<PAGE>
FORM 10Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
Commission file number 2-66564
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Spinnaker Industries, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 06-0544125
(State or other jurisdiction of) (I.R.S. Employer Identification No.)
600 N. Pearl St., #2160, L.B. 100, Dallas, TX 75201
(Address of principal executive offices) (Zip Code)
(214) 855-0322
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former
fiscal year, if changed since last report.)
Indicate check mark whether the Registrant (1) has filed all reports required
to be filed be 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 the number of shares outstanding of each of the Registrant's classes
of Common Stock, as of the latest practicable date.
Common Stock, No Par Value 1,810,504 shares
- - -------------------------- -----------------------------
Class Outstanding at April 30, 1995
Page 1 of 12
<PAGE>
SPINNAKER INDUSTRIES, INC.
INDEX
PAGE
NUMBER
------
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of March 31,
1995 and December 31, 1994 (Audited). 3
Condensed Consolidated Statements of Income for the
Three Months Ended March 31, 1995 and 1994 4
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1995 and 1994 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Page 2 of 12
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. - FINANCIAL STATEMENTS
SPINNAKER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
--------- -------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 288,000 $ 484,000
Short-term investments 0 4,000
Accounts receivable (less allowance 12,539,000 12,510,000
of $358,000 and $378,000)
Inventories 15,953,000 14,572,000
Income taxes due from Parent 46,000 70,000
Prepaid expenses and other 263,000 97,000
Deferred income taxes 589,000 589,000
----------- -----------
Total current assets 29,678,000 28,326,000
Property plant and equipment
Land 420,000 420,000
Buildings and improvements 4,984,000 4,943,000
Machinery and equipment 10,537,000 10,059,000
Accumulated depreciation (3,165,000) (2,927,000)
----------- -----------
12,776,000 12,495,000
Other assets 488,000 508,000
----------- -----------
TOTAL ASSETS $42,942,000 $41,329,000
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 8,317,000 $ 5,003,000
Accrued liabilities 3,014,000 2,857,000
Current portion of long term debt 2,896,000 2,217,000
Working capital revolver 11,295,000 13,180,000
Other current liabilities 132,000 422,000
----------- -----------
Total current liabilities 25,654,000 23,679,000
Long term debt less current portion 7,113,000 7,797,000
Deferred income taxes 589,000 589,000
Notes payable to related parties 1,413,000 1,352,000
Minority interest 1,444,000 1,411,000
Stockholders' equity
Common stock 3,124,000 3,124,000
Additional paid in capital 3,709,000 3,709,000
Retained earnings (deficit) 8,000 (220,000)
Less: common stock in treasury (112,000) (112,000)
----------- -----------
Total stockholders' equity 6,729,000 6,501,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $42,942,000 $41,329,000
----------- -----------
----------- -----------
<FN>
NOTE: The balance sheet at December 31, 1994 has been derived from the
audited financial statements at that date but does not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
</TABLE>
See accompanying notes to condensed consolidated financial statements which
are an integral part of these financial statements.
Page 3 of 12
<PAGE>
SPINNAKER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED RESULTS OF INCOME - UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
(unaudited)
1995 1994
<S> <C> <C>
Total sales $ 25,961,000 $ 2,117,000
Cost of sales (22,104,000) (1,320,000)
Depreciation and amortization (256,000) (35,000)
------------ -----------
Gross margin 3,601,000 762,000
Selling, general and administrative
expense (2,499,000) (547,000)
Litigation settlement 0 (125,000)
------------ -----------
Income from operations 1,102,000 90,000
Interest expense (646,000) (26,000)
Other income-Net 33,000 40,000
------------ -----------
Income before income taxes
and minority interest 489,000 104,000
Income tax provision (187,000) (12,000)
Minority interest (74,000) 0
------------ -----------
Net income $ 228,000 $ 92,000
------------ -----------
------------ -----------
Weighted average shares and
common stock equivalents
outstanding (1) 2,149,000 1,811,000
Net income per share (1) $ 0.11 $ 0.05
<FN>
(1) Adjusted to reflect a 3-for-2 stock split effective December 30, 1994.
</TABLE>
See accompanying notes to condensed consolidated financial statements which
are an integral part of these financial statements.
Page 4 of 12
<PAGE>
SPINNAKER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1995 1994
<S> <C> <C>
Operating activities
Net income $ 228,000 $ 92,000
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 256,000 35,000
Provision for losses on accounts receivable --- 5,000
Sales (purchases) of short-term investments, net 4,000 (14,000)
Minority interest 74,000 ---
Changes in operating assets and liabilities
Accounts receivable (29,000) (228,000)
Inventories (1,381,000) (53,000)
Prepaid expenses and other assets (140,000) (107,000)
Accounts payable and accrued liabilities 3,471,000 225,000
Other current liabilities (290,000) ---
----------- ----------
Net cash provided by (used in) operating activities 2,193,000 (45,000)
Investing activities
Purchases of property, plant, and equipment (519,000) (63,000)
----------- ----------
Net cash used in investing activities (519,000) (63,000)
----------- ----------
Financing activities
Payments working capital revolver (1,885,000) ---
Principal payments on long-term debt (5,000) (5,000)
Proceeds from notes payable 61,000 ---
Purchase of minority interest (41,000) ---
----------- ----------
Net cash used in financing activities (1,870,000) (5,000)
----------- ----------
Decrease in cash and cash equivalents (196,000) (113,000)
Cash and cash equivalents at beginning of period 484,000 2,745,000
----------- ----------
Cash and cash equivalents at end of period $ 288,000 $2,632,000
----------- ----------
----------- ----------
</TABLE>
See accompanying notes which are an integral part of these financial statements
Page 5 of 12
<PAGE>
SPINNAKER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying condensed consolidated financial statements include
Spinnaker Industries, Inc. and its operating subsidiaries, Brown-Bridge
Industries, Inc. (80.1% owned) and Entoleter, Inc. (100.0% owned)
(collectively the "Registrant"). On September 19, 1994, the Registrant
purchased 80.1% of Brown-Bridge Industries, Inc., an entity formed to
acquire Kimberly Clark's Brown-Bridge operation (which manufactures
adhesive-coated stocks for labels and related applications). The total
cost of the transaction was approximately $36 million, which includes
the assumption of approximately $7 million in liabilities. The transaction
was accounted for as a purchase and, accordingly, the assets acquired and
liabilities assumed were recorded at their estimated fair market value.
The operating results of Brown-Bridge are included in the consolidated
statements of operations for the first-quarter ended March 31, 1995. The
following proforma information, which is based on information currently
available to the Company, shows the results of the Registrant's
operations presented as though the purchase of Brown-Bridge had been made at
the beginning of 1994.
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
MARCH 31
-----------------------------
1994
-----------
<S> <C>
Sales and Revenues $25,012,000
Net Income 240,000
Net Income Per Share 0.11
</TABLE>
2. The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the period ended March 31, 1995, are not necessarily indicative
of the results that may be expected for the year ended December 31, 1995.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Registrant's annual report on Form 10-K for
the year ended December 31, 1994.
3. Inventory values at March 31, 1995, and December 31, 1994, for
Brown-Bridge (90% and 85% of total inventory, respectively) are valued using
a specific identification method for each item of inventory. The inventories
at Entoleter are valued using the first-in, first-out (FIFO) method.
Inventories consist of the following at March 31, 1995, and December 31,
1994.
Page 6 of 12
<PAGE>
<TABLE>
<CAPTION>
1995 1994
----------- ------------
<S> <C> <C>
Finished goods $ 3,231,000 $ 1,920,000
Work-in-process 8,327,000 7,208,000
Raw materials and supplies 4,395,000 5,444,000
----------- -----------
Total $15,953,000 $14,572,000
=========== ===========
</TABLE>
4. Brown-Bridge and Entoleter maintain revolving credit and/or letter of
credit arrangements with combined maximum availabilities of $19 million and
$2.5 million, respectively. Credit availability under these revolving credit
arrangements is subject to certain variables, such as the amount of inventory
and receivables eligible to be included in a borrowing base. At March 31,
1995, Brown-Bridge and Entoleter had cash advances under these revolving
credit arrangements of $11.1 million and $.2 million, respectively. Interest
on these borrowings is payable monthly at an interest rate of prime plus
1.25% for Brown-Bridge and prime plus 2.5% for Entoleter.
Following is a summary of long-term debt of Registrant at March 31, 1995
and December 31, 1994:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Term loan maturing in 1999 secured
by the assets of Brown-Bridge at an $ 9,000,000 $ 9,000,000
interest rate of prime plus 1.25%
payable over five years maturing in
1999.
Mortgage note payable on demand in
1997 and secured by certain real
property of Entoleter 1,009,000 1,014,000
----------- -----------
10,009,000 10,014,000
Current Maturities (2,896,000) (2,217,000)
----------- -----------
$ 7,113,000 $ 7,797,000
----------- -----------
</TABLE>
Spinnaker has pledged its shares of common stock of Brown-Bridge
Industries, Inc. to secure Brown-Bridge Industries, Inc.'s indebtedness under
the above referenced term loan and line of credit.
5. The Directors of Spinnaker declared a 3-for-2 stock split of Spinnaker's
common shares, effective December 30, 1994. All presentations of shares
outstanding and amounts per share have been restated to reflect the stock
split.
Page 7 of 12
<PAGE>
Earnings per share is based on the weighted average number of common and
common equivalent shares outstanding during each year, after giving effect to
the 3-for-2 stock split. Fully diluted earnings per share did not differ
significantly from primary earnings per share in any period presented.
6. The 1994 income from operations includes a $125,000 charge to earnings
based on a settlement of litigation and related matters.
7. Certain reclassifications have been made to conform prior period data to
the current year's presentation.
Page 8 of 12
<PAGE>
ITEM-2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ACQUISITIONS
On September 19, 1994, Spinnaker purchased 80.1% of Brown-Bridge Industries,
Inc., an entity formed to acquire Kimberly-Clark's Brown-Bridge operation
which manufactures adhesive-coated stocks for labels and related applications
(See Note 1 to Notes to Condensed Consolidated Financial Statements).
SALES
Net sales were $25,961,000 for the three-month period ended March 31, 1995,
versus $2,117,000 for the comparable 1994 period, an increase of $23,844,000.
Brown-Bridge accounted for $23,905,000 of the net increase, which was
partially reduced by lower sales at Entoleter.
COST OF SALES
Cost of sales for the three-month period ended March 31, 1995, increased by
$20,784,000 compared with the corresponding period of 1994. The increase was
attributable to the inclusion of Brown-Bridge.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased by $1,952,000 compared
to the comparable 1994 period. Brown-Bridge represents 94% of this increase.
LITIGATION
The 1994 income from operations includes a $125,000 charge to earnings based
on the settlement of litigation and related matters at Entoleter.
INTEREST EXPENSE
Interest expense for the three-month period ended March 31, 1995, increased
by $620,000 compared with the corresponding period of 1994. The increase is
primarily the result of the additional debt incurred in the acquisition of
Brown-Bridge ($614,000).
Page 9 of 12
<PAGE>
INCOME TAXES
The 1995 income tax provision provides for federal and state income taxes
while the comparable 1994 tax provision included only state taxes. No
federal income tax provision was provided for in the first quarter of 1994
due to the use of net operating loss carryforwards which were fully utilized
during 1994 through the reversal of a portion of the valuation allowance.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
- - ----------------------------------------------------
Net working capital at March 31, 1995 was $4,024,000 versus $4,647,000 at
December 31, 1994, a decrease of $623,000.
At March 31, 1995, total debt of the Registrant was $22,717,000 compared to
$24,546,000 at December 31, 1994, a reduction of $1,829,000 (7.45%). The
Registrant's subsidiaries have credit facilities available for future use,
including revolving credit agreements with maximum availability of
$21,500,000. (See Note 4 to Notes to Condensed Consolidated Financial
Statements.) Borrowings under these credit facilities totaled $11,295,000 at
March 31, 1995. Agreements with its lenders imposes restrictions on the
ability of Brown-Bridge and Entoleter to pay dividends to the Registrant.
The Registrant's Net cash provided by operating activities for the three
months ended March 31, 1995, was $2,193,000, an increase of $2,238,000
over the comparable 1994 period and is attributable to Brown-Bridge. Net
cash used in investing activities increased by $456,000 in the first quarter
of 1995 versus 1994, almost all of which was for capital expenditures at
Brown-Bridge and Entoleter. Net cash used in financing activities increased
by $1,865,000 for the first three months of 1995 when compared to the
comparable 1994 period and relates to the reduction of the working capital
revolver.
The Registrant has previously identified possible environmental issues at
Entoleter related to portions of its land in Hamden, Connecticut. The
appropriate regulatory agencies have been notified, but to date no action has
been required by any regulatory agency.
Page 10 of 12
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
10.1 Put Option Agreement, dated September 16, 1994, by and among Brown-Bridge
Industries, Inc., Safety Railway Service Corporation, and Management Group
Shareholders.
10.2 Put Option Agreement, dated September 16, 1994, by and among Brown-Bridge
Industries, Inc., Safety Railway Service Corporation, and Investor Group
Shareholders.
(B) REPORTS ON FORM 8-K
None.
Page 11 of 12
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
SPINNAKER INDUSTRIES, INC.
(Registrant)
/s/ Ned N. Fleming, III
----------------------------------
Ned N. Fleming III, President
Date: May 11, 1995
Page 12 of 12
<PAGE>
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT PAGE NO.
- - ------- ----------
10.1 Put Option Agreement, dated September 16, 1994, by and
among Brown-Bridge Industries, Inc., Safety Railway Service
Corporation, and Management Group Shareholders.
10.2 Put Option Agreement, dated September 16, 1994, by and
among Brown-Bridge Industries, Inc., Safety Railway Service
Corporation, and Investor Group Shareholders.
<PAGE>
EXHIBIT 10.1
<PAGE>
PUT OPTION AGREEMENT
This Put Option Agreement (the "Agreement") is entered into as of this
16th day of September 1994, by and among Brown-Bridge Industries, Inc., a
Delaware corporation (the "Company"), Safety Railway Service Corporation, a
Delaware corporation and majority stockholder of the Company ("SRSC" and,
together with the Company, the "Grantors"), and the person named below (the
"Holder").
W I T N E S S E T H:
WHEREAS, the Holder owns the shares of Common Stock, $.01 par value, of
the Company (the "Common Stock") set forth on SCHEDULE A hereto individually
and holds the shares of Common Stock set forth on SCHEDULE A hereto as
attorney-in-fact for the persons listed thereon (the "Beneficial Owners"); and
WHEREAS, the Grantors desire to grant to Holder an option to require the
Grantors to purchase the shares owned by Holder on the terms set forth herein;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. GRANT OF OPTION. The Company and SRSC, jointly and severally,
grant to Holder the right and option (the "Option") to demand that the
Company or SRSC, or both, purchase all of the Shares on the terms set forth
herein. Holder may exercise the Option at any time for all, but not less
than all, of the Shares by furnishing written notice of exercise to the
Company and SRSC in accordance with Section 12. As used herein, "Shares"
means all shares of Common Stock now or hereafter owned by Holder or held by
him as attorney-in-fact, including, without limitation, the shares of common
stock listed on SCHEDULE A hereto. Upon exercise of the Option by Holder,
the Company shall first be obligated to purchase the Shares and, if the
Company is unwilling or unable to purchase the Shares, SRSC shall then be
fully obligated to purchase the Shares. Notwithstanding the foregoing, the
Company and SRSC shall have a joint and several obligation to purchase all of
the Shares upon exercise of the Option.
2. TERM. The Option may be exercised at any time after September 30,
1998 and and on or before 5:00 p.m. Dallas, Texas time on September 30, 2000
(the "Option Term").
3. OPTION PRICE. The price per share payable by the Grantors to
Holder upon exercise of the Option (the "Option Price") shall be an amount
equal to 75% of the Fair Market Value (defined below) of such Shares l. As
used herein, the term "Fair Market Value" shall mean the fair market value of
the Shares as mutually agreed by Holder and the Company or SRSC, as
applicable. If Holder and the Company or SRSC, as applicable, are unable to
agree on the Fair Market Value, then they shall mutually agree on a third
party appraiser, experienced in valuing companies, who shall determine the
<PAGE>
Fair Market Value. If Holder and the Company or SRSC, as applicable, are
unable to agree on a third party appraiser, then they shall each select an
appraiser and the two appraisers so selected shall select a third appraiser,
who shall be experienced in valuing companies, and such third appraiser shall
determine the Fair Market Value. In determining the Fair Market Value,
neither party nor any appraiser selected pursuant to this section shall take
into account, or apply, any discount in value as a result of the Shares being
illiquid or representing a minority interest in the Company. All costs of
determining value pursuant to this section shall be borne equally by Holder
and the Company or SRSC, as applicable.
4. PAYMENT OF OPTION PRICE. The Option Price shall be payable in cash
or by certified or cashier's check, payable to the order of Holder. At the
Grantor's election, it may pay the Option Price payable in respect of an
exercise in accordance with either the following delayed payment procedure or
the alternative payment procedure:
(a) DELAYED PAYMENT PROCEDURE.
(i) INITIAL PAYMENT. At the Closing (defined below), the Grantor
shall pay to Holder an amount equal to 70% of the aggregate Option Price.
(ii) DEFERRED PAYMENT. The Grantor shall deliver to the Holder its
negotiable promissory note in the form of EXHIBIT 4 hereto (the "Note")
evidencing the Grantor's obligation to pay the balance of the aggregate
Option Price in 12 equal monthly installments of principal, with the first
such installment due and payable 30 days after the Closing and with a like
payment of principal being due on the same date of each successive month
until the principal amount of the Note is paid in full (the "Deferred
Payment"). Each payment of principal shall be accompanied by a payment of
all unpaid interest that has accrued on the outstanding principal amount of
the Note through the date of such payment. The indebtedness evidenced by the
Note shall bear interest at a floating rate equal to the prime rate of
interest publicly published from time to time by THE WALL STREET JOURNAL as
the prime rate, plus 1%, and the Grantor's obligation to pay such
indebtedness shall be automatically accelerated in the event the Company
consummates an underwritten public offering of shares of its capital stock
that is registered under the Securities Act of 1933, as amended. Interest
shall be calculated on the basis of actual days over a 360 day year.
(b) ALTERNATIVE PAYMENT PROCEDURE. At the Closing, if the Grantor that
is delivering payment for the Shares is SRSC, the Grantor may, its option,
deliver to the Holder, in lieu of cash or a combination of cash and the Note,
as contemplated above, (x) that number of shares of Common Stock, no par
value per share (the "SRSC Common Stock"), of SRSC (the "Payment Shares")
that is equal to the aggregate Option Price divided by the Agreed Value
(defined below) plus (y) the Adjustment Shares (defined below); provided,
however, that SRSC may only deliver Payment Shares if the Agreed Value can
be determined in accordance with the following Section 4(b)(ii).
-2-
<PAGE>
(i) AGREED VALUE. As used herein, the term "Agreed Value" shall
be mean the average over the thirty (30) days immediately preceding the
Holder's exercise of the Option of (A) the last reported sales price of the
SRSC Common Stock on the New York Stock Exchange or (B) (if Agreed Value
cannot be determined pursuant to the preceding (A)), the last reported sales
price of the SRSC Common Stock on such other national security exchange as
the the SRSC Common Stock is then listed or admittted to unlisted trading
priviliges or (C) (if Agreed Value cannot be determined pursuant to the
preceding (B)), the last resprted sales price as reported in the NMS, or (D)
(if Agreed Value cannot be determined pursuant to the preceding (C), the
average of the last "ask" quotation and the last "bid" quotation in the
over-the-counter market as reported by the NASDAQ.
(ii) ADJUSTMENT SHARES. As used herein, the term "Adjustment
Shares" shall be that number of additional shares of SRSC Common Stock as is
necessary to compensate the Holder for brokerage commissions that may be
incurred by the Holder in selling the Payment Shares. For purposes of
computing the number of Adjustment Shares, the Holders' brokerage costs shall
be deemed to be $.10 per Payment Share and the number of Adjustment Shares
that shall be necessary to compensate the Holder for such costs shall be
determined based on the Agreed Value of the SRSC Common Stock by dividing
the (A) product obtained by multiplying the number of Payment Shares by $.10
by (B) the Agreed Value.
(iii) REGISTRATION RIGHTS. SRSC hereby grants to the Holder
the registration rights set forth on SCHEDULE 4 hereto, which apply to any
Payment Shares delivered by SRSC pursuant to this Section 4(b).
5. EXERCISE. Holder shall exercise the Option by delivering to the
Company and SRSC written notice of exercise of the Option.
6. CLOSING.
(a) The consummation of the purchase and sale of the Shares pursuant to
the exercise of the Option (the "Closing") shall take place at the offices of
the Company, 518 East Water Street, Troy, Ohio 45373, on such date as Holder
and the Grantor may mutually agree. If such parties cannot agree on a date
for the Closing, the Closing shall take place on the forty-fifth (45th) day
after the date on which (i) Holder and the Grantor agree on the Fair Market
Value or (ii) an independent third party determines the Fair Market Value, if
an independent third party is engaged to determine the Fair Market Value;
provided, that if such day is not a regular business day, the Closing shall
take place on the next regular business day thereafter.
At the Closing, Holder shall deliver to the Grantor stock certificates
duly endorsed or accompanied by stock powers duly executed in such form as
may be necessary to vest title to the Shares in the Grantor, free and clear
of all liens, claims and
-3-
<PAGE>
encumbrances, against delivery by the Grantor to Holder, by wire transfer or
certified or cashier's check, of an amount equal to the full amount of the
Option Price multiplied by the number of the Shares purchased from Holder,
provided, however that if the Grantor shall elect to pay the Option Price in
accordance with the delayed payment procedure, the Grantor shall deliver the
Deferred Payment to Holder in accordance with the provisions of Section 4
hereof and if SRSC shall elect to pay the Option Price in accordance with the
alternative payment procedure described in Section 4(b), SRSC shall deliver
the Payment Shares and the Adjustment Shares in accordance with Section 4.
The Grantor and Holder agree to execute any and all documents reasonably
requested by the other to effectuate the purposes and intent of this
Agreement. Such other documents may include the Note.
7. RIGHTS AS STOCKHOLDER. The Grantors shall have no rights as
stockholders with respect to the Shares, until the transfer of a certificate
or certificates to the Grantors for such shares. No adjustments shall be
made for dividends or other rights for which the record date is prior to the
transfer of such certificate or certificates.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE GRANTORS. Each of
the Company and SRSC, jointly and severally, represent, warrant and covenant:
(a) The execution, delivery and performance by such party of this
Agreement and the consummation of the transactions contemplated hereby, have
been duly authorized and approved by such party. This Agreement has been
duly executed and delivered by such party and constitutes the legal, valid
and binding obligation of such party enforceable against it in accordance
with its terms, except as may be limited by applicable bankruptcy, insolvency
or similar laws affecting creditors' rights generally or the availability of
equitable remedies.
(b) Neither the execution, delivery and performance by such party of
this Agreement nor the consummation of the transactions contemplated hereby
will (i) result in a violation or a breach of the Certificate of
Incorporation or Bylaws of such party or any agreement or other instrument
under which such party is bound or to which any of its assets are subject, or
result in the creation or imposition of any lien, charge or incumbrance upon
such assets, except that the execution, delivery and performance of this
Agreement by the Company may violate its loan agreement with Transamerica
Business Credit Corporation or (ii) violate or conflict with any judgment,
decree, order, statute, or, to the knowledge of such party, any rule or
regulation of any court or any public, government or regulatory agency or
body having jurisdiction over such party or its property or assets.
-4-
<PAGE>
10. CERTIFICATE LEGEND. Upon execution of this Agreement, the stock
certificates representing the Shares shall contain substantially the
following legend, in addition to any other legends deemed appropriate or
necessary by the Company:
This certificate is subject to the provisions of a Put Option
Agreement, dated as of September 16, 1994, among the Corporation
and the Holder named therein, a copy of which is on file in the
office of the Secretary of the Corporation at its principal place
of business. The Corporation will furnish a copy of such Agreement
to the record holder of this certificate, without charge, upon
written request to the Corporation at its principal place of
business or registered office.
11. ASSIGNABILITY; TRANSFER. Neither this Agreement nor any right
created hereby shall be assignable by any party, except that Holder may
assign all or a portion of his rights hereunder to any Permissible
Transferee, as defined in that certain Shareholders' and Voting Agreement,
dated of even date herewith (the "Shareholders' Agreement"), among the
Company, SRSC, Lynch Corporation and Holder (individually and as
attorney-in-fact), among others. The Grantors shall continue to be bound by
this Agreement, notwithstanding any transfer of the Shares by Holder or by
any Beneficial Owner.
12. NOTICE. Any notices or communications under this Agreement shall
be given by any of the following means: (i) registered or certified mail,
(ii) hand delivery or (iii) telex, Telecopy or telegram. Such notice or
communication shall be sent to the respective parties at the address listed
below. Notice given by registered or certified mail shall be deemed to have
been given on the third business day after posting and notice given by telex,
Telecopy or telegram shall be deemed given when sent to or refused by the
party to whom notice is being given. Communication by telex, Telecopy or
telegram shall be confirmed by posting a copy of the same by registered,
certified or first class mail in an envelope properly addressed to the
respective parties at the address listed below:
If to either Grantor to: Brown-Bridge Industries, Inc.
518 East Water Street
Troy, Ohio 45373
Telecopy No. 513-39-4045
Attn: Secretary
and
Safety Railway Service Corporation
13355 Noel Road, Suite 1100
Dallas, Texas 75240
Telecopy No. (214) 661-2442
Attn: President
-5-
<PAGE>
If to Holder: K. C. Caldabaugh
518 East Water Street
Troy, Ohio 45373
in ether case with a copy Vaughan & Anderson
(which shall not constitute 14800 Quorum Drive, Suite 510
notice) to: Dallas, Texas 75240
Telecopy No. (214) 991-5446
Attn: Timothy R. Vaughan
Any party may, by written notice to the others, change the address to which
such notices and communications are to be sent.
13. ENTIRE AGREEMENT. This Agreement supersedes any and all other
agreements, either oral or written, between the parties hereto with respect
to the Option and contains all of the terms and conditions between the
parties with respect to the exercise of the Option.
14. CHANGES, MODIFICATIONS OR WAIVERS. No change or modification of
this Agreement shall be valid or binding upon the parties hereto, nor shall
any waiver of any term or condition in the future be so binding, unless such
change or modification or waiver shall be in writing and signed by the
parties hereto.
15. GOVERNING LAW: VENUE. This Agreement shall be interpreted,
construed and governed by the laws of the State of Texas and shall be
performable in Dallas County, Texas.
16. SURVIVAL. All agreements, covenants, undertakings, representations
and warranties made in this Agreement shall survive until the Closing.
17. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
18. RESTRICTIONS ON SHARES. The parties hereto acknowledge that the
Shares are now subject to restrictions on transfer pursuant to the
Shareholders' Agreement.
19. SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable by law shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
of this Agreement.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement on the date first above written.
BROWN-BRIDGE INDUSTRIES, INC.
By: /s/ Ned N. Fleming
_______________________________________
Ned N. Fleming, III, Vice President
SAFETY RAILWAY
SERVICE CORPORATION
By: /s/ Richard J. Boyle
_______________________________________
Richard J. Boyle, Chairman of the Board
/s/ K. C. Caldabaugh
__________________________________________
K. C. Caldabaugh, Individually
and as attorney-in-fact for the persons
listed on SCHEDULE A:
-7-
<PAGE>
EXHIBIT 4
PROMISSORY NOTE
Dallas, Texas _______________, 19___
[Brown-Bridge Industries, Inc./Safety Railway Service Corporation] (the
"Maker"), for value received, hereby promises to pay to ___________________
______________________ (together with any successors or assigns, the
"Payee"), at the time and in the manner hereinafter provided, the principal
sum of _________________________ Dollars ($____________), together with
interest computed thereon at the rate hereinafter provided. This Note shall
be payable at the office of the Payee at __________________________ or at
such other address in _____ County, _________________ as the holder of this
Note shall from time to time designate.
The outstanding principal amount of this Note shall bear interest from
the date hereof until the due date at a rate of interest equal to the Prime
Rate (defined below) plus 1%. The principal amount of this Note shall be
payable in 12 equal monthly installments of principal, with the first such
installment be due and payable 30 days after the date fo this Note and with a
like payment of principal being due on the same date of each successive month
until the principal amount of the Note is paid in full. Each payment of
principal shall be accompanied by a payment of all unpaid interest that has
accrued on the outstanding principal amount of the Note through the date of
such payment. Interest shall be calculated on the basis of actual days over
a 360 day year. As used herein, Prime Rate shall mean that rate of interest
publicly published from time to time by THE WALL STREET JOURNAL as the prime
rate.
All sums of principal and interest past due under the terms of this Note
shall bear interest at a per annum interest rate equal to the lesser of
twelve percent (12%) per annum or the maximum rate allowed by law from the
due date thereof until paid.
In the event of default hereunder and this Note is placed in the hands of
an attorney for collection (whether or not suit is filed), or if this Note is
collected by suit or legal proceedings or through bankruptcy proceedings, the
Maker agrees to pay in addition to all sums then due hereon, including
principal and interest, all expenses of collection, including, without
limitation, reasonable attorneys' fees.
This Note may be prepaid in whole or in part from time to time, without
premium or penalty. Each prepayment of principal shall be accompanied by an
amount equal to the accrued interest on the principal amount prepaid to the
date of such prepayment.
The Payee shall be entitled to accelerate this Note and declare all sums
due hereunder immediately due and payable upon default by the Maker in any of
its obligations under this Note or in the event the Company consummates an
underwritten public offering of shares of its capital stock that is
registered under the Securities Act of 1933, as amended.
-8-
<PAGE>
The Maker and any and all sureties, guarantors and endorsers of this Note
and all other parties now or hereafter liable hereon, severally waive grace,
demand, presentment for payment, notice of dishonor, protest and notice of
protest, notice of intention to accelerate, notice of acceleration, any other
notice and diligence in collecting and bringing suit against any party hereto
and agree (i) to all extensions and partial payments, with or without notice,
before or after maturity, (ii) to any substitution, exchange or release of
any security now or hereafter given for this Note, (iii) to the release of
any party primarily or secondarily liable hereon, and (iv) that it will not
be necessary for the holder hereof, in order to enforce payment of this Note,
to first institute or exhaust such holder's remedies against the Maker or any
other party liable therefor or against any security for this Note. No delay
on the part of the Payee in exercising any power or right under this Note
shall operate as a waiver of such power or right, nor shall any single or
partial exercise of any power of right preclude further exercise of that
power or right.
All agreements between the Maker and the holder hereof, whether now
existing or hereafter arising and whether written or oral, are hereby
expressly limited so that in no contingency or event whatsoever, whether by
reason of acceleration of the maturity hereof, or otherwise, shall the amount
paid, or agreed to be paid, to the holder hereof for the use, forbearance or
detention of the funds advanced pursuant to this Note, or otherwise, or for
the payment of performance of any covenant or obligation contained herein or
in any other document or instrument evidencing, securing or pertaining to
this Note exceed the maximum amount permissible under applicable law. If
from any circumstances whatsoever fulfillment of any provision hereof or any
other document or instrument exceeds the maximum amount of interest
prescribed by law, then IPSO FACTO, the obligation to be fulfilled shall be
reduced to the limit of such validity, and if from any such circumstances the
holder hereof shall ever receive anything of value deemed interest by
applicable law, which would exceed interest at the highest lawful rate, such
amount which would be excessive interest shall be applied to the reduction of
the unpaid principal balance of this Note or on account of any other
principal indebtedness of the Maker to the holder hereof, and not to the
payment of interest, or if such excessive interest exceeds the unpaid
principal balance of this Note and such other indebtedness, such excess shall
be refunded to the Maker. All sums paid, or agreed to be paid, by the Maker
for the use, forbearance or detention of the indebtedness of the Maker to the
holder of this Note shall, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full term of such
indebtedness until payment in full so that the actual rate of interest on
account of such indebtedness is uniform throughout the term hereof. The
terms and provisions of this paragraph shall control and supersede every
other provision of all agreements between the Maker and the holder hereof.
This Note shall be governed by and construed in accordance with the laws
of the State of Texas.
All references to the Maker herein shall, and shall be deemed to, include
its successors and assigns, and all covenants, stipulations, promises and
agreements contained herein by or on behalf of the Maker shall be binding
upon its successors and assigns, whether so expressed or not.
-9-
<PAGE>
MAKER
[BROWN BRIDGE INDUSTRIES, INC. /
SAFETY RAILWAY SERVICE CORPORATION]
____________________________________
-10-
<PAGE>
SCHEDULE 4
1. DEMAND REGISTRATION RIGHTS. At any time that written demand is made
by the Holders who hold at least 20% in the aggregate of the Payment Shares
(collectively, the "Demanding Holders"), SRSC (i) will promptly give written
notice of the proposed registration to all of the Holders, and (ii) will use
its reasonable best efforts to file a registration statement under the
Securities Act of 1933, as amended (the "Act") and to effect, as promptly as
possible, the registration under the Act of the Payment Shares to be
registered by the Demanding Holders (the "Shares"), subject to the other
provisions of this Schedule 4, for disposition in an underwritten public
offering managed by an underwriting firm selected by SRSC. Each person
desiring to include his or her Shares in such registration must so notify
SRSC in writing within 30 days of the giving of notice of registration by
SRSC.
(b) PIGGY BACK REGISTRATION RIGHTS. If at any time SRSC shall
determine to register (including pursuant to a demand of any Shareholder
exercising its registration rights hereunder) any of its securities under the
Act, other than a Form S-8 or Form S-4 or the then equivalent forms, it shall
promptly send to each holder of Shares written notice of such determination
and, if within 30 days after receipt of such notice, any holders of Shares
shall request in writing, SRSC shall use its reasonable best efforts to
include in such registration statement the Shares so requested to be
registered on the same terms and conditions as any similar securities of SRSC
included therein, and to effect, as promptly as possible, the registration of
such Shares under the Act, subject, however, to the other provisions of this
Schedule 4.
(c) LIMITATION OR DEFERRAL OF REGISTRATION. If a managing
underwriter is participating in such registration and advises SRSC in writing
that marketing factors require a limitation on the number of Shares to be
included in any registration statement filed pursuant to this Schedule 4,
then such Shares may be omitted from the registration statement to the extent
necessary to consummate the offering on terms reasonably acceptable to SRSC
and the managing underwriter, and SRSC shall so advise the holders of Shares
who requested registration, PROVIDED, THAT, Shares requested to be registered
by the Shareholders (if any) shall be omitted or excluded from the
registration statement before any Shares to be registered by SRSC may be so
omitted or excluded. If some, but not all, of the Shares that the
Shareholders desire to sell exceeds the number of Shares acceptable by the
managing underwriter, the number of Shares that may be included in the
registration and underwriting shall be allocated among all such Shareholders
in proportion, as nearly as practicable, to the respective amounts of Shares
which they had requested to be included in such registration at the time of
filing the registration statement. Additionally, if the managing underwriter
advises SRSC in writing that marketing factors require that the registration
of the Shares be deferred, or if the registration of the Shares, if not
deferred, would, in the opinion of the Board of Directors of SRSC, determined
reasonably and in good faith, materially and adversely affect an important
business situation, transaction or negotiation affecting SRSC at the time,
then SRSC may defer the filing of such registration statement for a period
not exceeding 120 days from the date of such deferral.
-11-
<PAGE>
(d) FURTHER OBLIGATIONS OF SRSC. If and whenever SRSC is required
by the provisions of this Schedule 4 to use its reasonable best efforts to
effect the registration of Shares under the Act, SRSC will:
(i) Prepare and file with the United States Securities and
Exchange Commission (the "SEC") the appropriate registration statement with
respect to such securities and use its reasonable best efforts to cause such
registration statement to become and remain effective for 90 days or until
the intended distribution is completed, whichever first occurs;
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for 90 days or until the intended distribution is completed,
whichever first occurs, and to comply with the requirements of the Act and
the rules and regulations promulgated by the SEC thereunder relating to the
sale or other disposition of the securities covered by such registration
statement;
(iii) Furnish to the holders of Shares covered by the
registration statement copies of a prospectus, including a preliminary
prospectus, complying with the requirements of the Act and such other
documents as such holders may reasonably request in order to facilitate the
public sale or other disposition of the Shares covered by such registration
statement;
(iv) Use its reasonable best efforts to register or qualify the
Shares covered by such registration statement under such securities or blue
sky laws as the managing underwriter for the offering designates; provided,
however, that SRSC shall not be required to qualify as a foreign corporation
in any such jurisdiction or be required to execute a consent to submit
generally to the jurisdiction of the courts of such jurisdiction or to escrow
any of its securities;
(v) Supply the managing underwriter with copies of all
correspondence and communications between SRSC and the SEC relating to all
registration statements, notifications or offering circulars provided for
hereunder;
(vi) Endeavor to cause SRSC's counsel and accountant to furnish
the managing underwriter with such documents, opinions and confirmations as
may be called for by the managing underwriter and which are in the usual form
incident to and as are normally required in an underwritten offering; and
(vii) Do any and all such other acts and things as may
reasonably, without material additional cost, be necessary or advisable to
enable holders of Shares to consummate the public sale or other disposition
of their Shares in such jurisdictions as are covered by the registration
statement.
(e) EXEMPTION FROM REGISTRATION. Notwithstanding anything
contained in this Schedule 4, SRSC shall not be required by this Schedule 4
to register any Shares under the Act or under any state securities law if, in
the opinion of counsel for SRSC, the proposed sale or transfer of the Shares
as to which registration is requested is exempt from the registration
provisions of the Act and the securities laws of the states in which the
Shares are to be sold or transferred.
-12-
<PAGE>
(f) INDEMNIFICATION. The holders of Shares shall indemnify and
hold harmless SRSC and its officers, directors, and each person (if any) who
controls SRSC within the meaning of Section 15 of the Act or Section 20 of
the United States Securities Exchange Act of 1934, and SRSC shall indemnify
and hold harmless such holders, against any losses, claims, damages or
liabilities to which such holders may become subject, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the registration statement under which the Stock
is registered under the Act, or in any preliminary prospectus, final
prospectus, or amendment or supplement to any of the foregoing, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which
they were made, in each case to the extent, by only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
is based upon information concerning such indemnifying party, furnished, in
the case of the holders of Shares, in writing, by such persons to SRSC in
connection with the preparation and filing of the registration statement.
The indemnifying party will reimburse any legal or other expenses reasonably
incurred by any indemnified party in connection with investigating or
defending any such loss, claim, damage, liability or action incurred by the
indemnified party as a result of the misinformation furnished by the other
party.
(g) PAYMENT OF EXPENSES. All costs and expenses in connection with
any registration statement prepared and filed in accordance with this
Section, including (but not limited to) federal and state registration and
filing fees, printing expenses, and the fees and disbursements of counsel and
independent accountants and other experts of SRSC, shall be borne by SRSC to
the extent permitted by applicable law; provided, however, that SRSC shall
not be obligated to pay the fees and disbursements of counsel of any
Shareholder or any underwriting commissions or discounts relating to any
Shareholder's Shares.
-13-
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
NAME SHARES
---- ------
<S> <C>
K. C. Caldabaugh 37,879
Andrew Aarons 1,515
David Buchholz 6,061
Stuart Postle 1,515
Richard T. Ray 22,727
John Wempner 6,061
</TABLE>
<PAGE>
EXHIBIT 10.2
<PAGE>
PUT OPTION AGREEMENT
This Put Option Agreement (the "Agreement") is entered into as of this
16th day of September 1994, by and among Brown-Bridge Industries, Inc., a
Delaware corporation (the "Company"), Safety Railway Service Corporation, a
Delaware corporation and majority stockholder of the Company ("SRSC" and,
together with the Company, the "Grantors"), and the person named below (the
"Holder").
W I T N E S S E T H:
WHEREAS, the Holder owns the shares of Common Stock, $ .01 par value, of
the Company (the "Common Stock") set forth on SCHEDULE A hereto individually
and holds the shares of Common Stock set forth on SCHEDULE A hereto as
attorney-in-fact for the persons listed thereon (the "Beneficial Owners"); and
WHEREAS, the Grantors desire to grant to Holder an option to require the
Grantors to purchase the shares owned by Holder on the terms set forth herein;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. GRANT OF OPTION. The Company and SRSC, jointly and severally,
grant to Holder the right and option (the "Option") to demand that the
Company or SRSC, or both, purchase all of the Shares on the terms set forth
herein. Holder may exercise the Option at any time for all, but not less
than all, of the Shares by furnishing written notice of exercise to the
Company and SRSC in accordance with Section 12. As used herein, "Shares"
means all shares of Common Stock now or hereafter owned by Holder or held by
him as attorney-in-fact, including, without limitation, the shares of common
stock listed on SCHEDULE A hereto. Upon exercise of the Option by Holder,
the Company shall first be obligated to purchase the Shares and, if the
Company is unwilling or unable to purchase the Shares, SRSC shall then be
fully obligated to purchase the Shares. Notwithstanding the foregoing, the
Company and SRSC shall have a joint and several obligation to purchase all of
the Shares upon exercise of the Option.
2. TERM. The Option may be exercised at any time after September 30,
1998 and and on or before 5:00 p.m. Dallas, Texas time on September 30, 2000
(the "Option Term").
3. OPTION PRICE. The price per share payable by the Grantors to
Holder upon exercise of the Option (the "Option Price") shall be an amount
equal to 75% of the Fair Market Value (defined below) of such Shares l. As
used herein, the term "Fair Market Value" shall mean the fair market value of
the Shares as mutually agreed by Holder and the Company or SRSC, as
applicable. If Holder and the Company or SRSC, as applicable, are unable to
agree on the Fair Market Value, then they shall mutually agree on a third
party appraiser, experienced in valuing companies, who shall determine the
<PAGE>
Fair Market Value. If Holder and the Company or SRSC, as applicable, are
unable to agree on a third party appraiser, then they shall each select an
appraiser and the two appraisers so selected shall select a third appraiser,
who shall be experienced in valuing companies, and such third appraiser shall
determine the Fair Market Value. In determining the Fair Market Value,
neither party nor any appraiser selected pursuant to this section shall take
into account, or apply, any discount in value as a result of the Shares being
illiquid or representing a minority interest in the Company. All costs of
determining value pursuant to this section shall be borne equally by Holder
and the Company or SRSC, as applicable.
4. PAYMENT OF OPTION PRICE. The Option Price shall be payable in cash
or by certified or cashier's check, payable to the order of Holder. At the
Grantor's election, it may pay the Option Price payable in respect of an
exercise in accordance with either the following delayed payment procedure or
the alternative payment procedure:
(a) DELAYED PAYMENT PROCEDURE.
(i) INITIAL PAYMENT. At the Closing (defined below), the Grantor
shall pay to Holder an amount equal to 70% of the aggregate Option Price.
(ii) DEFERRED PAYMENT. The Grantor shall deliver to the Holder its
negotiable promissory note in the form of EXHIBIT 4 hereto (the "Note")
evidencing the Grantor's obligation to pay the balance of the aggregate
Option Price in 12 equal monthly installments of principal, with the first
such installment due and payable 30 days after the Closing and with a like
payment of principal being due on the same date of each successive month
until the principal amount of the Note is paid in full (the "Deferred
Payment"). Each payment of principal shall be accompanied by a payment of
all unpaid interest that has accrued on the outstanding principal amount of
the Note through the date of such payment. The indebtedness evidenced by the
Note shall bear interest at a floating rate equal to the prime rate of
interest publicly published from time to time by THE WALL STREET JOURNAL as
the prime rate, plus 1%, and the Grantor's obligation to pay such
indebtedness shall be automatically accelerated in the event the Company
consummates an underwritten public offering of shares of its capital stock
that is registered under the Securities Act of 1933, as amended. Interest
shall be calculated on the basis of actual days over a 360 day year.
(b) ALTERNATIVE PAYMENT PROCEDURE. At the Closing, if the Grantor that
is delivering payment for the Shares is SRSC, the Grantor may, its option,
deliver to the Holder, in lieu of cash or a combination of cash and the Note,
as contemplated above, (x) that number of shares of Common Stock, no par
value per share (the "SRSC Common Stock"), of SRSC (the "Payment Shares")
that is equal to the aggregate Option Price divided by the Agreed Value
(defined below) plus (y) the Adjustment Shares (defined below); provided,
however, that SRSC may only deliver Payment Shares if the Agreed Value can
be determined in accordance with the following Section 4(b)(ii).
-2-
<PAGE>
(i) AGREED VALUE. As used herein, the term "Agreed Value" shall
be mean the average over the thirty (30) days immediately preceding the
Holder's exercise of the Option of (A) the last reported sales price of the
SRSC Common Stock on the New York Stock Exchange or (B) (if Agreed Value
cannot be determined pursuant to the preceding (A)), the last reported sales
price of the SRSC Common Stock on such other national security exchange as
the the SRSC Common Stock is then listed or admittted to unlisted trading
priviliges or (C) (if Agreed Value cannot be determined pursuant to the
preceding (B)), the last resprted sales price as reported in the NMS, or (D)
(if Agreed Value cannot be determined pursuant to the preceding (C), the
average of the last "ask" quotation and the last "bid" quotation in the
over-the-counter market as reported by the NASDAQ.
(ii) ADJUSTMENT SHARES. As used herein, the term "Adjustment
Shares" shall be that number of additional shares of SRSC Common Stock as is
necessary to compensate the Holder for brokerage commissions that may be
incurred by the Holder in selling the Payment Shares. For purposes of
computing the number of Adjustment Shares, the Holders' brokerage costs shall
be deemed to be $.10 per Payment Share and the number of Adjustment Shares
that shall be necessary to compensate the Holder for such costs shall be
determined based on the Agreed Value of the SRSC Common Stock by dividing
the (A) product obtained by multiplying the number of Payment Shares by $.10
by (B) the Agreed Value.
(iii) REGISTRATION RIGHTS. SRSC hereby grants to the Holder the
registration rights set forth on SCHEDULE 4 hereto, which apply to any
Payment Shares delivered by SRSC pursuant to this Section 4(b).
5. EXERCISE. Holder shall exercise the Option by delivering to the
Company and SRSC written notice of exercise of the Option.
6. CLOSING.
(a) The consummation of the purchase and sale of the Shares pursuant to
the exercise of the Option (the "Closing") shall take place at the offices of
the Company, 518 East Water Street, Troy, Ohio 45373, on such date as Holder
and the Grantor may mutually agree. If such parties cannot agree on a date
for the Closing, the Closing shall take place on the forty-fifth (45th) day
after the date on which (i) Holder and the Grantor agree on the Fair Market
Value or (ii) an independent third party determines the Fair Market Value, if
an independent third party is engaged to determine the Fair Market Value;
provided, that if such day is not a regular business day, the Closing shall
take place on the next regular business day thereafter.
At the Closing, Holder shall deliver to the Grantor stock certificates
duly endorsed or accompanied by stock powers duly executed in such form as
may be necessary to vest title to the Shares in the Grantor, free and clear
of all liens, claims and
-3-
<PAGE>
encumbrances, against delivery by the Grantor to Holder, by wire transfer or
certified or cashier's check, of an amount equal to the full amount of the
Option Price multiplied by the number of the Shares purchased from Holder,
provided, however that if the Grantor shall elect to pay the Option Price in
accordance with the delayed payment procedure, the Grantor shall deliver the
Deferred Payment to Holder in accordance with the provisions of Section 4
hereof and if SRSC shall elect to pay the Option Price in accordance with the
alternative payment procedure described in Section 4(b), SRSC shall deliver
the Payment Shares and the Adjustment Shares in accordance with Section 4.
The Grantor and Holder agree to execute any and all documents reasonably
requested by the other to effectuate the purposes and intent of this
Agreement. Such other documents may include the Note.
7. RIGHTS AS STOCKHOLDER. The Grantors shall have no rights as
stockholders with respect to the Shares, until the transfer of a certificate
or certificates to the Grantors for such shares. No adjustments shall be
made for dividends or other rights for which the record date is prior to the
transfer of such certificate or certificates.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE GRANTORS. Each of
the Company and SRSC, jointly and severally, represent, warrant and covenant:
(a) The execution, delivery and performance by such party of this
Agreement and the consummation of the transactions contemplated hereby, have
been duly authorized and approved by such party. This Agreement has been
duly executed and delivered by such party and constitutes the legal, valid
and binding obligation of such party enforceable against it in accordance
with its terms, except as may be limited by applicable bankruptcy, insolvency
or similar laws affecting creditors' rights generally or the availability of
equitable remedies.
(b) Neither the execution, delivery and performance by such party of
this Agreement nor the consummation of the transactions contemplated hereby
will (i) result in a violation or a breach of the Certificate of
Incorporation or Bylaws of such party or any agreement or other instrument
under which such party is bound or to which any of its assets are subject, or
result in the creation or imposition of any lien, charge or incumbrance upon
such assets, except that the execution, delivery and performance of this
Agreement by the Company may violate its loan agreement with Transamerica
Business Credit Corporation or (ii) violate or conflict with any judgment,
decree, order, statute, or, to the knowledge of such party, any rule or
regulation of any court or any public, government or regulatory agency or
body having jurisdiction over such party or its property or assets.
-4-
<PAGE>
10. CERTIFICATE LEGEND. Upon execution of this Agreement, the stock
certificates representing the Shares shall contain substantially the
following legend, in addition to any other legends deemed appropriate or
necessary by the Company:
This certificate is subject to the provisions of a Put Option
Agreement, dated as of September 16, 1994, among the Corporation
and the Holder named therein, a copy of which is on file in the
office of the Secretary of the Corporation at its principal place
of business. The Corporation will furnish a copy of such Agreement
to the record holder of this certificate, without charge, upon
written request to the Corporation at its principal place of business
or registered office.
11. ASSIGNABILITY; TRANSFER. Neither this Agreement nor any right
created hereby shall be assignable by any party, except that Holder may
assign all or a portion of his rights hereunder to any Permissible
Transferee, as defined in that certain Shareholders' and Voting Agreement,
dated of even date herewith (the "Shareholders' Agreement"), among the
Company, SRSC, Lynch Corporation and Holder (individually and as attorney-
in-fact), among others. The Grantors shall continue to be bound by this
Agreement, notwithstanding any transfer of the Shares by Holder or by any
Beneficial Owner.
12. NOTICE. Any notices or communications under this Agreement shall
be given by any of the following means: (i) registered or certified mail,
(ii) hand delivery or (iii) telex, Telecopy or telegram. Such notice or
communication shall be sent to the respective parties at the address listed
below. Notice given by registered or certified mail shall be deemed to have
been given on the third business day after posting and notice given by telex,
Telecopy or telegram shall be deemed given when sent to or refused by the
party to whom notice is being given. Communication by telex, Telecopy or
telegram shall be confirmed by posting a copy of the same by registered,
certified or first class mail in an envelope properly addressed to the
respective parties at the address listed below:
If to either Grantor to: Brown-Bridge Industries, Inc.
518 East Water Street
Troy, Ohio 45373
Telecopy No. 513-39-4045
Attn: Secretary
and
Safety Railway Service Corporation
13355 Noel Road, Suite 1100
Dallas, Texas 75240
Telecopy No. (214) 661-2442
Attn: President
-5-
<PAGE>
If to Holder: James B. Fleming, Jr.
100 First Stamford Place
Third Floor
Stamford, CT 06902
in ether case with a copy Vaughan & Anderson
(which shall not constitute 14800 Quorum Drive, Suite 510
notice) to: Dallas, Texas 75240
Telecopy No. (214) 991-5446
Attn: Timothy R. Vaughan
Any party may, by written notice to the others, change the address to which
such notices and communications are to be sent.
13. ENTIRE AGREEMENT. This Agreement supersedes any and all other
agreements, either oral or written, between the parties hereto with respect
to the Option and contains all of the terms and conditions between the
parties with respect to the exercise of the Option.
14. CHANGES, MODIFICATIONS OR WAIVERS. No change or modification of
this Agreement shall be valid or binding upon the parties hereto, nor shall
any waiver of any term or condition in the future be so binding, unless such
change or modification or waiver shall be in writing and signed by the
parties hereto.
15. GOVERNING LAW: VENUE. This Agreement shall be interpreted,
construed and governed by the laws of the State of Texas and shall be
performable in Dallas County, Texas.
16. SURVIVAL. All agreements, covenants, undertakings, representations
and warranties made in this Agreement shall survive until the Closing.
17. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
18. RESTRICTIONS ON SHARES. The parties hereto acknowledge that the
Shares are now subject to restrictions on transfer pursuant to the
Shareholders' Agreement.
19. SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable by law shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
of this Agreement.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement on the date first above written.
BROWN-BRIDGE INDUSTRIES, INC.
By: /s/ K.C. Caldabaugh
______________________________________
K. C. Caldabaugh, President
SAFETY RAILWAY
SERVICE CORPORATION
By: /s/ Richard J. Boyle
_______________________________________
Richard J. Boyle, Chairman of the Board
/s/ James B. Fleming, Jr.
__________________________________________
James B. Fleming, Jr., Individually
and as attorney-in-fact for the persons
listed on SCHEDULE A:
-7-
<PAGE>
EXHIBIT 4
PROMISSORY NOTE
Dallas, Texas _______________, 19___
[Brown-Bridge Industries, Inc./Safety Railway Service Corporation] (the
"Maker"), for value received, hereby promises to pay to _____________________
______________________ (together with any successors or assigns, the
"Payee"), at the time and in the manner hereinafter provided, the principal
sum of _________________________ Dollars ($____________), together with
interest computed thereon at the rate hereinafter provided. This Note shall
be payable at the office of the Payee at __________________________ or at
such other address in _____ County, _________________ as the holder of this
Note shall from time to time designate.
The outstanding principal amount of this Note shall bear interest from
the date hereof until the due date at a rate of interest equal to the Prime
Rate (defined below) plus 1%. The principal amount of this Note shall be
payable in 12 equal monthly installments of principal, with the first such
installment be due and payable 30 days after the date fo this Note and with a
like payment of principal being due on the same date of each successive month
until the principal amount of the Note is paid in full. Each payment of
principal shall be accompanied by a payment of all unpaid interest that has
accrued on the outstanding principal amount of the Note through the date of
such payment. Interest shall be calculated on the basis of actual days over
a 360 day year. As used herein, Prime Rate shall mean that rate of interest
publicly published from time to time by THE WALL STREET JOURNAL as the prime
rate.
All sums of principal and interest past due under the terms of this Note
shall bear interest at a per annum interest rate equal to the lesser of
twelve percent (12%) per annum or the maximum rate allowed by law from the
due date thereof until paid.
In the event of default hereunder and this Note is placed in the hands of
an attorney for collection (whether or not suit is filed), or if this Note is
collected by suit or legal proceedings or through bankruptcy proceedings, the
Maker agrees to pay in addition to all sums then due hereon, including
principal and interest, all expenses of collection, including, without
limitation, reasonable attorneys' fees.
This Note may be prepaid in whole or in part from time to time, without
premium or penalty. Each prepayment of principal shall be accompanied by an
amount equal to the accrued interest on the principal amount prepaid to the
date of such prepayment.
-9-
<PAGE>
The Payee shall be entitled to accelerate this Note and declare all sums
due hereunder immediately due and payable upon default by the Maker in any of
its obligations under this Note or in the event the Company consummates an
underwritten public offering of shares of its capital stock that is
registered under the Securities Act of 1933, as amended.
The Maker and any and all sureties, guarantors and endorsers of this Note
and all other parties now or hereafter liable hereon, severally waive grace,
demand, presentment for payment, notice of dishonor, protest and notice of
protest, notice of intention to accelerate, notice of acceleration, any other
notice and diligence in collecting and bringing suit against any party hereto
and agree (i) to all extensions and partial payments, with or without notice,
before or after maturity, (ii) to any substitution, exchange or release of
any security now or hereafter given for this Note, (iii) to the release of
any party primarily or secondarily liable hereon, and (iv) that it will not
be necessary for the holder hereof, in order to enforce payment of this Note,
to first institute or exhaust such holder's remedies against the Maker or any
other party liable therefor or against any security for this Note. No delay
on the part of the Payee in exercising any power or right under this Note
shall operate as a waiver of such power or right, nor shall any single or
partial exercise of any power of right preclude further exercise of that
power or right.
All agreements between the Maker and the holder hereof, whether now
existing or hereafter arising and whether written or oral, are hereby
expressly limited so that in no contingency or event whatsoever, whether by
reason of acceleration of the maturity hereof, or otherwise, shall the amount
paid, or agreed to be paid, to the holder hereof for the use, forbearance or
detention of the funds advanced pursuant to this Note, or otherwise, or for
the payment of performance of any covenant or obligation contained herein or
in any other document or instrument evidencing, securing or pertaining to
this Note exceed the maximum amount permissible under applicable law. If
from any circumstances whatsoever fulfillment of any provision hereof or any
other document or instrument exceeds the maximum amount of interest
prescribed by law, then IPSO FACTO, the obligation to be fulfilled shall be
reduced to the limit of such validity, and if from any such circumstances the
holder hereof shall ever receive anything of value deemed interest by
applicable law, which would exceed interest at the highest lawful rate, such
amount which would be excessive interest shall be applied to the reduction of
the unpaid principal balance of this Note or on account of any other
principal indebtedness of the Maker to the holder hereof, and not to the
payment of interest, or if such excessive interest exceeds the unpaid
principal balance of this Note and such other indebtedness, such excess shall
be refunded to the Maker. All sums paid, or agreed to be paid, by the Maker
for the use, forbearance or detention of the indebtedness of the Maker to the
holder of this Note shall, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full term of such
indebtedness until payment in full so that the actual rate of interest on
account of such indebtedness is uniform throughout the term hereof. The
terms and provisions of this paragraph shall
-10-
<PAGE>
control and supersede every other provision of all agreements between the
Maker and the holder hereof.
This Note shall be governed by and construed in accordance with the laws
of the State of Texas.
All references to the Maker herein shall, and shall be deemed to, include
its successors and assigns, and all covenants, stipulations, promises and
agreements contained herein by or on behalf of the Maker shall be binding
upon its successors and assigns, whether so expressed or not.
MAKER
[BROWN BRIDGE INDUSTRIES, INC. /
SAFETY RAILWAY SERVICE CORPORATION]
____________________________________
-11-
<PAGE>
SCHEDULE 4
1. DEMAND REGISTRATION RIGHTS. At any time that written demand is made
by the Holders who hold at least 20% in the aggregate of the Payment Shares
(collectively, the "Demanding Holders"), SRSC (i) will promptly give written
notice of the proposed registration to all of the Holders, and (ii) will use
its reasonable best efforts to file a registration statement under the
Securities Act of 1933, as amended (the "Act") and to effect, as promptly as
possible, the registration under the Act of the Payment Shares to be
registered by the Demanding Holders (the "Shares"), subject to the other
provisions of this Schedule 4, for disposition in an underwritten public
offering managed by an underwriting firm selected by SRSC. Each person
desiring to include his or her Shares in such registration must so notify
SRSC in writing within 30 days of the giving of notice of registration by
SRSC.
(b) PIGGY BACK REGISTRATION RIGHTS. If at any time SRSC shall
determine to register (including pursuant to a demand of any Shareholder
exercising its registration rights hereunder) any of its securities under the
Act, other than a Form S-8 or Form S-4 or the then equivalent forms, it shall
promptly send to each holder of Shares written notice of such determination
and, if within 30 days after receipt of such notice, any holders of Shares
shall request in writing, SRSC shall use its reasonable best efforts to
include in such registration statement the Shares so requested to be
registered on the same terms and conditions as any similar securities of SRSC
included therein, and to effect, as promptly as possible, the registration of
such Shares under the Act, subject, however, to the other provisions of this
Schedule 4.
(c) LIMITATION OR DEFERRAL OF REGISTRATION. If a managing
underwriter is participating in such registration and advises SRSC in writing
that marketing factors require a limitation on the number of Shares to be
included in any registration statement filed pursuant to this Schedule 4,
then such Shares may be omitted from the registration statement to the extent
necessary to consummate the offering on terms reasonably acceptable to SRSC
and the managing underwriter, and SRSC shall so advise the holders of Shares
who requested registration, PROVIDED, THAT, Shares requested to be registered
by the Shareholders (if any) shall be omitted or excluded from the
registration statement before any Shares to be registered by SRSC may be so
omitted or excluded. If some, but not all, of the Shares that the
Shareholders desire to sell exceeds the number of Shares acceptable by the
managing underwriter, the number of Shares that may be included in the
registration and underwriting shall be allocated among all such Shareholders
in proportion, as nearly as practicable, to the respective amounts of Shares
which they had requested to be included in such registration at the time of
filing the registration statement. Additionally, if the managing underwriter
advises SRSC in writing that marketing factors require that the registration
of the Shares be deferred, or if the registration of the Shares, if not
deferred, would, in the opinion of the Board of Directors
-12-
<PAGE>
of SRSC, determined reasonably and in good faith, materially and adversely
affect an important business situation, transaction or negotiation affecting
SRSC at the time, then SRSC may defer the filing of such registration
statement for a period not exceeding 120 days from the date of such deferral.
(d) FURTHER OBLIGATIONS OF SRSC. If and whenever SRSC is required
by the provisions of this Schedule 4 to use its reasonable best efforts to
effect the registration of Shares under the Act, SRSC will:
(i) Prepare and file with the United States Securities and
Exchange Commission (the "SEC") the appropriate registration statement with
respect to such securities and use its reasonable best efforts to cause such
registration statement to become and remain effective for 90 days or until
the intended distribution is completed, whichever first occurs;
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for 90 days or until the intended distribution is completed,
whichever first occurs, and to comply with the requirements of the Act and
the rules and regulations promulgated by the SEC thereunder relating to the
sale or other disposition of the securities covered by such registration
statement;
(iii) Furnish to the holders of Shares covered by the
registration statement copies of a prospectus, including a preliminary
prospectus, complying with the requirements of the Act and such other
documents as such holders may reasonably request in order to facilitate the
public sale or other disposition of the Shares covered by such registration
statement;
(iv) Use its reasonable best efforts to register or qualify the
Shares covered by such registration statement under such securities or blue
sky laws as the managing underwriter for the offering designates; provided,
however, that SRSC shall not be required to qualify as a foreign corporation
in any such jurisdiction or be required to execute a consent to submit
generally to the jurisdiction of the courts of such jurisdiction or to escrow
any of its securities;
(v) Supply the managing underwriter with copies of all
correspondence and communications between SRSC and the SEC relating to all
registration statements, notifications or offering circulars provided for
hereunder;
(vi) Endeavor to cause SRSC's counsel and accountant to furnish
the managing underwriter with such documents, opinions and confirmations as
may be called for by the managing underwriter and which are in the usual form
incident to and as are normally required in an underwritten offering; and
-13-
<PAGE>
(vii) Do any and all such other acts and things as may
reasonably, without material additional cost, be necessary or advisable to
enable holders of Shares to consummate the public sale or other disposition
of their Shares in such jurisdictions as are covered by the registration
statement.
(e) EXEMPTION FROM REGISTRATION. Notwithstanding anything
contained in this Schedule 4, SRSC shall not be required by this Schedule 4
to register any Shares under the Act or under any state securities law if, in
the opinion of counsel for SRSC, the proposed sale or transfer of the Shares
as to which registration is requested is exempt from the registration
provisions of the Act and the securities laws of the states in which the
Shares are to be sold or transferred.
(f) INDEMNIFICATION. The holders of Shares shall indemnify and
hold harmless SRSC and its officers, directors, and each person (if any) who
controls SRSC within the meaning of Section 15 of the Act or Section 20 of
the United States Securities Exchange Act of 1934, and SRSC shall indemnify
and hold harmless such holders, against any losses, claims, damages or
liabilities to which such holders may become subject, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the registration statement under which the Stock
is registered under the Act, or in any preliminary prospectus, final
prospectus, or amendment or supplement to any of the foregoing, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which
they were made, in each case to the extent, by only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
is based upon information concerning such indemnifying party, furnished, in
the case of the holders of Shares, in writing, by such persons to SRSC in
connection with the preparation and filing of the registration statement.
The indemnifying party will reimburse any legal or other expenses reasonably
incurred by any indemnified party in connection with investigating or
defending any such loss, claim, damage, liability or action incurred by the
indemnified party as a result of the misinformation furnished by the other
party.
(g) PAYMENT OF EXPENSES. All costs and expenses in connection with
any registration statement prepared and filed in accordance with this
Section, including (but not limited to) federal and state registration and
filing fees, printing expenses, and the fees and disbursements of counsel and
independent accountants and other experts of SRSC, shall be borne by SRSC to
the extent permitted by applicable law; provided, however, that SRSC shall
not be obligated to pay the fees and disbursements of counsel of any
Shareholder or any underwriting commissions or discounts relating to any
Shareholder's Shares.
-14-
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
NAME SHARES
---- ------
<S> <C>
Richard J. Boyle 10,000
Michael L. George 10,000
Ned N. Fleming 7,500
Lane T. Fleming 2,500
Mark Matteson 3,030
George Group Partners 17,606
Mark Curcio 985
James B. Fleming, Jr. 7,576
Grant Wilkinson 757
Timothy R. Vaughan 1,667
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 288
<SECURITIES> 0
<RECEIVABLES> 12,897
<ALLOWANCES> 358
<INVENTORY> 15,953
<CURRENT-ASSETS> 29,678
<PP&E> 15,941
<DEPRECIATION> 3,165
<TOTAL-ASSETS> 42,942
<CURRENT-LIABILITIES> 25,654
<BONDS> 0
<COMMON> 3,124
0
0
<OTHER-SE> 3,605
<TOTAL-LIABILITY-AND-EQUITY> 42,942
<SALES> 25,961
<TOTAL-REVENUES> 25,961
<CGS> 22,104
<TOTAL-COSTS> 2,755
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 646
<INCOME-PRETAX> 489
<INCOME-TAX> 187
<INCOME-CONTINUING> 228
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 228
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
