UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ______ to ________
Commission file number 0-7152
DEVCON INTERNATIONAL CORP.
(Exact Name of Registrant as Specified in its Charter)
FLORIDA 59-0671992
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1350 E. NEWPORT CENTER DR. SUITE 201, DEERFIELD BEACH, FL 33442
(Address of Principal Executive Offices) (Zip Code)
(954) 429-1500
(Registrant's Telephone Number, Including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.10 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
As of March 20, 1998, the number of shares of the registrant's Common Stock
outstanding was 4,498,935. The aggregate market value of the Common Stock held
by non-affiliates of the registrant as of March 20, 1998 was approximately $7.1
million, based on a closing price of $4.00 for the Common Stock as reported on
the NASDAQ National Market System on such date. For purposes of the foregoing
computation, all executive officers, directors and 5 percent beneficial owners
of the registrant are deemed to be affiliates. Such determination should not be
deemed to be an admission that such executive officers, directors or 5 percent
beneficial owners are, in fact, affiliates of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III (Items 10, 11, 12 and 13) is incorporated
by reference from the registrant's definitive proxy statement (to be filed
pursuant to Regulation 14A).
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Devcon International Corp. (the "Company") is the largest producer and
distributor of ready-mix concrete and quarry products in St. Thomas and St.
Croix, United States Virgin Islands ("St. Thomas" and "St. Croix"), Antigua and
Barbuda, West Indies ("Antigua"), St. Maarten, Netherlands Antilles ("St.
Maarten"), St. Martin, French West Indies ("St. Martin"), Saba, Netherlands
Antilles ("Saba"), Dominica, West Indies ("Dominica"), and Tortola, British
Virgin Islands ("Tortola")(although quarry products are not produced or sold in
Dominica). The Company also operates a quarry in Guaynabo, Puerto Rico ("Puerto
Rico") and is a land development contractor in the Caribbean. The Company owned
and operated a marina in the United States Virgin Islands. The marina was sold
in February 1998.
In the Caribbean, the Company produces and distributes ready-mix concrete,
crushed stone, concrete block, and asphalt and distributes bulk and bagged
cement. The Company's facilities have enabled the Company to establish a
significant market share in most of the locations in which it operates and
afford the Company resources, production capacity, a local presence, and a cost
structure that the Company believes would be difficult for competitors to
duplicate. As a result, the Company has less competition and, therefore,
produces a substantial percentage of the concrete and related products used in
these islands.
The Company performs earthmoving, excavating, and filling operations, builds
golf courses, roads, and utility infrastructures, dredges waterways and
constructs deep-water piers and marinas in the Caribbean. The Company has
historically provided land development contracting services to both private
enterprises and governments in Florida and the Caribbean. Since early 1993, the
Company has not been seeking new contracts in the United States. The Company's
project managers have substantial experience working in the land development
contracting business, and the Company has equipment that is well-suited for the
Caribbean markets. The Company has equipment and personnel in the Caribbean that
the Company believes, in some instances, allow the Company to start work more
quickly and less expensively than other contractors and, therefore, to bid
competitively for and to complete cost-effectively these land development
contracts. However, this capability to mobilize quickly can, under certain
circumstances, cause the Company to incur higher expense. The Company believes
that its relationships with customers in the Caribbean give it a competitive
advantage.
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The following table sets forth certain financial information concerning the
Company's concrete and related products, land development contracting and other
business:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Revenues*:
Concrete and related products................................$ 51,461 $52,987 $37,716
Contracting.................................................. 9,852 13,982 16,068
Other........................................................ 2,931 2,509 2,367
-------- ------- -------
Total..................................................$ 64,244 $69,478 $56,151
======== ======= =======
Operating (loss) income*:
Concrete and related products................................$ (4,322) 4,864 1,252
Contracting.................................................. (3,502) (1,093) (569)
Charge for litigation........................................ (4,500) - -
Other........................................................ 434 416 409
Unallocated corporate overhead............................... (688) (716) (818)
--------- ------- -------
Total..................................................$(12,578) $ 3,471 $ 274
======== ======= =======
</TABLE>
- -------------------------
* Information is presented net of intersegment sales. See Note 13 of
Notes to Consolidated Financial Statements for additional financial
information with respect to the Company's business segments. See
Summary of Significant Accounting Policies in Notes to Consolidated
Financial Statements.
The Company's principal executive offices are located at 1350 East Newport
Center Drive, Suite 201, Deerfield Beach, Florida 33442 and its telephone number
is (954)429-1500. Unless the context otherwise requires, the terms the "Company"
and "Devcon" as used herein refer to Devcon International Corp. and its
subsidiaries.
BUSINESS DEVELOPMENT
The Company expanded its operations in the Caribbean by opening a quarry in
Puerto Rico in May 1996 and is negotiating the start up of a second quarry in
Puerto Rico in 1998. These operations are and will be in a company in which
minority investors own approximately 49.9 percent. It acquired a company in St.
Martin in August 1995, which sells and distributes ready-mix concrete and
operates a quarry. From time to time, the Company investigates the possibility
of expanding its operations to other areas of the Caribbean where the Company
does not presently do business. Such expansion can take place in the form of
joint ventures, acquisitions or other business arrangements.
RISKS OF FOREIGN OPERATIONS
Various portions of the Company's operations are conducted in foreign areas,
primarily Antigua, St. Maarten, St. Martin, Dominica, Saba, St. Kitts, and
Tortola, all of which are in the Caribbean. In 1997, 62.2 percent of the Com
pany's revenues were derived from foreign operations. Overseas contract work
performed by the parent company (a United States corporation) is not considered
foreign-source revenue for purposes of the foregoing calculation. For a summary
of the Company's revenues and earnings from foreign operations, see Note 11 of
Notes to Consolidated Financial Statements. The potential risks of doing
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business in foreign areas include potential adverse changes in the diplomatic
relations of foreign countries with the United States, changes in the relative
purchasing power of the United States dollar, hostility from local populations,
adverse effects of exchange controls, restrictions on the withdrawal of foreign
investment and earnings, government policies against businesses owned by
non-nationals, expropriations of property, the instability of foreign
governments, and the risk of insurrection that could result in losses against
which the Company is not insured. The Company is not subject to these risks in
Puerto Rico or the United States Virgin Islands (United States territories that
use the United States dollar as their currency). The Company also is subject
under certain circumstances to United States Federal income tax upon the
distribution of certain offshore earnings. See Note 9 of Notes to Consolidated
Financial Statements. Although the Company has not encountered significant
difficulties in its foreign operations in the past, there can be no assurance
that the Company will not encounter difficulties in the future.
CONCRETE AND RELATED PRODUCTS
GENERAL The Company manufactures and distributes ready-mix concrete and crushed
aggregate (both coarse and fine) in Puerto Rico, the United States Virgin
Islands, Antigua, St. Maarten, St. Martin, Dominica, Saba, and Tortola (although
crushed aggregate is not manufactured on Dominica, or St. Maarten and the
Company does not distribute ready-mix concrete in Puerto Rico). With the
exception of Puerto Rico, the Company also distributes bulk and bagged cement to
customers on each of the foregoing islands. In addition, the Company
manufactures concrete block on St. Thomas, Antigua, and St. Maarten. The
activity on St. Kitts is currently very limited.
The Company's concrete and related products business employs assets such as
quarries, rock crushing plants, bulk cement terminals, concrete block plants,
concrete batch plants, a fleet of concrete mixer trucks, cement bagging
facilities, and asphalt plants in various locations in the United States Virgin
Islands, Antigua, St. Maarten, St. Martin, Dominica, Saba, St. Kitts, Tortola,
and Puerto Rico. The Company also leases an oceangoing bulk cement ship that
affords the Company ready access to reliable and more economical sources of
cement. As a result, the Company has become the largest supplier of concrete and
related products in the United States Virgin Islands, Antigua, St. Maarten, St.
Martin, Dominica, Saba, and Tortola. The Company is presently investigating the
possibility of expanding its cement distribution and concrete and aggregate busi
ness to other areas in the Caribbean. See "Business - Business Development."
READY-MIX CONCRETE AND CONCRETE BLOCK The Company's concrete batch plants mix
cement, sand, crushed stone, water and certain chemical additives to produce
ready-mix concrete for use in local construction. The Company's fleet of
concrete mixer trucks deliver the concrete to the customer's job site. At the
Company's concrete block plants, a low-moisture concrete mixture is machine
formed, then dried and stored for later sale. The Company's ready-mix concrete
operations are significantly larger than those of any other competitor on
Antigua, St. Maarten, St. Martin, Dominica, Tortola, Saba and St. Thomas. The
Company has the only concrete block plant on St. Thomas. The Company's block
plant is the area's largest on Antigua and St. Maarten.
QUARRY OPERATIONS AND CRUSHED STONE The Company owns or leases quarry sites on
which it blasts rock from exposed mineral formations. At the quarries, this rock
is crushed and screened to varying sizes of aggregate from 3 1/2 inch stones
down to manufactured sand, the aggregate is then sorted, cleaned and stored. The
resulting aggregate is sold to customers and used in the Company's operations to
make concrete products. The Company's quarries are the largest on St. Thomas,
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St. Croix, Antigua, St. Martin, Saba and Tortola. It is significantly less
expensive to manufacture crushed rock at the Company's quarries than to import
aggregate from off-island sources.
BULK AND BAGGED CEMENT The Company leases an oceangoing bulk cement ship with a
6,000 metric-ton capacity. The ship delivers cement in bulk to the Company's
cement terminals on St. Thomas, St. Croix, Antigua, Dominica and St. Maarten.
From silos at these terminals, the cement is transferred for use in the
Company's concrete batch plants, sold in bulk or bagged and then sold. Bulk
cement is readily available from a number of manufacturers located throughout
the Caribbean basin. As a result of the bulk cement ship, the Company is able to
assure itself of reliable and relatively economical sources of cement. See
"Business - Equipment."
SUPPLIES The Company presently obtains all of the crushed rock and a majority of
the sand necessary for the production of ready-mix concrete in the United States
Virgin Islands, Antigua, St. Martin, St. Maarten, Saba and Tortola by quarrying
its own rock and crushing it at its own locations. The Company's ability to
produce its own sand gives it a competitive advantage because of the substantial
investment required to produce sand, the difficulty in obtaining the necessary
environmental permits to establish quarries and the moratorium on mining beach
sand imposed by most Caribbean countries. The sand that the Company produces is
blended with sand obtained from various offshore sources unaffiliated with the
Company. The oceangoing bulk cement ship described above allows it to satisfy
its bulk cement requirements.
CUSTOMERS The Company's primary customers are building contractors, governments,
asphalt pavers and individual homeowners. Customers generally pick up quarry
products, concrete block and bagged cement at the Company's facilities, and the
Company generally delivers ready-mix concrete and bulk cement to the customer's
job sites.
COMPETITION The Company has few competitors in the concrete and related products
business in the locations where it conducts business. The Company encounters
competition from the producers of asphalt, which is an alternative material to
concrete for road construction. The Company's concrete and related products
facilities and the Company's oceangoing bulk cement ship have enabled the
Company to establish a significant market share in the United States Virgin
Islands, Antigua, St. Maarten, St. Martin, Dominica, Saba and Tortola and afford
the Company the resources, a production capacity, a local presence and a cost
structure that the Company believes would be difficult for competitors to
duplicate. As a result, the Company believes that it presently has a competitive
advantage in the United States Virgin Islands, Antigua, St. Maarten, St. Martin,
Dominica, Saba and Tortola.
LAND DEVELOPMENT CONTRACTING
GENERAL The Company has completed a wide variety of land development
construction projects since its inception, including interstate highways,
airport sites and runways, deep-water piers and marinas, hydraulic dredging
projects, golf courses, industrial site development and residential and
commercial site development. The Company generally attempts to pursue the most
profitable types of land development contracting work available, rather than
attempting to maintain a high level of volume. In prior years, the Company has
been engaged in residential and commercial site development (including golf
courses) for real estate developers and marine construction (dredging of
deep-water harbors and construction of deepwater piers and marinas) in the
Caribbean.
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The nature of the work performed by the Company's land development contracting
division is such that the work is accomplished and revenue generated on a
contract-by-contract basis. The majority of the Company's land development
contracts are less than one year in duration, although it does obtain multi-year
contracts from time to time. A majority of the Company's contracts are
fixed-price contracts. These contracts are bid or negotiated at an established
price that does not vary except for changes in the scope of the work requested
by the owner during the term of the contract. The majority of the Company's work
is performed using its own labor and equipment and is not subcontracted. The
Company also enters into unit-price contracts pursuant to which the Company's
fee is based upon the quantity of work performed. The Company historically has
contracted to provide land development contracting services to both private
enterprises and governments. The Company believes that, on occasion, it is able
to obtain more desirable margins on some private and public contracts in the
United States Virgin Islands and Antigua because the Company has equipment and
personnel in those markets that, in some instances, allow the Company to start
work more quickly and less expensively than other contractors. As a result, the
Company believes that it is able to bid competitively for and to complete
cost-effectively these land development contracts in the Company's Caribbean
markets.
OPERATIONS The Company's first step in any project is deciding whether to submit
a bid on, or to negotiate to undertake, a particular project. The Company
obtains leads for new projects from a variety of sources, including past or
existing customers of the Company and from engineering firms with which the
Company has established business relationships. At the appropriate time, a
proposal is submitted that the Company believes will best meet a customer's
objectives. In some instances in the past, the Company has provided long-term or
short-term financing to facilitate early commencement or efficient continuation
of a project. The Company believes that providing such financing enhances its
ability to obtain more profitable construction contracts. The continuation of
such financing is contingent upon the consolidated financial position and
operating results of the Company. All project proposals and bids are reviewed by
the Company's Vice President of Construction Operations and/or the Company's
Pres ident, depending upon the size of the contract. After a proposal has been
accepted, a formal contract is negotiated with the customer. The Company is
normally the prime contractor on any work it undertakes. The Company assigns a
project manager and a field superintendent to maintain close contact with the
customer and its engineers, to supervise personnel and the relocation, purchase,
lease and maintenance of equipment and to schedule and monitor the Company's
operations. The Company currently employs seven field superintendents.
BACKLOG The Company's backlog of unfilled portions of land development contracts
at December 31, 1997 was $4.4 million involving 12 projects, as compared to $3.4
million involving 19 projects at December 31, 1996. Since December 31, 1997 the
Company has entered into new land development contracts in the Caribbean
amounting to $2.9 million. The Company reasonably expects that most of the
backlog, including the 1998 contracts, will be completed during the year ending
December 31, 1998. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Revenues."
BONDING In order to bid on some private construction contracts and substantially
all government contracts, the Company must obtain a bond for the performance of
the contract. The Company's bonding capacity has in the past been sufficient to
enable the Company to perform some government and major private contracts.
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COMPETITION The land development contracting business is extremely competitive,
regardless of the general level of activity within the construction industry.
The Company believes that the primary factors of competition are price, prior
experience and relationships, the amount of machinery and heavy equipment
available to complete a given job, the speed with which a company can complete a
specific contract, the availability of an engineering staff to assist an owner
in planning its projects so as to minimize costs, the ability to innovate and,
where applicable, the ability to obtain bonding for large contracts in order to
guarantee completion. Management believes that the Company competes effectively
on the basis of the foregoing factors and that the Company's relative
competitive position in its Caribbean markets is favorable.
OTHER OPERATIONS
MARINA Two subsidiaries of the Company own a Virgin Islands general partnership
formed in 1988 to construct and operate a marina on a 4.92 acre parcel of land
leased by the partnership from the United States Virgin Islands government. In
December 1997, the Company entered into a contract to sell the marina for $3.3
million. The sale closed on February 3, 1998 in accordance with the terms and
conditions outlined in the contract. The Company recognized a loss of $108,000
on the transaction in 1997.
DISCONTINUED OPERATION
In September 1989, a subsidiary of the Company obtained a minority interest in a
partnership engaged in the manufacture, sale and distribution of acoustical
ceiling tiles. The subsidiary invested approximately $1.2 million in the
partnership for a 29 percent interest and two of the Company's directors
obtained an 11 percent interest for which they paid $450,000. In January 1994,
an Antiguan subsidiary of the Company became the new general partner and the
Company's ownership interest in the partnership was increased to 64.5 percent.
The directors' ownership interest was reduced to 6.5 percent. In November 1995,
the Company elected to dispose of this operation because of its poor operating
results and uncertain prospects for improvement. Accordingly, at December 31,
1995, the intended disposal was accounted for as a discontinued operation. The
consolidated financial statements for all prior periods presented were restated
to reflect the ceiling tile partnership as a discontinued operation. The
Company's investment in the partnership was written down $800,000, to its
estimated net realizable value of approximately $749,000, which consisted
primarily of property, equipment and inventory with a net book value of
approximately $1.4 million, along with debt of approximately $621,000. The
Company provided no reserve for anticipated losses during the phase-out period
and recognized no income tax benefit on the loss from discontinued operations.
The Company sold its interest in the ceiling tile business in September 1996 in
exchange for one secured promissory note in the amount of $600,000 and one
unsecured promissory note in the amount of $385,000 and took an additional loss
on disposal of approximately $488,000. The outstanding amounts as of December
31, 1997 on these notes were $600,000 and $216,000, respectively.
TAX EXEMPTIONS AND BENEFITS
The Company has benefitted for a number of years from having a substantial part
of the earnings of its offshore operations taxed at rates lower than United
States statutory Federal income tax rates due to tax exemptions and lower
prevailing tax rates offshore. The United States Virgin Islands Industrial
Development Commission ("IDC") has granted the Company certain tax exemptions
that exempt a larger portion of the earnings of the Company's offshore
operations from tax in the United States Virgin Islands through 2003, and the
Government of Antigua and Barbuda granted a tax exemption on income that expired
in 1996.
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In April 1988, the IDC granted a subsidiary of the Company a 10-year tax
exemption expiring in 1998, pursuant to which, and subject to certain conditions
and exceptions, the Company's (i) production and sale of ready-mix concrete;
(ii) production and sale of concrete block on St. Thomas and St. Johns and
outside of the U. S. Virgin Islands; (iii) production and sale of sand and
aggregate; and (iv) bagging of cement from imported bulk cement, are 100 percent
exempt from all United States Virgin Islands real property, gross receipts
(currently set at 4 percent) and excise taxes, 90 percent exempt from United
States Virgin Islands income taxes, and approximately 83 percent exempt from
United States Virgin Islands custom duties. The IDC granted the Company the tax
exemption in return for the Company's commitment to: (i) make capital
expenditures of at least $4.6 million for new or replacement equipment over a
10-year period; (ii) employ a minimum of 142 United States Virgin Islands
residents as full-time personnel; (iii) spend at least $75,000 annually for a
youth-training program; (iv) not increase the price of its concrete and related
products except as the result of certain direct cost increases incurred by the
Company over which it has no control; and (v) make an annual scholarship fund
contribution of $150,000, which the Company has satisfied.
In January 1994, the Company received a five-year extension, through April 2003,
of its previously granted benefits. This extension was granted in return for the
Company agreeing to: (i) continue to employ a minimum of 160 United States
Virgin Islands residents as full-time personnel; (ii) make additional capital
expenditures of $1.7 million; and (iii) continue to make a combined youth
training/scholarship contribution of $225,000 per annum during the extension
period.
Furthermore, as a result of certain United States tax laws, earnings from the
Company's offshore operations are not taxable for United States Federal income
tax purposes and most post-April 1988 concrete and related product earnings in
the United States Virgin Islands can be distributed to the Company in the United
States free of statutory United States Federal income tax. However, the distribu
tion to the Company's United States operations of: (i) earnings from the Com
pany's United States Virgin Islands operations accumulated prior to April 1,
1988; or (ii) earnings from the Company's Antigua, St. Martin, St. Maarten,
Dominica, Saba, St. Kitts, and Tortola operations, would in each case subject
the Company to United States Federal income tax on any amounts so distributed,
less applicable tax credits for taxes previously paid in such jurisdictions. At
December 31, 1997, $33.7 million of such accumulated earnings from the Company's
United States Virgin Islands, Antigua, St. Martin, St. Maarten, Dominica, Saba,
St. Kitts, and Tortola operations had not been distributed to the Company's
United States operations. The Company has not provided for Federal income tax on
the undistributed earnings of foreign subsidiaries because the Company intends
to permanently reinvest a portion of those earnings in regions offshore of the
United States.
The aforementioned tax exemption, along with the Company's ability to receive
most of the current earnings from its United States Virgin Islands operations
without being subjected to United States Federal income taxes thereon, result in
a significant reduction in the tax expense (including Federal income taxes)
incurred by the Company with respect to its earnings from Caribbean operations.
For further information on both tax exemptions and income taxes in general, see
Note 9 of Notes to Consolidated Financial Statements.
EQUIPMENT
The concrete and related products and the land development contracting
businesses require the Company to lease or purchase and maintain many items of
equipment. As of December 31, 1997, the Company's equipment included cranes,
bulldozers, road graders, rollers, backhoes, earthmovers, hydraulic dredges,
barges, and rock
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crushers for use at the Company's rock crushing plants, equipment at the
Company's bulk cement terminals and concrete block and batch plants, concrete
mixer trucks, asphalt processing and paving equipment and other miscellaneous
items. A portion of this equipment is encumbered by chattel mortgages. See Notes
8 and 12 of Notes to Consolidated Financial Statements and "Management
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
MISCELLANEOUS INVESTMENTS AND JOINT VENTURES
The Company has invested or participated in several joint ventures in connection
with the activities of its land development contracting division and concrete
and related products division, which are more specifically described below.
During 1997 the Company invested $123,000 for a 7 percent interest in a real
estate joint venture in the Bahamas. The project has not yet received its final
financing to start its activities. The Company will perform land development for
the joint venture.
In connection with a land development contract with the Government of Antigua
and as partial consideration therefor, the Company obtained a 75 percent
interest in a corporation formed to own and develop approximately 230 acres of
real property in Antigua (the "Corbkinnon Property"), and a 1 percent interest
in another corporation (the "Newport Project") formed to develop approximately
20,000 square feet of commercial property located in downtown St. Johns,
Antigua. In 1990, the Company sold a portion of its 75 percent interest in the
Corbkinnon Property for $500,000 and the buyer's commitment to provide 50
percent of the financing required to develop the project. The Company agreed to
provide the first $500,000 of financing and provide a guarantee for 50 percent
of all additional financing required. As a result of the transaction, the
Company's remaining interest in the Corbkinnon Property is 34 percent. The
Company did not record earnings or losses for the Corbkinnon Property or the
Newport Project in 1997 because the amounts are not material. For additional
information, see Notes 5 and 11 of Notes to Consolidated Financial Statements.
The Company is a 43 percent shareholder in a corporation formed to construct
condominium housing units in Antigua. The Company advanced $200,000 in capital
contributions to the corporation. The Company recorded losses of $150,000 and
$50,000 in 1997 and 1996, respectively. For additional information, see Note 5
of Notes to Consolidated Financial Statements.
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EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
Donald L. Smith, Jr., 76, a cofounder of the Company, has served as its Chairman
of the Board, President and Chief Executive Officer since its formation in 1951.
Richard L. Hornsby, 62, was appointed the Company's Executive Vice President in
March 1989. Mr. Hornsby served as Vice President of the Company from August 1986
to February 1989. From September 1981 until July 1986 he was Financial Manager
of R.O.L., Inc. and L.O.R., Inc., companies primarily engaged in various private
investment activities. He has been a director of the Company since 1975 and
served as Vice President-Finance from 1972 to 1977.
Henry C. Obenauf, 68, was appointed Vice President-Engineering of the Company in
March 1989, after having served as Vice President of the Company since 1977. Mr.
Obenauf has been employed by the Company for over 21 years.
Jan A. Norelid, 44, was appointed Vice President-Finance and Chief Financial
Officer in October 1997. From January 1996 to September 1997, he owned and
operated a printing company. Prior to that and from January 1991 he served as
Chief Financial Officer for Althin Medical, Inc., a medical device manufacturer
in Miami Lakes, Florida.
Donald L. Smith, III, 44, was appointed Vice President-Construction Operations
for the Company in December 1992. Prior to that and from March 1992, he served
as Assistant Vice President of Construction Operations-South Florida and
Caribbean of the Company. Mr. Smith joined the Company in 1976 and has served in
various supervisory and managerial positions within the Company since that time.
EMPLOYEES
At December 31, 1997, the Company employed 52 persons in the land development
contracting business in the Caribbean, of whom 13 are members of a union. The
Company employed 369 persons in its concrete and related products division, of
whom 131 are members of a union. The Company will utilize personnel in one
division or another as its needs warrant. In addition, the Company employs 38
managerial, supervisory, and administrative personnel in the overall admin
istration and management of all divisions of the Company. Employee relations in
the Company are considered satisfactory and the Company has never been subjected
to a work stoppage.
ITEM 2. PROPERTY
GENERAL
Substantially all of the real property that the Company owns or leases is
utilized by its concrete and related products division. The Company has one
quarry in Puerto Rico, quarries, rock crushing plants and concrete batch plants
on St. Thomas, St. Croix, Antigua, St. Martin, Saba and Tortola, concrete batch
plants on Dominica, St. Maarten and St. Kitts, and bulk cement terminals and
cement bagging facilities on St. Croix, St. Thomas, St. Maarten, Dominica and
Antigua. In addition, the Company has asphalt plants on St. Croix and Antigua
and concrete block plants on St. Thomas, Antigua and St. Maarten.
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OTHER PROPERTY
The Company also has a 34 percent interest in 230 acres of real property and a 1
percent interest in a commercial property development, both in Antigua (see
"Business - Miscellaneous Investments and Joint Ventures"), and the Company owns
undeveloped parcels of land in St. Johns, United States Virgin Islands. The
Company sold its parcel of land in Collier County, Florida in 1997 for a gain of
$165,000.
The following table sets forth certain information concerning the property and
facilities that are owned or leased by the Company for use in its operations.
<TABLE>
<CAPTION>
LEASE EXPIRATION
DESCRIPTION LOCATION WITH ALL OPTIONS AREA
----------- -------- ---------------- ----
<S> <C> <C> <C>
Principal executive offices Deerfield Beach 5/07 8,410 sq. ft. (1)
Maintenance shop for heavy equipment Deerfield Beach Month-to-Month 4.40 acres (1)(2)
Concrete block plant and St. Thomas 6/04 11.00 acres (1)
equipment maintenance facility
Quarry and office building St. Thomas - 8.50 acres
Quarry and concrete batch plant St. Thomas 2/08 44.00 acres (1)
Barge terminal St. Thomas Month to Month 1.50 acres (1)
Bulk cement terminal and bagging facility St. Thomas 5/12 .50 acres (1)
Marina and adjoining commercial property St. Thomas 6/21 4.92 acres (1)
Quarry St. Thomas 8/06 7.49 acres (1)
Bulk cement terminal, bagging facility St. Croix - 7.00 acres
Concrete batch plant and office St. Croix - 3.20 acres
Quarry, rock crushing plant St. Croix - 61.34 acres
Maintenance shop St. Croix 7/10 6.00 acres (1)
Quarry St. Croix 5/03 10.78 acres (1)
Concrete batch plant, concrete Antigua 9/16 22.61 acres (1)
block plant, rock crushing plant,
asphalt plant, quarry and office
Bulk cement terminal and bagging facility Antigua - 8.00 acres
Concrete batch plant, cement bagging Dominica 6/12 1.14 acres (1)
plant, undeveloped land, silo and office Dominica - .77 acres
Concrete batch plant and block plant St. Maarten 8/00 3.00 acres (1)
Cement terminal and barge unloading facility St. Maarten 6/05 .30 acres (1)
Bagging facility St. Maarten 4/06 .30 acres (1)
Undeveloped land - future site of concrete St. Maarten 3/51 3.00 acres (1)
batch plant, concrete block plant,
equipment maintenance facility and
office building
Quarry, rock crushing plant, concrete Tortola - 30.00 acres
batch plant, equipment maintenance
facility and office building
Quarry, rock crushing plant and Saba 12/02 6.00 acres (1)(3)
concrete batch plant
Concrete batch plant St. Kitts Month-to-Month 1.00 acre (1)(3)
Quarry, rock crushing plant, concrete St. Martin 7/10 123.5 acres (1)
batch plant and office building
Quarry, rock crushing plant and Guaynabo,
office building Puerto Rico 3/06 40.00 acres (1)(3)
</TABLE>
- --------------------------------------------------------------------------------
(1) Underlying land is leased; however, any equipment or machinery on the land
is owned by the Company.
(2) Leased from Donald L. Smith, Jr., the Company's Chairman, President, and
Chief Executive Officer. See Note 12 of Notes to Consolidated Financial
Statements.
(3) Acreage is estimated.
11
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time involved in routine litigation arising in the
ordinary course of its business, primarily related to its contracting
activities.
In 1992, Fore Golf, Inc. filed suit against the Company in the Ninth Judicial
Circuit in and for Orange County, Florida, Case No. CI-92-5289. In this case,
the Company was sued by a subcontractor, Fore Golf, Inc. for work which Fore
Golf, Inc. allegedly performed in connection with the construction of two golf
courses at Walt Disney World in Orlando, Florida, from approximately September
1990 through September 1991, the alleged unpaid contract balance in connection
with this project and inefficiency costs. In June 1997, an order was issued by
the Circuit Court of the Ninth Judicial Circuit establishing liability and
damages against the Company. The Court entered a final judgment in favor of the
plaintiff for damages and prejudgment interest. Subsequently, the trial court
also awarded the plaintiff attorneys' fees. The Company accrued a total of $4.5
million, included in other liabilities, in the second quarter to reflect the
total estimated costs to be incurred should the Company not be successful in its
post trial and appeal efforts. The Company has posted a bond for the damages,
prejudgement interest and plaintiff's attorneys' fees. This bond is personally
guaranteed by the Company's President. Management believes that it has appellate
issues of merit and is pursuing remedies through the appellate court system. An
appellate brief was submitted in February 1998. For further information, see
Note 18 of Notes to Consolidated Financial Statements.
In the late 1980's, Bouwbedrijf Boven Winden, N.V., ("BBW") currently a
subsidiary of Devcon International Corp., supplied concrete to a large apartment
complex on the French side of St. Maarten). At some point in the early 1990's
the buildings began to develop exterior cracking and "popouts." In November
1993, BBW was named a defendant, among others, including the building's insurer,
in a suit filed by the plaintiff, Syndicat des Coproprietaires la Residence Le
Flamboyant (condominium owners association of Le Flamboyant), in the French
court "Tribunal de Grande Instance de Paris" with case No. 510082/93. A French
court assigned an expert to examine the cause of the cracking and popouts. In
particular, the expert is to determine if the cracking/popouts are caused by a
phenomenon known as alkali reaction (ARS). The plaintiff is seeking unspecified
damages, including demolition and replacement of the 272 apartments. It is too
early to predict the final outcome of this matter. Management believes the
Company's defenses to be meritorious and does not believe that the outcome will
have a material adverse effect on the consolidated financial position, results
of operations or cash flows of the Company.
The Company is subject to certain Federal, state and local environmental laws
and regulations. Management believes that the Company is in compliance with all
such laws and regulations. Compliance with environmental protection laws has not
had a material adverse impact on the Company's consolidated financial condition,
results of operations or cash flows in the past and is not expected to have a
material adverse impact in the foreseeable future.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during the
fourth quarter of 1997.
12
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
MARKET INFORMATION
The Company's Common Stock is traded in the over-the-counter market and quoted
in the NASDAQ National Market System under the symbol DEVC. The following table
sets forth the high and low sales prices for the Company's Common Stock for each
quarter for the last two fiscal years as quoted in the NASDAQ National Market
System.
1997 HIGH LOW
---- ---- ---
First Quarter $ 6.50 $4.75
Second Quarter 5.50 4.25
Third Quarter 5.50 3.88
Fourth Quarter 5.50 4.50
1996 HIGH LOW
First Quarter $10.63 $8.05
Second Quarter 10.38 8.50
Third Quarter 8.88 6.88
Fourth Quarter 7.00 6.13
As of March 20, 1998, there were 209 holders of record of the 4,498,935
outstanding shares of Common Stock. The closing sales price for the Common Stock
on March 20, 1998, was $4.00. The Company paid no dividends in 1997 or 1996. The
payment of cash dividends will depend upon the earnings, consolidated financial
position and cash requirements of the Company, its compliance with loan
agreements and other relevant factors existing from time to time. The Company
does not presently intend to pay dividends. No unregistered securities were sold
or issued in 1997, 1996 or 1995.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data of the Company and its consolidated
subsidiaries are qualified in their entirety by, and should be read in
conjunction with, the Consolidated Financial Statements and the notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations." The data for each of the five years in the period ended December
31, 1997 are derived from the Consolidated Financial Statements of the Company
audited by KPMG Peat Marwick LLP, independent certified public accountants. The
Consolidated Financial Statements of the Company as of December 31, 1997 and
1996 and for each of the years in the three year period ended December 31, 1997
and the report thereon appear elsewhere herein.
13
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
EARNINGS STATEMENT DATA: (In thousands, except per share amounts)
Concrete and related
products revenues $ 51,461 $ 52,987 $ 37,716 $ 39,342 $ 38,300
Contracting revenues 9,852 13,982 16,068 22,942 16,926
Other revenues 2,931 2,509 2,367 2,965 638
-------- -------- -------- -------- --------
Total revenues 64,244 69,478 56,151 65,249 55,864
-------- -------- -------- -------- --------
Cost of concrete and
related products 41,659 39,277 29,069 29,200 31,820
Cost of contracting 9,709 12,458 14,103 19,250 19,700
Cost of other 2,311 1,913 1,721 2,388 529
------- -------- -------- -------- --------
Gross profit 10,565 15,830 11,258 14,411 3,815
Operating expenses 23,143 12,359 10,984 9,926 11,970
------- -------- -------- -------- --------
Operating (loss)
income (12,578) 3,471 274 4,485 (8,155)
Other deductions (2,651) (2,287) (1,961) (1,854) (3,338)
------- -------- -------- -------- --------
(Loss) income from
continuing
operations before
income taxes (15,229) 1,184 (1,687) 2,631 (11,493)
Income taxes 307 383 145 50 108
------- -------- -------- -------- --------
(Loss) income from
continuing
operations (15,536) 801 (1,832) 2,581 (11,601)
(Loss) income from
discontinued
operations, net - (488) (915) (470) 2,027
Cumulative effect of
change in accounting
principle - - - - 500
-------- -------- -------- -------- --------
Net (loss) earnings $(15,536) $ 313 $ (2,747) $ 2,111 $ (9,074)
======== ======== ======== ======== ========
Basic (loss) earnings per share:
From continuing
operations $ (3.45) $ .18 $ (.41) $ .59 $ (2.62)
From discontinued
operations - (.11) (.21) (.11) .46
From change in
accounting
principle - - - - .11
------- -------- --------- -------- --------
$ (3.45) $ .07 $ (.62) $ .48 $ (2.05)
======= ======== ========= ======== ========
Weighted average number
of shares outstanding 4,499 4,490 4,431 4,431 4,400
======= ======== ========= ======== --------
BALANCE SHEET DATA:
Working capital $ 8,713 $12,063 $ 4,848 $ 10,845 $ 3,312
Total assets 86,433 94,926 97,313 99,541 101,518
Long-term debt,
excl current portion 16,982 19,251 15,548 17,454 16,776
Stockholders' equity 42,816 59,552 59,159 61,655 59,544
</TABLE>
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
All dollar amounts of $1.0 million or more are rounded to the nearest one tenth
of a million; all other dollar amounts are rounded to the nearest one thousand
and all percentages are stated to the nearest one tenth of one percent.
This Form 10-K contains certain "forward-looking statements" within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), which represent the Company's expectations and beliefs. These statements
by their nature involve substantial risks and uncertainties, certain of which
are beyond the Company's control, and actual results may differ materially
depending on a variety of important factors, including the financial condition
of the Company's customers, changes in domestic and foreign economic and
political conditions, demand for the Company's services and changes in the
Company's competitive environment.
The Company cautions that the factors described above, among others, could cause
actual results or outcomes to differ materially from those expressed in any
forward-looking statements of the Company made by or on behalf of the Company.
Any forward-looking statement speaks only as of the date on which such statement
is made, and the Company undertakes no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time, and it is not possible for
management to predict all of such factors or the effect that any such factor may
have on the Company's business.
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 WITH YEAR ENDED DECEMBER 31, 1996
REVENUES
The Company's revenues in 1997 were $64.2 million as compared to $69.5 million
in 1996. This 7.5 percent decrease was primarily due to decreases in the land
development contracting division revenues, and to a lesser extent, due to
decreases in the Company's concrete and related products division revenues.
The Company's concrete and related products division revenues decreased 2.9
percent to $51.5 million in 1997 from $53.0 million in 1996. This decrease was
primarily due to decreased demand for this division's products on certain
Caribbean islands, which was partially offset by an increased demand on other
Caribbean islands. At the present time, the Company cannot predict whether
concrete and related products revenue levels in 1998 will be less than or
greater than revenue levels achieved in 1997.
Revenues from the Company's land development contracting division decreased by
29.5 percent to $9.9 million in 1997 from $14.0 million in 1996. This decrease
was primarily attributable to the completion in mid 1996 of several hurricane
damage-related repair contracts which were not replaced by new contract backlog.
The Company's backlog of unfilled portions of land development contracts at
December 31, 1997 was $4.4 million involving 12 projects, as compared to $3.4
million involving 19 projects at December 31, 1996. Since December 31, 1997 the
Company has entered into new land development contracts in the Caribbean
amounting to $2.9 million. The Company reasonably expects that most of the
backlog, including the 1998 contracts, will be completed during the year ending
December 31, 1998. The Company needs to obtain additional new contracts as 1998
15
<PAGE>
progresses or its contract revenue levels in 1998 will be lower than those
obtained in 1997. The Company does not presently know whether it will be
successful in obtaining such contracts.
COST OF CONCRETE AND RELATED PRODUCTS
Cost of concrete and related products as a percentage of concrete and related
products revenues increased to 80.9 percent in 1997 from 74.1 percent in 1996.
This increase was primarily attributable to a decrease in sales, to higher
production costs, and to the mix of products sold during 1997.
COST OF CONTRACTING
Cost of contracting as a percentage of land development contracting revenues
increased to 98.6 percent in 1997 from 89.1 percent in 1996. This increase is
mainly attributable to losses taken on a contract in the Caribbean, and lower
revenues. In addition, the Company's gross margins are also affected by the
varying profitability levels of individual contracts and the stage of completion
of such contracts.
OPERATING EXPENSES
Selling, general and administrative expenses ("SG&A expense") increased by 10.6
percent to $13.3 million in 1997 from $12.1 million in 1996. This increase was
primarily attributable to an increase in taxes, not including taxes on income,
in various islands of $460,000 and to an increase in retirement benefits of
$275,000. SG&A expense as a percentage of revenue increased to 20.8 percent in
1997 from 17.4 percent in 1996.
In the second quarter of 1997, the Company accrued a $4.5 million charge for the
estimated costs related to a Florida State court judgement which the company is
contesting through the appellate court. See item 3. Legal Proceedings.
Due to lower volumes, the management upon its review of long-lived assets,
determined that impairment had occurred on some of the Company's assets. An
impairment expense was recognized of $2.4 million in 1997 compared to no expense
in 1996.
The allowance for doubtful accounts and notes was increased during the year to
$5.8 million resulting in an expense for 1997 of $2.9 million compared to
$302,000 in 1996.
DIVISIONAL OPERATING INCOME
An operating loss of $12.6 million is reported for 1997, representing a decrease
of $16.1 million compared to operating income of $3.5 million in 1996. The
Company's concrete and related products division had an operating loss of $4.3
million, representing a decrease of $9.2 million compared to operating income of
$4.9 million in 1996. This decrease in profitability is primarily attributable
to the increase in an allowance for doubtful accounts and notes of $2.2 million,
to impairment of long-lived assets of $1.9 million, to increases in taxes, (not
including income taxes), of $460,000, and to an increase in retirement benefits
of $275,000. The decrease in profitability was also affected by increases in
cost of sales even though revenue decreased.
16
<PAGE>
The Company's land development contracting division's operating loss increased
to a loss of $3.5 million in 1997 from a loss of $1.1 million in 1996. This
increase is mainly attributable to losses taken on a contract in the Carribean,
to the increase of the allowance for doubtful accounts and notes, and to
impairment of long-lived assets.
INCOME TAXES
Income taxes decreased to $307,000 in 1997 from $383,000 in 1996. The Company's
tax rate varies depending on the level of the Company's earnings in the various
tax jurisdictions in which it operates, the level of operating loss
carry-forwards and tax exemptions available to the Company. See Note 9 of Notes
to Consolidated Financial Statements and "Business - Tax Exemptions and
Benefits."
FOURTH QUARTER ADJUSTMENTS
The fourth quarter of 1997 included charges related to a $1.6 million adjustment
based upon the annual physical inventories, a $2.4 million impairment loss on
long-lived assets due to lower volumes in 1997, and a $2.6 million increase in
the allowance for doubtful accounts and notes. It is not practical to determine
the impact of these adjustments, if any, on previously reported quarters.
NET EARNINGS (LOSS)
The Company's net loss increased to $15.5 million in 1997 as compared to an
income of $313,000 in 1996. This decrease in net earnings was primarily
attributable to decreased gross profit of $3.9 million and $1.4 million in the
concrete and related products division and the contracting division,
respectively, a charge for litigation expense of $4.5 million, an impairment
loss of $2.4 million, an increase in the provision for doubtful accounts and
notes of $2.6 million, and an increase in SG&A expense of $1.3 million.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 WITH YEAR ENDED DECEMBER 31, 1995
REVENUES
The Company's revenues in 1996 were $69.5 million as compared to $56.2 million
in 1995. This 23.7 percent increase was primarily due to increases in the
Company's concrete and related products division revenues, offset by decreases
in the land development contracting division revenues.
The Company's concrete and related products division revenues increased 40.5
percent to $53.0 million in 1996 from $37.7 million in 1995. This increase was
primarily due to increased demand for this division's products on certain
Caribbean islands, which was generated by an increase in the overall level of
construction activity in certain locations in which the Company operates its
business. The Company believes that this increase was primarily attributable to
repair and rebuilding required as a result of Hurricanes Luis and Marilyn, which
struck the Caribbean in September 1995.
Revenues from the Company's land development contracting division decreased by
13.0 percent to $14.0 million in 1996 from $16.1 million in 1995. This decrease
was primarily attributable to the completion in mid 1996 of several hurricane
damage-related repair contracts which were not replaced by new contract backlog.
The Company's backlog of unfilled portions of land development contracts at
December 31, 1996 was $3.4 million involving 19 projects, as compared to $11.4
million involving 22 projects at December 31, 1995. Since December 31, 1996, the
Company has entered into new land development contracts in the Caribbean
amounting to $7.5 million.
17
<PAGE>
COST OF CONCRETE AND RELATED PRODUCTS
Cost of concrete and related products as a percentage of concrete and related
products revenues decreased to 74.1 percent in 1996 from 77.1 percent in 1995.
This decrease was primarily attributable to the mix of products sold, the
locations in which sales were made during the year and the increase in revenues
actually recognized in 1996.
COST OF CONTRACTING
Cost of contracting as a percentage of land development contracting revenues
increased to 89.1 percent in 1996 from 87.8 percent in 1995. This increase is
attributable to losses taken on certain contracts and by the significant levels
of cost involved in owning and operating heavy construction equipment. In
addition, the Company's gross margins are also affected by the varying
profitability levels of individual contracts and the stage of completion of such
contracts.
OPERATING EXPENSES
Selling, general and administrative expenses ("SG&A expense") increased by 12.9
percent to $12.1 million in 1996 from $10.7 million in 1995. This increase was
primarily attributable to increases in insurance and to legal fees, primarily
related to construction litigation, and by additional SG&A expense of the
Company's new operations in St. Martin and Puerto Rico. SG&A expense as a
percentage of revenue decreased to 17.4 percent in 1996 from 19.0 percent in
1995. This percentage decrease was primarily attributable to the increase in
revenues recognized, offset by the increase in expenses actually incurred.
DIVISIONAL OPERATING INCOME
Operating income increased to $3.5 million in 1996 from $274,000 in 1995. The
Company's concrete and related products division operating income increased to
$4.9 million in 1996 from $1.3 million in 1995. This increase is primarily
attributable to decreases in cost of sales and an increase in revenues for this
division, offset by increases in SG&A expense.
The Company's land development contracting division operating loss increased to
a loss of $1.1 million in 1996 from a loss of $570,000 in 1995. This increase in
loss is primarily attributable to the decline in contract revenues and increases
in SG&A expense, principally legal fees associated with litigation regarding two
of the Company's completed construction projects.
INCOME TAXES
Income taxes increased to $383,000 in 1996 from $145,000 in 1995. The Company's
tax rate varies depending on the level of the Company's earnings in the various
tax jurisdictions in which it operates, the level of operating loss
carryforwards and tax exemptions available to the Company. See "Business - Tax
Exemptions and Benefits."
NET EARNINGS (LOSS)
The Company's net earnings increased to income of $313,000 in 1996 from a net
loss of $2.7 million in 1995. This increase in net earnings was primarily
attributable to improvements in concrete and related products division profits,
offset by increases in selling, general and administrative expenses, even though
SG&A expense as a percentage of revenue declined.
18
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company generally funds its working capital needs from operations and bank
borrowings. In the land development contracting business, the Company must
expend considerable funds for equipment, labor and supplies to meet the needs of
particular projects. The Company's capital needs are greatest at the start of
any new contract, since the Company generally must complete 45 to 60 days of
work before receiving the first progress payment. In addition, as a project
continues, a portion of the progress billing is usually withheld as retainage
until all work is complete, further increasing the need for capital. On occasion
the Company has provided long-term financing to certain customers who have
utilized its land development contracting services. The Company has also
provided financing for other business ventures from time to time. With respect
to the Company's concrete and related products division, accounts receivable are
typically outstanding for a minimum of 60 days and in some cases much longer.
The nature of the Company's business requires a continuing investment in plant
and equipment, along with the related maintenance and upkeep costs of such
equipment.
The Company has funded many of these expenditures out of its current working
capital. However, notwithstanding the foregoing and after factoring in the
Company's obligations as set forth below, management believes that the Company's
cash flow from operations, existing working capital (approximately $8.7 million
at December 31, 1997) and funds available from lines of credit will be adequate
to meet the Company's anticipated needs for operations during the next twelve
months.
As of December 31, 1997, the Company's liquidity and capital resources included
cash and cash equivalents of $1.0 million and working capital of $8.7 million.
Included in working capital is approximately $6.9 million of assets held for
sale, of which $3.3 million represents a marina sold, and its related current
debt retired, in the first quarter 1998. Although management's intention is to
sell these assets during 1998, there can be no assurance that all assets will be
sold. As of December 31, 1997, total outstanding liabilities was $43.6 million
as compared to $35.4 million as of December 31, 1996. As of December 31, 1997,
the Company had available lines of credit totaling $906,000.
Cash flows provided by operating activities for the year ended December 31, 1997
was $1.8 million compared with $1.5 million for the year ended December 31,
1996. The primary use of cash for operating activities during the year ended
December 31, 1997 was an increase in accounts receivable of $3.1 million. The
primary sources of cash for the period were a reduction in costs in excess of
billings and estimated earnings of $2.8 million and an increase in accounts
payable and accrued expenses of $1.5 million.
Net cash used in investing activities was $4.8 million in 1997. Purchases of
property, plant, and equipment were $8.5 million, $1.9 million higher than in
1996 mainly due to investments in Puerto Rico. The purchases were partially
financed through $5.1 million in equipment financing.
The Company turned its fiscal year-end accounts receivable, excluding notes and
employee receivables, approximately 5.3 times in each of 1997 and 1996.
The Company entered into a credit agreement with a Caribbean bank in November
1996 for a total credit of $7.0 million. One part of the credit agreement is a
term loan for $6.0 million repayable in monthly installments through November
2002. The Company had $4.9 million of borrowings outstanding on this loan at
December 31, 1997. The second part is a revolving line of credit of $1.0
million. The credit line has a review and re-approval process in July of each
year until 2002. The Company had no borrowings outstanding under this line of
credit at
19
<PAGE>
December 31, 1997. The interest rate on indebtedness outstanding under both
loans is at a rate variable with the prime rate. The credit agreement is
collateralized by various parcels of real property and other assets located in
the United States Virgin Islands and certain other areas. The Company is in
violation of certain loan covenants as of December 31, 1997. The bank has agreed
to waive the violations of the loan covenants, as long as the Company is current
in its loan payments.
The Company has a $500,000 unsecured overdraft facility from a commercial bank
in the Caribbean. The facility is due on demand and bears interest at 14.0
percent per annum. At December 31, 1997, the Company had borrowings of $384,000
outstanding under this line.
The Company has borrowed approximately $6.3 million from the Company President.
The note is unsecured and bears interest at the prime interest rate. Eight
hundred thousand is due on demand and $5.5 million is due on January 1, 1999.
The President has the option to make the note due on demand should a "Change of
Control" occur. A Change of Control has occurred if a person or group acquires
15.0 percent or more of the common stock or announces a tender offer, the
consummation of which would result in ownership by a person or group of 15.0
percent or more of the common stock.
The Company had a $5.0 million term loan with a Caribbean bank, repayable in
monthly installments through December 2001. The interest rate on indebtedness
outstanding at December 31, 1997 was 10.0 percent and the Company had $3.0
million of borrowings outstanding. The loan was secured by a leasehold mortgage
on a marina in the U.S. Virgin Islands. The marina was sold in February 1998,
and the loan was paid off in its entirety.
The Company purchases equipment from time to time as needed for its ongoing
business operations. The Company is currently replacing or upgrading some
equipment used by the concrete and related products division, principally
concrete trucks and quarry equipment. This should result in a net cash
expenditure, after financing part of the equipment purchases, of approximately
$2.0 million. At present, management believes that the Company's inventory of
construction equipment is adequate for its current contractual commitments and
operating activities, however, the acquisition of significant new construction
contracts, depending on the nature of the contract, the job location and job
duration, may require the Company to make significant investments in heavy
construction equipment. The Company has identified some equipment and real
property not needed for its ongoing operations and it plans to sell those
assets. The net carrying cost of this equipment is $6.9 million. The proceeds
from these sales will reduce debt and provide working capital. During 1997, the
Company sold equipment with an original cost basis of approximately $892,000 and
a net book value of $285,000, the net proceeds were approximately $312,000. The
Company believes it has available or can obtain sufficient financing for most of
its contemplated equipment replacements and additions. Historically, the Company
has used a number of lenders to finance a portion of its machinery and equipment
purchases on an individual asset basis. At December 31, 1997, amounts
outstanding to these lenders totaled $9.6 million. These loans are typically
repaid over a three to five-year term in monthly principal and interest
installments.
A significant portion of the Company's outstanding debt bears interest at
variable rates. The Company could be negatively impacted by a substantial
increase in interest rates.
The Company has contingent obligations and has made certain guarantees in
connection with acquisitions, its participation in certain joint ventures,
certain employee and construction bonding matters and its receipt of a tax
20
<PAGE>
exemption. As part of the 1995 acquisition of Societe des Carrieres de Grand
Case (SCGC), a French company operating a ready-mix concrete plant and quarry in
St. Martin, the Company agreed to pay the quarry owners (who were also the
owners of SCGC), a royalty payment of $550,000 per year through August 2000,
which at the Company's option, may be renewed for two successive five-year
periods and requires annual payments of $550,000 per year. At the end of the
fifteen year royalty period, the Company has the option to purchase a fifty
hectare parcel of property for $4.4 million. In connection with a 1990 St.
Maarten acquisition, the Company agreed to pay the seller annually an amount per
unit of certain concrete and stone products sold by the Company in St. Maarten
from April 1, 1990 to March 31, 1998, but in no event less than $500,000 per
year. The Company has certain offsets available against this payment which has
reduced the minimum annual payment to $350,000 per year.
Notes receivable and accrued interest at December 31, 1997 include $11.9
million, net due the Company pursuant to certain promissory notes delivered to
the Company in connection with two construction contracts with the Government of
Antigua, $2.0 million of which is classified as a current receivable. The notes
call for both quarterly and monthly principal and interest payments until
maturity in 1997. The notes were not satisfied at maturity but the Antiguan
government has advised the Company that payments will continue until the
obligation is satisfied. The Government of Antigua has routinely made the
required quarterly payments aggregating $1.3 million per year but has made only
some of the required monthly payments. A portion of the payment received from
Antigua was derived from the lease proceeds the Antiguan government received
from the United States Department of Defense for the rental of two military
bases. One of the bases was closed at the end of 1995, resulting in a shortfall
of $700,000 per year in the required quarterly payments. To partially make up
this shortfall, the Antiguan government has entered into a written agreement
with the Company requiring Antigua to pay $600,000 per year from its fuel tax
revenues. Payments under this agreement commenced in January 1997. The Company
does not presently anticipate any other material increases in or accelerations
of payments by the Government of Antigua.
YEAR 2000 ISSUE
The Company has developed plans to address the possible exposures related to the
impact on its computer systems to be Year 2000 compliant. The plan provides for
the conversion efforts to be completed by the end of 1999. The Year 2000 problem
is the result of computer programs being written using two digits rather than
four to define the applicable year. Management does not expect the financial
impact of making the required system changes to be material to the Company's
consolidated financial position, results of operations or cash flows which are
being funded through operating cash flows. The Company is expensing all costs
associated with these systems changes as the costs are incurred.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") No.130, REPORTING COMPREHENSIVE
INCOME. SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. SFAS 130 is effective for fiscal years beginning after
December 15, 1997. Management does not anticipate a significant impact of the
adoption of SFAS 130 on the Company's consolidated financial position, results
of operations or cash flows.
21
<PAGE>
In June 1997, the FASB issued SFAS No.131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. SFAS 131 establishes standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that these enterprises report selected
information about operating segments in interim financial reports to
shareholders. SFAS 131 is effective for financial statements for periods
beginning after December 15, 1997. Management does not anticipate a significant
impact of the adoption of SFAS 131 on the Company's consolidated financial
position, results of operations or cash flows.
In February 1998, the FASB issued SFAS No.132, EMPLOYERS' DISCLOSURES ABOUT
PENSIONS AND OTHER POSTRETIREMENT BENEFITS. SFAS 132 standardizes the disclosure
requirements of SFAS 87 and SFAS 106 to the extent practicable and recommends a
parallel format for presenting information about pensions and other
postretirement benefits. SFAS 132 is effective for fiscal years beginning after
December 15, 1997. Management does not anticipate a significant impact of the
adoption of SFAS 132 on the Company's consolidated financial position, results
of operations or cash flows.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
22
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial information and the supplementary data required in response to
this Item are as follows:
PAGE NUMBER(S)
Independent Auditors' Report 24
Financial Statements:
Consolidated Balance Sheets 25-26
December 31, 1997 and 1996
Consolidated Statements of Operations
For Each of the Years in the Three-Year Period 27-28
Ended December 31, 1997
Consolidated Statements of Stockholders' Equity
For Each of the Years in the Three-Year Period
Ended December 31, 1997 29
Consolidated Statements of Cash Flows
For Each of the Years in the Three-Year Period
Ended December 31, 1997 30-31
Notes to Consolidated Financial Statements 32-55
Schedule II - Valuation and Qualifying Accounts 61
23
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Devcon International Corp.:
We have audited the consolidated financial statements of Devcon International
Corp. and subsidiaries (the "Company") as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and this financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and this
financial statement schedule 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Devcon International
Corp. and subsidiaries as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997 in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG PEAT MARWICK LLP
Fort Lauderdale, Florida
March 27, 1998
24
<PAGE>
<TABLE>
<CAPTION>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and 1996
ASSETS 1997 1996
------ ---- ----
<S> <C> <C>
Current assets:
Cash $ 876,368 $ 303,994
Cash equivalents (note 8) 125,000 1,600,000
Receivables, net (notes 3,8 and 18) 13,928,997 13,310,398
Costs in excess of billings and
estimated earnings (note 17) 329,707 3,124,860
Inventories (note 4) 4,779,121 5,976,252
Assets held for sale 6,919,511 -
Other 937,290 825,853
----------- -----------
Total current assets 27,895,994 25,141,357
Property, plant and equipment, net (note 8)
Land 2,148,825 5,252,048
Buildings 3,365,775 4,202,324
Leasehold interests 6,302,592 13,276,394
Equipment 53,382,393 62,991,689
Furniture and fixtures 560,402 586,983
Construction in process 1,007,879 585,480
----------- -----------
66,767,866 86,894,918
Less accumulated depreciation (27,119,417) (38,820,612)
----------- -----------
39,648,449 48,074,306
Investments in unconsolidated joint
ventures and affiliates, net (note 5) 132,130 158,780
Advances to unconsolidated joint
ventures and affiliates, net (note 5) 568,861 1,021,453
Receivables, net (notes 3 and 8) 15,137,701 17,296,278
Intangible assets, net of accumulated
amortization 1,429,921 1,537,726
Other assets 1,620,204 1,696,240
----------- -----------
Total assets $86,433,260 $94,926,140
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
<TABLE>
<CAPTION>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Balance Sheets (continued)
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
------------------------------------ ---- ----
<S> <C> <C>
Current liabilities:
Accounts payable, trade and other $ 6,390,461 $ 5,950,704
Accrued expenses and other liabilities 2,702,517 1,163,944
Notes payable to banks (note 8) 384,473 400,000
Current installments of long-term debt
(note 8) 8,990,968 4,424,726
Billings in excess of costs and
estimated earnings (note 17) 137,408 112,652
Income taxes (note 9) 577,478 1,026,010
----------- -----------
Total current liabilities 19,183,305 13,078,036
Long-term debt, excluding current
installments and notes payable
to banks (note 8) 16,981,738 19,251,369
Minority interest in consolidated
subsidiaries (note 6) 1,923,629 1,925,446
Deferred income taxes (note 9) 399,791 495,400
Other liabilities (note 18) 5,129,135 624,204
----------- -----------
Total liabilities 43,617,598 35,374,455
Stockholders' equity (note 15):
Common stock, $0.10 par value.
Authorized 15,000,000 shares,
issued and outstanding, 4,498,935
shares in 1997 and 1996 449,894 449,894
Additional paid-in capital 12,064,133 12,064,133
Cumulative translation adjustment (1,200,000) -
Retained earnings (note 9) 31,501,635 47,037,658
----------- -----------
Total stockholders' equity 42,815,662 59,551,685
----------- -----------
Total liabilities and stockholders' equity $86,433,260 $94,926,140
=========== ===========
</TABLE>
Commitments and contingencies (notes 9, 12 and 18)
See accompanying notes to consolidated financial statements.
26
<PAGE>
<TABLE>
<CAPTION>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Operations
For Each of the Years in the Three-Year Period Ended December 31, 1997
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Concrete and related products
revenues $ 51,460,633 $52,987,242 $37,716,253
Contracting revenues 9,851,775 13,981,732 16,068,283
Other revenues 2,931,343 2,509,395 2,366,926
------------ ----------- -----------
Total revenues 64,243,751 69,478,369 56,151,462
Cost of concrete and related
products 41,659,401 39,276,983 29,069,207
Cost of contracting 9,708,684 12,457,949 14,102,977
Cost of other 2,310,628 1,913,286 1,720,911
------------ ----------- -----------
Gross profit 10,565,038 15,830,151 11,258,367
Operating expenses:
Selling, general and
administrative 13,337,564 12,056,001 10,682,423
Provision for doubtful accounts
and notes 2,932,245 302,863 301,510
Impairment of long-lived assets 2,373,288 - -
Charge for litigation 4,500,000 - -
------------ ----------- -----------
Operating (loss) income (12,578,059) 3,471,287 274,434
------------ ----------- -----------
Other income (deductions):
Joint venture equity loss (note 5) (150,000) (50,000) -
(Loss) gain on sale of property
and equipment (372,104) (2,147) 164,116
Interest expense (2,668,277) (2,609,580) (2,555,848)
Interest and other income 537,651 392,355 462,840
Minority interest 1,776 (17,819) (31,693)
------------ ----------- -----------
(2,650,954) (2,287,191) (1,960,585)
------------ ----------- -----------
(Loss) income from
continuing operations
before income taxes (15,229,013) 1,184,096 (1,686,151)
Income taxes (note 9) 307,010 383,089 145,352
------------ ----------- -----------
(Loss) income from
continuing operations (15,536,023) 801,007 (1,831,503)
Discontinued operation (note 10)
Impairment loss - - (800,000)
Loss from discontinued operation - - (115,000)
Loss on sale of discontinued
operation - (488,119) -
------------ ----------- -----------
Loss from discontinued operation - (488,119) (915,000)
------------ ----------- -----------
Net (loss) earnings $(15,536,023) $ 312,888 $(2,746,503)
============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE>
<TABLE>
<CAPTION>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Operations (Continued)
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Basic (loss) earnings per share:
From continuing operations $ (3.45) $ .18 $ (.41)
From discontinued operation - (.11) (.21)
---------- ----------- -----------
Net basic (loss) earnings $ (3.45) $ .07 $ (.62)
========== =========== ===========
Diluted (loss) earnings per share:
From continuing operations $ (3.45) $ .17 (.41)
From discontinued operation - (.10) (.21)
---------- ---------- -----------
Net diluted (loss) earnings $ (3.45) $ .07 $ (.62)
========== =========== ===========
Weighted average number of common
shares outstanding - basic 4,498,935 4,490,329 4,431,360
========== =========== ===========
Weighted average number of common
shares outstanding - diluted 4,498,935 4,596,536 4,431,360
========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statements of Stockholders' Equity
For Each of the Years in the Three-Year Period Ended December 31, 1997
ADDITIONAL CUMULATIVE
COMMON PAID-IN TRANSLATION RETAINED
STOCK CAPITAL ADJUSTMENT EARNINGS TOTAL
----- ------- ---------- -------- -----
<S> <C> <C> <C> <C> <C>
Balances at
December 31, 1994 $443,118 $11,740,700 $ - $49,471,273 $61,655,091
Stock issued in
connection with
acquisition of
additional
partnership
interest 3,333 246,665 - - 249,998
Net loss - - - (2,746,503) (2,746,503)
---------- ---------- ---------- ---------- ----------
Balances at
December 31, 1995 446,451 11,987,365 - 46,724,770 59,158,586
Stock issued in
connection with
exercise of stock
options 3,443 76,768 - - 80,211
Net earnings - - - 312,888 312,888
-------- ------- --------- ---------- -----------
Balances at
December 31, 1996 449,894 12,064,133 $47,037,658 $59,551,685
Translation
adjustment - - (1,200,000) - (1,200,000)
Net loss - - - (15,536,023) (15,536,023)
-------- ----------- --------- ----------- -----------
Balances at
December 31, 1997 $449,894 $12,064,133 $(1,200,000) $31,501,635 $42,815,662
======== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE>
<TABLE>
<CAPTION>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For Each of the Years in the Three-Year Period Ended December 31, 1997
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) earnings $(15,536,023) $ 312,888 $(2,746,503)
Adustments to reconcile net (loss) earnings to net cash provided by (used in)
operating activities:
Depreciation and amortization 6,143,726 5,421,183 4,714,254
Deferred income tax benefit (95,609) (156,579) (777,021)
Joint venture equity loss 150,000 50,000 -
Provision for doubtful accounts
and notes 2,932,245 302,863 301,510
Impairment on long-lived assets 2,373,288 - -
Loss (gain) on sale of property
and equipment 372,104 2,147 (164,116)
Charge for litigation 4,500,000 - -
Loss from discontinued operation - 488,119 915,000
(Increase) decrease in minority
interest in consolidated
subsidiaries (1,776) 17,819 31,693
Changes in operating assets and liabilities:
(Increase) decrease in receivables (3,103,435) (2,314,992) 347,378
Decrease (increase) in costs
in excess of billings and
estimated earnings 2,795,153 337,124 (850,490)
Decrease (increase) in inventories 388,218 (606,400) 1,222,357
(Increase) decrease in other
current assets (111,438) 136,804 17,399
Increase in other assets (13,220) - (65,249)
Increase (decrease) in accounts
payable and accrued expenses 1,473,635 (1,527,284) 858,170
Increase (decrease) in billings in
excess of costs and estimated
earnings 24,756 (653,747) 710,121
(Decrease) increase in income
taxes payable (148,532) 336,360 641,375
(Decrease) increase in other non-
current liabilities (295,070) (502,838) 42,985
----------- ---------- -----------
Net cash provided by continuing
operations 1,848,024 1,643,467 5,198,863
Net cash used in
discontinued operation - (102,005) (165,886)
------------ ---------- -----------
Net cash provided by operating
activities $ 1,848,024 $1,541,462 $ 5,032,977
============ ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE>
<TABLE>
<CAPTION>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years in the Three-Year Period Ended December 31, 1997
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from investing activities:
Purchases of property, plant and
equipment $(8,534,518) $(6,643,817) $(6,249,083)
Proceeds from disposition of
property, plant and equipment 572,724 5,876,197 697,887
Payment to acquire subsidiary company (71,803) (171,711) (1,000,000)
Issuance of notes - (245,477) (227,233)
Payments on notes 2,822,968 2,478,790 2,831,286
Advances to affiliates (123,350) - (36,209)
Advances from affiliates 452,592 - 340,000
----------- ----------- -----------
Net cash (used in) provided by
investing activities (4,881,387) 1,293,982 (3,643,352)
------------ ----------- -----------
Cash flows from financing activities:
Proceeds from debt 6,795,917 10,823,916 5,986,004
Principal payments on debt (4,514,833) (13,452,545) (6,585,891)
Payments for debt issuance costs - (200,485) -
Net borrowings (repayments) from bank
overdrafts (150,347) 481,526 (315,650)
------------ ----------- -----------
Net cash provided by (used in)
financing activities 2,130,737 (2,347,588) (915,537)
------------ ----------- -----------
Net (decrease) increase in cash
and cash equivalents (902,626) 487,856 474,088
Cash and cash equivalents at
beginning of year 1,903,994 1,416,138 942,050
----------- ----------- ----------
Cash and cash equivalents at
end of year $ 1,001,368 $ 1,903,994 $ 1,416,138
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 2,641,531 $ 2,648,250 $ 2,579,748
=========== =========== ===========
Income taxes $ 249,523 $ 203,308 $ 87,888
=========== =========== ===========
</TABLE>
Supplemental non-cash items:
During 1995, the Company issued 33,333 shares of common stock to acquire an
additional interest in a Mexican manufacturing partnership.
During 1996, the minority interest shareholders in the new subsidiary operating
in Puerto Rico exchanged equipment, leaseholds and notes receivable totaling
$1,231,774 for their 49.98 percent ownership.
During 1997, the Company recorded a translation adjustment of $1.2 million
related to its subsidiary in St. Martin.
See accompanying notes to consolidated financial statements.
31
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended December 31, 1997, 1996 and 1995
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
Devcon International Corp. and its subsidiaries (the
"Company") produce and distribute ready-mix concrete, crushed
stone, concrete block, and asphalt and distribute bulk and
bagged cement in the Caribbean. The Company also performs
earthmoving, excavating and filling operations and builds golf
courses, roads, utility infrastructures, dredges waterways and
constructs deep-water piers and marinas in the Caribbean.
(b) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Devcon International Corp. and its majority-owned
subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
The Company's investments in unconsolidated joint ventures and
affiliates are accounted for by the equity method. Under the
equity method, original investments are recorded at cost and
adjusted by the Company's share of undistributed earnings or
losses of these companies.
(c) REVENUE RECOGNITION
CONCRETE AND RELATED PRODUCTS
Revenue is recognized when the products are delivered.
CONTRACTING
The Company uses the percentage of completion method of
accounting for financial statement preparation and tax
reporting purposes. Revenues earned and related costs are
recorded based on the Company's estimates of the percentage of
completion of each project using the cost-to-cost method.
Anticipated losses on contracts are charged to earnings when
probable and estimable. Changes in estimated profits on
contracts are recorded in the period of change. Selling,
general and administrative expenses are not allocated to
contract costs. Monthly billings are based on the percentage
of work completed in accordance with a specific contract.
Contracts are generally completed within one year of the
commencement date, although the Company has had contracts that
extended past one year.
32
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
OTHER
Other revenue consists of revenue from a marina owned by the
Company. This marina was sold in 1998. Revenue is recognized
when products or services are delivered.
(d) CASH AND CASH EQUIVALENTS
The Company considers financial instruments with an original
maturity or restriction of three months or less at time of
purchase to be cash equivalents.
(e) INVENTORIES
The cost of sand, stone, cement and concrete block inventories
is determined using average costs approximating the first-in,
first-out (FIFO) method and is not in excess of market. All
other inventories are stated at the lower of average cost or
market.
(f) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation
on property, plant and equipment is calculated on the
straight-line method over the estimated useful life of the
asset. Property, plant and equipment, including leasehold
improvements, are amortized using the straight-line method
over the shorter of the lease term or the estimated useful
life of the asset.
Useful lives and/or lease terms for each asset type are
summarized below:
Buildings 15 - 40 years
Leasehold interests 3 - 55 years
Equipment 3 - 20 years
Furniture and fixtures 3 - 10 years
In 1997, the Company's management segregated a number of
assets, which the Company has identified as not being required
for its current or future business operations. These assets
include real estate, earth-moving machinery, and various other
items of construction rolling equipment and are classified as
assets held for sale.
(g) FOREIGN CURRENCY TRANSLATION
The Company owns subsidiaries whose functional currencies are
the Eastern Caribbean Dollar and the French Franc. The assets
and liabilities of these subsidiaries have been translated
into U.S. dollars at year-end exchange rates. Income statement
accounts are translated into U.S. dollars at average exchange
rates during the period. The translation adjustment for 1997
decreased equity by $1.2 million. The adjustment for 1996 was
not significant.
33
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(h) INTANGIBLE ASSETS
The excess of cost over the fair value of net assets of
subsidiaries acquired and non-compete agreements are amortized
over five to fifteen year periods on a straight-line basis.
The Company periodically evaluates the recoverability of its
intangible assets as well as their amortization periods to
determine whether an adjustment to the carrying value or a
revision to the estimated useful lives is appropriate. The
primary indicators of recoverability are the current and
forecasted operating cash flows which pertain to that
particular asset. An entity that has a deficit in its cash
flow from operations for a full fiscal year, in light of the
surrounding economic environment, is viewed by the Company as
a situation which could indicate an impairment of value.
Taking into account the above factors, the Company determines
that an impairment loss has been triggered when the future
projected undiscounted cash flows associated with the
intangible asset does not exceed its current carrying amount
and the amount of the impairment loss to be recorded is the
difference between the current carrying amount and the future
projected discounted cash flows. Based on the Company's
policy, management believes that there is no impairment of
value related to the intangible assets as of December 31,
1997.
Accumulated amortization on intangible assets amounted to
$550,795 in 1997 and $371,187 in 1996.
(i) EARNINGS (LOSS) PER SHARE
In December of 1997, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 128, EARNINGS
PER SHARE ("SFAS 128") which establishes new standards for
computing and presenting earnings per share. Prior periods
have been presented to conform to SFAS 128. Earnings per share
for all prior periods have been restated to reflect the
provisions of this statement.
Basic earnings per share is computed by dividing net income
(loss) by the weighted average number of shares outstanding
during the period. Diluted earnings per share is computed
assuming the exercise of stock options, as well as their
related income tax effects, unless their effect was
antidilutive. For loss periods, weighted average common share
equivalents are excluded from the calculation as their effect
would be antidilutive. See Note 2 of Notes to Consolidated
Financial Statements for the computation of basic and diluted
earnings per share data.
(j) FOREIGN OPERATIONS
Various portions of the Company's operations are conducted in
foreign areas, primarily Antigua, St. Maarten, St. Martin,
Tortola, Dominica, Saba and St. Kitts, all of which are in the
Caribbean. In 1997, 62.2 percent of the Company's revenues
were derived from
34
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
foreign operations. Overseas contract work performed by the
parent company (a United States corporation) is not considered
foreign source revenue for purposes of the foregoing
calculation. The potential risks of doing business in foreign
areas include potential adverse changes in the diplomatic
relations of foreign countries with the United States, changes
in the relative purchasing power of the United States dollar,
hostility from local populations, adverse effects of exchange
controls, restrictions on the withdrawal of foreign investment
and earnings, government policies against busi nesses owned by
non-nationals, expropriations of property, the instability of
foreign governments and the risk of insurrection that could
result in losses against which the Company is not insured. The
Company was not subject to these risks in Florida and is not
subject to them in Puerto Rico or the United States Virgin
Islands (United States territories that use the United States
dollar as their currency). Although the Company has not
encountered significant difficulties in its foreign operations
in the past, there can be no assurance that the Company will
not encounter difficulties in the future.
(k) INCOME TAXES
The Company and certain of its domestic subsidiaries file
consolidated Federal and state income tax returns.
Subsidiaries located in U.S. possessions and foreign countries
file individual income tax returns. Deferred income taxes are
recognized for income and expense items that are reported in
different years for financial reporting and income tax
purposes.
U.S. income taxes are not provided on undistributed earnings
which are expected to be permanently reinvested by the foreign
subsidiaries located in Antigua, the Netherlands Antilles, the
French West Indies, the British Virgin Islands, Dominica,
Grand Cayman, the Bahamas and certain subsidiaries located in
U.S. possessions.
The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Under the asset and liability
method of Statement 109, deferred tax assets and liabilities
are recognized for the estimated future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are
measured using enacted tax rates in effect for the year in
which those temporary differences are expected to be recovered
or settled. Under Statement 109, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized
in income for the period that includes the enactment date.
35
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(l) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and
liabilities to prepare these consolidated financial statements
in conformity with generally accepted accounting principles.
(m) IMPAIRMENT OF LONG-LIVED ASSETS AND
FOR LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of SFAS No. 121, ACCOUNTING
FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF, on January 1, 1996. This Statement
requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying value of
an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying
amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the
amount by which the carrying value of the assets exceed the
fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value
less costs to sell. Adoption of SFAS No. 121 did not have a
material impact on the Company's consolidated financial
position, results of operations or cash flows.
Due to lower volumes in 1997, the Company recorded a charge of
approximately $2.4 million for the impairment of long-lived
assets during 1997.
(n) STOCK OPTION PLANS
Prior to January 1, 1996, the Company accounted for its stock
option plans in accordance with the provisions of Accounting
Principles Board ("APB") Opinion No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES, and related interpretations. As such,
compensation expense would be recorded on the date of grant
only if the current market price of the underlying stock
exceeded the exercise price. On January 1, 1996, the Company
adopted SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION,
which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the
date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply the provisions of APB Opinion
No. 25 and provide pro forma net income and pro forma earnings
per share disclosures for employee stock option grants made in
1995 and future years as if the fair-value-based method
defined in SFAS No. 123 had been applied. The Company has
elected to continue to apply the provisions of APB Opinion No.
25 and provide the pro forma disclosure provisions of SFAS No.
123.
36
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(o) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standard
("SFAS") No. 130, REPORTING COMPREHENSIVE INCOME. SFAS 130
establishes standards for reporting and displaying of
comprehensive income and its components in a full set of
general purpose financial statements. SFAS 130 is effective
for fiscal years beginning after December 15, 1997. Management
does not anticipate a significant impact of the adoption of
SFAS 130 on the Company's consolidated financial position,
results of operations or cash flows.
In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS 131
establishes standards for the way that public business
enterprises report information about operating segments in the
annual consolidated financial statements and requires that
these enterprises report selected information about operating
segments in interim financial reports to shareholders. SFAS
131 is effective for financial statements for periods
beginning after December 15, 1997. Management does not
anticipate a significant impact of the adoption of SFAS 131 on
the Company's consolidated financial position, results of
operations or cash flows.
In February 1998, the FASB issued SFAS No. 132, EMPLOYERS'
DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS.
SFAS 132 standardizes the disclosure requirements of SFAS 87
and SFAS 106 to the extent practicable and recommends a
parallel format for presenting information about pensions and
other postretirement benefits. SFAS 132 is effective for
fiscal years beginning after December 15, 1997. Management
does not anticipate a significant impact of the adoption of
SFAS 132 on the Company's consolidated financial position,
results of operations or cash flows.
(p) RECLASSIFICATION
Certain prior year amounts have been reclassified to conform
with the current year presentation.
(2) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share data:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Weighted average shares-outstanding 4,498,935 4,490,329 4,431,360
Effect of dilutive securities:
Options - 106,207 -
--------- --------- ------
Diluted shares 4,498,935 4,596,536 4,431,360
========= ========= =========
</TABLE>
37
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Options to purchase 148,300 shares of common stock at $2.33 per share,
were outstanding for the year ended December 31, 1997, but were not
included in the computation of diluted earnings per share because the
inclusion of the options would be antidilutive. The options expire at
varying dates.
Options to purchase 416,380 shares of common stock, at prices ranging
from $2.33 to $7.00 per share, were outstanding for the year ended
December 31, 1995, but were not included in the computation of diluted
earnings per share because the inclusion of the options would be
antidilutive. The options expire at varying dates.
(3) RECEIVABLES
Receivables consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
---- ----
<S> <C> <C>
Concrete and related products
division trade accounts receivable $11,343,234 $10,005,085
Land development contracting
division trade accounts
receivable, including retainages 4,652,164 2,992,384
Other division trade accounts receivable 81,749 167,093
Accrued interest and other receivables 114,986 71,715
Notes and other receivables due from the
Government of Antigua and Barbuda, net 13,028,885 15,642,579
Trade notes receivable - other 5,132,985 4,294,370
Due from employees and officers 510,760 517,574
----------- -----------
34,864,763 33,690,800
Allowance for doubtful accounts
and notes (5,798,065) (3,084,124)
---------- -----------
$29,066,698 $30,606,676
=========== ===========
</TABLE>
Receivables are classified in the consolidated balance sheets as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
---- ----
<S> <C> <C>
Current assets $13,928,997 $13,310,398
Noncurrent assets 15,137,701 17,296,278
----------- -----------
$29,066,698 $30,606,676
=========== ===========
</TABLE>
Retainage will be due upon completion of construction contracts and
acceptance by the customer. The Company expects retainage on completed
contracts will be collected during 1998.
Included in notes and other receivables are unsecured notes due from
the Government of Antigua and Barbuda totaling a net amount of
$11,932,433 and $14,598,656 in 1997 and 1996, respectively, which were
delivered to the
38
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Company in connection with two construction contracts performed by the
Company for the Government of Antigua and Barbuda, $2.0 million of
which is classified as a current receivable. The notes are accounted
for using the cost-recovery method and all payments received are
applied against the outstanding principal balance of the notes. The
notes call for both quarterly and monthly principal and interest
payments until maturity in 1997. The notes will not be satisfied at
maturity but the Antiguan government has advised the Company that
payments will continue until the obligation is satisfied. The
Government of Antigua has routinely made quarterly and monthly
payments. A portion of the payment received from Antigua is derived
from the lease proceeds that the Antiguan government receives from the
United States Department of Defense for the rental of a military base.
The Antiguan government has also entered into a written agreement with
the Company requiring Antigua to pay $600,000 per year from its fuel
tax revenues. Payments under this agreement commenced in January 1997.
The Company does not presently anticipate any other material increases
in or accelerations of payments by the Government of Antigua.
Notes receivable from an Antiguan government agency, amounting to
$855,803 in 1997 and 1996, are included in the total due from the
government of Antigua, along with Antigua-Barbuda Government
Development Bonds 1994-1997 series amounting to $240,649 and $188,120
in 1997 and 1996, respectively.
The Company also has trade receivables from various Antiguan government
agencies of $472,133 and $476,652 in 1997 and 1996, respectively.
Several of the Company's customers perform services for the Antiguan
government and depend on payments from the government to satisfy their
obligations to the Company.
Trade notes receivable - other consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
---- ----
<S> <C> <C>
Unsecured promissory notes receivable with
varying terms and maturity dates $ 342,990 $ 408,645
Secured promissory notes receivable with
varying terms and maturity dates 534,755 544,756
8.0 percent note receivable due in weekly installments from April 1994
through March 2002, secured by first and
second mortgages on two parcels of land 393,493 467,816
8.0 percent note receivable, due on demand,
secured by first mortgage on real
property 826,231 805,341
Notes receivable bearing interest at 2.0
percent over prime interest rate, secured
by real estate 549,402 549,402
</TABLE>
39
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
---- ----
<S> <C> <C>
8.0 percent note receivable, due in
installments through July 2005, secured
by land and building 600,000 600,000
12.5 percent note receivable, due in
installments through June 30, 2001
and secured by pledge of stock of
subsidiary company (see note 5) 559,187 604,760
6.0 percent note receivable, due in monthly
installments from August
1997 through July 2000 215,127 313,650
8.0 percent note receivable, due in
installments through January 5, 2008,
secured by real estate 1,111,800 -
---------- ----------
$5,132,985 $4,294,370
========== ==========
</TABLE>
(4) INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
---- ----
<S> <C> <C>
Inventories consist of the following:
Sand, stone, cement and concrete block $3,036,605 $5,262,116
Maintenance parts 1,229,380 1,232,562
Other 513,136 504,000
---------- ----------
$4,779,121 $6,998,678
========== ==========
</TABLE>
(5) INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED JOINT VENTURES AND
AFFILIATES
At December 31, 1997, the Company has equity interests in three real
estate ventures, a 43 percent equity interest in a foreign construction
company, a 1 percent equity interest in a commercial property
development in Antigua and a 7 percent equity interest in a real estate
project in the Bahamas (see Note 14). One real estate joint venture was
formed primarily to acquire and develop land for sale in Antigua, West
Indies. The other real estate venture was formed to develop property in
Florida and has insignificant assets and operations. Losses of $150,000
and $50,000 were recognized in 1997 and 1996, respectively, related to
the Company's investment in the foreign construction company. No income
or loss was recognized in 1997 and 1996 on any of the other ventures
because the amounts were not material.
40
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
UNCONSOLIDATED JOINT UNCONSOLIDATED JOINT
VENTURES AND AFFILIATES VENTURES AND AFFILIATES
----------------------- -----------------------
ADVANCES INVESTMENTS ADVANCES INVESTMENTS
TO IN TO IN
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Commercial property $ 11,323 $ - $ 11,323 $ -
Real estate 507,538 132,130 960,130 8,780
Construction 50,000 - 50,000 150,000
-------- -------- ---------- ----------
$568,861 $132,130 $1,021,453 $ 158,780
======== ======== ========== ==========
</TABLE>
(6) ACQUISITIONS
In May 1996, the Company contributed approximately $1.2 million in
capital to a new subsidiary company in return for a 50.02 percent
ownership interest. The new subsidiary leases and operates a quarry in
Guaynabo, Puerto Rico. Capital contributions of the Company's minority
ownership partners, amounting to approximately $1.2 million, are
classified as part of minority interest in consolidated subsidiaries.
(7) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of financial instruments including cash, cash
equivalents, receivables, net, other current assets, accounts payable
trade and other, accrued expenses and other liabilities, notes payable
to banks, and current installments of long-term debt approximated fair
value at December 31, 1997 because of the short maturity of these
instruments. The carrying value of debt and notes receivable
approximated fair value at December 31, 1997 based upon the present
value of estimated future cash flows.
(8) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
---- ----
<S> <C> <C>
Installment notes payable in monthly installments through 2002, bearing
interest at a weighted average rate of 9.2 percent and secured by
equipment with a carrying value
of approximately $12,416,000 $9,560,625 $6,943,967
Notes and mortgages payable in installments through 2003, bearing
interest at 8.0 to 10.8 percent and secured by equipment and real
property with a carrying value
of approximately $4,201,000 3,452,557 4,027,166
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
DECEMBER 31,
----------------------------
1997 1996
---- ----
<S> <C> <C>
Obligation arising from an acquisition,
payable in monthly installments
through 1998, discounted at 10.0 percent 200,683 375,895
Unsecured notes payable due through 2002,
bearing interest at a weighted average
rate of 8.1 percent 1,547,201 1,013,838
Unsecured note payable to the Company's President, $800,000 due on
demand and balance due January 1, 1999 and bearing
interest at the prime interest rate 6,294,982 5,397,561
Note payable to bank under a $400,000 revolving line of credit, due on
demand, secured by a certificate of deposit and
bearing interest at the prime interest rate - 400,000
Note payable to a bank under a $1,000,000 revolving line of credit,
matured in June 1997, bearing interest at 0.5 percent over
the prime interest rate - 1,000
Note payable to a bank under a $500,000
unsecured overdraft facility due on demand,
bearing interest at 14.0 percent 384,473 -
Bank term loan of $6,000,000 due in monthly installments from December
1996 through November 2002 and bearing interest at 1.0 percent over the
prime interest rate. Secured by notes receivable from the Government of
Antigua and real property and equipment with a net carrying value of
approximately $7,309,000 4,916,658 5,916,668
----------- -----------
Total debt outstanding $26,357,179 $24,076,095
=========== ===========
</TABLE>
The effective interest on all debt outstanding was 10.6 percent at
December 31, 1997 and 10.4 percent at December 31, 1996.
42
<PAGE>
<TABLE>
<CAPTION>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Shown in the consolidated balance sheets under the following captions:
DECEMBER 31,
----------------------------
1997 1996
---- ----
<S> <C> <C>
Current installments of long-term debt $ 8,990,968 $ 4,424,726
Notes payable to banks 384,473 400,000
Long-term debt 16,981,738 19,251,369
----------- -----------
$26,357,179 $24,076,095
=========== ===========
</TABLE>
The total maturities of long-term debt, subsequent to December 31, 1997
are as follows:
1998 $ 9,375,442
1999 9,424,505
2000 3,488,088
2001 2,269,583
2002 1,185,363
Thereafter 614,198
-----------
$26,357,179
In 1998, the Company sold a marina in the United States Virgin Islands
and repaid its associated debt of approximately $3.0 million. The
Company is in violation of certain loan covenants for the bank term
loan as of December 31, 1997. The bank has agreed to waive the
violations of the loan covenants, as long as the Company is current in
its loan payments.
(9) INCOME TAXES
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
1997:
Federal $ - $ (35,081) $(35,081)
State - - -
Foreign 402,619 (60,528) 342,091
-------- --------- --------
$402,619 $ (95,609) $307,010
======== ========= ========
1996:
Federal $ - $ - $ -
State - - -
Foreign 539,668 (156,579) 383,089
-------- --------- --------
$539,668 $(156,579) $383,089
======== ========= ========
1995:
Federal $ 5,000 $ - $ 5,000
State - - -
Foreign 917,373 (777,021) 140,352
-------- --------- --------
$922,373 $(777,021) $145,352
======== ========= ========
</TABLE>
43
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The significant components of deferred income tax benefit attributable
to income or loss from continuing operations for the years ended
December 31, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Deferred income tax
(benefit)expense $ (2,354,695) 364,000 $2,342,000
Increase (decrease) in
valuation allowance for
deferred tax assets 2,259,086 (520,579) (3,119,021)
---------- ---------- ----------
$ ( 95,609) $ (156,579) $ (777,021)
============ ---------- ----------
</TABLE>
The actual expense differs from the "expected" tax expense computed by
applying the U.S. Federal corporate income tax rate to earnings before
income taxes as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Computed "expected"
tax (benefit) expense $(4,594,000) $402,600 $ (934,000)
Increase (reduction) in income taxes resulting from:
Tax incentives granted to a subsidiary in U.S.
possession - (94,000) -
Tax incentives granted
to foreign subsidiaries (629,000) (1,097,000) (1,208,000)
Change in deferred tax
valuation allowance 2,259,086 (520,579) -
Net operating losses not
utilized 3,466,235 1,648,979 2,294,000
Other (195,311) 43,089 (6,648)
---------- ---------- ----------
$ 307,010 $ 383,089 $ 145,352
=========== ========== ==========
</TABLE>
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes, and (b) net operating loss carryforwards.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1997 are presented below:
44
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 7,861,345 $ 6,024,000
Other 702,350 -
----------- -----------
Total gross deferred tax assets 8,563,695 6,024,000
Less valuation allowances (5,873,486) (3,614,400)
----------- -----------
Net deferred tax assets 2,690,209 2,409,600
Deferred tax liabilities:
Plant and equipment, principally due
to differences in depreciation and
capitalized interest (2,690,000) (2,458,000)
Investments in joint ventures,
principally due to differences in
recording the investment between
book and tax (400,000) (447,000)
----------- -----------
Total gross deferred tax liabilities (3,090,000) (2,905,000)
Net deferred tax liabilities $ (399,791) $ (495,400)
=========== ===========
</TABLE>
The valuation allowance for deferred tax assets as of December 31, 1997
was $5.9 million. The valuation allowance was established at
approximately 70 percent of the potential deferred tax benefit as the
Company believes it can utilize net operating losses via partial
repatriation of foreign subsidiary earnings.
In April 1988, the U.S. Virgin Islands Industrial Development
Commission (IDC) granted a subsidiary of the Company a 10-year tax
exemption expiring in April 1998, pursuant to which, and subject to
certain conditions and exceptions, the Company's (i) production and
sale of ready-mix concrete; (ii) production and sale of concrete block
on St. Thomas and St. Johns and outside of the U.S. Virgin Islands;
(iii) production and sale of sand and aggregate; and (iv) bagging of
cement from imported bulk cement, are 100 percent exempt from all
United States Virgin Islands real property, gross receipts (currently
set at 4.0 percent) and excise taxes, 90.0 percent exempt from United
States Virgin Islands income taxes, and approximately 83 percent exempt
from United States Virgin Islands customs duties. The IDC granted the
Company the tax exemption in return for the Company's commitment to:
(i) make capital expenditures of at least $4.6 million for new or
replacement equipment over a 10-year period; (ii) employ a minimum of
142 United States Virgin Islands residents as full-time personnel;
(iii) spend at least $75,000 annually for a youth-training program;
(iv) not increase the price of its concrete and related products,
except as the result of certain direct cost increases incurred by the
Company over which it has no control; and (v) make an annual
scholarship fund contribution of $150,000.
45
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In January 1994, the Company received a five-year extension, through
April 2003, of its previously granted benefits. This extension was
granted in return for the Company agreeing to: (i) continue to employ a
minimum of 160 United States Virgin Islands residents as full time
personnel; (ii) make additional capital expenditures of $1.7 million;
and (iii) continue to make a combined job training/scholarship
contribution of $225,000 per annum during the extension period. The
Company believes it is in compliance with all the requirements of these
programs.
In partial consideration for the Company's work on a major contract,
the Government of Antigua granted two subsidiaries of the Company a
10-year tax holiday effective January 1, 1987 and expired on December
31, 1996 from all taxes due (i) in connection with the Company's
construction contract with Antigua to, among other things, dredge St.
John's harbor, (ii) as a result of the Company's participation in a
joint venture to develop 230 acres of vacant land as well as 20,000
square feet of commercial property in Antigua; and (iii) in connection
with the Company's sale of concrete and related products in Antigua.
The tax holiday also exempted the Company from certain accrued tax
liabilities. In 1989, in connection with and in consideration for
additional work done by the Company with respect to the foregoing
contract, the Government of Antigua granted an additional tax exemption
to the Company. The tax exemption exempted the Company from taxes that
would otherwise result from the Company's income relating to a
construction contract in Jolly Harbor, Antigua.
At December 31, 1997, approximately $33.7 million of foreign
subsidiaries earnings have not been distributed and no U.S. income
taxes have been provided thereon as these earnings are considered
permanently reinvested in the subsidiaries' operations, and in the year
earned, were not of the nature which would require current income tax
recognition under United States income tax laws. Should the foreign
subsidiaries distribute these earnings to the parent company or provide
the parent company access to these earnings through other means, taxes
at the U.S. Federal tax rate, net of foreign tax credits, may be
incurred.
At December 31, 1997, the Company had accumulated net operating loss
carryforwards available to offset future taxable income in their
Caribbean and United States operations of approximately $20.8 million,
which expire in varying periods through the year ended December 31,
2006.
(10) DISCONTINUED OPERATIONS
In September 1989, a subsidiary of the Company obtained a minority
interest in a partnership engaged in the manufacture, sale and
distribution of acoustical ceiling tiles. The subsidiary invested
approximately $1.2 million in the partnership for a 29.0 percent
interest and two of the Company's directors obtained an 11.0 percent
interest for which they paid $450,000. In January 1994, an Antiguan
subsidiary of the Company became the new general partner and the
Company's ownership interest in the partnership was increased to 64.5
percent. The directors' ownership interest was reduced to 6.5 percent.
In November 1995 the Company decided to sell this operation because of
its poor operating
46
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
results and uncertain prospects for improvement. Accordingly, at
December 31, 1995, the intended disposal was accounted for as a
discontinued operation. The consolidated financial statements for all
prior periods were presented restated to reflect the ceiling tile
partnership as a discontinued operation. The Company's investment in
the partnership was written down $800,000, to its estimated net
realizable value of approximately $749,000, which consists principally
of property, equipment and inventory with a net book value of
approximately $1.4 million, along with debt of approximately $621,000.
The Company provided no reserve for anticipated losses during the
phase-out period and recognized no income tax benefit on the loss from
discontinued operations. The Company sold its interest in the ceiling
tile business in September 1996 in exchange for one secured promissory
note in the amount of $600,000 and one unsecured promissory note in the
amount of $385,000 and took an additional loss on disposal of
approximately $488,000 at December 31, 1996. The outstanding amounts of
the two notes as of December 31, 1997, were $600,000 and $216,000,
respectively.
(11) FOREIGN SUBSIDIARIES
Summary combined financial information for the Company's foreign
subsidiaries, located in the Caribbean, except for those located in the
U.S. Virgin Islands and Puerto Rico are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
---- ----
<S> <C> <C>
Current assets $12,208,735 $14,707,914
Advances to the Company (7,380,516) (3,821,952)
Property, plant and equipment, net 19,160,861 22,144,913
Investment in joint ventures and
affiliates, net 654,126 1,158,233
Notes receivable, net 13,556,730 15,923,419
Other assets 1,502,820 1,432,475
----------- -----------
Total assets $39,702,756 $51,545,002
=========== ===========
Current liabilities $ 5,271,958 $ 4,453,492
Long-term debt 2,944,665 1,916,966
Equity 31,486,133 45,174,544
----------- -----------
Total liabilities and equity $39,702,756 $51,545,002
=========== ===========
</TABLE>
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenue $39,979,868 $36,474,931 $29,858,843
Expenses 43,140,338 34,283,074 27,955,868
----------- ----------- -----------
Net (loss) earnings $(3,160,470) $ 2,191,857 $ 1,902,975
=========== =========== ===========
</TABLE>
47
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) LEASE COMMITMENTS
The Company leases real property, buildings and equipment under
operating leases that expire over one to fifty-five years. Future
minimum lease payments under noncancellable operating leases as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
------------
<S> <C>
Years ending December 31,
1998 $ 3,680,338
1999 3,687,107
2000 3,546,138
2001 1,335,253
2002 1,175,431
Thereafter 10,788,292
-----------
Total minimum lease payments $24,212,559
===========
</TABLE>
Total rent expense for operating leases was $4,083,000 in 1997,
$1,843,719 1996 and $1,147,041 in 1995. Some operating leases have
provisions for contingent rentals or royalties based on related sales
and production; such contingent expense amounted to $261,138 in 1997,
$160,433 in 1996 and $63,575 in 1995. Included in the above minimum
lease commitments are royalty payments due to the owners of the Societe
des Carrieres de Grand Case (SCGC) quarry. See Note 18.
During November 1997, the Company sold its leasehold right on a long
term land lease with the Dutch government of St. Maarten. In connection
with this transaction the Company recorded a loss on disposition of
leasehold of approximately $240,000. The operating land lease was
revised so that the property will be vacated by mid-1998.
On February 3, 1998, the Company sold its property holdings at Crown
Bay Marina on St. Thomas, U.S. Virgin Islands for $3.3 million which
approximated net book value and related costs of disposition. The
proceeds from the sale were utilized to repay debt on the property of
approximately $3.0 million. The related long term operating lease was
transferred by assignment to the new owner of Crown Bay Marina.
(13) LINES OF BUSINESS
The Company operates primarily in two principal lines of business.
Information about the Company's operations in these different
industries are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues:
Concrete and related
products $ 51,460,632 $52,987,242 $ 37,716,253
Contracting 9,851,776 13,981,732 16,068,283
Other 2,931,343 2,509,395 2,366,926
------------ ----------- ------------
Total $ 64,243,751 $69,478,369 $ 56,151,462
============ =========== ============
</TABLE>
48
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating (loss) income:
Concrete and related
products $ (4,322,497) $ 4,864,592 $ 1,252,108
Contracting (3,501,538) (1,093,272) (569,224)
Other 433,976 415,967 409,550
Unallocated corporate
overhead (5,188,000) (716,000) (818,000)
------------- ----------- ------------
Total $(12,578,059) $ 3,471,287 $ 274,434
============ =========== ============
Identifiable assets:
Concrete and related
products $ 54,648,778 $59,977,843 $ 54,870,922
Contracting 12,652,785 12,729,631 17,546,377
Other 19,131,697 22,218,666 24,895,341
------------ ----------- ------------
Total $ 86,433,260 $94,926,140 $ 97,312,640
============ =========== ============
Depreciation and
amortization:
Concrete and related
products $ 4,446,488 $ 3,889,666 $ 3,187,278
Contracting 1,426,563 1,261,863 1,257,950
Other 270,675 269,654 269,026
------------ ----------- ------------
Total $ 6,143,726 $ 5,421,183 $ 4,714,254
============ =========== ============
Capital expenditures:
Concrete and related
products $ 6,883,182 $ 5,539,134 $ 3,484,749
Contracting 1,619,025 1,072,683 2,764,334
Other 32,311 32,000 -
----------- ----------- ------------
Total $ 8,534,518 $ 6,643,817 $ 6,249,083
=========== =========== ============
</TABLE>
Revenues by line of business include only sales to unaffiliated
customers, as reported in the Company's consolidated statements of
operations.
The note receivable from the Government of Antigua and Barbuda is
included in identifiable assets, other.
Operating income (loss) is revenues less operating expenses. In
computing operating income (loss), the following items have not been
added or deducted: interest expense, income tax expense, equity in
earnings from unconsolidated joint ventures and affiliates, interest
and other income, minority interest and gain or loss on sales of
equipment.
49
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) RELATED PARTY TRANSACTIONS
The Company leases a 4.4 acre parcel of real property from the
Company's President, pursuant to which he received approximately
$49,000 in annual rent in 1997, 1996, and 1995.
At December 31, 1997, the Company has borrowed approximately $6.3
million from the Company's President. The note is unsecured and bears
interest at the prime interest rate. Eight hundred thousand is due on
demand and $5.5 million is due on January 1, 1999. The President has
the option to make the note due on demand should a "Change of Control"
occur. A Change of Control has occurred if a person or group acquires
15 percent or more of the common stock or announces a tender offer, the
consummation of which would result in ownership by a person or group of
15 percent or more of the common stock. The Company repaid $700,000 of
the principal to the President in the first quarter of 1998. See Note
8.
During 1997 the Company invested $123,000 for a 7 percent interest in a
real estate joint venture in which the President and one Board member
of the Company also participates with equity of 21 percent and 6
percent, respectively.
Other assets include amounts due from certain officers and employees as
a result of payments made by the Company pursuant to a split-dollar
life insurance plan. The Company's advances to pay premiums are secured
by a pledge of the cash value of the issued policies. Amounts due the
Company under the split-dollar life insurance plan amounted to $583,000
and $493,000 in 1997 and 1996, respectively.
(15) STOCK OPTION PLANS
The Company adopted stock option plans for officers and employees in
1986 (the "1986 Plan") and 1992 (the "1992 Plan"). Each plan terminates
ten years after the adoption date. Until 1996 and 2002, respectively,
options to acquire up to 300,000 and 350,000 shares, respectively, of
common stock may be granted to officers and employees of the Company at
no less than the fair market value on the date of grant.
All stock options granted pursuant to the 1986 Plan not already
exercisable vest and become fully exercisable (i) on the date the
Optionee reaches the age of 65 years old and for the six-month period
thereafter or as otherwise modified by the Company's Board of
Directors, (ii) on the date of permanent disability of the Optionee and
for the six-month period thereafter, (iii) on the date of a change of
control and for the six-month period thereafter, and (iv) on the date
of termination of the Optionee by the Company from employment with the
Company without cause and for the six-month period after termination.
All stock options granted pursuant to the 1992 Plan vest and become
exercisable in varying terms and periods which are established by the
Compensation Committee of the Board of Directors. All options issued
pursuant to the 1992 Plan expire ten years after the date of issue.
50
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company adopted a stock-option plan for directors in 1992 (the
"1992 Directors' Plan"). This plan terminates in 2002. Options to
acquire up to 50,000 shares of common stock may be granted to directors
at no less than the fair-market value on the date of grant. The 1992
Directors' Plan provides that each director shall receive an initial
grant of 8,000 shares and be granted an additional 1,000 shares
annually immediately subsequent to their reelection as a director of
the Company. All stock options have ten-year terms, vest and become
fully exercisable six months after the date of issue.
Stock option activity for all plans during the periods indicated is as
follows:
<TABLE>
<CAPTION>
1986 PLAN 1992 PLAN DIRECTORS PLAN
------------------ ---------------- ---------------
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------
(All exercise prices rounded to the nearest dollar)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
12/31/94 203,380 $2 to $7 40,000 $10 30,000 $6 to $14
Granted - - 210,000 $7 3,000 $8
Exercised - - - - - -
Expired - - - - - -
------- ------- -------
Balance at
12/31/95 203,380 $2 to $7 250,000 $7 to $10 33,000 $6 to $14
Granted - - 30,000 $8 10,000 $9
Exercised (34,425) $2 - - - -
Expired - - - - (11,000) $6 to $14
------ ------- -------
Balance at
12/31/96 168,955 $2 to $7 280,000 $7 to $10 32,000 $6 to $14
Granted - - 30,000 $5 3,000 $5
Exercised - - - - -
Expired (9,180) - (74,000) - -
------- ------- ----
Balance at
12/31/97 159,775 $2 to $7 236,000 $5 to $10 35,000 $5 to $14
======= ======= =======
Exercisable 118,725 94,000 35,000
======= ======= =======
Available for
future grant -0- 114,000 15,000
======= ======= =======
</TABLE>
The per-share weighted-average fair value of stock options granted
during 1997, 1996 and 1995 was $2.46, $4.30 and $3.39, respectively, on
the date of grant using the Black Scholes option-pricing model with the
following assumptions:
1997 1996 1995
---- ---- ----
Expected dividend yield - - -
Expected price volatility 21.4% 18.1% 11.7%
Risk-free interest rate 5.7% 7.0% 7.0%
Expected life of options 10 years 10 years 10 years
51
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company applies APB Opinion No. 25 in accounting for its plan and,
accordingly, no compensation cost has been recognized for its stock
options in the consolidated financial statements. Had the Company
determined compensation costs based on the fair value at the grant date
for its stock options under SFAS No. 123, the Company's net income or
loss would have been the pro forma amounts indicated below:
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net (loss) income,
as reported $(15,536,023) $312,888 $(2,746,503)
Net (loss) income,
pro forma $(15,651,524) $189,164 $(2,754,185)
Basic (loss) earnings
per share from
continuing operations,
as reported $ (3.45) $ .18 $ (.41)
=========== ======== =========
Basic (loss) earnings
per share from
continuing operations,
pro forma $ (3.48) $ .15 $ (.42)
=========== ======== =========
</TABLE>
Pro forma net (loss) income reflects only options granted in 1996, 1995
and 1994. The full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net (loss)
income amounts presented above because compensation cost is reflected
over the options' vesting period of five years and compensation cost
for options granted prior to January 1, 1994 is not considered.
(16) EMPLOYEE BENEFIT PLANS
The Company sponsors a 401(k) plan for certain employees over the age
of 21 with 1,000 hours of service in the previous 12 months of
employment. Employee contributions are matched by the Company up to 3.0
percent of an employee's salary. The Company's contributions totaled
$148,183 in 1997, $148,758 in 1996 and $129,518 in 1995.
(17) COSTS AND ESTIMATED EARNINGS ON CONTRACTS
<TABLE>
<CAPTION>
DECEMBER, 31
---------------------------
1997 1996
---- ----
<S> <C> <C>
Costs incurred on uncompleted
contracts $ 6,561,759 $ 22,764,409
Costs incurred on completed
contracts 79,576,661 65,279,390
Estimated earnings 17,499,392 16,851,270
------------ ------------
103,637,812 104,895,069
Less: Billings to date (103,445,513) (101,882,861)
------------ ------------
$ 192,299 $ 3,012,208
============ ============
</TABLE>
52
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Included in the accompanying consolidated balance sheets under the
following captions:
<TABLE>
DECEMBER 31
------------------------------
1997 1996
---- ----
<S> <C> <C>
Costs in excess of billings
and estimated earnings $ 329,707 $ 3,124,860
Billings in excess of costs
and estimated earnings (137,408) (112,652)
------------ ------------
$ 192,299 $ 3,012,208
============ ============
</TABLE>
(18) COMMITMENTS AND CONTINGENCIES
The Company believes it is entitled to additional compensation on a
Florida construction project and is pursuing a claim of approximately
$4.0 million against the owner of the property. Included in this claim,
the Company has an account receivable of approximately $1.3 million
from the owner of the project. Management does not believe any reserves
are required for the account receivable. While the Company believes it
has a meritorious claim, there is no assurance that the claim will be
settled on a basis favorable to the Company. No income or loss on this
contract was recorded in 1997, 1996 or 1995.
The Company has contingent obligations and has made certain guarantees
in connection with acquisitions, its participation in certain joint
ventures, certain employee and construction bonding matters and its
receipt of a tax exemption. As part of the 1995 acquisition of Societe
des Carrieres de Grand Case ("SCGC"), a French company operating a
ready-mix concrete plant and quarry in St. Martin, the Company agreed
to pay the quarry owners (who were also the owners of SCGC), a royalty
payment of $550,000 per year through August 2000, which at the
Company's option, may be renewed for two successive five-year periods
and requires annual payments of $550,000 per year. At the end of the
fifteen-year royalty period, the Company has the option to purchase a
50-hectare parcel of property for $4.4 million.
In 1989, the Company entered into a new Life Insurance and Salary
Continuation Agreement with the President of the Company. The agreement
provides that should the President cease to be employed by the Company
as a result of disablement or death, the Company shall pay an amount
equal to his salary and bonus for a period of five years to the
President or his designated beneficiary. The Company has not accrued
for the salary continuation over the expected remaining period of the
President's active employment as the agreement does not provide for
payment upon retirement; therefore, based on present facts and
circumstances, future payments, if any, are not determinable at this
date.
In 1992, Fore Golf, Inc. filed suit against the Company in the Ninth
Judicial Circuit in and for Orange County, Florida, Case No.
CI-92-5289. In this case, the Company was sued by a subcontractor, Fore
Golf, Inc. for work which Fore Golf, Inc. allegedly performed in
connection with the construction of two golf courses at Walt Disney
World in Orlando, Florida, from approximately September 1990 through
September 1991, the alleged unpaid contract balance in connection with
this project and inefficiency
53
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
costs. In June 1997, an order was issued by the Circuit Court of the
Ninth Judicial Circuit establishing liability and damages against the
Company. The Court entered a final judgment in favor of the plaintiff
for damages and prejudgment interest. Subsequently, the trial court
also awarded the plaintiff attorneys' fees. The Company accrued a total
of $4.5 million, included in other liabilities, in the second quarter
to reflect the total estimated costs to be incurred should the Company
not be successful in its post trial and appeal efforts. The Company has
posted a bond for the damages, prejudgement interest and plaintiff's
attorneys' fees. This bond is personally guaranteed by the Company's
President. Management believes that it has appellate issues of merit
and is pursuing remedies through the appellate court system. An
appellate brief was submitted in February 1998.
In the late 1980's, Bouwbedrijf Boven Winden, N.V. ("BBW") currently a
subsidiary of Devcon International Corp., supplied concrete to a large
apartment complex on the French side of St. Maarten. At some point in
the early 1990's the buildings began to develop exterior cracking and
"popouts." In November 1993, BBW was named a defendant, among others,
including the building's insurer, in a suit filed by the plaintiff,
Syndicat des Coproprietaires la Residence Le Flamboyant (condominium
owners association of Le Flamboyant), in the French court "Tribunal de
Grande Instance de Paris" with case No. 510082/93. A French court
assigned an expert to examine the cause of the cracking and popouts. In
particular, the expert is to determine if the cracking/popouts are
caused by a phenomenon known as alkali reaction (ARS). The plaintiff is
seeking unspecified damages, including demolition and replacement of
the 272 apartments. It is too early to predict the outcome of this
matter. Management believes the Company's defenses to be meritorious
and does not believe that the outcome will have a material adverse
effect on the consolidated financial position, results of operations or
cash flows of the Company.
The Company is involved in other litigation and claims arising in the
normal course of business. The Company believes that such litigation
and claims will be resolved without a material adverse effect on its
consolidated financial position or results of operations.
The Company is subject to certain Federal, state and local
environmental laws and regulations. Management believes that the
Company is in compliance with all such laws and regulations. Compliance
with environmental protection laws has not had a material adverse
impact on the Company's consolidated financial condition or results of
operations in the past and is not expected to have a material adverse
impact in the foreseeable future.
In connection with a land development contract with the Government of
Antigua and as partial consideration therefore, the Company obtained a
75.0 percent interest in a corporation formed to own and develop approx
imately 230 acres of real property in Antigua (the "Corbkinnon
Property"). In 1990, the Company sold a portion of its 75.0 percent
interest in the Corbkinnon Property for $500,000 and the buyer's
commitment to provide 50.0 percent of the financing required to develop
the project. The
54
<PAGE>
DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Company agreed to provide the first $500,000 of financing and provide a
guarantee for 50.0 percent of all additional financing required, which
has not been required.
The Company sold substantially all of its interest in a real estate
joint venture with the Government of Antigua and Barbuda to a third
party in 1990. In connection with this sale, the third-party purchaser
assumed the Company's guarantee of payment to the Government of Antigua
and Barbuda made upon the formation of the joint venture. This
guarantee, which would become an obligation of the Company in the event
of a default by the purchaser, provides a guarantee that net profits
from the joint venture's operations will equal or exceed $20,000 per
month. No liability has been incurred by the Company nor have payments
been made by the Company or the purchaser in connection with this
guarantee. The guarantee expires upon the sale or disposal by the
venture of its real estate. There are no current plans to sell or
dispose of any of the venture's property.
(19) BUSINESS AND CREDIT CONCENTRATIONS
The Company's customers are concentrated in the Caribbean and are
primarily involved in the contracting industry. Credit risk may be
affected by the economic and political conditions in the various
countries in which the Company operates. Financial instruments which
potentially expose the Company to concentrations of credit risk consist
primarily of receivables and costs in excess of billings and estimated
earnings. No single customer accounted for a significant amount of the
Company's sales in 1997, 1996 or 1995 and there are no significant
receivables from a single customer as of December 31, 1997 or 1996,
other than the notes receivable due from the Government of Antigua and
Barbuda. Although receivables are generally not collateralized, the
Company may place liens or their equivalent in certain jurisdictions in
the event of nonpayment. The Company estimates an allowance for
doubtful accounts based on the creditworthiness of customers as well as
the general economic conditions of the countries in which it operates.
Consequently, an adverse change in these factors would affect the
Company's estimate of its bad debts.
The Company's ability to produce its own sand gives it a competitive
advantage because of the substantial investment required to produce
sand, the difficulty in obtaining the necessary environmental permits
to establish quarries and the moratorium on mining beach sand imposed
by most Caribbean countries. If the Company is unable to produce its
own sand, the Company's consolidated financial position, results of
operations, or cash flows could be adversely affected.
(20) FOURTH QUARTER ADJUSTMENTS
The fourth quarter of 1997 included charges related to a $1.6 million
adjustment based upon the annual physical inventories, a $2.4 million
impairment loss on long-lived assets due to lower volumes in 1997, and
a $2.6 million increase in the allowance for doubtful accounts and
notes. It is not practical to determine the impact of these
adjustments, if any, on previously reported quarters.
55
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The Company has had no changes in or disagreements with its independent
certified public accountants on accounting and financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information with respect to the directors and executive officers of
the Company is incorporated by reference to the Company's Proxy
Statement to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A not later than 120 days after the end of the
fiscal year covered by this report. Information as to executive
officers is included in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION.
The information required in response to this item is incorporated by
reference to the Company's Proxy Statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A not later
than 120 days after the end of the fiscal year covered by this report.
The information included in the proxy statement pursuant to Rule
402(i), (k) and (l) is not incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required in response to this item is incorporated by
reference to the Company's Proxy Statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A not later
than 120 days after the end of the fiscal year covered by this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required in response to this item is incorporated by
reference to the Company's Proxy Statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A not later
than 120 days after the end of the fiscal year covered by this report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
FORM 8-K.
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements.
An index to consolidated financial statements for the year ended
December 31, 1996 appears on pages 23 and 56.
(2) Financial Statement Schedule.
The following financial statement schedule for each of the years in the
three-year period ended December 31, 1997 is submitted herewith:
<TABLE>
<CAPTION>
FORM 10-K
(PAGE NUMBER(S)
---------------
ITEM
----
<S> <C>
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts...................................... 61
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
All other financial schedules are omitted because they are not
required, inapplicable, or the information is otherwise shown in the
consolidated financial statements or notes thereto.
(3) Exhibits.
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
3.1 Registrant's Restated Articles of Incorporation (1)(3.1)
3.2 Registrant's Amended and Restated Bylaws (3.2) (15)
10.1 Registrant's 1986 Non-Qualified Stock Option Plan (3)(10.1)
10.2 Registrant's 1992 Stock Option Plan (10)(A)
10.3 Registrant's 1992 Directors' Stock Option Plan (10)(B)
10.4 V. I. Cement and Building Products Inc. 401(k) Retirement and Savings
Plan (14)
10.5 Life Insurance and Salary Continuation Agreement dated as of March 29,
1989, between the Registrant and Donald L. Smith, Jr.(5)(10.13)
10.6 Form of Indemnification Agreement between the Registrant, and its
directors and certain of its officers(6)(A)
10.7 St. John's Dredging and Deep Water Pier Construction Agreement dated as
of April 3, 1987, by and between Antigua and Barbuda and Antigua Masonry
Products, Limited (the "Set. Johns Agreement") (6)(10.1)
10.8 Amendment No. 1 to the St. John's Agreement dated June 15, 1988(7)(10.2)
10.9 Amendment No. 2 to the St. John's Agreement dated December 7, 1988 (9)
(10.34)
10.10 Amendment No. 3 to the St. John's Agreement dated January 23, 1989 (9)
(10.35)
10.11 Amendment No. 4 to the St. John's Agreement dated April 5, 1989 (9)
(10.36)
10.12 Amendment No. 5 to the St. John's Agreement dated January 29, 1991 (9)
(10.37)
10.13 Amendment No. 6 to the St. Johns Agreement dated November 30, 1993 (12)
(10.39)
10.14 Amendment No. 7 to the St. John's Agreement, dated December 21, 1994
(14)
10.15 Amendment No. 8 to the St. John's Agreement, dated October 23, 1996 (14)
10.16 Dredging, Filling and Other Land Improvements Agreement by and between
Jolly Harbour Ltd. (Vaduz, Liechtenstein), Antigua Development and
Construction, Limited, and the Registrant(4)(10.1)
10.17 Mortgage Note dated June 12, 1989 of Crown Bay Marina Joint Venture-I to
Banco Popular de Puerto Rico for $5,000,000 (7)(10.5)
10.18 Guarantee dated June 12, 1989, from the Registrant to Banco Popular de
Puerto Rico(7)(10.6)10.17
10.19 Lease dated October 31, 1989, between William G. Clarenbach and
Pricilla E. Clarenbach, as lessors, and Controlled Concrete
Products, Inc., as lessee (1)(10.26)
10.20 Lease dated April 13, 1981, between Mariano Lima and Genevieve Lima,
as lessors, and the Registrant, as lessee(1)(10.28)
10.21 Lease dated May 23, 1983, between the Government of the Virgin Islands,
as lessor, and Controlled Concrete Products, Inc. as lessee(1)(10.29)
10.22 Lease dated February 24, 1989, between Felix Pitterson, as lessor, and
V.I. Cement and Building Products, Inc., as lessee(1)(10.30)
10.23 Lease dated September 1, 1989, between Donald L. Smith, Jr., as lessor,
and the Registrant, as lessee(1)(10.31)
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.24 Lease dated September 12, 1966, between His Honour Hugh Burrowes, a
Commander of the British Empire of Government House in the Island of
Antigua, as lessor, and The Antigua Sand and Aggregate Limited, as
lessee(1)(10.32)
10.25 Stock Purchase Agreement, dated April 18, 1990, by and between B.B.W.
Holding Corporation Limited ("BBW Holding") and Proar Construction
Materials Company N.V. ("Proar Construction") (8)(2.1)
10.26 Incentive Agreement, dated April 18, 1990, by and among BBW Holding,
Proar Construction, Bouwbedrijf Boven Winden N.V., Cramer Construction
N.V. and Caribbean Heavy Construction Company Limited (8)(28.1)
10.27 Agreement, dated April 18, 1990, by and between Mr. Richard Lawrence,
Sr. and the Registrant (8)(28.2)
10.28 Notes receivable from Red Pond Estates, N.V. in the principal sums of
$242,516, $139,478 and $167,740, respectively (11) (10.41)
10.29 Material Purchase Agreement, dated August 17, 1995, between Bouwbedrijf
Boven Winden, N.V. and Hubert Petit, Francois Petit and Michel Petit
(13) (10.41)
10.30 Stock Purchase Agreement, dated August 17, 1995, between the Registrant
and Hubert Petit, Francois Petit and Michel Petit (13)(10.42)
10.31 Loan Agreement dated November 12, 1996 between V. I. Cement and Building
Products, Inc. and Banco Popular de Puerto Rico (14)
10.32 $6,000,000 Installment Note dated November 12, 1996 between V. I. Cement
and Building Products, Inc. and Banco Popular de Puerto Rico (14)
10.33 $1,000,000 Promissory Note dated November 12, 1996 between V. I. Cement
and Building Products, Inc. and Banco Popular de Puerto Rico (14)
10.34 Time Charter Agreement, dated October 28, 1996, between Caribbean Cement
Carriers, Ltd. and Kristian Gerhard Jebsen Skibsrederi A/S (14)
10.35 Loan Agreement, dated June 30, 1993, between the Registrant and Barnett
Bank of South Florida (12) (10.44)
10.36 Standstill Agreement, dated February 26, 1997, between the Registrant
and Barnett Bank, N.A. (14)
10.37 Purchase and Sale Agreement by and between Devcon Crown Bay Corp. and
Crown Bay Marina Joint Venture I and Koben Capital Partners, Inc. (15)
21.1 Registrant's Subsidiaries (14)
23.1 Consent of KPMG Peat Marwick, LLP (15)
27.1 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to the exhibit shown in parenthesis and
filed with the Registrant's Registration statement on Form S-2 (No.
33-31107).
(2) Incorporated by reference to the exhibit shown in the parenthesis
and filed with the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1989.
(3) Incorporated by reference to the exhibit shown in the parenthesis
and filed with the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1987 (the "1987 10-K").
(4) Incorporated by reference to the exhibit shown in the parenthesis
and filed with the Registrant's Form 8 dated July 14, 1988 to the
1987 10-K.
(5) Incorporated by reference to the exhibit shown in the parenthesis
and filed with the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1988 (the "1988 10-K").
(6) Incorporated by reference to the exhibit shown in parenthesis and
filed with the Registrant's Proxy Statement dated May 30, 1989.
(7) Incorporated by reference to the exhibit shown in parenthesis and
filed with the Registrant's Form 8 dated August 17, 1989 to the 1988
10-K.
(8) Incorporated by reference to the exhibit shown in parenthesis and
filed with Registrant's Current Report on Form 8-K dated May 2,
1990.
58
<PAGE>
(9) Incorporated by reference to the exhibit showing in parenthesis and
filed with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1991.
(10) Incorporated by reference to the exhibit showing in parenthesis and
filed with the Registrant's Proxy Statement dated May 6, 1992.
(11) Incorporated by reference to the exhibit showing in parenthesis and
filed with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1992.
(12) Incorporated by reference to the exhibit showing in parenthesis and
filed with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993.
(13) Incorporated by reference to the exhibit showing in parenthesis and
filed with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995.
(14) Incorporated by reference to the exhibit showing in parenthesis and
filed with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996.
(15) Filed herewith.
Management employee contracts, compensatory plans and other arrangements
included as part of the exhibits referred to above are as follows:
10.1 Registrant's 1986 Non Qualified Stock Option Plan (3) (10.1)
10.2 Registrant's 1992 Stock Option Plan (10)(A)
10.3 Registrant's 1992 Directors' Stock Option Plan (10) (B)
10.4 V. I. Cement and Building Products, Inc. 401(k) Retirement and
Savings Plan (14)
10.5 Life Insurance and Salary Continuation Agreement dated as of
March 29, 1989, between the Registrant and Donald L. Smith,
Jr.(5)(10.13)
(b) Reports on Form 8-K.
No Reports on Form 8-K were filed by the Registrant during the last quarter of
the period covered by this report.
59
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
March 27, 1998 DEVCON INTERNATIONAL CORP.
By:/S/ DONALD L. SMITH, JR.
---------------------------------
Donald L. Smith, Jr.
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
DEVCON INTERNATIONAL CORP.
March 27, 1998 By:/S/ DONALD L. SMITH, JR.
---------------------------
Donald L. Smith, Jr.
Chairman, President and
Chief Executive Officer
March 27, 1998 By:/S/ RICHARD L. HORNSBY
---------------------------
Richard L. Hornsby
Executive Vice President
and Director
March 27, 1998 By:/S/ JAN A. NORELID
---------------------------
Jan A. Norelid
Vice President of Finance,
Chief Financial Officer and
Treasurer
March 27, 1998 By:/S/ ROBERT A. STEELE
---------------------------
Robert A. Steele
Director
March 27, 1998 By:/S/ ROBERT L. KESTER
---------------------------
Robert L. Kester
Director
March 27, 1998 By:/S/ W. DOUGLAS PITTS
----------------------------
W. Douglas Pitts
Director
60
<PAGE>
<TABLE>
<CAPTION>
Schedule II
Valuation and Qualifying Accounts
ALLOWANCE FOR DOUBTFUL BALANCE AT ADDITIONS BALANCE
ACCOUNTS FOR THE YEAR BEGINNING CHARGED TO AT END
ENDED DECEMBER 31, OF YEAR EXPENSE DEDUCTIONS OF YEAR
- ---------------------- ----------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
1995 $2,669,086 $ 301,510 $ (514,195) $2,456,401
========== ========== =========== ==========
1996 $2,456,401 $ 302,863 $ 212,327 $2,971,591
========== ========== =========== ==========
1997 $2,971,591 $2,336,089 $ (322,841) $4,984,839
========== ========== =========== ==========
ALLOWANCE FOR DOUBTFUL
NOTES RECEIVABLE BALANCE AT ADDITIONS BALANCE
ACCOUNTS FOR THE YEAR BEGINNING CHARGED TO AT END
ENDED DECEMBER 31, OF YEAR EXPENSE DEDUCTIONS OF YEAR
- ---------------------- ----------- ---------- ---------- -------
1995 $ 1,884,819 $ - $ (1,047,480) $ 837,339
=========== ========== ============ ===========
1996 $ 837,339 $ - $ (724,806) $ 112,533
=========== ========== ============ ===========
1997 $ 112,533 $ 596,156 $ 104,537 $ 813,226
=========== ========== ============ ===========
</TABLE>
61
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
3.2 Registrant's Amended and Restatd Bylaws
10.37 Purchase and Sale Agreement by and between Devcon Crown Bay
Corp. and Crown Bay Marina Joint Venture I and Koben Capital
Partners, Inc.
23.1 Consent of KPMG Peat Marwick, LLP
27.1 Financial Data Schedule
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
AS OF FEBRUARY 27, 1998
OF
DEVCON INTERNATIONAL CORP.
(A FLORIDA CORPORATION)
<PAGE>
INDEX
PAGE
NUMBER
<TABLE>
<S> <C> <C>
ARTICLE ONE - Offices.................................................................1
Section 1. Registered Office..........................................1
Section 2. Other Offices..............................................1
ARTICLE TWO - MEETINGS OF SHAREHOLDERS................................................1
Section 1. Place......................................................1
Section 2. Time of Annual Meeting.....................................1
Section 3. Call of Special Meetings...................................1
Section 4. Conduct of Meetings........................................1
Section 5. Notice and Waiver of Notice................................2
Section 6. Business of Special Meeting................................2
Section 7. Quorum.....................................................2
Section 8. Required Vote..............................................3
Section 9. Voting of Shares...........................................3
Section 10. Proxies....................................................3
Section 11. Shareholder List...........................................3
Section 12. Action Without Meeting.....................................3
Section 13. Fixing Record Date.........................................3
Section 14. Inspectors and Judges......................................4
Section 15. Nominations of Director Candidates.........................4
ARTICLE THREE - DIRECTORS.............................................................5
Section 1. Number, Election and Term..................................5
Section 2. Vacancies..................................................6
Section 3. Powers.....................................................6
Section 4. Place of Meetings..........................................6
Section 5. Annual Meeting.............................................6
Section 6. Regular Meetings...........................................6
Section 7. Special Meetings and Notice................................6
Section 8. Quorum and Required Vote...................................7
Section 9. Action Without Meeting.....................................7
Section 10. Telephone Meetings.........................................7
Section 11. Committees.................................................7
Section 12. Compensation of Directors..................................8
Section 13. Chairman of the Board......................................8
-i-
<PAGE>
ARTICLE FOUR - OFFICERS...............................................................8
Section 1. Positions..................................................8
Section 2. Election of Specified Officers by Board....................8
Section 3. Election or Appointment of Other Officers..................8
Section 4. Salaries...................................................8
Section 5. Term.......................................................9
Section 6. President..................................................9
Section 7. Vice Presidents............................................9
Section 8. Secretary..................................................9
Section 9. Treasurer..................................................9
ARTICLE FIVE - CERTIFICATES FOR SHARES...............................................10
Section 1. Issue of Certificates.....................................10
Section 2. Legends for Preferences and Restrictions on Transfer......10
Section 3. Facsimile Signatures......................................11
Section 4. Lost Certificates.........................................11
Section 5. Transfer of Shares........................................11
Section 6. Registered Shareholders...................................11
Section 7. Redemption of Control Shares..............................11
ARTICLE SIX - GENERAL PROVISIONS.....................................................12
Section 1. Dividends.................................................12
Section 2. Reserves..................................................12
Section 3. Checks....................................................12
Section 4. Fiscal Year...............................................12
Section 5. Seal......................................................12
ARTICLE SEVEN - AMENDMENTS OF BYLAWS.................................................12
</TABLE>
-ii-
<PAGE>
DEVCON INTERNATIONAL CORP.
AMENDED AND RESTATED
BYLAWS
AS OF FEBRUARY 27, 1998
ARTICLE ONE ONE
OFFICES
Section 1. REGISTERED OFFICE. The registered office of DEVCON
INTERNATIONAL CORP., a Florida corporation (the "Corporation"), shall be located
in the City of Deerfield Beach, State of Florida.
Section 2. OTHER OFFICES. The Corporation may also have offices at
such other places, either within or without the State of Florida, as the Board
of Directors of the Corporation (the "Board of Directors") may from time to time
determine or as the business of the Corporation may require.
ARTICLE TWO
MEETINGS OF SHAREHOLDERS
Section 1. PLACE. All annual meetings of shareholders shall be held
at such place, within or without the State of Florida, as may be designated by
the Board of Directors and stated in the notice of the meeting or in a duly
executed waiver of notice thereof. Special meetings of shareholders may be held
at such place, within or without the State of Florida, and at such time as shall
be stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2. TIME OF ANNUAL MEETING. Annual meetings of shareholders
shall be held on such date and at such time fixed, from time to time, by the
Board of Directors, provided, that there shall be an annual meeting held every
calendar year at which the shareholders shall elect a board of directors and
transact such other business as may properly be brought before the meeting.
Section 3. CALL OF SPECIAL MEETINGS. Special meetings of the
shareholders may be called by the President, the Board of Directors or by the
Secretary on the written request of the holders of not less than one-tenth of
all shares entitled to vote at the meeting.
Section 4. CONDUCT OF MEETINGS. The Chairman of the Board (or in his
absence, the President or such other designee of the Chairman of the Board)
shall preside at the annual and special meetings of shareholders and shall be
given full discretion in establishing the rules and procedures to be followed in
conducting the meetings, except as otherwise provided by law or in these Bylaws.
<PAGE>
Section 5. NOTICE AND WAIVER OF NOTICE. Except as otherwise provided
by law, written or printed notice stating the place, day and hour of the meeting
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called, shall be delivered (i) not less than ten (10) nor more than
sixty (60) days before the day of the meeting with respect to annual meetings
and special meetings called by the Board and (ii) sixty (60) days before the day
of the meeting with respect to special meetings requested by shareholders,
either personally or by first-class mail, by or at the direction of the
President, the Secretary, or the officer or person calling the meeting, to each
shareholder of record entitled to vote at such meeting. If the notice is mailed
at least thirty (30) days before the date of the meeting, it may be done by a
class of United States mail other than first-class. If mailed, such notice shall
be deemed to be delivered when deposited in the United States mail addressed to
the shareholder at his address as it appears on the stock transfer books of the
Corporation, with postage thereon prepaid. If a meeting is adjourned to another
time and/or place, and if an announcement of the adjourned time and/or place is
made at the meeting, it shall not be necessary to give notice of the adjourned
meeting unless the Board of Directors, after adjournment, fixes a new record
date for the adjourned meeting. Whenever any notice is required to be given to
any shareholder, a waiver thereof in writing signed by the person or persons
entitled to such notice, whether signed before, during or after the time of the
meeting stated therein, and delivered to the Corporation for inclusion in the
minutes or filing with the corporate records, shall be equivalent to the giving
of such notice. Neither the business to be transacted at, nor the purpose of,
any regular or special meeting of the shareholders need be specified in any
written waiver of notice. Attendance of a person at a meeting shall constitute a
waiver of (a) lack of or defective notice of such meeting, unless the person
objects at the beginning to the holding of the meeting or the transacting of any
business at the meeting, or (b) lack of defective notice of a particular matter
at a meeting that is not within the purpose or purposes described in the meeting
notice, unless the person objects to considering such matter when it is
presented.
Section 6. BUSINESS OF SPECIAL MEETING. Business transacted at any
special meeting shall be confined to the purposes stated in the notice thereof.
Section 7. QUORUM. The holders of a majority of the shares entitled
to vote, represented in person or by proxy, shall constitute a quorum at
meetings of shareholders except as otherwise provided in the Corporation's
articles of incorporation (the "Articles of Incorporation"). If, however, a
quorum shall not be present or represented at any meeting of the shareholders,
the shareholders present in person or represented by proxy shall have the power
to adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present or represented. At such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted that might have been transacted at the meeting as
originally notified and called. The shareholders present at a duly organized
meeting may continue to transact business notwithstanding the withdrawal of some
shareholders prior to adjournment, but in no event shall a quorum consist of the
holders of less than one-third (1/3) of the shares entitled to vote and thus
represented at such meeting.
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<PAGE>
Section 8. REQUIRED VOTE. The vote of the holders of a majority of
the shares entitled to vote and represented at a meeting at which a quorum is
present shall be the act of the Corporation's shareholders, unless the vote of a
greater number is required by law, the Articles of Incorporation, or these
Bylaws.
Section 9. VOTING OF SHARES. Each outstanding share, regardless of
class, shall be entitled to vote on each matter submitted to a vote at a meeting
of shareholders, except to the extent that the voting rights of the shares of
any class are limited or denied by the Articles of Incorporation or the Florida
General Corporation Act.
Section 10. PROXIES. A shareholder may vote in person or by proxy
executed in writing by the shareholder or by his duly authorized
attorney-in-fact. No proxy shall be valid after eleven (11) months from the date
of its execution unless otherwise provided in the proxy. Each proxy shall be
revocable unless expressly provided therein to be irrevocable, and unless
otherwise made irrevocable by law.
Section 11. SHAREHOLDER LIST. The officer or agent having charge of
the Corporation's stock transfer books shall make, at least ten (10) days before
each meeting of shareholders, a complete list of the shareholders entitled to
vote at such meeting or any adjournment thereof, arranged in alphabetical order,
with the address of, and the number and class and series, if any, of shares held
by each. Such list, for a period of ten (10) days prior to such meeting, shall
be subject to inspection by any shareholder at any time during the usual
business hours at the place where the meeting is to be held. Such list shall
also be produced and kept open at the time and place of the meeting and shall be
subject to the inspection of any shareholder during the whole time of the
meeting. The original stock transfer books shall be prima facie evidence as to
who are the shareholders entitled to examine such list or transfer book or to
vote at any such meeting of shareholders.
Section 12. ACTION WITHOUT MEETING. Any action required by the
statutes to be taken at a meeting of shareholders, or any action that may be
taken at a meeting of the shareholders, may be taken without a meeting or notice
if a consent in writing, setting forth the action so taken, shall be signed by
the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted with respect to
the subject matter thereof, and such consent shall have the same force and
effect as a vote of shareholders taken at such a meeting.
Section 13. FIXING RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other proper purposes, the
Board of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than sixty
(60) days, and, in case of a meeting of shareholders, not less than ten (10)
days, prior to the date on which
-3-
<PAGE>
the particular action requiring such determination of shareholders is to be
taken; provided, however, that with respect to a special shareholders meeting
requested by shareholders, the record date shall be the date the particular
requesting shareholder first delivers his/her demand to the Company for the
purposes stated therein, and such date may not be altered through (i) an amended
demand or (ii) the replacement of an old demand with a new demand having a
substantially similar purpose. If no record date is fixed for the determination
of shareholders entitled to notice of or to vote at a meeting of shareholders,
or shareholders entitled to receive payment of a dividend, the date on which the
notice of the meeting is mailed or the date on which the resolutions of the
Board of Directors declaring such dividend is adopted, as the case may be, shall
be the record date for such determination of shareholders. When a determination
of shareholders entitled to vote at any meeting of shareholders has been made as
provided in this Section 13, such determination shall apply to any adjournment
thereof, except where the Board of Directors fixes a new record date for the
adjourned meeting or as required by law.
Section 14. INSPECTORS AND JUDGES. The Board of Directors in advance
of any meeting may, but need not, appoint one or more inspectors of election or
judges of the vote, as the case may be, to act at the meeting or any adjournment
thereof. If any inspector or inspectors, or judge or judges, are not appointed,
the person presiding at the meeting may, but need not, appoint one or more
inspectors or judges. In case any person who may be appointed as an inspector or
judge fails to appear or act, the vacancy may be filled by the Board of
Directors in advance of the meeting, or at the meeting by the person presiding
thereat. The inspectors or judges, if any, shall determine the number of shares
of stock outstanding and the voting power of each, the shares of stock
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots and consents, hear and determine
all challenges and questions arising in connection with the right to vote, count
and tabulate votes, ballots and consents, determine the result, and do such acts
as are proper to conduct the election or vote with fairness to all shareholders.
On request of the person presiding at the meeting, the inspector or inspectors
or judge or judges, if any, shall make a report in writing of any challenge,
question or matter determined by him or them, and execute a certificate of any
fact found by him or them.
Section 15. NOMINATIONS OF DIRECTOR CANDIDATES. Only persons who are
nominated in accordance with the following procedures shall be eligible for
election as directors of the Corporation. Nominations of persons for election to
the Board at an annual or special meeting of shareholders may be made by or at
the direction of (i) the Board by any nominating committee or person appointed
by the Board or (ii) any shareholder of the Corporation entitled to vote for the
election of directors at the meeting who complies with the procedures set forth
in this paragraph; provided, however, that nominations of persons for election
to the Board at a special meeting may be made only if the election of directors
is one of the purposes described in the special meeting notice required by
Section 607.0705 of the Florida Business Corporation Act. Nominations of persons
for election at annual meetings, other than nominations made by or at the
direction of the Board, shall be made pursuant to timely notice in writing to
the Secretary of the Corporation. To be timely, a shareholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than One Hundred Twenty (120)
-4-
<PAGE>
days nor more than One Hundred Eighty (180) days prior to the first anniversary
of the date of the Corporation's notice of annual meeting provided with respect
to the previous year's annual meeting; provided, however, that if no annual
meeting was held in the previous year or the date of the annual meeting has been
changed to be more than 30 calendar days earlier than the date contemplated by
the previous year's proxy statement, such notice by the shareholder to be timely
must be so received not later than the close of business on the tenth (10th) day
following the date on which notice of the date of the annual meeting is given to
shareholders or made public, whichever first occurs. Such shareholder's notice
to the Secretary shall set forth (a) as to each person whom the shareholder
proposes to nominate for election or re-election as a director at the annual
meeting, (i) the name, age, business address and residence address of the
proposed nominee, (ii) the principal occupation or employment of the proposed
nominee, (iii) the class and number of shares of capital stock of the
Corporation which are beneficially owned by the proposed nominee, and (iv) any
other information relating to the proposed nominee that is required to be
disclosed in solicitations for proxies for election of directors pursuant to
Rule 14a under the Securities Exchange Act of 1934, as amended; and (b) as to
the shareholder giving the notice of nominees for election at the annual
meeting, (i) the name and record address of the shareholder, and (ii) the class
and number of shares of capital stock of the Corporation which are beneficially
owned by the shareholder. The Corporation may require any proposed nominee for
election at an annual or special meeting of shareholders to furnish such other
information as may reasonably be required by the Corporation to determine the
eligibility of such proposed nominee to serve as a director of the Corporation.
No person shall be eligible for election as a director of the Corporation unless
nominated in accordance with the procedures set forth herein. The Chairman of
the meeting shall, if the facts warrant, determine and declare to the meeting
that a nomination was not made in accordance with the requirements of this
paragraph, and if he should so determine, he shall so declare to the meeting and
the defective nomination shall be disregarded.
ARTICLE THREE
DIRECTORS
Section 1. NUMBER, ELECTION AND TERM. The number of directors of the
Corporation shall be fixed from time to time by action of the shareholders. The
directors shall be elected at the annual meeting of the shareholders, except as
provided in Section 2 of this Article, and each director elected shall hold
office for the term for which he is elected and until his successor is elected
and qualified. Directors need not be residents of the State of Florida,
shareholders of the Corporation or citizens of the United States. Any director
may be removed at any time, with or without cause, at a special meeting of the
shareholders called for that purpose.
Section 2. VACANCIES. A director may resign at any time by giving
written notice to the Board of Directors or the Chairman of the Board. Such
resignation shall take effect at the date of receipt of such notice or at any
later time specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
-5-
<PAGE>
Any vacancy occurring in the Board of Directors and any directorship to be
filled by reason of an increase in the size of the Board of Directors shall be
filled by the affirmative vote of a majority of the current directors though
less than a quorum of the Board of Directors, or may be filled by an election at
an annual or special meeting of the shareholders called for that purpose. A
director elected to fill a vacancy shall be elected for the unexpired term of
his predecessor in office, or until the next election of one or more directors
by shareholders if the vacancy is caused by an increase in the number of
directors.
Section 3. POWERS. The business and affairs of the Corporation shall
be managed by its Board of Directors, which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by statute or by
the Articles of Incorporation or by these Bylaws directed or required to be
exercised and done by the shareholders.
Section 4. PLACE OF MEETINGS. Meetings of the Board of Directors,
regular or special, may be held either within or without the State of Florida.
Section 5. ANNUAL MEETING. The first meeting of each newly elected
Board of Directors shall be held, without call or notice, immediately following
each annual meeting of shareholders.
Section 6. REGULAR MEETINGS. Regular meetings of the Board of Directors
may also be held without notice at such time and at such place as shall from
time to time be determined by the Board of Directors.
Section 7. SPECIAL MEETINGS AND NOTICE. Special meetings of the Board
of Directors may be called by the President and shall be called by the Secretary
on the written request of any two directors. Written notice of special meetings
of the Board of Directors shall be given to each director at least twenty-four
(24) hours before the meeting. Except as required by statute, neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the Board of Directors need be specified in the notice or waiver of notice of
such meeting. Notices to directors shall be in writing and delivered personally
or mailed to the directors at their addresses appearing on the books of the
Corporation. Notice by mail shall be deemed to be given at the time when the
same shall be received. Notice to directors may also be given by telegram, and
shall be deemed delivered when the same shall be deposited at a telegraph office
for transmission and all appropriate fees therefor have been paid. Whenever any
notice is required to be given to any director, a waiver thereof in writing
signed by the person or persons entitled to such notice, whether before or after
the time stated therein, shall be equivalent to the giving of such notice.
Attendance of a director at a meeting shall constitute a waiver of notice of
such meeting for the express purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
Section 8. QUORUM AND REQUIRED VOTE. A majority of the directors
shall constitute a quorum for the transaction of business and the act of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors, unless a greater
-6-
<PAGE>
number is required by the Articles of Incorporation. If a quorum shall not be
present at any meeting of the Board of Directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present. At such adjourned
meeting at which a quorum shall be present, any business may be transacted that
might have been transacted at the meeting as originally notified and called.
Section 9. ACTION WITHOUT MEETING. Any action required or permitted
to be taken at a meeting of the Board of Directors or committee thereof may be
taken without a meeting if a consent in writing, setting forth the action taken,
is signed by all of the members of the Board of Directors or the committee, as
the case may be, and such consent shall have the same force and effect as a
unanimous vote at a meeting.
Section 10. TELEPHONE MEETINGS. Directors and committee members may
participate in and hold a meeting by means of conference telephone or similar
communication equipment by means of which all persons participating in the
meeting can hear each other. Participation in such a meeting shall constitute
presence in person at the meeting, except where a person participates in the
meeting for the express purpose of objecting to the transaction of any business
on the ground the meeting is not lawfully called or convened.
Section 11. COMMITTEES. The Board of Directors, by resolution
adopted by a majority of the whole Board of Directors, may designate from among
its members an executive committee and one or more other committees, each of
which, to the extent provided in such resolution, shall have and may exercise
all of the authority of the Board of Directors in the business and affairs of
the Corporation except where the action of the full Board of Directors is
required by statute. Vacancies in the membership of a committee shall be filled
by the Board of Directors at a regular or special meeting of the Board of
Directors. The executive committee shall keep regular minutes of its proceedings
and report the same to the Board of Directors when required. The designation of
any such committee and the delegation thereto of authority shall not operate to
relieve the Board of Directors, or any member thereof, of any responsibility
imposed upon it or him by law.
Section 12. COMPENSATION OF DIRECTORS. The directors may be paid
their expenses, if any, of attendance at each meeting of the Board of Directors
and may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as director. No such payment shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings.
Section 13. CHAIRMAN OF THE BOARD. The Board of Directors may, in
its discretion, choose a chairman of the board who shall preside at meetings of
the shareholders and of the directors and shall be an ex officio member of all
standing committees. The Chairman of the Board shall have such other powers and
shall perform such other duties as shall be designated by the Board of
Directors. The Chairman of the Board shall be a member of the Board of Directors
-7-
<PAGE>
but no other officers of the Corporation need be a director. The Chairman of the
Board shall serve until his successor is chosen and qualified, but he may be
removed at any time by the affirmative vote of a majority of the Board of
Directors.
ARTICLE FOUR
OFFICERS
Section 1. POSITIONS. The officers of the Corporation shall consist of
a President, one or more Vice Presidents, a Secretary and a Treasurer, and, if
elected by the Board of Directors by resolution, a Chairman of the Board. Any
two or more offices may be held by the same person.
Section 2. ELECTION OF SPECIFIED OFFICERS BY BOARD. The Board of
Directors at its first meeting after each annual meeting of shareholders shall
elect a President, one or more Vice Presidents, a Secretary and a Treasurer.
Section 3. ELECTION OR APPOINTMENT OF OTHER OFFICERS. Such other
officers and assistant officers and agents as may be deemed necessary may be
elected or appointed by the Board of Directors, or, unless otherwise specified
herein, appointed by the President of the Corporation. The Board of Directors
shall be advised of appointments by the President at or before the next
scheduled Board of Directors meeting.
Section 4. SALARIES. The salaries of all officers of the Corporation
to be elected by the Board of Directors pursuant to Article Four, Section 2
hereof shall be fixed from time to time by the Board of Directors or pursuant to
its discretion. The salaries of all other elected or appointed officers of the
Corporation shall be fixed from time to time by the President of the Corporation
or pursuant to his direction.
Section 5. TERM. The officers of the Corporation shall hold office
until their successors are chosen and qualified. Any officer or agent elected or
appointed by the Board of Directors or the President of the Corporation may be
removed, with or without cause, by the Board of Directors whenever in its
judgment the best interests of the Corporation will be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed. Any officers or agents appointed by the President of the Corporation
pursuant to Section 3 of this Article Four may also be removed from such officer
positions by the President, with or without cause. Any vacancy occurring in any
office of the Corporation by death, resignation, removal or otherwise shall be
filled by the Board of Directors, or, in the case of an officer appointed by the
President of the Corporation, by the President or the Board of Directors.
Section 6. PRESIDENT. The President shall be the Chief Executive
Officer of the Corporation, shall have general and active management of the
business of the Corporation and shall see that all orders and resolutions of the
Board of Directors are carried into effect. In the absence of the Chairman of
the Board or in the event the Board of Directors shall not have
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designated a chairman of the board, the President shall preside at meetings of
the shareholders and the Board of Directors.
Section 7. VICE PRESIDENTS. The Vice Presidents in the order of their
seniority, unless otherwise determined by the Board of Directors, shall, in the
absence or disability of the President, perform the duties and exercise the
powers of the President. They shall perform such other duties and have such
other powers as the Board of Directors shall prescribe or as the President may
from time to time delegate.
Section 8. SECRETARY. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the shareholders and record all the
proceedings of the meetings of the shareholders and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. He shall give, or cause to be given, notice
of all meetings of the shareholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors or President, under whose supervision he shall be. He shall keep in
safe custody the seal of the Corporation and, when authorized by the Board of
Directors, affix the same to any instrument requiring it.
Section 9. TREASURER. The Treasurer shall have the custody of
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the Corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements, and shall
render to the President and the Board of Directors at its regular meetings or
when the Board of Directors so requires an account of all his transactions as
treasurer and of the financial condition of the Corporation.
ARTICLE FIVE
CERTIFICATES FOR SHARES
Section 1. ISSUE OF CERTIFICATES. The Corporation shall deliver
certificates representing all shares to which shareholders are entitled; and
such certificates shall be signed by the President or a Vice President, and the
Secretary or an Assistant Secretary of the Corporation, and may be sealed with
the seal of the Corporation or a facsimile thereof. No certificate shall be
issued for any share until the consideration therefor has been fully paid. Each
certificate representing shares shall state upon the face thereof, the name of
the Corporation, that the Corporation is organized under the laws of the State
of Florida, the name of the person to whom issued, the number and class and the
designation of the series, if any, that such certificate represents, and the par
value of each share represented by such certificate.
Section 2. LEGENDS FOR PREFERENCES AND RESTRICTIONS ON TRANSFER.
Every certificate representing shares issued by the Corporation shall set forth
or fairly summarize upon the face or
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back of the certificate, or shall state that the Corporation will furnish to any
shareholder upon request and without charge a full statement of:
(a) The designations, preferences, limitations, and
relative rights of the shares of each class or series authorized to be issued.
(b) The variations in the relative rights and
preferences between the shares of each such series, if the Corporation is
authorized to issue any preferred or special class in series and so far as the
same have been fixed and determined.
(c) The authority of the Board of Directors to fix
and determine the relative rights and preferences of subsequent series.
Every certificate representing shares that are restricted as to the sale,
disposition, or transfer of such shares shall also indicate that such shares are
restricted as to transfer and there shall be set forth or fairly summarized upon
the certificate, or the certificate shall indicate that the Corporation will
furnish to any shareholder upon request and without charge, a full statement of
such restrictions. If the Corporation issues any shares that are not registered
under the Securities Act of 1933, as amended, and registered or qualified under
the applicable state securities laws, the transfer of any such shares shall be
restricted substantially in accordance with the following legend:
"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR UNDER ANY APPLICABLE STATE LAW. THEY MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR PLEDGED WITHOUT (1) REGISTRATION UNDER
THE SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE LAW, OR (2) AT
HOLDER'S EXPENSE, AN OPINION (SATISFACTORY TO THE CORPORATION) OF
COUNSEL (SATISFACTORY TO THE CORPORATION) THAT REGISTRATION IS NOT
REQUIRED."
Section 3. FACSIMILE SIGNATURES. The signatures of the President or a
Vice President and the Secretary or Assistant Secretary upon a certificate may
be facsimiles, if the certificate is manually signed 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 such certificate shall have ceased to be such officer
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer at the date of the issuance.
Section 4. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost or destroyed. When authorizing such issue of
a new certificate or certificates, the Board of Directors may, in its discretion
and as a
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condition precedent to the issuance thereof, require the owner of such lost or
destroyed certificate or certificates, or his legal representative, to advertise
the same in such manner as it shall require and/or to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost or destroyed.
Section 5. TRANSFER OF SHARES. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 6. REGISTERED SHAREHOLDERS. The Corporation shall be entitled
to recognize the exclusive rights of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person, whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of the State
of Florida.
Section 7. REDEMPTION OF CONTROL SHARES. As provided by the Florida
General Corporation Act, if a person acquiring control shares of the Corporation
does not file an acquiring person statement with the Corporation, the
Corporation may redeem the control shares at fair market value at any time
during the 60- day period after the last acquisition of such control shares. If
a person acquiring control shares of the Corporation files an acquiring person
statement with the Corporation, the control shares may be redeemed by the
Corporation only if such shares are not accorded full voting rights by the
shareholders as provided by law.
ARTICLE SIX
GENERAL PROVISIONS
Section 1. DIVIDENDS. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in
cash, property, or its own shares pursuant to law and subject to the provisions
of the Articles of Incorporation.
Section 2. RESERVES. The Board of Directors may by resolution create a
reserve or reserves out of earned surplus for any proper purpose or purposes,
and may abolish any such reserve in the same manner.
Section 3. CHECKS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
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Section 4. FISCAL YEAR. The fiscal year of the Corporation shall end on
December 31 of each year, unless otherwise fixed by resolution of the Board of
Directors.
Section 5. SEAL. The corporate seal shall have inscribed thereon the
name and state of incorporation of the Corporation. The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or in any other
manner reproduced.
ARTICLE SEVEN
AMENDMENTS OF BYLAWS
These Bylaws may be altered, amended or repealed or new Bylaws may be
adopted at any meeting of the Board of Directors at which a quorum is present,
by the affirmative vote of a majority of the directors present at such meeting;
provided, however, that the Articles of Incorporation specify that the
shareholders shall fix the number of directors of the Corporation as provided in
Article Three, Section 1 of these Bylaws and such provision may not be amended
without amending the Articles of Incorporation.
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EXHIBIT 10.37
PURCHASE AND SALE AGREEMENT
AND ESCROW INSTRUCTIONS
by and between
DEVCON CROWN BAY CORP.,
a Florida corporation and
CROWN BAY MARINA JOINT VENTURE I,
a U. S. Virgin Islands general partnership
(collectively, "Seller")
and
KOBEN CAPITAL PARTNERS, INC.
("BUYER")
Property:
Crown Bay Marina
St. Thomas
U. S. Virgin Islands
DATED: SEPTEMBER 18, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
----
I. Purchase and Sale Agreement...............................................1
1.1. Description of the Property.......................................1
1.2. Agreement to Purchase.............................................3
1.3. Consent To Transfer the VIPA Lease................................3
II. Purchase Price and Payment...............................................3
2.1. Purchase Price....................................................3
2.2. Allocation of Purchase Price......................................3
III. Title Insurance and Survey..............................................4
3.1. Survey and Title Documents........................................4
3.2. UCC Report........................................................4
3.3. Title Policy......................................................4
3.4. Title Inspection..................................................4
IV. Property Evaluation......................................................4
4.1. Inspection Period.................................................4
4.2. Physical Inspection of Property...................................5
4.3. Inspection of Books and Records...................................5
V. Seller's Representations and Warranties...................................6
VI. Covenants of Seller......................................................8
6.1. Future Operations.................................................8
6.2. Certification of Non-Foreign Status...............................9
6.3. Estoppel Certificates.............................................9
VII. Buyer's Representations and Warranties..................................9
VIII. Conditions to Buyer's Obligations.....................................10
IX. Conditions to Seller's Obligation.......................................10
X. Escrow and Closing.......................................................10
10.1. Escrow..........................................................10
10.2. Closing Date; Termination of Escrow.............................11
10.3. Costs and Fees..................................................11
10.4. Prorations......................................................12
10.5. Security Deposits...............................................12
10.6. Inventory.......................................................12
10.7. Seller's Deliveries to Escrow...................................12
10.8. Seller's Deliveries Outside of Escrow...........................13
10.9. Buyer's Deliveries to Escrow....................................14
<PAGE>
10.10. Buyer's Deliveries Outside of Escrow...........................14
10.11. Closing of Escrow..............................................14
10.12. Default........................................................15
XI. General Provisions......................................................15
11.1. Possession of Property; Risk of Loss...........................15
11.2. Further Assurances.............................................16
11.3. Notices........................................................16
11.4. Recovery of Dispute Costs......................................17
11.5. Amendment......................................................17
11.6. Assignment.....................................................17
11.7. Binding Effect.................................................18
11.8. Exhibits and Entire Agreement..................................18
11.9. Governing Law; Jurisdiction....................................18
11.10. Captions.......................................................18
11.11. Commissions....................................................18
11.12. Escrow Agent...................................................18
XII. Consulting Services....................................................19
12.1. Services/Fees..................................................19
12.2. Net Cash Flow..................................................21
12.3. Lease Extension Bonus..........................................22
12.4. Fiscal Year....................................................23
12.5. Capital Expenditures...........................................23
XIII. Deferred Maintenance..................................................23
XIV. Contingent Liabilities.................................................23
XV. Financial Statements....................................................23
XVI. Survive Closing........................................................24
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PURCHASE AND SALE AGREEMENT
AND ESCROW INSTRUCTIONS
This Purchase and Sale Agreement and Escrow Instructions (the "Agreement")
is entered into as of the 18th day of September, 1997, by and between Devcon
Crown Bay Corp., a Florida corporation ("DEVCON"), and Crown Bay Marina Joint
Venture I, a Virgin Islands partnership ("CBMJV") (collectively, "SELLER"), and
Koben Capital Partners, Inc., a Delaware corporation or its assigns ("BUYER").
I. PURCHASE AND SALE AGREEMENT.
1.1. Description of the Property. It is the intent of the parties to this
Agreement to agree on the terms whereby Seller will transfer to Buyer the
following real, personal and intangible property that constitute Crown Bay
Marina, as depicted on the drawing attached as Exhibit A-1 (the "CROWN BAY
MARINA"):
1. A leasehold interest in the upland real property and submerged land
described in Exhibit A-2 (the "LEASEHOLD") held by CBMJV pursuant to that
certain Ground Lease dated August 29, 1985 between Shoreline Marine, Inc. and
the U.S. Virgin Islands Port Authority ("VIPA"), which was assigned to CBMJV
(the "LEASE").
2. The personal property described on EXHIBIT B hereto (the "PERSONAL
PROPERTY").
3. The contracts and agreements relating to the Property, including,
without limitation, those listed on EXHIBIT C hereto (the "CONTRACTS").
4. The certain licenses, permits and other governmental authorizations
relating to the Property, including, without limitation, those listed on EXHIBIT
D hereto (the "LICENSES").
5. All buildings, facilities, parking facilities, structures,
fixtures, footings, foundations, amenities and other improvements to, or located
on, the land covered by the Leasehold (the "IMPROVEMENTS").
6. All the rights-of-way, easements, tenements and hereditaments, and
other rights, if any, appurtenant to the Real Property and all littoral and/or
riparian rights, if any,
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relating to the Real Property and all right, title and interest of Seller in and
to any streets, highways or rights of way adjacent to the land covered by the
Leasehold, any water or mineral rights owned by or leased to Seller (the
"APPURTENANCES").
7. All leases, occupancy agreements, license agreements, concession
agreements, rental agreements and other written agreements, entered into with
Tenants (as hereinafter defined), relating to the Real Property, together with
all supplements, amendments and modifications thereto.
8. All other tangible and intangible assets (excluding cash and
cash-like items), properties or rights of Seller which are used or held for use
in connection with the Real Property and the business conducted thereon of every
kind and description, tangible or intangible, vested or unvested, contingent or
otherwise, as the same shall exist on the Closing Date, including, without
limitation, all goodwill in connection with the ownership, operation and
maintenance of the Property and the business conducted thereon, all warranties
and guaranties relating to any of the foregoing, all books, records, guest
lists, customer lists, files, budgets, projections, strategic plans, surveys,
studies, plans, building plans and specifications, drawings, test reports and
inspection and engineering reports now or hereafter in the possession of the
Seller in connection with the ownership, operation, maintenance and management
of the business conducted at the Real Property to the extent transferable.
This sale does not include any insurance claims related to Hurricane Marilyn of
1995 which are currently outstanding or which have not yet been made but which
may be made in the future ("HURRICANE CLAIMS").
The Leasehold, the Improvements and the Appurtenances are referred to in this
Agreement as the "REAL PROPERTY." The Real Property, Personal Property,
Contracts and Licenses, and all of Seller's rights in and to all tangible and
intangible assets (excluding insurance claims, except as set forth herein,
accounts receivable, fuel inventory and cash and cash-like items), including
without limitation the right to use the name "Crown Bay Marina", are referred to
as the "PROPERTY."
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1.2. AGREEMENT TO PURCHASE.
Seller will sell, and Buyer will buy, the Property on the terms and
conditions set forth herein.
1.3. CONSENT TO TRANSFER THE LEASE. Prior to the Closing (as hereinafter
defined) Seller shall use its best efforts to obtain the consent of VIPA (the
"VIPA CONSENT"), to assign the Lease from CBMJV to Buyer. Buyer understands that
VIPA will be relying on the financial condition of Buyer in deciding whether or
not to grant such consent. Accordingly, on or after the Closing Date, Buyer will
provide up to two (2) years of rent under the Lease to VIPA as additional
security for the Lease obligations, and Buyer will ensure that it has up to
$100,000 of cash working capital to it, all only to the extent required to
obtain the VIPA Consent. Buyer shall promptly furnish to VIPA all documentation
as reasonably requested by VIPA as part of the approval process and as required
by VIPA to evidence the approval or the assignment and assumption by Buyer and
"Buyer" of the Lease.
II. PURCHASE PRICE AND PAYMENT.
2.1. PURCHASE PRICE. Buyer will pay a purchase price for the Property of
$3,300,000 (the "PURCHASE PRICE"), based on 24 remaining seasons (periods
starting from November 1 through May 1). If less than 24 seasons are available
pursuant to the Lease, the Purchase Price shall be reduced by $100,000 per
unavailable season. In the event that less than 23 seasons are available
pursuant to the Lease, Seller shall have the option not to close. The Purchase
Price is payable at the Closing all in cash. Buyer has previously placed a
$100,000 deposit (the "DEPOSIT") into Escrow (as hereinafter defined) with the
Escrow Agent (as hereinafter defined), which Deposit shall, if the Closing
occurs, be paid to Seller and credited against the Purchase Price.
2.2. ALLOCATION OF PURCHASE PRICE. Prior to the Closing, the parties shall
use their best efforts to agree upon an allocation of the Purchase Price among
the items of Property being purchased based upon their relative fair market
values; provided, that if Buyer and Seller are unable to so agree prior to the
Closing, Closing shall still occur. The parties shall use any such allocation
for federal and state income tax purposes.
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<PAGE>
III. TITLE INSURANCE AND SURVEY.
3.1. SURVEY AND TITLE DOCUMENTS. During its Inspection Period (as defined
below), Buyer shall obtain, and shall furnish a copy to Seller and to a title
insurance company selected by Buyer (the "TITLE COMPANY") a survey of the Real
Property prepared by a surveyor selected by Buyer (the "SURVEY"). During its
Inspection Period, Buyer shall obtain, and shall furnish a copy to Seller of, a
title insurance commitment covering the Real Property in favor of Buyer (the
"TITLE COMMITMENT").
3.2. UCC REPORT. Within 20 days after the execution of this Agreement,
Seller shall deliver to Buyer's counsel a UCC report (the "UCC REPORT") with
respect to Seller and any trade names under which the Property has been operated
during the last three years from any governmental offices in the Virgin Islands
in which financing statements are required to be filed in order to perfect a
security interest in the property covered thereby.
3 3. TITLE POLICY. A condition to Buyer's obligation to close the
transactions contemplated hereby shall be the issuance by the Title Company at
Closing of its leasehold policy of title insurance (or a marked-up commitment
equivalent executed and delivered by the Title Company), insuring title to the
Real Property in the name of Buyer subject only to those matters reflected in
the Title Commitment (and any matters caused by Buyer), as such Title Commitment
has been reviewed and approved by Buyer during the Inspection Period (the "TITLE
POLICY"), so long as Buyer has complied with all of the requirements of the
Title Company to the issuance thereof, other than requirements to be complied
with by Seller as set forth therein. Buyer shall pay the cost of such policy.
3.4. TITLE INSPECTION. Buyer shall have until October 21, 1997 to review
the Survey, the UCC Report, the Title Commitment and all of the other diligence
items described in Articles III and IV hereof, all of which shall be deemed
approved by Buyer if Buyer does not elect to terminate this Agreement in
accordance with Section 4.1, below.
IV. PROPERTY EVALUATION.
4.1. INSPECTION PERIOD. The "INSPECTION PERIOD" shall begin on the date of
the full execution of this Agreement, and end on the earlier to occur of (i) the
date that is five business days prior to the Outside Date (as hereinafter
defined) and (ii) the
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date that Buyer gives notice to Seller of its intention to proceed with the
transaction contemplated by this Agreement pursuant to Section 10.2. At the end
of the Inspection Period, Buyer shall give notice to Seller that Buyer elects,
in Buyer's sole discretion, (1) to proceed with acquisition of the Property, (2)
extend the Inspection Period an additional thirty (30) days to resolve any
"unknown items" prior to Closing, or (3) not to acquire the Property, in which
case this Agreement shall terminate. In the event of termination, the Deposit
shall be returned to Buyer. Failure by Buyer to deliver any notice required or
permitted under this Section within the periods prescribed herein shall be
deemed an irrevocable election not to acquire the Property and to terminate this
Agreement, time being of the essence.
4.2. PHYSICAL INSPECTION OF PROPERTY. Buyer shall have until the end of the
Inspection Period in which to inspect and examine the Property and conduct all
tests and hazardous waste examinations to the extent Buyer deems necessary to
determine the condition of the Property. Buyer shall have access to all
buildings, improvements, storage areas, other spaces, equipment and personalty
that are included in the Property upon providing reasonable prior notice to
Seller; provided that Seller may, if it so elects, accompany Buyer while Buyer's
secures such access. Buyer shall indemnify Seller from and against any damages
incurred by Seller as a result of Buyer's (or its agents' affiliates',
employees' or contractors') acts or omissions on the Property during the
Inspection Period, excluding damages caused by Seller's acts or omissions, or
those of Seller's agents, affiliates, employees or contractors, and Buyer shall
maintain (or insure that its agents maintain) liability insurance in an amount
of at least $1 million covering such potential liability during the Inspection
Period, insuring Buyer and Seller and delivering proof of same to Seller prior
to entering the Property. Buyer shall not, without Seller's prior written
consent, talk to tenants or do anything which damages the Property during the
Inspection Period, and Buyer shall be responsible for promptly repairing any
damage thereto that it does cause. The two immediately preceding sentences shall
survive any termination of this Agreement, notwithstanding any contrary
provision provided elsewhere herein.
4.3. INSPECTION OF BOOKS AND RECORDS. Buyer and its representatives shall
have until the end of the Inspection Period to inspect and examine all books,
records, files, leases, and
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other documents relating to the management, operation and financial condition of
the Property.
V. SELLER'S REPRESENTATIONS AND WARRANTIES. Seller represents and warrants to
Buyer as follows:
(a) To the best knowledge of Seller (such knowledge being deemed, for
purposes of this Article V, to be solely the actual knowledge of Ronald
Moorhead, Richard Caruso and Carole Dudley, with Seller acknowledging that such
individuals are the individuals with primary responsibility for the management
and operation of the Property), all water, sewer, gas, steam, electric,
telephone, cable television, access and drainage facilities and all other
utilities necessary to the current operation of the Property are currently
available to the Property, are in working order and are adequate for Seller's
present use of the Property. To the best knowledge of Seller, there is
unrestricted direct access to the Property from an existing public street. To
the best knowledge of Seller, there are no facts or conditions that will result
in the termination of the present access from the Property to utility services,
or from the Property to existing public streets adjoining the Property.
(b) To the best knowledge of Seller: the use, occupancy, operation and
condition of the Property comply with all applicable zoning and building laws to
which it is subject; and all applicable certificates of occupancy, permits,
licenses and other evidences of compliance which are or were required or
necessary to be obtained in connection with the ownership, operation and use of
the Property have been obtained and complied with.
(c) To the best knowledge of Seller, there is one (1) under ground and
five (5) above ground storage tanks, and no other storage tanks, on the
Property. Seller has no knowledge as to the contents of the underground storage
tank on the Property referenced above. To the best knowledge of Seller, Seller
has received no written notices (that have not been complied with and fully
resolved) that would indicate that the Property is in violation of any laws
relating to environmentally hazardous materials.
(d) There are no pending or, to the best of Seller's knowledge,
threatened, claims, suits, actions, or arbitrations or regulatory, legal, or
other proceedings or investigations
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affecting the Seller, the Property or Seller's rights and obligations under this
Agreement except as shown on EXHIBIT E hereto. There is no pending or, to the
best of Seller's knowledge, contemplated, condemnation of the Property, or any
part of it.
(e) Devcon is a corporation and CBMJV is a general partnership, duly
organized, validly existing and in good standing under the laws of the State of
Delaware and the U.S. Virgin Islands, respectively, with full power and
authority, without default or the obtaining of any approvals or consents (except
those contemplated herein and those that will be in place at Closing), to
perform its obligations hereunder and to carry on their respective businesses as
now conducted and to own and operate its properties and assets. Neither the
execution nor the performance of this transaction will constitute a breach of
Seller's organizational documents. The persons executing this Agreement on
behalf of Seller have the full right and authority to execute this Agreement on
behalf of Seller and to bind Seller.
(f) The rent roll and, to the best knowledge of Seller, other
Financial Statements of the Property (the "RENT ROLL"), and the Lease, Licenses
and Contracts as supplied to Buyer, are true, correct and complete in all
material aspects. To the best knowledge of Seller, there are no leases, licenses
or agreements affecting the Property or to which Seller is a party other than
the Lease, the Contracts listed on EXHIBIT C, the Licenses listed on EXHIBIT D,
and those matters of public record.
(g) To the best of Seller's knowledge, the ten-year renewal option
granted to the lessee in Section 1.02 of the Lease (the "VIPA LEASE OPTION") is
and, after the assignment of the Lease to Buyer, will be, valid, binding and
enforceable against VIPA in accordance with its terms.
(h) All applicable real estate or personal property taxes, sales
taxes, occupation taxes, retail sales taxes, fuel taxes, gross receipts taxes
and other special taxes that are due have been paid.
(i) To the best knowledge of Seller, the Lease, the Licenses and the
Contracts are in full force and effect and unmodified. Seller (i) has paid all
rents and other charges to the extent due and payable under the Lease, (ii) to
the best of its knowledge, is not in default under the Lease, (iii) has
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received no notice of default from VIPA and (iv) to the best knowledge of
Seller, knows of no default by VIPA under the Ground Lease.
Buyer acknowledges that, except for the inquiry referred to in the
definition of "the best knowledge of Seller" set forth above, Seller has made no
investigation or inquiry for purposes of rendering the representations and
warranties set forth in this Article V.
VI. COVENANTS OF SELLER.
6.1. FUTURE OPERATIONS. Seller agrees and covenants that until the Closing:
(a) Seller shall continue to operate the business conducted on, and
maintain, the Property in the ordinary course of business in a manner consistent
with the way it has been operated and maintained in the preceding 12 months
(provided that Seller need not make any capital improvements during the contract
period), attempt to preserve material business relationships with third parties
of the business conducted at the Real Property, not sell, dispose of or abandon
any assets used in the operation of the business conducted at the Real Property,
except in the ordinary course of business and consistent with past practice, not
make material changes in any method of marketing, management or operation,
accounting methods, practices or procedures, collection or credit extension
policies or cash management methods, practices or procedures and not consent to
any zoning changes, or sell, transfer, assign, dispose of, or consent to the
utilization of, any development rights, including riparian rights, if any.
Except as provided in Section 1.3 above, Seller shall not enter into, modify,
extend or cancel the Lease, any Contract , any License, or other agreement
affecting the Property or any portion thereof, including without limitation any
License, agreement or governmental entitlement that will bind Buyer or affect
the Property after the Closing, without Buyer's prior written approval, which
shall not be unreasonably withheld, except that Seller may enter into, modify,
extend or cancel boat slip or storage leases in the ordinary course of business
in accordance with Seller's standard schedule of rents.
(b) Seller shall provide to Buyer a list of the work performed,
pursuant to the insurance settlement from Hurricane Marilyn, on EXHIBIT F
hereto.
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6.2. CERTIFICATION OF NON-FOREIGN STATUS. At the Closing, Seller shall
complete, execute and deliver a fully executed Certification that Seller is not
a Foreign Person in form acceptable to Buyer and Seller, if such statement is
accurate. If Seller is not able to provide Buyer with such certification, Buyer
shall be entitled to withhold a portion of the Purchase Price as called for by
the Internal Revenue Code of the United States.
6.3. ESTOPPEL CERTIFICATES. Prior to the Closing, Seller shall use its best
efforts to deliver to Buyer estoppel certificates (the "ESTOPPEL CERTIFICATES"),
addressed to Buyer and in form and substance reasonably satisfactory to Buyer
(which forms shall be delivered to Seller by Buyer within fifteen (15) days
after the date hereof), executed by any tenants of the Property other than boat
slip or storage tenants and tenants with Lease terms with less than six (6)
months remaining ("TENANTS"), and by VIPA with respect to the Lease (including
clarification of the exact method and basis for the calculation of rent under
the Lease during the option period and assurance that the VIPA Lease Option is
and, after the assignment of the Lease to Buyer, will be valid, binding and
enforceable against VIPA in accordance with its terms, and that VIPA is in
compliance with the terms of the master lease for the Leasehold). Buyer shall
also obtain written evidence that the lease agreement to which the VIPA Lease is
subject is in full force and effect and is not in default and the Buyer shall
receive at Closing an assignment of any non-disturbance or recognition agreement
between the Seller and the lessor under such other lease.
VII. BUYER'S REPRESENTATIONS AND WARRANTIES.
Buyer hereby represents and warrants to Seller that Buyer is a corporation
duly organized and existing and in good standing under the laws of the State of
Delaware and has full right and authority, without default and without the
requirement of securing consents or approvals, except those that will be in
place as of the Closing Date, to perform its obligations hereunder and to carry
on its business as now conducted and to own and operate its properties and
assets. The persons executing this Agreement on behalf of Buyer have the full
right and authority to execute this Agreement on behalf of Buyer and to bind
Buyer.
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VIII. CONDITIONS TO BUYER'S OBLIGATIONS.
Buyer's obligation to proceed with the purchase of the Property and the
Closing is conditioned upon all of the following (any of which may be waived by
Buyer, and only by Buyer):
(a) Performance by Seller of all of its obligations under this
Agreement as called for hereby, and no event having occurred which constitutes a
default by Seller under this Agreement.
(b) All of the representations and warranties of Seller contained in
this Agreement shall be true and accurate in all material respects as of the
Closing Date.
(c) Receipt of Title Policy at the Closing, so long as Buyer has
complied with all of the requirements of the Title Company to the issuance
thereof, other than requirements to be complied with by Seller as set forth
herein.
(d) Receipt by Buyer of a properly executed VIPA Consent and
confirmation that the VIPA Lease Option is, and after the assignment of the
Lease to the Buyer in connection with the Closing, will be, valid, binding and
enforceable in accordance with its terms against VIPA.
(e) The physical and environmental condition of the Property shall be
substantially the same on the date of the Closing as on the date hereof,
reasonable wear and tear excepted.
IX. CONDITIONS TO SELLER'S OBLIGATION.
Seller's obligation to proceed with the sale of the Property and the
Closing is conditioned upon Buyer having performed all of its obligations under
this Agreement and no event having occurred which constitutes a default of Buyer
under this Agreement.
X. ESCROW AND CLOSING.
10.1. ESCROW. Buyer and Seller shall open an escrow ("ESCROW") to implement
this transaction by depositing a signed copy of this Agreement with Greenberg
Traurig, et. al. ("ESCROW AGENT"), as agent for Chicago Title Insurance Company
(the "ESCROW HOLDER") as soon as possible after the execution of this Agreement.
Seller, Buyer and Escrow Agent agree to the escrow provisions attached hereto as
EXHIBIT G. The Escrow Holder is
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authorized and instructed to act in accordance with this Agreement, which shall
constitute escrow instructions for this transaction. If the Escrow Holder
requires any additional instructions, the parties agree to provide mutually
acceptable additions or deletions that do not substantially alter this
Agreement.
10.2. CLOSING DATE; TERMINATION OF ESCROW. Escrow shall close on or before
November 21, 1997 (as such date may be extended by extension of the Inspection
Period under Section 4.1 above or by the mutual agreement of Seller and Buyer,
the "OUTSIDE DATE") on a time and date specified in writing by Buyer to Seller
no later than five(5) business days prior to such specified date. If Buyer
consummates the transaction prior to October 6, 1997, the Purchase Price shall
be reduced by $75,000 in the form of early closing bonus ("EARLY CLOSING
BONUS"). If the transaction closes after October 6, 1997, but before November
22, 1997, the $75,000 Early Closing Bonus will be cumulatively reduced by
$1,666.67 for each day after October 6, 1997 until final consummation of the
sale. The dates set forth in the preceding two (2) sentences shall not be
extended or otherwise affected by any extension of the Outside Date beyond
November 21, 1997, by reason of the extension of the expiration of the
Inspection Period, or otherwise, and such dates are absolute. If the Closing
does not occur by the Outside Date, upon written demand of any party who has
complied with all of its obligations hereunder, the Escrow Holder shall return
to each party who has complied with all of its obligations under this Agreement,
all funds and documents deposited in Escrow by such party (excluding the Deposit
which shall be disposed of as otherwise provided herein) and this Agreement
shall terminate. As used herein, the term "CLOSING" shall mean the mutual
execution and delivery of all of the documents referenced in Sections 10.7,
10.8, 10.9 and 10.10 hereof, and the occurrence of all other events described in
Section 10.11 hereof, and the term the "Closing Date" shall mean the date on
which the Closing occurs.
10.3. COSTS AND FEES. Except as otherwise provided in Section 11.4, below,
Buyer and Seller shall each pay its own attorneys' fees incurred in this
transaction. Buyer shall pay the cost of the Title Commitment, the Survey, the
Title Policy, recording charges, documentary stamp tax and transfer taxes and
any sales or other taxes payable in connection with the transfer of the
Property, if any, in an amount not to exceed $1,000 and one-half of the escrow
fees. Seller shall pay for the UCC
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Report, documentary stamp and transfer taxes and any sales or other taxes
payable in connection with the transfer of the Property, if any, that are in
excess of the $1,000 paid by Buyer and one-half of the escrow fees.
10.4. EMPLOYEES/PRORATIONS. Real property taxes, utilities, storage fees,
state sales taxes, insurance, wages and salaries, rents and all other operating
expenses shall be prorated as of 12:00 midnight of the day prior to the Closing
Date (the "Cut-Off Time"). Seller shall pay to all employees their accrued wages
and vacation and sick pay, if any, through the day prior to the Closing Date.
Buyer may hire any of Seller's existing employees if Buyer so desires, and
Seller will consult with Buyer after Closing to assist Buyer in obtaining
approvals to expand the improvements on the Property, or otherwise relating to
the Property, if Buyer so requests. The Purchase and sale hereunder shall not
include any accounts receivables, all of which shall be assigned to Seller at
Closing, and Seller may collect such receivables. All accounts receivables
collected by Buyer shall be remitted to Seller. Buyer agrees that upon receipt
of payment from any person or entity who is indebted to the business conducted
at the Real Property both with respect to accounts receivable accruing prior to
and subsequent to the Cut-Off Time, such collection shall be applied as
designated by such account debtor designation or if the application thereof is
not reasonably determinable, then any such collections shall be applied first to
the payment in full of any amounts due to Buyer on accounts accruing subsequent
to the Cut-Off Time and then to the indebtedness accrued prior to the Cut-Off
Time.
10.5. SECURITY DEPOSITS. On the Closing Date, an amount equal to all
security deposits held by Seller with respect to the Property shall be delivered
to Buyer by offsetting such amount against the cash amount owed by Buyer to
Seller.
10.6. INVENTORY. All fuel (and other) inventory ("INVENTORY") shall be
transferred to Buyer on the Closing Date for a price equal to the fair market
value of such inventory.
10.7. SELLER'S DELIVERIES TO ESCROW. Seller shall deliver to Escrow prior
to the Closing Date: an Assignment of Lease and Assumption of Obligations in
recordable form, conveying title to the Lease, with special warranty of title
(the "ASSIGNMENT OF LEASE"); a deed in recordable form and with
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special warranty of title, conveying title to the Improvements, Appurtenances
and all other real property portions of the Property (the "Deed"); and an
Assignment of Leases, Contract Rights and Intangibles/Bill of Sale from Seller
to Buyer conveying title to the Personal Property, Contracts, Licenses,
Inventory and other tangible and intangible assets relating to, or a part of,
the Property, Assignment of Space Lease, each of which documents shall be duly
executed and acknowledged by Seller and in form and substance reasonably
satisfactory to Buyer and Seller and such other documents as are reasonably
required by Buyer.
10.8. SELLER'S DELIVERIES OUTSIDE OF ESCROW. Seller shall deliver to Buyer
prior to or at the Closing Date the following items, each of which shall be in
form and substance reasonably satisfactory to Buyer and duly executed and
acknowledged by Seller:
(a) Certification that Seller is not a Foreign Person, if such
certification is accurate.
(b) The originals of the VIPA Estoppel Certificate and all other
Estoppel Certificates to the extent obtained by Seller.
(c) The original VIPA Consent.
(d) Original executed counterparts (or copies certified by Seller as
true and correct, if originals are unavailable) of all Contracts, Licenses,
space leases and other occupancy agreements to be transferred to Buyer.
(e) All documentation necessary to transfer title to any motor
vehicles to Buyer.
(f) Evidence of Seller's good standing and incumbency certificates and
corporate resolutions evidencing Seller's authority to consummate the
transactions contemplated hereby as are required by the Title Company, and any
other documentation reasonably requested by Buyer's counsel or the Escrow Holder
to complete the transaction contemplated hereby or by the Title Company to show
the authority of Seller to sell the Real Property.
(g) Letters addressed to each party (other than Seller) to a Contract
or lease, occupancy or license agreement and all other customers, duly executed
by Seller, notifying such
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parties of change in ownership and otherwise in form and substance as reasonably
approved by Seller and Buyer.
10.9. BUYER'S DELIVERIES TO ESCROW. Buyer shall deliver to Escrow, prior to
the Closing Date, the following items:
(a) A cash payment equal to the balance of the Purchase Price.
(b) A cash payment equal to Buyer's share of the costs incurred in
connection with the Closing.
(c) A cash payment for purchase of the Inventory.
(d) A cash payment for any amounts, if any, owed by Buyer under
Section 10.4 or otherwise due and payable by Buyer hereunder on the Closing
Date.
(e) The Assignment of Lease and Assumption of Obligations (assuming
all obligations of the Property arising from and after the Closing Date), duly
executed and acknowledged by Buyer.
10.10. BUYER'S DELIVERIES OUTSIDE OF ESCROW. Buyer shall deliver to Seller
and the Title Company, prior to the Closing Date evidence of Buyer's good
standing and incumbency certificates and resolutions evidencing Buyer's
authority to consummate the transactions contemplated hereby, and all other
documents or payments required by this Agreement or documents reasonably
required by Seller's counsel, the Title Company or the Escrow Holder to complete
this transaction.
10.11. CLOSING OF ESCROW. The Escrow Holder shall close the Escrow by
taking the following actions on the Closing Date:
(a) Record (or cause to be recorded, in due course) the Deed and the
Assignment of Lease, in the appropriate governmental records.
(b) Deliver to Seller the amount of the Purchase Price and other
amounts payable to Seller as adjusted, after taking into account any charges
attributable to Seller and prorations described above.
(c) Record and deliver such other documents or take such other actions
as may be necessary to effect the Closing.
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As soon as practical after the Closing, the Escrow Holder shall
deliver copies of the recorded documents to Buyer's counsel or Seller's counsel,
as appropriate, at the address set forth in Section 11.3.
10.12. DEFAULT. (a a) In the event the transactions contemplated hereby
fail to close as a result of a default by Buyer hereunder, without default by
Seller hereunder, then Seller shall be entitled to retain the Deposit as
liquidated damages, and Seller shall have no further rights or remedies against
Buyer as a result thereof or otherwise, with respect to this Agreement. The
parties agree that the Deposit is a fair and reasonable estimate of the damages
that would be incurred by Seller in the event the transactions contemplated
hereby fail to close as a result of a default by Buyer hereunder.
(b) In the event the transactions contemplated hereby fail to close as
a result of a default by Seller hereunder, Buyer's sole remedy hereunder shall
be to either (i) terminate this Agreement and receive the return of the Deposit
plus an amount equal to all of Buyer's out-of-pocket expenses incurred by Buyer
from and after the date hereof in connection with this transaction ; or (ii)
bring an action for specific performance against Seller to compel Seller to
perform its obligations hereunder. In addition, if either (a) such remedy of
specific performance is unavailable because Seller has either previously sold
the Property or has otherwise intentionally frustrated Buyer's ability to compel
Seller to convey the Property to Buyer as required hereby, or (b) Seller has
elected to terminate this Agreement because less than 23 seasons are available
under the Lease (as described in subsection 2.1 above), Buyer shall be entitled
to reimbursement of Buyer's out-of-pocket expenses incurred from and after the
date hereof in connection with this transaction, but not to exceed the sum of
$75,000.00, and, in the case of (a) above, Buyer shall also be entitled to
exercise any and all of its other remedies available at law or equity, without
limitation. Buyer shall not otherwise be entitled to seek damages from Seller as
a result of any default by Seller hereunder.
XI. GENERAL PROVISIONS.
11.1. POSSESSION OF PROPERTY; RISK OF LOSS. Possession of the Property
shall be transferred on the Closing Date. All risks of loss with respect to the
Property shall be borne by
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Seller until the later of the transfer of title or the transfer of physical
possession to Buyer (in the event Seller fails to transfer possession on the
Closing Date). Any nonmaterial damage to or destruction of the Property between
the date of this Agreement and the Closing Date shall be repaired by Seller, at
its sole cost, to the extent legally possible and as soon as reasonably
possible, and any insurance proceeds and rights thereto transferred and assigned
to Seller. If there is damage or destruction to the Property with a cost to
repair in excess of $100,000.00 between the date of this Agreement and the
Closing Date and if such damage is not repaired prior to the Closing Date, Buyer
may, at its option: (a) elect to terminate this Agreement; or (b) proceed with
the Closing, in which event any insurance proceeds attributable to such damage,
destruction or condemnation and rights thereto shall be payable and assigned to
Buyer, to the extent of the damage not repaired by Seller prior to Closing.
11.2. FURTHER ASSURANCES. From time to time, at Buyer's request, whether on
or after the Closing Date, and without further consideration, Seller shall
execute and deliver any further instruments of conveyance and take such other
actions as Buyer may reasonably require to complete more effectively the
transfer to reasonably require to complete more effectively the transfer to
Buyer of the Property to be acquired under this Agreement, at Buyer's sole cost
and expense.
11.3. NOTICES. Communications relating to this Agreement shall be in
writing and shall be delivered personally, or sent by facsimile, United States
mail, first class postage prepaid, private messenger or private courier service,
to the parties or their assignees at the following fax numbers or addresses:
If to Seller:
Devcon Crown Bay Corporation
Crown Bay Marina Joint Venture I
1350 E. Newport Center Drive, Suite 201
Deerfield Beach, Florida 33433
Fax Number: (954) 429-1506
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with a copy to:
Jerrold A. Wish, Esq.
Greenberg, Traurig, Hoffman, Lipoff,
Rosen & Quentel, P.A.
1221 Brickell Avenue
Miami, Florida 33131
Fax Number: (305) 579-0717
If to Buyer:
Koben Capital Partners, Inc.
485 Fifth Avenue, 9th Floor
New York, New York 10017
Fax Number (212) 681-9337
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-8954
Fax Number (212) 455-2502
A party may change these addresses by written notice to the other delivered in
accordance with this Section. If a communication is mailed under this provision,
it shall be deemed received on the earlier of (i) three business days after it
is mailed or (ii) the date it is actually received. A communication by any other
method permitted under this Section shall be effective when actually received.
11.4. RECOVERY OF DISPUTE COSTS. If the parties hereto become involved in
any litigation arising under or otherwise related to this Agreement, the
prevailing party shall be entitled to recover any costs incurred (including
costs and attorneys' fees) in enforcing or protecting its rights hereunder. The
provisions of this paragraph shall survive Closing co-extensively with all other
surviving provisions of the Agreement.
11.5. AMENDMENT. This Agreement may only be modified if the modification is
in writing and is signed by the party against whom enforcement is sought.
11.6. ASSIGNMENT. Buyer shall have the right to assign this Agreement to
any entity formed by Buyer or any of its affiliates for the purpose of acquiring
the Property, so long as
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such assignment (including the timing thereof) does not prevent the timely
obtaining of the VIPA Consent and such assignee assumes Buyer's obligations
hereunder in writing.
11.7. BINDING EFFECT. This Agreement shall be binding upon, and inure to
the benefit of, the respective successors, assigns and legal representatives of
the parties.
11.8. EXHIBITS AND ENTIRE AGREEMENT. All exhibits referred to in this
Agreement are incorporated into this Agreement and made a part of it. This
Agreement contains all of the terms and provisions of the agreement between the
parties with respect to the subject matter of this Agreement. This Agreement
supersedes all other prior agreements, representations and understandings of the
parties bearing upon the meaning and effect of this Agreement, whether oral or
written.
11.9. GOVERNING LAW; JURISDICTION. This Agreement is to be governed by, and
construed in accordance with, the internal laws of the State of Florida.
11.10. CAPTIONS. The captions and section headings used in this Agreement
are for the convenience of the parties only and shall not be used in construing
it.
11.11. COMMISSIONS. Seller shall pay a commission of $23,000 to
International Marina Realty, Inc. and $67,000 to Marina Management Services,
Inc. (the "BROKERS"). There shall be no other commissions paid by Buyer or
Seller in connection with the purchase and sale of the property. Buyer and
Seller shall each indemnify the other against and hold the other harmless from
any claim for any fee, commission or other compensation made by any person or
entity other than the Brokers claiming to have been employed, engaged or
otherwise retained by the indemnifying party.
11.12. ESCROW AGENT. The Escrow Agent shall not be liable for any actions
taken in good faith, but only for its gross or willful negligence or willful
misconduct. The parties hereby indemnify and hold the Escrow Agent harmless from
and against any loss, liability, claim or damage whatsoever (including
reasonable attorney's fees and court costs at trial and all appellate levels)
the Escrow Agent may incur or be exposed to in its capacity as escrow agent
hereunder except for gross negligence or willful misconduct. If there be any
dispute as to disposition of any proceeds held by the Escrow Agent
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pursuant to the terms of this Agreement, the Escrow Agent is hereby authorized
to interplead said amount or the entire proceeds with any court of competent
jurisdiction and thereby be released from all obligations hereunder. The parties
recognize that the Escrow Agent is the law firm representing Seller, and hereby
agree that such law firm may continue to represent Seller in any litigation
pursuant to this Agreement. The Escrow Agent shall not be liable for any failure
of the Escrow Holder or any depository bank or other financial institution.
XII. CONSULTING SERVICES.
12.1. SERVICES/FEES. For the period ending on the earlier of the date that
is three Fiscal Years (as hereinafter defined) following the Closing Date and
the date that Buyer sells the Property to a third party purchaser, the Seller
shall render consulting services to Buyer consisting of (i)general advice and
consultation regarding the business operations of the Crown Bay Marina and (ii)
actively assisting Buyer and facilitating negotiations with VIPA in an effort to
obtain a ten year extension of the Lease. In consideration for Seller rendering
such services, upon the terms set forth below, Seller shall be paid an incentive
consulting fee equal to (a) the lease Extension Bonus (as hereinafter defined)
and (b) a percentage of "Net Cash Flow" (as hereinafter defined) from the
Property for a three "Fiscal Year" (as hereinafter defined) period following the
Closing Date pursuant to the following percentages (the "PERCENTAGE PROVISION").
FISCAL YEAR 1
PERCENTAGE FOR
NET CASH FLOW PER YEAR APPLICABLE TIERS
---------------------- ----------------
$0-$624,999.99 0%
$625,000~$774,999.99 40%
$775,000~$874,999.99 60%
Over $875,000 75%
FISCAL YEARS 2-3
PERCENTAGE FOR
NET CASH FLOW PER YEAR APPLICABLE TIERS
---------------------- ----------------
$0-$674,999.99 0%
$675,000~$774,999.99 40%
$775,000~$874,999.99 60%
Over $875,000 75%
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Percentage Provision payments shall not be reduced by any "Lease Extension
Bonus" (as hereinafter defined) payments made by Buyer to Seller. Any earned
Percentage Provision payments which are not paid due to there being insufficient
funds because of any payments of the Lease Extension Bonus shall be due and
payable the following Fiscal Year. The Seller's participation in the Percentage
Provision payments shall not exceed $500,000 in the aggregate during the
three-Fiscal Year period. Distribution of Percentage Provision payments to the
Seller, if any, will be made annually within 60 days from the end of the Fiscal
Year subject to any local, state, and federal required tax withholdings. Buyer
reserves the right to sell the Property at any time, and, in the event of an
arm's length transaction with change of control, no Percentage Provision
payments will be due in respect of the Fiscal Year in which the third-party sale
("THIRD-PARTY SALE") occurs, however, Seller shall receive payment upon such
sale in the amount set forth in the following schedule of the Percentage
Provision, provided that the Property is sold for more than the sum of
$3,750,000 plus amounts spent on "Capital Expenditures" (as hereinafter
defined), if any made by the Buyer through the date of such sale:
FISCAL
YEAR AMOUNT/FORMULA
------- --------------
1 If the Property is sold at any time during the first Fiscal Year,
Seller shall be paid 50% of the gross sale proceeds ("GROSS SALE
PROCEEDS") over the sum of $3,750,000 plus amounts spent on
Capital Expenditures, if any. The amount paid to the Seller under
this clause shall not exceed $500,000 in aggregate. Any payments
due under this paragraph will be payable at the closing of the
Third-Party Sale.
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FISCAL
YEAR AMOUNT/FORMULA
------- --------------
2 If the Property is sold at any time during the second Fiscal
Year, Seller shall be paid Percentage Provision payments (not to
exceed $500,000 less any previous Percentage Provision payments)
for Fiscal Years 2 and 3 pursuant to the Percentage Provision
determined by the first Fiscal Year Net Cash Flow increased by 5%
once as the projected Net Cash Flow for each of the two remaining
Fiscal Years. Any payments due under this paragraph will be
payable only from available Gross Sale Proceeds above the sum of
$3,750,000, plus amounts spent on Capital Expenditures, if any,
made by the Borrower through the date of such sale and shall be
paid at the closing of the Third-Party Sale.
3 If the Property is sold at any time during the third Fiscal Year,
Seller shall receive earn-out payments (not to exceed $500,000
less any previous Earn Out Provision payments) for Fiscal Year 3
pursuant to the Percentage Provision determined by the second
Fiscal Year Net Cash Flow grown by 5% once as the projected Net
Cash Flow for the one remaining Fiscal Year. Any payments due
under this paragraph will be payable only from available Gross
Sale Proceeds above the sum of $3,750,000, plus amounts spent on
Capital Expenditures, if any, made by the Borrower through the
date of such sale, and shall be paid at the closing of the
Third-Party Sale.
12.2. NET CASH FLOW. "Net Cash Flow" from the Property is defined as gross
operating revenue (including business interruption proceeds but excluding other
insurance proceeds) less (i) cost of goods sold, (ii) all operating expenses
including, but not limited to, gross receipt taxes and VIPA royalty and ground
lease payments (repair and maintenance expenses shall be consistent with
historical categorization vis-
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a-vis capital expenditures) (iii) capital reserve of $60,000 per annum, (iv)
management fee of $65,000 per annum ($85,000 per annum if not managed by Marina
Management Services), (v) pre-identified major capital expenditures (to be
identified and agreed prior to Closing Date), (vi) prior year Net Cash Flow
losses, if any, and (vii) upon occurrence of any insured event, $33,000 in
deductible expenses (applicable until the current insurance policy expires or is
replaced with a new policy selected by the Buyer). Any payments made to the
Seller pursuant to the Earn Out Provision and Lease Extension Bonus are excluded
as expenses for determining Net Cash Flow.
12.3. LEASE EXTENSION BONUS. Upon receiving a written extension of the term
of the Lease (in addition to the current 14-year original lease term plus
10-year option period) from the VIPA prior to the Closing Date, Buyer shall pay
Seller $250,000 as a lease extension bonus ("LEASE EXTENSION BONUS") on the
Closing Date, provided that the lease extension shall have a minimum extension
period of ten (10) original lease years in the form, and upon terms, acceptable
to Buyer in its reasonable discretion (a "QUALIFYING LEASE EXTENSION").
If the lease extension is executed following the Closing Date, the $250,000
Lease Extension Bonus will be cumulatively reduced by $9,523.81 a month,
commencing on the fourth month from the Closing Date, on the second day of the
month until a final executed and legally binding copy of the Qualifying Lease
Extension is delivered to Buyer. Buyer's obligation to pay any Lease Extension
Bonus will terminate on the second anniversary of the Closing Date.
Any Lease Extension Bonus earned following the Closing Date will be
payable, on the last day of the month, ratably over a 12-month period ("BONUS
MONTHLY PAYMENTS") from available Net Cash Flow less any third-party debt
service ("DEBT SERVICE"). For purposes of this calculation, Debt Service shall
not exceed 80% of trailing, 12-month Net Operating Income determined at the
Closing Date. "NET OPERATING INCOME" shall be defined as gross operating revenue
less (i) cost of goods sold, (ii) all operating expenses, and (iii) management
fee as set forth in clause (iv) of Section 12.2 above. If Bonus Monthly Payments
are not paid in full following the initial 12-month period due to unavailable
Net Cash Flow, Seller shall continue to receive Bonus Monthly Payments until the
Lease Extension Bonus is paid in full.
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If the Property is sold in a Third-Party Sale prior to the full payment of
the Lease Extension Bonus, the unpaid Lease Extension Bonus will be due and
payable only from the Gross Sales above the sum of $3,750,000 plus amounts
expended on Capital Expenditures made by the Buyer through the date of such
Third-Party Sale plus the amount of any payments made to the Seller based upon
the Percentage Provision pursuant to Section 12.1 above in connection with such
Third-Party Sale.
12.4. FISCAL YEAR. "Fiscal Year" shall mean each consecutive twelve month
period between the first day of the calendar month following Closing and the
last day of the calendar month of Closing.
12.5. CAPITAL EXPENDITURES. "Capital Expenditures" shall mean expenditures
for the acquisition, replacement, repair or improvements to fixed or capital
assets which should be capitalized under GAAP.
XIII. DEFERRED MAINTENANCE. Prior to the Closing Date, Seller agrees to
restore (or, if Seller elects not to do such restoration, provide a credit
towards the Purchase Price in an amount equal to the reasonably estimated cost
to Borrower to do such restoration) the wooden finger docks located on the C
Dock of the Crown Bay Marina to its original concrete condition and any faulty
electrical posts (subject to further review by Buyer's electrician). If Seller
has commenced such restoration but such restoration is not completed prior to
the Closing Date, funds in an amount equal to the reasonably estimated cost to
Borrower to do such restoration shall be escrowed with the Escrow Holder until
such repairs are completed upon terms reasonably satisfactory to the Seller and
the Buyer.
XIV. CONTINGENT LIABILITIES. Prior to the Closing Date, Seller shall
settle (or provide a credit towards the Purchase Price) in a manner satisfactory
to the Buyer in its reasonable discretion all contingent liabilities associated
with Atlantis Submarine due to over charging of utility expenses.
XV. FINANCIAL STATEMENTS. Seller shall receive quarterly financial
statements prepared by Buyer following 60 days from each fiscal quarter end of
Buyer. Seller shall have the right at reasonable times during business hours and
upon reasonable prior notice to inspect and audit Buyer's books and records to
verify
23
<PAGE>
income and expenditures affecting Seller's entitlements to payments from Buyer
under the provisions of Article XII above.
XVI. SURVIVE CLOSING.. The provisions of Article XII hereof shall
survive Closing, and shall be memorialized in a memorandum executed by Buyer and
Seller and recorded at Closing (the "MEMORANDUM"). The Memorandum shall state
that it does not, and Seller's rights to receive payments under Article XII
hereof (collectively, "SELLER'S RIGHTS") do not, constitute any lien on the
Property or any part thereof, and that Seller expressly disclaims any right to
lien the Property (including by way of Lis Pendens) as a result thereof.
However, Seller's Rights shall be secured by a lien (the "LIEN") on the proceeds
of any sale or financing (other than the proceeds of any mortgage financing used
to purchase the Property hereunder) of the Property, and the Memorandum shall so
state. Until the Expiration Date (as defined below) Seller's Rights, the
Memorandum and the Lien shall continue and upon the Expiration Date all of
Seller's Rights, the Memorandum and the Lien shall cease and expire. Seller
shall obtain the written statement of Buyer's title insurance company that the
Memorandum would not constitute an exception to title to the Property that would
need to be shown as such in any owner's or mortgagee's title insurance policy,
as a condition to being able to record such Memorandum. The Memorandum shall
automatically expire on the date (the "EXPIRATION DATE") which is the earlier to
occur of (i)one hundred eighty (180) days after the end of the third Fiscal Year
following the Closing Date, unless Seller has commenced any action to enforce
Seller's Rights in any court of competent jurisdiction prior to such date; or
(ii) the occurrence of a Third-Party Sale and payment to Seller of all amounts
owed to Seller pursuant to Seller's Rights; or (iii) the recordation in the
Public Records of a written termination of the Memorandum executed by Seller.
Such Expiration Date shall be automatic but, upon request by Buyer, Seller shall
execute and deliver to Buyer written evidence thereof in any reasonable form
provided by Buyer.
24
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the
date specified in the first paragraph.
WITNESS: SELLER:
DEVCON CROWN BAY CORP., a Florida
corporation
By:/S/ RICHARD L. HORNSBY
- --------------------------- ---------------------------
Richard L. Hornsby
President
- ---------------------------
CROWN BAY MARINA JOINT VENTURE I, a
Virgin Islands partnership
By: Devcon Crown Bay Corp., a
Florida corporation
By:/S/ RICHARD L. HORNSBY
- --------------------------- --------------------------
Richard L. Hornsby
President
- ---------------------------
By: Devcon Crown Bay II Corp., a
Florida corporation
By:/S/ RICHARD L. HORNSBY
- ---------------------------- --------------------------
Richard L. Hornsby
President
- ---------------------------
BUYER:
KOBEN CAPITAL PARTNERS, INC., a
Delaware corporation
By:/S/ KOSEI P. OHNO
- --------------------------- ------------------------------
Name: Kosei P. Ohno
Title: President
- ---------------------------
25
<PAGE>
ESCROW AGENT:
By: /s/ GREENBERG TRAURIG ET AL
- ------------------------- -----------------------------
Name: Jerrold A. Wish
Title: Attorney
- -------------------------
26
<PAGE>
LIST OF EXHIBITS
Exhibit A-1: Depiction of Crown Bay Marina
Exhibit A-2: Legal Description of the Leasehold
Exhibit B: Personal Property Inventory
Exhibit C: Contracts
Exhibit D: Licenses
Exhibit E: Litigation
Exhibit F: Work Pursuant to Insurance Settlement,
(Hurricane Marilyn), 1995-96.
Exhibit G: Escrow Provisions
27
<PAGE>
EXHIBIT G
Escrow Provisions
The Deposit shall be held in escrow by Escrow Agent and deposited in an
escrow account. The Deposit, plus any interest earned from the investment
thereof, shall be delivered by Escrow Agent to Sellers, to Buyers or, if
pursuant to subparagraph (D) hereof, to a court having appropriate jurisdiction,
in accordance with the terms of this Exhibit. Delivery of the Deposit shall be
made by uncertified, unendorsed check of Escrow Agent.
A. At the Closing, upon Sellers' delivery of the deed and the
other documents required by this Agreement and Buyers' payment of the
balance of the purchase price, Escrow Agent shall deliver the Deposit
to Sellers. If the Deposit shall be so delivered to Sellers and/or
Buyers, Escrow Agent shall thereupon be discharged and released from
all liability hereunder.
B. If at any time Escrow Agent shall receive a notice from either
Sellers or Buyers (the "Notifying Party") to the effect that: (a) the
other party (the "Other Party") has defaulted under this Agreement of
this Agreement is null and void or terminated pursuant to the
provisions hereof, (b) a copy of the notice and a statement in
reasonable detail of the basis for the claimed default or termination
was given as provided herein to the Other Party prior to or
contemporaneously with the giving of such certificate to Escrow Agent,
and (c) in the case of a claimed default, to the knowledge of the
Notifying Party, the claimed default has not been timely cured, then,
Escrow Agent shall give written notice to the Other Party of such
demand. Unless Escrow Agent shall have received contrary instructions
from the Other Party within ten (10) days after Escrow Agent's receipt
of the certificate, Escrow Agent shall, within five (5) days after the
expiration of such 10 day period, deliver the Deposit to the Notifying
Party and thereupon be discharged and released from any and all
liability hereunder. If Escrow Agent shall receive contrary
instructions from the Other Party within ten (10) days after Escrow
Agent's receipt of the Notifying Party's certificate, or if for any
other reason escrowee in good faith shall
G-1
<PAGE>
elect not to make delivery, Escrow Agent shall not so deliver the
Deposit but shall continue to hold the same pursuant hereto subject to
subparagraph (D) hereof.
C. Escrow Agent shall be entitled to rely upon the authenticity
of any signature and the genuineness and validity of any writing
received by Escrow Agent pursuant to or otherwise relating to this
Paragraph.
D. In case of (i) receipt of contradictory instructions pursuant
to subparagraph (C) hereof, (ii) any dispute as to any matter arising
under this Paragraph, (iii) any alleged default by Sellers or Buyers
under this Agreement or (iv) any uncertainty as to the meaning or
applicability of any of the provisions hereof, Escrow Agent may, at
its options at any time thereafter, deposit the funds and investments
then being held by it in escrow into a court having appropriate
jurisdiction and shall thereby be discharged and released of any and
all liability hereunder.
E. Sellers and Buyers recognize and acknowledge that the Escrow
Agent is serving without compensation and solely as an accommodation
to the parties hereto and they each agree that Escrow Agent shall not
be liable to either of the parties for any act or omission hereunder
or any matter or thing arising out of its conduct hereunder, except
for Escrow Agent's willful misconduct or negligence.
F. Greenberg Traurig Hoffman Lipoff Rosen & Quentel has
acknowledged agreement to these provisions by signing in the place
indicated at the end of the Agreement.
G-2
ACCOUNTANTS' CONSENT
The Board of Directors
Devcon International Corp. and Subsidiaries:
We consent to incorporation by reference in the registration statements (No. 33-
32968 and No. 33-59557) on Form S-8 and (No. 33-65235) on Form S-3 of Devcon
International Corp. and subsidiaries of our report dated March 27, 1998,
relating to the consolidated balance sheets of Devcon International Corp. and
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1997, and the related
financial statement schedule, which report appears in the December 31, 1997
annual report on Form 10- K of Devcon International Corp. and subsidiaries.
KPMG PEAT MARWICK LLP
Fort Lauderdale, Florida
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 876,368
<SECURITIES> 125,000
<RECEIVABLES> 18,913,836
<ALLOWANCES> (4,984,839)
<INVENTORY> 4,779,121
<CURRENT-ASSETS> 27,895,994
<PP&E> 66,767,866
<DEPRECIATION> (27,119,417)
<TOTAL-ASSETS> 86,433,260
<CURRENT-LIABILITIES> 19,183,305
<BONDS> 0
<COMMON> 449,894
0
0
<OTHER-SE> 12,064,133
<TOTAL-LIABILITY-AND-EQUITY> 86,433,260
<SALES> 64,243,751
<TOTAL-REVENUES> 64,243,751
<CGS> 53,678,713
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 22,975,774
<LOSS-PROVISION> 150,000
<INTEREST-EXPENSE> 2,668,277
<INCOME-PRETAX> (15,229,013)
<INCOME-TAX> 307,010
<INCOME-CONTINUING> (15,536,023)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,536,023)
<EPS-PRIMARY> (3.45)
<EPS-DILUTED> (3.45)
</TABLE>
