, INC.
AS OF JUNE 30, 1997
PREPARED BY:
HOULIHAN VALUATION ADVISORS
OCTOBER 23, 1997
<PAGE> 2
October 23, 1997
Shareholders
Utah Service, Inc.
35 East 400 South
Springville, Utah 84663
Dear Shareholders:
Attached is the valuation report on Utah Service, Inc. (hereinafter
referred to as "Utah Service" or "the Company"), which Houlihan Valuation
Advisors ("HVA") has completed at your request. The purpose of the report is to
render an opinion as to the fair market enterprise (controlling interest) value
of Utah Service as of June 30, 1997.
The term "fair market value" is defined as that value at which a willing
buyer and willing seller, neither being compelled to act and both being well
informed of the relevant facts and conditions which might be anticipated, would
effect a sale of an asset at "arm's length" on a given date.
Our study was undertaken using widely accepted principles of financial
analysis and valuation. In particular, we observed the principles set forth in
Internal Revenue Ruling 59-60, 1959-1 CB 237. The book/liquidation value,
transaction value, market value, and income value methods of valuation were
utilized in arriving at an estimate of the fair market enterprise value of Utah
Service.
In preparing this valuation, we used information provided by Utah
Service. Company management has represented the information as being reasonably
complete and accurate. We did not make independent examinations of any financial
statements or other information prepared by management which was relied upon
and, accordingly, we make no representations or warranties nor do we express any
opinion regarding the accuracy or reasonableness of such. All of the information
made available to us was carefully analyzed and reasonable attempts were made to
find additional information which would be helpful in this study.
<PAGE> 3
Page 2
Financial projections utilized in the valuation were prepared based on
analysis of the Company's historical operating results and conversations with
Company management. It should be emphasized that forecasting the future is at
best a difficult and tenuous process. There will undoubtedly be disparities
between the projected figures and actual results, since events and circumstances
frequently do not occur as expected, and those disparities may be material.
This report has been prepared for the specific purpose of valuing the
common stock of Utah Service on an enterprise value basis pursuant to and in
anticipation a proposed merger and consolidation into a company to be newly
formed of Utah Service with three other related companies: W.W. Clyde & Company,
Geneva Rock Products, Inc., and Beehive Insurance Agency, Inc. The report is
intended for no other use, and is not to be copied or given to unauthorized
persons without the direct written consent of HVA.
Since valuation is an imprecise science, HVA does not purport to be a
guarantor of value. Value is a question of informed judgment, and reasonable
persons can differ in their estimates of value. HVA does certify that this
valuation study was conducted and the conclusions arrived at independently using
conceptually sound and commonly accepted methods of valuation.
Our study has concluded that a reasonable estimate of the fair market
enterprise value of Utah Service as of June 30, 1997 is $4,550,000 or $841.00
per share, based on 5,413 shares outstanding.
Neither HVA or its principals have any present or intended interest in
Utah Service. HVA's fees for this valuation are based on professional time
charges, and are in no way contingent upon the final valuation figure arrived
at.
It has been a pleasure to perform this analysis for you. We look forward
to serving you in the future.
Houlihan Valuation Advisors
by: David Dorton, CFA, ASA
Accredited Senior Appraiser
<PAGE> 4
TABLE OF CONTENTS
Page
I. PREFACE 1
II. BASIC PRINCIPLES OF VALUATION 2
III. INTRODUCTION 4
A. Purpose 4
B. Scope 4
C. Methodology 4
IV. COMPANY BACKGROUND 6
A. Overview 6
B. Customer Base and Competition 7
C. Employees and Management 8
D. Ownership 8
V. ECONOMIC OVERVIEW AND OUTLOOK 10
A. National - June 1997 10
B. Utah - 1997 15
VI. RETAILING INDUSTRY OVERVIEW 22
A. Demographic Trends and Consumer Attitudes 25
B. Retailing Capital Spending
31
C. The Retail Building Supply Industry 32
VII. FINANCIAL REVIEW 40
VIII. CROSS-SECTIONAL ANALYSIS 45
IX. ESTIMATES OF VALUE 48
A. Nature of the Security 48
1. Control 48
2. Marketability 48
B. Normalization of Earnings 49
1. Regression Analysis 50
2. Past Averages 50
3. Company Projections 51
4. Projected Earnings 51
C. Book/Liquidation Value 52
D. Transaction Value 53
<PAGE> 5
E. Market Value 54
F. Income Value 59
X. SUMMARY AND CONCLUSION 63
XI. EXHIBITS 64
<PAGE> 6
TABLE OF CONTENTS
(continued)
APPENDIX A: Utah Service - Financial Statement Summary
APPENDIX B: Robert Morris Associates Industry Ratios -
Retailers - Hardware
Retailers - Gasoline Service Stations
APPENDIX C: Statement of Limiting Conditions
APPENDIX D: Professional Qualifications
APPENDIX E: Internal Revenue Ruling 59-60, 1959-1 CB 237
<PAGE> 7
1
PREFACE
This valuation study was conducted at the request of the shareholders of
Utah Service, Inc. ("Utah Service" or "the Company") to provide an estimate as
to the fair market enterprise (controlling interest) value of the Company as of
June 30, 1997. In preparing this report, information provided by the Company was
used. Company management has represented the information as being reasonably
complete and accurate, and as fairly presenting the financial position,
prospects and related facts of the Company. Houlihan Valuation Advisors ("HVA")
is not in a position to certify the accuracy of basic data provided by the
Company, and the validity of this valuation study is dependent upon the accuracy
of such data. HVA does certify that conceptually sound methods were used in the
valuation.
<PAGE> 8
2
BASIC PRINCIPLES OF VALUATION
The principles which have governed this analysis provide a basis for the
determination of value where an active market for a company's securities is
lacking. The valuation procedure attempts to analyze the earning power of a
company and the ability of the company to convert this earning power into value.
Earning power is related to the rates of return expected in the financial
markets for various types of investment alternatives, with consideration given
to past history, expected growth rates and risk. This report provides a direct
comparison between Utah Service's operations and those of companies operating in
the same industry. From this comparison, certain reasonable conclusions
concerning the relative financial position and performance of the Company may be
drawn.
Fair market value is that value at which a willing buyer and willing
seller, neither being compelled to act and both being well informed of the
relevant facts and conditions which might be anticipated, would effect a sale of
an asset at "arm's length" on a given date.
The value of securities of a corporation in the hands of its
stockholders and the value of the underlying assets of the corporation are
usually only incidentally related. The value of securities which are freely
traded in a public market is influenced as much by external factors beyond the
control of the company as it is by internal factors within the control of
management. Such external factors include:
a. General economic conditions;
b. Conditions existing within a specific industry (e.g., degree of risk,
stability or rate of growth);
c. Public attitude and investor sentiment toward particular industries and
companies.
<PAGE> 9
3
Fair market value of securities which enjoy an active public market is
determined by actual market quotations on a particular date, unless the market
for a security is affected by some abnormal influence or condition.
Determination of fair market value of securities of a closely held corporation,
however, cannot be determined as precisely, thus creating a need for independent
professional business valuation. Principal weight must be given to evidences of
earning power, book value, dividend paying capacity, financial and competitive
position, and other facts and circumstances which a potential buyer and seller
would consider. Also, prices realized in actual sales of similar companies on or
about the valuation date afford a realistic measure of value.
Professional valuation of a closely held company cannot be considered an
exact science; however, experience has shown that comprehensive and thorough
valuation analyses can generate ranges of value which are reasonable and
relevant.
The various techniques used in this report are based on different
concepts and assumptions. As a result, their application produces a range of
possible values. A single number within that range is given as a reasonable
estimate of value as of the valuation date. It should be emphasized that, as is
the case with publicly traded securities, when expectations for Utah Service
change over time, so does its value. Further, the value of a firm may fluctuate
over time even though its internal operating characteristics remain essentially
unchanged. The securities market places different significance on income and
risk properties of companies as general economic conditions vary.
<PAGE> 10
4
INTRODUCTION
Purpose
The purpose of this report is to determine the fair market enterprise
(controlling interest) value of Utah Service as of June 30, 1997, pursuant to
and in anticipation of a proposed merger and consolidation into a company to be
newly formed of Utah Service with three other related companies: W.W. Clyde &
Company, Geneva Rock Products, Inc., and Beehive Insurance Agency, Inc.
Scope
Both internal and external factors which influence the value of Utah
Service are analyzed and interpreted. Internal factors include the Company's
performance and financial structure, as well as the size and marketability of
the interest being valued. External factors include, among others, the health of
the industry and the position of the Company therein, economic trends, and
conditions in the securities markets.
Methodology
The report first looks at the background and operating characteristics
of Utah Service. It next provides overviews of the national and Utah economies
and the retailing industry, each important as a description of the environment
in which the Company operates. A financial analysis of the Company, as well as a
comparative analysis of the results of the Company with those of the industry,
follows. Finally, the report determines explicit controlling interest values for
the Company's operations via the application of alternative valuation
techniques. Four valuation methods are employed: book/liquidation value,
transaction value, market value (derived from market value ratios of similar
firms), and income value (based on the present value of future benefits). To the
value estimates of the
<PAGE> 11
5
Company's operations as a going concern derived by using the market value and
income value approaches is added the value of the Company's nonoperating assets
in arriving at estimates of the total value of the Company. After considering
the assumptions and relative justification of each valuation method, the results
are synthesized into a final estimate of the fair market enterprise value of the
Company.
<PAGE> 12
6
COMPANY BACKGROUND
Overview
Utah Service was founded in 1938 by W.W. Clyde. The Company was
originally started by Mr. Clyde to service W.W. Clyde & Company, a related heavy
construction firm. The Company owns and operates a hardware store and lumber
yard and an adjacent gasoline station/convenience store, all located at 400
South Main Street in Springville, Utah. The hardware store sells hardware items,
electrical supplies, plumbing fittings and other plumbing items, vanity goods,
building materials, locksets, hand tools, lawn and garden chemicals and
supplies, housewares, appliances, fasteners, paint, industrial supplies,
automotive supplies, auto care products, auto tools, and conveyor belting. Sales
are made directly to retail customers, as well as to building contractors and
retail auto shops. Approximately 70% of hardware sales are made to contractors,
with the remaining 30% made primarily to do-it-yourself homeowners. Similarly,
about 70% of automotive sales are made to retail auto shops, with the remaining
30% to consumers. The lumber yard, located directly to the east of the hardware
store, sells a wide variety of lumber products, primarily to building
contractors. The gasoline station/convenience store, located directly to the
west of the hardware store, sells gasoline and diesel fuel, as well as a variety
of convenience items.
Utah Service was merged with Utah Valley Industrial Supply (a related
company owned by basically the same shareholders) on December 31, 1994. Prior to
that date, the two companies operated out of two separate facilities, Utah
Service out of a 7,000 square foot building and Utah Valley Industrial Supply
out of a 4,000 square foot building, both located where the present facilities
are located. The present hardware store facility was completed in April 1995 at
a total cost of
<PAGE> 13
7
$825,000 (excluding approximately $148,000 in new equipment purchased to equip
the new facility). The facility has a total of 23,500 square feet of space on
the main (retail) floor, with an additional 2,000 square feet of corporate
office space located on the second floor.
The gasoline station/convenience store was entirely remodeled in August
1990. Since then, gasoline sales have gone up significantly, from approximately
35,000 gallons per month before the remodeling to about 180,000 gallons per
month currently, which ranks it as the second highest volume Chevron station in
Utah County. The station sells Chevron gasoline and diesel products exclusively
under an independent dealership arrangement with Chevron.
The hardware store, gasoline station/convenience store, and lumber yard
are all located on a 2.75 acre parcel of land. In addition to the above
facilities, Utah Service also owns two retail buildings located on Main Street
in Springville, which it leases to independent third-party retailers, as well as
a 1.7 acre parcel of land also located in Springville, which is used by the
Company primarily for lumber storage.
Customer Base and Competition
Utah Service sells lumber and hardware to building contractors
throughout the Wasatch Front (primarily Utah, Salt Lake, Wasatch, Summit, and
Juab counties). The Company's retail hardware, lumber and service station market
is largely confined to the Springville/Mapleton area. The Company's customer
base is well diversified, with none of its customers generating more than 10% of
total sales. The Company does little advertising; most of the advertising it
does do is in the form of direct mail and advertisements in the local newspaper.
<PAGE> 14
8
The Company's primary competitors in the lumber business are Anderson
Lumber, Burton Lumber, and BMC West. Until recently, there were two other
competing hardware stores (Kolob Lumber and England Hardware) in Springville.
Both of these stores have shut down, presumably because they were unable to
compete with the Company's new larger store. There are seven other gasoline
stations and/or convenience stores in Springville, which compete with the
Company's Chevron station.
Employees and Management
Utah Service presently has a total of 58 employees (35 full-time and 23
part-time). The Company's key employees are David Cook, President and General
Manager, who has been General Manager of the Company since 1977 and is
responsible for the day-to-day activities of the Company; Scott Kirshbaum,
Assistant General Manager, who has been with the Company for 16 years; Rick
Brailsford, Outside Sales Manager, who has been with the Company for 13 years;
Troy Tucker, Hardware Store Manager, who has been with the Company for two
years; Larry Kosmuch, Accounting Manager, who has been with the Company for 18
years; Roger Christensen, Manager of the Automotive Sales Division, who has been
with the Company for 30 years; and Kris Montoya, Gas Station Manager, who has
been with the Company for two years. David Cook, Scott Kirshbaum, Rick
Brailsford, and Troy Tucker are responsible for inventory purchasing.
Company management feels that it has adequate management succession in
place, with the loss of any of these key employees not having a material
long-term detrimental impact on the Company's operations.
<PAGE> 15
9
Ownership
Utah Service has a total of 5,413 common shares issued and outstanding,
held by 52 shareholders. There are no controlling shareholders; the largest
shareholder is W.W. Clyde Investment, which owns 1,698 shares (or 31.4% of the
total).
<PAGE> 16
10
ECONOMIC OVERVIEW AND OUTLOOK
National - June 1997
To a greater extent than not, it is still the best of all possible
worlds. For example, the economic uptrend, which is now in its seventh year,
gives no sign of drawing to a close, notwithstanding some recent figures that
suggest a moderately slower pace of growth in the months ahead. Inflation, at
both the producer and consumer levels, is still muted, with most price indexes
showing inflation at its lowest sustained levels in three decades. Short- and
long-term interest rates remain relatively low, even after an earlier monetary
tightening maneuver by a worried Federal Reserve Board. Corporate earnings
continue to push higher, buoyed by rising demand and increasing productivity.
And the stock market, an occasional setback aside, is still setting all-time
highs with some regularity.
The status quo, however, doesn't persist indefinitely. Thus, sooner or
later, even the most carefully scripted scenario will come undone, or at least
be modified sufficiently to change the prevailing assumptions. In fact, as noted
above, we may already be seeing the first small cracks in the nation's economic
armor, with recent figures showing an easing in retail sales, a flattening in
industrial production, and a slight diminution in the growth of housing demand.
Then too, while recent inflation figures have been generally reassuring, there
is also no denying that selective pricing pressures are starting to build in the
commodity area, with coffee, oil, and tobacco quotations all up sharply over the
past several weeks. Finally, the Federal Reserve - which attempts to keep the
economy and inflation on an even keel - is currently in a somewhat more cautious
mood than it was three or six months ago. In all, then, with the economy still
apparently in good health, with a few clouds starting to appear in an
<PAGE> 17
11
otherwise bright inflation picture, and with Fed Chairman Alan Greenspan not
backtracking from his earlier warnings about an excess of exuberance in the
stock market, the penalties for the lead bank erring on the side of not lifting
interest rates in the months ahead may now well exceed those for standing pat.
And should the Fed, which saw prior long business expansions (in the 1960s and
1980s) end with a bout of rising inflation, fear a replay and raise rates once
or twice more, economic growth would likely slow sufficiently to put a damper on
corporate profits. The stock market, which is now trading at near-record levels
and at lofty valuations, in part because of the almost uninterrupted growth in
corporate earnings, might then face its first serious test in several years.
The economy put on quite a show during the final three months of 1996,
with real, inflation-adjusted gross domestic product (GDP) advancing at a
scintillating 4.7% rate. The expansion then, to the surprise of many, picked up
additional strength in the opening quarter of 1997, as higher levels of consumer
spending and strength in the construction and industrial sectors helped produce
growth that was close to 6%. Clearly, however, this step-up in economic activity
was unnerving to the Federal Reserve, as the bank presumably saw in this
acceleration the potential to bring about a much higher level of inflation. The
rationale for this point of view is that such strong economic activity would
sooner or later induce shortages of labor, materials, and manufacturing
capacity. These shortages, in turn, would presumably lead to increased pricing
pressures.
The question now is whether or not we will see an encore in the second
quarter. It is not likely that we will, since the retail, manufacturing, and
construction sectors all appear to be leveling off. That having been said,
however, it should also be noted that there is no full-scale retreat in prospect
either. Moreover, such a pullback is not anticipated to take hold in the near
term, given the high levels of
<PAGE> 18
12
consumer confidence and the two-decade low in the unemployment rate. Instead, an
orderly slowing in growth over the next four to six quarters is likely, with GDP
increases averaging between 2.0% and 2.5%. Inflation and interest rates,
meanwhile, should also hold at moderate levels, although with some upward bias.
Corporate profit growth is likely to slow, in the meantime, but not turn down
unless the economy slackens more than is now anticipated.
Peering further out, Value Line projects the above tends to largely
continue, with economic growth and inflation stepping up a bit, to around 3%,
and with interest rates probably not veering appreciably from present levels.
Corporate profits, fueled by increased productivity, additional technological
innovation, and fairly steady growth in demand, are expected to rise at a
mid-to-high single-digit percentage in most years. As always, though, these
long-range projections do not allow for exogenous shocks, such as political
upheavals, military flareups, oil embargoes, or ruinous trade wars, none of
which can be predicted with any degree of assurance as to timing or even
occurrence.
As noted above, the U.S. economy really came on strongly during the
final quarter of 1996 and the opening three months of this year. However, there
are already signs that the economy got off to a rockier start in the second
quarter. For example, retail sales declined in April; auto and truck sales fell
as well; the nation's factories used less of their capacity in the most recent
month; and housing starts, albeit up in the latest survey, were still below
their earlier peak, while building permits, a harbinger of future construction
activity, actually edged downward. All of this having been said, however, the
U.S. economy continues to be remarkably resilient. In fact, with the consumer
continuing to be optimistic and with improving employment figures further
underpinning this confidence, the case for sustained 2.0% - 2.5% growth over the
balance of this year is still quite strong.
<PAGE> 19
13
The inflation news continues to be good as well, with wholesale and
consumer inflation steadfastly holding at modest levels. Moreover, no basic
change in trend over the next year or so is likely, although higher commodity
prices and the ability of certain industries (such as steel) to consistently
raise prices suggest at least an interim upward bias. However, with industrial
raw materials still in adequate supply, with turmoil around the globe at a
minimum, and with the nation's factories, aided by new technology and better
inventory methods, operating without serious production bottlenecks, the
potential for the kinds of energy and industrial materials shortages that
produced rampant price inflation two decades ago is rather limited. Overall,
producer prices are projected by Value Line to rise by 0.5% in 1997 and by 2.2%
in 1998, with consumer prices expected to increase by 2.5% this year and by 2.9%
in 1998. This pattern of restrained inflation is furthermore anticipated to
carry over to the turn of the century.
Interest rates have remained stable, with long-term rates (as
represented by the 30-year Treasury bond) holding within a 6.0% - 8.0% band
during the past several years. This stability is an outgrowth of the absence of
severe pricing pressures. Moreover, with the economy likely to grow more slowly
in the next 12 to 18 months, and with the Fed probably following a slightly
tighter monetary course - in an effort to avoid the need for more drastic action
later on - inflation should stay fairly subdued. All of this suggests that
business spending will not be constrained by high borrowing costs, nor should
potential homebuyers be priced out of the residential market by unaffordable
mortgage rates.
The final factor in sustaining the bull market continues to be rising
corporate income. Profits in certain areas (like semiconductors, computers,
financial services, and pharmaceuticals) have been
<PAGE> 20
14
literally on a several-year-long tear. Overall, profits - backed by strong
demand and better cost management - have now risen for five straight years, with
double-digit percentage growth rather commonplace for much of this period. A
respectable, though quite modest, 5% to 7% increase is likely this year, given
the reasonable first-quarter gains and the solid order and pricing trends
generally now in place. A further, but smaller, 3% to 5% gain is likely in 1998,
as GDP growth slows to perhaps 2%. As the rate of economic improvement steps up
a notch by the close of the century, income growth could quicken moderately as
well.
Buoyed by the best economic and inflation news in a generation, by a
generally neutral to accommodative Fed, and further underpinned by the strongest
profit growth in years, the stock market has been on a virtual six-year-long
joyride. In the process, the Dow Jones Industrial Average has nearly tripled,
surpassing five thousand-point milestones. Further, the trends that have
sustained this long price advance remain in place by and large. Indeed, with few
alternate investments around (e.g., gold, real estate, or art) that offer
anywhere near the historical returns of stocks, many investors continue to look
to the equity market for capital appreciation. And, given the apparently
favorable prospects for the economy, inflation, interest rates, and corporate
profits during the next three to five years, such confidence would seem
warranted, at least on a long-term basis. This good long-term potential aside,
the stock market has come a long way in a very short time. Indeed, at current
historically rich valuation levels, there would seem to be at least the chance
of a market setback at some point. The easy money has likely already been made
this year, and investors will need to exercise restraint until a correction
takes place or profits rise sufficiently to bring valuation levels better into
line. Source: Value Line Investment Survey
<PAGE> 21
15
Utah - 1997
Utah's overall 1996 economic performance was again spectacular. The
state was either the first- or second-fastest job producing state in the nation
for the fourth consecutive year. Favorable interest rates enhanced residential
construction activity, which, when combined with booming commercial building,
contributed significant economic stimulus. The quality of Utah's labor force,
the favorable business and education climate, and the desirable lifestyle
support the favorable economic environment.
The state's 1997 economic outlook remains solid, but forecasted
aggregate growth rates will likely moderate relative to the impressive gains
recorded in 1995 and 1996. 1997 will be the ninth consecutive year of strong
economic growth. There are as yet no serious excess supply or overbuilt
conditions identifiable. A tight labor market and higher employee turnover will
be constraining growth factors. The state's Middle Market Business Index in the
third quarter of 1996 showed sales up 9% and employment gains of 2.5%.
Utah is about to embark upon a huge project to expand and modernize its
transportation infrastructure. Highway and light-rail expenditures are projected
to be $4 billion over the next ten years, to be partially funded through
increased taxes and bonding. The net impact on the local economy is not yet
clear, as disruption to the flow of commerce will partially offset the
stimulative spending effect.
The Utah state government budget in fiscal year 1997 has projected a $24
million surplus and $194 million of additional revenues, following surpluses of
$120 million in fiscal 1994, $72 million in 1995, and $131 million in 1996. Utah
is one of only a handful of states with a solid AAA bond rating.
<PAGE> 22
16
The 2002 Winter Olympics, awarded to Salt Lake City in the summer of
1995, will be extremely important to Utah's economy over the next six years. A
$1 billion Olympic budget, along with the ongoing associated growth in Utah's
winter tourism industry, will be an important sustaining growth factor.
Consumer prices in 1996 along the Wasatch Front rose by 3.9%, compared
with a 1995 annual increase of 4.9% and a 1994 increase of 4.2%. The 1996
second-quarter ACCRA cost of living index as a percent of the national average
was 96.9% in Salt Lake City/Ogden, 102.3% in Provo/Orem, 106.2% in Logan, 94.7%
in Cedar City, and 103.7% in St. George.
Utah's population is projected to reach 2,043,000 in 1997, an increase
of 42,000 people, or 2.1%, from the 1996 figure. Population growth in 1996 of
43,000 people, or 2.2%, was below the 2.6% increase experienced in 1995. The
1996 gain was, nevertheless, the third-fastest nationally, behind Nevada and
Arizona. 1996 was the third consecutive year in which the state's population
increase was equal to or less than the number of new jobs. Net in-migration is
expected to slip only modestly to 13,000 people in 1997 from the 1996 figure of
13,400. Net in-migration occurred for the sixth consecutive year in 1996;
however, the 1996 figure was the smallest annual total during the six year
period. The total net in-migration for the six year period was 108,000, with an
average annual growth of 18,000. In 1996, net in-migration accounted for 31% of
the total population gain, a somewhat smaller proportion than the 40% average of
the prior three years. The number of households in Utah during 1996 was
estimated to be 640,000, with an average of 3.13 persons per household.
<PAGE> 23
17
Utah's personal income is projected to reach $41.5 billion in 1997, or
an increase of 7.7% from the 1996 figure, following gains of 8.2% in 1996, 9.4%
in 1995, and 8.5% in 1994. The 1997 personal income gain should be only
moderately below the highly favorable 1996 growth performance. The state's 1997
personal income growth will likely keep it among the top five in the nation. The
state's 1996 second quarter personal income gain of 8.6% ranked Utah
third-highest nationally, well above the national average growth rate of 5.5%.
Average personal income growth in Utah during the 1991-95 period was 8.1%,
compared with the national average of 5.5%. This ranked the state third in
personal income growth during the period, behind only Nevada and Arizona.
Preliminary data shows that Utah's 1996 average wages rose by
approximately 4.1%, exceeding the 3.7% increase in 1995. However, entry-level
wages and certain industrial segments (particularly technology and
construction-related) are experiencing significant upward wage pressure. Wage
increases will continue in 1997, perhaps at a rate equal to or even exceeding
the 1996 growth rate. Utah's total personal income per household was estimated
at $60,150 in 1996, approximately 92% of the national average. Per capita
personal income in the state during 1996 was $19,289, or 80% of the national
average, up from 73% in 1989.
Utah is expected to generate 41,100 new nonagricultural jobs in 1997, an
increase of 4.3% from the 1996 level, following job gains of 48,100 (or 5.3%) in
1996 and 48,300 (or 5.6%) in 1995. The state's 1997 unemployment rate is
expected to average 3.4%, unchanged from the 1996 figure, which was the lowest
annual level of unemployment in four decades. Because the statewide unemployment
rate stayed at near 3% for much of 1996, Utah's labor market was very tight,
with significant employee turnover and rising wages. An important business
decision in 1997 will be wage
<PAGE> 24
18
administration, attempting to reward and encourage productivity and efficiency,
while at the same time reducing employee turnover.
Utah's 1996 job growth of 5.3% ranked second to that of Nevada as the
highest in the nation. For the fourth consecutive year, the state's job growth
exceeded 5%, an unprecedented accomplishment in the post-World War II era.
During the 1991-95 period, the state's average annual job growth rate was a
remarkable 5.1%, also second highest nationally. The 1997 forecast gain of 4.3%
is below that five-year trend. During the past five years, 211,000 jobs have
been created in Utah, equivalent to 22% of the 1996 total nonagricultural
employment. The state's labor force participation rate is considerably higher
than the national average, with 83% of the state's men working and 61% of the
state's women working, compared with the national averages of 75% of men and 59%
of women. Accordingly, labor market tightness in several industries will remain
evident in 1997.
New employment gains were diversified in 1996. The construction
employment surge of 12% (or 6,500 new jobs) followed gains of 14% in 1995 and
21% in 1994. A manufacturing jobs gain of 4.4% (or 5,500 jobs) was also very
impressive. Service sector employment rose by 7.2%, while new jobs in trade grew
by 4.8%. Government employment rose by only 1.5% and, as a percentage of total
employment, was only 17% in 1996 compared with 22% in 1986. The state's federal
defense employment of 11,300 jobs was down only 600 jobs, or 5%, from the
previous year. Apparently, most of Utah's defense-related employment reduction
is behind us. Conversion of military facilities to private industry, as is
essentially complete in Tooele and beginning in Ogden, holds the promise of
significant future job growth.
<PAGE> 25
19
Single-family building permits are expected to decrease by 5.1% (or by
775 units) in 1997, totaling 14,500 compared with 15,275 in 1996 and 13,904 in
1995. Total construction value in 1997 is projected to be $3.2 billion, a
decline of 11% from the 1996 figure. The housing financing opportunities appear
to be favorable in 1997. Slower net in-migration and employment growth, together
with some indicators of softening in the housing market in late 1996, should
combine to reduce the number of single-family housing starts by 5%.
Multi-family building permits reached nearly 7,400 units in 1996, a gain
of 15%. Salt Lake apartment vacancy rates apparently edged higher in 1996. In
the second half of the year, apartment rental rates were about 3% higher than in
the prior year. In 1997, construction of perhaps 6,000 apartment units is
expected. While an oversupply of housing is not anticipated, a modestly reduced
annual production in 1997 is appropriate.
Real estate sales value in the Salt Lake City Multiple Listing Service
during the January -November 1996 period was up 0.6% (to $1.37 billion), while
the number of single-family homes and condominiums sold dropped 6% (to 9,616).
Available inventory for sale in November 1996 was up more than 50%. Mortgage
recordings during the first nine months of 1996 for new home and resale
financings were $1.522 billion in Salt Lake County, an increase of 27%; $413
million in Utah County, an increase of 8%; $242 million in Weber County, an
increase of 19%; and $130 million in Washington County, an increase of 16%.
The median existing home sales price during the 1996 third quarter in
the Salt Lake/ Ogden area was $123,100, an increase of 5.3% over the prior year,
compared with a 16% gain in 1995. The average 1996 third-quarter residential
sales price in the Salt Lake multiple listing area was $154,676, a
<PAGE> 26
20
gain of 7.0% from the year-earlier figure; however, that gain narrowed to only
1.2% in November. A First Security Bank analysis of housing affordability in
Salt Lake County, using married filing jointly adjusted gross income, indicated
that affordability in 1995 was generally the same as in 1988. The 1996 second
quarter level of housing costs (ACCRA data) was 94.8% of the national average
for Salt Lake City/Ogden, 114.9% for Provo/Orem, 119.0% for Logan, 84.3% for
Cedar City, and 111.4% for St. George. The state's gross mortgage delinquency
rate was 3.6% in September 1996, down from the year-earlier figure of 3.9% and
slightly below the Mountain States' average of 3.8%.
The commencement of the $4 billion, 10-year highway improvement and
transportation project, combined with numerous other large commercial projects
either announced or underway, should sustain rapid growth in Utah's commercial
construction industry. A high level of construction activity is anticipated in
1997 for all major categories of commercial and industrial space. Commercial
real estate vacancy rates in Salt Lake City in the third quarter of 1996 were
5.3% for office space, 4.4% for retail space, and 3.7% for industrial space.
These rates are extremely low, suggesting the likelihood of additional space
being constructed.
Utah's taxable retail sales are forecast to increase by 6.7% in 1997,
significantly below the 11% gain in 1996 and the 8.1% increase in 1995. New
automobile sales may edge slightly higher in 1996, by 1.2%, following the 5.8%
gain achieved in 1996. During the first 11 months of 1996, there were 278,247
tourism room night bookings that the Salt Lake Area Convention and Visitors
Bureau sold to 292 groups. Plans have been completed for a $100 million retail
shopping mall in Provo, with an expected opening in late 1998. Construction has
begun on the $185 million Little America Hotel/Convention Center expansion.
<PAGE> 27
21
Utah bankruptcies during the first ten months of 1996 jumped by 26%,
following a 12% decline in 1995. Higher debt levels and rising housing costs
contributed to the increase. The consumer credit delinquency rate in Utah
(indirect auto loans) in the third quarter of 1996 was 3.22%, higher than the
2.3% national average and significantly above the state's year-earlier level of
1.79%.
Hotel and motel room tax collections for the January - September 1996
were approximately 6% above those of the prior year. The state's hotel occupancy
rate during the first 11 months of 1996 was 74%, unchanged from the 1995 figure.
Passenger totals at the Salt Lake International Airport rose by 15% during the
first ten months of 1996, following a 5% annual increase in 1995.
In conclusion, Utah's 1997 economic outlook remains highly favorable,
but aggregate economic growth rates likely will not duplicate the extraordinary
gains of the past two years. Interestingly, the modestly slower growth may help
solve Utah's two most evident economic problems: an excessively tight labor
market and escalating single-family home prices.
Source: First Security Corporation
<PAGE> 28
22
RETAILING INDUSTRY OVERVIEW
Retail trade, a category that comprises businesses selling merchandise
for personal use or household consumption, totaled $2.2 trillion in 1994 (latest
data available). This amounted to 61% of the U.S. Gross Domestic Product.
Government statistics break retail trade into two segments - nondurable and
durable goods. Department and general merchandise stores, apparel and accessory
stores, food and drugs stores, and restaurants typically sell nondurable goods.
Nondurable sales totaled $1.1 trillion in 1994, slightly more than twice
the dollar volume of durable goods sales. In 1994, nondurables accounted for 31%
of personal consumption expenditures, and durables for about 15%. Building
materials, automobiles, furniture, and household appliance sales comprise the
bulk of the durable goods category. The balance went toward the purchase of
services, a category that includes everything from medical care to hair styling.
Retailing is also an important source of employment. As retail square
footage grew in the 1970s and 1980s, jobs increased. Between 1970 and 1985, the
number of Americans employed in retail jobs rose by 46%. In subsequent years,
however, the confluence of over-expansion and slower economic growth resulted in
less job creation. From 1985 through 1992, employment in retail trade advanced
by only 12%. This reflects the industry's ongoing consolidation, as big
companies get bigger and swallow the mom-and-pop stores and small chains. With
their deep pockets, these companies are increasing capital expenditures for
computer technology to lower labor costs and increase productivity. The U.S.
Bureau of Labor Statistics forecasts growth in retail employment at 1.6%
annually through 2005.
<PAGE> 29
23
Rocked by changing consumer behavior, the emergence of nimble new
competitors, global economic expansion, and rapid technological advances, the
retailing industry's performance standards have gone up, and its competitive
benchmarks have grown tougher. Retailing these days is hardly business as usual.
Achieving meaningful sales and earnings gains will be a struggle throughout the
balance of this decade - and maybe a lot longer. The difficulties facing
retailers have their roots in the confluence of two trends. First, U.S.
consumers have a wide choice of stores competing for their favor, so the
competitive landscape is red hot. Second, consumer spending is growing slowly as
a result of a modestly growing economy and changing demographic and social
factors. Thus, consumers have more choices where to shop than ever before, but
at the same time have less interest in shopping. All in all, this is not a
pretty picture for retailers.
Maturity in an industry signals a number of important changes in the
competitive environment. One such change is slowing sales gains. For the
category of general merchandise, apparel, and furniture (GAF), sales gains
slowed to an average annual increase of 5.4% from 1990 through 1994, from 7.5%
in the preceding five years (1985 through 1989). Slower sales growth means more
competition for market share. With companies unable to maintain historical
growth rates merely by holding market share, attention has turned toward drawing
business away from the competition. This has resulted in price and promotional
warfare as a method of maintaining and attracting sales. This process is
self-defeating, however. Although sales may get a boost in the short run,
consumers eventually come to expect sale and promotions and hesitate to buy in
their absence. The result for the retailer is lost income and credibility.
<PAGE> 30
24
Another measure of an industry's maturity is capacity. In retailing,
this is measured by the amount of retail space available. America currently
boasts some 18 square feet of retail space for every man, woman, and child in
the country - more than sufficient for the present and enough to accommodate any
reasonable population growth in the future. One result of this overcapacity is a
slowdown in new regional shopping mall construction. During the 1970s, about 25
new regional shopping centers opened in a typical year; that pace slowed to five
malls in 1993 and four in 1994. The total amount of shopping center space
(measured in square feet) increased by just 1.8% in 1994.
In the past, retailers could increase sales simply by opening new
stores. Strong economic growth and vigorous consumer spending made this possible
and feasible. For most of the 1970s and through the mid-1980s, retailers
achieved earnings growth by adding new units and expanding existing stores. The
resultant higher volume meant lower operating costs as a percentage of sales and
enabled retailers to produce solid earnings gains year after year.
Today, however, slower economic growth and a decrease in consumer
spending for such nondurable items as apparel and footwear have put retailers to
the test. Adding new store space only results in declining productivity, on a
sales per square foot basis. In order to secure solid earnings growth in the
future, retailers are closing money-losing and marginal stores and pruning weak
divisions. In response to encroachments on their retail turf and to shrinking
business opportunities for growth in their traditional businesses, companies
have consolidated divisions and invested in technology to drive down costs. But
beyond reducing overhead, retailers face the biggest hurdle of all: consistent
sales gains.
<PAGE> 31
25
When the economy is strong - with solid job prospects and good income
growth consumers are more willing to make purchases. Consequently, retail
analysts monitor a number of key economic indicators, including the unemployment
rate, interest rates, and inflation. In addition, changes in real disposable
income are leading indicators of shifts in spending patterns. When the economy
is weak, some people lose their jobs and other worry about their own job
security. Obviously, this puts a damper on spending. Conversely, when the
economy is strong, consumers spend more freely. The ups and downs of the economy
are reflected in consumer sentiment. Throughout much of the 1980s, for example,
consumers went on a spending binge and increased their borrowings to pay for it.
In 1991 and 1992, however, consumer optimism turned to gloom and paying down
debt became a priority. Consumer spending picked up in 1993 and 1994, as the
economy perked up and new jobs were created. However, retailers are now again
beginning to see a slowdown in sales, in tandem with reduced economic growth.
Consumer sentiment is a gauge that helps to measure and to understand
these shifts in spending patterns. Two widely followed surveys that measure just
how optimistic people are about the future are conducted by the University of
Michigan and the Conference Board. Such surveys are just one gauge that can help
retailers determine consumers' buying plans.
Retailers also stay on top of demographic trends. Changes in population
growth for given age groups are particularly important for retailers targeting a
specific market. Among other key demographic trends, the number of household
formations is of particular importance to retailers of furniture, appliances,
and other household goods.
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26
Demographic Trends and Consumer Attitudes
In retailing, the consumer is always at center stage. As a result,
understanding demographic trends is essential to forecasting demand for consumer
products. For much of the 20th century, Americans have been accustomed to an
increasing population and a growing number of households, both of which create
demand for housing, consumer goods, and services. In recent years, however,
population growth has slowed. Furthermore, powerful demographic forces are
transforming the nation's consumer markets. Both the population and lifestyles
are increasingly diverse. Immigration is fueling population growth, the median
age of Americans is rising, and the "typical" American family barely exists
anymore.
As a result of changing consumer attitudes and shopping patterns, the
marketplace of the 1990s is complex. The retailer that analyzes population
trends and anticipates shifts in attitudes and shopping patterns can develop a
profitable merchandise mix for meeting demand.
The U.S. population totaled about 262 million at the end of 1994. From
an average annual increase of 1.7% in the 1970s, population growth slowed to
less than 1.0% a year in the 1980s. So far in the 1990s, annual gains have
exceeded 1%. But looking at population growth in the aggregate doesn't tell the
whole story. The increase has been fueled by more births than expected
(averaging 4.1 million annually since 1990) and the highest level of immigration
in almost 100 years. To better understand the marketplace, one needs to focus on
the changing age structure of Americans, immigration trends, and geographic
growth.
More has been written about the baby boom generation than any other in
American history. One reason is its sheer size. Over 70 million well-educated
Americans - 30% of the U.S. population -
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27
is a cohort that cannot be ignored. Between 1946 and 1964, the baby boom period,
an average of 4.0 million children were born each year.
As the boomers reached adulthood in the 1970s and 1980s, growth in the
adult population advanced by well over 2% annually. The number of household
formations rose strongly as well: 2.5% annual gains were seen between 1970 and
1980. And since setting up a household is a major expense - involving purchases
of furniture, appliances, and other home goods - the market for consumer goods
soared. This increased spending percolated through many retail sectors.
During the 1990s, the baby boomers will swell the ranks of adults aged
45 to 54, typically the peak earning years. Of course, these are also years when
financial and personal priorities change. For those with college-bound
offspring, tuition payments await. In addition, retirement looms in the
not-too-distant future. Therefore, saving not spending - takes precedence.
By the late 1960s and early 1970s, the annual number of births declined
quite sharply. This was due in large part to women marrying and having children
at a later age. Women who are older when they assume family responsibilities
tend to have fewer children; many also remain in the work force. With fewer
children, expenditures for everyday needs are lower, leaving more dollars
available for discretionary spending.
The relatively small baby bust cohort began reaching adulthood in the
late 1980s. Today, annual growth in the adult population is just over half what
it was in the 1970s and 1980s. Fewer young people reaching adulthood mean fewer
new households being formed. In the past, population growth and increased
household formations boosted retail sales. But from 1990 through 1993, household
formations increased by only 0.8% annually, down two-thirds from the annual
gains
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28
registered between 1970 and 1980. Although the Census Bureau is projecting
an uptick in formations to just over 1% annually through the end of this decade,
the growth will be mostly in single person households, which will give sales
only a tepid boost.
From 1990 through 1994, the number of births in the U.S. averaged 4.1
million a year, up from an average of 3.7 million annually in the preceding
decade. According to the Census Bureau, the population of children under five
years of age reached 19.7 million in 1993, up from 16.3 million in 1980.
Furthermore, the number of Americans aged 65 and older is rising at more than
twice the rate of increase in the general population. By the year 2000, 13% of
Americans will be at least 65 years of age. The U.S. will have even more gray
hairs as we move into the 21st century, and the boomers begin to reach age 65.
True to America's roots, recent population increases have been fueled by
immigration. Between 1990 and 1994, some 4.6 million immigrants came to the
U.S., the highest five-year total since the turn of the century and 31% higher
than in the 1985-89 period, according to American Demographics. Asians and other
races are America's fastest growing minority segment. Ethnic background
influences the way people shop and what they buy. Clearly, understanding these
differences is important for a retailer. Where these new people live is another
consideration. Hispanics and Asians, for example, are more geographically
concentrated than blacks: nearly two-thirds of Hispanics live in Florida, Texas,
and California. 56% of Asians live in California, New York, and Hawaii. These
facts mean that more and more retailers are finding it highly profitable to
engage in micromarketing - tailoring each store's merchandise mix to the
population segment in its trade area. Technology, such as point-of-sale scanning
at the register, simplifies this task.
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29
In retailing, it is axiomatic that location is important. Companies
often target areas where the population is growing, because this translates into
increased sales. Retailers have sophisticated models of the U.S. based on the
Census Bureau's metropolitan statistical areas (MSAs). Companies can plug Census
statistics into their own models of profitability. This helps retailers
determine future expansion plans.
In the United States, the South and West are two areas where rapid
population growth has been the trend for four decades. Of the ten fastest
growing states, eight are in the West. In the Northeast, on the other hand,
population gains have been slight. So, other things being equal, a retailer that
serves areas where the population is growing would be expected to show
above-average sales increases.
According to American Demographics, more and more of America's wealth is
concentrated in the top fifth of households, while the middle class is
stagnating. In 1992 (latest data available), 11% of U.S. households had incomes
of $75,000 or over, up from 5.9% in 1970. Those in the $25,000 to $74,999
bracket dropped to 48% of all households, from 56% in 1970. On an
inflation-adjusted basis, the squeeze of middle income Americans is even more
apparent: real median income of all households rose by only 3.8% in the 22 years
from 1970 through 1992. A recent study sponsored by Merrill Lynch & Co. showed
that the average middle-aged American had about $2,600 in net financial assets,
excluding pensions. No doubt this has contributed to the angry mood of many
Americans.
But drawing the conclusion that retailers should shift gears by
targeting the affluent and selling upscale merchandise is not necessarily the
correct strategy. The strength is in the middle, as retailers such as J.C.
Penney and Sears understand. In 1993, the number of U.S. households totaled 96
million.
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30
Of this total, almost half (some 46 million households) were in the middle
income range ($25,000 to $75,000), versus 11 million in the upper income strata
(above $75,000). Thus, even with lower household income, the middle market has
enormous scale.
The upscale market, however, is not one that should be ignored. The
Conference Board, a New York-based research firm, projects there will be a 35%
rise in the number of households with incomes of $50,000 to $100,000 or more by
the end of the decade, while the number of households with annual earnings of
less than $50,000 will remain about the same. As the well-educated boomers age,
they will account for a large portion of the entire anticipated increase in the
nation's total household income. Some two-thirds of these are husband-wife
families, with the wives in the workforce.
As Americans reassess their expectations about the future, a new mood
has taken hold. It is more than the demographics of an aging population or
middle income Americans' belief that the American dream is fading for their
families. Many diverse trends are converging, the combination of which should
result in slower growth in consumer spending for the balance of the 1990s.
Shopping patterns will reflect a fundamental shift in consumers' attitudes
toward spending, value, convenience, and the attractiveness of traditional
retail outlets.
The retailing buzzword of the 1990s is value. But value is in the eye of
the beholder: it can mean price, quality, service, convenience, or some
combination of all of these. Whatever the definition of value may be, it's clear
that retailers' pricing policies, particularly the institutionalization of
sales, have encouraged consumers to shop for bargains and to distrust
traditional sales and sale prices. According
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31
to a 1993 study by Kurt Salmon Associates, a consulting firm located in New York
City, 95% of the respondents believe that initial markups are set artificially
high to pave the way for future markdowns.
Consumers' attempt to limit the time spent shopping stands out markedly
in recent research. In fact, it is so prevalent that this trend has been dubbed
"precision shopping". Indeed, shopping is now considered a chore rather than a
recreational activity, as it was in the 1980s. The upside of this is that
consumers are spending more on each store visit. Shoppers are more purposeful in
their shopping ventures. With over half of the work force being female, there
are many time-pressured, working mothers. As a result, convenience has become an
important part of a pleasurable shopping experience. This means a full stock of
merchandise, good service (which includes everything from personalized service
to full assortments of well-marked, self-service items), and quick checkout.
Retailing Capital Spending
Today, retailing is a zero-sum game: growth in sales and profits is
achieved primarily at the expense of the competition. Successful retailing now
depends on sophisticated planning and the use of technology. Although retailing
does not require investment in heavy machinery or equipment, capital
expenditures are an important element in the retailer's growth, competitive
position, and maximizing its return on assets. Thus, the current competitive
climate requires that companies be solidly financed and have deep pockets for
investment.
In retailing there are several kinds of capital investments: new stores,
remodels and repairs to existing locations, distribution centers, and new and
upgraded technology. When a retailer is replacing equipment or renovating an
existing location, the financing alternatives available are the same: the
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32
company can pay cash generated from existing operations, borrow the funds, or
lease the equipment. Store expansion, however, presents other alternatives, such
as buying or leasing the real estate, franchising the store, or purchasing
stores from another retailer.
Capital budgeting is usually completed on both an annual basis and with
five-year projections. It is the realization of a company's long-term strategic
plan and outlines such broad goals as acquisition strategy, the number of stores
the market can tolerate, and new store formats to be developed. Objectives are
formulated in the form of quantifiable results. In sum, the capital budget is a
long-range plan for growth and increased profitability.
A company's cash flow - after-tax earnings (cash inflow) plus
depreciation (a non-cash item) - determines how much money can be allocated to
capital expenditures. The amount of cash flow set aside to fund capital
expenditures varies, both by company and by retail segment. Using a department
store as an example, some 60% of cash flow could be allocated to building new
stores and remodeling and upgrading older ones; the balance could be earmarked
for normal operating expenses, interest expense and taxes, dividends, and
increases in working capital. There are no hard and fast rules, however:
companies with strong and steady cash flows can exceed this level. Wal-Mart
Stores, for example, has an aggressive capital expenditure program and puts all
of its cash flow into new store development.
Since investments should contribute to a company's financial results,
each potential new project is subjected to a cost-benefit analysis. After
scrutinizing the projected return on investment (ROI), some projects are
accepted and others rejected. Each company has differing basic assumptions in
its capital expenditure model, based on the expected lives of the assets, cash
flow, and the cost of capital.
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The Retail Building Supply Industry
The retail building supply industry had a tough time in 1996. Early in
the year, retailers were able to attribute some weak same-store sales
comparisons to the brutal winter weather in the East and Midwest. In fact,
stronger sales of products designed for in-home use, as opposed to outdoor
construction materials, indicated that the weather was a big factor. But, while
the second quarter was better, building supply retailers have a new worry from
rising interest rates and their negative effect on housing construction. In more
recent months, sluggish construction markets have been holding back the
industry. The correlation between home construction and retail building supply
industry sales has probably been reduced by the industry's increased emphasis on
home decor and similar products. Still, housing turnover is likely to remain an
important factor for the industry.
Two trends are reshaping the retail building supply industry. First is a
trend toward larger and larger stores, with bigger selections and more
categories of goods. Second is a trend toward expansion among the strongest
regional chains.
Home Depot continues to set the standard for the industry with its
warehouse superstores. The retailer leads the pack in terms of overall sales,
sales-per-store, and profitability. Home Depot is the most aggressive industry
player, expanding in its own existing markets and in other regions. The
traditional method of stocking chain stores through a centralized distribution
center is not disappearing. Lowe's Companies has achieved a successful
turnaround and transformation by sticking to this format. Other retailers in the
industry are attempting to remodel themselves to fit the Home Depot mold. But
many are hampered by inefficient store designs and tired images.
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34
Home Depot has grown in a little more than a decade from a tiny Atlanta
chain to the dominant force in building supply retailing by building more than
500 "big box" warehouse superstores, with additional new ones opening at a pace
of about one every four days. Home Depot's new stores run upwards of 110,000
square feet and carry some 35,000 separate items. The warehouse format
eliminates the traditional "back room", placing merchandise directly on the
sales floor. Also, the retailer has eliminated distribution centers. Instead, it
has merchandise shipped directly from the manufacturer or wholesaler to each
individual store. This process is efficient because of the tremendous volume -
an average of about $750,000 a week - that each store generates. Home Depot made
a rare misstep last year with the creation of a new Crossroads store aimed at
rural markets. The retailer has since merged the division into its existing
geographic segments. Home Depot will continue to add about 90 stores a year in
its existing markets and in new territories.
The warehouse superstore business creates economies of scale, both on
the individual store level and on the chainwide level. For one thing, larger
chains have market power on the buying side. Hence, they are able to extract the
best prices from suppliers. Also, it requires a sophisticated inventory
management and control system to keep a large store properly stocked, so as to
avoid running out of items but also to avoid excess carrying costs. Once such a
computerized system is designed, it is comparatively cheap to install it in each
additional store.
Lowe's Companies has been successful in opening superstores in markets
generally deemed too small for Home Depot or where the competition is otherwise
not as severe. Lowe's operates with a centralized distribution warehouse in each
given region in which it operates. The advantage to Lowe's is that it can
maintain less overall inventory by replenishing several stores out of one
warehouse.
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Lowe's likes to locate near Wal-Mart stores, which serve similar-size
markets but offer a different merchandise mix. Lowe's is opening about one new
store a week.
Other companies in the industry have tried to copy Home Depot, but with
limited success. Smaller retailers are finding it difficult to compete in the
superstore era. Mid-Atlantic based Hechinger has been struggling to reconfigure
its older, company-name stores while also building a new chain, "Home Quarters
Warehouse", that is clearly modeled after the industry leader, Home Depot.
Grossman's, a once-leading building supply retailer in New England, has filed
for bankruptcy protection after closing all of its company-name stores and is
now trying to recreate itself through its Contractors' Warehouse division.
Wolohan Lumber is experimenting with different product mixes to combat the
growing warehouse store competition in its Midwest region.
The retail building supply industry is generally divided into two
segments: professional tradespeople and general consumers. There is considerable
overlap but also some distinct differences between the store features demanded
by professional customers and by general consumers. Professional customers
require ease of access, early opening hours, consistent availability of
commodity materials and supplies, and low prices. Consumers tend to be drawn in
by late and weekend opening hours, availability of "impulse" items, and also by
wide inventories and low prices. To generate the volume necessary to support a
warehouse superstore, Home Depot works to appeal to all customer segments. To
the extent that there is overlap (or at least a lack of contradiction) between
the demands of the two groups, the retailer appeals to both (for example, it
opens early and stays open late). But Home Depot and other consumer-oriented
retailers are unable to meet some of the needs of
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professionals, particularly in regard to specialty items. This means that
companies that focus on specialty items and narrower markets can still prosper
in this environment.
As mentioned above, the outlook for building supplies retailers and
lumber yards (such as those owned by Utah Service) is closely correlated with
the outlook for new residential construction. The housing market has proven
surprisingly resilient on the macroeconomic level despite the moderate upward
trend in mortgage rates, offering further evidence that it takes some time for
higher rates to stifle housing demand. On the other hand, with fixed 30-year
commitments now hovering modestly above 8%, mortgage rates are still favorable
by historical comparison.
Despite the fact that May 1996 new home sales jumped by 7.5%, the latest
company-specific data provide a less bullish picture of housing demand. Most
builders indicate that new-order growth is definitely slowing, with flat to
slightly down order comparisons reported for June. This development is largely a
product of two factors. For one, mortgage rates are now more than a full
percentage point higher than they were at the start of the year. For another,
most homebuilders faced very difficult order comparisons with the prior year.
Several builders reported record backlogs going into the second quarter
of 1996. As such, despite the recent slowdown in new orders, relative
performance of homebuilders is likely to remain quite favorable at least through
the next couple of quarters. However, 1997 could be a different story. If
mortgage rates continue to drift higher and order growth continues to stall,
earnings for homebuilders could be down significantly in 1997. Any tangible
signs of either an accelerating economy or inflation would more likely than not
send interest rates higher. Such a scenario would definitely undermine the
future profitability of homebuilders.
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Another factor that affects demand for new housing is employment growth
and consumer uneasiness about employment prospects and job security. Ever since
recessionary conditions kicked off the 1990s, corporate America has been
aggressively consolidating operations, cutting expenses, and lopping positions
off the payroll. Despite the overall employment gains in recent years, worker
have grown more uneasy about the general employment picture. As such, they are
more likely to hesitate before making home purchases. Slower job creation and
lessening employment security will likely restrict the level of new home sales
in upcoming periods.
Data from the U.S. Census Bureau shows that both birth rates and the
annual number of births declined from the mid-1960s through the mid-1970s.
Because individuals between the ages of 25 and 34 typically account for a large
portion of first-time buyers, homebuilders could logically anticipate fewer
first-time home sales in the 1990s. Despite this theory, Chicago Title & Trust's
Annual Survey declared that the number of first-time buyers climbed in 1994.
This represented both an increase from the 46.0% posted in 1993 and one of the
highest levels recorded since the survey's inception in 1976.
According to Chicago Title, two major factors accounted for this
phenomenon. First, 1994's rising interest rates prodded many first-time buyers
into action out of fear that rates would increase further. In contrast to
"move-up" buyers, who can wait until mortgage rates become more buyer-friendly,
first-time buyers often remain in the market during periods of rising interest
rates because, for many, a home purchase is not entirely a discretionary move.
The second factor is the growing level of immigration to the United States,
which is also quite important to the homebuilding market's long-term strength.
The changes in U.S. immigration laws in 1990 brought about a higher level of
immigration than had been forecast. According to a study conducted in 1994 by
Harvard University's Joint Center
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38
for Housing Studies, the number of U.S. household formations in the 1990s could
actually exceed those of the prior decade, despite the declining numbers of
U.S.-born citizens between the ages of 25 and 34.
Not surprisingly, cost has been established as one of the most important
components of housing demand. Boding well for first-time buyers is the
conclusion by the Joint Center for Housing Studies that housing costs hit a
five-year low during 1994. The study determined that the total annual after-tax
cost of owning a first-time home fell to $5,839 in 1994 from $6,183 in 1993.
This marked the first time since 1980 that annual costs had dropped below
$6,000. Furthermore, housing costs as a percent of income for entry-level buyers
remained unchanged in 1994 at 29.8%, which was its lowest rate since 1978. To
get a better perspective of how favorable that ratio is, in 1982 the percentage
hit its highest rate, at 44.5%.
Despite these positive affordability factors, a variety of barriers
remain. First-time buyers continue to battle the age-old problem of upfront
costs. Assuming a 20% downpayment and typical closing costs, the Harvard study
concluded that an entry-level buyer would need $14,200 to initiate a purchase
motion. But with renters' median net wealth amounting to a mere $2,500 in 1994,
entry-level buyers face a daunting task in undertaking home ownership. The
National Association of Realtors' housing affordability index contains a measure
of the general population's ability to afford the purchase of a home. Based on
interest rates and underwriting standards, the median family income in the
second quarter of 1995 covered 124.4% of the income necessary to purchase a
median-priced home, which was $133,000 in that quarter.
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39
Home prices have changed very little in the last few years. As a result,
most consumers now view home purchases strictly as an acquisition of shelter
rather than an investment. According to figures provided by the National
Association of Realtors, the median sale price of new and existing homes in the
United States was $117,600 in September 1995. This represents only a 4% increase
from the previous year, and a 22% increase from the level reached five years
earlier. To make matters worse, an index prepared by Case Shiller Weiss Inc.
reports that, in inflation-adjusted terms, U.S. home prices actually dropped
more than 10% between the first quarters of 1990 and 1995. Those performances
are a far cry from the 1970s, when median home prices compounded at better than
a 10% annual pace and exceeded inflation by some 50%. Given this data, it would
be logical to believe that many people are apt to continue living in rental
units and might look toward stocks and other financial assets - rather than
homes - for investment.
A second negative condition is the position of the economic cycle. The
homebuilding industry generally experiences its strongest performance upon
emerging from recessionary conditions, because demand tends to accumulate during
periods lacking economic growth. With the economic upturn entering its sixth
year in 1996, however, much of this pent-up demand has already been satisfied.
Although there may still be many existing factors left to drive housing demand,
this low level of pent-up demand could instead play a part in restricting its
growth.
Although the above discussion of the U.S. homebuilding market has been
in general terms, the national market is far from homogeneous; trends vary
widely from region to region. During the last few years, the strongest housing
activity has been in the Rocky Mountain and Sunbelt regions. While
state-by-state factors differ, in recent years those two regions have
experienced the nation's strongest
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40
employment and population growth, stimulating homebuilding booms across the
regions. In addition, many individuals have chosen the warm-weather Sunbelt
states as a place to retire or build a second home. These regions are
anticipated to remain the country's strongest housing markets in upcoming years.
On the other side, the weaker housing markets in recent years have
included the Northeast, which has yet to recover the 1.5 million jobs lost to
slow economic times between 1989 and 1992; the mid-Atlantic, which has suffered
from sluggish employment trends; and southern California, which has not yet
emerged from recessionary conditions and has been further hurt by government
defense industry cuts and a large migration of residents to neighboring states.
Sources: Standard & Poor's Industry Surveys
Value Line Investment Survey
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FINANCIAL REVIEW
The financial performance of Utah Service was generally excellent over
the time period examined in this report, comprised of the six years ended
December 31, 1991 through 1996. Selected financial ratios for the Company are
contained in Exhibit 1; financial statement summaries (including common size and
growth trend analyses) are contained in Appendix A.
As can be seen from Exhibit 1 and Appendix A, Utah Service's sales grew
rapidly over the 1991-95 period, but then declined somewhat in 1996. Sales
increased from $4.68 million in 1991 to $6.90 million (or by 47.4%) in 1992, to
$9.16 million (or by 32.8%) in 1993, to $11.54 million (or by 26.1%) in 1994,
and to $13.58 million (or by 17.7%) in 1995, but then fell slightly to $13.11
million (or by 3.5%) in 1996. Sales averaged $9.83 million over the 1991-96
period, and grew at a compound annual rate of 22.9% during the period.
Hardware, lumber and building sales comprised an average of 71.6% of
total sales over the 1991-96 period. Hardware, lumber and building sales grew
from 66.6% of total sales in 1991 to 70.2% in 1992 and to a peak of 75.7% in
1993, then fell to 73.8% of sales in 1994, 74.1% in 1995, and only 69.5% in
1996. Hardware, lumber and building sales increased at a compound annual rate of
23.9% over the period. Industrial and automotive sales averaged only 6.5% of
total sales over the period, with an even lower 1996 figure of 6.2%. Industrial
and automotive sales increased at a compound annual rate of 15.8% during the
period. Gasoline and diesel fuel sales averaged 19.2% of total sales during the
period, but increased substantially in 1996, from the 1995 figure of 17.6% of
total sales to 21.5% in 1996. Gasoline and diesel fuel sales grew at a compound
annual rate of 22.0% during the period. Finally, grocery and convenience item
sales averaged only 2.5% of total sales over
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the period (similar to the 1996 figure of 2.7%), and grew at a compound annual
rate of 24.0% during the period.
One adjustment has been made to the reported net income of Utah Service
in each year of the 1991-96 period. Since the methodology employed in this
report estimates the value of Utah Service by adding to the value of the
Company's operations the value of its nonoperating assets, the income generated
by these nonoperating assets (e.g., rental income) has been eliminated from the
reported net income of the Company in each year of the period. This adjustment
is made so that the value of these nonoperating assets is not double-counted.
As was the case with sales, Utah Service's adjusted net income increased
significantly over the 1991-96 period. Adjusted net income grew from $154,800 in
1991 to $286,700 (or by 85.2%) in 1992, to $353,800 (or by 23.4%) in 1993, and
to a period high figure of $454,700 (or by 28.5%) in 1994, fell to $341,100 (or
by 25.0%) in 1995, then increased again to $410,200 (or by 20.3%) in 1996.
Adjusted net income averaged $333,600 over the 1991-96 period, and grew at a
compound annual rate of 21.5% during the period, virtually identical to the
compound annual growth rate in sales over the period of 22.9%.
The Company's adjusted cash flow from operations (or adjusted net income
plus non-cash depreciation expense) likewise increased from $202,500 in 1991 to
$347,600 (or by 71.7%) in 1992, to $438,200 (or by 26.1%) in 1993, and to
$536,600 (or by 22.5%) in 1994, fell to $471,100 (or by 12.2%) in 1995, then
improved to $538,200 (or by 14.2%) in 1996. Adjusted operating cash flow
averaged $422,400 over the 1991-96 period, and grew at a compound annual rate of
21.6% during the
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43
period, virtually identical to both the compound annual growth rate in adjusted
earnings over the period of 21.5% and the compound annual growth rate in sales
over the period of 22.9%.
Utah Service's gross profit margin declined over the 1991-95 period,
from 18.0% in 1991 to 17.0% in 1992, 16.0% in 1993, 15.2% in 1994, and 14.3% in
1995, but then improved to 16.7% in 1996. The Company's gross margin averaged
16.2% over the 1991-96 period. Gross margin for the hardware store declined from
15.7% in 1991 to 15.0% in 1992, 14.0% in 1993, 13.2% in 1994, and 12.6% in 1995,
but then improved to 14.4% in 1996, similar to the period average figure of
14.1%. Gross margin for the gasoline/convenience store was very low throughout
the period, declining from 2.3% in 1991 to 2.0% in both 1992 and 1993, 1.9% in
1994, and 1.8% in 1995, before improving back to 2.3% in 1996. Gasoline/
convenience store gross margin averaged 2.1% over the 1991-96 period.
Utah Service's operating expenses as a percent of sales fell from 15.9%
in 1991 to 12.6% in 1993, 10.8% in 1994, and 9.7% in 1995, then increased to
11.0% in 1995 and to 12.4% in 1996. Operating expenses averaged 12.1% of sales
during the 1991-96 period. The Company's operating margin improved from 2.1% in
1991 to 4.4% in 1992, 5.2% in 1993, and 5.5% in 1994, declined to 3.3% in 1995,
then recovered to 4.3% in 1996. Operating margin averaged 4.1% over the 1991-96
period. Interest expense as a percent of sales was negligible over the period,
averaging only 0.1%, with 1995 and 1996 figures of 0.2% (or $22,500 in 1995 and
$28,100 in 1996). Finally, adjusted other income (comprised of service charge
income, discounts earned, and bad debt and miscellaneous income, but excluding
rental income) was significant over the 1991-96 period, averaging $108,700, or
1.3% of sales, during the period. The 1996 figure was even higher, at $124,700.
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Utah Service's total asset turnover ratio, which measures the efficiency
with which the assets of the Company are utilized, increased from 1.8 times in
1991 to 2.3 times in 1992, 2.8 times in 1993, and 3.3 times in 1994, then fell
slightly to 3.2 times in 1995 and to 3.0 times in 1996. Total asset turnover
averaged 2.7 times over the 1991-96 period. Receivables turnover averaged 8.8
times during the period, ranging between 6.9 times (in 1995) and 10.7 times (in
1994), with a 1996 figure of 10.3 times. Inventory turnover grew rapidly over
the 1991-95 period, from 4.6 times in 1991 to 6.6 times in 1992, 8.4 times in
1993, 9.8 times in 1994, and 17.4 times in 1995, but then fell to only 8.4 times
in 1996. Inventory turnover averaged 9.2 times during the 1991-96 period.
Finally, fixed asset turnover increased from 8.6 times in 1991 to 13.1 times in
1992, 17.6 times in 1993, and 22.7 times in 1994, before declining to 10.0 times
in 1995 and 10.4 times in 1996 (with the decline resulting from the significant
increase in the Company's fixed asset base as the new hardware store was
completed and opened in 1995). Fixed asset turnover averaged 13.7 times over the
1991-96 period.
Utah Service's adjusted net margin (adjusted after-tax net income as a
percent of sales) remained relatively stable over the 1991-96 period, at 3.3% in
1991, 4.2% in 1992, 3.9% in both 1993 and 1994, 2.5% in 1995, and 3.1% in 1996.
Adjusted net margin averaged 3.5% during the period. The Company's adjusted
return on assets averaged an excellent 9.5% during the period, with figures of
5.9% in 1991, 9.7% in 1992, 10.8% in 1993, 13.0% in 1994, 8.0% in 1995, and 9.5%
in 1996. Adjusted return on equity averaged 11.3% during the period, with
figures of 6.7% in 1991, 11.5% in 1992, 13.0% in 1993, 14.7% in 1994, 10.3% in
1995, and 11.3% in 1996.
Utah Service's financial risk was very low throughout the 1991-96
period. The Company's total debt as a percent of total assets averaged only
15.9% over the 1991-96 period, with a virtually
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identical 1996 figure of 16.3%. The Company's shareholders' equity as a percent
of total assets was correspondingly very high throughout the period, averaging
84.1%, with a similar 1996 figure of 83.7%. The Company's long-term debt to
equity ratio was only 11.2% in 1995 and 5.5% in 1996, with a 1991-96 period
average figure of only 2.8%; the Company had no long-term debt at all during the
1991-94 period, but incurred some long-term debt in 1995 to build the new
hardware store. The Company's liquidity (current and quick) ratios were
excellent throughout the 1991-96 period, averaging 5.8 times and 3.8 times,
respectively, with similar 1996 figures of 6.1 times and 3.5 times,
respectively. Finally, the Company's adjusted interest coverage ratio was very
high in both 1995 and 1996, at 24.8 times and 24.6 times, respectively; the
Company had no interest expense at all during the 1991-94 period.
As of December 31, 1996 (the date of the most recent balance sheet
available), Utah Service had total assets of $4.32 million, comprised primarily
of $3.06 million (or 70.8% of total assets) in current assets (primarily
accounts receivable of $1.27 million, inventories of $1.30 million, and cash of
$.48 million) and $1.26 million (or 29.1% of total assets) in net depreciated
property, plant and equipment. As of the same date, the Company had current
liabilities of $.50 million, long-term debt of $.20 million, total debt of $.70
million, shareholders' equity of $3.62 million, and positive working capital of
$2.55 million.
Utah Service paid dividends to its shareholders in the amounts of
$162,300 (or 104.8% of earnings) in 1991, $112,400 (39.2%) in 1992, $131,300
(37.1%) in 1993, $111,800 (24.6%) in 1994, $108,300 (31.8%) in 1995, and
$108,300 (26.4%) in 1996. The Company's dividend payout ratio (or dividends as a
percent of net income) averaged 31.8% during the 1992-96 period.
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CROSS-SECTIONAL ANALYSIS
To acquire a better impression of Utah Service's 1996 performance, its
record is compared with the average experience of other hardware retailers with
annual sales of between $10 - $25 million. Financial data on companies in the
hardware retailing industry is collected by Robert Morris Associates,
Philadelphia, Pennsylvania, and published in that company's Annual Statement
Studies (see Appendix B). Although the activities of the companies in the group
may not be totally consistent with those of Utah Service, the information is
nevertheless considered representative of firms engaged in the same types of
activities as the Company. As such, the data provide a reasonable backdrop for a
comparative analysis of the Company's performance.
Exhibit 2 displays selected 1996 statistics for Utah Service and the
average of other hardware retailers. Several differences are evident. The
Company had a somewhat different asset composition when compared with the
industry average, with slightly lower current assets (70.8% vs. 73.9%) and
significantly higher fixed assets (29.1% vs. 14.8%) as a percent of total
assets. The Company had higher cash (11.1% vs. 4.4%) and receivables (29.4% vs.
19.8%), but much lower inventory (30.1% vs. 48.2%) as a percent of total assets
relative to the industry average.
Utah Service had a much less leveraged 1996 capital structure when
compared with the industry average. The Company had much lower current
liabilities (11.7% vs. 41.9%), slightly lower long-term debt (4.6% vs. 7.7%),
and much lower total debt (16.3% vs. 61.1%) as a percent of total assets. The
Company's net worth as a percent of total assets was correspondingly well above
the industry average figure (83.7% vs. 38.9%).
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Utah Service's 1996 gross margin was well below that of the industry
average (16.7% vs. 30.6%). This large disparity is likely primarily a function
of different expense accounting classifications by the Company relative to the
sample group, rather than any extreme differential in the cost/selling price
relationship of the products which the Company sells. It is further a function
of the very low margin gasoline/convenience store operations of the Company. In
any event, this negative gross margin differential was more than offset by the
Company's much lower operating expenses as a percent of sales (12.4% vs. 27.5%),
resulting in the Company's operating margin being somewhat above that of the
industry average (4.3% vs. 3.1%). This differential was further magnified in the
adjusted before-tax return on sales figure by the Company's relatively low level
of interest expense and relatively high level of other income as a percent of
sales, with the Company's adjusted pre-tax net margin of 5.0% being well above
the industry average figure of 2.3%.
Utah Service's 1996 total asset turnover was slightly above that of the
industry average (3.0 times vs. 2.7 times). The Company had similar receivables
turnover (10.3 times vs. 10.7 times), much higher inventory turnover (8.4 times
vs. 3.8 times), and significantly lower fixed asset turnover (10.4 times vs.
29.0 times) relative to the industry average.
The combination of the Company's much higher adjusted pre-tax margin
with its somewhat higher total asset turnover resulted in a 1996 adjusted
before-tax return on asset ratio well above that of the industry average (15.3%
vs. 4.4%). This differential was reduced in the adjusted before-tax return on
equity ratio by the much lower relative level of financial leverage deployed in
the Company's capital structure; still, the Company's figure of 18.3% remained
above the industry average figure of 12.2%.
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Finally, Utah Service's financial risk appears to be well below that of
the industry average, as reflected by the Company's much lower 1996 total debt
to equity ratio (0.2 times vs. 1.7 times), its much higher liquidity ratios
(current ratio of 6.1 times and quick ratio of 3.5 times vs. the industry
average figures of 1.8 times and 0.6 times, respectively), and its much higher
adjusted interest coverage ratio (24.6 times vs. 2.7 times).
In summary, Utah Service's 1996 financial performance appeared to be
generally superior to that of the average firm in the industry in terms of
profitability, asset utilization efficiency, and financial strength.
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ESTIMATES OF VALUE
Four widely recognized approaches are utilized to estimate the fair
market enterprise value of Utah Service as of June 30, 1997: book value
(including liquidation value), transaction value, market value (derived from
market value ratios of similar firms), and income value (based on the present
value of future benefits). As previously stated, the uncertainty inherent in the
valuation process most likely will cause these differing methods of valuation to
produce different estimates of value. Before estimates of value can be made, the
nature of the security being valued and the expected income of the subject
security must be discussed.
Nature of the Security
The value of a security is influenced by many of its characteristics,
including control and marketability.
Control
The market value of public securities normally reflects the minority
interest being traded. The price of a successful tender offer seeking control is
usually higher than previous minority trades and reflects the value of the
premium for control. The purpose of this report is to estimate the fair market
enterprise value of Utah Service. Therefore, a premium for control is
applicable.
Marketability
The market value and income value methods of valuation are based on
comparisons with current values of securities traded on national exchanges.
There are, however, certain marketability differences between Utah Service
securities and publicly traded securities. An owner of publicly traded
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securities can know at all times the market value of his holding. He can sell
that holding on virtually a moment's notice and receive cash net of brokerage
fees within three working days.
Such is not the case with an investment in the common stock of Utah
Service, being a privately held company. There is no ready market for the
Company's common stock, and no assurance of finding a buyer at any price.
Consequently, liquidating a position in the Company could well be a more costly
and time-consuming process than liquidating stock in publicly traded firms.
Therefore, a discount relative to the values of publicly traded securities
should be applied to the value of Utah Service securities to reflect this
limited marketability.
Normalization of Earnings
The reported net income of a typical firm is subject to random
fluctuations as well as external and internal shocks. Thus, some "normalization"
procedure generally must be applied to smooth the data series and reveal the
underlying, stabilized trend in net income. Normalization of net income is
required to project earnings figures to be used in calculating the income value
estimate, as well as in providing a realistic earnings figure to apply the
market value approach to.
Normalization of earnings involves two steps. The first is the
elimination of extraordinary items which impact the firm's earnings but which
are not expected to repeat or persist. As previously mentioned in the Financial
Review section of this report (see page 31), one adjustment has been made to the
reported net income of Utah Service in an attempt to more accurately ascertain
the Company's earnings generating capacity. That adjustment involved elimination
from the reported net income of the Company the rental income generated by the
Company's nonoperating assets in each year of the
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1991-96 period, since the Company is being valued by adding its value as an
operating, going concern to its nonoperating assets. The second step involves
identification of the trend in the normalized earnings to eliminate random
fluctuations in any particular year and to project future expected earnings.
Several procedures are used to normalize and project earnings. These
approaches include statistical trend line and logarithmic analysis of past
earnings (regression analysis), past net margins applied to statistically
derived sales estimates, and Company projections.
Regression Analysis
Regression analysis is a statistical method which fixes a trend line to
actual data over time. Income estimates can be made by extending the trend line
into the future. A trend line correlation coefficient near 1.0 means that there
is a close association between the trend line and the actual data and suggests
that the data have a high degree of predictability. There are two types of trend
lines associated with regression analysis: a linear trend line, which assumes a
constant amount increase for each period; and a logarithmic trend line, which
assumes a constant percentage increase for each period.
Past Averages
The second method of normalizing and projecting income is to use past
averages, both an historical average growth rate and an average net margin.
Essentially, the procedure applies an historical average or expected future net
margin to sales forecasts to derive net income forecasts. The rationale is that
sales tend to be more stable than net income.
<PAGE> 59
53
Company Projections
Income statement projections for the five year period 1997-2001 have
been prepared based on analysis of Utah Service's historical operating results
and conversations with Company management. These projections, together with the
underlying assumptions made in forming them, are contained in Exhibit 3, with
Exhibit 4 showing projected income statement items as a percent of projected
sales and Exhibit 5 reflecting projected income statement item growth rates.
Projected Earnings
The various approaches described above yield a range of prospective net
income figures, which are summarized in Exhibit 6 and graphically depicted in
Exhibit 7. The projections contained in Exhibit 3 are deemed to be the most
reliable estimates as to the future operating prospects of the Company, and are
therefore utilized for valuation purposes. This approach yields projected
earnings estimates for Utah Service of $402,300 for 1997, $433,600 for 1998,
$467,200 for 1999, $503,500 for 2000, and $542,500 for 2001. These figures
translate into earnings per share estimates of $74.32 for 1997, $80.10 for 1998,
$86.31 for 1999, $93.02 for 2000, and $100.22 for 2001, based on 5,413 shares
outstanding. The approach further yields projected free cash flow (defined as
projected net income plus non-cash depreciation expense less capital
expenditures) for the Company of $480,300 for 1997, $511,600 for 1998, $545,200
for 1999, $581,500 for 2000, and $620,500 for 2001.
A graphical comparison of these projected earnings figures for the
1997-2001 period with the actual adjusted earnings generated by the Company over
the 1991-96 period is contained in Exhibit 8. It should be emphasized that
forecasting the future is at best a difficult and tenuous process. There will
<PAGE> 60
54
undoubtedly be disparities between the projected figures and actual results,
since events and circumstances frequently do not occur as expected, and those
disparities may be material.
Book/Liquidation Value
The book value of a company, that is, the carrying balances of the
equity accounts on the company's records, normally bears only a tenuous
relationship to the market value of the firm's stock. A useful accounting
concept, it has a somewhat limited role in the valuation process. For
informational purposes, the book value of Utah Service as of December 31, 1996,
the date of the most recent balance sheet available, was $3,614,500 or $668.00
per share, based on 5,413 shares outstanding.
A common alternative measure of book value is the liquidation value of
the business. A quitting concern concept, it is not entirely applicable to the
valuation of a typical going concern. The value of a company is typically not a
function of what the assets of the company could be sold for (net of
liabilities), but is rather a function of how those assets can be utilized in
generating revenue and net income. Furthermore, given that the Company has been
in existence for some 59 years, it does not appear likely that the Company will
be liquidated in the foreseeable future. Company management has indicated that
it has no plans to liquidate the Company.
Nevertheless, liquidation value does serve a useful role as a valuation
benchmark. At the very least, it approximates the value of the residual assets
distributable to shareholders were the business to be wound up with all
obligations discharged.
Exhibit 9 contains a hypothetical liquidation value schedule for Utah
Service as of December 31, 1996 (the date of the most recent balance sheet
available). Liquidation value is defined as the
<PAGE> 61
55
difference between the realizable value of all assets and the realizable value
of all liabilities, assuming an orderly liquidation of the Company. In reviewing
Exhibit 9, the assumptions that underlie the subjective estimates of the
realization rates are critical. Due care has been taken to keep these
assumptions as reasonable as possible, but precision is not implied. As can be
seen, the liquidation value of Utah Service as of December 31, 1996 is estimated
to be $4,090,000 or $756.00 per share. This figure will be considered in
arriving at a final estimate of the fair market enterprise value of the Company
as of June 30, 1997.
Transaction Value
Transaction value is the value at which shares of the subject security
were sold recently. A recent sale of a security is an indicator of value for
both legal and economic purposes. If an examination of all the relevant facts
reveals that the transaction took place at arm's length, i.e., that neither
buyer nor seller was forced to deal and both had adequate information and that
the transaction was for reasonable consideration, the value established in such
a transaction would be difficult to contest.
We are aware of no recent transactions involving the common stock of
Utah Service, nor of any acquisition offers for the Company. Consequently,
transaction value cannot be considered in arriving at a final estimate of the
fair market enterprise value of the Company as of June 30, 1997.
Market Value
The market value approach attempts to determine the value of Utah
Service as if its shares were traded on an exchange in an active, public market.
This is accomplished by determining a
<PAGE> 62
56
comparative price-earnings ratio, which is the ratio of the market price of a
share of stock to the earnings per share; a comparative price to cash flow
ratio, which is the ratio of the market price of a share of stock to the
operating cash flow (net income plus depreciation) per share; a comparative
price to revenue ratio, which is the ratio of the market price of a share of
stock to the dollar sales per share; and a comparative price to book ratio,
which is the ratio of the market price of a share of stock to the book value per
share. Appropriate ratios for Utah Service can be determined by comparing the
firm with others in the same industry and, from its relative standing in the
industry, inferring market value ratios based on ratios in the industry.
The price-earnings ratio is an important determinant of value because it
reflects the expectations of market participants. Generally speaking, investors
are willing to pay a higher price for today's earnings if they expect those
earnings to grow in the future. Conversely, they will pay a lower price if they
anticipate earnings to decline. Not only is the price-earnings ratio a reading
of the market's psychology, but it also represents the consensus of the market
place as to the worth of a security. This is significant for three reasons.
First, the market is competitive, with participant investors seeking to enhance
their wealth. Second, the market is informed, with investors seeking to deepen
their understanding of the companies and industries in which they have
positions. Finally, the market is rational, since investors act upon the
information acquired to further their objectives. All three factors contribute
much weight to the resulting valuation in spite of imperfections in the market.
Similar arguments can be made for the other market value ratios.
Ideally, market value ratios for Utah Service should be inferred from
ratios of similar firms whose stocks are traded actively in public markets.
Unfortunately, many hardware retailers and
<PAGE> 63
57
gasoline/convenience stores with operations similar to those of Utah Service are
small, closely held businesses for which no market value has been established.
Since these companies are not publicly traded, it is impossible to use them as a
basis for making inferences regarding the market value of Utah Service.
Therefore, a group of much larger, publicly traded hardware/lumber retailing and
gasoline/convenience store chains is selected as being representative of the
industry in which the Company operates.
Exhibit 9 presents the names and brief descriptions of a sample group of
23 companies considered representative of the industry of which Utah Service is
a member. Although these companies obviously differ from Utah Service, the
differences are not of prime significance here, since a direct comparison is not
intended but rather a relative comparison that reflects an aggregate appraisal
of the industry. To the extent that the firms in the industry sample group and
Utah Service are affected by similar fundamental economic factors, investors'
expectations regarding the long-term growth and success of the former are
justifiably imputable to the future of the latter.
In 1996, Utah Service had better profitability ratios when compared with
the average experience of the sample group of public companies. The Company's
adjusted net margin of 3.1% was above the sample group average figure of 2.0%,
as was its adjusted return on assets (9.5% vs. 4.4%) and its adjusted return on
equity (11.3% vs. 9.6%).
Utah Service appears to have lower financial risk when compared with the
average company in the sample group. The Company had a 1996 long-term debt to
equity ratio of only 5.5%, well below the sample group average figure of 77.0%.
Furthermore, the Company's current ratio of 6.1 times was well above the sample
group average figure of 1.6 times, suggesting better relative liquidity.
<PAGE> 64
58
Utah Service's sales increased at a compound annual rate of 22.9% over
the 1991-96 period, well above the average compound annual sales growth rate
experienced by the sample group during the period of 10.6%. However, the
Company's sales declined by 3.5% in 1996, while the sample group generated
average sales growth of 7.6% during the year. The Company's sales are projected
to grow over the 1997-2001 period at a compound annual rate of 6.0%, increasing
from the 1996 figure of $13.1 million to a projected level of $17.5 million in
2001. This projected growth rate is well below the average compound annual sales
growth rate forecast for the companies in the sample group by Value Line
Investment Survey of 10.6% over the next five years.
Utah Service's adjusted net income grew by 20.3% in 1996 and at a
compound annual rate of 21.5% over the 1991-96 period. The sample group likewise
had solid earnings gains over the period, albeit the growth rates were below
those of the Company (at 7.2% during the most recent year and a compound annual
rate of 13.2% over the last five years). The Company's earnings are projected to
grow at a compound annual rate of 5.8% over the 1997-2001 period, from the 1996
figure of $410,200 to a projected level of $542,500 in 2001. This projected
growth rate is well below the average compound annual earnings growth rate
projected by Wall Street analysts over the next five years for the companies in
the sample group of 14.6% (Source: First Call Earnings Estimates).
In summary, Utah Service appears to have slightly inferior overall
investment quality when compared with the publicly traded firms in the sample
group, with its better profitability ratios, lower financial risk, and higher
historical sales and earnings growth being more than offset, in our opinion, by
its much smaller size, its relative absence of geographical diversification, and
its lower future sales and
<PAGE> 65
59
earnings growth prospects (resulting primarily from it being a single-site
location, whereas the companies in the publicly traded sample group are
typically expanding chains).
Exhibit 10 displays the market value ratios of the companies in the
publicly traded sample group as of June 30, 1997. To the sample group's mean
price-earnings ratio of 15.5, mean price to cash flow ratio of 7.4, mean price
to revenue ratio of 31.7%, and mean price to book ratio of 149.8%, a 10%
discount is applied to reflect the inferior overall investment quality of Utah
Service relative to that of the publicly traded firms in the sample group, as
discussed above. To the resulting figures is applied an additional 30% discount
to reflect the lack of marketability of the Company's shares, being privately
held, relative to the ready marketability of the publicly traded shares of the
sample group companies. Finally, a partially offsetting premium of 30% is
applied to the resulting figures to reflect valuation of the Company on an
enterprise value (controlling interest) basis. The result is a net discount of
18% deemed to be applicable to the mean market value ratios of the sample group
in valuing Utah Service on an enterprise value basis.
Application of the resulting adjusted price-earnings ratio of 12.7 to
Utah Service's 1996 adjusted net income of $410,200 (see Appendix A) yields a
market value estimate of $5,209,500. To this figure is added the estimated
after-tax proceeds which would be generated from the sale of the Company's
nonoperating assets (e.g., two retail buildings which are leased out and a 2.67
acre parcel of raw land, all located in Springville, Utah), derived as follows.
The Company has recently received an offer on the two retail buildings in the
amount of $305,000. This offer is assumed to reasonably reflect the fair market
value of these buildings. The parcel of raw land was appraised at $70,000 as of
November 23, 1994 by John Golden Taylor, MAI of Cook, Taylor & Uriona. It is
assumed that this
<PAGE> 66
60
appraised value still reasonably reflects the fair market value of this
property. The land on which the buildings are located was initially acquired by
the Company for $29,500; the depreciated book value of the buildings themselves
is only $1,300. The piece of raw land was initially acquired by the Company at a
cost of $1,400. It is assumed that sale of these properties would trigger
capital gains taxes at a combined federal and state corporate income tax rate of
37%. The combined estimated values of the properties is $375,000 ($305,000 +
$70,000); their tax basis is assumed to be equal to their depreciated book value
of only $43,200 (or $29,500 + $1,300 + $1,400). Consequently, it is estimated
that sale of the properties would trigger income taxes of $125,000 rounded (or
.37 x ($375,000 - $43,200)), resulting in net after-tax proceeds to the Company
from the sale of $250,000. Adding this figure to the above derived
price-earnings value estimate of $5,209,500 yields a market value estimate for
the Company of $5,459,500 or $1,009.00 per share.
Application of the resulting price to cash flow ratio of 6.1 to the
Company's 1996 adjusted cash flow from operations (adjusted net income plus
depreciation) of $538,200 yields a market value estimate of $3,283,000. Adding
to this figure the above derived estimated after-tax proceeds from sale of the
Company's nonoperating assets of $250,000 yields a market value estimate for the
Company of $3,533,000 or $653.00 per share.
Application of the resulting price to revenue ratio of 26.0% to the
Company's 1996 sales of $13,107,900 yields a market value estimate of
$3,408,100. Adding to this figure the estimated after-tax proceeds from sale of
the Company's nonoperating assets of $250,000 yields a market value estimate of
$3,658,100 or $676.00 per share.
<PAGE> 67
61
Finally, application of the resulting price to book ratio of 122.8% to
the Company's December 31, 1996 adjusted book value of $3,571,300 (or reported
book value of $3,614,500 less depreciated book value of the Company's
nonoperating assets of $43,200) yields a market value estimate of $4,385,600.
Adding to this figure the estimated after-tax proceeds from sale of the
Company's nonoperating assets of $250,000 yields a market value estimate of
$4,635,600 or $856.00 per share.
Each of these market value figures is as of June 30, 1997, and each will
be considered in arriving at a final estimate of the fair market enterprise
value of Utah Service as of that date.
Income Value
The income approach to valuation estimates the worth of a company's
stock by determining the present value of the future income stream expected to
accrue to the stockholder. This is accomplished by, first, forecasting the
firm's future income stream and the disposition of such and, second, discounting
it at a rate commensurate with the risk to which it is exposed.
The present value of future income depends on the amount and timing of
that income. Since both the amount and timing are uncertain - income might be
less than expected and/or income might materialize later than expected - this
uncertainty must be quantified and incorporated into a discount rate. Thus,
given the amount and timing of a future income stream, high uncertainty
necessitates a high discount rate and results in a relatively low present value,
while low uncertainty merits a low discount rate and a relatively high present
value.
<PAGE> 68
62
The appropriate discount rate, that is, the minimum rate of return
required by an investor purchasing the firm's shares, must have as its
foundation the yields available on competing financial assets in the public
markets. This follows from the observations noted below.
1. Securities with different risk characteristics provide different rates
of return commensurate with those uncertainties. This hierarchy of risk
and reward furnishes benchmarks from which a suitable discount rate may
be selected for an income stream of known risk properties.
2. A particular investor, due perhaps to his aversion to risk, may find
market returns inadequate at every level of risk. In a competitive
market, however, he is a "price taker" and, as such, is limited to
either investing at the going rates or not investing at all.
3. On the other hand, there will always be a buyer and seller willing to
deal at the market rates, precisely because the market rates represent
the consensus of many investors.
Thus, it is possible to estimate an "objective" valuation of a security
based on a discount rate derived from the market.
Exhibit 11 presents an historical structure of rates of return
observable and available (and, in the long run, "required") on selected classes
of securities. As can be seen, the rate of return required on a typical common
stock is 9.0% above the prevailing rate of inflation (or 14.0%, assuming a
long-term expected inflation rate of 5.0%). An investor would require from his
holding of a controlling interest in Utah Service securities a return estimated
to be 2.0% above the average yield available in the common stock market (or
16.0%). It is reasonable for him to require a premium on the general market
because of industry- and Company-specific risk characteristics (e.g., the
competitive nature of the markets in which the Company is involved, as well as
the cyclical nature of the construction industry, to which the Company sells a
significant amount of its product; the smaller size of the Company; the
<PAGE> 69
63
relative nonmarketability of its shares; its relative absence of geographical
diversification; and the uncertainty relating to its ability to achieve future
projected earnings levels, particularly given the cyclicality inherent in the
construction industry). These risk factors are offset in part by a risk
reduction for valuation of the Company on an enterprise value (controlling
interest) basis.
The estimated required rate of return of 16.0% is a function of the
returns available on the sample group of publicly traded hardware/lumber
retailing and gasoline/convenience store chains referred to in the Market Value
section of this report, as quantitatively estimated by the Capital Asset Pricing
Model and the Gordon Growth Model, plus an additional risk premium for the
Company-specific risk characteristics previously alluded to, less a partially
offsetting risk reduction for valuation on a controlling interest basis.
The income valuation model used is based on the assumption that the
firm's earnings are retained in total and dividend payments deferred until a
specified year when the firm begins paying all of its earnings as dividends and
does so indefinitely into the future. Once these dividend payments begin to
occur, the basis for the firm's internally financed growth ceases. In the
absence of new external financing, the firm reaches a "steady state" and
earnings remain constant indefinitely thereafter, growing only in nominal terms
in step with inflation. While it is not necessary that the firm actually so
behaves, this is a necessary specification for the valuation formula to be
technically correct. Basically, what is being specified is the firm's
dividend-paying ability. Only dividends can correctly be used in the income
valuation approach for a common stock.
If it is assumed that all of Utah Service's future projected free cash
flow (or projected net income plus non-cash depreciation expense less capital
expenditures - see Exhibit 3) will be available to
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64
be paid out as dividends from the valuation date forward, and if it is further
assumed that post-2001 free cash flow will remain constant in real terms, or
will grow in nominal terms at an expected long-term rate of inflation of 5.0%
from the 2001 projected figure of $620,500, an income value estimate of
$4,580,100 is derived. As was the case under the market value approach, to this
figure is added the estimated after-tax proceeds to the Company from the sale of
its nonoperating assets of $250,000, resulting in a total income value estimate
of $4,830,100 or $892.00 per share. This figure will be considered in arriving
at a final estimate of the fair market enterprise value of the Company as of
June 30, 1997.
<PAGE> 71
65
SUMMARY AND CONCLUSION
Four approaches have been utilized to estimate the fair market
enterprise value of Utah Service as of June 30, 1997: book/liquidation value,
transaction value, market value, and income value. The outcomes are summarized
below:
<TABLE>
<CAPTION>
Value
Valuation Method Value Estimate Per Share Weight Contribution
- ---------------- -------------- --------- ------ ------------
<S> <C> <C> <C> <C>
Book Value $3,614,500 $ 668.00 0% $ 0
Liquidation Value $4,090,000 $ 756.00 10% $ 409,000
Market Value:
Price-Earnings $5,459,500 $1,009.00 10% $ 546,000
Price to Cash Flow $3,533,000 $ 653.00 10% $ 353,300
Price to Revenue $3,658,100 $ 676.00 10% $ 365,800
Price to Book $4,635,600 $ 856.00 10% $ 463,600
Income Value $4,830,100 $ 892.00 50% $2,415,100
--- ----------
100%
====
Final Total Value Estimate $4,552,800
==========
Rounded to: $4,550,000
==========
Per Share (5,413 shares outstanding): $ 841.00
==========
</TABLE>
Considering the assumptions of each method and weighing the relative
justifications of each, it is our opinion that a reasonable estimate of the fair
market enterprise value of Utah Service as of June
<PAGE> 72
66
30, 1997 is $4,550,000 or
$841.00 per share, based on 5,413 shares outstanding.
<PAGE> 73
67
EXHIBITS
<PAGE> 74
68
EXHIBIT 1
UTAH SERVICE
SELECTED FINANCIAL RATIOS
<TABLE>
<CAPTION>
1991-96
1991 1992 1993 1994 1995 1996 Average
---- ---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
GROWTH
Sales Growth (%) - 47.4 32.8 26.1 17.7 (3.5) 22.9
Adjusted Net Income Growth (%) - 85.2 23.4 28.5 (25.0) 20.3 21.5
Operating Cash Flow Growth (%) - 71.7 26.1 22.5 (12.2) 14.2 21.6
COST CONTROL
Cost of Goods Sold/Sales (%) 82.0 83.0 84.0 84.8 85.7 83.3 83.8
Gross Margin (%) 18.0 17.0 16.0 15.2 14.3 16.7 16.2
Operating Expenses/Sales (%) 15.9 12.6 10.8 9.7 11.0 12.4 12.1
Operating Margin (%) 2.1 4.4 5.2 5.5 3.3 4.3 4.1
Interest Expense/Sales (%) 0.0 0.0 0.0 0.0 0.2 0.2 0.1
TURNOVER
Sales/Receivables (x) 7.9 8.6 8.2 10.7 6.9 10.3 8.8
Cost of Sales/Inventory (x) 4.6 6.6 8.4 9.8 17.4 8.4 9.2
Sales/Fixed Assets (x) 8.6 13.1 17.6 22.7 10.0 10.4 13.7
Sales/Total Assets (x) 1.8 2.3 2.8 3.3 3.2 3.0 2.7
PROFITABILITY
Adjusted Net Margin (%) 3.3 4.2 3.9 3.9 2.5 3.1 3.5
Adjusted Return on Assets (%) 5.9 9.7 10.8 13.0 8.0 9.5 9.5
Adjusted Return on Equity (%) 6.7 11.5 13.0 14.7 10.3 11.3 11.3
Dividend Payout (%) 104.8 39.2 37.1 24.6 31.8 26.4 44.0
RISK
Total Debt/Total Assets (%) 11.1 15.9 17.1 12.1 22.8 16.3 15.9
Shareholders' Equity/Total Assets (%) 88.9 84.1 82.9 87.9 77.2 83.7 84.1
Long-Term Debt/Equity (%) 0.0 0.0 0.0 0.0 11.2 5.5 2.8
Current Ratio (x) 7.1 5.1 4.9 7.0 4.8 6.1 5.8
Quick Ratio (x) 4.2 3.3 3.3 4.7 3.7 3.5 3.8
Adjusted Interest Coverage (x) NI NI NI NI 24.8 24.6 24.7
Sales Correlation 0.970
Adjusted Net Income Correlation 0.784
Operating Cash Flow Correlation 0.891
</TABLE>
NI = no interest expense
<PAGE> 75
69
EXHIBIT 2
SELECTED STATISTICS FOR UTAH SERVICE
AND OTHER HARDWARE STORES
<TABLE>
<CAPTION>
Median
of Other
Utah Service(a) Companies(b)
--------------- ------------
<S> <C> <C>
Number of Companies 1 25
Total Assets ($000's) 4,318 6,058
BALANCE SHEET ITEMS
Current Assets as a % of Assets 70.8 73.9
Cash as a % of Assets 11.1 4.4
Accounts Receivable as a % of Assets 29.4 19.8
Inventory as a % of Assets 30.1 48.2
Net Fixed Assets as a % of Assets 29.1 14.8
Current Liabilities as a % of Assets 11.7 41.9
Long-Term Debt as a % of Assets 4.6 7.7
Total Debt as a % of Assets 16.3 61.1
Net Worth as a % of Assets 83.7 38.9
INCOME STATEMENT ITEMS
Annual Sales ($000's) 13,108 14,100
Gross Profit as a % of Sales 16.7 30.6
Operating Expenses as a % of Sales 12.4 27.5
Operating Income as a % of Sales 4.3 3.1
Adjusted Income Before Tax as a % of Sales 5.0 2.3
TURNOVER RATIOS
Accounts Receivable Turnover (x) 10.3 10.7
Inventory Turnover (x) 8.4 3.8
Fixed Asset Turnover (x) 10.4 29.0
Total Asset Turnover (x) 3.0 2.7
PROFITABILITY
Adjusted Before-Tax Return on Assets (%) 15.3 4.4
Adjusted Before-Tax Return on Equity (%) 18.3 12.2
RISK
Current Ratio (x) 6.1 1.8
Quick Ratio (x) 3.5 0.6
Adjusted Interest Coverage Ratio (x) 24.6 2.7
Total Debt/Equity (x) 0.2 1.7
</TABLE>
Notes: (a) Year ended December 31, 1996
(b) Fiscal years ended April 1, 1995 through March 31, 1996
Source: Annual Statement Studies, 1996 edition, Robert Morris Associates,
Philadelphia, PA
<PAGE> 76
70
EXHIBIT 3
UTAH SERVICE
PROJECTED INCOME STATEMENTS
(in $000's)
<TABLE>
<CAPTION>
For Year Ending December 31:
1997 1998 1999 2000 2001
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
SALES 13,894.4 14,728.0 15,611.7 16,548.4 17,541.3
COST OF GOODS SOLD 11,643.5 12,342.1 13,082.6 13,867.6 14,699.6
-------- -------- -------- -------- --------
GROSS PROFIT 2,250.9 2,385.9 2,529.1 2,680.8 2,841.7
OPERATING EXPENSES 1,708.9 1,794.3 1,884.0 1,978.2 2,077.1
-------- -------- -------- -------- --------
INCOME FROM OPERATIONS 542.0 591.6 645.1 702.6 764.5
INTEREST EXPENSE 28.1 28.1 28.1 28.1 28.1
OTHER INCOME 124.7 124.7 124.7 124.7 124.7
-------- -------- -------- -------- --------
EARNINGS BEFORE TAX 638.6 688.2 741.7 799.2 861.1
INCOME TAX 236.3 254.6 274.4 295.7 318.6
-------- -------- -------- -------- --------
NET INCOME 402.3 433.6 467.2 503.5 542.5
======== ======== ======== ======== ========
ADD: DEPRECIATION EXPENSE 128.0 128.0 128.0 128.0 128.0
LESS: CAPITAL EXPENDITURES (50.0) (50.0) (50.0) (50.0) (50.0)
-------- -------- -------- -------- --------
FREE CASH FLOW 480.3 511.6 545.2 581.5 620.5
======== ======== ======== ======== ========
</TABLE>
<PAGE> 77
71
EXHIBIT 3
(continued)
UTAH SERVICE
ASSUMPTIONS TO PROJECTED INCOME STATEMENTS
1. Sales are assumed to grow at a compound annual rate of 6.0% from the
1996 figure of $13,107,900 throughout the forecast period. This
projected growth rate is well below the compound annual sales growth
rate experienced by the Company over the 1991-96 period of 22.9%, but is
above the 1996 sales decline of 3.5%.
2. Cost of goods sold is assumed to remain constant at the 1991-96 average
figure of 83.8% of sales throughout the forecast period.
3. Operating expenses are assumed to grow at a compound annual rate of 5.0%
from the 1996 figure of $1,627,500 throughout the forecast period.
4. Interest expense is assumed to remain constant at the 1996 figure of
$28,100 throughout the forecast period.
5. Other income (comprised primarily of service charge income and discounts
earned, but excluding rental income) is assumed to remain constant at
the 1996 adjusted figure of $124,700 throughout the forecast period.
6. Income tax is assumed to remain constant at a combined federal and state
corporate income tax rate of 37% of projected pre-tax earnings
throughout the forecast period.
7. Free cash flow is defined as net income plus non-cash depreciation
expense less capital expenditures. Depreciation expense is assumed to
remain constant at the 1996 figure of $128,000 throughout the forecast
period. Capital expenditures are assumed to remain constant at the
1992-96 average figure (excluding 1995, when capital expenditures of
$996,400 were incurred, primarily to build the new hardware store) of
$50,000 throughout the forecast period. Capital expenditures during
these years remained relatively constant, at $47,100 in 1992, $54,000 in
1993, $73,200 in 1994, and $26,100 in 1996.
<PAGE> 78
72
EXHIBIT 4
UTAH SERVICE
PROJECTED INCOME STATEMENT ITEMS AS A % OF PROJECTED SALES
<TABLE>
<CAPTION>
For Year Ending December 31:
1997-2001
1997 1998 1999 2000 2001 Average
----- ----- ----- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
SALES 100.0 100.0 100.0 100.0 100.0 100.0
COST OF GOODS SOLD 83.8 83.8 83.8 83.8 83.8 83.8
----- ----- ----- ----- ----- ---------
GROSS PROFIT 16.2 16.2 16.2 16.2 16.2 16.2
OPERATING EXPENSES 12.3 12.2 12.1 12.0 11.8 12.1
----- ----- ----- ----- ----- ---------
INCOME FROM OPERATIONS 3.9 4.0 4.1 4.2 4.4 4.1
INTEREST EXPENSE 0.2 0.2 0.2 0.2 0.2 0.2
OTHER INCOME 0.9 0.8 0.8 0.8 0.7 0.8
----- ----- ----- ----- ----- ---------
EARNINGS BEFORE TAX 4.6 4.7 4.8 4.8 4.9 4.8
INCOME TAX 1.7 1.7 1.8 1.8 1.8 1.8
----- ----- ----- ----- ----- ---------
NET INCOME 2.9 2.9 3.0 3.0 3.1 3.0
===== ===== ===== ===== ===== =========
ADD: DEPRECIATION EXPENSE 0.9 0.9 0.8 0.8 0.7 0.8
LESS: CAPITAL EXPENDITURES (0.4) (0.3) (0.3) (0.3) (0.3) (0.3)
----- ----- ----- ----- ----- ---------
FREE CASH FLOW 3.5 3.5 3.5 3.5 3.5 3.5
===== ===== ===== ===== ===== =========
</TABLE>
<PAGE> 79
73
EXHIBIT 5
UTAH SERVICE
PROJECTED INCOME STATEMENT ITEM GROWTH RATES (%)
<TABLE>
<CAPTION>
1996-2001
For Year Ending December 31: Compound
Annual
1997 1998 1999 2000 2001 Growth
---- ---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
SALES 6.0 6.0 6.0 6.0 6.0 6.0
COST OF GOODS SOLD 6.7 6.0 6.0 6.0 6.0 6.1
---- ---- ---- ---- ---- ---------
GROSS PROFIT 2.6 6.0 6.0 6.0 6.0 5.3
OPERATING EXPENSES 5.0 5.0 5.0 5.0 5.0 5.0
---- ---- ---- ---- ---- ---------
INCOME FROM OPERATIONS (4.1) 9.2 9.0 8.9 8.8 6.2
INTEREST EXPENSE 0.0 0.0 0.0 0.0 0.0 0.0
OTHER INCOME 0.0 0.0 0.0 0.0 0.0 0.0
---- ---- ---- ---- ---- ---------
EARNINGS BEFORE TAX (3.5) 7.8 7.8 7.8 7.8 5.4
INCOME TAX (6.1) 7.8 7.8 7.8 7.8 4.8
---- ---- ---- ---- ---- ---------
NET INCOME (1.9) 7.8 7.8 7.8 7.8 5.8
==== ==== ==== ==== ==== =========
ADD: DEPRECIATION EXPENSE 0.0 0.0 0.0 0.0 0.0 0.0
LESS: CAPITAL EXPENDITURES 91.6 0.0 0.0 0.0 0.0 13.9
---- ---- ---- ---- ---- ---------
FREE CASH FLOW (6.2) 6.5 6.6 6.6 6.7 3.9
==== ==== ==== ==== ==== =========
</TABLE>
Note: Projected growth rates are from 1996 adjusted income statement data (see
Appendix A)
<PAGE> 80
74
EXHIBIT 6
UTAH SERVICE
NORMALIZED AND PROJECTED NET INCOME
<TABLE>
<CAPTION>
-------Net Income------- Implicit
(in $000's) Compound
Annual
Method 1997 1998 1999 2000 2001 Growth*
- ------ ---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Regression Analysis:
net income trend line 439.6 463.0 486.5 509.9 533.3 5.4%
net income log trend line 447.4 479.0 512.7 548.8 587.5 7.4%
Past Averages:
1991-96 average adjusted
net margin of 3.5% applied
to projected sales 486.3 515.5 546.4 579.2 613.9 8.4%
Company Projections 402.3 433.6 467.2 503.5 542.5 5.8%
Final Projected Net Income 402.3 433.6 467.2 503.5 542.5 5.8%
Per Share ($0.00) 74.32 80.10 86.31 93.02 100.22 5.8%
</TABLE>
* from fiscal 1996 adjusted net income figure of $410,200
<PAGE> 81
75
<PAGE> 82
76
<TABLE>
EXHIBIT 7
GENEVA ROCK PRODUCTS
INCOME PROJECTION ESTIMATES
<CAPTION>
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Trend 439.6 463 486.5 509.9 533.3
Log Trend 447.4 479 512.7 548.8 587.5
Past Avgs. 486.3 515.5 546.4 579.2 613.9
Final 402.3 433.6 467.2 503.5 542.5
</TABLE>
[INCOME PROJECTION ESTIMATES CHART]
<PAGE> 83
77
EXHIBIT 8
UTAH SERVICE, INC.
HISTORICAL AND PROJECTED NET INCOME
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Income 154.8 286.7 353.8 454.7 341.1 410.2 402.3 433.6 467.2 503.5 542.5
</TABLE>
[HISTORICAL AND PROJECTED NET INCOME CHART]
<PAGE> 84
78
EXHIBIT 9
UTAH SERVICE
HYPOTHETICAL LIQUIDATION VALUE SCHEDULE
AS OF DECEMBER 31, 1996
(in $000's)
<TABLE>
<CAPTION>
Book Liquidation
ASSETS Value Value
- ------ ------------ -----------
<S> <C> <C>
CASH (1) 480.0 480.0
ACCOUNTS RECEIVABLE (2) 1,271.2 1,271.2
INVENTORIES (3) 1,298.1 1,298.1
GROSS PROPERTY, PLANT & EQUIPMENT (4) 2,009.6 1,733.2
LESS: ACCUMULATED DEPRECIATION (4) (754.4) 0.0
------------ -----------
NET PROPERTY, PLANT & EQUIPMENT (4) 1,255.2 1,733.2
OTHER ASSETS (5) 13.1 13.1
------------ ------------
TOTAL ASSETS 4,317.6
============
TOTAL ESTIMATED REALIZABLE
VALUE OF ASSETS 4,795.6
============
LIABILITIES AND EQUITY
CURRENT LIABILITIES (6) 505.0 505.0
LONG-TERM DEBT (7) 198.1 198.1
STOCKHOLDERS' EQUITY 3,614.5 0.0
------------ ------------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY 4,317.6
============
TOTAL ESTIMATED REALIZABLE
VALUE OF LIABILITIES 703.1
============
ESTIMATED LIQUIDATION VALUE (rounded) 4,090.0
============
PER SHARE (5,413 shares outstanding) $756.00
============
</TABLE>
Notes: See following page
<PAGE> 85
79
EXHIBIT 9
(continued)
NOTES TO HYPOTHETICAL LIQUIDATION SCHEDULE
(1) Cash is assumed realizable at book carrying value of $480,000.
(2) Accounts receivable are assumed realizable at book carrying value of
$1,271,200.
(3) Inventories consist of store inventories of $1,243,600 and station
inventories of $54,500, and are assumed realizable at aggregate book
carrying value of $1,298,100, per conversations with management.
(4) Property, plant and equipment consists of land, buildings, equipment,
autos and trucks, and surfacing. All of the Company's fixed assets other
than land and buildings are assumed realizable at depreciated book
carrying values totaling $235,500 (or store equipment at $89,900,
station equipment at $47,500, autos and trucks at $43,400, and surfacing
at $54,700). The land on which the Company's operating facilities are
located was appraised at $400,000 as of November 23, 1994 by John Golden
Taylor, MAI of Cook, Taylor & Uriona. It is assumed that this appraised
value still reasonably reflects the fair market value of this property.
The operating facilities of the Company are assumed to have realizable
value equal to their undepreciated initial cost of $1,003,400, since
they were built/remodeled relatively recently. The Company also owns two
retail buildings which are leased out and a 2.67 acre parcel of raw
land, all located in Springville, Utah. The Company has recently
received an offer on the two retail buildings in the amount of $305,000.
This offer is assumed to reasonably reflect the fair market value of
these buildings. The parcel of raw land was appraised at $70,000 as of
November 23, 1994 by Mr. Taylor. It is assumed that this appraised value
still reasonably reflects the fair market value of this property.
Consequently the Company's land and buildings are assumed to have
aggregate fair market value of $1,778,400.
However, liquidation of the Company's land and buildings would trigger
corporate capital gains taxes. The land on which the operating
facilities of the Company are located was initially acquired for
$147,600. The operating buildings have a depreciated book carrying value
of $839,900. The land on which the retail buildings are located was
initially acquired by the Company for $29,500; the depreciated book
carrying value of the buildings themselves is only $1,300. The piece of
raw land was initially acquired by the Company at a cost of $1,400. It
is assumed that liquidation of these properties would trigger capital
gains taxes at a combined federal and state corporate income tax rate of
37%. As previously mentioned, the combined estimated value of the
properties is $1,778,400; their tax basis is assumed to be equal to
their aggregate depreciated book carrying value of $1,019,700 (or
$147,600 + $839,900 + $29,500 + $1,300 + $1,400). Consequently, it is
estimated that liquidation of the properties would trigger income taxes
<PAGE> 86
80
EXHIBIT 9
(continued)
NOTES TO HYPOTHETICAL LIQUIDATION SCHEDULE
of $280,700 (or .37 x ($1,778,400 - $1,019,700)), resulting in net
after-tax proceeds to the Company from the liquidation of these
properties of $1,497,700. Adding this figure to the above derived
estimated value of the Company's other fixed assets (equipment, autos
and trucks, and surfacing) of $235,500 yields a total estimate of net
after-tax proceeds from the liquidation of the Company's fixed assets of
$1,733,200.
It is beyond both the scope of this study and the level of HVA's
expertise to make any independent investigations or verifications as to
the values of the Company's property and equipment or to ascertain the
accuracy or reliability of the real property appraisals prepared by Mr.
Taylor, and nothing contained herein should be construed as doing so. We
have assumed such appraisals to be reasonably accurate, and as still
reasonably reflecting the fair market value of the properties as of the
June 30, 1997 valuation date. HVA is not a real property or equipment
appraisal firm, and does not hold itself out as having any expertise in
these areas. The aforementioned appraisals constitute an integral part
of our valuation analysis.
(5) Other assets consist of prepaid insurance in the amount of $8,100 and
investment in Ace Hardware in the amount of $5,000, and are assumed
realizable in full at these values, totaling $13,100.
(6) Current liabilities consist of accounts payable in the amount of
$379,600, accrued wages and payroll taxes in the amount of $33,900, and
taxes payable in the amount of $91,500. Current liabilities are assumed
payable in full at book carrying values aggregating $505,000.
(7) The Company has long-term debt comprised of a note payable in the amount
of $198,100, which is assumed payable in full at that figure.
<PAGE> 87
81
EXHIBIT 10
UTAH SERVICE
INDUSTRY SAMPLE GROUP
BMC WEST is a distributor of building materials to professional contractors and
advanced service-oriented consumers in the western region of the United States.
With 53 distribution and retail centers in ten western states, the company
supplies lumber, waferboard, plywood, roofing materials, wallboard, prehung
doors, roof trusses, preassembled windows, cabinets, hardware, paint, and tools
for use in new residential construction, light commercial construction, and
repair and remodeling applications.
CASEY'S GENERAL STORES operates convenience stores in nine midwestern states,
primarily in Iowa, Missouri, and Illinois. The company's 801 company-owned and
182 franchised stores sell self-service gasoline and a broad selection of food,
beverages, tobacco products, health and beauty aids, automotive products, and
other convenience items. Gasoline accounted for 55.7% of the company's net sales
in fiscal 1995. Average retail sales per store were $1,191,960 in 1995.
Approximately 75% of the company's stores are located in areas with populations
of fewer than 5,000 people.
CENTRAL TRACTOR FARM & COUNTRY is an agricultural specialty retailer. The
company provides agricultural, hardware, and related products. Customers
typically include part-time and full-time farmers, hobby gardeners, and skilled
tradespeople. The company's 69 retail stores are located in 15 states in the
northeastern United States, and typically have 18,000 square feet of indoor
selling space and an additional 10,000 square feet of outdoor selling space. The
stores typically display approximately 25,000 assorted items.
DAIRY MART CONVENIENCE STORES owns, operates, and/or franchises approximately
880 Dairy Mart retail convenience stores in 11 states. The company's stores,
which are open every day of the year, are typically about 2,400 square feet. A
wide range of some 3,000 convenience items is sold, including dairy products,
tobacco, groceries, beverages, candy and snack foods. Many of the company's
stores also sell self-service gasoline. The company's primary growth strategy is
to increase its retail gasoline presence by opening new super pumper stations, a
larger format store that emphasizes gasoline sales and an expanded food service
area.
DIY HOME WAREHOUSE operates 16 retail warehouse format home improvement centers
that sell products primarily to do-it-yourself home repair and remodeling
customers. The company's stores range in size from 66,000 to 94,000 square feet
of enclosed selling space, with an additional 12,000 to 20,000 square feet of
outside selling space. All of the company's stores are located in Ohio. The
company's stores offer a wide selection of home improvement products, with each
store carrying approximately 30,000 items enabling do-it-yourself shoppers to
design and complete their own home repair, maintenance, and improvement
projects. Product areas include plumbing, paint, lawn and garden, and lumber and
building materials.
<PAGE> 88
82
EXHIBIT 10
(continued)
UTAH SERVICE
INDUSTRY SAMPLE GROUP
EAGLE HARDWARE & GARDEN currently operates 25 home improvement centers,
averaging approximately 119,000 square feet, in the western United States,
including 14 stores in the state of Washington. The company's merchandising
strategy is to provide a wide range of do-it-yourself customers and professional
contractors with a deep selection of some 57,000 brand name home improvement and
building supply products. Built around a design center with display areas and
design coordinators, the stores' major departments are plumbing, electrical and
lighting, lumber and building materials, paint and decor, tools and hardware,
and lawn and garden supplies. The company has developed a hybrid
retail/warehouse home center concept, which it believes effectively integrates
the selection and value associated with traditional warehouse-format home
centers with the customer-friendly attributes and expertise associated with
service-oriented specialty retailers.
E-Z SERVE CORP. operates convenience stores, mini-marts, and gas marts. The
company operates 737 stores under the names E-Z Serve, Majik Market, Taylor Food
Mart, and others. The company also retails motor fuel at 681 of its convenience
stores and at 204 non-company operated retail outlets under its proprietary
brand name E-Z Serve and a number of major brands such as Citgo, Texaco, Conoco,
and Chevron. In addition to marketing motor fuels, company- operated convenience
stores are engaged in retail merchandising of grocery and non-grocery
convenience items.
FFP PARTNERS owns and operates convenience stores, truck stops, and self-service
motor fuel outlets over an 11-state area. The company operates 127 convenience
stores, ten truck stops, and 194 self-service gasoline outlets. Convenience
stores, which composed 44% of the company's 1995 revenues, are its largest
sector in terms of sales. These stores offer motor fuel, groceries, tobacco
products, takeout foods and beverages, dairy products, and non-food items such
as health and beauty aids and magazines.
GETTY PETROLEUM is one of the nation's largest independent wholesalers and
retailers of gasoline and refined petroleum products, sold primarily under the
Getty brand name. The company has convenience food stores, automotive repair
centers, and car washes at certain outlets. The company has a distribution and
marketing network serving retail and wholesale customers of approximately 1,625
Getty, Power Test and other branded retail outlets in the Northeast and
Mid-Atlantic regions, of which 522 include convenience food stores, and 213
distribution terminals and bulk plants.
<PAGE> 89
83
EXHIBIT 10
(continued)
UTAH SERVICE
INDUSTRY SAMPLE GROUP
GROSSMAN'S, INC. is a retailer of lumber, building materials, and other home
improvement products. The company operates 16 Contractors' Warehouse stores in
the West and Midwest and 24 Mr. 2nd's Bargain Outlet stores (specializing in
manufacturers' closeouts) in the Northeast. Retail sales are primarily to
do-it-yourself customers, such as homeowners purchasing materials for projects
on a cash-and-carry basis. The stores are promoted as project-oriented, offering
materials for home improvement projects. The company also owns 50% of a
Builder's Mart store in Monterrey, Mexico through a joint venture. In early
1996, the company closed down its entire unprofitable company-name division,
shutting down some 55 Grossman's stores.
HECHINGER COMPANY operates a chain of specialty retail building supply stores
located primarily along the Mid-Atlantic seaboard. The company operates stores
under the Hechinger Stores, Triangle Building Supplies, and Home Quarters
Warehouse names. Lumber and building materials account for 29% of company sales,
followed by garden supplies and furniture (18%), hardware and tools (13%),
electrical supplies and small appliances (12%), plumbing items (12%), paint
(9%), and housewares (7%). The company's products are sold primarily to
homeowners for the care, repair, and maintenance of the home and garden.
HOME DEPOT operates a chain of retail building supply/home improvement warehouse
stores in 40 U.S. states and three Canadian provinces. The average store size is
105,000 square feet indoors plus a 24,000 square foot outdoor garden center. The
stores stock approximately 45,000 items. Product lines include building
materials, lumber, floor and wall coverings, plumbing, heating and electrical
products, paint and furniture, seasonal and specialty items, and hardware and
tools.
LOWE'S COMPANIES sells building materials and hardgoods through approximately
360 stores in a region anchored in North Carolina, reaching 22 states. The
company's average store size is 65,600 square feet; however, the company's
newest stores exceed 100,000 square feet, and account for approximately 79% of
total company sales. Each store combines the merchandise, sales, and service of
a home improvement center, a building contractor supply business, and a consumer
durables retailer. The company's customer mix is approximately 72% consumer and
28% contractor. Building commodities and millwork account for about 20% of total
company sales, followed by home decoration and illumination (20%), structural
lumber (15%), yard, patio and garden products (12%), kitchen, bathroom and
laundry (11%), heating, cooling and water systems (6%), tools (6%), special
orders (6%), and home entertainment (4%).
<PAGE> 90
84
EXHIBIT 10
(continued)
UTAH SERVICE
INDUSTRY SAMPLE GROUP
NATIONAL HOME CENTERS is a full-line retailer of home improvement products and
building materials. The company serves both retail customers and professional
contractors by managing large home center superstores in tandem with complete
building supply operations. All ten of the company's stores are in Arkansas. In
addition to its retail operations, the company operates fabrication facilities
for conversion products such as cabinets, countertops, prehung door units, and
trusses.
PAYLESS CASHWAYS retails building materials and home improvement products in the
United States. The company operates 192 full-line retail stores in 22 states
under the names of Payless Cashways Building Materials, Furrow Building
Materials, Lumberjack Building Materials, Hugh M. Woods Building Materials, Knox
Lumber, Somerville Lumber, and Contractor Supply. Each full-line store is
designed as a one-stop source that provides customers with a complete selection
of products needed to build, improve, and maintain their home, business, farm,
or ranch property. The company's merchandise assortment of approximately 31,000
items includes lumber and building materials, millwork, tools, hardware,
electrical and plumbing products, paint, lighting, home decor, kitchens, and
heating and ventilating items. The company's primary customers include
do-it-yourselfers and professional contractors.
SHERWIN-WILLIAMS is North America's largest producer of paints and varnishes.
The company has 2,156 company-operated retail paint and wallcovering stores in
48 states, as well as 139 auto coatings outlets.
SOUTHLAND CORP. is the world's largest operator and franchisor of convenience
stores, doing business mainly under the name 7-Eleven. The company has over
16,300 company-operated, franchised, and licensed locations worldwide, including
5,394 7-Eleven convenience stores in the United States and Canada, and 28 other
retail locations, including High Dairy stores, Quik Mart, and Super-7
high-volume gasoline outlets with mini-convenience stores. The company also has
an equity interest in 220 convenience stores in Mexico, almost all of which are
now using the 7-Eleven name. The company's stores sell gasoline and carry
tobacco products, snack foods, beverages, and other sundries. Gasoline generates
more sales than any other product, accounting for approximately 24% of total
company sales.
STROBER ORGANIZATION supplies building materials to contractors in New York, New
Jersey, Connecticut, and Pennsylvania through its 11 supply centers.
Approximately 90% to 95% of the company's sales are to professional customers,
including builders, carpenters, and drywall, roofing, and acoustical
contractors. The remaining sales are to individuals. The company's products
include lumber, gypsum wallboard, roofing, insulation, acoustical materials,
millwork, and hardware items. The company's total showroom, office, and
warehouse space is approximately 460,000 square feet.
<PAGE> 91
85
EXHIBIT 10
(continued)
UTAH SERVICE
INDUSTRY SAMPLE GROUP
TRAVEL PORTS OF AMERICA operates 13 full-service truckstop motor plazas, all
located on or near heavily-traveled highways. All of the company's motor plazas
sell petroleum products (such as diesel fuel, gasoline and lubricants), as well
as a wide variety of food and non-food items. Each facility also has a truck
service and repair shop and a tire and parts center, as well as shopping,
restaurant, lodging and other facilities. The company also operates two
mini-travel plazas that offer fueling services for automobiles and trucks and
sell convenience food. These plazas are located in seven states along the East
Coast and in the southern United States.
TREND LINES is a specialty retailer of woodworking tools and accessories. These
products are sold through the company's nationally distributed Trend-Lines
mail-order catalog and through 92 Woodworkers Warehouse retail stores. The
company also operates 19 Post Tool retail stores. The company's stores average
about 4,500 square feet of retail space. The company carries such brand names as
Black & Decker, Bosch, and Delta. The company also sells golf equipment and
supplies through its nationally distributed Golf Day mail-order catalog and
through 32 Golf Day retail stores.
UNI-MARTS is an independent regional operator of a chain of 414 company-operated
and franchised convenience stores located primarily in Pennsylvania, with a few
in nearby states. The company's strategy is to operate many of its stores in
small towns and rural areas where there are fewer competitors and lower
operating costs. In addition to convenience store products, many of the
company's stores offer self-service gasoline. The company's stores range from
1,200 to 3,300 square feet in size, with newly constructed stores having about
2,500 square feet. The stores typically offer a complete line of dry grocery
items, health and beauty aids, newspapers and magazines, lottery tickets, dairy
products, candy, frozen foods, beverages, tobacco products, delicatessen foods,
fountain drinks and hot coffee.
WICKES LUMBER is a major retailer and distributor of building materials. The
company sells its products and services primarily to residential and commercial
building professionals, repair and remodeling contractors, and, to a lesser
extent, project do-it-yourselfers involved in major home improvement projects.
The company's product lines include wood products (lumber, plywood, roof and
floor trusses, treated lumber, sheathing, wood siding, and specialty lumber);
building products (roofing, vinyl siding, doors, windows, moldings, drywall, and
insulation); and hardlines (hardware products, paint, tools, kitchen and
bathroom cabinets, plumbing products, electrical products, light fixtures, and
floor coverings). The company operates 110 building centers, averaging 9,500
square feet in size, in 24 states in the Midwest, Northeast, and South.
<PAGE> 92
86
EXHIBIT 10
(continued)
UTAH SERVICE
INDUSTRY SAMPLE GROUP
WOLOHAN LUMBER retails a full line of building materials and supplies and
related items to do-it-yourselfers and professionals used primarily for new home
construction and home-improvement and maintenance projects through a chain of 62
building supply centers located in Illinois, Indiana, Kentucky, Michigan, Ohio,
Missouri, and Wisconsin. Retail area per store averages 27,000 square feet. The
company sells more than 49,000 different products, which are purchased from
approximately 1,700 suppliers. The bulk of the company's sales are millwork,
building materials, and dimension lumber.
Sources: Standard & Poor's Stock Reports
Morningstar Equities
<PAGE> 93
87
EXHIBIT 11
UTAH SERVICE
MARKET VALUE RATIOS FOR
THE INDUSTRY SAMPLE GROUP
AS OF JUNE 30, 1997
<TABLE>
<CAPTION>
Price- Price to Price to Price to
Earnings Cash Flow Revenue Book
Ratio Ratio Ratio Ratio
Company (x) (x) (%) (%)
- ------- -------- --------- -------- --------
<S> <C> <C> <C> <C>
BMC West 12.6 6.8 20.2 99.8
Casey's General Stores 20.6 10.9 55.3 257.4
Central Tractor Farm & Country 27.0 16.6 53.4 166.9
Dairy Mart Convenience Stores NE 4.6 5.5 274.4
DIY Home Warehouse 7.1 3.9 12.8 73.0
Eagle Hardware & Garden 27.4 19.8 91.5 220.1
E-Z Serve Corp. 8.9 2.7 5.0 60.7
FFP Partners 6.0 2.6 4.5 65.8
Getty Petroleum 22.9 6.8 25.8 196.1
Grossman's, Inc. NE 0.5 1.3 22.8
Hechinger Company NE 3.0 4.1 23.9
Home Depot 29.4 23.8 140.5 475.1
Lowe's Companies 19.5 11.5 65.9 259.8
National Home Centers 9.4 3.3 7.9 25.6
Payless Cashways NE 1.1 1.4 15.4
Sherwin-Williams 21.4 13.9 113.1 354.3
Southland Corp. 15.2 5.3 19.7 NM
Strober Organization 9.0 6.4 22.4 80.7
Travel Ports of America 8.6 3.3 7.8 95.2
Trend Lines 12.5 9.9 37.0 179.0
Uni-Marts 10.9 3.6 9.7 91.4
Wickes Lumber NM 5.0 5.1 182.9
Wolohan Lumber 10.6 4.8 18.6 75.4
-------- --------- -------- --------
Mean 15.5 7.4 31.7 149.8
</TABLE>
NE = negative earnings
NM = not meaningful
Sources: Standard & Poor's Stock Reports
Value Line Investment Survey
Morningstar Equities
Barron's
<PAGE> 94
88
EXHIBIT 12
HISTORICAL STRUCTURE OF
YIELDS OBSERVABLE AND AVAILABLE
ON SELECTED SECURITIES
<TABLE>
<CAPTION>
Historical
Return (1) Differential
---------- ------------
<S> <C> <C> <C>
Inflation 3.2%
Real Interest 0.6%
U.S. Treasury Bills 3.8%
Maturity Premium 1.7%
Long-Term Government Bonds 5.5%
Default Premium 0.5%
Long-Term Corporate Bonds 6.0%
Ownership Premium 6.5%
Common Stocks 12.5%
Total Differential 9.3%
====
</TABLE>
(1) Arithmetic Mean
Note: Differential represents difference between historical returns (e.g., real
interest = return on treasury bills less inflation)
Source: Ibbotson Associates, 1996 Stocks, Bonds, Bills and Inflation Yearbook
<PAGE> 95
89
<PAGE> 96
APPENDIX A
UTAH SERVICE
FINANCIAL STATEMENT SUMMARY
<PAGE> 97
UTAH SERVICE
INCOME STATEMENTS (in $000's)
<TABLE>
<CAPTION>
For Year Ending December 31:
1991-96
1991 1992 1993 1994 1995 1996 Average
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SALES:
Hardware, Lumber & Building 3,114.0 4,841.1 6,930.6 8,514.5 10,058.6 9,108.1 7,094.5
Industrial and Automotive 391.1 503.1 445.3 762.5 800.1 816.1 619.7
Gasoline & Diesel Fuel 1,044.5 1,358.4 1,558.8 1,990.2 2,392.8 2,824.7 1,861.6
Grocery & Convenience Items 121.9 177.5 216.4 271.2 326.3 356.7 245.0
Other Sales 6.9 15.9 3.9 2.0 2.3 2.3 5.6
----------------------------------------------------------------------------------
TOTAL SALES 4,678.4 6,896.0 9,155.0 11,540.4 13,580.1 13,107.9 9,826.3
COST OF GOODS SOLD:
Hardware Store Operations 2,779.3 4,328.8 6,099.8 7,751.3 9,151.7 8,036.9 6,358.0
Gas Station Operations 1,056.7 1,395.2 1,592.9 2,040.1 2,480.9 2,878.2 1,907.3
----------------------------------------------------------------------------------
TOTAL COST OF GOODS SOLD 3,836.0 5,724.0 7,692.7 9,791.4 11,632.6 10,915.1 8,265.3
GROSS PROFIT:
Hardware Store Operations 732.7 1,031.3 1,280.0 1,527.7 1,709.3 1,889.6 1,361.8
Gas Station Operations 109.7 140.7 182.3 221.3 238.2 303.2 199.2
----------------------------------------------------------------------------------
TOTAL GROSS PROFIT 842.4 1,172.0 1,462.3 1,749.0 1,947.5 2,192.8 1,561.0
OPERATING EXPENSES:
Payroll 348.5 424.6 488.8 570.4 788.1 866.7 581.2
Payroll Taxes 28.5 34.2 39.7 45.7 64.0 65.9 46.3
Insurance 67.9 87.3 90.7 110.5 131.9 159.6 108.0
Pension Expense 25.4 23.7 30.7 34.4 41.2 48.7 34.0
Advertising 22.9 30.2 31.6 33.1 51.1 49.0 36.3
Truck Expenses 39.5 34.7 53.7 51.1 52.5 62.0 48.9
Office & Computer Expense 30.5 30.7 41.0 37.5 51.9 58.1 41.6
Repairs & Maintenance 11.9 24.5 27.6 33.8 49.3 50.6 33.0
Utilities & Heat 30.7 29.4 28.5 30.1 47.3 44.5 35.1
Telephone Expense 11.0 11.6 13.8 15.5 18.0 22.3 15.4
Visa & Master Card 1.5 6.5 7.5 10.5 17.3 20.9 10.7
Property Tax 6.7 6.8 8.8 9.5 13.6 16.4 10.3
Bad Debt Expense 32.3 20.6 4.3 4.8 12.6 5.6 13.4
Director's Fees 14.0 14.0 14.0 14.0 7.3 7.3 11.8
Depreciation Expense 47.7 60.9 84.4 81.9 130.0 128.0 88.8
Other Operating Expenses 24.6 27.7 25.4 31.6 21.6 21.9 25.5
----------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 743.6 867.4 990.5 1,114.4 1,497.7 1,627.5 1,140.2
INCOME FROM OPERATIONS 98.8 304.6 471.8 634.6 449.8 565.3 420.8
INTEREST EXPENSE 0.0 0.0 0.0 0.0 22.5 28.1 8.4
OTHER INCOME 111.9 128.0 97.2 82.2 107.9 124.7 108.7
----------------------------------------------------------------------------------
EARNINGS BEFORE TAX 210.7 432.6 569.0 716.8 535.2 661.9 521.0
INCOME TAX 55.9 145.9 215.2 262.1 194.1 251.7 187.5
----------------------------------------------------------------------------------
NET INCOME 154.8 286.7 353.8 454.7 341.1 410.2 333.6
==================================================================================
ADD: DEPRECIATION 47.7 60.9 84.4 81.9 130.0 128.0 88.8
----------------------------------------------------------------------------------
OPERATING CASH FLOW 202.5 347.6 438.2 536.6 471.1 538.2 422.4
==================================================================================
</TABLE>
<PAGE> 98
UTAH SERVICE
INCOME STATEMENT ITEMS AS A % OF SALES
<TABLE>
<CAPTION>
For Year Ending December 31:
1991-96
1991 1992 1993 1994 1995 1996 Average
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SALES:
Hardware, Lumber & Building 66.6 70.2 75.7 73.8 74.1 69.5 71.6
Industrial and Automotive 8.4 7.3 4.9 6.6 5.9 6.2 6.5
Gasoline & Diesel Fuel 22.3 19.7 17.0 17.2 17.6 21.5 19.2
Grocery & Convenience Items 2.6 2.6 2.4 2.4 2.4 2.7 2.5
Other Sales 0.1 0.2 0.0 0.0 0.0 0.0 0.1
-----------------------------------------------------------------
TOTAL SALES 100.0 100.0 100.0 100.0 100.0 100.0 100.0
COST OF GOODS SOLD:
Hardware Store Operations 59.4 62.8 66.6 67.2 67.4 61.3 64.1
Gas Station Operations 22.6 20.2 17.4 17.7 18.3 22.0 19.7
-----------------------------------------------------------------
TOTAL COST OF GOODS SOLD 82.0 83.0 84.0 84.8 85.7 83.3 83.8
GROSS PROFIT:
Hardware Store Operations 15.7 15.0 14.0 13.2 12.6 14.4 14.1
Gas Station Operations 2.3 2.0 2.0 1.9 1.8 2.3 2.1
-----------------------------------------------------------------
TOTAL GROSS PROFIT 18.0 17.0 16.0 15.2 14.3 16.7 16.2
OPERATING EXPENSES:
Payroll 7.4 6.2 5.3 4.9 5.8 6.6 6.1
Payroll Taxes 0.6 0.5 0.4 0.4 0.5 0.5 0.5
Insurance 1.5 1.3 1.0 1.0 1.0 1.2 1.1
Pension Expense 0.5 0.3 0.3 0.3 0.3 0.4 0.4
Advertising 0.5 0.4 0.3 0.3 0.4 0.4 0.4
Truck Expenses 0.8 0.5 0.6 0.4 0.4 0.5 0.5
Office & Computer Expense 0.7 0.4 0.4 0.3 0.4 0.4 0.4
Repairs & Maintenance 0.3 0.4 0.3 0.3 0.4 0.4 0.3
Utilities & Heat 0.7 0.4 0.3 0.3 0.3 0.3 0.4
Telephone Expense 0.2 0.2 0.2 0.1 0.1 0.2 0.2
Visa & Master Card 0.0 0.1 0.1 0.1 0.1 0.2 0.1
Property Tax 0.1 0.1 0.1 0.1 0.1 0.1 0.1
Bad Debt Expense 0.7 0.3 0.0 0.0 0.1 0.0 0.2
Director's Fees 0.3 0.2 0.2 0.1 0.1 0.1 0.1
Depreciation Expense 1.0 0.9 0.9 0.7 1.0 1.0 0.9
Other Operating Expenses 0.5 0.4 0.3 0.3 0.2 0.2 0.3
-----------------------------------------------------------------
TOTAL OPERATING EXPENSES 15.9 12.6 10.8 9.7 11.0 12.4 12.1
INCOME FROM OPERATIONS 2.1 4.4 5.2 5.5 3.3 4.3 4.1
INTEREST EXPENSE 0.0 0.0 0.0 0.0 0.2 0.2 0.1
OTHER INCOME 2.4 1.9 1.1 0.7 0.8 1.0 1.3
-----------------------------------------------------------------
EARNINGS BEFORE TAX 4.5 6.3 6.2 6.2 3.9 5.0 5.4
INCOME TAX 1.2 2.1 2.4 2.3 1.4 1.9 1.9
-----------------------------------------------------------------
NET INCOME 3.3 4.2 3.9 3.9 2.5 3.1 3.5
=================================================================
ADD: DEPRECIATION 1.0 0.9 0.9 0.7 1.0 1.0 0.9
-----------------------------------------------------------------
OPERATING CASH FLOW 4.3 5.0 4.8 4.6 3.5 4.1 4.4
=================================================================
</TABLE>
<PAGE> 99
UTAH SERVICE
INCOME STATEMENT ITEM GROWTH RATES (%)
<TABLE>
<CAPTION>
1991-96
For Year Ending December 31: Compound
Annual
1991 1992 1993 1994 1995 1996 Growth
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SALES:
Hardware, Lumber & Building - 55.5 43.2 22.9 18.1 (9.4) 23.9
Industrial and Automotive - 28.6 (11.5) 71.2 4.9 2.0 15.8
Gasoline & Diesel Fuel - 30.1 14.8 27.7 20.2 18.0 22.0
Grocery & Convenience Items - 45.6 21.9 25.3 20.3 9.3 24.0
Other Sales - 130.4 (75.5) (48.7) 15.0 0.0 (19.7)
-------------------------------------------------------------------------------
TOTAL SALES - 47.4 32.8 26.1 17.7 (3.5) 22.9
COST OF GOODS SOLD:
Hardware Store Operations - 55.8 40.9 27.1 18.1 (12.2) 23.7
Gas Station Operations - 32.0 14.2 28.1 21.6 16.0 22.2
-------------------------------------------------------------------------------
TOTAL COST OF GOODS SOLD - 49.2 34.4 27.3 18.8 (6.2) 23.3
GROSS PROFIT:
Hardware Store Operations - 40.8 24.1 19.4 11.9 10.5 20.9
Gas Station Operations - 28.3 29.6 21.4 7.6 27.3 22.5
-------------------------------------------------------------------------------
TOTAL GROSS PROFIT - 39.1 24.8 19.6 11.3 12.6 21.1
OPERATING EXPENSES:
Payroll - 21.8 15.1 16.7 38.2 10.0 20.0
Payroll Taxes - 20.0 16.1 15.1 40.0 3.0 18.3
Insurance - 28.6 3.9 21.8 19.4 21.0 18.6
Pension Expense - (6.7) 29.5 12.1 19.8 18.2 13.9
Advertising - 31.9 4.6 4.7 54.4 (4.1) 16.4
Truck Expenses - (12.2) 54.8 (4.8) 2.7 18.1 9.4
Office & Computer Expense - 0.7 33.6 (8.5) 38.4 11.9 13.8
Repairs & Maintenance - 105.9 12.7 22.5 45.9 2.6 33.6
Utilities & Heat - (4.2) (3.1) 5.6 57.1 (5.9) 7.7
Telephone Expense - 5.5 19.0 12.3 16.1 23.9 15.2
Visa & Master Card - 333.3 15.4 40.0 64.8 20.8 69.4
Property Tax - 1.5 29.4 8.0 43.2 20.6 19.6
Bad Debt Expense - (36.2) (79.1) 11.6 162.5 (55.6) (29.6)
Director's Fees - 0.0 0.0 0.0 (47.9) 0.0 (12.2)
Depreciation Expense - 27.7 38.6 (3.0) 58.7 (1.5) 21.8
Other Operating Expenses - 12.6 (8.3) 24.4 (31.6) 1.4 (2.3)
-------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES - 16.6 14.2 12.5 34.4 8.7 17.0
INCOME FROM OPERATIONS - 208.3 54.9 34.5 (29.1) 25.7 41.7
INTEREST EXPENSE - 0.0 0.0 0.0 NM 24.9 NM
OTHER INCOME - 14.4 (24.1) (15.4) 31.3 15.6 2.2
-------------------------------------------------------------------------------
EARNINGS BEFORE TAX - 105.3 31.5 26.0 (25.3) 23.7 25.7
INCOME TAX - 161.0 47.5 21.8 (25.9) 29.7 35.1
-------------------------------------------------------------------------------
NET INCOME - 85.2 23.4 28.5 (25.0) 20.3 21.5
===============================================================================
ADD: DEPRECIATION - 27.7 38.6 (3.0) 58.7 (1.5) 21.8
-------------------------------------------------------------------------------
OPERATING CASH FLOW - 71.7 26.1 22.5 (12.2) 14.2 21.6
===============================================================================
</TABLE>
<PAGE> 100
UTAH SERVICE
BALANCE SHEETS (in $000's)
<TABLE>
<CAPTION>
As of December 31:
ASSETS 1991 1992 1993 1994 1995 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash 626.3 739.5 708.1 892.9 215.4 480.0
Accounts Receivable 593.8 802.8 1,115.0 1,081.2 1,954.2 1,271.2
Inventories 830.6 866.1 920.6 999.5 670.3 1,298.1
Prepaid Expenses 7.7 8.1 8.2 6.1 71.4 8.1
----------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 2,058.4 2,416.5 2,751.9 2,979.7 2,911.3 3,057.4
PROPERTY, PLANT & EQUIPMENT:
Land 178.4 178.4 178.4 178.4 178.4 178.4
Buildings 327.7 306.8 279.5 320.8 1,004.7 1,004.7
Store Equipment 93.1 94.4 88.3 69.2 197.8 206.6
Station Equipment 151.7 170.7 171.3 188.7 185.7 185.7
Autos & Trucks 192.5 206.1 265.0 279.5 304.1 321.3
Surfacing 112.9 112.9 112.9 112.9 112.9 112.9
Accumulated Depreciation (515.4) (542.1) (576.4) (642.0) (623.6) (754.4)
----------------------------------------------------------------------------------
NET PROPERTY, PLANT & EQUIPMENT 540.9 527.2 519.0 507.5 1,360.0 1,255.2
OTHER ASSETS 19.8 19.8 19.9 21.1 6.8 5.0
----------------------------------------------------------------------------------
TOTAL ASSETS 2,619.1 2,963.5 3,290.8 3,508.3 4,278.1 4,317.6
==================================================================================
LIABILITIES AND EQUITY
- ----------------------
CURRENT LIABILITIES:
Accounts Payable 212.8 331.6 448.5 322.8 523.8 379.6
Accrued Wages 8.2 12.7 18.1 27.3 21.9 33.9
Other Current Liabilities 70.5 127.8 96.9 74.0 62.5 91.5
----------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 291.5 472.1 563.5 424.1 608.2 505.0
LONG-TERM DEBT 0.0 0.0 0.0 0.0 369.2 198.1
----------------------------------------------------------------------------------
TOTAL LIABILITIES 291.5 472.1 563.5 424.1 977.4 703.1
STOCKHOLDERS' EQUITY 2,327.6 2,491.4 2,727.3 3,084.2 3,300.7 3,614.5
----------------------------------------------------------------------------------
TOTAL LIABILITIES & EQUITY 2,619.1 2,963.5 3,290.8 3,508.3 4,278.1 4,317.6
===================================================================================
</TABLE>
<PAGE> 101
UTAH SERVICE
BALANCE SHEET ITEMS AS A % OF TOTAL ASSETS
<TABLE>
<CAPTION>
As of December 31:
1991-96
ASSETS 1991 1992 1993 1994 1995 1996 Average
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash 23.9 25.0 21.5 25.5 5.0 11.1 18.7
Accounts Receivable 22.7 27.1 33.9 30.8 45.7 29.4 31.6
Inventories 31.7 29.2 28.0 28.5 15.7 30.1 27.2
Prepaid Expenses 0.3 0.3 0.2 0.2 1.7 0.2 0.5
-----------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 78.6 81.5 83.6 84.9 68.1 70.8 77.9
PROPERTY, PLANT & EQUIPMENT:
Land 6.8 6.0 5.4 5.1 4.2 4.1 5.3
Buildings 12.5 10.4 8.5 9.1 23.5 23.3 14.5
Store Equipment 3.6 3.2 2.7 2.0 4.6 4.8 3.5
Station Equipment 5.8 5.8 5.2 5.4 4.3 4.3 5.1
Autos & Trucks 7.3 7.0 8.1 8.0 7.1 7.4 7.5
Surfacing 4.3 3.8 3.4 3.2 2.6 2.6 3.3
Accumulated Depreciation (19.7) (18.3) (17.5) (18.3) (14.6) (17.5) (17.6)
-----------------------------------------------------------------------------------
NET PROPERTY, PLANT & EQUIPMENT 20.7 17.8 15.8 14.5 31.8 29.1 21.6
OTHER ASSETS 0.8 0.7 0.6 0.6 0.2 0.1 0.5
-----------------------------------------------------------------------------------
TOTAL ASSETS 100.0 100.0 100.0 100.0 100.0 100.0 100.0
===================================================================================
LIABILITIES AND EQUITY
- ----------------------
CURRENT LIABILITIES:
Accounts Payable 8.1 11.2 13.6 9.2 12.2 8.8 10.5
Accrued Wages 0.3 0.4 0.6 0.8 0.5 0.8 0.6
Other Current Liabilities 2.7 4.3 2.9 2.1 1.5 2.1 2.6
-----------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 11.1 15.9 17.1 12.1 14.2 11.7 13.7
LONG-TERM DEBT 0.0 0.0 0.0 0.0 8.6 4.6 2.2
-----------------------------------------------------------------------------------
TOTAL LIABILITIES 11.1 15.9 17.1 12.1 22.8 16.3 15.9
STOCKHOLDERS' EQUITY 88.9 84.1 82.9 87.9 77.2 83.7 84.1
-----------------------------------------------------------------------------------
TOTAL LIABILITIES & EQUITY 100.0 100.0 100.0 100.0 100.0 100.0 100.0
===================================================================================
</TABLE>
<PAGE> 102
APPENDIX B
ROBERT MORRIS ASSOCIATES INDUSTRY RATIOS
RETAILERS - HARDWARE
RETAILERS - GASOLINE SERVICE STATIONS
<PAGE> 103
<TABLE>
<CAPTION>
RETAILERS - HARDWARE SIC# 5251
COMPARATIVE HISTORICAL DATA
<S> <C> <C> <C> <C> <C>
9 18 31 # POSTRETIREMENT BENEFITS 8
TYPE OF STATEMENT
31 29 23 Unqualified
62 69 68 Reviewed 5
133 145 140 Compiled 45
16 30 28 Tax Returns 17
73 83 112 Other 38
4/1/93- 4/1/94- 4/1/95-
3/31/94 3/31/95 3/31/96
ALL ALL ALL 0-1MM
315 356 371 NUMBER OF STATEMENTS 105
- ----------------------------------------------------------------------------------------------------------
% % % ASSETS %
4.5 5.1 5.2 Cash & Equivalents 5.6
13.5 13.3 14.3 Trade Receivables - (net) 10.0
53.0 52.9 51.9 Inventory 56.8
1.5 1.1 .8 All Other Current .7
72.5 72.5 72.2 Total Current 73.0
15.5 15.4 16.0 Fixed Assets (net) 16.2
1.4 1.4 1.6 Intangibles (net) 1.2
10.5 10.7 10.2 All Other Non-Current 9.5
100.0 100.0 100.0 Total 100.0
- ----------------------------------------------------------------------------------------------------------
LIABILITIES
8.4 8.8 8.1 Notes Payable-Short Term 6.2
3.5 3.9 3.3 Cur. Mat.-L/T/D 3.8
16.2 16.7 16.7 Trade Payables 15.3
1.0 .4 .2 Income Taxes Payable .2
7.9 6.8 7.6 All Other Current 9.2
37.0 36.5 35.9 Total Current 34.7
19.4 20.3 20.3 Long Term Debt 25.2
.2 .1 .1 Deferred Taxes .0
4.6 4.7 3.6 All Other Non-Current 4.3
38.8 38.3 40.1 Net Worth 35.8
100.0 100.0 100.0 Total Liabilities & Net Worth 100.0
- ----------------------------------------------------------------------------------------------------------
INCOME DATA
100.0 100.0 100.0 Net Sales 100.0
34.5 33.7 33.6 Gross Profit 36.9
32.4 31.2 30.7 Operating Expenses 33.3
2.1 2.5 2.9 Operating Profit 3.6
.5 .4 .6 All Other Expenses (net) .7
1.6 2.0 2.3 Profit Before Taxes 2.8
- ----------------------------------------------------------------------------------------------------------
RATIOS
3.4 3.5 3.3 3.7
2.0 2.0 2.2 Current 2.4
1.5 1.5 1.5 1.6
- ----------------------------------------------------------------------------------------------------------
.8 .9\ .9 .8
(314) .5 .4 (369) .5 Quick (103) .4
.2 .2 .3 .2
- ----------------------------------------------------------------------------------------------------------
7 49.2 8 47.0 8 47.9 7 53.7
14 25.3 15 25.0 16 22.7 Sales/Receivables 12 31.2
30 12.3 28 13.0 31 11.8 20 18.1
- ----------------------------------------------------------------------------------------------------------
89 4.1 89 4.1 83 4.4 107 3.4
130 2.8 130 2.8 122 3.0 Cost of Sales/Inventory 152 2.4
174 2.1 174 2.1 174 2.1 203 1.8
- ----------------------------------------------------------------------------------------------------------
17 21.2 18 20.0 20 18.5 15 24.0
36 10.2 32 11.3 33 11.1 Cost of Sales/Payables 33 11.0
53 6.9 53 6.9 51 7.1 56 6.5
- ----------------------------------------------------------------------------------------------------------
4.1 4.2 4.2 3.6
6.3 6.6 6.3 Sales/Working Capital 5.5
11.8 11.5 12.2 10.9
- ----------------------------------------------------------------------------------------------------------
5.0 5.5 5.0 4.9
(285) 2.2 (328) 2.4 (336) 2.3 EBIT/Interest (89) 1.9
1.0 1.2 1.2 1.0
- ----------------------------------------------------------------------------------------------------------
4.0 3.8 4.7 Net Profit + Depr., Dep., 4.2
(114) 1.7 (118) 1.6 (104) 2.1 Amort./Cur. Mat. L/T/D (12) 3.0
.5 .6 1.0 .5
- ----------------------------------------------------------------------------------------------------------
.1 .1 .1 .1
.4 .3 .3 Fixed/Worth .3
1.0 1.1 .9 1.5
- ----------------------------------------------------------------------------------------------------------
.7 .8 .6 .8
1.6 1.7 1.6 Debt/Worth 1.6
4.1 4.0 3.8 6.5
- ----------------------------------------------------------------------------------------------------------
25.6 28.8 28.3 % Profit Before Taxes/Tangible 33.3
(288) 11.6 (325) 12.8\ (343) 12.5 Net Worth (91) 12.5
2.9 2.4 2.2 2.8
- ----------------------------------------------------------------------------------------------------------
9.5 9.8 10.1 % Profit Before Taxes/Total 10.5
4.5 4.2 4.6 Assets 4.5
.2 .6 .7 .2
- ----------------------------------------------------------------------------------------------------------
49.7 51.1 49.2 62.5
23.2 23.1 22.5 Sales/Net Fixed Assets 22.5
11.8 10.9 10.5 9.7
- ----------------------------------------------------------------------------------------------------------
2.9 3.0 3.0 2.8
</TABLE>
<TABLE>
<CAPTION>
CURRENT DATA SORTED BY SALES
<S> <C> <C> <C> <C> <C>
12 4 3 4
5 1 2 3 12
24 14 14 6 5
59 17 13 6
6 2 2 1
39 13 8 9 5
84 (4/1-9/30/95) 287 (10/1/95-3/31/96)
1-3MM 3-5MM 5-10MM 10-25MM 25MM & OVER
133 47 39 25 22
- -----------------------------------------------------------------------------
% % % % %
5.6 3.8 6.5 4.4 2.3
13.5 18.2 16.0 19.8 21.9
51.8 48.3 49.2 48.2 45.6
.7 .6 1.4 1.6 1.4
71.6 70.9 73.0 73.9 71.3
15.2 15.7 16.2 14.8 22.1
1.7 2.5 .6 1.7 1.9
11.5 10.9 10.3 9.6 4.8
100.0 100.0 100.0 100.0 100.0
- -----------------------------------------------------------------------------
8.3 6.5 11.8 11.3 8.8
3.8 3.2 1.9 1.5 2.4
14.7 17.9 19.7 21.2 22.4
.3 .1 .3 .3 .4
7.9 4.9 5.9 7.5 7.1
34.9 32.6 39.5 41.9 41.1
21.6 18.8 15.1 7.7 16.6
.3 .1 .2 .1 .2
2.6 2.9 2.0 11.4 1.0
40.7 45.6 43.2 38.9 41.1
100.0 100.0 100.0 100.0 100.0
- -----------------------------------------------------------------------------
100.0 100.0 100.0 100.0 100.0
34.3 31.6 31.7 30.6 25.8
32.0 29.0 28.4 27.5 21.9
2.2 2.6 3.2 3.1 3.9
.6 .1 .3 .8 .6
1.6 2.5 3.0 2.3 3.3
- -----------------------------------------------------------------------------
3.5 3.2 2.8 3.1 2.2
2.4 2.1 2.0 1.8 1.7
1.6 1.6 1.3 1.3 1.4
- -----------------------------------------------------------------------------
.9 1.1 1.0 .8 .8
.5 .6 .6 .6 .5
.3 .4 .4 .4 .1
- -----------------------------------------------------------------------------
8 45.8 13 28.6 8 44.6 5 73.0 4 92.3
17 21.8 23 15.7 17 21.7 34 10.7 28 13.2
25 14.6 35 10.3 33 11.0 49 7.5 50 7.3
- -----------------------------------------------------------------------------
89 4.1 76 4.8 66 5.5 70 5.2 63 5.8
122 3.0 101 3.6 101 3.6 96 3.8 74 4.9
166 2.2 152 2.4 130 2.8 122 3.0 135 2.7
- -----------------------------------------------------------------------------
19 18.9 15 25.0 20 18.3 29 12.8 27 13.3
29 12.6 32 11.5 30 12.1 37 9.9 37 10.0
47 7.8 65 5.6 47 7.8 47 7.7 57 6.4
- -----------------------------------------------------------------------------
4.2 4.1 5.3 5.2 6.2
6.1 6.4 8.2 9.2 9.6
10.4 11.2 15.5 16.3 15.1
- -----------------------------------------------------------------------------
4.8 3.8 5.9 8.7 11.3
(122) 1.9 (42) 2.2 (36) 3.2 2.7 4.8
.8 1.4 1.7 1.3 2.0
- -----------------------------------------------------------------------------
2.6 2.5 6.9 8.2 10.5
(31) 1.5 (17) 1.8 (21) 2.9 (13) 2.8 (10) 6.5
.3 .9 1.3 1.2 3.7
- -----------------------------------------------------------------------------
.1 .1 .2 .1 .3
.3 .3 .3 .3 .6
.9 .8 .7 .7 1.1
- -----------------------------------------------------------------------------
.5 .5 .7 1.1 .8
1.6 1.5 1.4 1.7 1.6
4.2 3.0 2.9 3.3 2.7
- -----------------------------------------------------------------------------
27.6 22.3 25.0 30.2 28.7
(123) 10.8 (46) 8.9 (37) 12.5 (24) 12.2 24.1
.4 3.4 6.7 3.4 13.1
- -----------------------------------------------------------------------------
9.3 7.9 10.4 10.2 14.1
4.3 4.5 5.4 4.4 9.4
-.2 1.0 2.3 1.3 3.4
- -----------------------------------------------------------------------------
51.9 42.2 42.6 57.5 44.0
22.3 24.1 21.2 29.0 14.0
10.8 9.8 12.4 14.5 5.9
- -----------------------------------------------------------------------------
2.9 3.0 3.3 3.0 3.5
</TABLE>
<PAGE> 104
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
2.4 2.3 2.4 Sales/Total Assets 2.2
1.7 1.8 1.9 1.6
- ----------------------------------------------------------------------------------------------------------
.6 .6 .7 .9
(276) 1.0 (321) 1.0 (326) 1.1 % Depr., Dep., Amort./Sales (85) 1.5
1.7 1.7 1.8 2.3
- ----------------------------------------------------------------------------------------------------------
2.2 2.0 2.2 %Officers', Directors', 3.2
(170) 4.0 (184) 3.5 (187) 3.7 Owners' Comp/Sales (58) 5.3
6.6 5.9 6.0 8.6
- ----------------------------------------------------------------------------------------------------------
4765100M 2979169M 4379755M NET SALES ($) 67670M
1985064M 1177507M 1714982M TOTAL ASSETS ($) 34681M
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
(C)Robert Morris Associates 1996 M = $ THOUSAND MM = $ MILLION
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
2.4 2.6 2.6 2.7 2.8
1.8 1.9 2.0 2.3 2.0
- -----------------------------------------------------------------------------
.7 .7 .6 .6 .6
(115) 1.2 (44) .9 (38) .9 (23) .9 (21) 1.1
1.9 1.3 1.3 1.2 1.6
- -----------------------------------------------------------------------------
2.4 1.8 1.4 .6
(71) 3.6 (28) 3.2 (19) 3.0 (10) 1.9
5.6 4.9 4.9 2.9
- -----------------------------------------------------------------------------
231252M 178936M 273378M 352504M 3276015M
110919M 81378M 117188M 151462M 1219354M
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
<PAGE> 105
<TABLE>
<CAPTION>
RETAILERS - GASOLINE SERVICE STATIONS
COMPARATIVE HISTORICAL DATA
<S> <C> <C> <C> <C>
21 36 41 # POSTRETIREMENT BENEFITS
TYPE OF STATEMENT
69 88 100 Unqualified
79 85 102 Reviewed
161 200 194 Compiled
30 44 63 Tax Returns
121 172 175 Other
4/1/93- 4/1/94- 4/1/95-
3/31/94 3/31/95 3/31/96
ALL ALL ALL
460 589 634 NUMBER OF STATEMENTS
- --------------------------------------------------------------------------------------------
% % % ASSETS
11.3 11.4 11.7 Cash & Equivalents
10.7 10.1 9.7 Trade Receivables - (net)
17.0 16.5 15.9 Inventory
1.9 2.2 2.2 All Other Current
41.0 40.2 39.4 Total Current
48.5 49.4 49.9 Fixed Assets (net)
2.4 3.2 3.2 Intangibles (net)
8.1 7.3 7.5 All Other Non-Current
100.0 100.0 100.0 Total
- --------------------------------------------------------------------------------------------
LIABILITIES
5.7 5.0 5.5 Notes Payable-Short Term
4.5 4.2 4.3 Cur. Mat.-L/T/D
15.0 16.0 15.4 Trade Payables
1.5 .4 .3 Income Taxes Payable
9.5 9.3 9.5 All Other Current
36.2 34.9 34.9 Total Current
26.8 28.7 28.5 Long Term Debt
.5 .4 .5 Deferred Taxes
2.9 4.0 3.8 All Other Non-Current
33.7 32.1 32.3 Net Worth
100.0 100.0 100.0 Total Liabilities & Net Worth
- --------------------------------------------------------------------------------------------
INCOME DATA
100.0 100.0 100.0 Net Sales
19.9 20.3 19.8 Gross Profit
17.9 18.1 17.8 Operating Expenses
2.0 2.2 2.0 Operating Profit
.2 2 .4 All Other Expenses (net)
1.8 2.0 1.6 Profit Before Taxes
- --------------------------------------------------------------------------------------------
RATIOS
1.7 1.7 1.8
1.1 1.1 1.1 Current
.8 .8 .7
- --------------------------------------------------------------------------------------------
1.0 1.0 1.0
.6 (587) .6 (631) .6 Quick
.3 .3 .3
- --------------------------------------------------------------------------------------------
2 213.0 1 255.5 1 260.9
5 76.1 4 85.1 4 92.0 Sales/Receivables
11 32.9 10 38.0 9 38.9
- --------------------------------------------------------------------------------------------
7 49.3 8 48.4 7 48.8
11 33.8 11 32.3 11 32.8 Cost of Sales/Inventory
17 20.9 17 21.4 16 23.4
- --------------------------------------------------------------------------------------------
5 78.7 6 63.5 6 62.5
12 31.3 13 28.2 13 29.0 Cost of Sales/Payables
18 20.1 20 18.6 19 19.1
- --------------------------------------------------------------------------------------------
32.3 36.6 29.8
190.8 153.3 202.4 Sales/Working Capital
-65.0 -70.2 -51.0
- --------------------------------------------------------------------------------------------
7.2 7.9 5.4
(414) 3.3 (532) 3.3 (560) 2.5 EBIT/Interest
1.9 1.7 1.4
- --------------------------------------------------------------------------------------------
4.2 4.1 4.2 Net Profit + Depr., Dep.,
(148) 1.9 (195) 2.3 (178) 2.2 Amort./Cur. Mat. L/T/D
1.1 1.3 1.5
- --------------------------------------------------------------------------------------------
.8 .8 .9
1.5 1.9 1.9 Fixed/Worth
3.3 4.0 5.2
- --------------------------------------------------------------------------------------------
1.0 1.1 1.1
2.2 2.4 2.4 Debt/Worth
5.3 5.7 7.8
- --------------------------------------------------------------------------------------------
49.7 47.1 38.3 %Profit Before Taxes/Tangible
(422) 23.5 (523) 24.2 (551) 19.2 Net Worth
10.9 10.3 7.4
- --------------------------------------------------------------------------------------------
14.5 15.2 12.2 % Profit Before Taxes/Total
7.0 7.8 5.5 Assets
2.8 2.7 1.9
- --------------------------------------------------------------------------------------------
25.7 22.0 21.9
10.1 9.8 9.6 Sales/Net Fixed Assets
6.0 5.5 5.2
</TABLE>
<TABLE>
<CAPTION>
SIC# 5541 CURRENT DATA SORTED BY SALES
<S> <C> <C> <C> <C> <C> <C> <C>
1 6 7 1 11 15
2 2 3 8 15 70
11 10 8 37 36
22 75 18 35 34 10
5 35 8 6 5 4
16 57 22 20 25 35
217 (4/1-9/30/95) 417 (10/1/95-3/31/96)
0-1MM 1-3MM 3-5MM 5-10MM 10-25MM 25MM & OVER
45 180 61 77 116 155
- ----------------------------------------------------------------------------------------------
% % % % % %
13.3 11.4 16.0 11.3 12.1 9.8
9.7 8.9 7.0 10.5 12.0 9.3
24.2 17.2 17.6 13.5 14.9 13.2
2.6 1.9 .7 3.0 2.6 2.2
49.8 39.4 41.3 38.2 41.6 34.6
41.2 50.7 44.1 51.7 47.7 54.6
2.4 4.1 5.0 3.4 2.7\ 1.9
6.6 5.7 9.6 6.7 8.1 8.9
100.0 100.0 100.0 100.0 100.0 100.0
- ----------------------------------------------------------------------------------------------
5.1 6.3 5.5 6.8 5.4 4.3
3.3 4.5 4.1 4.1 4.5 4.2
11.5 12.2 13.9 16.2 18.5 18.0
.4 .2 .4 .2 .2 .3
12.8 8.5 8.9 8.3 11.1 9.2
33.1 31.7 32.8 35.6 39.7 36.1
29.1 34.9 26.6 27.7 25.1 24.7
.0 .2 .0 .2 .5 1.2
5.6 4.6 4.1 4.5 2.3 3.0
32.2 28.6 36.5 32.0 32.5 35.1
100.0 100.0 100.0 100.0 100.0 100.0
- ----------------------------------------------------------------------------------------------
100.0 100.0 100.0 100.0 100.0 100.0
32.6 21.3 17.6 20.3 17.4 16.8
29.7 18.7 16.2 18.1 16.4 15.0
2.9 2.6 1.3 2.2 1.0 1.8
.7 .8 .2 .6 -.1 .2
2.2 1.8 1.2 1.7 1.1 1.7
- ----------------------------------------------------------------------------------------------
2.8 2.6 2.4 1.8 1.6 1.2
1.5 1.3 1.2 1.1 1.0 .9
1.0 .8 .7 .8 .7 .7
- ----------------------------------------------------------------------------------------------
1.7 1.6 1.2 1.1 1.0 .7
(44) .7 (179) .7 .7 .6 (115) .6 .5
.3 .3 .2 .3 .3 .3
- ----------------------------------------------------------------------------------------------
1 583.5 1 541.0 1 727.4 1 252.2 2 158.0 3 135.9
4 84.3 3 139.1 2 223.1 4 91.7 6 62.2 6 64.4
11 34.7 6 61.9 4 87.4 11 34.3 10 35.3 10 36.5
- ----------------------------------------------------------------------------------------------
11 34.6 8 47.5 7 53.8 6 56.6 8 48.6 8 47.4
17 22.0 11 32.8 9 38.5 10 35.6 11 34.6 11 32.2
27 13.3 15 24.5 15 23.8 17 21.3 15 25.0 16 23.4
- ----------------------------------------------------------------------------------------------
1 479.0 3 123.1 4 101.5 6 60.9 9 42.2 13 28.2
7 55.4 8 48.2 9 39.1 12 30.7 14 25.7 17 21.7
16 22.6 14 26.1 17 21.6 20 18.0 21 17.3 21 17.4
- ----------------------------------------------------------------------------------------------
17.8 23.1 32.7 38.6 29.7 70.2
57.6 76.4 100.7 225.1 342.9 -171.6
-297.3 -64.4 -63.1 -66.5 -45.4 -42.8
- ----------------------------------------------------------------------------------------------
8.0 5.0 5.5 5.0 5.4 5.6
(31) 3.5 (154) 2.1 (49) 2.7 (71) 2.2 (105) 2.5 (150) 3.0
.8 1.2 1.3 1.4 1.6 1.9
- ----------------------------------------------------------------------------------------------
2.4 5.2 4.9 3.9 4.1
(14) 1.9 (12) 2.2 (22) 2.2 (49) 2.4 (79) 2.6
1.5 1.3 1.1 1.4 1.7
- ----------------------------------------------------------------------------------------------
.3 .7 .6 1.0 .9 1.1
1.5 2.4 1.7 2.1 1.7 1.8
16.8 223.0 6.5 6.1 3.0 2.7
- ----------------------------------------------------------------------------------------------
.5 1.0 .6 1.1 1.2 1.2
1.7 2.9 2.2 2.4 2.5 2.3
22.4 NM 23.2 8.7 5.8 3.6
- ----------------------------------------------------------------------------------------------
59.6 53.2 42.8 51.1 31.2 31.6
(37) 17.0 (135) 24.1 (50) 24.7 (72) 17.6 (108) 16.0 (149) 19.1
-9.9 5.6 7.1 5.1 7.3 10.6
- ----------------------------------------------------------------------------------------------
22.4 15.0 13.6 10.7 7.6 11.3
5.2 6.3 6.8 4.6 4.4 5.8
-.6 1.1 1.7 1.6 2.1 2.7
- ----------------------------------------------------------------------------------------------
69.3 27.5 44.5 20.5 23.4 12.7
15.5 9.1 18.3 9.9 11.1 8.0
4.6 4.6 5.5 5.6 6.1 4.6
</TABLE>
<PAGE> 106
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
8.0 7.7 7.4
5.2 5.0 4.9 Sales/Total Assets
3.6 3.4 3.2
- --------------------------------------------------------------------------------------------
.8 .9 .8
(417) 1.3 (542) 1.4 (583) 1.5 % Depr., Dep., Amort./Sales
2.0 2.0 2.2
- --------------------------------------------------------------------------------------------
.9 .9 1.0 %Officers', Directors',
(204) 1.6 (244) 1.8 (247) 1.8 Owners' Comp/Sales
3.1 3.4 3.4
- --------------------------------------------------------------------------------------------
14033029M 21657271M 24996429M NET SALES ($)
3082042M 5325035M 5669565M TOTAL ASSETS ($)
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
8.8 8.7 9.8 7.7 7.3 5.8
5.1 4.8 5.4 5.7 5.6 4.3
2.5 3.1 2.9 3.2 3.6 3.1
- ----------------------------------------------------------------------------------------------
.7 .8 .5 .8 .9 1.1
(36) 1.8 (164) 1.7 (55) 1.1 (71) 1.3 (111) 1.4 (146) 1.5
3.1 2.5 2.0 2.0 1.9 2.1
- ----------------------------------------------------------------------------------------------
2.3 1.5 1.2 1.2 .8 .6
(20) 3.9 (85) 2.5 (29) 1.6 (30) 1.7 (50) 1.1 (33) 1.0
6.2 3.8 2.3 3.1 2.2 2.6
- ----------------------------------------------------------------------------------------------
29702M 337905M 239082M 575013M 1909698M 21905029M
8444M 85654M 61855M 150906M 435450M 4927256M
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
</TABLE>
(C)Robert Morris Associates 1996 M = $ THOUSAND MM = $ MILLION
See Pages 1 through 21 for Explanation
of Ratios and Data
<PAGE> 107
APPENDIX C
STATEMENT OF LIMITING CONDITIONS
<PAGE> 108
STATEMENT OF LIMITING CONDITIONS
1. Neither HVA or its principals have any present or intended interest in
the Company. HVA's fees for this valuation are based on professional time
charges, and are in no way contingent upon the final valuation figure
arrived at.
2. This report is intended only for the specific use and purpose stated
herein. It is intended for no other uses and is not to be copied or given
to unauthorized persons without the direct written consent of HVA. The
value opinion expressed herein is valid only for the stated purpose and
date of the valuation. The report and information and conclusions
contained therein should in no way be construed to be investment advice.
3. HVA does not purport to be a guarantor of value. Valuation is an
imprecise science, with value being a question of informed judgment, and
reasonable persons can differ in their estimates of value. HVA does
certify that this valuation study was conducted and the conclusions
arrived at independently using conceptually sound and commonly accepted
methods of valuation.
4. In preparing the valuation report, we used information provided by the
Company. It has been represented by Company management that the
information is reasonably complete and accurate. We did not make
independent examinations of any financial statements, projections or
other information prepared by Company management which were relied upon
and, accordingly, we make no representations or warranties nor do we
express any opinion regarding the accuracy or reasonableness of such.
5. The valuation conclusions derived herein implicitly assume that the
existing management of the Company will maintain the character and
integrity of the Company through any sale, reorganization, or diminution
of the owners' participation.
6. Publicly available information utilized herein (e.g., economic, industry,
statistical and/or investment information) has been obtained from sources
deemed to be reliable. It is beyond the scope of this report to verify
the accuracy of such information, and we make no representation as to its
accuracy.
7. This engagement is limited to the production of the report, conclusions
and opinions contained herein. HVA has no obligation to provide future
services (e.g., expert testimony in court or before governmental
agencies) related to the contents of the report unless arrangements for
such future services have been made.
8. This valuation report and the conclusions contained herein are
necessarily based on market and economic conditions as they existed as of
the date of valuation.
<PAGE> 109
9. David Dorton, CFA, ASA has met all current certification standards and is
an accredited senior appraiser in good standing of the American Society
of Appraisers, a national organization that certifies business
appraisers. HVA conforms to the Uniform Standards of Professional
Appraisal Practice for purposes of business valuations. HVA also conforms
to the Business Valuation Standards I through IX set forth by the
American Society of Appraisers in September 1992.
<PAGE> 110
APPENDIX D
PROFESSIONAL QUALIFICATIONS
DAVID DORTON, CFA, ASA
<PAGE> 111
DAVID L. DORTON, CFA, ASA
PROFESSIONAL DESIGNATIONS Chartered Financial Analyst (CFA) Accredited
Senior Appraiser (ASA) Senior Member, American
Society of Appraisers
ACADEMIC DEGREES B.S., University of Utah, Finance, Magna Cum
Laude M.B.A., University of Utah
EMPLOYMENT HOULIHAN VALUATION ADVISORS
Principal - 1986 to Present
Houlihan Valuation Advisors provides
professional services relative to business
valuations, fairness and solvency opinions,
economic loss analyses, and other valuation and
economic issues. The firm has offices in Los
Angeles, Orange County, San Francisco, San
Carlos, Las Vegas, Salt Lake City, Denver,
Kansas City, Chicago and Atlanta.
WASATCH ADVISORS CONSULTING GROUP
Managing Analyst - 1984 to 1986
Wasatch Advisors provides investment advisory
services. Wasatch Advisors Consulting Group
provided corporate valuation, financial
analysis and consulting services.
JPS FINANCIAL CONSULTANTS
Financial Analyst - 1981 to 1984
JPS Financial Consultants provided corporate
valuation and financial analysis services.
EXPERIENCE Has valued hundreds of privately held companies
and businesses since 1981, as well as being a
financial consultant for numerous companies.
Has prepared numerous valuation studies,
analyzed the relative merits of
merger/acquisition proposals, analyzed and
prepared opinion letters as to the
<PAGE> 112
fairness of such proposals, prepared solvency
opinions, prepared ESOP feasibility studies,
and been involved in a wide array of other
financial analysis and consulting activities
for clients. Has served as an expert witness on
valuation, economic and financial matters in
federal and state district courts on numerous
occasions.
PROFESSIONAL SOCIETIES Salt Lake City Society of Financial Analysts
American Society of Appraisers, Past President,
Salt Lake City Chapter Association for
Investment Management and Research
OTHER Who's Who of Emerging Leaders in America Who's
Who of Finance
SPEAKING ENGAGEMENTS Has participated in many seminars and has spoken
on valuation issues on numerous occasions.
<PAGE> 113
APPENDIX E
INTERNAL REVENUE RULING 59-60, 1959-1 CB 237
<PAGE> 114
INTERNAL REVENUE RULING 59-60
SECTION 2031. DEFINITION OF GROSS ESTATE
26 CFR 20.2031-2; Valuation of stocks and bonds (Also Section 2512.) (Also Part
II, Sections 811 (k), 1005
Regulations 105, Section 81.10.)
In valuing the stock of closely held corporations, or the stock of
corporations where market quotations are not available, all other
available financial data, as well as all relevant factors affecting
the fair market value, must be considered for estate tax and gift tax
purposes. No general formula may be given that is applicable to the
many different valuation situations arising in the valuation of such
stock. However, the general approach, methods, and factors which must
be considered in valuing such securities are outlined.
Revenue Ruling 54-77, C.B. 1954-1, 187, superseded.
Section 1. Purpose
The purpose of this Revenue Ruling is to outline and review in general the
approach, methods and factors to be considered in valuing shares of the capital
stock of closely held corporations for estate tax and gift tax purposes. The
methods discussed herein will apply likewise to the valuation of corporation
stocks on which market quotations are either unavailable or are of such scarcity
that they do not reflect the fair market value.
Section 2. Background and Definitions
.01 All valuations must be made in accordance with the applicable
provisions of the Internal Revenue Code of 1954 and the Federal
Estate Tax and Gift Tax Regulations. Sections 2031(a), 2032 and
2512(a) of the 1954 Code (Sections 811 and 1005 of the 1939 Code)
require that the property to be included in the gross estate, or made
the subject of a gift, shall be taxed on the basis of the value of
the property at the time of death of the decedent, the alternate date
if so elected, or the date of gift.
.02 Section 20.2031-1(b) of the Estate Tax Regulations (section 81.10
of the Estate Tax Regulations 105) and section 25.2512-1 of the Gift
Tax Regulations (section 86.19 of Gift Tax Regulations 108) define
fair market value, in effect, as the price at which the property
would change hands between a willing buyer and a willing seller when
the former is not under any compulsion to buy and the latter is not
under any compulsion to sell, both parties having reasonable
knowledge of relevant facts. Court decisions frequently state an
addition that the hypothetical buyer and seller are assumed to be
able, as well as willing, to trade and to be well informed about the
property and concerning the market for such property.
1
<PAGE> 115
.03 Closely held corporations are those corporations the shares of
which are owned by a relatively limited number of stockholders. Often
the entire stock issue is held by one family. The result of this
situation is that little, if any, trading in the shares takes place.
There is, therefore, no established market for the stock and such
sales as occur at irregular intervals seldom reflect all of the
elements of the representative transaction as defined by the term
"fair market value".
Section 3. Approach to Valuation
.01 A determination of fair market value, being a question of fact,
will depend upon the circumstances in each case. No formula can be
devised that will be generally applicable to the multitude of
different valuation issues arising in the estate and gift tax cases.
Often, an appraiser will find wide differences, he should maintain a
reasonable attitude in recognition of the fact that valuation is not
an exact science. As sound valuation will be based upon all the
relevant facts, but the elements of common sense, informed judgment
and reasonableness must enter into the process of weighing those
facts and determining their aggregate significance.
.02 The fair market value of specific shares of stock will vary as
general economic conditions change from "normal" to "boom" or
"depression," that is, according to the degree of optimism or
pessimism with which the investing public regards the future at the
required date of appraisal. Uncertainty as to the stability or
continuity of the future income from a property decreases its value
by increase the risk of loss of earnings and value in the future. The
value of shares of stock of a company with very uncertain future
income from a property decreases its value by INCREASE the risk of
loss of earnings and value in the future. The value of shares of
stock of a company with very uncertain future prospects is highly
speculative. The appraiser must exercise his judgment as to the
degree of risk attaching to the business of the corporation which
issued the stock, but that judgment must be related to all of the
other factors affecting value.
.03 Valuation of securities is, in essence, a prophesy as to the
future and must be based on facts available at the required date of
appraisal. As a generalization, the prices of stocks which are traded
in the volume in a free and active market by informed persons best
reflect the consensus of the investing public as to what the future
holds for the corporations and industries represented. When a stock
is closely held, is traded infrequently, or is traded in an erratic
market, some other measure of value must be used. In many instances,
the next best measure may be found in the prices at which the stocks
of companies engaged in the same or similar line of business are
selling in a free and open market.
Section 4. Factors to Consider
2
<PAGE> 116
.01 It is advisable to emphasize that in the valuation of the stock
of closely held corporations or the stock of corporations where
market quotations are either lacking or too scarce to be recognized,
all available financial data, as well as all relevant factors
affecting the fair market value, should be considered. The following
factors, although not all-inclusive, are fundamental and require
careful analysis in each case:
(a) The nature of the business and the history of
the enterprise from its inception.
(b) The economic outlook in general and the
condition and outlook of the specific industry
in particular.
(c) The book value of the stock and the financial
condition of the business.
(d) The earning capacity of the company.
(e) The dividend-paying capacity.
(f) Whether or not the enterprise has goodwill or
other tangible value.
(g) Whether or not the enterprise has goodwill or
other tangible value.
(h) The market price of stocks of corporations
engaged in the same or a similar line of
business having their stocks actively traded in
a free and open market, either on an exchange
or over-the-counter.
.02 The following is a brief discussion of each of the foregoing
factors:
(a) The history of a corporate enterprise will show its past
stability or instability, its growth or lack of growth,
the diversity or lack of diversity of its operations, and
other facts needed to form an opinion of the degree of
risk involved in the business. For an enterprise which
changed its form of organization but carried on the same
or closely similar operations of its predecessor, the
history of the former enterprise should be considered. The
detail to be considered should increase with approach to
the required date of appraisal, since recent events are of
the greatest help in predicting the future; but a study of
gross and net income, and of dividends covering a long
prior period, is highly desirable. The history to be
studied should include but need not be limited to the
nature of the business, its products or services, its
operating and investment assets, capital structure, plant
facilities, sales records and management, all of which
should be considered as of the date of the appraisal, with
due regard for recent significant
3
<PAGE> 117
changes. Events of the past that are unlikely to recur in
the future should be discounted, since value has a close
relations to future expectancy.
(b) A sound appraisal of a closely held stock must consider
current and prospective economic conditions as of the date
of appraisal, both in the national economy and in the
industry or industries with which the corporation is
allied. It is important to know that the company is more
or less successful that its competitors in the same
industry, or that it is maintaining a stable position with
respect to competitors. Equal or even greater significance
may attach to the ability of the industry with which the
company is allied to compete with other industries.
Prospective competition which has not been a factor in
prior years should be given careful attention. For
example, high profits due to the novelty of its product
and the lack of competition often lead to increasing
competition. The public's appraisal of the future
prospects of competitive industries or of competitors
within an industry may be indicated by price trends in the
markets for commodities and for securities. The loss of
the manager of a so-called "one-man" business may have a
depressing effect upon the value of the stock of such
business, particularly if there is a lack of trained
personnel capable of succeeding to the management of the
enterprise. In valuing the stock of this type of business,
therefore, the effect of the loss of the manager on the
future expectancy of the business and the absence of
management-succession potentialities are pertinent factors
to be taken into consideration. On the other hand, there
may be factors which offset, in whole or in part, the loss
of the manager's services. For instance, the nature of the
business and of its assets may be such that they will not
be impaired by the loss of the manager's services.
Furthermore, the loss may be adequately covered by life
insurance, or competent management might be employed on
the basis of the consideration paid for covered by life
insurance, or competent management might be employed on
the basis of the consideration paid for the former
manager's services. These, or other offsetting factors, if
found to exist, should be carefully weighed against the
loss of the manager's services in valuing the stock of the
enterprise.
(c) Balance sheets should be obtained, preferably in the form
of comparative annual statements for two or more years
immediately preceding the date of appraisal, together with
a balance sheet at the end of the month preceding that
date, if corporate accounting will permit. Any balance
sheet descriptions that are not self-explanatory and
balance sheet items comprehending diverse assets or
liabilities should be clarified in essential detail by
supporting supplemental schedules. These statements
usually will disclose to the appraiser: (1) liquid
position (ratio of current assets to
4
<PAGE> 118
current liabilities); (2) gross and net book value of
principal classes of fixed assets; (3) working capital;
(4) long-term indebtedness; (5) capital structure; and (6)
net worth. Consideration also should be given to any
assets not essential to the operation of the business,
such as investments in securities, real estate, etc. In
general, such nonoperating assets will command a lower
rate of return than do the operating assets, although in
exceptional cases the reverse may be true. In computing
the book value per share of stock assets of the investment
type should be revalued on the basis of their market price
and the book value adjusted accordingly. Comparison of the
company's balance sheets over several years may reveal,
among other facts, such developments as the acquisition of
additional production facilities or subsidiary companies,
improvement in financial position, and details as to
recapitalizations and other changes in the capital
structure of the corporation. If the corporation has more
than one class of stock outstanding, the charter or
certificate of incorporation should be examined to
ascertain the explicit rights and privileges of the
various stock issues, including: (1) voting powers, (2)
preference as to dividends, and (3) preference as to
assets in the event of liquidation.
(d) Detailed profit-and-loss statements should be obtained and
considered for a representative period immediately prior
to the required date of appraisal, preferably five or more
years. Such statements should show (1) gross income by
principal items; (2) principal deductions from gross
income including major prior items of operating expenses,
interest and other expense on each item of long-term debt,
depreciation and depletion if such deductions are made,
officer's salaries, in total if they appear to be
reasonable are made, officers' salaries, in total if they
appear to be reasonable or in detail if they seem to be
excessive, contributions (whether or not deductible for
tax purposes) that the nature of its business and its
community position require the corporation to make, and
taxes by principal items, including income and excess
profit taxes; (3) net income available for dividends; (4)
rates and amounts of dividends paid on each class of
stock; (5) remaining amount carried to surplus; and (6)
adjustments to and reconciliation and with surplus as
stated on the balance sheet. With profit and loss
statements of this character available, the appraiser
should be able to separate recurrent from nonrecurrent
items of income and expense, to distinguish between
operating income and investment income, and to ascertain
whether or not any line of business in which the company
is engaged is operated consistently at a loss and might be
abandoned with benefit to the company. The percentage of
earnings retained for business expansion should be noted
when dividend-paying capacity is considered. Potential
future income is a major factor in many valuations of
closely-held stocks, and all information concerning past
income which will be helpful in
5
<PAGE> 119
predicting the future should be secured. Prior earnings
records usually are the most reliable guide as to the
future expectancy, but resort to arbitrary five- or
ten-year averages without regard to current trends or
future prospects will not product a realistic valuation.
If, for instance, a record of progressively increasing or
decreasing net income is found, then greater weight may be
accorded the most recent years' profits in estimating
earning power. It will be helpful, in judging risk and the
extent to which a business is marginal operations, to
consider deductions from income and net income in terms of
percentage of sales. Major categories of cost and expense
to be so analyzed include the consumption of raw materials
and supplies in the case of manufacturers, processors and
fabricators; the cost of purchased merchandise in the case
of merchants; utility services, insurance; taxes;
depletion or depreciation; and interest.
(e) Primary consideration should be given to the
dividend-paying capacity of the company rather than to
dividends actually paid in the past. Recognition must be
given to the necessity of retaining a reasonable portion
of profits in a company to meet competition.
Dividend-paying capacity is a factor that must be
considered in an appraisal, but dividends actually paid in
the past may not have any relation to dividend-paying
capacity. Specifically, the dividends paid by a closely
held family company may be measured by the income needs of
the stockholders or by their desire to avoid taxes on the
dividend receipts, instead of by the ability of the
company to pay dividends. Where an actual or effective
controlling interest in a corporation is to be valued, the
dividend factor is not a material element, since the
payment of such dividends is discretionary with the
controlling stockholders. The individual or group in
control can substitute salaries and bonuses for dividends,
thus reducing net income and understating the
dividend-paying capacity of the company. It follows,
therefore, that dividends are less reliable criteria of
fair market value than other applicable factors.
(f) In the final analysis, goodwill is based upon earning
capacity. The presence of goodwill and its value,
therefore, rests upon the excess of net earnings over and
above a fair return on the net tangible assets. While the
element of goodwill may be based primarily on earnings,
such factors as the prestige and renown of the business,
the ownership of a trade or brand name, and a record of
successful operation over a prolonged period in a
particular locality also may furnish support for the
inclusion of intangible value. In some instances it may
not be possible to make a separate appraisal of the
tangible and intangible assets of the business. The
enterprise has a value as an entity. Whatever intangible
value there is, which supportable by the facts, may be
measured by the amount by which
6
<PAGE> 120
the appraised value of the intangible assets exceeds the
net book value of such assets.
(g) Sales of stock of a closely held corporation should be
carefully investigated to determine whether they represent
transactions at arm's length. Forced or distress sales do
not ordinarily reflect fair market value nor do isolated
sales in small amounts necessarily control as the measure
of value. This is especially true in the valuation of a
controlling interest in a corporation. Since, in the case
of closely held stocks, no prevailing market prices are
available, there is not basis for making an adjustment for
blockage. It follows, therefore, that such stocks should
be valued upon a consideration of all the evidence
affecting the fair market value. The size of the block of
stock itself is a relevant factor to be considered.
Although it is true that a minority interest in an
unlisted corporation's stock is more difficult to sell
than a similar block of listed stock, it is equally true
that control of a corporation, either actual or in effect,
representing as it does an added element of value, may
justify a higher value for a specific block of stock.
(h) Section 2031(b) of the Code states, in effect, that in
valuing unlisted securities the value of stock or
securities of corporations engaged in the same or a
similar line of business which are listed on an exchange
should be taken into consideration along with all factors.
An important consideration is that the corporations to be
used for comparisons have capital stocks which are
actively traded by the public. In accordance with section
2031(b) of the Code, stocks listed on an exchange are to
be considered first. However, if sufficient comparable
companies whose stocks are listed on an exchange cannot be
found, other comparable companies which have stocks
actively traded in on the over-the-counter market also may
be used. The essential factor is that whether the stocks
are sold on an exchange or over-the-counter there is
evidence of an active, free public market for the stock as
of the valuation date. In selecting corporations for
comparative purposes, care should be taken to use only
comparable companies. Although the only restrictive
requirement as to comparable corporations specified in the
statute is that their lines of business be the same or
similar, yet it is obvious that the consideration must be
given to other relevant factors in order that the most
valid comparison possible will be obtained. For
illustration, a corporation having one or more issues of
preferred stock, bonds or debentures in addition to its
common stock should not be considered to be directly
comparable to one having only common stock outstanding. In
like manner. A company with a declining business and
decreasing market is not comparable to one with a record
of current progress and market expansion.
7
<PAGE> 121
Section 5. Weight to be accorded Various Factors
The valuation of closely held corporation stock entails the consideration of all
relevant factors as stated in Section 4. Depending upon the circumstances in
each case, certain factors may carry more weight than others because of the
nature of the company's business. To illustrate:
(a) Earnings may be the most important criterion of value in
some cases whereas asset value will receive primary
consideration in others. In general, the appraiser will
accord primary consideration to earnings when valuing
stocks of companies which sell products or services to the
public; conversely, in the investment or holding type of
company, the appraiser may accord the greatest weight to
the assets underlying the security to be valued.
(b) The value of the stock of a closely held investment or
real estate holding company, whether or not family owned,
is closely related to the value of the assets underlying
the stock. For companies of this type the appraiser should
determine the fair market values of the assets of the
company. Operating expenses of such a company and the cost
of liquidating, if any, merit consideration when
appraising the relative values of the stock and the
underlying assets. The market values of the underlying
assets give due weight to potential earnings and dividends
of the particular items of property underlying the stock,
capitalized at rates deemed proper by the investing public
at the date of appraisal. A current appraisal by the
investing public should be superior to the retrospective
opinion of an individual for these reasons, adjusted net
worth should be accorded greater weight in valuing the
stock of a closely held investment or real estate holding
company, whether or not family owned, than any of the
other customary yardsticks of appraisal, such as earnings
and dividend paying capacity
Section 6. Capitalization Rates
In the application of certain fundamental valuation factors, such as earnings
and dividends, it si necessary to capitalize the average or current results at
some appropriate rate. A determination or the proper capitalization rate
presents one of the most difficult problems in valuation. That there is no ready
or simple solution will become apparent by a cursory check of the rates of
return and dividend yields in terms of the selling prices of corporate shares
listed on the major exchanges in the country. While variations will be found
even for companies in the same industry. Moreover, the ration will fluctuate
from year to year depending upon economic conditions. Thus, no standard tables
of capitalization rates applicable to closely held corporations can be
formulated.
8
<PAGE> 122
Among the more important factors to be taken into consideration in deciding upon
a capitalization rate in a particular case are: (1) the nature of the business;
(2) the risk involved; and (3) the stability or irregularity of earnings.
Section 7. Average of Factors
Because valuations cannot be made on the basis of a prescribed formula, there is
no means whereby the various applicable factors in a particular case can be
assigned mathematical weights in deriving the fair market value. For this
reason, no useful purpose is served by taking an average of several factors (for
example, book value, capitalized earnings and capitalized dividends) and basing
the valuation on the result cannot be supported by a realistic application of
the significant facts in the case except by mere chance.
Section 8. Restrictive Agreements
Frequently, in the valuation of closely held stock for estate and gift tax
purposes, it will be found that the stock is subject to an agreement restricting
its sale or transfer. Where shares of a stock were acquired by a decedent
subject to an option reserved by the issuing corporation to repurchase at a
certain price, the option price is usually accepted as the fair market value for
estate tax purposes (see Revenue ruling 54-76, C.B. 1954-1, 194.) However, in
such cases the option price is not determinative of fair market value for gift
tax purposes. Where the option or buy and sell agreement is the result of
voluntary action by the stockholders and is binding during the life as well as
the death of stockholders, such agreement may or may not, depending upon the
circumstances of each case, fix the value for estate tax purposes. However, such
agreement is a factor to be considered, with other relevant factors, in
determining fair market value. Where the stockholder is free to dispose of his
shares during life and the option is to become effective only upon his death,
the fair market value is not limited to the option price. It is always necessary
to consider the relationship of the parties, the relative number of shares held
by the decedent, and other material facts, to determine whether the agreement
represents a bona fide business arrangement or is a device to pass the
decedent's shares to the natural objects of his bounty for less than an adequate
and full consideration in money or money's worth. (In this connection, see
Revenue Ruling 157 C.B. 1953-2, 255, and Revenue Ruling 189, C.B. 1953-2, 294.)
Section 9. Effect on Other Documents
Revenue Ruling 54-77, C.B. 1954-1, 187, is hereby superseded.(1)
- -----------------------------
(1)Source: Internal Revenue Bulletin; Cumulative Bulletin 1959-1, January -
June 1959, pp. 237-244.
9
<PAGE> 1
EXHIBIT 99.5
VALUATION
BEEHIVE INSURANCE AGENCY, INC.
AS OF JUNE 30, 1997
PREPARED BY:
HOULIHAN VALUATION ADVISORS
OCTOBER 23, 1997
<PAGE> 2
October 23, 1997
Shareholders
Beehive Insurance Agency, Inc.
227 West 600 South
Salt Lake City, Utah 84101
Dear Shareholders:
Attached is the valuation report on Beehive Insurance Agency, Inc.
(hereinafter referred to as "Beehive Insurance" or "the Company"), which
Houlihan Valuation Advisors ("HVA") has completed at your request. The purpose
of the report is to render an opinion as to the fair market enterprise
(controlling interest) value of Beehive Insurance as of June 30, 1997.
The term "fair market value" is defined as that value at which a willing
buyer and willing seller, neither being compelled to act and both being well
informed of the relevant facts and conditions which might be anticipated, would
effect a sale of an asset at "arm's length" on a given date.
Our study was undertaken using widely accepted principles of financial
analysis and valuation. In particular, we observed the principles set forth in
Internal Revenue Ruling 59-60, 1959-1 CB 237. The book/liquidation value,
transaction value, market value, and income value methods of valuation were
utilized in arriving at an estimate of the fair market enterprise value of
Beehive Insurance.
In preparing this valuation, we used information provided by Beehive
Insurance. Company management has represented the information as being
reasonably complete and accurate. We did not make independent examinations of
any financial statements or other information prepared by management which was
relied upon and, accordingly, we make no representations or warranties nor do we
express any opinion regarding the accuracy or reasonableness of such. All of the
information made available to us was carefully analyzed and reasonable attempts
were made to find additional information which would be helpful in this study.
<PAGE> 3
Page 2
Financial projections utilized in the valuation were prepared based on
analysis of the Company's historical operating results and conversations with
Company management. It should be emphasized that forecasting the future is at
best a difficult and tenuous process. There will undoubtedly be disparities
between the projected figures and actual results, since events and circumstances
frequently do not occur as expected, and those disparities may be material.
This report has been prepared for the specific purpose of valuing the
common stock of Beehive Insurance on an enterprise value basis pursuant to and
in anticipation of a proposed merger and consolidation into a company to be
newly formed of Beehive Insurance with three other related companies: W.W. Clyde
& Company, Geneva Rock Products, Inc., and Utah Service, Inc. The report is
intended for no other use, and is not to be copied or given to unauthorized
persons without the direct written consent of HVA.
Since valuation is an imprecise science, HVA does not purport to be a
guarantor of value. Value is a question of informed judgment, and reasonable
persons can differ in their estimates of value. HVA does certify that this
valuation study was conducted and the conclusions arrived at independently using
conceptually sound and commonly accepted methods of valuation.
Our study has concluded that a reasonable estimate of the fair market
enterprise value of Beehive Insurance as of June 30, 1997 is $1,800,000 or
$83.77 per share, based on 21,487 shares outstanding.
Neither HVA or its principals have any present or intended interest in
Beehive Insurance. HVA's fees for this valuation are based on professional time
charges, and are in no way contingent upon the final valuation figure arrived
at.
It has been a pleasure to perform this analysis for you. We look forward
to serving you in the future.
Houlihan Valuation Advisors
by: David Dorton, CFA, ASA
Accredited Senior Appraiser
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
I. PREFACE 1
II. BASIC PRINCIPLES OF VALUATION 2
III. INTRODUCTION 4
A. Purpose 4
B. Scope 4
C. Methodology 4
IV. COMPANY BACKGROUND 6
A. Overview 6
B. Employees and Management 7
C. Ownership 7
V. ECONOMIC OVERVIEW AND OUTLOOK 8
A. National - June 1997 8
B. Utah - 1997 13
VI. INDUSTRY OVERVIEW 20
A. Property/Casualty Insurance 20
B. Property/Casualty Insurance Industry Outlook 29
C. Insurance Agencies and Brokers 33
VII. FINANCIAL REVIEW 40
VIII. CROSS-SECTIONAL ANALYSIS 45
IX. ESTIMATES OF VALUE 47
A. Nature of the Security 47
1. Control 47
2. Marketability 47
B. Normalization of Earnings 48
1. Regression Analysis 49
2. Past Averages 49
3. Company Projections 50
4. Projected Earnings 50
C. Book/Liquidation Value 51
D. Market Value 53
E. Income Value 57
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C>
X. SUMMARY AND CONCLUSION 60
XI. EXHIBITS 61
</TABLE>
<PAGE> 6
TABLE OF CONTENTS
(continued)
APPENDIX A: Beehive Insurance - Financial Statement Summary
APPENDIX B: Robert Morris Associates Industry Ratios -
Insurance Agents & Brokers
APPENDIX C: Statement of Limiting Conditions
APPENDIX D: Professional Qualifications
APPENDIX E: Internal Revenue Ruling 59-60, 1959-1 CB 237
<PAGE> 7
1
PREFACE
This valuation study was conducted at the request of the shareholders of
Beehive Insurance Agency, Inc. ("Beehive Insurance" or "the Company") to provide
an estimate as to the fair market enterprise (controlling interest) value of the
Company as of June 30, 1997. In preparing this report, information provided by
the Company was used. Company management has represented the information as
being reasonably complete and accurate, and as fairly presenting the financial
position, prospects and related facts of the Company. Houlihan Valuation
Advisors ("HVA") is not in a position to certify the accuracy of basic data
provided by the Company, and the validity of this valuation study is dependent
upon the accuracy of such data. HVA does certify that conceptually sound methods
were used in the valuation.
<PAGE> 8
2
BASIC PRINCIPLES OF VALUATION
The principles which have governed this analysis provide a basis for the
determination of value where an active market for a company's securities is
lacking. The valuation procedure attempts to analyze the earning power of a
company and the ability of the company to convert this earning power into value.
Earning power is related to the rates of return expected in the financial
markets for various types of investment alternatives, with consideration given
to past history, expected growth rates and risk. This report provides a direct
comparison between Beehive Insurance's operations and those of companies
operating in the same industry. From this comparison, certain reasonable
conclusions concerning the relative financial position and performance of the
Company may be drawn.
Fair market value is that value at which a willing buyer and willing
seller, neither being compelled to act and both being well informed of the
relevant facts and conditions which might be anticipated, would effect a sale of
an asset at "arm's length" on a given date.
The value of securities of a corporation in the hands of its
stockholders and the value of the underlying assets of the corporation are
usually only incidentally related. The value of securities which are freely
traded in a public market is influenced as much by external factors beyond the
control of the company as it is by internal factors within the control of
management. Such external factors include:
a. General economic conditions;
b. Conditions existing within a specific industry (e.g., degree of risk,
stability or rate of growth);
c. Public attitude and investor sentiment toward particular industries
and companies.
Fair market value of securities which enjoy an active public market is
determined by actual
<PAGE> 9
3
market quotations on a particular date, unless the market for a security is
affected by some abnormal influence or condition. Determination of fair market
value of securities of a closely held corporation, however, cannot be determined
as precisely, thus creating a need for independent professional business
valuation. Principal weight must be given to evidences of earning power, book
value, dividend paying capacity, financial and competitive position, and other
facts and circumstances which a potential buyer and seller would consider. Also,
prices realized in actual sales of similar companies on or about the valuation
date afford a realistic measure of value.
Professional valuation of a closely held company cannot be considered an
exact science; however, experience has shown that comprehensive and thorough
valuation analyses can generate ranges of value which are reasonable and
relevant.
The various techniques used in this report are based on different
concepts and assumptions. As a result, their application produces a range of
possible values. A single number within that range is given as a reasonable
estimate of value as of the valuation date. It should be emphasized that, as is
the case with publicly traded securities, when expectations for Beehive
Insurance change over time, so does its value. Further, the value of a firm may
fluctuate over time even though its internal operating characteristics remain
essentially unchanged. The securities market places different significance on
income and risk properties of companies as general economic conditions vary.
<PAGE> 10
4
INTRODUCTION
Purpose
The purpose of this report is to determine the fair market enterprise
(controlling interest) value of Beehive Insurance as of June 30, 1997, pursuant
to and in anticipation of a proposed merger and consolidation into a company to
be newly formed of Beehive Insurance with three other related companies: W.W.
Clyde & Company, Geneva Rock Products, Inc., and Utah Service, Inc.
Scope
Both internal and external factors which influence the value of Beehive
Insurance are analyzed and interpreted. Internal factors include the Company's
performance and financial structure, as well as the size and marketability of
the interest being valued. External factors include, among others, the health of
the industry and the position of the Company therein, economic trends, and
conditions in the securities markets.
Methodology
The report first looks at the background and operating characteristics
of Beehive Insurance. It next provides overviews of the national and Utah
economies and the property/ casualty insurance and insurance brokerage/agency
industries, each important as a description of the environment in which the
Company operates. A financial analysis of the Company, as well as a comparative
analysis of the results of the Company with those of the industry, follows.
Finally, the report determines explicit controlling interest values for the
Company via the application of alternative valuation techniques. Four valuation
methods are employed: book/liquidation value, transaction value, market value
(derived from market value ratios of similar firms), and income value (based on
the present value of
<PAGE> 11
5
future benefits). After considering the assumptions and relative justification
of each valuation method, the results are synthesized into a final value
estimate on a controlling interest basis of the common stock of the Company.
<PAGE> 12
6
COMPANY BACKGROUND
Overview
Beehive Insurance Agency was founded and incorporated in the State of
Utah on June 20, 1961. The Company was formed to operate as an independent
insurance agency for the sale of all types of insurance coverage to the general
public. The Company's operations have gradually evolved into the sale of
primarily commercial property and casualty insurance coverages. Various other
businesses owned by the W.W. Clyde family (particularly W.W. Clyde & Company and
Geneva Rock Products, which collectively generate approximately 50% of the
Company's revenues) comprise a significant portion of the Company's client base;
however, several other independent customers are also serviced by the Company.
St. Paul Fire & Marine and Reliance Insurance Company are the insurance
carriers providing coverage and surety bonds for W.W. Clyde & Company, while
Geneva Rock Products is insured through Royal Insurance Co. and USF&G. These are
the primary carriers represented by Beehive Insurance; other carriers brokered
by the Company in smaller amounts include Ohio Casualty and Unigard Insurance.
The majority of the Company's customers are located along the Wasatch
Front in the state of Utah, although some of these customers also have
out-of-state operations. The Company also has a few customers in other parts of
Utah, as well as in surrounding states. The Company's share of the Utah property
and casualty insurance market is estimated at 1% or less. The Company acquires
new customers primarily by referral from existing customers. Some advertising is
done, mainly in contractor trade journals and other publications. The Company
currently has no expansion plans.
<PAGE> 13
7
Beehive Insurance's primary competitive strength is its strong and loyal
customer base. Many of the Company's accounts have been with it since inception.
According to management, the key to competing in the insurance agency business
is having the right insurance company available at the time it is needed. Since
an insurance agency can only represent a limited number of insurance providers,
it is difficult to have the right insurance company when an opportunity arises.
The primary competitive weakness of the Company is its small size, which results
in a limited number of insurance carriers it can represent at any one time.
The Company's operating facility is located on a .31 acre parcel of land
located in downtown Salt Lake City, Utah. The Company owns both the building out
of which it conducts operations and the land on which it is located.
Employees and Management
Beehive Insurance has only four employees. W. Douglas Snow is the
Company's President and General Manager, and is the key employee of the Company.
The Company's officers are Mr. Snow, President; B. Clyde Gammell, Vice
President; and Carol C. Salisbury, Secretary/Treasurer. The Company's Board of
Directors consists of Mr. Snow, Mr. Gammell, Ms. Salisbury, J. Richard Walton,
Richard C. Clyde, Wilford W. Clyde, Norman D. Clyde, and Hal M. Clyde.
Ownership
Beehive Insurance has a total of 21,487 common shares issued and
outstanding, held by 50 shareholders. There are no controlling shareholders; the
largest shareholder is W.W. Clyde Investment, which owns only 3,700 shares (or
17.2% of the total).
<PAGE> 14
8
ECONOMIC OVERVIEW AND OUTLOOK
National - June 1997
To a greater extent than not, it is still the best of all possible
worlds. For example, the economic uptrend, which is now in its seventh year,
gives no sign of drawing to a close, notwithstanding some recent figures that
suggest a moderately slower pace of growth in the months ahead. Inflation, at
both the producer and consumer levels, is still muted, with most price indexes
showing inflation at its lowest sustained levels in three decades. Short- and
long-term interest rates remain relatively low, even after an earlier monetary
tightening maneuver by a worried Federal Reserve Board. Corporate earnings
continue to push higher, buoyed by rising demand and increasing productivity.
And the stock market, an occasional setback aside, is still setting all-time
highs with some regularity.
The status quo, however, doesn't persist indefinitely. Thus, sooner or
later, even the most carefully scripted scenario will come undone, or at least
be modified sufficiently to change the prevailing assumptions. In fact, as noted
above, we may already be seeing the first small cracks in the nation's economic
armor, with recent figures showing an easing in retail sales, a flattening in
industrial production, and a slight diminution in the growth of housing demand.
Then too, while recent inflation figures have been generally reassuring, there
is also no denying that selective pricing pressures are starting to build in the
commodity area, with coffee, oil, and tobacco quotations all up sharply over the
past several weeks. Finally, the Federal Reserve - which attempts to keep the
economy and inflation on an even keel - is currently in a somewhat more cautious
mood than it was three or six months ago. In all, then, with the economy still
apparently in good health, with a few clouds starting to appear in an
<PAGE> 15
9
otherwise bright inflation picture, and with Fed Chairman Alan Greenspan not
backtracking from his earlier warnings about an excess of exuberance in the
stock market, the penalties for the lead bank erring on the side of not lifting
interest rates in the months ahead may now well exceed those for standing pat.
And should the Fed, which saw prior long business expansions (in the 1960s and
1980s) end with a bout of rising inflation, fear a replay and raise rates once
or twice more, economic growth would likely slow sufficiently to put a damper on
corporate profits. The stock market, which is now trading at near-record levels
and at lofty valuations, in part because of the almost uninterrupted growth in
corporate earnings, might then face its first serious test in several years.
The economy put on quite a show during the final three months of 1996,
with real, inflation-adjusted gross domestic product (GDP) advancing at a
scintillating 4.7% rate. The expansion then, to the surprise of many, picked up
additional strength in the opening quarter of 1997, as higher levels of consumer
spending and strength in the construction and industrial sectors helped produce
growth that was close to 6%. Clearly, however, this stepup in economic activity
was unnerving to the Federal Reserve, as the bank presumably saw in this
acceleration the potential to bring about a much higher level of inflation. The
rationale for this point of view is that such strong economic activity would
sooner or later induce shortages of labor, materials, and manufacturing
capacity. These shortages, in turn, would presumably lead to increased pricing
pressures.
The question now is whether or not we will see an encore in the second
quarter. It is not likely that we will, since the retail, manufacturing, and
construction sectors all appear to be leveling off. That having been said,
however, it should also be noted that there is no full-scale retreat in prospect
either. Moreover, such a pullback is not anticipated to take hold in the near
term, given the high levels of
<PAGE> 16
10
consumer confidence and the two-decade low in the unemployment rate. Instead, an
orderly slowing in growth over the next four to six quarters is likely, with GDP
increases averaging between 2.0% and 2.5%. Inflation and interest rates,
meanwhile, should also hold at moderate levels, although with some upward bias.
Corporate profit growth is likely to slow, in the meantime, but not turn down
unless the economy slackens more than is now anticipated.
Peering further out, Value Line projects the above tends to largely
continue, with economic growth and inflation stepping up a bit, to around 3%,
and with interest rates probably not veering appreciably from present levels.
Corporate profits, fueled by increased productivity, additional technological
innovation, and fairly steady growth in demand, are expected to rise at a
mid-to-high single-digit percentage in most years. As always, though, these
long-range projections do not allow for exogenous shocks, such as political
upheavals, military flareups, oil embargoes, or ruinous trade wars, none of
which can be predicted with any degree of assurance as to timing or even
occurrence.
As noted above, the U.S. economy really came on strongly during the
final quarter of 1996 and the opening three months of this year. However, there
are already signs that the economy got off to a rockier start in the second
quarter. For example, retail sales declined in April; auto and truck sales fell
as well; the nation's factories used less of their capacity in the most recent
month; and housing starts, albeit up in the latest survey, were still below
their earlier peak, while building permits, a harbinger of future construction
activity, actually edged downward. All of this having been said, however, the
U.S. economy continues to be remarkably resilient. In fact, with the consumer
continuing to be optimistic and with improving employment figures further
underpinning this confidence, the case for sustained 2.0% - 2.5% growth over the
balance of this year is still quite strong.
<PAGE> 17
11
The inflation news continues to be good as well, with wholesale and
consumer inflation steadfastly holding at modest levels. Moreover, no basic
change in trend over the next year or so is likely, although higher commodity
prices and the ability of certain industries (such as steel) to consistently
raise prices suggest at least an interim upward bias. However, with industrial
raw materials still in adequate supply, with turmoil around the globe at a
minimum, and with the nation's factories, aided by new technology and better
inventory methods, operating without serious production bottlenecks, the
potential for the kinds of energy and industrial materials shortages that
produced rampant price inflation two decades ago is rather limited. Overall,
producer prices are projected by Value Line to rise by 0.5% in 1997 and by 2.2%
in 1998, with consumer prices expected to increase by 2.5% this year and by 2.9%
in 1998. This pattern of restrained inflation is furthermore anticipated to
carry over to the turn of the century.
Interest rates have remained stable, with long-term rates (as
represented by the 30-year Treasury bond) holding within a 6.0% - 8.0% band
during the past several years. This stability is an outgrowth of the absence of
severe pricing pressures. Moreover, with the economy likely to grow more slowly
in the next 12 to 18 months, and with the Fed probably following a slightly
tighter monetary course - in an effort to avoid the need for more drastic action
later on - inflation should stay fairly subdued. All of this suggests that
business spending will not be constrained by high borrowing costs, nor should
potential homebuyers be priced out of the residential market by unaffordable
mortgage rates.
The final factor in sustaining the bull market continues to be rising
corporate income. Profits in certain areas (like semiconductors, computers,
financial services, and pharmaceuticals) have been
<PAGE> 18
12
literally on a several-year-long tear. Overall, profits - backed by strong
demand and better cost management - have now risen for five straight years, with
double-digit percentage growth rather commonplace for much of this period. A
respectable, though quite modest, 5% to 7% increase is likely this year, given
the reasonable first-quarter gains and the solid order and pricing trends
generally now in place. A further, but smaller, 3% to 5% gain is likely in 1998,
as GDP growth slows to perhaps 2%. As the rate of economic improvement steps up
a notch by the close of the century, income growth could quicken moderately as
well.
Buoyed by the best economic and inflation news in a generation, by a
generally neutral to accommodative Fed, and further underpinned by the strongest
profit growth in years, the stock market has been on a virtual six-year-long
joyride. In the process, the Dow Jones Industrial Average has nearly tripled,
surpassing five thousand-point milestones. Further, the trends that have
sustained this long price advance remain in place by and large. Indeed, with few
alternate investments around (e.g., gold, real estate, or art) that offer
anywhere near the historical returns of stocks, many investors continue to look
to the equity market for capital appreciation. And, given the apparently
favorable prospects for the economy, inflation, interest rates, and corporate
profits during the next three to five years, such confidence would seem
warranted, at least on a long-term basis. This good long-term potential aside,
the stock market has come a long way in a very short time. Indeed, at current
historically rich valuation levels, there would seem to be at least the chance
of a market setback at some point. The easy money has likely already been made
this year, and investors will need to exercise restraint until a correction
takes place or profits rise sufficiently to bring valuation levels better into
line.
<PAGE> 19
13
Source: Value Line Investment Survey
<PAGE> 20
14
Utah - 1997
Utah's overall 1996 economic performance was again spectacular. The
state was either the first- or second-fastest job producing state in the nation
for the fourth consecutive year. Favorable interest rates enhanced residential
construction activity, which, when combined with booming commercial building,
contributed significant economic stimulus. The quality of Utah's labor force,
the favorable business and education climate, and the desirable lifestyle
support the favorable economic environment.
The state's 1997 economic outlook remains solid, but forecasted
aggregate growth rates will likely moderate relative to the impressive gains
recorded in 1995 and 1996. 1997 will be the ninth consecutive year of strong
economic growth. There are as yet no serious excess supply or overbuilt
conditions identifiable. A tight labor market and higher employee turnover will
be constraining growth factors. The state's Middle Market Business Index in the
third quarter of 1996 showed sales up 9% and employment gains of 2.5%.
Utah is about to embark upon a huge project to expand and modernize its
transportation infrastructure. Highway and light-rail expenditures are projected
to be $4 billion over the next ten years, to be partially funded through
increased taxes and bonding. The net impact on the local economy is not yet
clear, as disruption to the flow of commerce will partially offset the
stimulative spending effect.
The Utah state government budget in fiscal year 1997 has projected a $24
million surplus and $194 million of additional revenues, following surpluses of
$120 million in fiscal 1994, $72 million in 1995, and $131 million in 1996. Utah
is one of only a handful of states with a solid AAA bond rating.
<PAGE> 21
15
The 2002 Winter Olympics, awarded to Salt Lake City in the summer of
1995, will be extremely important to Utah's economy over the next six years. A
$1 billion Olympic budget, along with the ongoing associated growth in Utah's
winter tourism industry, will be an important sustaining growth factor.
Consumer prices in 1996 along the Wasatch Front rose by 3.9%, compared
with a 1995 annual increase of 4.9% and a 1994 increase of 4.2%. The 1996
second-quarter ACCRA cost of living index as a percent of the national average
was 96.9% in Salt Lake City/Ogden, 102.3% in Provo/Orem, 106.2% in Logan, 94.7%
in Cedar City, and 103.7% in St. George.
Utah's population is projected to reach 2,043,000 in 1997, an increase
of 42,000 people, or 2.1%, from the 1996 figure. Population growth in 1996 of
43,000 people, or 2.2%, was below the 2.6% increase experienced in 1995. The
1996 gain was, nevertheless, the third-fastest nationally, behind Nevada and
Arizona. 1996 was the third consecutive year in which the state's population
increase was equal to or less than the number of new jobs. Net in-migration is
expected to slip only modestly to 13,000 people in 1997 from the 1996 figure of
13,400. Net in-migration occurred for the sixth consecutive year in 1996;
however, the 1996 figure was the smallest annual total during the six year
period. The total net in-migration for the six year period was 108,000, with an
average annual growth of 18,000. In 1996, net in-migration accounted for 31% of
the total population gain, a somewhat smaller proportion than the 40% average of
the prior three years. The number of households in Utah during 1996 was
estimated to be 640,000, with an average of 3.13 persons per household.
<PAGE> 22
16
Utah's personal income is projected to reach $41.5 billion in 1997, or
an increase of 7.7% from the 1996 figure, following gains of 8.2% in 1996, 9.4%
in 1995, and 8.5% in 1994. The 1997 personal income gain should be only
moderately below the highly favorable 1996 growth performance. The state's 1997
personal income growth will likely keep it among the top five in the nation. The
state's 1996 second quarter personal income gain of 8.6% ranked Utah
third-highest nationally, well above the national average growth rate of 5.5%.
Average personal income growth in Utah during the 1991-95 period was 8.1%,
compared with the national average of 5.5%. This ranked the state third in
personal income growth during the period, behind only Nevada and Arizona.
Preliminary data shows that Utah's 1996 average wages rose by
approximately 4.1%, exceeding the 3.7% increase in 1995. However, entry-level
wages and certain industrial segments (particularly technology and
construction-related) are experiencing significant upward wage pressure. Wage
increases will continue in 1997, perhaps at a rate equal to or even exceeding
the 1996 growth rate. Utah's total personal income per household was estimated
at $60,150 in 1996, approximately 92% of the national average. Per capita
personal income in the state during 1996 was $19,289, or 80% of the national
average, up from 73% in 1989.
Utah is expected to generate 41,100 new nonagricultural jobs in 1997, an
increase of 4.3% from the 1996 level, following job gains of 48,100 (or 5.3%) in
1996 and 48,300 (or 5.6%) in 1995. The state's 1997 unemployment rate is
expected to average 3.4%, unchanged from the 1996 figure, which was the lowest
annual level of unemployment in four decades. Because the statewide unemployment
rate stayed at near 3% for much of 1996, Utah's labor market was very tight,
with significant employee turnover and rising wages. An important business
decision in 1997 will be wage
<PAGE> 23
17
administration, attempting to reward and encourage productivity and efficiency,
while at the same time reducing employee turnover.
Utah's 1996 job growth of 5.3% ranked second to that of Nevada as the
highest in the nation. For the fourth consecutive year, the state's job growth
exceeded 5%, an unprecedented accomplishment in the post-World War II era.
During the 1991-95 period, the state's average annual job growth rate was a
remarkable 5.1%, also second highest nationally. The 1997 forecast gain of 4.3%
is below that five-year trend. During the past five years, 211,000 jobs have
been created in Utah, equivalent to 22% of the 1996 total nonagricultural
employment. The state's labor force participation rate is considerably higher
than the national average, with 83% of the state's men working and 61% of the
state's women working, compared with the national averages of 75% of men and 59%
of women. Accordingly, labor market tightness in several industries will remain
evident in 1997.
New employment gains were diversified in 1996. The construction
employment surge of 12% (or 6,500 new jobs) followed gains of 14% in 1995 and
21% in 1994. A manufacturing jobs gain of 4.4% (or 5,500 jobs) was also very
impressive. Service sector employment rose by 7.2%, while new jobs in trade grew
by 4.8%. Government employment rose by only 1.5% and, as a percentage of total
employment, was only 17% in 1996 compared with 22% in 1986. The state's federal
defense employment of 11,300 jobs was down only 600 jobs, or 5%, from the
previous year. Apparently, most of Utah's defense-related employment reduction
is behind us. Conversion of military facilities to private industry, as is
essentially complete in Tooele and beginning in Ogden, holds the promise of
significant future job growth.
<PAGE> 24
18
Single-family building permits are expected to decrease by 5.1% (or by
775 units) in 1997, totaling 14,500 compared with 15,275 in 1996 and 13,904 in
1995. Total construction value in 1997 is projected to be $3.2 billion, a
decline of 11% from the 1996 figure. The housing financing opportunities appear
to be favorable in 1997. Slower net in-migration and employment growth, together
with some indicators of softening in the housing market in late 1996, should
combine to reduce the number of single-family housing starts by 5%.
Multi-family building permits reached nearly 7,400 units in 1996, a gain
of 15%. Salt Lake apartment vacancy rates apparently edged higher in 1996. In
the second half of the year, apartment rental rates were about 3% higher than in
the prior year. In 1997, construction of perhaps 6,000 apartment units is
expected. While an oversupply of housing is not anticipated, a modestly reduced
annual production in 1997 is appropriate.
Real estate sales value in the Salt Lake City Multiple Listing Service
during the January -November 1996 period was up 0.6% (to $1.37 billion), while
the number of single-family homes and condominiums sold dropped 6% (to 9,616).
Available inventory for sale in November 1996 was up more than 50%. Mortgage
recordings during the first nine months of 1996 for new home and resale
financings were $1.522 billion in Salt Lake County, an increase of 27%; $413
million in Utah County, an increase of 8%; $242 million in Weber County, an
increase of 19%; and $130 million in Washington County, an increase of 16%.
The median existing home sales price during the 1996 third quarter in
the Salt Lake/ Ogden area was $123,100, an increase of 5.3% over the prior year,
compared with a 16% gain in 1995. The average 1996 third-quarter residential
sales price in the Salt Lake multiple listing area was $154,676, a
<PAGE> 25
19
gain of 7.0% from the year-earlier figure; however, that gain narrowed to only
1.2% in November. A First Security Bank analysis of housing affordability in
Salt Lake County, using married filing jointly adjusted gross income, indicated
that affordability in 1995 was generally the same as in 1988. The 1996 second
quarter level of housing costs (ACCRA data) was 94.8% of the national average
for Salt Lake City/Ogden, 114.9% for Provo/Orem, 119.0% for Logan, 84.3% for
Cedar City, and 111.4% for St. George. The state's gross mortgage delinquency
rate was 3.6% in September 1996, down from the year-earlier figure of 3.9% and
slightly below the Mountain States' average of 3.8%.
The commencement of the $4 billion, 10-year highway improvement and
transportation project, combined with numerous other large commercial projects
either announced or underway, should sustain rapid growth in Utah's commercial
construction industry. A high level of construction activity is anticipated in
1997 for all major categories of commercial and industrial space. Commercial
real estate vacancy rates in Salt Lake City in the third quarter of 1996 were
5.3% for office space, 4.4% for retail space, and 3.7% for industrial space.
These rates are extremely low, suggesting the likelihood of additional space
being constructed.
Utah's taxable retail sales are forecast to increase by 6.7% in 1997,
significantly below the 11% gain in 1996 and the 8.1% increase in 1995. New
automobile sales may edge slightly higher in 1996, by 1.2%, following the 5.8%
gain achieved in 1996. During the first 11 months of 1996, there were 278,247
tourism room night bookings that the Salt Lake Area Convention and Visitors
Bureau sold to 292 groups. Plans have been completed for a $100 million retail
shopping mall in Provo, with an expected opening in late 1998. Construction has
begun on the $185 million Little America Hotel/Convention Center expansion.
<PAGE> 26
20
Utah bankruptcies during the first ten months of 1996 jumped by 26%,
following a 12% decline in 1995. Higher debt levels and rising housing costs
contributed to the increase. The consumer credit delinquency rate in Utah
(indirect auto loans) in the third quarter of 1996 was 3.22%, higher than the
2.3% national average and significantly above the state's year-earlier level of
1.79%.
Hotel and motel room tax collections for the January - September 1996
were approximately 6% above those of the prior year. The state's hotel occupancy
rate during the first 11 months of 1996 was 74%, unchanged from the 1995 figure.
Passenger totals at the Salt Lake International Airport rose by 15% during the
first ten months of 1996, following a 5% annual increase in 1995.
In conclusion, Utah's 1997 economic outlook remains highly favorable,
but aggregate economic growth rates likely will not duplicate the extraordinary
gains of the past two years. Interestingly, the modestly slower growth may help
solve Utah's two most evident economic problems: an excessively tight labor
market and escalating single-family home prices.
Source: First Security Corporation
<PAGE> 27
21
INDUSTRY OVERVIEW
Property/Casualty Insurance
The property-casualty industry wrote $268.8 billion of premiums during
1996, based on information released in early April 1997 by the Insurance
Services Office (ISO), an industry advisory organization. This sum represents a
3.5% rise from 1995's written premium levels of $259.8 billion, and it continues
a decade-long trend of single-digit written premium growth.
Written premium growth rates during 1996 diverged to a small extent by
line of business. After a relatively strong second half, commercial lines
writers ended 1996 with written premium growth of 4.5% - not bad considering
that this segment contains some of the market's most competitive business lines.
Relatively strong growth rates in certain property lines of coverage, combined
with somewhat improved premium pricing in medical malpractice and workers'
compensation lines, offset ongoing price competition in general liability lines.
Personal lines writers posted 3.8% written premium growth, mainly due to
strength in homeowners' and select auto lines. Balanced lines underwriters -
those that write both commercial and personal lines policies - fared the worst.
This relatively small group (accounting for less than 25% of total premium
volume) posted an anemic 1.3% rise in written premiums. This weakness is most
likely due to the disruptive restructuring actions being undertaken by several
companies in this sector.
For all of 1997, Standard & Poor's anticipates that written premiums
will advance about 4.5% above 1996 levels, to reach approximately $280 billion.
However, there is a lag of approximately 12 months between the time a policy is
written and the time the insurer "earns" the full premium and recognizes it as
revenue. As a result, the modest written premium growth rates recorded during
1996
<PAGE> 28
22
will translate into modest topline growth for many insurers in 1997. During
1996, earned premiums rose about 3.7% to $263.7 billion, from $254.2 billion in
1995.
Incurred losses and loss adjustment expenses rose 2.9% to $206.5 billion
during 1996, versus $200.6 billion of losses and related expenses in 1995. A
number of conditions affect the level of incurred losses. One volatile factor is
the level of catastrophe losses. A catastrophe is defined as an event or a
series of related events that causes insured losses of $5 million or more.
During 1996, the level of catastrophe losses declined. According to the Property
Claim Services Division of the American Insurance Services Group, catastrophe
losses totaled $7.4 billion in 1996, down almost 11% from $8.3 billion of
catastrophe losses incurred in 1995.
However, many property lines, especially homeowners', were impaired by a
high level of weather-related losses. As a result, the industry's pretax
underwriting loss totaled $16.8 billion in 1996, down about 5% from $17.7
billion in 1995.
According to ISO data, the combined ratio ended 1996 at 105.9%, a slight
improvement over the 1995 year-end combined ratio of 106.4%. The combined ratio
is a key measure of underwriting performance, and is a means by which one can
quickly assess an insurer's underwriting acumen. It equals the sum of the loss
ratio, the expense ratio, and the dividend ratio. A combined ratio below 100%
indicates an underwriting profit, while one in excess of 100% indicates an
underwriting loss.
The industry's loss ratio - a comparison of losses and related expenses
to earned premiums - ended 1996 at 78.3%, a slight improvement over the 1995
figure of 78.9%. The industry's expense ratio - equal to other underwriting
expense divided by net written premiums -climbed slightly during 1996. Despite
many participants' efforts to reign in costs, the expense ratio inched upward to
26.5% in
<PAGE> 29
23
1996 from 26.1% in 1995. The dividend ratio - policyholder dividends divided by
earned premiums - declined a bit; it ended 1996 at 1.1%, compared with 1.4% a
year earlier.
Although the overall industry's combined ratio was little changed, the
combined ratios of individual lines varied quite a bit by type of underwriter.
Personal lines underwriters in general were able to offset higher
weather-related losses in the homeowners' line with improved auto loss trends;
they produced a combined ratio of 102.0% in 1996, an improvement over the 1995
figure of 104.0%. Commercial lines writers, too, were able to produce somewhat
better underwriting results. Their combined ratio equaled 106.8% in 1996, down
from 108.2% in 1995. But balanced writers saw their combined ratio deteriorate
to 110.1% in 1996 from 106.8% in 1995.
Loss reserves, the funds set aside to pay future claims, grew only 1.3%
during 1996. At December 31, 1996, the level of loss and loss adjustment expense
(LAE) reserves totaled $365.6 billion, compared with $360.9 billion in 1995. At
first glance, one might be concerned that the overall growth rate of reserves in
1996 was lower than the rate of premium growth. Yet this condition is likely due
to a release of redundant reserves in certain lines of business whose loss
trends were lower than insurers had originally anticipated. The medical
malpractice line is one area in which anecdotal evidence suggests this is the
case. Concerns remain, however, about the adequacy of reserves for environmental
exposures.
Perhaps the brightest spots on insurers' income statements were their
investment results. The industry's net investment gains (equal to net investment
income plus realized capital gains) advanced 10% during 1996, to $47.1 billion,
from $42.8 billion in
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24
1995. Thanks to strong equity markets and relatively low interest rates, net
realized capital gains surged 60%, to $9.6 billion, from $6.0 billion in 1995.
But low interest rates limited the growth in net investment income to 2.2% in
1996, or $37.6 billion, versus $36.8 billion in 1995. And after a strong showing
of $21.7 billion in 1995, net unrealized capital gains declined to $13.9 billion
in 1996.
Although financial statements now include net realized investment gains
as a component of net income, most analysts pay closer attention to net
operating income when monitoring an insurer's results. Because investment gains
can greatly vary from year to year and from insurer to insurer - depending on
market conditions and individual company investment and capital management
strategies - operating earnings tend to provide a better picture of an insurer's
underlying profitability.
Pre-tax operating earnings for the property-casualty industry rose only
3.6% to $20.2 billion in 1996, up from $19.5 billion in 1995. The rather anemic
rate of profit growth reflects modestly higher premium growth, coupled with
higher claim trends in certain coverage lines. Net income after taxes for
property-casualty insurers rose almost 17% in 1996, reaching $24.1 billion; this
was up from $20.6 billion in 1995. The 1996 rise helped push surplus levels
(which are roughly analogous to shareholders' equity) up 11.5% at December 31,
1996, to $256.5 billion, from $230.0 billion a year earlier. The $26.5 billion
year-to-year rise in surplus reflects additions of $24.1 billion in net income,
$13.9 billion in unrealized capital gains, and $4.1 billion in new funds. These
additions were offset by outflows of $8.7 billion in stockholder dividends and
$6.9 billion in miscellaneous surplus charges.
Despite these meager gains, the property-casualty insurance industry
remains underleveraged. In other words, too much capital is chasing too little
business. A ratio that helps quantify the extent of overcapitalization is the
net written premium-to-surplus ratio. At December 31, 1996, the ratio equaled
1.05 to 1, down from 1.13 to 1 at the end of 1995. Typically, regulators let
insurers leverage
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25
their capital two times. In other words, an insurer with $100 in capital would
be allowed to write $200 in premiums. Using the 2-to-1 ratio of premiums to
surplus as a benchmark, it is estimated that the insurance industry had excess
capital of $122.1 billion as of December 31, 1996. The estimate is based on
written premium volume of $268.8 billion in 1996. This excess surplus is about
one and a half times greater than the total surplus of the Top 10 underwriters.
In an environment marked by questionable reserve levels - particularly
for environmental claims - some of this so-called excess capital may not be
genuine. Nonetheless, even if a series of record-breaking catastrophes and a
more conservative reserve posture is factored in, there remains an overabundant
supply of underwriting capacity in the property-casualty insurance market. This
situation doesn't bode well for any improvement in pricing in the near term.
Excess writing capacity has increased premium price competition to the point
where it would be financially unsound for some insurers to write certain
policies. Those insurers would have to offer premiums so low that they couldn't
cover the necessary expenses or receive an adequate return on their capital for
the risk incurred.
Moreover, the heightened competition brought on by this overcapacity has
fueled a consolidation trend. According to a survey conducted by the insurance
consulting firm Conning & Co., insurance industry merger and acquisition volume
more than doubled in a recent two-year span, rising to $27 billion in 1995 from
$12.5 billion in 1994. Moreover, the volume of public offerings - both initial
and secondary - soared from $1.9 billion in 1994 to $4.6 billion in 1995. The
reinsurance sector accounted for approximately 28% of the total dollar volume of
public offerings, a trend driven in part by a number of companies spinning off
their reinsurance divisions in public offerings.
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26
Several recent deals are worth noting, including Berkshire Hathaway's
$2.3 billion purchase of the 49% of Geico Corp. that it didn't already own,
effective January 1996, and Zurich Insurance Group's acquisition of Kemper Corp.
for approximately $1.7 billion, also effective January 1996. That the
consolidation trend has permeated the reinsurance sector is also evident. In
July 1996, General Re Corp., the largest reinsurer in the United States, agreed
to purchase National Re Corp. for approximately $940 million in cash and stock.
The U.S. property-casualty industry is one in which thousands of
companies vie for business, but only a handful of companies dominate the market
for commercial and personal insurance coverage. According to data from the
insurance research and publishing firm A.M. Best Co., the ten largest insurers,
based on premium volume, wrote about 40% of the approximately $259.8 billion of
industry premiums in 1995. The five largest insurers combined wrote 29% of all
industry premiums in 1995. But the two largest insurers - State Farm Group and
Allstate Insurance Group - together commanded a 20% share of the
property-casualty insurance market.
Due to overcapacity (that is, excess underwriting capacity), premium
pricing for most coverage lines is very competitive. This excess capacity has
been the impetus behind a consolidation trend now sweeping the insurance
industry. Insurers are also cutting costs and narrowing their product focus in
an attempt to gain economies of scale. Still others have begun to expand
overseas, hoping to capitalize on the relatively faster-growing economies of
many foreign countries.
Another secondary trend arising from capacity-related competitive
pressures is insurers' increased participation in so-called alternative markets.
Alternative markets include captive insurance companies, which are insurance
organizations owned by corporations for the purposes of providing
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27
insurance coverage for that corporation; risk retention groups, whose members
are in a similar profession and have banded together to self-insure their risks;
and other self-insurance pools and trusts.
In the past few decades, self-insurance has become increasingly popular.
It is the practice of a company, a local government, or a group of companies or
local governments usually in collaboration with an insurance or actuarial
consultant - setting aside funds to pay for claims that might arise from a
particular risk. The scope and limits of these arrangements are very
well-defined. And although self-insurance sometimes completely replaces an
organization's regular insurance plan, it's usually used in conjunction with
traditional forms of insurance. In most cases, it's only one component in an
organization's risk management program. However, self-insurance and other forms
of risk transfer have grown increasingly common in recent years.
Alternative forms of risk transfer, like-self-insurance, grew in
popularity during the early 1980s when a shortage of available liability
insurance coverage sent prices soaring. Many companies and local governments,
having discovered this alternative out of necessity, now employ it by choice.
According to data obtained from A.M. Best and the insurance brokerage firm
Sedgwick James, the alternative market accounted for 43.7% of the total
commercial insurance market in 1995, up from 35.3% in 1990, even though during
those five years insurance pricing was soft and availability was plentiful. Many
insurance companies noted a dropoff in their written premium volume due to a
loss of business to the alternative markets; this worsened their already tepid
top-line growth prospects due to overcapacity. To counter this trend, several
insurers have begun aggressively pursuing clients in the alternative market,
offering guidance in establishing and managing captive insurance accounts. Given
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28
that insurers will likely continue to lose business to this alternative form of
risk transfer, their participation in this consulting market will also likely
continue to grow.
Insurers must contend not only with forces within their industry, but
also with some external forces that are bearing down on them. Mother Nature
hasn't been kind to property-casualty insurers lately. According to a study
published by A.M. Best, the ten largest insured catastrophe losses in the U.S.
property-casualty insurance industry's history have all occurred since 1989. The
three costliest were Hurricane Andrew in 1992, with $15.5 billion in insured
losses; the 1994 earthquake centered in Northridge, California, with $12.5
billion in insured losses; and Hurricane Hugo in 1989, with $4.2 billion in
insured losses. A.M. Best estimates that if Hurricane Andrew had hit a more
densely populated area of Florida, claims could have reached $50 billion.
Earthquakes are another type of catastrophe with the potential to
inflict huge losses. Some earthquake experts estimated that if "the big one"
happens in Los Angeles or San Francisco, the result could be $750 billion of
insured losses. A catastrophe of this magnitude would more than wipe out the
entire industry's surplus, which at year-end 1995 was $231.7 billion. And
California isn't the only area with the potential for earthquake disasters. A.M.
Best recently reported that if an earthquake measuring 7.4 on the Richter scale
were to occur along the semi-active New Madrid fault (which crosses six
Midwestern states), it could cause $60 billion in property damage.
It appears, however, that the insurance industry is not equipped to deal
with such catastrophes. Current surplus levels are far below the amount that
would be needed after one of these high-magnitude disasters, which would make
Hurricane Andrew seem puny in comparison. Furthermore,
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29
the industry as a whole has made little progress in preparing for such
mega-disasters. In fact, most companies are still charging premiums that are too
low to cover even a "run-of-the-mill" disaster.
As mentioned, A.M. Best noted that both natural disasters and the
resultant insured losses have been increasing in frequency and severity since
1989, and it expects this trend to continue. While the definitive reasons behind
this striking trend aren't known, A.M. Best surmised that global warming could
be a contributing factor in the increased frequency of natural disasters. To
make matters worse, other factors - such as changes in population density,
demographic migration to coastal areas, increased home/property values, and
inadequate or unenforced building codes - are raising the financial losses
incurred with each disaster.
Due to expectations of heightened catastrophe levels, A.M. Best has been
carefully monitoring how insurers manage their catastrophe exposure, and found
that many insurers are "living dangerously", competing on price and not
adequately reserving for future calamities. Moreover, A.M. Best concluded that
homeowners lines will remain unprofitable for some time, given the prevailing
regulatory climate of rate suppression and lock-in mandates, which force
insurers to offer insurance in certain catastrophe-prone regions and states,
while simultaneously denying rate increases. Commercial multiperil companies,
which have fewer regulatory constraints, will also be unprofitable for several
more years, given their propensity to cut prices; premiums aren't keeping up
with higher catastrophe levels, resulting in underwriting losses. Heightened
rating agency scrutiny over the degree of exposure to catastrophes will force
the insurance industry to reassess premium pricing and increase reserves.
Another external force with which property-casualty insurers will
contend is the entry of banks into the insurance arena. Life insurers have long
waged a turf war with banks over the sale of life
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insurance products through bank branches. Now it looks as though
property-casualty must also square off with banks. Nonetheless, this may open up
a new distribution channel for insurers. Distributing their products through
banks offers a low-cost means of reaching the fairly underserved middle-class
market. The real losers in "bancassurance" are independent insurance agents. In
fact, many insurers have become reluctant to disclose the level or scope of
their distribution agreements with banks for fear of jeopardizing their
relationships with their independent agents. However, as more and more insurers
team up with banks, independent agents will have no choice but to carve out
other niches, such as focusing on the high-end insurance market for wealthy
individuals or selling insurance to lower-income individuals.
Clearly, the extent to which an insurer can manage the concomitant
forces of competitive premium pricing, rising catastrophe losses, and growing
competitive challenges will determine its long-term viability.
Property/Casualty Insurance Industry Outlook
The property/casualty insurance industry is beset with many problems.
First, it is a highly fragmented, competitive industry. In this environment,
insurers are willing to undercut on price to maintain market share. For the
foreseeable future, premium growth will be sluggish and won't cover underwriting
losses and related costs. Part of the heightened competition in commercial
insurance lines is related to the growing popularity of "alternative insurance"
among Fortune 500 companies and, increasingly, among smaller companies as well.
Both groups have become more sophisticated in risk management; they are spending
fewer premium dollars by self-insuring or retaining a higher level of risk
through larger deductibles.
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31
A second factor that makes the insurance industry unappealing from an
investment viewpoint is that it has underestimated its future catastrophe
liabilities for many years, which in effect has caused an overstatement of
profitability and surplus levels. Insurers are only now starting to pay for
these actuarial errors. For example, in personal lines (e.g., home insurance),
many insurers have recently discovered, to their chagrin, that premiums haven't
kept pace with asset appreciation and inflation. It requires decades of premiums
in catastrophe-free years to establish enough surplus to cover one major
catastrophe. As discussed earlier, the severity and frequency of catastrophes
have been unexpectedly increasing since 1989. This unsettling trend, combined
with the undervaluation of insured assets, suggests that for years the industry
has been undercharging, given the level of underwriting risks. Therefore, the
industry will probably need to increase reserve levels, which will put
additional pressure on earnings.
Third, the industry faces huge environmental and asbestos liabilities,
and the nature of this problem highlights how the industry often bears the brunt
of our society's increasingly litigious nature. Those insurers that are
currently under-reserved for E&A liability could see their earnings suffer for
years.
Finally, the insurance industry is subject to an unfavorable regulatory
and political climate. In determining premium rates, state insurance regulators
often appear more concerned with appeasing consumer activists and protecting
policyholders than with assuring the industry's viability. And although ensuring
insurers' profitability may be politically unpopular, it is essential to the
industry's long-term solvency. In recent years, insurers have been subject to
retroactive premium rollbacks, rate suppression, and lock-in mandates that force
them to underwrite risky and unprofitable business.
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Although no rapid changes in regulatory actions affecting the insurance industry
are expected, some states are starting to appreciate the crucial role insurers
play in their respective economies. As more states being to recognize the
importance of the "safety-valve" mechanism that insurers provide and the
relationship between insurers' profitability and solvency, the regulatory
climate is expected to slowly improve.
Although the industry in aggregate has many problems, many companies are
extremely well-capitalized (and therefore are more insulated from these
problems), have less exposure to these problems due to better underwriting
standards, or have found less competitive and less regulated markets. For
example, there is a "flight to quality" among consumers of insurance. AAA-rated
companies are growing premiums at double-digit rates, while the rest of the
industry is moving ahead in the low single digits.
In addition, certain companies have carved out insurance specialties.
For example, Progressive Corp. and Allstate Corp. offer nonstandard auto
insurance, while Hartford Steam Boiler Inspection & Insurance Co. offers
insurance that protects specialized and sophisticated equipment. These companies
have found that their underwriting expertise allows for firmer pricing, and can
also provide fairly high barriers to entry. The outsized profits being reaped in
nonstandard auto insurance have attracted some new entrants of late. This
development should moderate profitability, but the large technology investment
required to enter this business will keep others at bay.
In addition, several companies, such as Chubb Corp. and American
International Group, have been writing insurance outside the United States and
are experiencing double-digit premium growth. Although writing insurance in
foreign countries will potentially expose them to difficult regulatory
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33
environments and other risks, these two companies have been among the most
successful in maintaining consistently superior underwriting standards. In
addition, given the potentially greater rewards, perhaps the comparison between
foreign and U.S. regulatory and legal risks doesn't give these companies much
cause for concern.
Given the industry's competitive, fragmented landscape, the
consolidation pace is expected to accelerate. Certainly, consolidation would
help companies reduce overhead and achieve economies of scale. Given the current
degree of price competition, one of the major issues confronting the industry is
how to spread out distribution costs. Consolidation would let technology drive
down unit costs. Lower underwriting expenses could help insurers become low-cost
providers, which would ultimately be a competitive advantage; even in a
low-price environment, such companies would be able to make an underwriting
profit.
Because the industry is so fragmented, it will be some time before
companies (except those in niches) will be able to command pricing authority.
But consolidation could strengthen insurers' capital positions, which might
benefit their ratings and would likely reduce interest costs and provide a
bigger cushion for future catastrophes. It might even generate cross-selling
opportunities - letting companies broaden their product lines and sell through
more diverse distribution channels.
At some point, premium growth will strengthen again, and the industry's
fundamentals will become more favorable. But it may take a mega-catastrophe to
startle the industry into more sensible pricing and convince regulators that
both public and private interests are served by a strong insurance industry.
Until pricing firms - which it likely won't do for at least two years -investors
should cautiously assess whether an individual firm can overcome its industry's
generally unfavorable outlook.
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34
Insurance Agencies and Brokers
Insurance policies are underwritten by insurance companies or
"carriers". Insurance policies are sold to customers primarily by insurance
agents who represent and have working contracts with one company (captive agents
or exclusive agents) or with more than one company (independent agents), or by
insurance brokers who represent the insurance buyer and are not under contract
with insurance companies. Agents have the ability to bind the insurance company
to the policy with their signatures; brokers do not. Commercial insurance
brokers act as intermediaries between insurance underwriters and client
companies. In exchange for "placing" insurance with clients, brokers receive a
commission based on the level of premiums charged to that client.
An agency's "book of business" is the aggregate of all the accounts
which the agency writes and services. Insurance policies are divided into two
main types. Property/casualty insurance, which makes up the bulk of the business
sold by independent agents, includes both personal lines sold to individuals or
families, such as auto and homeowners' insurance, and commercial lines purchased
by businesses or institutions. Life, health and group insurance is primarily
sold by captive agents, but makes up a portion of the business of most
independent agencies.
Agencies are compensated by the insurance companies for their sales
efforts in the form of commissions based on the premium value of the policies
they sell, the type of insurance policy written, and whether it is a new or
renewal policy. An agency then pays a percentage of the commissions earned to
its agents as commissions, salaries, or a combination of both. Independent
agencies, which contract with more than one company, control the accounts of
their customers and are free to place the business with another company when a
policy expires. This gives them leverage with the companies,
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35
which pay them renewal commissions that may be as high as commissions on new
business. This control of their customers' business by independent agencies is
called "owning their expirations". The expiration list is considered the most
valuable asset of an independent insurance agency, and can be sold separately
(called "selling the book of business") or as part of the entire business.
Contingency commissions are special bonus commissions paid by
property/casualty companies to an agency based on the volume and profitability
of the agency's business for that company, and can vary considerably from year
to year.
Unique to the insurance industry are the necessity and opportunity to
perpetuate an agency's book of business. The independent agency owns the
potential income stream of its renewal commissions and remains responsible for
servicing its customers long after a policy is sold. Life policies are in force
until the policyowner dies or payments lapse; most health and property/casualty
policies can be renewed indefinitely. Agencies can be perpetuated internally by
having an employee, family member, or part-owner take over the business, or
externally as a going concern through a sale to or merger with another agency.
Alternatively, just the agency's book of business can be sold and folded into
the operation of another agency. It is rare for anyone not already in the
insurance business to buy an agency or its book of business. The future value of
the accounts comprising the book of business will be based on the likelihood
that the accounts will be retained by the agency after the acquisition and into
the foreseeable future. In general, the most valuable accounts have high
persistency (retention) and a low cost of servicing.
It is considered normal to have 15% to 25% of commission volume in the
top ten accounts which an agency services. A higher concentration of accounts
increases the risk to the income stream,
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should the accounts not be retained. It is considered risky to have over 5% to
10% of the agency's sales volume with any one account. However, a larger agency
acquiring a smaller one might prefer larger accounts. They would not be so
concentrated in a combined book of business. Annual attrition rates for existing
accounts typically range from 9% to 20% (indicating a remaining life average of
the account of five to 11 years), with most agencies in the 11% to 15% range. A
high dependence on certain key producers who may or may not stay with the agency
after purchase is seen as a negative factor. It would be important to ensure
that such key producers are retained after the sale.
The quality of an agency's markets has become increasingly important for
independent agencies. The current political, regulatory, legislative, and
economic climates have created an unstable and unpredictable environment for
many carriers. The risk of loss of carrier contracts must be weighed. There
should be a good mix of national, regional, and specialty-line carriers with an
agency. No more than 25% to 30% of the book of business should be with any one
carrier. The book of business with each major carrier should have sufficient
volume to keep the carriers interested in continuing to do business with the
agency. Many carriers are pulling out of certain lines or geographical areas due
to recent legislation and regulation. So a very important key to success for an
acquisition is strong relationships with carriers, which will transfer to the
new owners. Alternative sources for most of an agency's business should be
available.
The types of clients and their longevity with the agency are significant
factors. These factors include attrition of the book of business, the longevity
of associations with clients, and what additional business has been written
since the inception of the relationship, as well as the industries represented
by the agency and their vulnerability to economic cycles.
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37
The insurance agency has a market cycle of its own, usually apart from
the national or local economic cycle, caused by excesses and shortages of
carrier capacity for writing insurance. During hard markets, prices of insurance
premiums increase due to constricted underwriting capacity, leading to higher
commissions and profits for agencies and brokers. As previously noted, the
market for the past several years has been very soft, with very competitive
pricing, low commissions, and no sign of change in sight.
The general and local economic outlooks are also important. A stagnant
local economy is seen as a negative. The consumer movement and passage of
regulatory measures to limit prices for insurance are having a negative effect
on the industry as a whole. Carriers are refusing to write certain lines and
choosing to leave certain markets rather than continue to operate under what
they feel are adverse conditions. The occurrence of man-made or natural
disasters greatly affect the profits of insurance companies and thus have a
profound impact on the business of insurance agencies, which derive significant
revenues from contingency commissions and profit-sharing bonuses, and whose
commission levels could be adjusted downward.
Competitive pressures in the U.S. market among insurance brokerage
companies are forcing them to cut commission rates charged to clients, while at
the same time depressing brokerage income. Also, client loyalty appears to be
waning, as indicated by a slippage in the rate of renewals. The domestic
insurance brokerage market is ripe for further consolidation, due to the
inability of smaller players to compete. The industry is mature and very
competitive. Profits have been lackluster and margins have been narrowing for
several years. The industry has been burdened by overcapacity, and pressure on
premium levels has been intense. These difficult market conditions are expected
to persist
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38
at least through the late 1990s. Future top-line growth will come primarily from
the industry's ability to develop innovative new products and services, while
any bottom line growth will be primarily a function of continued cost-cutting,
restructuring, and consolidation to achieve economies of scale.
The commercial insurance brokerage market is two-tiered. A handful of
very large firms, like Marsh & McLennan and Aon Corp., dominate the large
multinational market. These firms offer depth and breadth of service to their
clients, many of which are Fortune 500 companies. At the other end of the
spectrum are literally hundreds of small firms, many of which are privately
held, that participate in the insurance brokerage market on a smaller, more
localized level. To effectively compete, the smaller firms that have succeeded
have carved out niches within the broader market, either by focusing on a
particular line of business or by emphasizing that their smaller size makes them
more responsive to clients' needs in a more customized, personalized fashion. In
addition, many regional brokers have very strong community ties and can rapidly
respond to changes in the marketplace.
Because brokerage commission levels depend on insurance premium levels,
the downward pressure on insurance pricing caused by an oversupply of
underwriting capacity has in turn put pressure on brokers' commission levels.
This dampening of commission levels has set off a wave of insurance brokerage
consolidations, as companies join forces to achieve economies of scale and
greater operating efficiencies to counter competitive pricing.
Oversupply is the primary factor behind the industry's consolidation
trend. However, a number of secondary trends also propel the "urge to merge" -
including the increased global presence of many client companies. To offset
slowing growth in many U.S. markets, numerous corporations have expanded their
presence overseas. As they do so, their insurance needs also expand globally.
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39
Second, the business of risk transfer is becoming more sophisticated. As
corporations increasingly employ alternative forms of risk transfer, like self
insurance and captive insurance, the insurance broker is being transformed from
an insurance intermediary to a risk management consultant. Consequently, fee
income has become an increasingly important revenue source for many brokers. For
example, more than half of Marsh & McLennan's 1996 revenues came from asset
management and consulting fees.
Finally, the trend among financial services companies of narrowing their
focus to a handful of core business lines will likely lead some firms that own
smaller brokerage operations to shed those business lines. All of these trends
were at play in the transactions recently undertaken by market leaders Aon Corp.
and Marsh & McLennan. Less than five years ago, Chicago-based Aon Corp. wasn't
really considered an insurance broker. Over the last few years, however, the
company has grown through acquisitions to become a leading force in the
insurance brokerage market. It was Aon's $1.2 billion purchase of beleaguered
broker Alexander & Alexander Services in January 1997 that catapulted the firm
into the top slot (albeit briefly) as the world's largest insurance broker.
At the time of the acquisition, Alexander & Alexander was the fourth
largest insurance broker. The company had been struggling for years with soft
premium pricing, exacerbated by its relatively high cost structure. Despite
several restructuring efforts, including a change in top management several
years ago, the company's shares remained under pressure. It was a prime target
for Aon, which was sitting on more than $1 billion in cash proceeds from the
sale of two life insurance subsidiaries.
Less than two months later, in mid-March 1997, Marsh & McLennan
reclaimed its spot as the world's largest insurance broker by acquiring its
archrival, privately held Johnson & Higgins, for $1.8
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40
billion. The combination of these two firms, with estimated gross revenues of
more than $5 billion, reaffirms Marsh & McLennan as the world's leading
insurance broker, comfortably ahead of Aon Corp., which had 1996 revenues of
just more than $3 billion.
As a result of these recent transactions, a further widening in the gap
between top-tier and second-tier insurance brokers is envisioned. There is
indeed strength in numbers from various standpoints. For example, some
competitive pressures will no doubt ease, as Fortune 500 clients have fewer
choices when seeking insurance intermediaries. To survive, smaller brokerage
firms must selectively carve out underserved niches. But for those in the
middle, further consolidation is likely.
Sources: Standard & Poor's Industry Surveys
Value Line Investment Survey
Handbook of Small Business Valuation Formulas
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41
FINANCIAL REVIEW
The financial performance of Beehive Insurance was relatively constant
and generally excellent over the time period examined in this report, comprised
of the six years ended December 31, 1991 through 1996. Selected financial ratios
for the Company are contained in Exhibit 1; financial statement summaries
(including common size and growth trend analyses) are contained in Appendix A.
As can be seen from Exhibit 1 and Appendix A, Beehive Insurance's
revenues remained relatively flat over the 1991-96 period. Revenues (consisting
of insurance commissions, which comprise approximately 90% of total revenues,
and profit sharing commissions, which make up the remaining 10% of revenues)
declined from $569,100 in 1991 to $519,000 (or by 8.8%) in 1992 and to $507,100
(or by 2.3%) in 1993, increased to $598,100 (or by 17.9%) in 1994, declined to
$537,800 (or by 10.1%) in 1995, then grew to $577,600 (or by 7.4%) in 1996.
Revenues averaged $551,500 over the 1991-96 period, and grew at a compound
annual rate of only 0.3% during the period.
One adjustment has been made to the reported net income of Beehive
Insurance in an attempt to more accurately ascertain the earnings generating
capacity of the Company. In 1995, the Company incurred an extraordinary,
nonrecurring pension settlement expense in the amount of $104,500. Because of
the one-time, nonrecurring nature of this expense, it has been eliminated from
the Company's 1995 income statement (net of tax impact) in arriving at 1995
adjusted net income.
As was the case with revenues, Beehive Insurance's net income remained
relatively constant over the 1991-96 period. Net income fell from $254,600 in
1991 to $165,100 (or by 35.2%) in 1992, improved to $188,500 (or by 14.2%) in
1993 and to $242,000 (or by 28.4%) in 1994, declined to $213,700 (or by 11.7%)
in 1995, then increased to $233,800 (or by 9.4%) in 1996. Net income
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averaged $216,300 during the 1991-96 period, and fell at a compound annual rate
of 1.7% over the period.
The Company's cash flow from operations (or net income plus non-cash
depreciation expense) likewise fell from $260,500 in 1991 to $176,400 (or by
32.3%) in 1992, improved to $198,400 (or by 12.5%) in 1993 and to $251,000 (or
by 26.5%) in 1994, declined to $223,500 (or by 11.0%) in 1995, then increased to
$242,600 (or by 8.5%) in 1996. Operating cash flow averaged $225,400 over the
1991-96 period, and declined at a compound annual rate of 1.4% during the
period.
Beehive Insurance's operating expenses also remained relatively constant
over the 1991-96 period, at $232,700 in 1991, $278,500 in 1992, $239,400 in
1993, $253,700 in 1994, $252,700 in 1995, and $243,500 in 1996. Operating
expenses averaged $250,100 during the period, and grew at a compound annual rate
of only 0.9% over the period. Operating expenses as a percent of revenues
increased from 40.9% in 1991 to 53.7% in 1992, fell to 47.2% in 1993 and to
42.4% in 1994, increased to 47.0% in 1995, then fell again to 42.2% in 1996.
Operating expenses averaged 45.6% of revenues over the 1991-96 period.
The Company's income from operations was $336,400 in 1991, $240,500 in
1992, $267,700 in 1993, $344,400 in 1994, $285,100 in 1995, and $334,100 in
1996. Income from operations averaged $301,400 during the 1991-96 period, and
declined at a compound annual rate of 0.1% over the period. The Company's
operating margin declined from 59.1% in 1991 to 46.3% in 1992, increased to
52.8% in 1993 and to 57.6% in 1994, fell to 53.0% in 1995, then improved to
57.8% in 1996, with a period average figure of 54.4%.
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The Company had no interest expense during the 1991-96 period. Other
(nonoperating) income generated by the Company during the period (which
consisted primarily of interest income, as well as much smaller amounts of
rental income) was $49,300 in 1991, $28,900 in 1992, $20,600 in 1993, $27,000 in
1994, $38,300 in 1995, and $28,800 in 1996, with a period average figure of
$32,200.
Beehive Insurance's total asset turnover ratio, which measures the
efficiency with which the assets of the Company are utilized, remained
relatively constant over the 1991-96 period, averaging 0.6 times and ranging
only between 0.5 times (in 1992) and 0.8 times (in 1996). Receivables turnover
averaged only 3.2 times during the period, ranging between 1.2 times (in 1993)
and 5.2 times (in 1996). Fixed asset turnover averaged 18.0 times during the
period, ranging between 11.3 times (in 1995) and 25.6 times (in 1991), with a
1996 figure of 14.0 times.
The Company's net margin (or net income as a percent of revenues) was
very high throughout the 1991-96 period, at 44.7% in 1991, 31.8% in 1992, 37.2%
in 1993, 40.5% in 1994, 39.7% in 1995, and 40.5% in 1996, with a period average
figure of 39.1%. Return on assets was excellent during the period, at 28.7% in
1991, 17.0% in 1992, 21.4% in 1993, 24.5% in 1994, 23.4% in 1995, and 30.9% in
1996, with a period average figure of 24.3%. Return on equity was likewise very
high during the period, at 61.0% in 1991, 43.6% in 1992, 46.4% in 1993, 55.9% in
1994, 59.4% in 1995, and 61.7% in 1996, with a period average figure of 54.7%.
Beehive Insurance's financial risk was relatively low throughout the
1991-96 period. The Company's total debt as a percent of total assets averaged
55.7% over the 1991-96 period, with an even lower 1996 figure of 49.9%. The
Company's shareholders' equity as a percent of total assets
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correspondingly averaged 44.3% during the period, with a higher 1996 figure of
50.1%. The Company had no long-term debt during the period and, consequently, no
interest expense to cover. The Company's liquidity (as measured by the current
ratio) was excellent throughout the period, averaging 1.7 times, with a similar
1996 figure of 1.8 times.
As of December 31, 1996 (the date of the most recent balance sheet
available), Beehive Insurance had total assets of $755,900, comprised almost
entirely of $678,500 (or 89.8%) in current assets (primarily cash of $558,600
and accounts receivable of $110,100). As of the same date, the Company had net
fixed assets of only $41,400 (or only 5.5% of total assets). As of the same
date, the Company had current and total liabilities of $377,000, no long-term
debt, shareholders' equity of $378,900, and positive working capital of
$301,500.
Beehive Insurance paid significant dividends to its shareholders over
the 1991-96 period. Dividends were paid to shareholders in the amounts of
$300,800 in 1991, $204,100 in 1992, $193,400 in 1993, $214,900 in 1994, $204,100
in 1995, and $214,900 in 1996. Dividends averaged $222,000 over the 1991-96
period. Interestingly, this figure was slightly above the average net income
generated by the Company during the period of $216,300, and was only slightly
below the average operating cash flow generated by the Company during the period
of $225,400. This resulted primarily from the Company paying out as dividends
larger amounts than it earned in 1991 and 1992; the dividend payout ratio
(dividends as a percent of earnings) declined from 118.1% in 1991 and 123.6% in
1992 to 102.6% in 1993, 88.8% in 1994, 95.5% in 1995, and 91.9% in 1996, with a
period average figure of 103.4%. The Company's policy of paying substantially
all of its earnings out as dividends to shareholders has resulted in a situation
whereby little or no net income has been retained; hence, the
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Company's stockholders' equity remained relatively constant over the 1991-96
period, at $417,400 in 1991, $378,300 in 1992, $406,000 in 1993, $433,100 in
1994, $360,000 in 1995, and $378,900 in 1996.
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CROSS-SECTIONAL ANALYSIS
To acquire a better impression of Beehive Insurance's 1996 performance,
its record is compared with the average experience of other insurance
agents/brokers with annual revenues of less than $1 million. Financial data on
companies in the insurance brokerage industry is collected by Robert Morris
Associates, Philadelphia, Pennsylvania, and published in that company's Annual
Statement Studies (see Appendix B). Although the activities of the companies in
the group may not be totally consistent with those of Beehive Insurance, the
information is nevertheless considered representative of firms engaged in the
same types of activities as the Company. As such, the data provide a reasonable
backdrop for a comparative analysis of the Company's performance.
Exhibit 2 displays selected 1996 statistics for Beehive Insurance and
the average of other insurance agents/brokers. Several differences are evident.
The Company had a different asset composition when compared with the industry
average, with much higher current assets (89.8% vs. 50.7%) and significantly
lower fixed assets (5.5% vs. 19.7%) as a percent of total assets. The Company
had much higher cash (73.9% vs. 19.5%), but somewhat lower receivables (14.6%
vs. 26.3%) as a percent of total assets relative to the industry average.
The Company had a less leveraged 1996 capital structure when compared
with the industry average. The Company had virtually identical current
liabilities (49.9% vs. 50.8%), but much lower long-term (0.0% vs. 17.9%) and
total (49.9% vs. 73.4%) debt as a percent of total assets. The Company's net
worth as a percent of total assets was correspondingly well above the industry
average figure (50.1% vs. 26.6%).
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47
Beehive Insurance's 1996 operating expenses as a percent of revenues
were well below those of the industry average (42.2% vs. 89.0%), resulting in
much higher operating and pre-tax margins for the Company (57.8% and 62.8% vs.
11.0% and 7.6%, respectively). The Company's 1996 total asset turnover was well
below that of the industry average (0.8 times vs. 1.2 times), as was its
receivables turnover (5.2 times vs. 9.1 times). However, its fixed asset
turnover was similar to that of the industry average (14.0 times vs. 13.0
times). The Company's much higher pre-tax margin more than offset its lower
total asset turnover and the lower relative level of financial leverage in its
capital structure, resulting in before-tax return on asset and return on equity
ratios well above those of the industry average (48.0% and 95.8% vs. 3.6% and
17.3%, respectively).
Finally, Beehive Insurance's financial risk appears to be well below
that of the industry average, as reflected by the Company's much lower 1996
total debt to equity ratio (1.0 times vs. 5.4 times), its higher liquidity
(current ratio of 1.8 times vs. the industry average figure of 1.0 times), and
its absence of long-term debt and resultant interest expense (the industry
average interest coverage ratio was 2.5 times in 1996).
In summary, Beehive Insurance's 1996 financial performance appeared to
be generally superior to that of the average firm in the industry in terms of
profitability and financial strength, and inferior in terms of asset utilization
efficiency.
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ESTIMATES OF VALUE
Four widely recognized approaches are utilized to estimate the fair
market enterprise value of Beehive Insurance as of June 30, 1997: book value
(including liquidation value), transaction value, market value (derived from
market value ratios of similar firms), and income value (based on the present
value of future benefits). As previously stated, the uncertainty inherent in the
valuation process most likely will cause these differing methods of valuation to
produce different estimates of value. Before estimates of value can be made, the
nature of the security being valued and the expected income of the subject
security must be discussed.
Nature of the Security
The value of a security is influenced by many of its characteristics,
including control and marketability.
Control
The market value of public securities normally reflects the minority
interest being traded. The price of a successful tender offer seeking control is
usually higher than previous minority trades and reflects the value of the
premium for control. The purpose of this report is to estimate the fair market
enterprise value of Beehive Insurance. Therefore, a premium for control is
applicable.
Marketability
The market value and income value methods of valuation are based on
comparisons with current values of securities traded on national exchanges.
There are, however, certain marketability
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differences between Beehive Insurance securities and publicly traded securities.
An owner of publicly traded securities can know at all times the market value of
his holding. He can sell that holding on virtually a moment's notice and receive
cash net of brokerage fees within three working days.
Such is not the case with an investment in the common stock of Beehive
Insurance, being a privately held company. There is no ready market for the
Company's common stock, and no assurance of finding a buyer at any price.
Consequently, liquidating a position in the Company could well be a more costly
and time-consuming process than liquidating stock in publicly traded firms.
Therefore, a discount relative to the values of publicly traded securities
should be applied to the value of Beehive Insurance securities to reflect this
limited marketability.
Normalization of Earnings
The reported net income of a typical firm is subject to random
fluctuations as well as external and internal shocks. Thus, some "normalization"
procedure generally must be applied to smooth the data series and reveal the
underlying, stabilized trend in net income. Normalization of net income is
required to project earnings figures to be used in calculating the income value
estimate, as well as in providing a realistic earnings figure to apply the
market value approach to.
Normalization of earnings involves two steps. The first is the
elimination of extraordinary items which impact the firm's earnings but which
are not expected to repeat or persist. As previously discussed (see Financial
Review section, page 31), Beehive Insurance's reported 1995 net income was
adjusted (net of tax impact) for an extraordinary, nonrecurring pension
settlement expense. This was the only adjustment deemed to be necessary to the
reported net income of the Company over the 1991-
<PAGE> 56
50
96 period. The second step involves identification of the trend in the
normalized earnings to eliminate random fluctuations in any particular year and
to project future expected earnings.
Several procedures are used to normalize and project earnings. These
approaches include statistical trend line and logarithmic analysis of past
earnings (regression analysis), past net margins applied to statistically
derived revenue estimates, and Company projections.
Regression Analysis
Regression analysis is a statistical method which fixes a trend line to
actual data over time. Income estimates can be made by extending the trend line
into the future. A trend line correlation coefficient near 1.0 means that there
is a close association between the trend line and the actual data and suggests
that the data have a high degree of predictability. There are two types of trend
lines associated with regression analysis: a linear trend line, which assumes a
constant amount increase for each period; and a logarithmic trend line, which
assumes a constant percentage increase for each period.
Past Averages
The second method of normalizing and projecting income is to use past
averages, both an historical average growth rate and an average net margin.
Essentially, the procedure applies an historical average or expected future net
margin to revenue forecasts to derive net income forecasts. The rationale is
that revenues tend to be more stable than net income.
<PAGE> 57
51
Company Projections
Income statement projections for the five year period 1997-2001 have
been prepared based on an analysis of Beehive Insurance's historical operating
results and conversations with Company management. These projections, together
with the underlying assumptions made in forming them, are contained in Exhibit
3, with Exhibit 4 showing projected income statement items as a percent of
projected revenues and Exhibit 5 reflecting projected income statement item
growth rates.
Projected Earnings
The various approaches described above yield a range of prospective net
income figures, which are summarized in Exhibit 6 and graphically depicted in
Exhibit 7. The projections contained in Exhibit 3 are deemed to be the most
reliable estimates as to the future operating prospects of the Company, and are
therefore utilized for valuation purposes. This approach yields projected
earnings (and free cash flow) estimates for Beehive Insurance of $244,600 for
1997, $251,300 for 1998, $258,200 for 1999, $265,400 for 2000, and $272,700 for
2001. These figures translate into earnings per share estimates of $11.38 for
1997, $11.70 for 1998, $12.02 for 1999, $12.35 for 2000, and $12.69 for 2001,
based on 21,487 shares outstanding.
A graphical comparison of these projected earnings figures for the
1997-2001 period with the actual earnings generated by the Company over the
1991-96 period is contained in Exhibit 8. It should be emphasized that
forecasting the future is at best a difficult and tenuous process. There will
undoubtedly be disparities between the projected figures and actual results,
since events and circumstances frequently do not occur as expected, and those
disparities may be material.
<PAGE> 58
52
Book/Liquidation Value
The book value of a company, that is, the carrying balances of the
equity accounts on the company's records, normally bears only a tenuous
relationship to the market value of the firm's stock. A useful accounting
concept, it has a somewhat limited role in the valuation process. For
informational purposes, the book value of Beehive Insurance as of December 31,
1996, the date of the most recent balance sheet available, was $378,900 or
$17.63 per share, based on 21,487 shares outstanding.
A common alternative measure of book value is the liquidation value of
the business. A quitting concern concept, it is not entirely applicable to the
valuation of a typical going concern. The value of a company is typically not a
function of what the assets of the company could be sold for (net of
liabilities), but is rather a function of how those assets can be utilized in
generating revenue and net income. Furthermore, given that the Company has been
in existence for 36 years, it does not appear likely that the Company will be
liquidated in the foreseeable future. Company management has indicated that it
has no plans to liquidate the Company. Consequently, liquidation value is not
considered in arriving at a final estimate of the fair market enterprise value
of Beehive Insurance as of June 30, 1997. However, given that the Company
carries on its books the land and building comprising its operating facilities
at depreciated historical cost, which has been held for many years and has
appreciated significantly in value, the liquidation value of the Company is
likely at least somewhat above the Company's book value of $378,900 or $17.63
per share as of December 31, 1996.
Transaction Value
<PAGE> 59
53
Transaction on value is the value at which shares of the subject
security were sold recently. A recent sale of a security is an indicator of
value for both legal and economic purposes. If an examination of all the
relevant facts reveals that the transaction took place at arm's length, i.e.,
that neither buyer nor seller was forced to deal and both had adequate
information and that the transaction was for reasonable consideration, the value
established in such a transaction would be difficult to contest.
We are aware of no recent transactions involving the common stock of
Beehive Insurance, nor of any acquisition offers for the Company. Consequently,
transaction value cannot be considered in arriving at a final estimate of the
fair market enterprise value of the Company as of June 30, 1997.
<PAGE> 60
54
Market Value
The market value approach attempts to determine the value of Beehive
Insurance as if its shares were traded on an exchange in an active, public
market. This is accomplished by determining a comparative price-earnings ratio,
which is the ratio of the market price of a share of stock to the earnings per
share; a comparative price to cash flow ratio, which is the ratio of the market
price of a share of stock to the operating cash flow (net income plus
depreciation) per share; a comparative price to revenue ratio, which is the
ratio of the market price of a share of stock to the dollar sales per share; and
a comparative price to book ratio, which is the ratio of the market price of a
share of stock to the book value per share. Appropriate ratios for Beehive
Insurance can be determined by comparing the firm with others in the same
industry and, from its relative standing in the industry, inferring market value
ratios based on ratios in the industry.
The price-earnings ratio is an important determinant of value because it
reflects the expectations of market participants. Generally speaking, investors
are willing to pay a higher price for today's earnings if they expect those
earnings to grow in the future. Conversely, they will pay a lower price if they
anticipate earnings to decline. Not only is the price-earnings ratio a reading
of the market's psychology, but it also represents the consensus of the market
place as to the worth of a security. This is significant for three reasons.
First, the market is competitive, with participant investors seeking to enhance
their wealth. Second, the market is informed, with investors seeking to deepen
their understanding of the companies and industries in which they have
positions. Finally, the market is rational, since investors act upon the
information acquired to further their objectives. All three factors
<PAGE> 61
55
contribute much weight to the resulting valuation in spite of imperfections in
the market. Similar arguments can be made for the other market value ratios.
Ideally, market value ratios for Beehive Insurance should be inferred
from ratios of similar firms whose stocks are traded actively in public markets.
Unfortunately, most insurance brokerage/agency firms with operations similar to
those of Beehive Insurance are small, closely held businesses for which no
market value has been established. Since these companies are not publicly
traded, it is impossible to use them as a basis for making inferences regarding
the market value of Beehive Insurance. Therefore, a group of much larger,
publicly traded firms with insurance brokerage/agency and related operations is
selected as being representative of the industry in which the Company operates.
Exhibit 9 presents the names and brief descriptions of a sample group of
14 companies considered representative of the industry of which Beehive
Insurance is a member. Although these companies obviously differ from Beehive
Insurance, the differences are not of prime significance here, since a direct
comparison is not intended but rather a relative comparison that reflects an
aggregate appraisal of the industry. To the extent that the firms in the
industry sample group and Beehive Insurance are affected by similar fundamental
economic factors, investors' expectations regarding the long-term growth and
success of the former are justifiably imputable to the future of the latter.
In 1996, Beehive Insurance had much better profitability ratios when
compared with the average experience of the sample group of public companies.
The Company's net margin of 40.5% was well above the sample group average figure
of 11.2%, as was its return on assets (30.9% vs. 5.4%) and its return on equity
(61.7% vs. 17.7%).
<PAGE> 62
56
Beehive Insurance appears to have even lower financial risk than the
average company in the sample group, which also has very low financial risk. The
Company has no long-term debt; the sample group had an average long-term debt to
equity ratio of only 28.8% in 1996. Furthermore, the Company's 1996 current
ratio of 1.8 times was above the sample group average figure of 1.0 times,
suggesting better relative liquidity.
Beehive Insurance's revenues increased at a compound annual rate of only
0.3% over the 1991-96 period, well below the average compound annual revenue
growth rate experienced by the sample group during the period of 7.3%. The
Company's revenues did increase by 7.4% in 1996, only slightly below the sample
group's average revenue growth during the year of 8.0%. The Company's revenues
are projected to grow over the 1997-2001 period at a compound annual rate of
only 3.0%, increasing from the 1996 figure of $577,600 to a projected level of
$669,600 in 2001. This projected growth rate is well below the average compound
annual revenue growth rate forecast for the companies in the sample group by
Value Line Investment Survey of 9.0% over the next five years.
Beehive Insurance's net income grew by 9.4% in 1996, but still declined
at a compound annual rate of 1.7% over the 1991-96 period. The sample group had
virtually identical average 1996 earnings growth of 9.5%, but had much higher
average compound annual earnings growth over the last five years of 11.2% per
year. The Company's earnings are projected to grow at a compound annual rate of
only 3.1% over the 1997-2001 period, from the 1996 figure of $233,800 to a
projected level of $272,700 in 2001. This projected growth rate is well below
the average compound annual earnings growth rate projected by Wall Street
analysts over the next five years for the companies in the sample group of 10.5%
(Source: First Call Earnings Estimates).
<PAGE> 63
57
In summary, Beehive Insurance appears to have significantly inferior
overall investment quality when compared with the publicly traded firms in the
sample group, with its better profitability ratios and lower financial risk
being more than offset, in our opinion, by its much smaller size, its relative
absence of geographical and operational diversification, its significant
reliance upon two key customers, its lower historical revenue and earnings
growth, and its lower future revenue and earnings growth prospects.
Exhibit 10 displays the market value ratios of the companies in the
publicly traded sample group as of June 30, 1997. To the sample group's mean
price-earnings ratio of 14.8, mean price to cash flow ratio of 11.0, mean price
to revenue ratio of 160.4%, and mean price to book ratio of 266.9%, a 40%
discount is applied to reflect the inferior overall investment quality of
Beehive Insurance relative to that of the publicly traded firms in the sample
group, as discussed above. To the resulting figures is applied an additional 30%
discount to reflect the lack of marketability of the Company's shares, being
privately held, relative to the ready marketability of the publicly traded
shares of the sample group companies. Finally, a partially offsetting premium of
30% is applied to the resulting figures to reflect valuation of the Company on
an enterprise value (controlling interest) basis. The result is a net discount
of 45% deemed to be applicable to the mean market value ratios of the sample
group in valuing Beehive Insurance on an enterprise value basis.
Application of the resulting adjusted price-earnings ratio of 8.1 to
Beehive Insurance's 1996 net income of $233,800 (see Appendix A) yields a market
value estimate of $1,893,800 or $88.14 per share. Application of the resulting
price to cash flow ratio of 6.1 to the Company's 1996 cash flow from operations
(net income plus depreciation) of $242,600 yields a market value estimate of
<PAGE> 64
58
$1,479,900 or $68.87 per share. Application of the resulting price to revenue
ratio of 88.2% to the Company's 1996 revenues of $577,600 yields a market value
estimate of $509,400 or $23.71 per share. Finally, application of the resulting
price to book ratio of 146.8% to the Company's December 31, 1996 book value of
$378,900 yields a market value estimate of $556,200 or $25.89 per share. Both
the price to revenue and price to book figures are deemed to materially
understate the fair market value of the Company, resulting from the Company's
much higher net margin (return on revenues) and return on equity ratios relative
to those of the sample group, and are consequently not considered in arriving at
a final estimate of the Company's fair market enterprise value. The
price-earnings and price to cash flow figures will be considered in arriving at
a final estimate of the fair market enterprise value of Beehive Insurance as of
June 30, 1997.
Income Value
The income approach to valuation estimates the worth of a company's
stock by determining the present value of the future income stream expected to
accrue to the stockholder. This is accomplished by, first, forecasting the
firm's future income stream and the disposition of such and, second, discounting
it at a rate commensurate with the risk to which it is exposed.
The present value of future income depends on the amount and timing of
that income. Since both the amount and timing are uncertain - income might be
less than expected and/or income might materialize later than expected - this
uncertainty must be quantified and incorporated into a discount rate. Thus,
given the amount and timing of a future income stream, high uncertainty
necessitates a high
<PAGE> 65
59
discount rate and results in a relatively low present value, while low
uncertainty merits a low discount rate and a relatively high present value.
The appropriate discount rate, that is, the minimum rate of return
required by an investor purchasing the firm's shares, must have as its
foundation the yields available on competing financial assets in the public
markets. This follows from the observations noted below.
1. Securities with different risk characteristics provide different rates
of return commensurate with those uncertainties. This hierarchy of risk
and reward furnishes benchmarks from which a suitable discount rate may
be selected for an income stream of known risk properties.
2. A particular investor, due perhaps to his aversion to risk, may find
market returns inadequate at every level of risk. In a competitive
market, however, he is a "price taker" and, as such, is limited to
either investing at the going rates or not investing at all.
3. On the other hand, there will always be a buyer and seller willing to
deal at the market rates, precisely because the market rates represent
the consensus of many investors.
Thus, it is possible to estimate an "objective" valuation of a security
based on a discount rate derived from the market.
Exhibit 11 presents an historical structure of rates of return
observable and available (and, in the long run, "required") on selected classes
of securities. As can be seen, the rate of return required on a typical common
stock is 9.0% above the prevailing rate of inflation (or 14.0%, assuming a
long-term expected inflation rate of 5.0%). An investor would require from his
holding of a controlling interest in Beehive Insurance securities a return
estimated to be 2.0% above the average yield available in the common stock
market (or 16.0%). It is reasonable for him to require a premium on the general
market because of industry- and Company-specific risk characteristics (e.g., the
competitive nature of the insurance brokerage/agency business; the smaller size
of the Company; the relative nonmarketability of its shares; its relative
absence of geographical and operational diversification; its
<PAGE> 66
60
significant reliance on two key customers; and the uncertainty relating to its
ability to achieve future projected earnings levels, particularly given the
absence of historical revenue and earnings growth). These risk factors are
offset in part by a risk reduction for valuation of the Company on an enterprise
value (controlling interest) basis.
The estimated required rate of return of 16.0% is a function of the
returns available on the sample group of publicly traded firms referred to in
the Market Value section of this report, as quantitatively estimated by the
Capital Asset Pricing Model and the Gordon Growth Model, plus an additional risk
premium for the Company-specific risk characteristics previously alluded to,
less a partially offsetting risk reduction for valuation on a controlling
interest basis.
The income valuation model used is based on the assumption that the
firm's earnings are retained in total and dividend payments deferred until a
specified year when the firm begins paying all of its earnings as dividends and
does so indefinitely into the future. Once these dividend payments begin to
occur, the basis for the firm's internally financed growth ceases. In the
absence of new external financing, the firm reaches a "steady state" and
earnings remain constant indefinitely thereafter, growing only in nominal terms
in step with inflation. While it is not necessary that the firm actually so
behaves, this is a necessary specification for the valuation formula to be
technically correct. Basically, what is being specified is the firm's
dividend-paying ability. Only dividends can correctly be used in the income
valuation approach for a common stock.
If it is assumed that all of Beehive Insurance's future projected net
income (see Exhibit 3) will be available to be paid out as dividends from the
valuation date forward, and if it is further assumed that post-2001 net income
will grow into perpetuity at a compound annual rate of 3.0% from the 2001
<PAGE> 67
61
projected figure of $272,700, an income value estimate of $1,868,200 or $86.95
per share is derived. This figure will be considered in arriving at a final
estimate of the fair market enterprise value of the Company as of June 30, 1997.
<PAGE> 68
62
SUMMARY AND CONCLUSION
Four approaches have been utilized to estimate the fair market
enterprise value of Beehive Insurance as of June 30, 1997: book/liquidation
value, transaction value, market value, and income value. The outcomes are
summarized below:
<TABLE>
<CAPTION>
Valuation Method Value Estimate Per Share Weight Value Contribution
-------------- --------- ------ ------------------
<S> <C> <C> <C> <C>
Book Value $ 378,900 $ 17.63 0% $ 0
Market Value:
Price-Earnings $1,893,800 $ 88.14 20% $ 378,800
Price to Cash Flow $1,479,900 $ 68.87 20% $ 296,000
Price to Revenue $ 509,400 $ 23.71 0% $ 0
Price to Book $ 556,200 $ 25.89 0% $ 0
Income Value $1,868,200 $ 86.95 60% $1,120,900
---- ----------
100%
====
Final Total Value Estimate $1,795,700
==========
Rounded to: $1,800,000
==========
Per Share (21,487 shares outstanding): $ 83.77
==========
</TABLE>
Considering the assumptions of each method and weighing the relative
justifications of each, it is our opinion that a reasonable estimate of the fair
market enterprise value of Beehive Insurance as of June 30, 1997 is $1,800,000
or $83.77 per share, based on 21,487 shares outstanding.
<PAGE> 69
63
EXHIBITS
<PAGE> 70
64
EXHIBIT 1
BEEHIVE INSURANCE
SELECTED FINANCIAL RATIOS
<TABLE>
<CAPTION>
1991-96
1991 1992 1993 1994 1995 1996 Average
----- ----- ----- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
GROWTH
Revenue Growth (%) - (8.8) (2.3) 17.9 (10.1) 7.4 0.3
Net Income Growth (%) - (35.2) 14.2 28.4 (11.7) 9.4 (1.7)
Operating Cash Flow Growth (%) - (32.3) 12.5 26.5 (11.0) 8.5 (1.4)
Dividend Growth (%) - (32.1) (5.2) 11.1 (5.0) 5.3 (6.5)
COST CONTROL
Operating Expenses/Revenue (%) 40.9 53.7 47.2 42.4 47.0 42.2 45.6
Operating Margin (%) 59.1 46.3 52.8 57.6 53.0 57.8 54.4
Interest Expense/Revenue (%) 0.0 0.0 0.0 0.0 0.0 0.0 0.0
TURNOVER
Revenue/Receivables (x) 3.2 2.9 1.2 3.8 3.1 5.2 3.2
Revenue/Fixed Assets (x) 25.6 20.8 15.3 21.2 11.3 14.0 18.0
Revenue/Total Assets (x) 0.6 0.5 0.6 0.6 0.6 0.8 0.6
PROFITABILITY
Net Margin (%) 44.7 31.8 37.2 40.5 39.7 40.5 39.1
Return on Assets (%) 28.7 17.0 21.4 24.5 23.4 30.9 24.3
Return on Equity (%) 61.0 43.6 46.4 55.9 59.4 61.7 54.7
Dividend Payout (%) 118.1 123.6 102.6 88.8 95.5 91.9 103.4
RISK
Total Debt/Total Assets (%) 53.0 61.1 53.8 56.2 60.6 49.9 55.7
Shareholders' Equity/Total Assets (%) 47.0 38.9 46.2 43.8 39.4 50.1 44.3
Long-Term Debt/Equity (%) 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Current Ratio (x) 1.8 1.6 1.8 1.7 1.5 1.8 1.7
Revenue Correlation 0.284
Net Income Correlation 0.149
Operating Cash Flow Correlation 0.171
Dividend Correlation (0.553)
</TABLE>
<PAGE> 71
65
EXHIBIT 2
SELECTED STATISTICS FOR BEEHIVE INSURANCE
AND OTHER INSURANCE AGENTS/BROKERS
<TABLE>
<CAPTION>
Median
Beehive of Other
Insurance(a) Companies(b)
------------ ------------
<S> <C> <C>
Number of Companies 1 283
Total Assets ($000's) 756 642
BALANCE SHEET ITEMS
Current Assets as a % of Assets 89.8 50.7
Cash as a % of Assets 73.9 19.5
Accounts Receivable as a % of Assets 14.6 26.3
Net Fixed Assets as a % of Assets 5.5 19.7
Current Liabilities as a % of Assets 49.9 50.8
Long-Term Debt as a % of Assets 0.0 17.9
Total Debt as a % of Assets 49.9 73.4
Net Worth as a % of Assets 50.1 26.6
INCOME STATEMENT ITEMS
Annual Revenue ($000's) 578 509
Operating Expenses as a % of Revenue 42.2 89.0
Operating Income as a % of Revenue 57.8 11.0
Income Before Tax as a % of Revenue 62.8 7.6
TURNOVER RATIOS
Accounts Receivable Turnover (x) 5.2 9.1
Fixed Asset Turnover (x) 14.0 13.0
Total Asset Turnover (x) 0.8 1.2
PROFITABILITY
Before-Tax Return on Assets (%) 48.0 3.6
Before-Tax Return on Equity (%) 95.8 17.3
RISK
Current Ratio (x) 1.8 1.0
Interest Coverage Ratio (x) NI 2.5
Total Debt/Equity (x) 1.0 5.4
</TABLE>
NI = no interest expense
Notes: (a) Year ended December 31, 1996
(b) Fiscal years ended April 1, 1995 through March 31, 1996
Source: Annual Statement Studies, 1996 edition, Robert Morris Associates,
Philadelphia, PA
<PAGE> 72
66
EXHIBIT 3
BEEHIVE INSURANCE
PROJECTED INCOME STATEMENTS
(in $000's)
For Year Ending December 31:
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
REVENUE 594.9 612.8 631.2 650.1 669.6
OPERATING EXPENSES 250.8 258.3 266.1 274.1 282.3
----- ----- ----- ----- -----
INCOME FROM OPERATIONS 344.1 354.4 365.1 376.0 387.3
INTEREST EXPENSE 0.0 0.0 0.0 0.0 0.0
OTHER INCOME 32.2 32.2 32.2 32.2 32.2
----- ----- ----- ----- -----
EARNINGS BEFORE TAX 376.3 386.6 397.3 408.2 419.5
INCOME TAX 131.7 135.3 139.0 142.9 146.8
----- ----- ----- ----- -----
NET INCOME 244.6 251.3 258.2 265.4 272.7
===== ===== ===== ===== =====
</TABLE>
<PAGE> 73
67
EXHIBIT 3
(continued)
BEEHIVE INSURANCE
ASSUMPTIONS TO PROJECTED INCOME STATEMENTS
1. Revenues are assumed to grow at a compound annual rate of 3.0% from the 1996
figure of $577,600 throughout the forecast period.
2. Operating expenses are assumed to grow at a compound annual rate of 3.0% from
the 1996 figure of $243,500 throughout the forecast period.
3. Interest expense is assumed to be negligible throughout the forecast period,
consistent with the Company's absence of long-term or other interest-bearing
debt.
4. Other income (comprised primarily of interest income and rental income) is
assumed to remain constant at the 1991-96 average figure of $32,200 throughout
the forecast period.
5. Income tax is assumed to remain constant at the 1991-96 average of 35% of
pre-tax earnings throughout the forecast period.
6. Free cash flow is defined as net income plus non-cash depreciation expense
less capital expenditures. Depreciation expense and capital expenditures are
assumed to offset each other throughout the forecast period, consistent with the
experience of the Company over the 1991-96 period, during which depreciation
expense and capital expenditures remained relatively similar. Consequently, free
cash flow is projected to be identical to net income throughout the forecast
period.
<PAGE> 74
68
EXHIBIT 4
BEEHIVE INSURANCE
PROJECTED INCOME STATEMENT ITEMS AS A % OF PROJECTED REVENUE
For Year Ending December 31:
<TABLE>
<CAPTION>
1997-2001
1997 1998 1999 2000 2001 Average
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
REVENUE 100.0 100.0 100.0 100.0 100.0 100.0
OPERATING EXPENSES 42.2 42.2 42.2 42.2 42.2 42.2
----- ----- ----- ----- ----- -----
INCOME FROM OPERATIONS 57.8 57.8 57.8 57.8 57.8 57.8
INTEREST EXPENSE 0.0 0.0 0.0 0.0 0.0 0.0
OTHER INCOME 5.4 5.3 5.1 5.0 4.8 5.1
----- ----- ----- ----- ----- -----
EARNINGS BEFORE TAX 63.3 63.1 62.9 62.8 62.7 62.9
INCOME TAX 22.1 22.1 22.0 22.0 21.9 22.0
----- ----- ----- ----- ----- -----
NET INCOME 41.1 41.0 40.9 40.8 40.7 40.9
===== ===== ===== ===== ===== =====
</TABLE>
<PAGE> 75
69
EXHIBIT 5
BEEHIVE INSURANCE
PROJECTED INCOME STATEMENT ITEM GROWTH RATES (%)
<TABLE>
<CAPTION>
1996-2001
For Year Ending December 31: Compound
Annual
1997 1998 1999 2000 2001 Growth
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
REVENUE 3.0 3.0 3.0 3.0 3.0 3.0
OPERATING EXPENSES 3.0 3.0 3.0 3.0 3.0 3.0
---- ---- ---- ---- ---- ----
INCOME FROM OPERATIONS 3.0 3.0 3.0 3.0 3.0 3.0
INTEREST EXPENSE 0.0 0.0 0.0 0.0 0.0 0.0
OTHER INCOME 11.8 0.0 0.0 0.0 0.0 2.3
---- ---- ---- ---- ---- ----
EARNINGS BEFORE TAX 3.7 2.7 2.8 2.8 2.8 2.9
INCOME TAX 2.0 2.7 2.8 2.8 2.8 2.6
---- ---- ---- ---- ---- ----
NET INCOME 4.6 2.7 2.8 2.8 2.8 3.1
==== ==== ==== ==== ==== ====
</TABLE>
<PAGE> 76
70
EXHIBIT 6
BEEHIVE INSURANCE
NORMALIZED AND PROJECTED NET INCOME
<TABLE>
<CAPTION>
- - - - - - - - - Net Income - - - - - - - - Implicit
(in $000's)
Compound
Annual
Method 1997 1998 1999 2000 2001 Growth*
---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Regression Analysis:
net income trend line 257.4 273.7 289.9 306.2 322.4 6.6%
net income log trend line 264.2 286.8 311.3 337.9 366.8 9.4%
Past Averages:
1991-96 average net
margin of 39.1% applied
to projected revenues 232.6 239.6 246.8 254.2 261.8 2.3%
Company Projections 244.6 251.3 258.2 265.4 272.7 3.1%
Final Projected Net Income 244.6 251.3 258.2 265.4 272.7 3.1%
Per Share ($0.00) 11.38 11.70 12.02 12.35 12.69 3.1%
</TABLE>
* from 1996 net income figure of $233,800
<PAGE> 77
71
EXHIBIT 7
BEEHIVE INSURANCE
INCOME PROJECTION ESTIMATES
($ THOUSANDS)
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Trend 257.4 273.7 289.9 306.2 322.4
Log Trend 264.2 286.8 311.3 337.9 366.8
Past Avgs. 232.6 239.6 246.8 254.2 261.8
Final 244.6 251.3 258.2 265.4 272.7
</TABLE>
<PAGE> 78
72
EXHIBIT 8
BEEHIVE INSURANCE
HISTORICAL AND PROJECTED NET INCOME
($ THOUSANDS)
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Trend 257.4 273.7 289.9 306.2 322.4
Log Trend 264.2 286.8 311.3 337.9 366.8
Past Avgs. 232.6 239.6 246.8 254.2 261.8
Final 244.6 251.3 258.2 265.4 272.7
</TABLE>
<PAGE> 79
73
EXHIBIT 9
BEEHIVE INSURANCE
INDUSTRY SAMPLE GROUP
ACMAT CORP. provides property and casualty insurance brokerage services through
Amins, a wholly-owned subsidiary. The company also provides bonding services and
liability insurance. The company also offers asbestos abatement services and
installs electrical and mechanical systems in new and existing buildings.
ACORDIA, INC. is a holding company for a nationwide network of operating
business units that provide property and casualty insurance brokerage services,
risk management consulting, managed health care integration and administration,
workers' compensation administration, underwriting management, and
employee-benefit consulting services to government, not-for-profit, and private
sector employers, groups, trusts and associations, as well as individual
consumers.
ALEXANDER & ALEXANDER is the fourth largest insurance broker in the world, with
over 260 offices in more than 80 countries, but primarily in the United States,
Canada, and the United Kingdom. Its operations include retail and wholesale
reinsurance brokering and risk management. The company also provides consulting
services and benefits brokering in all aspects of human resource management.
<PAGE> 80
74
AON CORP. operates in four areas: insurance brokerage (retail brokerage,
reinsurance, and benefits consulting); life insurance; accident and health
insurance; and specialty property/casualty insurance. The company is actively
seeking acquisitions of other private and public insurance brokerage firms.
BALDWIN & LYONS provides insurance brokerage and agency services, specialized
insurance-related services, and property and casualty insurance underwriting
services. The company also performs a variety of additional services for its
clients, such as risk surveys and analyses, claims services, government
compliance assistance, loss control and cost studies, research and development,
and consultation in connection with new insurance programs.
CROP GROWERS CORP. markets and services federal multiperil crop insurance,
private crop hail insurance, and other named peril insurance. The company also
markets insurance products on behalf of third-party subsidiaries and through its
own Plains Insurance Company subsidiary. The company's brokerage network
includes approximately 7,500 licensed agents in 42 states. The company is the
fourth-largest marketer and servicer of crop insurance, based on the number of
premiums serviced.
<PAGE> 81
75
EXHIBIT 9
(continued)
BEEHIVE INSURANCE
INDUSTRY SAMPLE GROUP
FRONTIER ADJUSTERS licenses and franchises independent insurance adjusters. The
company adjusts claims made against self-insured companies. The company has
license or franchise agreements with some 390 owner-operator adjusters operating
405 offices in 590 advertised locations in all 50 states, Canada, and London. In
addition to licensing and franchising adjusters, the company owns and operates
independent insurance adjusting businesses in Arizona.
GALLAGHER (ARTHUR J.) provides insurance brokerage, risk management, and related
services to clients in the U.S. and abroad. The company's principal activity is
the negotiation and placement of insurance for its clients. Risk management
involves assisting clients in analyzing risks and determining whether proper
protection is best obtained through the purchase of insurance or through
retention of those risks and the adoption of corporate risk management policies
and prevention programs. The company operates through a network of 140 offices
throughout the United States and five offices abroad.
HILB, ROGAL AND HAMILTON, through its network of wholly-owned subsidiary
insurance agencies,
<PAGE> 82
76
places various types of insurance, including property, casualty, marine,
aviation, and employee benefits insurance, with insurance underwriters on behalf
of its clients. The company's insurance agencies operate 69 offices in 16 states
and five Canadian provinces. The company's client base ranges from personal to
large national accounts and is primarily comprised of medium-sized commercial
and industrial accounts. Insurance commissions accounted for approximately 94%
of the company's total 1996 revenues. The company also advises clients on risk
management and employee benefits and provides claims administration and
loss-control consulting services to clients.
MARKEL CORP. is primarily an underwriter and broker of specialty insurance
products and programs, and its insurance company subsidiaries retain the
majority of business produced by its underwriting management and brokerage
subsidiaries. The company focuses on specialty products and programs that serve
particular market niches, including professional and product liability, excess
and surplus lines, specialty programs, and specialty personal lines. Products
include property and casualty coverages, professional and product liability
coverages, specialty personal lines programs, and other specialty programs
designed to meet the needs of policy- holders in various market niches.
MARSH & MCLENNAN is the world's largest insurance broker. The company also
offers investment services and employee benefits and corporate strategy
consulting. Insurance brokerage services are offered under the Marsh & McLennan,
Guy Carpenter & Company, and Seabury & Smith names. The company recently
acquired Johnson & Higgins, a major insurance brokerage agency.
<PAGE> 83
77
EXHIBIT 9
(continued)
BEEHIVE INSURANCE
INDUSTRY SAMPLE GROUP
POE & BROWN is a diversified insurance brokerage and agency that markets
primarily property and casualty insurance products and services to commercial,
professional and, to a limited extent, individual customers. The company's
property insurance protects against physical damage to property and the
resultant interruption of business caused by fire, windstorm, or other perils.
Casualty insurance relates to legal liabilities, workers' compensation,
commercial and private automobile insurance, and fidelity and surety insurance.
The company is not involved in the underwriting process and, therefore, does not
assume these risks. Instead, it acts in an agency capacity to provide its
customers with targeted, customized risk management products. The company is
compensated for its services by commissions paid by insurance companies and fees
for its administration and benefit consulting services.
ST. PAUL COMPANIES ranks 9th in terms of U.S. property and casualty insurance
premiums written. The company's other business lines include insurance brokering
through Minet (its insurance brokerage subsidiary), investment banking, and real
estate investments.
<PAGE> 84
78
SEIBELS (BRUCE) GROUP performs insurance servicing-carrier activities for large
state and federal insurance facilities. All servicing functions are performed on
a commission basis without any underwriting risk to the company. The company
operates in North Carolina, South Carolina, Kentucky, Georgia, and Tennessee
through independent insurance agents.
Sources: Value Line Investment Survey
Morningstar Equities
<PAGE> 85
79
EXHIBIT 10
BEEHIVE INSURANCE
MARKET VALUE RATIOS FOR
THE INDUSTRY SAMPLE GROUP
AS OF JUNE 30, 1997
<TABLE>
<CAPTION>
Price- Price to Price to Price to
Earnings Cash Flow Revenue Book
Ratio Ratio Ratio Ratio
Company (x) (x) (%) (%)
-------- --------- -------- --------
<S> <C> <C> <C> <C>
ACMAT Corp. 10.4 7.7 175.9 124.0
Acordia, Inc. 18.8 8.5 85.1 248.3
Alexander & Alexander 12.2 7.1 60.4 172.0
Aon Corp. 18.3 12.2 166.0 212.2
Baldwin & Lyons 13.7 13.3 334.8 113.0
Crop Growers Corp. 15.7 10.7 74.4 184.6
Frontier Adjusters 9.4 8.2 201.9 186.2
Gallagher (Arthur J.) 13.6 10.5 127.5 432.8
Hilb, Rogal & Hamilton 19.6 15.1 139.9 400.6
Markel Corp. 15.6 12.5 206.5 286.3
Marsh & McLennan 21.1 16.4 201.9 528.6
Poe & Brown 18.9 13.0 262.6 463.3
St. Paul Companies 13.6 12.8 134.2 160.5
Seibels (Bruce) Group 6.9 6.1 74.3 224.7
---- ---- ----- -----
Mean 14.8 11.0 160.4 266.9
</TABLE>
Sources: Standard & Poor's Stock Reports
Value Line Investment Survey
Morningstar Equities
Barron's
<PAGE> 86
80
EXHIBIT 11
HISTORICAL STRUCTURE OF
YIELDS OBSERVABLE AND AVAILABLE
ON SELECTED SECURITIES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Historical
Return (1) Differential
----------- ------------
Inflation 3.2%
Real Interest 0.6%
U.S. Treasury Bills 3.8%
Maturity Premium 1.7%
Long-Term Government Bonds 5.5%
Default Premium 0.5%
Long-Term Corporate Bonds 6.0%
Ownership Premium 6.5%
Common Stocks 12.5%
Total Differential 9.3%
====
</TABLE>
(1) Arithmetic Mean
Note: Differential represents difference between historical returns (e.g., real
interest = return on treasury bills less inflation)
Source: Ibbotson Associates, 1996 Stocks, Bonds, Bills and Inflation Yearbook
<PAGE> 87
APPENDIX A
BEEHIVE INSURANCE
FINANCIAL STATEMENT SUMMARY
<PAGE> 88
BEEHIVE INSURANCE
INCOME STATEMENTS (in $000's)
For Year Ending December 31:
<TABLE>
<CAPTION>
1991-96
1991 1992 1993 1994 1995 1996 Average
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Insurance Commissions 480.2 489.9 485.2 518.9 451.9 517.5 490.6
Profit Sharing Commissions 88.9 29.1 21.9 79.2 85.9 60.1 60.9
----- ----- ----- ----- ----- ----- -----
TOTAL REVENUE 569.1 519.0 507.1 598.1 537.8 577.6 551.5
OPERATING EXPENSES:
Salaries 131.3 128.7 126.0 139.3 136.9 141.3 133.9
Selling, General & Administrative 95.5 138.5 103.5 105.4 106.0 93.4 107.1
Depreciation 5.9 11.3 9.9 9.0 9.8 8.8 9.1
----- ----- ----- ----- ----- ----- -----
TOTAL OPERATING EXPENSES 232.7 278.5 239.4 253.7 252.7 243.5 250.1
INCOME FROM OPERATIONS 336.4 240.5 267.7 344.4 285.1 334.1 301.4
OTHER INCOME 49.3 28.9 20.6 27.0 38.3 28.8 32.2
----- ----- ----- ----- ----- ----- -----
EARNINGS BEFORE TAX 385.7 269.4 288.3 371.4 323.4 362.9 333.5
INCOME TAX 131.1 104.3 99.8 129.4 109.7 129.1 117.2
----- ----- ----- ----- ----- ----- -----
NET INCOME 254.6 165.1 188.5 242.0 213.7 233.8 216.3
===== ===== ===== ===== ===== ===== =====
ADD: DEPRECIATION 5.9 11.3 9.9 9.0 9.8 8.8 9.1
----- ----- ----- ----- ----- ----- -----
OPERATING CASH FLOW 260.5 176.4 198.4 251.0 223.5 242.6 225.4
===== ===== ===== ===== ===== ===== =====
DIVIDENDS PAID 300.8 204.1 193.4 214.9 204.1 214.9 222.0
===== ===== ===== ===== ===== ===== =====
</TABLE>
<PAGE> 89
BEEHIVE INSURANCE
INCOME STATEMENT ITEMS AS A % OF REVENUE
For Year Ending December 31:
<TABLE>
<CAPTION>
1991-96
1991 1992 1993 1994 1995 1996 Average
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Insurance Commissions 84.4 94.4 95.7 86.8 84.0 89.6 89.1
Profit Sharing Commissions 15.6 5.6 4.3 13.2 16.0 10.4 10.9
----- ----- ----- ----- ----- ----- -----
TOTAL REVENUE 100.0 100.0 100.0 100.0 100.0 100.0 100.0
OPERATING EXPENSES:
Salaries 23.1 24.8 24.8 23.3 25.5 24.5 24.3
Selling, General & Administrative 16.8 26.7 20.4 17.6 19.7 16.2 19.6
Depreciation 1.0 2.2 2.0 1.5 1.8 1.5 1.7
----- ----- ----- ----- ----- ----- -----
TOTAL OPERATING EXPENSES 40.9 53.7 47.2 42.4 47.0 42.2 45.6
INCOME FROM OPERATIONS 59.1 46.3 52.8 57.6 53.0 57.8 54.4
OTHER INCOME 8.7 5.6 4.1 4.5 7.1 5.0 5.8
----- ----- ----- ----- ----- ----- -----
EARNINGS BEFORE TAX 67.8 51.9 56.9 62.1 60.1 62.8 60.3
INCOME TAX 23.0 20.1 19.7 21.6 20.4 22.4 21.2
----- ----- ----- ----- ----- ----- -----
NET INCOME 44.7 31.8 37.2 40.5 39.7 40.5 39.1
===== ===== ===== ===== ===== ===== =====
ADD: DEPRECIATION 1.0 2.2 2.0 1.5 1.8 1.5 1.7
----- ----- ----- ----- ----- ----- -----
OPERATING CASH FLOW 45.8 34.0 39.1 42.0 41.6 42.0 40.7
===== ===== ===== ===== ===== ===== =====
</TABLE>
<PAGE> 90
BEEHIVE INSURANCE
INCOME STATEMENT ITEM GROWTH RATES (%)
<TABLE>
<CAPTION>
1991-96
For Year Ending December 31: Compound
Annual
1991 1992 1993 1994 1995 1996 Growth
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Insurance Commissions - 2.0 (1.0) 6.9 (12.9) 14.5 1.5
Profit Sharing Commissions - (67.3) (24.7) 261.6 8.5 (30.0) (7.5)
----- ----- ----- ----- ----- ----- -----
TOTAL REVENUE - (8.8) (2.3) 17.9 (10.1) 7.4 0.3
OPERATING EXPENSES:
Salaries - (2.0) (2.1) 10.6 (1.7) 3.2 1.5
Selling, General & Administrative - 45.0 (25.3) 1.8 0.6 (11.9) (0.4)
Depreciation - 91.5 (12.4) (9.1) 8.9 (10.2) 8.3
----- ----- ----- ----- ----- ----- -----
TOTAL OPERATING EXPENSES - 19.7 (14.0) 6.0 (0.4) (3.6) 0.9
INCOME FROM OPERATIONS - (28.5) 11.3 28.7 (17.2) 17.2 (0.1)
OTHER INCOME - (41.4) (28.7) 31.1 41.9 (24.8) (10.2)
----- ----- ----- ----- ----- ----- -----
EARNINGS BEFORE TAX - (30.2) 7.0 28.8 (12.9) 12.2 (1.2)
INCOME TAX - (20.4) (4.3) 29.7 (15.2) 17.7 (0.3)
----- ----- ----- ----- ----- ----- -----
NET INCOME - (35.2) 14.2 28.4 (11.7) 9.4 (1.7)
===== ===== ===== ===== ===== ===== =====
ADD: DEPRECIATION - 91.5 (12.4) (9.1) 8.9 (10.2) 8.3
----- ----- ----- ----- ----- ----- -----
OPERATING CASH FLOW - (32.3) 12.5 26.5 (11.0) 8.5 (1.4)
===== ===== ===== ===== ===== ===== =====
DIVIDENDS PAID - (32.1) (5.2) 11.1 (5.0) 5.3 (6.5)
===== ===== ==== ===== ===== ===== =====
</TABLE>
<PAGE> 91
BEEHIVE INSURANCE
BALANCE SHEETS (in $000's)
As of December 31:
<TABLE>
<CAPTION>
ASSETS 1991 1992 1993 1994 1995 1996
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash 660.0 734.0 374.8 779.9 640.7 558.6
Accounts Receivable 179.6 181.2 440.7 157.7 171.3 110.1
Other Current Assets 25.5 31.2 30.6 22.6 15.3 9.8
----- ----- ----- ----- ----- -----
TOTAL CURRENT ASSETS 865.1 946.4 846.1 960.2 827.3 678.5
PROPERTY, PLANT & EQUIPMENT:
Land 12.5 12.5 12.5 12.5 12.5 12.5
Building & Improvements 41.2 48.5 48.5 48.5 57.9 57.9
Office Furniture & Fixtures 14.3 20.9 19.3 23.3 26.5 29.2
Automobiles 25.8 25.8 27.9 27.9 32.6 32.6
Accumulated Depreciation (71.6) (82.8) (75.0) (84.0) (82.1) (90.8)
----- ----- ----- ----- ----- -----
NET PROPERTY, PLANT & EQUIPMENT 22.2 24.9 33.2 28.2 47.4 41.4
DEFERRED TAXES 0.0 0.0 0.0 0.0 39.0 36.0
----- ----- ----- ----- ----- -----
TOTAL ASSETS 887.3 971.3 879.3 988.4 913.7 755.9
===== ===== ===== ===== ===== =====
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Insurance Premiums Payable 285.2 451.0 345.3 389.7 313.5 123.8
Accounts Payable 0.8 4.3 1.6 1.0 0.6 0.4
Dividends Payable 171.9 96.7 107.4 107.4 107.4 107.4
Taxes Payable 12.0 0.1 0.2 29.6 0.0 0.6
Accrued Expenses 0.0 40.9 18.8 27.6 132.2 144.8
----- ----- ----- ----- ----- -----
TOTAL CURRENT LIABILITIES 469.9 593.0 473.3 555.3 553.7 377.0
LONG-TERM DEBT 0.0 0.0 0.0 0.0 0.0 0.0
----- ----- ----- ----- ----- -----
TOTAL LIABILITIES 469.9 593.0 473.3 555.3 553.7 377.0
STOCKHOLDERS' EQUITY 417.4 378.3 406.0 433.1 360.0 378.9
----- ----- ----- ----- ----- -----
TOTAL LIABILITIES & EQUITY 887.3 971.3 879.3 988.4 913.7 755.9
===== ===== ===== ===== ===== =====
</TABLE>
<PAGE> 92
BEEHIVE INSURANCE
BALANCE SHEET ITEMS AS A % OF TOTAL ASSETS
As of December 31:
<TABLE>
<CAPTION>
1991-96
ASSETS 1991 1992 1993 1994 1995 1996 Average
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash 74.4 75.6 42.6 78.9 70.1 73.9 69.3
Accounts Receivable 20.2 18.7 50.1 16.0 18.7 14.6 23.0
Other Current Assets 2.9 3.2 3.5 2.3 1.7 1.3 2.5
----- ----- ----- ----- ----- ----- -----
TOTAL CURRENT ASSETS 97.5 97.4 96.2 97.1 90.5 89.8 94.8
PROPERTY, PLANT & EQUIPMENT:
Land 1.4 1.3 1.4 1.3 1.4 1.7 1.4
Building & Improvements 4.6 5.0 5.5 4.9 6.3 7.7 5.7
Office Furniture & Fixtures 1.6 2.2 2.2 2.4 2.9 3.9 2.5
Automobiles 2.9 2.7 3.2 2.8 3.6 4.3 3.2
Accumulated Depreciation (8.1) (8.5) (8.5) (8.5) (9.0) (12.0) (9.1)
----- ----- ----- ----- ----- ----- -----
NET PROPERTY, PLANT & EQUIPMENT 2.5 2.6 3.8 2.9 5.2 5.5 3.7
DEFERRED TAXES 0.0 0.0 0.0 0.0 4.3 4.8 1.5
----- ----- ----- ----- ----- ----- -----
TOTAL ASSETS 100.0 100.0 100.0 100.0 100.0 100.0 100.0
===== ===== ===== ===== ===== ===== =====
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Insurance Premiums Payable 32.1 46.4 39.3 39.4 34.3 16.4 34.7
Accounts Payable 0.1 0.4 0.2 0.1 0.1 0.1 0.2
Dividends Payable 19.4 10.0 12.2 10.9 11.8 14.2 13.1
Taxes Payable 1.4 0.0 0.0 3.0 0.0 0.1 0.7
Accrued Expenses 0.0 4.2 2.1 2.8 14.5 19.2 7.1
----- ----- ----- ----- ----- ----- -----
TOTAL CURRENT LIABILITIES 53.0 61.1 53.8 56.2 60.6 49.9 55.7
LONG-TERM DEBT 0.0 0.0 0.0 0.0 0.0 0.0 0.0
----- ----- ----- ----- ----- ----- -----
TOTAL LIABILITIES 53.0 61.1 53.8 56.2 60.6 49.9 55.7
STOCKHOLDERS' EQUITY 47.0 38.9 46.2 43.8 39.4 50.1 44.3
----- ----- ----- ----- ----- ----- -----
TOTAL LIABILITIES & EQUITY 100.0 100.0 100.0 100.0 100.0 100.0 100.0
===== ===== ===== ===== ===== ===== =====
</TABLE>
<PAGE> 93
APPENDIX B
ROBERT MORRIS ASSOCIATES INDUSTRY RATIOS
INSURANCE AGENTS & BROKERS
<PAGE> 94
COMPARATIVE HISTORICAL DATA
<TABLE>
<CAPTION>
<S> <C> <C> <C>
32 57 67 # POSTRETIREMENT BENEFITS
TYPE OF STATEMENT
95 126 123 Unqualified
170 150 169 Reviewed
179 189 201 Compiled
31 63 69 Tax Returns
194 210 226 Other
4/1/93- 4/1/94- 4/1/95-
3/31/94 3/31/95 3/31/96
ALL ALL ALL
669 738 788 NUMBER OF STATEMENTS
- --------------- --------------- ------------------ -------------------------------------
% % % ASSETS
23.9 23.8 24.2 Cash & Equivalents
28.7 28.1 28.5 Trade Receivables - (net)
.6 .7 .4 Inventory
4.8 4.1 4.8 All Other Current
58.0 56.7 57.9 Total Current
16.0 15.7 15.8 Fixed Assets (net)
9.2 10.3 9.7 Intangibles (net)
16.8 17.2 16.6 All Other Non-Current
100.0 100.0 100.0 Total
- --------------- --------------- ------------------ -------------------------------------
LIABILITIES
8.0 8.7 8.8 Notes Payable-Short Term
3.5 3.6 3.6 Cur. Mat.-L/T/D
32.8 30.8 28.6 Trade Payables
2.0 .5 .4 Income Taxes Payable
14.7 14.9 15.6 All Other Current
61.0 58.5 56.9 Total Current
13.6 13.4 14.1 Long Term Debt
.3 .3 .5 Deferred Taxes
4.0 4.3 4.3 All Other Non-Current
21.2 23.5 24.1 Net Worth
100.0 100.0 100.0 Total Liabilities & Net Worth
- --------------- --------------- ------------------ -------------------------------------
INCOME DATA
100.0 100.0 100.0 Net Sales
Gross Profit
93.1 91.9 91.6 Operating Expenses
6.9 8.1 8.4 Operating Profit
.8 1.4 1.6 All Other Expenses (net)
6.1 6.7 6.8 Profit Before Taxes
- --------------- --------------- ------------------ -------------------------------------
RATIOS
1.3 1.3 1.4
1.0 1.0 1.0 Current
.7 .7 .7
- --------------- --------------- ----------- ------ -------------------------------------
1.2 1.2 1.3
.9 .9 (787) .9 Quick
.6 .6 .6
- ------- ------- -------- ------ ---------- ------- -------------------------------------
22 16.5 15 23.9 14 26.0
73 5.0 60 6.1 57 6.4 Sales/Receivables
146 2.5 135 2.7 135 2.7
- --------------- --------------- ------------------ -------------------------------------
Cost of Sales/Payables
- --------------- --------------- ------------------ -------------------------------------
9.5 9.0 8.2
-85.7 -119.4 334.5 Sales/Working Capital
-7.3 -7.7 -8.3
- --------------- --------------- ------------------ -------------------------------------
9.3 10.6 9.9
(534) 3.4 (574) 3.5 (614) 3.4 EBIT/Interest
1.6 1.6 1.4
- -------- ------ --------- ----- ---------- ------- -------------------------------------
3.4 4.3 4.9 Net Profit + Depr., Dep.,
(170) 1.6 (195) 1.7 (206) 2.2 Amort./Cur. Mat. L/T/D
.8 .8 1.0
- -------- ------ --------- ----- ---------- ------- -------------------------------------
.3 .2 .2
.9 .8 .9 Fixed/Worth
-4.5 -9.8 -8.0
- --------------- --------------- ------------------ -------------------------------------
1.9 1.9 1.7
6.1 5.4 5.6 Debt/Worth
-28.6 -36.3 -37.2
- --------------- --------------- ------------------ -------------------------------------
55.7 58.8 63.1 % Profit Before Taxes/Tangible
(475) 23.3 (535) 20.5 (568) 22.3 Net Worth
6.9 5.5 6.0
- --------------- --------------- ------------------ -------------------------------------
11.4 11.8 12.3 % Profit Before Taxes/Total
4.9 4.1 4.5 Assets
1.2 1.1 1.1
- --------------- --------------- ------------------ -------------------------------------
29.6 33.2 33.5
13.5 15.4 15.8 Sales/Net Fixed Assets
7.3 7.9 8.0
- --------------- --------------- ------------------ -------------------------------------
1.8 2.1 2.3
1.1 1.2 1.2 Sales/Total Assets
.8 .7 .7
- --------------- --------------- ------------------ -------------------------------------
1.5 1.5 1.4
(527) 2.6 (546) 2.6 (578) 2.5 % Depr., Dep., Amort./Sales
4.0 4.2 4.1
- -------- ------ --------- ----- ---------- ------- -------------------------------------
10.8 9.9 10.2 % Officers', Directors',
(325) 18.5 (327) 16.4 (363) 17.3 Owners' Comp/Sales
27.2 26.5 27.8
- --------------- --------------- ------------------ -------------------------------------
6149989M 6379150M 8599925M NET SALES ($)
6348197M 7129240M 7663551M TOTAL ASSETS ($)
- --------------- --------------- ------------------ -------------------------------------
</TABLE>
SERVICES - INSURANCE AGENTS & BROKERS SIC# 6411
CURRENT DATA SORTED BY SALES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
24 19 8 4 3 9
12 24 13 20 27 27
45 66 26 17 7 8
97 68 17 14 3 2
49 15 4 1
80 70 28 19 13 16
203 (4/1-9/30/95) 585 (10/1/95-3/31/96)
0-1MM 1-3MM 3-5MM 5-10MM 10-25MM 25MM & OVER
243 243 88 71 50 53
- --------------- ------------------ -------------- --------------- ---------------- --------------------
% % % % % %
19.5 26.4 22.9 28.5 36.6 241
26.3 31.7 30.5 31.1 22.5 24.1
.4 .1 .8 .0 1.9 .7
4.5 2.9 6.2 5.2 6.2 10.1
50.7 61.2 60.4 64.8 67.1 59.1
19.7 13.3 16.4 14.5 10.8 11.3
12.3 9.8 6.9 5.3 6.1 9.3
17.2 15.6 16.2 15.4 16.0 20.4
100.0 100.0 100.0 100.0 100.0 100.0
- --------------- ------------------ -------------- --------------- ---------------- --------------------
10.8 8.4 9.0 6.0 2.6 8.8
4.7 3.3 3.4 3.2 2.0 1.7
23.2 36.4 29.1 32.2 24.9 19.0
.4 .2 .4 .6 .7 .4
11.7 14.4 18.0 19.2 27.0 22.6
50.8 62.7 59.9 61.3 57.2 52.5
17.9 13.1 14.3 9.8 8.4 9.8
.2 .6 .7 .5 .4 .8
4.5 3.6 4.9 3.4 4.4 6.9
26.6 20.0 20.2 25.1 29.5 30.0
100.0 100.0 100.0 100.0 100.0 100.0
- --------------- ------------------ -------------- --------------- ---------------- --------------------
100.0 100.0 100.0 100.0 100.0 100.0
89.0 94.5 88.1 93.3 93.2 94.0
11.0 5.5 11.9 6.7 6.8 6.0
3.4 .0 2.9 -.6 1.7 -.1
7.6 5.5 9.0 7.3 5.1 6.1
- --------------- ------------------ -------------- --------------- ---------------- --------------------
1.6 1.3 1.3 1.3 1.7 1.7
1.0 1.0 1.0 1.0 1.1 1.1
.6 .7 .8 .9 .9 .9
- ------- ------- ------------------ -------------- --------------- ---------------- --------------------
1.4 1.2 1.2 1.3 1.7 1.3
(282) .9 .9 1.0 1.0 1.0 .9
.5 .7 .6 .7 .7 .7
- ---------- ------ ------- -------- ------ ------- ------ -------- ------- -------- ------ -------------
5 75.7 23 16.0 26 14.3 18 19.9 14 25.9 16 23.0
40 9.1 70 5.2 89 4.1 50 7.3 65 5.6 40 9.1
126 2.9 140 2.6 174 2.1 126 2.9 118 3.1 107 3.4
- ----------------- ---------------- -------------- --------------- ---------------- --------------------
6.4 11-1 8.3 12.1 4.7 6.0
-72.3 -105.1 249.8 73.9 82.5 33.6
-5.9 -7.3 -14.3 -25.3 -9.1 -27.7
- ----------------- ---------------- -------------- --------------- ---------------- --------------------
6.8 10.0 9.8 19.1 23.1 12.1
(213) 2.5 (201) 3.3 (71) 3.4 (50) 8.1 (36) 5.6 (43) 6.2
1.3 1.3 1.2 2.3 1.5 3.1
- -------- -------- ------- -------- ------ ------- ------ -------- -------- ------- -------- -----------
4.1 3.8 5.9 5.7 2.3 12.1
(46) 1.8 (72) 1.5 (25) 2.1 (26) 4.2 (19) 1.5 (18) 7.2
.6 .8 1.3 2.3 1.0 3.3
- -------- -------- ------- -------- ------ ------- ------ -------- -------- ------- -------- -----------
.2 .3 .4 .3 .1 .2
.9 1.1 1.3 .7 .4 .5
-2.6 -1.7 NM 1.6 3.9 1.7
- ----------------- ---------------- -------------- --------------- ---------------- --------------------
1.3 2.4 1.8 1.8 1.2 1.5
5.4 7.4 7.3 3.8 4.4 3.3
-9.6 -17.5 NM 18.0 27.1 12.1
- ----------------- ---------------- -------------- --------------- ---------------- --------------------
58.5 79.3 58.3 76.9 52.8 51.2
(189) 17.3 (168) 26.3 (66) 20.5 (60) 31.0 (41) 13.9 (44) 19.4
2.4 8.0 3.9 14.5 4.4 10.4
- ----------------- ---------------- -------------- --------------- ---------------- --------------------
12.5 10.7 13.5 15.7 13.2 10.1
3.6 4.8 3.7 8.1 3.5 5.4
.5 1.0 .6 2.3 .4 2.0
- ----------------- ---------------- -------------- --------------- ---------------- --------------------
34.5 33.6 30.6 39.8 33.0 36.5
13.0 17.2 14.5 19.5 13.3 16.0
6.4 9.4 7.0 11.1 8.8 9.8
- ----------------- ---------------- -------------- --------------- ---------------- --------------------
2.2 2.0 2.1 3.8 1.8 3.2
1.2 1.3 1.0 1.6 1.0 1.5
.7 .9 .7 1.0 .6 .6
- ----------------- ---------------- -------------- --------------- ---------------- --------------------
1.6 1.5 1.4 1.0 2.1 .6
(192) 2.9 (191) 2.4 (64) 2.9 (60) 2.0 (32) 3.3 (39) 2.4
5.2 3.6 4.3 3.4 4.0 3.7
- ----------------- ---------------- -------------- --------------- ---------------- --------------------
13.4 8.8 8.1 4.8 5.2
(154) 22.3 (127) 15.8 (34) 12.8 (32) 11.3 (10) 12.2
29.2 27.1 20.0 19.6 20.9
- ----------------- ---------------- -------------- --------------- ---------------- --------------------
144114M 423733M 336715M 500259M 742187M 6452917M
181589M 590191M 485743M 482972M 1124772M 4798184M
- ----------------- ---------------- -------------- --------------- ---------------- --------------------
</TABLE>
(C)Robert Morris Associates 1996 M = $ THOUSAND MM = $ MILLION
<PAGE> 95
APPENDIX C
STATEMENT OF LIMITING CONDITIONS
<PAGE> 96
STATEMENT OF LIMITING CONDITIONS
1. Neither HVA or its principals have any present or intended interest in
the Company. HVA's fees for this valuation are based on professional
time charges, and are in no way contingent upon the final valuation
figure arrived at.
2. This report is intended only for the specific use and purpose stated
herein. It is intended for no other uses and is not to be copied or
given to unauthorized persons without the direct written consent of HVA.
The value opinion expressed herein is valid only for the stated purpose
and date of the valuation. The report and information and conclusions
contained therein should in no way be construed to be investment advice.
3. HVA does not purport to be a guarantor of value. Valuation is an
imprecise science, with value being a question of informed judgment, and
reasonable persons can differ in their estimates of value. HVA does
certify that this valuation study was conducted and the conclusions
arrived at independently using conceptually sound and commonly accepted
methods of valuation.
4. In preparing the valuation report, we used information provided by the
Company. It has been represented by Company management that the
information is reasonably complete and accurate. We did not make
independent examinations of any financial statements, projections or
other information prepared by Company management which were relied upon
and, accordingly, we make no representations or warranties nor do we
express any opinion regarding the accuracy or reasonableness of such.
5. The valuation conclusions derived herein implicitly assume that the
existing management of the Company will maintain the character and
integrity of the Company through any sale, reorganization, or diminution
of the owners' participation.
6. Publicly available information utilized herein (e.g., economic,
industry, statistical and/or investment information) has been obtained
from sources deemed to be reliable. It is beyond the scope of this
report to verify the accuracy of such information, and we make no
representation as to its accuracy.
7. This engagement is limited to the production of the report, conclusions
and opinions contained herein. HVA has no obligation to provide future
services (e.g., expert testimony in court or before governmental
agencies) related to the contents of the report unless arrangements for
such future services have been made.
8. This valuation report and the conclusions contained herein are
necessarily based on market and economic conditions as they existed as
of the date of valuation.
<PAGE> 97
9. David Dorton, CFA, ASA has met all current certification standards and
is an accredited senior appraiser in good standing of the American
Society of Appraisers, a national organization that certifies business
appraisers. HVA conforms to the Uniform Standards of Professional
Appraisal Practice for purposes of business valuations. HVA also
conforms to the Business Valuation Standards I through IX set forth by
the American Society of Appraisers in September 1992.
<PAGE> 98
APPENDIX D
PROFESSIONAL QUALIFICATIONS
DAVID DORTON, CFA, ASA
<PAGE> 99
DAVID L. DORTON, CFA, ASA
PROFESSIONAL DESIGNATIONS Chartered Financial Analyst (CFA)
Accredited Senior Appraiser (ASA)
Senior Member, American Society of
Appraisers
ACADEMIC DEGREES B.S., University of Utah,
Finance, Magna Cum Laude M.B.A.,
University of Utah
EMPLOYMENT HOULIHAN VALUATION ADVISORS
Principal - 1986 to Present
Houlihan Valuation Advisors provides
professional services relative to business
valuations, fairness and solvency opinions,
economic loss analyses, and other valuation
and economic issues. The firm has offices in
Los Angeles, Orange County, San Francisco,
San Carlos, Las Vegas, Salt Lake City,
Denver, Kansas City, Chicago and Atlanta.
WASATCH ADVISORS CONSULTING GROUP
Managing Analyst - 1984 to 1986
Wasatch Advisors provides investment
advisory services. Wasatch Advisors
Consulting Group provided corporate
valuation, financial analysis and consulting
services.
JPS FINANCIAL CONSULTANTS
Financial Analyst - 1981 to 1984
JPS Financial Consultants provided corporate
valuation and financial analysis services.
EXPERIENCE Has valued hundreds of privately held
companies and businesses since 1981, as
well as being a financial consultant for
numerous companies. Has prepared
numerous valuation studies, analyzed the
relative merits of merger/acquisition
proposals, analyzed and prepared opinion
letters as to the fairness of such
proposals, prepared solvency opinions,
<PAGE> 100
prepared ESOP feasibility studies, and
been involved in a wide array of other
financial analysis and consulting
activities for clients. Has served as an
expert witness on valuation, economic
and financial matters in federal and
state district courts on numerous
occasions.
PROFESSIONAL SOCIETIES Salt Lake City Society of
Financial Analysts American Society of
Appraisers, Past President, Salt Lake
City Chapter Association for Investment
Management and Research
OTHER Who's Who of Emerging Leaders in America
Who's Who of Finance
SPEAKING ENGAGEMENTS Has participated in many seminars and has
spoken on valuation issues on numerous
occasions.
<PAGE> 101
APPENDIX E
INTERNAL REVENUE RULING 59-60, 1959-1 CB 237
<PAGE> 102
REVENUE RULING 59-60
SECTION 2031. DEFINITION OF GROSS ESTATE
26 CFR 20.2031-2; Valuation of stocks and bonds (Also Section 2512.) (Also Part
II, Sections 811 (k), 1005
Regulations 105, Section 81.10.)
In valuing the stock of closely held corporations, or the stock of
corporations where market quotations are not available, all other
available financial data, as well as all relevant factors affecting the
fair market value, must be considered for estate tax and gift tax
purposes. No general formula may be given that is applicable to the many
different valuation situations arising in the valuation of such stock.
However, the general approach, methods, and factors which must be
considered in valuing such securities are outlined.
Revenue Ruling 54-77, C.B. 1954-1, 187, superseded.
Section 1. Purpose
The purpose of this Revenue Ruling is to outline and review in general the
approach, methods and factors to be considered in valuing shares of the capital
stock of closely held corporations for estate tax and gift tax purposes. The
methods discussed herein will apply likewise to the valuation of corporation
stocks on which market quotations are either unavailable or are of such scarcity
that they do not reflect the fair market value.
Section 2. Background and Definitions
.01 All valuations must be made in accordance with the applicable
provisions of the Internal Revenue Code of 1954 and the Federal Estate
Tax and Gift Tax Regulations. Sections 2031(a), 2032 and 2512(a) of the
1954 Code (Sections 811 and 1005 of the 1939 Code) require that the
property to be included in the gross estate, or made the subject of a
gift, shall be taxed on the basis of the value of the property at the
time of death of the decedent, the alternate date if so elected, or the
date of gift.
.02 Section 20.2031-1(b) of the Estate Tax Regulations (section 81.10 of
the Estate Tax Regulations 105) and section 25.2512-1 of the Gift Tax
Regulations (section 86.19 of Gift Tax Regulations 108) define fair
market value, in effect, as the price at which the property would change
hands between a willing buyer and a willing seller when the former is
not under any compulsion to buy and the latter is not under any
compulsion to sell, both parties having reasonable knowledge of relevant
facts. Court decisions frequently state an addition that the
hypothetical buyer and seller are assumed to be able, as well as
willing, to trade and to be well informed about the property and
concerning the market for such
1
<PAGE> 103
property.
.03 Closely held corporations are those corporations the shares of which
are owned by a relatively limited number of stockholders. Often the
entire stock issue is held by one family. The result of this situation
is that little, if any, trading in the shares takes place. There is,
therefore, no established market for the stock and such sales as occur
at irregular intervals seldom reflect all of the elements of the
representative transaction as defined by the term "fair market value".
Section 3. Approach to Valuation
.01 A determination of fair market value, being a question of fact, will
depend upon the circumstances in each case. No formula can be devised
that will be generally applicable to the multitude of different
valuation issues arising in the estate and gift tax cases. Often, an
appraiser will find wide differences, he should maintain a reasonable
attitude in recognition of the fact that valuation is not an exact
science. As sound valuation will be based upon all the relevant facts,
but the elements of common sense, informed judgment and reasonableness
must enter into the process of weighing those facts and determining
their aggregate significance.
.02 The fair market value of specific shares of stock will vary as
general economic conditions change from "normal" to "boom" or
"depression," that is, according to the degree of optimism or pessimism
with which the investing public regards the future at the required date
of appraisal. Uncertainty as to the stability or continuity of the
future income from a property decreases its value by increase the risk
of loss of earnings and value in the future. The value of shares of
stock of a company with very uncertain future income from a property
decreases its value by increase the risk of loss of earnings and value
in the future. The value of shares of stock of a company with very
uncertain future prospects is highly speculative. The appraiser must
exercise his judgment as to the degree of risk attaching to the business
of the corporation which issued the stock, but that judgment must be
related to all of the other factors affecting value.
.03 Valuation of securities is, in essence, a prophesy as to the future
and must be based on facts available at the required date of appraisal.
As a generalization, the prices of stocks which are traded in the volume
in a free and active market by informed persons best reflect the
consensus of the investing public as to what the future holds for the
corporations and industries represented. When a stock is closely held,
is traded infrequently, or is traded in an erratic market, some other
measure of value must be used. In many instances, the next best measure
may be found in the prices at which the stocks of companies engaged in
the same or similar line of business are selling in a free and open
market.
2
<PAGE> 104
Section 4. Factors to Consider
.01 It is advisable to emphasize that in the valuation of the stock of
closely held corporations or the stock of corporations where market
quotations are either lacking or too scarce to be recognized, all
available financial data, as well as all relevant factors affecting the
fair market value, should be considered. The following factors, although
not all-inclusive, are fundamental and require careful analysis in each
case:
(a) The nature of the business and the history of the enterprise
from its inception.
(b) The economic outlook in general and the condition and outlook of
the specific industry in particular.
(c) The book value of the stock and the financial condition of the
business.
(d) The earning capacity of the company.
(e) The dividend-paying capacity.
(f) Whether or not the enterprise has goodwill or other tangible
value.
(g) Whether or not the enterprise has goodwill or other tangible
value.
(h) The market price of stocks of corporations engaged in the same
or a similar line of business having their stocks actively
traded in a free and open market, either on an exchange or
over-the-counter.
.02 The following is a brief discussion of each of the foregoing
factors:
(a) The history of a corporate enterprise will show its past
stability or instability, its growth or lack of growth, the
diversity or lack of diversity of its operations, and other
facts needed to form an opinion of the degree of risk involved
in the business. For an enterprise which changed its form of
organization but carried on the same or closely similar
operations of its predecessor, the history of the former
enterprise should be considered. The detail to be considered
should increase with approach to the required date of appraisal,
since recent events are of the greatest help in predicting the
future; but a study of gross and net income, and of dividends
covering a long prior period, is highly desirable. The history
to be studied should include but need not be limited to the
nature of the business, its products or services, its operating
and investment assets, capital structure, plant
3
<PAGE> 105
facilities, sales records and management, all of which should be
considered as of the date of the appraisal, with due regard for
recent significant changes. Events of the past that are unlikely
to recur in the future should be discounted, since value has a
close relations to future expectancy.
(b) A sound appraisal of a closely held stock must consider current
and prospective economic conditions as of the date of appraisal,
both in the national economy and in the industry or industries
with which the corporation is allied. It is important to know
that the company is more or less successful that its competitors
in the same industry, or that it is maintaining a stable
position with respect to competitors. Equal or even greater
significance may attach to the ability of the industry with
which the company is allied to compete with other industries.
Prospective competition which has not been a factor in prior
years should be given careful attention. For example, high
profits due to the novelty of its product and the lack of
competition often lead to increasing competition. The public's
appraisal of the future prospects of competitive industries or
of competitors within an industry may be indicated by price
trends in the markets for commodities and for securities. The
loss of the manager of a so-called "one-man" business may have a
depressing effect upon the value of the stock of such business,
particularly if there is a lack of trained personnel capable of
succeeding to the management of the enterprise. In valuing the
stock of this type of business, therefore, the effect of the
loss of the manager on the future expectancy of the business and
the absence of management-succession potentialities are
pertinent factors to be taken into consideration. On the other
hand, there may be factors which offset, in whole or in part,
the loss of the manager's services. For instance, the nature of
the business and of its assets may be such that they will not be
impaired by the loss of the manager's services. Furthermore, the
loss may be adequately covered by life insurance, or competent
management might be employed on the basis of the consideration
paid for covered by life insurance, or competent management
might be employed on the basis of the consideration paid for the
former manager's services. These, or other offsetting factors,
if found to exist, should be carefully weighed against the loss
of the manager's services in valuing the stock of the
enterprise.
(c) Balance sheets should be obtained, preferably in the form of
comparative annual statements for two or more years immediately
preceding the date of appraisal, together with a balance sheet
at the end of the month preceding that date, if corporate
accounting will permit. Any balance sheet descriptions that are
not self-explanatory and balance sheet items comprehending
diverse assets or liabilities should be clarified in essential
4
<PAGE> 106
detail by supporting supplemental schedules. These statements
usually will disclose to the appraiser: (1) liquid position
(ratio of current assets to current liabilities); (2) gross and
net book value of principal classes of fixed assets; (3) working
capital; (4) long-term indebtedness; (5) capital structure; and
(6) net worth. Consideration also should be given to any assets
not essential to the operation of the business, such as
investments in securities, real estate, etc. In general, such
nonoperating assets will command a lower rate of return than do
the operating assets, although in exceptional cases the reverse
may be true. In computing the book value per share of stock
assets of the investment type should be revalued on the basis of
their market price and the book value adjusted accordingly.
Comparison of the company's balance sheets over several years
may reveal, among other facts, such developments as the
acquisition of additional production facilities or subsidiary
companies, improvement in financial position, and details as to
recapitalizations and other changes in the capital structure of
the corporation. If the corporation has more than one class of
stock outstanding, the charter or certificate of incorporation
should be examined to ascertain the explicit rights and
privileges of the various stock issues, including: (1) voting
powers, (2) preference as to dividends, and (3) preference as to
assets in the event of liquidation.
(d) Detailed profit-and-loss statements should be obtained and
considered for a representative period immediately prior to the
required date of appraisal, preferably five or more years. Such
statements should show (1) gross income by principal items; (2)
principal deductions from gross income including major prior
items of operating expenses, interest and other expense on each
item of long-term debt, depreciation and depletion if such
deductions are made, officer's salaries, in total if they appear
to be reasonable are made, officers' salaries, in total if they
appear to be reasonable or in detail if they seem to be
excessive, contributions (whether or not deductible for tax
purposes) that the nature of its business and its community
position require the corporation to make, and taxes by principal
items, including income and excess profit taxes; (3) net income
available for dividends; (4) rates and amounts of dividends paid
on each class of stock; (5) remaining amount carried to surplus;
and (6) adjustments to and reconciliation and with surplus as
stated on the balance sheet. With profit and loss statements of
this character available, the appraiser should be able to
separate recurrent from nonrecurrent items of income and
expense, to distinguish between operating income and investment
income, and to ascertain whether or not any line of business in
which the company is engaged is operated consistently at a loss
and might be abandoned with benefit to the company. The
percentage of earnings retained for business expansion should be
noted when dividend-paying capacity is considered.
5
<PAGE> 107
Potential future income is a major factor in many valuations of
closely-held stocks, and all information concerning past income
which will be helpful in predicting the future should be
secured. Prior earnings records usually are the most reliable
guide as to the future expectancy, but resort to arbitrary five-
or ten-year averages without regard to current trends or future
prospects will not product a realistic valuation. If, for
instance, a record of progressively increasing or decreasing net
income is found, then greater weight may be accorded the most
recent years' profits in estimating earning power. It will be
helpful, in judging risk and the extent to which a business is
marginal operations, to consider deductions from income and net
income in terms of percentage of sales. Major categories of cost
and expense to be so analyzed include the consumption of raw
materials and supplies in the case of manufacturers, processors
and fabricators; the cost of purchased merchandise in the case
of merchants; utility services, insurance; taxes; depletion or
depreciation; and interest.
(e) Primary consideration should be given to the dividend-paying
capacity of the company rather than to dividends actually paid
in the past. Recognition must be given to the necessity of
retaining a reasonable portion of profits in a company to meet
competition. Dividend-paying capacity is a factor that must be
considered in an appraisal, but dividends actually paid in the
past may not have any relation to dividend-paying capacity.
Specifically, the dividends paid by a closely held family
company may be measured by the income needs of the stockholders
or by their desire to avoid taxes on the dividend receipts,
instead of by the ability of the company to pay dividends. Where
an actual or effective controlling interest in a corporation is
to be valued, the dividend factor is not a material element,
since the payment of such dividends is discretionary with the
controlling stockholders. The individual or group in control can
substitute salaries and bonuses for dividends, thus reducing net
income and understating the dividend-paying capacity of the
company. It follows, therefore, that dividends are less reliable
criteria of fair market value than other applicable factors.
(f) In the final analysis, goodwill is based upon earning capacity.
The presence of goodwill and its value, therefore, rests upon
the excess of net earnings over and above a fair return on the
net tangible assets. While the element of goodwill may be based
primarily on earnings, such factors as the prestige and renown
of the business, the ownership of a trade or brand name, and a
record of successful operation over a prolonged period in a
particular locality also may furnish support for the inclusion
of intangible value. In some instances it may not be possible to
make a separate appraisal of the tangible and intangible assets
of the business. The
6
<PAGE> 108
enterprise has a value as an entity. Whatever intangible value
there is, which supportable by the facts, may be measured by the
amount by which the appraised value of the intangible assets
exceeds the net book value of such assets.
(g) Sales of stock of a closely held corporation should be carefully
investigated to determine whether they represent transactions at
arm's length. Forced or distress sales do not ordinarily reflect
fair market value nor do isolated sales in small amounts
necessarily control as the measure of value. This is especially
true in the valuation of a controlling interest in a
corporation. Since, in the case of closely held stocks, no
prevailing market prices are available, there is not basis for
making an adjustment for blockage. It follows, therefore, that
such stocks should be valued upon a consideration of all the
evidence affecting the fair market value. The size of the block
of stock itself is a relevant factor to be considered. Although
it is true that a minority interest in an unlisted corporation's
stock is more difficult to sell than a similar block of listed
stock, it is equally true that control of a corporation, either
actual or in effect, representing as it does an added element of
value, may justify a higher value for a specific block of stock.
(h) Section 2031(b) of the Code states, in effect, that in valuing
unlisted securities the value of stock or securities of
corporations engaged in the same or a similar line of business
which are listed on an exchange should be taken into
consideration along with all factors. An important consideration
is that the corporations to be used for comparisons have capital
stocks which are actively traded by the public. In accordance
with section 2031(b) of the Code, stocks listed on an exchange
are to be considered first. However, if sufficient comparable
companies whose stocks are listed on an exchange cannot be
found, other comparable companies which have stocks actively
traded in on the over-the-counter market also may be used. The
essential factor is that whether the stocks are sold on an
exchange or over-the-counter there is evidence of an active,
free public market for the stock as of the valuation date. In
selecting corporations for comparative purposes, care should be
taken to use only comparable companies. Although the only
restrictive requirement as to comparable corporations specified
in the statute is that their lines of business be the same or
similar, yet it is obvious that the consideration must be given
to other relevant factors in order that the most valid
comparison possible will be obtained. For illustration, a
corporation having one or more issues of preferred stock, bonds
or debentures in addition to its common stock should not be
considered to be directly comparable to one having only common
stock outstanding. In like manner. A company with a declining
business and
7
<PAGE> 109
decreasing market is not comparable to one with a record of
current progress and market expansion.
Section 5. Weight to be accorded Various Factors
The valuation of closely held corporation stock entails the consideration of all
relevant factors as stated in Section 4. Depending upon the circumstances in
each case, certain factors may carry more weight than others because of the
nature of the company's business. To illustrate:
(a) Earnings may be the most important criterion of value in some
cases whereas asset value will receive primary consideration in
others. In general, the appraiser will accord primary
consideration to earnings when valuing stocks of companies which
sell products or services to the public; conversely, in the
investment or holding type of company, the appraiser may accord
the greatest weight to the assets underlying the security to be
valued.
(b) The value of the stock of a closely held investment or real
estate holding company, whether or not family owned, is closely
related to the value of the assets underlying the stock. For
companies of this type the appraiser should determine the fair
market values of the assets of the company. Operating expenses
of such a company and the cost of liquidating, if any, merit
consideration when appraising the relative values of the stock
and the underlying assets. The market values of the underlying
assets give due weight to potential earnings and dividends of
the particular items of property underlying the stock,
capitalized at rates deemed proper by the investing public at
the date of appraisal. A current appraisal by the investing
public should be superior to the retrospective opinion of an
individual for these reasons, adjusted net worth should be
accorded greater weight in valuing the stock of a closely held
investment or real estate holding company, whether or not family
owned, than any of the other customary yardsticks of appraisal,
such as earnings and dividend paying capacity
Section 6. Capitalization Rates
In the application of certain fundamental valuation factors, such as earnings
and dividends, it si necessary to capitalize the average or current results at
some appropriate rate. A determination or the proper capitalization rate
presents one of the most difficult problems in valuation. That there is no ready
or simple solution will become apparent by a cursory check of the rates of
return and dividend yields in terms of the selling prices of corporate shares
listed on the major exchanges in the country. While variations will be found
even for companies in the same industry. Moreover,
8
<PAGE> 110
the ration will fluctuate from year to year depending upon economic conditions.
Thus, no standard tables of capitalization rates applicable to closely held
corporations can be formulated. Among the more important factors to be taken
into consideration in deciding upon a capitalization rate in a particular case
are: (1) the nature of the business; (2) the risk involved; and (3) the
stability or irregularity of earnings.
Section 7. Average of Factors
Because valuations cannot be made on the basis of a prescribed formula, there is
no means whereby the various applicable factors in a particular case can be
assigned mathematical weights in deriving the fair market value. For this
reason, no useful purpose is served by taking an average of several factors (for
example, book value, capitalized earnings and capitalized dividends) and basing
the valuation on the result cannot be supported by a realistic application of
the significant facts in the case except by mere chance.
Section 8. Restrictive Agreements
Frequently, in the valuation of closely held stock for estate and gift tax
purposes, it will be found that the stock is subject to an agreement restricting
its sale or transfer. Where shares of a stock were acquired by a decedent
subject to an option reserved by the issuing corporation to repurchase at a
certain price, the option price is usually accepted as the fair market value for
estate tax purposes (see Revenue ruling 54-76, C.B. 1954-1, 194.) However, in
such cases the option price is not determinative of fair market value for gift
tax purposes. Where the option or buy and sell agreement is the result of
voluntary action by the stockholders and is binding during the life as well as
the death of stockholders, such agreement may or may not, depending upon the
circumstances of each case, fix the value for estate tax purposes. However, such
agreement is a factor to be considered, with other relevant factors, in
determining fair market value. Where the stockholder is free to dispose of his
shares during life and the option is to become effective only upon his death,
the fair market value is not limited to the option price. It is always necessary
to consider the relationship of the parties, the relative number of shares held
by the decedent, and other material facts, to determine whether the agreement
represents a bona fide business arrangement or is a device to pass the
decedent's shares to the natural objects of his bounty for less than an adequate
and full consideration in money or money's worth. (In this connection, see
Revenue Ruling 157 C.B. 1953-2, 255, and Revenue Ruling 189, C.B. 1953-2, 294.)
Section 9. Effect on Other Documents
Revenue Ruling 54-77, C.B. 1954-1, 187, is hereby superseded.(1)
(1) Source: Internal Revenue Bulletin; Cumulative Bulletin 1959-1, January -
June 1959, pp. 237-244.
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