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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED: JUNE 30, 1995
_____________
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM __________________ TO __________________
COMMISSION FILE NUMBER: 0-10937
SUN COAST INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 59-1952968
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2700 SOUTH WESTMORELAND AVENUE
DALLAS, TEXAS 75233
(Address of principal executive offices) (Zip Code)
(214) 373-7864
Registrant's telephone number,
including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE
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 10-K or any amendment
to this Form 10-K. x
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THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
(AFFILIATES BEING DIRECTORS, EXECUTIVE OFFICERS AND HOLDERS OF MORE THAN 5% OF
THE COMPANY'S COMMON STOCK) OF THE REGISTRANT AT SEPTEMBER 14, 1995 WAS
APPROXIMATELY $ 31,075,000.
THE NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK, PAR VALUE ONE
CENT ($.01) PER SHARE, OUTSTANDING AT SEPTEMBER 14, 1995 WAS 4,009,629.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement prepared for
use in connection with the registrant's 1995 Annual Meeting of shareholders to
be held December 5, 1995, have been incorporated by reference into Part III of
this Form 10-K. Such proxy statement will be filed on or about October 27,
1995.
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PART 1.
ITEM 1. BUSINESS
GENERAL
Sun Coast Industries, Inc. ("Sun Coast" or the "Company") manufactures
and sells melamine and urea resins and compounds and, from these and other
materials, molds Consumer Products and commercial plastic products, including
dinnerware, drinkware and closures. Sun Coast's five divisions have generated
synergies through similar manufacturing processes, combined purchasing of raw
materials and developed proprietary technologies, enabling the Company to
realize manufacturing efficiencies and a significant presence in markets for
several of its products. The Chemical Division manufactures melamine and urea
resins and compounds, which it supplies to other manufacturers and uses in
producing Suncoast's Consumer Products and Foodservice products. The Consumer
Products and Foodservice Divisions manufacture compression molded melamine
dinnerware and injection molded plastic drinkware and other household products,
which Sun Coast sells to retail and commercial markets. The Closures Division
manufactures linerless, foil or foam lined and tamper-evident plastic closures
and lids. These closures are used in the bottling and packaging of food,
beverage, chemical and pharmaceutical products. The Custom Laminates Division
is a start-up division employing Sun Coast's proprietary process that permits
lamination of images in a range of design, color and detail.
CHEMICAL DIVISION
Sun Coast manufactures melamine and urea resins and molding compounds
at its facilities in Dallas, Texas, and Murfreesboro, Tennessee. Sun Coast
believes that its proprietary formulations and technical expertise enable it to
provide consistently high quality chemical products. The Company sells these
products directly to its customers, which use them as raw materials in their
own manufacturing processes.
Melamine resists scratching, breaking and chipping; it also resists
grease and weak acid; and it is odorless and easy to clean. Urea is similar in
nature but less expensive to produce and less durable than melamine. Sun Coast
uses its own melamine compounds to manufacture dinnerware and it supplies
melamine compounds to other manufacturers of dinnerware and Consumer Products.
Sun Coast is also a leading supplier of melamine resin to manufacturers of
decorative laminate, which is used for countertops and tabletops and other
furniture and fixture surfaces.
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Sun Coast is a leading supplier of urea and melamine molding compounds to U.S.
manufacturers of electrical outlet and switch plates.
Melamine resin is made principally from melamine crystals,
formaldehyde and water which are combined in a heated reactor. Urea resin is
made using a similar process with the same raw materials, with the substitution
of urea crystals for melamine crystals. Molding compounds are made from
melamine or urea resin and purified cellulose fillers, pigments, plasticizers
and curing agents. These materials are combined in a wet mixture, dried and
ground to a fine powder.
There are three other major U.S. suppliers of melamine and urea
molding compounds similar to those supplied by the Company and many major
suppliers of melamine and urea resins. Some of these suppliers have greater
resources than the Company and are parts of large, diversified companies. In
this highly competitive market, the Company competes on the basis of product
quality, customer service and price.
CONSUMER PRODUCTS DIVISION
Sun Coast manufactures and, through Company and independent sales
representatives, markets melamine dinnerware and injection molded plastic
drinkware and housewares to retail distribution channels. In fiscal 1994, the
Company entered the market for licensed children's products. These products
include dinnerware, flatware and drinkware decorated with popular children's
characters. The Company has also recently begun to market imported plastic
dinnerware and drinkware.
Melamine dinnerware is considered the top-of-the-line plastic
dinnerware. It is harder than other plastic dinnerware and generally more
durable than most other dinnerware, including that made of china, pottery,
glass and other plastics. Sun Coast offers melamine dinnerware in designer
styles and colors that enhance product demand. The Company compression molds
melamine dinnerware from its own molding compounds at its Dallas, Texas
facility.
During fiscal 1995, the Company acquired all of the issued and
outstanding capital stock of Nova Plast, S.A. de C. V. (Nova Plast), a Mexican
company. At its plant in Mexico City, Nova Plast manufactures plastic Consumer
Products for sale primarily in Mexico. Sun Coast intends to move a portion of
its domestic dinnerware production to Nova Plast over the next year.
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Sun Coast also manufactures and distributes injection molded drinkware
and other household products at its Dallas, Texas and Mexico City, Mexico
facilities, using high speed injection molds and machinery. Injection molded
resins, such as styrene, SAN, polypropylene and polyethylene, are molded under
heat and pressure and cooled to form the desired shape. Sun Coast's primary
market is the United States, with additional sales in Mexico and Canada.
The dinnerware and housewares market includes disposables, china and
pottery, glass and permanent plastic. Across all these categories, there are
many manufacturers in the U.S. and abroad that have greater resources than the
Company and are parts of large, diversified companies. However, the Company is
aware of only three principal U.S. competitors that manufacture melamine
dinnerware and believes that it has one of the largest market shares. In this
highly competitive market, the Company competes on the basis of product
quality, price and customer service. Lower labor costs related to manufacture
in Mexico are planned to improve the Company's competitive position.
FOODSERVICE DIVISION
Sun Coast manufactures and sells melamine dinnerware and injection
molded plastic drinkware to the restaurant and hotel market. The Foodservice
Division sells these products directly and through distributors and independent
representatives. The Company also sells these products, and insulated meal
distribution systems, directly to schools, hospitals, nursing homes and
correctional facilities.
Melamine's durability and other physical qualities make it attractive
and cost effective for use in commercial and institutional settings, where
heavy use and breakage are common. Melamine weighs less than China, is break
resistant and of high quality. Moreover, the ability to incorporate decorative
and customized colors, designs and logos in melamine dinnerware also contribute
to demand in these markets.
Sun Coast markets its melamine dinnerware and drinkware products to
restaurants and institutions as more durable substitutes for china and glass
products. Melamine dinnerware is an environmentally friendly alternative to
disposables. With respect to Foodservice products, the Company faces many of
the same competitive circumstances noted above in connection with Consumer
Products.
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CLOSURES DIVISION
Sun Coast manufactures linerless, foil or foam lined and
tamper-evident plastic closures and lids. The Company markets these products
directly, and through distributors and sales representatives, to manufacturers
of packaged food, beverages, pharmaceuticals and chemicals. These plastic
closures seal food, beverage, pharmaceutical and chemical containers also made
of plastic.
Plastic closures are injection molded from polypropylene or
polyethylene. Key factors such as cycle time, the optimal number of mold
cavities and the quality of the mold are important in attaining production
efficiency and cost control. Sun Coast prototypes custom closures for the
purpose of testing and qualifying the closures for use with customers'
products.
Plastic closures offer an advantage over metal ones, because metal
closures may chemically react with some foods. Plastic closures also allow the
use of a foil lined induction inner-seal for tamper evidence -- a feature metal
closures lack. Sun Coast's lined closures are used with a variety of food and
beverage products, including juices, sauces, dressings and peanut butter. The
design of the Company's Sun-Tab foil seal, widely used in peanut butter
packaging, incorporates a series of three small tabs that extend over the edge
of the container. The consumer grasps any one of the tabs to remove the entire
liner. Sun Coast owns several patents encompassing closure and tamper-evident
band designs as well as a patent on a plastic closure for hermetic, pressure or
vacuum sealing of glass or plastic bottles and jars.
The Company's Sun-Twist closure is used as a tamper-evident,
easy-opening seal for "hot-fill" beverages, including fruit juices, teas and
isotonic sport drinks. The "hot-fill" market is one of the fastest growing for
the Closures Division. This market has developed in connection with beverage
packers' replacement of glass bottles with polyethylene terephthalate ("PET")
bottles, which are highly attractive to Consumer Products because they are
lightweight and have the clarity of glass.
Sun Coast competes with several major corporations and numerous
smaller companies in the highly competitive closures market. The Company is a
medium size manufacturer in this industry and competes primarily on price,
quality, delivery and service.
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CUSTOM LAMINATES DIVISION
The Custom Laminates Division markets the products from a process
developed by Sun Coast that permits high pressure lamination of printed
graphics in a complete range of color, shading and detail. The Company is
marketing the process for use in children's furnishings and products, kitchen
and bath counters and backsplashes and commercial fixtures. The Custom
Laminates Division began operations in the fourth quarter of fiscal 1994 and
has not generated significant sales to date.
HISTORICAL BACKLOG
The Company's backlog is comprised of written purchase orders and
contracts, substantially all of which are cancelable on short -- generally 30
days' -- notice. There is no assurance that some portion of the backlog may not
be canceled or that the level of backlog at any particular time is an
appropriate indicator of the future operating performance of the Company.
Backlog for products of the Chemical Division increased 11.6% to
$1,655,000 at June 30, 1995 from $1,482,000 at June 30, 1994. This increase
reflects increased prices due to raw material costs as well as increased market
share, which management attributes to the consistency of the Chemical
Division's product quality and its level of customer service.
Backlog for products of the Consumer Products and Foodservice
Divisions decreased 36.7% to $1,150,000 at June 30, 1995 from $1,818,000 at
June 30, 1994. This decrease reflects the current sluggish retail economy and
the efforts being made by retailers to reduce their inventory levels.
Backlog for products of the Closures Division decreased 30.0% to
$34,163,000 at June 30, 1995 from $48,785,000 at June 30, 1994. This decrease
reflects shorter term purchase commitments as customers attempt to manage
inventory levels. In addition, the Company has de-emphasized long term
contracts due to the recent and dramatic increases in raw material costs.
In the Chemical, Consumer Products and Foodservice Divisions, orders
are generally shipped within 30 to 60 days of receipt. In the Closures
Division, orders are based primarily on customers' annual estimated needs.
Other orders are for specific quantities and some are
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multi-year. Customer commitments require delivery of a quantity of closures per
month for a specific number of months, with seasonal variations. These
commitments are generally subject to cancellation at the discretion of the
customer on 30 days' notice to the Company; however, longer term contracts do
include cancellation penalties. Customer written purchase orders for specific
quantities are generally filled as received, either out of inventory or current
production.
MAJOR CUSTOMERS
The Company frequently bids for large contracts for its chemical
products and any such bid, if successful, may result in one customer accounting
for more than 10% of the Company's sales in a given fiscal year. In fiscal
1995, sales of chemical products to Wilsonart International, Inc. and Eagle
Plastics, Inc. accounted for approximately $12.3 million or 14.3% and $9.4
million or 10.9%, of the Company's sales, respectively.
The Company has sold chemical products to Wilsonart International,
Inc. for more than 20 years on the basis, the Company believes, of quality,
service, delivery and price. Wilsonart International, Inc. and Eagle Plastics
buy through purchase orders issued periodically, which can be discontinued at
any time. Management believes that the Company has a good relationship with
both Wilsonart International, Inc. and Eagle Plastics, however, the loss of
either of these customers or a significant portion of its business, could
adversely affect the business and financial condition of the Company. See Note
11 of Notes to the Consolidated Financial Statements.
RESEARCH AND DEVELOPMENT
The Company has research and development laboratories at its principal
manufacturing facilities in Texas and Florida, where it continuously tests its
products and endeavors to develop new products to complement those presently
offered. The Company employs five people in research and development, including
one Ph.D. and three chemists. Research and development expenditures for fiscal
1993, 1994, and 1995 were $514,000, $731,000, and $1,287,000, respectively.
RAW MATERIALS
The principal raw materials used by the Company in manufacturing
plastic products and compounds are melamine crystals, urea crystals, styrene
acrylonitrile, polypropylene and polyethylene resins, formaldehyde, cellulose
fillers, pigments, plasticizers, curing agents
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and lining material. These materials historically have been available in
sufficient quantities for the Company's needs.
Although the cost of raw materials used in the Company's operations
had been relatively stable for several years, their prices increased
significantly during fiscal 1995. Costs continued to escalate from the second
through fourth quarter. The most dramatic change was in the prices of
formaldehyde and melamine. These repeated cost increases have had a significant
impact on gross margin and earnings during fiscal 1995. It is too early to
determine their impact on future earnings since some costs continue to increase
even though others are beginning to decline. See additional discussion in Item
7, Management's Discussion and Analysis of Financial Condition and Results of
Operations.
EMPLOYEES
At June 30, 1995 Sun Coast had 696 employees, of whom 233 were office
or clerical and 463 hourly manufacturing. Local No. 745 of the International
Brotherhood of Teamsters, Chauffers, Warehousemen and Helpers of America is the
exclusive collective bargaining agent for the approximately 277 hourly
manufacturing employees at the Company's Dallas, Texas facility pursuant to a
three-year union contract which expires on March 31, 1998. None of the
Company's 145 hourly employees at its Sarasota, Florida facility, its 37 hourly
employees at its Mexico City facility or the four hourly employees at its
Murfreesboro, Tennessee facility is represented by a labor union. Management
believes that it has a good relationship with its employees.
ITEM 2. PROPERTIES
The Company owns a 72,000 square foot office, manufacturing and
warehouse building in Sarasota, Florida and two facilities in Dallas, Texas --
one consisting of a 348,000 square foot office and manufacturing building and a
75,000 square foot warehouse and the other consisting of a 60,000 square foot
manufacturing building. At the Florida facility, the Company manufactures
closures. At the larger Texas facility, the Company manufactures melamine and
plastic injection molded Consumer Products and Foodservice products and
chemical products. Both Texas facilities secure the Company's existing
indebtedness. The Company also leases a 40,000 square foot warehouse in
Sarasota. In Mexico City, Mexico, the Company leases a 9,843 square foot
office, manufacturing and warehouse facility under a lease expiring in April
1999 and has entered into a one year lease for 6,890 square feet of additional
warehouse space effective July 1, 1995. In Murfreesboro, Tennessee, the
Company
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leases approximately 5,000 square feet of space to manufacture chemical
products. The Company believes that its properties are adequate for current
uses.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in certain legal proceedings that management
regards as normal to its business. The Company believes that the disposition
of these matters will not have a material impact on the financial condition or
results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since November 3, 1993, the Common Stock of the Company has been
listed on the New York Stock Exchange under the symbol SN. Prior to that date,
the Common Stock was listed on the NASDAQ National Market System. The following
table sets forth, for the periods indicated, the high and low sales prices per
share of the Common Stock.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL 1994
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14.38 $9.25
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.75 7.75
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.88 8.25
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.75 12.50
FISCAL 1995
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14.88 $11.75
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.00 13.63
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.63 10.25
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.38 8.88
</TABLE>
At September 14, 1995, there were approximately 2,500 record holders
of the Common Stock.
The Company has never declared or paid cash dividends on the Common
Stock. Management intends to retain any future earnings for the operation and
expansion of the Company's business and does not anticipate paying any cash
dividends in the foreseeable future. The Company's existing credit facility
restricts the Company's ability to pay dividends. See Note 5 of Notes to the
Consolidated Financial Statements.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data for the periods from July 1,
1990 until June 30, 1995 are derived from the consolidated financial statements
of the Company which have been audited by KPMG Peat Marwick LLP, independent
certified public accountants. The data should be read in conjunction with the
Consolidated Financial Statements, the related notes and the audit report,
which refers to a retroactive change in the method of accounting for inventory
in fiscal 1995, Management's
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Discussion and Analysis of Financial Condition and Results of Operations and
the other financial information included herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales . . . . . . . . . . . . . . . . . . $58,722 $61,944 $66,806 $73,102 $85,987
Costs and expenses:
Cost of sales(3) . . . . . . . . . . . . 47,370 48,377 50,859 56,318 68,441
Selling, general and
administrative . . . . . . . . . . . . 8,205 8,918 9,310 10,260 14,043
Interest, net . . . . . . . . . . . . . 2,210 1,709 1,152 1,124 1,715
Restructuring charge(1) . . . . . . . . - - - 642 -
------- ---------- ---------- -------- ----------
57,785 59,004 61,321 68,344 84,199
------- ---------- ---------- -------- ----------
Income (loss) before income taxes
and extraordinary item (3) . . . . . . 937 2,940 5,485 4,758 1,788
Provision for income taxes
(benefit)(3) . . . . . . . . . . . . . (475) 1,334 1,796 1,494 743
------- ---------- ---------- -------- ----------
Income before extraordinary
item(3) . . . . . . . . . . . . . . . 1,412 1,606 3,689 3,264 1,045
Extraordinary item -- (loss) on
debt restructuring . . . . . . . . . . (428) - - - -
------- ---------- ---------- -------- ----------
Net income (3) . . . . . . . . . . . . . $984 $1,606 $3,689 $3,264 $1,045
======= ========== ========== ======== ==========
Net income per common
share(2)(3) . . . . . . . . . . . . . . $.27 $.46 $.93 $.81(1) $.26
======= ========== ========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital(3) . . . . . . . . . . $4,684 $4,676 $5,773 $9,655 $13,945
Total assets(3) . . . . . . . . . . . 32,072 33,797 37,941 49,542 57,196
Long-term debt . . . . . . . . . . . . 16,861 13,275 12,930 19,730 27,464
Stockholders' equity(3) . . . . . . . 4,719 8,418 12,107 15,482 16,773
</TABLE>
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(1) During the second quarter of fiscal 1994, the Company recorded a
restructuring charge related to a reduction in its work force and the
consolidation of certain corporate functions. Without this
non-recurring restructuring charge, the Company would have reported
net income per common share of $.91 for fiscal 1994. See Note 7 of
Notes to the Consolidated Financial Statements.
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(2) Per share data has been restated to reflect the one-for-five reverse
stock split effective January 2, 1992.
(3) Balances for fiscal 1994 and prior years have been restated to reflect
the change in inventory valuation from the Last-In, First-Out (LIFO)
method to the First-In, First-Out,(FIFO) method. See Note 2 of Notes
to the Consolidated Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the results of operations and financial
condition should be read in conjunction with the Consolidated Financial
Statements and Notes thereto included elsewhere in this Report.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, items from the
consolidated statements of income as a percentage of sales:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
----------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . 76.2 77.1 79.6
Selling, general and administrative . . . . 13.9 14.0 16.3
Interest, net . . . . . . . . . . . . . . . 1.7 1.5 2.0
Restructuring charge . . . . . . . . . . . . - 0.9 -
------- ------ -------
91.8 93.5 97.9
------- ------ -------
Income before income taxes . . . . . . . . . 8.2 6.5 2.1
Provision for income taxes . . . . . . . . . 2.7 2.0 0.9
------- ------ -------
Net income . . . . . . . . . . . . . . . 5.5% 4.5% 1.2%
======= ====== =======
</TABLE>
Results of Operations for Fiscal 1995 Compared to Fiscal 1994
Total sales increased 17.6% to $86.0 million during 1995 from $73.1 million in
1994. Approximately 5% of this increase relates to volume increases and the
remaining 12% to 13% relates to price increases on the Company's product lines
throughout the year. Sales in the Chemical Division increased 17.8% to $33.8
million in 1995 from $28.7 million in
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1994. The increase in the Chemical Division is due to price increases and is a
result of increased market share due, the Company believes, to superior service
and high product quality. Sales in the Consumer Products and Foodservice
Divisions increased 21.2% to $25.7 million in 1995 from $21.2 million in 1994,
resulting from price increases and expansion into new markets (principally
children's dinnerware) as well as new advertising and promotional campaigns and
the introduction of new products. The majority of this increase occurred during
the first half of the fiscal year as customer resistance to price pass throughs
and a downturn in the retail economy severely impacted sales levels during the
fourth quarter. Sales in the Closures Division increased 14.2% to $26.5 million
in 1995 from $23.2 million in 1994, resulting from price increases and the
addition of new products and customers.
Cost of sales as a percentage of sales increased to 79.6% in 1995 from 77.1% in
1994. The decline in gross margin was the result of raw material price
increases primarily in the last six months of the year and volume declines in
certain product lines during the fourth quarter. Substantially all of the
Company's major raw materials incurred unprecedented and repeated price
increases ranging from 10% to 110%. The most dramatic increases occurred in
the prices of melamine and formaldehyde. Increased foreign demand for melamine
due to the weakening of the dollar affected the domestic price of melamine and
a world-wide shortage of methanol, a key component of formaldehyde, caused
formaldehyde price increases. Pulp also experienced significant increases in
price due to paper industry shortages. While the Company is currently
experiencing some declines in raw material costs, other costs continue to
increase and the overall impact to future earnings is not predictable at
present.
Because of the significant increases in raw material costs, the Company raised
its prices to its customers during the third and fourth quarters and as a
result, the volume of anticipated orders declined. Decreases in volume were
also experienced in the Chemical Division due to a slow-down in housing starts
which affected the Company's electrical components customers. The most
significant fourth quarter volume declines, however, were in the Consumer
Products Division which was impacted by a very weak retail economy, in addition
to the price increases. The Company's fourth quarter gross margin was also
negatively affected by approximately $400,000 in additional reserves for
inventory obsolescence. This one-time charge was taken in light of volume
declines during the quarter.
Selling, general and administrative expense ("SG&A") increased 35.9% to $14.0
million in 1995 from $10.3 million in 1994. Approximately half of
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this increase was expected and relates to increased selling and marketing and
research and development costs which generally increase proportional to
increased sales levels. However, as a percentage of sales, SG&A increased to
16.3% in 1995 from 14.0% in 1994. Approximately half of this increase relates
to non-recurring charges such as legal fees, professional costs associated with
a canceled equity offering, severance and relocation costs.
Interest expense has increased 52.6% from 1994 to 1995 due to increased
borrowings and higher interest rates on outstanding loan amounts. The average
borrowing during 1995 was $25.9 million, with higher levels towards the end of
the year, compared to an average of $14.2 million during 1994.
Net income decreased 69.7% to $1.0 million ($0.26 per share) for 1995 from $3.3
million ($0.81 per share) for 1994 as a result of higher raw material costs,
depressed fourth quarter sales volume and the other non-recurring charges such
as the additional obsolescence reserve and legal and professional expenses
described above.
Results of Operations for Fiscal 1994 Compared to Fiscal 1993
Total sales increased 9.4% to $73.1 million during 1994 from $66.8 million in
1993. Price increases were at a minimum during 1994 and increased sales were
attributable to unit volume increases and new product development, primarily in
the Closures Division whose sales increased 22.6% or $4.3 million compared to
the prior year. The new product introduction in this division was its
proprietary closure for the growing "hot-fill" beverage market. The Consumer
Products and Foodservice Divisions experienced relatively flat sales compared
to the prior year due to a sluggish retail economy and the lack of strong
marketing efforts or new product development in prior years. The Chemical
Division's sales increased 8.3% or $2.2 million from the prior year primarily
as a result of increased market share.
There was a slight deterioration in gross margin from 1993 to 1994 (23.9% to
22.9%, respectively) due to slightly higher raw material costs and the delayed
effect of some productivity changes.
As a percentage of sales, there was very little change in SG&A between 1994
and 1993 (14.0% and 13.9%, respectively).
Interest expense decreased 2.5% from 1993 to 1994 due to lower interest rates
despite higher borrowing levels. The average borrowing during 1994 was $14.2
million compared to $11.9 million during 1993.
14
<PAGE> 15
Net income for 1994 decreased $425,000 from 1993 due primarily to a $642,000
($424,000, net of income taxes) restructuring charge recorded in the second
quarter of 1994. This non-recurring charge included costs related to a
reduction in the number of employees by approximately 5% and the consolidation
of certain manufacturing and corporate functions such as management information
systems, insurance coverage and benefit programs. Cost savings of approximately
$1.0 million were anticipated annually as a result of this restructuring.
However, these cost savings have been and will likely continue to be offset by
additional investment in new product and market development and marketing
efforts. See Note 7 of Notes to the Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Management reviews the Company's working capital, accounts receivable and
relationship of debt to equity on a continuing basis. The Company's growth has
been financed through long-term debt financing and cash generated from
operations. During 1995, the Company increased net borrowings by an additional
$6.9 million. Cash flow from operations generated $6.8 million but $5.7 million
of this was used to fund working capital needs. The Company invested $3.2
million in inventory during 1995, primarily because of increased costs. In
addition, current payables and accrued expenses decreased approximately $3.4
million as certain suppliers were prepaid before raw material price increases
took effect and other vendors were paid early before commencing a July 1st
conversion to a new purchasing computer system.
Capital expenditures for 1995 were $8.4 million, of which $2.7 million was used
to purchase new machinery, equipment, molds and tooling to support incremental
sales growth in the Closures Division. Approximately $1 million was spent to
increase capacity in the Chemical Division, $1 million was used to acquire
additional molds in the Consumer Products and Foodservice Divisions and
approximately $800,000 was used for equipment and new tooling for the new
Melanite(TM) and granulation markets. A new computer system initiated in 1994
at a cost of approximately $2 million was also capitalized during 1995. Other
miscellaneous capital additions totaled approximately $900,000.
In addition to the above capital expenditures, property, plant and equipment
increased approximately $1.2 million due to the acquisition of Nova Plast.
This Mexican company was purchased for consideration of approximately
$1,935,000, consisting of cash of $500,000, direct costs of $135,000, notes
payable of $1 million bearing interest of 10% per annum and due in May 1997 and
noninterest bearing notes payable of
15
<PAGE> 16
$300,000 due in August 1995. Additionally, the Company has repaid
approximately $500,000 in Nova Plast credit facilities subsequent to the
purchase.
Anticipated future capital additions should approximate $3 million during 1996
and management anticipates current debt capacity and cash flow from operations
should be adequate to fund this level of expenditure.
At June 30, 1995, the Company had cash equivalents of $1.2 million and working
capital of $13.9 million. In addition, the Company had total long-term debt
outstanding of $30.4 million (including current portion), with a weighted
average interest rate at June 30, 1995 of 7.75%.
In September 1995, the Company and its lender have agreed to amend its existing
credit facility to provide a total of $31.3 million secured by substantially
all the assets of the Company. The facility provides for borrowings under three
separate note arrangements -- (i) a $3.8 million term loan payable in quarterly
installments through April 1, 2001, plus an additional $3.5 million, three year
amortizing secured term loan (ii) a $9.0 million capital expenditure term loan
payable in quarterly installments through April 1, 2000, and (iii) a $15.0
million revolving loan, due January 31, 1997. As of June 30, 1995,
outstanding borrowings under the credit facility included $7.2 million under
the term loan, $8.3 million under the capital expenditure term loan, and $11.0
million under the revolving credit line. At June 30, 1995, incremental
borrowing availability under the credit facility was approximately $1.0 million
under the capital expenditure term loan and $.9 million under the revolving
credit line. The credit facility provides for the issuance of up to $2.0
million of letters of credit, subject to the borrowing availability under the
revolving credit line. See also Note 5 to Notes to Consolidated Financial
Statements. In connection with the credit facility amendment, the Company has
retained an investment banking firm to review various strategic alternatives
available to it, including access to capital markets and alternative sources of
financing.
INFLATION
The effect of inflation on operating costs has been minimal in prior years.
However, the cost of raw materials used in the Company's operations increased
significantly during 1995, with a higher rate of increase in the second through
fourth quarters. The most dramatic change was in the prices of formaldehyde and
melamine. These increased raw material costs had a material impact upon the
Company's gross margin and
16
<PAGE> 17
earnings during 1995. While some raw materials are currently experiencing
declines in price, others continue to increase and the overall future impact is
not predictable at this time.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and schedule of the Company as of June
30, 1994 and 1995, and for each of the years in the three-year period ended
June 30, 1995, are included as part of this report beginning on Page F-1
hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
Portions of the registrant's definitive proxy statement prepared for use in
connection with the 1995 Annual Meeting of shareholders to be held December 5,
1995, dated on or about October 26, 1995, have been incorporated by reference
as listed below. The proxy is expected to be filed with the Securities and
Exchange Commission on or about October 27, 1995.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding directors and executive officers is included in the
Election of Directors Section of the Company's definitive proxy statement and
is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is included in the Executive
Compensation Section of the Company's definitive proxy statement and is
incorporated herein by reference.
17
<PAGE> 18
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding the security ownership of certain beneficial owners and
management in included in the Stock Ownership Section of the Company's
definitive proxy statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
included in the Certain Transactions Section of the Company's definitive proxy
statement and is incorporated herein by reference.
18
<PAGE> 19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
A. Consolidated Financial Statements Page
--------------------------------- ----
<S> <C>
1. Consolidated Financial Statements
---------------------------------
Independent Auditors' Report F-1
Consolidated Balance Sheets, June 30, 1994 and 1995 F-2
Consolidated Statements of Income, Years Ended
June 30, 1993, 1994 and 1995 F-3
Consolidated Statements of Cash Flows, Years Ended
June 30, 1993, 1994 and 1995 F-4
Consolidated Statements of Stockholders' Equity,
Years Ended June 30, 1993, 1994 and 1995 F-5
Notes to Consolidated Financial Statements F-6
2. Consolidated Financial Statement Schedule
-----------------------------------------
II - Valuation and Qualifying Accounts
and Reserves F-17
</TABLE>
Schedules other than as listed above are omitted because they are not
required or are not applicable or the information is immaterial in relation to
the registrant's consolidated financial statements.
3. Exhibits
The information required by this Item 14(a)(3) is set forth in the
index to Exhibits accompanying this Annual Report on Form 10-K.
B. Reports on Form 8-K
A Form 8-K was filed in June 1995 to report adoption of a Shareholder
Rights Plan as of June 6, 1995.
19
<PAGE> 20
SUN COAST INDUSTRIES, INC.
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Sun Coast Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Sun Coast
Industries, Inc. and subsidiaries as of June 30, 1994 and 1995 and the related
consolidated statements of income, cash flows and stockholders' equity for each
of the years in the three-year period ended June 30, 1995. In connection with
our audits of the consolidated financial statements, we have also audited the
accompanying financial statement schedule. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and 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 Sun Coast
Industries, Inc. and subsidiaries as of June 30, 1994 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 30, 1995, 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.
As discussed in Note 2 to the consolidated financial statements, the Company
retroactively changed its method of accounting for certain inventories in 1995.
KPMG Peat Marwick LLP
Dallas, Texas
August 22, 1995, except as to Note 5
which is as of September 25, 1995
F-1
<PAGE> 21
SUN COAST INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE)
<TABLE>
<CAPTION>
JUNE 30,
--------
1994 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $1,824 $1,173
Accounts receivable, net of allowance for doubtful
accounts of $163 in 1994 and $312 in 1995 . . . . . . . . . . . . . . 9,519 9,602
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,522 13,248
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 1,162 394
------- -------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 22,027 24,417
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . 24,555 29,739
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,146 1,026
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,814 2,014
------- -------
$49,542 $57,196
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,493 $4,456
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,702 2,179
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . 1,498 2,958
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 679 879
------- -------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . 12,372 10,472
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 57
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,730 27,464
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 1,868 2,430
COMMITMENTS AND CONTINGENCIES (NOTE 12)
Stockholders' equity:
Common stock, $.01 par value; 40,000,000 shares authorized; issued and
outstanding 3,974,314 shares in 1994 and 4,005,629
in 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 40
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . 11,054 11,300
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,388 5,433
------- -------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . 15,482 16,773
------- -------
$49,542 $57,196
======= =======
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-2
<PAGE> 22
SUN COAST INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . $66,806 $73,102 $85,987
--------- -------- --------
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . 50,859 56,318 68,441
Selling, general and administrative . . . 9,310 10,260 14,043
Interest, net . . . . . . . . . . . . . . 1,152 1,124 1,715
Restructuring charge . . . . . . . . . . . -- 642 --
--------- -------- --------
61,321 68,344 84,199
--------- -------- --------
Income before income taxes . . . . . . . . 5,485 4,758 1,788
Provision for income taxes . . . . . . . . 1,796 1,494 743
--------- -------- --------
Net income . . . . . . . . . . . . . . $3,689 $3,264 $1,045
========= ======== ========
Net income per common share . . . . . . . . $.93 $.81 $.26
========= ======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE> 23
SUN COAST INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . $3,689 $3,264 $1,045
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization . . . . . . . 2,512 3,282 4,769
Deferred income taxes . . . . . . . . . . . (45) 196 762
Gain on sale of property,
plant and equipment . . . . . . . . . . . (155) (7) --
Allowance for doubtful accounts . . . . . . 172 117 232
Changes in assets and liabilities, net of
effects of acquisition:
Accounts receivable . . . . . . . . . . . (188) (1,838) 378
Inventories . . . . . . . . . . . . . . . (858) (2,090) (3,247)
Other current assets . . . . . . . . . . . (30) (699) 783
Intangible and other assets . . . . . . . (88) (738) (250)
Accounts payable and accrued expenses . . 307 2,521 (3,380)
-------- -------- --------
Net cash provided by operations . . . . . 5,316 4,008 1,092
-------- -------- --------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . (4,404) (9,034) (8,408)
Nova Plast acquisition, net of cash
acquired . . . . . . . . . . . . . . . . . -- -- (523)
Sale of property, plant and equipment . . . 200 -- --
-------- -------- --------
Net cash used in investing activities . . . . (4,204) (9,034) (8,931)
-------- -------- --------
Cash flows from financing activities:
Net proceeds of revolving credit line . . . 229 5,171 2,564
Proceeds from long-term debt . . . . . . . . 1,478 2,397 7,463
Repayments of long-term debt . . . . . . . . (2,067) (2,058) (3,085)
Issuance of common stock . . . . . . . . . . -- 111 246
-------- -------- --------
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . (360) 5,621 7,188
-------- -------- --------
Change in cash and equivalents . . . . . . . 752 595 (651)
Cash and equivalents at beginning of year . . 477 1,229 1,824
-------- -------- --------
Cash and equivalents at end of year . . . . . $1,229 $1,824 $1,173
======== ======== ========
</TABLE>
SEE NOTES 5, 6 AND 10 FOR SUPPLEMENTARY DISCLOSURES.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE> 24
SUN COAST INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED JUNE 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TOTAL
--------------------- PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
---------- -------- -------- --------- ------
<S> <C> <C> <C> <C> <C>
At June 30, 1992 . . . . . . . . . . . . . . 3,951,609 $40 $10,943 $ (2,565) $8,418
Issuance of fractional shares . . . . . . . . 61 -- -- -- --
Exercise of options . . . . . . . . . . . . . 4,152 -- -- -- --
Net income . . . . . . . . . . . . . . . . . -- -- -- 3,689 3,689
------------ -------- -------- -------- --------
At June 30, 1993 . . . . . . . . . . . . . . 3,955,822 40 10,943 1,124 12,107
Exercise of options . . . . . . . . . . . . . 18,492 -- 111 -- 111
Net income . . . . . . . . . . . . . . . . . -- -- -- 3,264 3,264
------------ -------- -------- -------- --------
At June 30, 1994 . . . . . . . . . . . . . . 3,974,314 40 11,054 4,388 15,482
Exercise of options . . . . . . . . . . . . . 31,315 -- 246 -- 246
Net income . . . . . . . . . . . . . . . . . -- -- -- 1,045 1,045
------------ -------- -------- -------- --------
At June 30, 1995 . . . . . . . . . . . . . . 4,005,629 $40 $11,300 $5,433 $16,773
============ ======== ======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE> 25
SUN COAST INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1993, 1994 AND 1995
NOTE 1 -- THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Sun Coast Industries, Inc. (the "Company") manufactures and sells melamine and
urea resins and compounds and, from these and other materials, molds Consumer
Products and commercial plastic products, including dinnerware, drinkware and
closures. The Company has manufacturing facilities in Texas, Florida, Tennessee
and Mexico and offers its products through five divisions. The Chemical
Division manufactures melamine and urea resins and compounds, which it supplies
to other manufacturers and uses in producing its own Consumer Products and
Foodservice products. The Consumer Products and Foodservice Divisions
manufacture compression molded melamine dinnerware and injection molded plastic
drinkware, which the Company sells to retail and commercial markets. The
Closures Division manufactures linerless, foil or foam lined and tamper-evident
plastic closures and lids. These closures are used to bottle or package food,
beverage, chemical and pharmaceutical products. The Custom Laminates Division
is a start-up division employing the Company's proprietary process that permits
lamination of images in a range of design, color and detail for use in
furniture and countertops. No significant sales were generated for this latest
division during fiscal 1995.
Industry Segment
The Company operates in a single industry segment, supplying Consumer Products
and commercial related plastic products on a direct and indirect basis,
utilizing similar production processes and methods.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly- owned. All significant intercompany
balances and transactions have been eliminated in consolidation. Certain
amounts in previously issued financial statements have been reclassified to
conform with the current year financial statement presentation.
Inventories
Inventories are valued at the lower of cost or market, with cost determined
utilizing the first-in, first-out (FIFO) method. See Note 2.
Property, Plant and Equipment
Property, plant and equipment are carried at cost and depreciated using the
straight-line method over the estimated useful lives of the related assets.
Lives assigned to asset categories are 5 to 15 years for machinery and
equipment,
F-6
<PAGE> 26
SUN COAST INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 to 35 years for buildings and 5 years for molds. Machinery and equipment
under capital leases are stated at the present value of minimum lease payments.
Renewals and improvements that significantly add to the productive capacity or
extend the useful life of an asset are capitalized. Repairs and maintenance are
charged to expense as incurred.
Intangible Assets
Intangible assets are stated at cost and consist primarily of patents and
goodwill. Intangible assets are amortized on the straight-line method over
their estimated useful lives ranging from 5 to 20 years. The carrying values
and amortization periods of intangibles are periodically evaluated by the
Company to determine whether current events and circumstances warrant
adjustment.
Advertising Costs
The Company expenses the costs of advertising as incurred, except for
direct-response advertising and catalog costs which are capitalized and
amortized over their expected periods of future benefit (generally six months).
Direct response advertising and catalog costs consist primarily of printing and
contract services for catalogs to market the Company's products.
The total advertising costs reported as an asset were $169,000 and $63,000 at
June 30, 1994 and 1995, respectively. Advertising expense for fiscal years
1993, 1994 and 1995 was $659,000, $921,000 and $1,047,000, respectively.
Income Taxes
Deferred income taxes are provided for temporary differences between financial
and tax reporting. Income taxes are provided for taxes currently payable
based on taxable income. The principal temporary differences are described in
Note 6.
Environmental Costs
A liability for environmental assessments and/or cleanup is accrued when it is
probable a loss has been incurred and is estimable. No significant liability
exists at June 30, 1995.
Net Income Per Common Share
Net income per common share is computed by dividing net income by the weighted
average number of common shares outstanding during each year after giving
effect to stock options and warrants considered to be dilutive common stock
equivalents. The weighted average number of common shares outstanding was
3,951,953 in 1993, 4,032,554 in 1994 and 4,076,792 in 1995. Primary and fully
diluted net income per common share amounts are the same.
F-7
<PAGE> 27
SUN COAST INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition
Sales are recognized when the product is shipped.
Research and Development
Research and development costs associated with new product development and
testing are expensed as incurred. Research and development costs amounted to
$514,000, $731,000 and $1,287,000 in fiscal years 1993, 1994 and 1995,
respectively.
Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with original maturities of three months or less to be cash
equivalents. Noncash capital lease financing transactions totaled $418,000 and
$121,000 in fiscal years 1993 and 1995, respectively (none in 1994). See Note
10 for additional noncash transactions.
Foreign Currency Translation and Transactions
The Company's foreign subsidiary (See Note 10) uses the local currency as the
functional currency. Translation gains or losses are included as a component
of stockholder's equity. Gains or losses from foreign currency transactions
are included in net income. There were no material gains and losses from
foreign currency translation or transactions in 1995.
NOTE 2 -- INVENTORIES
<TABLE>
<CAPTION>
1994 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,471 $5,224
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 917 806
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,185 7,792
-------- ----------
9,573 13,822
Obsolescence reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (51) (574)
-------- ----------
$9,522 $13,248
======== ==========
</TABLE>
Inventories are valued at the lower of cost or market. During the fourth
quarter of 1995, the Company changed to the FIFO method of accounting for all
its inventories. Previously, the Chemical, Consumer Products and Foodservice
Divisions' inventories were valued using the last-in, first-out (LIFO) method
and all other inventories were valued at the FIFO method. The Company believes
that the FIFO method provides a more meaningful presentation of the Company's
financial position as it reflects more recent costs in the balance sheet. In
addition, the change to the FIFO method conforms substantially all inventories
of the Company to the same accounting method.
F-8
<PAGE> 28
SUN COAST INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
This change has been applied to prior years by retroactively restating the
consolidated financial statements as required by generally accepted accounting
principles. The effect of this restatement was to increase the beginning
deficit as of July 1, 1992 by $ 110,000, increase 1993 net income by $46,000 or
$.01 per share, decrease 1994 net income by $(162,000) or $(.04) per share, and
decrease 1995 net income by $(96,000) or $(.02) per share.
NOTE 3 -- PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1994 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $634 $634
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,733 6,713
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,523 22,860
Machinery and equipment under capital lease . . . . . . . . . . . . . . . . . . . 5,213 5,223
Molds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,820 8,876
Furniture and fixtures, leasehold improvements and other . . . . . . . . . . . . 2,764 4,710
--------- ---------
39,687 49,016
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . (15,132) (19,277)
--------- ---------
$24,555 $29,739
========= =========
</TABLE>
Accumulated amortization of machinery and equipment under capital lease was
$3,876,000 and $4,196,000 at June 30, 1994 and 1995, respectively.
NOTE 4 -- ACCRUED EXPENSES
<TABLE>
<CAPTION>
1994 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Salaries and other benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,404 $675
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215 12
Taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 627 --
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,456 1,492
------ ------
$3,702 $2,179
====== ======
</TABLE>
F-9
<PAGE> 29
SUN COAST INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 -- LONG-TERM DEBT
<TABLE>
<CAPTION>
1994 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,000 $7,167
Revolving credit line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,455 11,020
Capital expenditures term loan . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 8,278
Industrial development revenue bonds . . . . . . . . . . . . . . . . . . . . . . 2,476 2,325
Subordinated notes payable (Note 10) . . . . . . . . . . . . . . . . . . . . . . -- 1,300
Capitalized lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . 297 332
-------- --------
21,228 30,422
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,498) (2,958)
-------- --------
$19,730 $27,464
======== ========
</TABLE>
The Company has an outstanding loan agreement which was amended in September
1995 to provide for a total facility of $31.3 million, comprised of the
following: (1) a $3.8 million, seven-year amortizing secured loan plus an
additional $3.5 million, three year amortizing secured term loan (Term Loan);
(2) a $9 million, six-year amortizing secured loan (Capital Expenditure Term
Loan) limited to 80% of the orderly liquidation value of equipment, as defined;
and (3) a $15 million revolving loan (the Revolving Credit Line) with
availability determined by reference to a borrowing base of eligible accounts
receivable and inventory of the Company. Borrowing availability under the
Revolving Credit Line at June 30, 1995 was $11.9 million, of which $11.0
million was outstanding. The Revolving Credit Line is available for the term
of the loan agreement, which extends through January 31, 1997. Interest rates
on the loans approximate the prime rate (7.75% weighted average at June 30,
1995). The loan agreement also provides for the issuance of up to $2 million
of letters of credit, subject to the borrowing availability under the Revolving
Credit Line. No letters of credit were outstanding at June 30, 1995.
Substantially all of the Company's property, equipment, receivables and
inventory are pledged as collateral.
The loan agreement contains various covenants, including maintaining certain
financial ratios and tests, limitation on the issuance of debt and the amount
of capital expenditures, capital leases, investments and dividends. The
primary financial covenants include quarter end calculations of ratios of cash
flow to the current portion of long-term debt, total debt to tangible net
worth, current assets to current liabilities and the maintenance of minimum
tangible net worth, all as defined. In connection with the September 1995
amendment, the bank waived compliance with certain covenants at June 30, 1995
and modified the covenants for future periods.
The industrial development revenue bonds were used to finance the cost of a
production and office facility (completed during 1988) and certain machinery in
Florida. The bonds bear interest at 78% of prime, are payable in monthly
installments of $12,500 through 2011, and are secured by the underlying
facility and equipment.
The estimated fair value of the Company's debt approximates the outstanding net
book value at June 30, 1994 and 1995. Interest paid (net of $110,000 and
$226,000 capitalized in 1994 and 1995, respectively) amounted to $1,177,000 in
1993, $885,000 in 1994 and $2,127,000 in 1995.
F-10
<PAGE> 30
SUN COAST INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Scheduled debt maturities (excluding capital lease obligations) subsequent to
June 30, 1995 are as follows: $2,872,000 in 1996, $14,316,000 in 1997,
$4,296,000 in 1998, $2,047,000 in 1999, $2,047,000 in 2000 and $4,512,000
thereafter.
NOTE 6 -- INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,644 $1,187 $ (17)
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197 111 (2)
--------- -------- --------
1,841 1,298 (19)
Deferred federal and state . . . . . . . . . . . . . . . . . . . . . (45) 196 762
--------- -------- --------
$1,796 $1,494 $743
========= ======== ========
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . $1,739 $1,225 $967
========= ======== ========
</TABLE>
A reconciliation of the federal statutory tax rate with the effective tax rate
follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Statutory tax rate . . . . . . . . . . . . . . . . . . . . . . . . . 34.0% 34.0% 34.0%
State income taxes, net of federal income tax benefit . . . . . . . 2.4 1.9 4.3
Goodwill write-off . . . . . . . . . . . . . . . . . . . . . . . . -- -- 3.8
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3.7) (4.5) (.5)
----- ----- -----
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . 32.7% 31.4% 41.6%
===== ===== =====
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and liabilities follow:
<TABLE>
<CAPTION>
1994 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . $59 $75
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 136
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 87
-------- --------
Total gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . 223 298
-------- --------
Deferred tax liabilities:
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . (1,868) (2,407)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (821) (1,130)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (81) (70)
-------- --------
Total gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . (2,770) (3,607)
-------- --------
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,547) $(3,309)
======== ========
</TABLE>
F-11
<PAGE> 31
SUN COAST INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
No valuation allowance related to deferred tax assets was necessary for any of
the periods presented as management believes it is more likely than not that
such deferred tax assets will be realized.
NOTE 7 -- RESTRUCTURING CHARGE
During the second quarter of fiscal year 1994, the Company recorded a
restructuring charge related to an approximate 8% reduction in the number of
Texas employees and the consolidation of certain corporate functions such as
management information systems, insurance coverage and benefit plans. The
charge included costs to reduce personnel levels ($370,000), consolidate
manufacturing operations ($80,000) and outsource and consolidate certain
corporate functions ($192,000). The restructuring reserve was fully utilized as
of June 30, 1994.
NOTE 8 -- STOCKHOLDERS' EQUITY
Stock Warrants
The Company has outstanding warrants to purchase 113,792 shares of common stock
at $13.18 per share which were issued in connection with obtaining financing
for the purchase of a subsidiary. The warrants are exercisable through 2002
and contain antidilution provisions which cause both the number of warrants and
the exercise price to change as certain events occur.
Stock Options
The 1994 Long Term Incentive Plan provides that officers and key employees may
be granted stock appreciation rights, restricted stock, performance share
awards, nonqualified stock options or incentive stock options for the purchase
of the Company's common stock. Up to 250,000 shares of the Company's common
stock may be issued on exercise of options and rights granted under this plan.
The type, terms and timing of options granted will be determined at the
discretion of the Board of Directors.
No future grants will be made under the Company's previous incentive stock
option plans. At June 30, 1995, previously granted options for 320,405 shares
remain outstanding under these plans.
The Directors Formula Stock Option Plan provides for each non-employee director
and Chairman to be granted 1,000 options initially and 500 options each fiscal
year ended June 30, 1994 and thereafter for purchase of the Company's common
stock at the fair market value at the date of grant.
F-12
<PAGE> 32
SUN COAST INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Transactions in stock options under these plans are summarized as follows:
<TABLE>
<CAPTION>
SHARES PRICE RANGE
------ -----------
<S> <C> <C>
Options outstanding at July 1, 1993 . . . . . . . . . . . . . . . . . 331,505 $5.50 -- 15.00
Options granted . . . . . . . . . . . . . . . . . . . . . . . . . . 117,500 $10.00 -- 14.25
Options exercised . . . . . . . . . . . . . . . . . . . . . . . . . (24,455) $5.50 -- 9.40
Options terminated . . . . . . . . . . . . . . . . . . . . . . . . . (15,750) $5.95 -- 11.90
-----------
Options outstanding at June 30, 1994 . . . . . . . . . . . . . . . . 408,800 $5.50 -- 15.00
Options granted . . . . . . . . . . . . . . . . . . . . . . . . . . 46,000 $9.50 -- 13.38
Options exercised . . . . . . . . . . . . . . . . . . . . . . . . . (31,315) $5.95 -- 10.13
Options Terminated . . . . . . . . . . . . . . . . . . . . . . . . (80) $9.40 -- 13.50
-----------
Options outstanding at June 30, 1995
(215,205 options exercisable) . . . . . . . . . . . . . . . . . . . 423,405 $5.50 - 15.00
===========
</TABLE>
During fiscal years 1993 and 1994, the Company offered to settle options held
by certain employees of the Company by issuing shares of stock equal in value
to the appreciation of the Company's stock over the stated option price. A
total of 12,100 and 9,140 options were exercised in 1993 and 1994,
respectively, in this manner, resulting in the issuance of 4,027 and 3,233
shares.
Stockholder Rights Plan
On June 6, 1995, the Company adopted a Stockholder Rights Plan and, in
connection with such plan, declared a dividend distribution of one right for
each outstanding share of the Company's $0.01 par value common stock, payable
on July 6, 1995 to stockholders of record on that date. Each right entitles
the stockholders to buy from the Company one share of common stock at a price
of $50.00 per share. The rights will not be exercisable or separable from the
common stock until ten business days after a party acquires beneficial
ownership of 20 percent or more of the Company's common shares or announces a
tender offer for at least 20 percent of its common shares outstanding.
The rights, which are subject to adjustment, may be redeemed by the Company at
a price of $0.01 per right at any time prior to expiration on July 6, 2005 or
the point at which they become exercisable. In the event the Company is
acquired in a merger or other business combination transaction, each right will
entitle its holder to purchase, at the right's then current exercise price,
that number of acquiring company's common shares having a market value of two
times the exercise price of the right.
The Stockholder Rights Plan is designed to assure that the Company's
stockholders receive fair and equal treatment in the event of any proposed
takeover of the Company and to guard against partial tender offers and other
abusive takeover tactics to gain control of the Company without paying all
stockholders a fair price.
F-13
<PAGE> 33
SUN COAST INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 -- PENSION, RETIREMENT, PROFIT SHARING AND SAVINGS PLANS
The Company has separate pension plans covering bargaining unit employees and
substantially all other employees. Benefits under the bargaining unit plan are
set by contract with the union at a fixed amount per year of service, which
also requires contributions at certain intervals, as stipulated in the union
contract. Benefits under the other plan were frozen effective February 1, 1994.
Pension cost and significant assumptions follow:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Non-union employees' plan:
Service cost -- benefits earned during the period . . . . . . . . . $125 $125 $----
Interest cost on projected benefit obligation . . . . . . . . . . . 170 176 156
Actual return on assets . . . . . . . . . . . . . . . . . . . . . . (154) (177) (171)
Net amortization and deferral of gains and losses . . . . . . . . . (5) (5) -
Net curtailment gain . . . . . . . . . . . . . . . . . . . . . . . . -- (158) -
Union plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 97 105
----- ----- ------
Net periodic pension cost . . . . . . . . . . . . . . . . . . . . $233 $58 $90
===== ===== ======
Weighted average discount rate . . . . . . . . . . . . . . . . . . . 8.0% 7.5% 7.5%
Rate of increase in compensation level . . . . . . . . . . . . . . . 5.0 4.5 n/a
Long-term rate of return on plan assets . . . . . . . . . . . . . . . 7.0 7.0 7.0
</TABLE>
A summary of the plans' funded status and amounts recognized in the Company's
consolidated balance sheets follow:
<TABLE>
<CAPTION>
1994 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, fully vested . . . . . . . . . . . . . . . . . . $4,676 $4,726
======== ========
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . $ (4,676) $ (4,726)
Plan assets at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,042 5,310
-------- --------
Plan assets in excess of projected benefit obligation . . . . . . . . . . . . . 366 584
Unrecognized net loss and transition asset . . . . . . . . . . . . . . . . . . . -- (107)
-------- --------
Prepaid pension asset included in other assets . . . . . . . . . . . . . . . . . $366 $477
======== ========
</TABLE>
The Company and its subsidiaries have defined contribution profit sharing and
savings plans for the benefit of employees. Company contributions to the profit
sharing and savings plans were $401,000, $231,000 and $111,000
F-14
<PAGE> 34
SUN COAST INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for fiscal years 1993, 1994 and 1995, respectively. Effective July 1, 1994, the
above described profit sharing and savings plans were merged into one
Company-wide plan.
NOTE 10 -- ACQUISITION AND DIVESTITURE
Effective May 17, 1995, the Company acquired all of the issued and outstanding
capital stock of Nova Plast, S. A. de C. V. (Nova Plast), a Mexican company,
through a newly formed and wholly-owned Mexican subsidiary for consideration of
approximately $1,935,000, consisting of cash of $500,000, direct costs of
$135,000, notes payable of $1,000,000 bearing interest at 10% per annum and due
in May 1997 and noninterest bearing notes payable of $300,000 due in August
1995. The acquisition of Nova Plast has been accounted for as a purchase, and
accordingly, results of its operations have been included in the consolidated
statement of income since the acquisition date. In addition, Nova Plast's
operations in 1995 are not significant to the Company and pro-forma results are
not presented. Goodwill of $407,000 from the purchase will be amortized over a
20 year period.
On June 5, 1995, the Company, in exchange for a collateralized ten year note
receivable of $615,000, bearing a 10% interest rate, sold all of the issued and
outstanding capital stock of Alliance Manufacturing, Inc. (a wholly-owned
subsidiary) to a former employee, with no significant gain or loss arising from
the sale.
NOTE 11 -- BUSINESS AND CREDIT CONCENTRATION
The Company frequently bids for large contracts for its products which may
result in individual customers accounting for more than 10% of its net sales in
a given fiscal year. Sales to a single customer were approximately $10,476,000,
$10,649,000 and $12,275,000 for fiscal years 1993, 1994 and 1995, respectively.
Sales to a second customer were approximately $7,004,000, $8,401,000 and
$9,374,000 in fiscal years 1993, 1994 and 1995, respectively. No other
customers represented more than 10% of the Company's net sales in 1993, 1994 or
1995. The Company had accounts receivable balances from these major customers
of approximately $2,087,000 and $2,072,000 as of June 30, 1994 and 1995,
respectively. Customers from many geographic locations are granted credit on an
unsecured basis. Management believes that sufficient allowances for doubtful
accounts have been provided as of June 30, 1994 and 1995.
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
The Company leases certain equipment used in the manufacturing of products.
Rental expense under operating leases was $503,000, $448,000 and $797,000 in
fiscal years 1993, 1994 and 1995, respectively. Future minimum lease payments
under capital and operating leases with initial or remaining terms of one year
or more at the end of fiscal year 1995 follow:
F-15
<PAGE> 35
SUN COAST INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30, CAPITAL OPERATING
- -------------------- ------- ---------
(IN THOUSANDS)
<S> <C> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $146 $895
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 832
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 327
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 146
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 73
</TABLE>
Under the Company's insurance programs, coverage is obtained for catastrophic
exposures as well as those risks required to be insured by law or contract. The
Company is responsible for certain expected losses related primarily to
workers' compensation. Provisions for losses expected under this program are
actuarially determined based upon estimates of the aggregate liability for
claims incurred. Such estimates utilize certain actuarial assumptions followed
in the insurance industry.
The Company is a party to various claims, legal actions and complaints arising
in the ordinary course of business. Management believes that the disposition
of these matters will not have a material impact on the financial condition or
results of operations of the Company.
NOTE 13 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data are summarized as follows (dollars in
thousands, except per share data):
<TABLE>
<CAPTION>
FISCAL YEAR 1994 QUARTERS FISCAL YEAR 1995 QUARTERS
------------------------- -------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
----- ------ ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues . . . . . . . . $17,261 $16,912 $18,875 $20,054 $22,289 $21,290 $21,562 $20,846
Gross margin . . . . . . 3,862 3,914 4,584 4,424 5,378 4,688 4,355 3,125
Income (loss)
before income tax . . 1,069 420 1,695 1,574 1,710 1,272 538 (1,732)
Net income (loss) . . . . 697 269 1,057 1,242 1,059 855 306 (1,175)
Per common share . . . . .18 .07 .27 .29 .26 .21 .08 (.29)
</TABLE>
During the fourth quarter of fiscal 1995, the Company recorded additional
reserves for obsolete inventory of approximately $400,000 and additional
allowances for doubtful accounts of approximately $100,000. These amounts
were recorded in regards to the decline in sales volumes and customer
resistance to increased prices caused by raw material cost increases.
F-16
<PAGE> 36
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
THREE YEARS ENDED JUNE 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Additions
----------------------------------
Balance Charged to Charged to Balance
beginning of costs and other at end
Description period expenses accounts (2) Deductions (1) of period
----------- ------ -------- ------------ -------------- ---------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1995:
Allowance for doubtful $163 $232 $85 $(168) $312
accounts
Allowance for obsolete $ 51 $538 $14 $ (29) $574
inventory
Year ended June 30, 1994:
Allowance for doubtful $229 $117 $-- $(183) $163
accounts
Allowance for obsolete $ 50 $ 40 $-- $ (39) $ 51
inventory
Year ended June 30, 1993:
Allowance for doubtful $215 $172 $-- $(158) $229
accounts
Allowance for obsolete $ 50 $ 27 $-- $ (27) $ 50
inventory
</TABLE>
(1) Writeoffs against allowance
(2) Nova Plast acquisition and other
F-17
<PAGE> 37
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, thereto duly authorized.
SUN COAST INDUSTRIES, INC.
Date September 27, 1995 By: /s/R. CARTER PATE
------------------ -------------------------------
R. Carter Pate
President & Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report is signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ STEPHEN P. SMILEY Chairman of the Board September 27, 1995
----------------- and Director ------------------
Stephen P. Smiley
/s/ R. CARTER PATE President, Chief Executive September 27, 1995
-------------- Officer and Director ------------------
R. Carter Pate
/s/ CYNTHIA R. MORRIS Secretary, Treasurer September 27, 1995
----------------- (Principal Accounting ------------------
Cynthia R. Morris and Financial Officer)
/s/ JAMES D. IRELAND III Director September 27, 1995
-------------------- ------------------
James D. Ireland III
/s/ JAMES H. MILLER Director September 27, 1995
--------------- ------------------
James H. Miller
/s/ JAMES R. PARISH Director September 27, 1995
--------------- ------------------
James R. Parish
/s/ ARNO F. PIRKAU Director September 27, 1995
-------------- ------------------
Arno F. Pirkau
</TABLE>
<PAGE> 38
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.1 Certificate of Incorporation of Sun Industries, Inc., as amended (filed as Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the Quarter Ended March 31, 1994 and incorporated
herein by reference).
3.2 Bylaws of the Company (filed as Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q
for the Quarter Ended March 31, 1994 and incorporated herein by reference).
3.3 Amendment to Bylaws of the Company.
4.1 Stock Subscription Warrant dated August 23, 1993 issued to PruSupply Capital Assets, Inc.
(filed as Exhibit 4.1 to the Company's Registration Statement on Form S-2 filed on February
17, 1995 and incorporated herein by reference).
4.2 Registration Rights Agreement dated as of January 8, 1988 between the Company and The
Prudential Insurance Company of America (filed as Exhibit 4.2 to the Company's Registration
Statement on Form S-2 filed on February 17, 1995 and incorporated herein by reference).
10.1 Amended and Restated Loan and Security Agreement dated as of April 29, 1994 among Bank of
America Texas, N.A., Sun Coast Holdings, Inc., Sun Coast Closures, Inc., Plastics
Manufacturing Company, the Company, Alliance Manufacturing, Inc. and Custom Laminates, Inc.
(filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the Quarter Ended
March 31, 1994 and incorporated herein by reference).
10.2 Amended and Restated Capital Expenditures Term Note effective as of April 29, 1994 executed
by Sun Coast Holdings, Inc. in the face amount of $10,000,000 payable to the order of Bank of
America Texas, N.A. (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for
the Quarter Ended March 31, 1994 and incorporated herein by reference).
10.3 Term Note effective as of March 13, 1991 executed by Plastics Manufacturing Company in the
face amount of $11,500,000 payable to the order of SPBC, Inc. (filed as Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the Quarter Ended March 31, 1994 and incorporated
herein by reference).
10.4 Amended and Restated Continuing Guaranty by Plastics Manufacturing Company, dated as of April
29, 1994 for the benefit of Bank of America Texas, N.A. (filed as Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the Quarter Ended March 31, 1994 and incorporated
herein by reference).
10.5 Amended and Restated Continuing Guaranty by Sun Coast Closures, Inc., dated as of April 29,
1994 for the benefit of Bank of America Texas, N.A. (filed as Exhibit 10.5 to the Company's
Quarterly Report on Form 10-Q for the Quarter Ended March 31, 1994 and incorporated herein by
reference).
</TABLE>
<PAGE> 39
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.6 Continuing Guaranty by the Company, dated as of April 29, 1994 for the benefit of Bank of
America Texas, N.A. (filed as Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for
the Quarter Ended March 31, 1994 and incorporated herein by reference).
10.7 Continuing Guaranty by Alliance Manufacturing, Inc., dated as of April 29, 1994 for the
benefit of Bank of America Texas, N.A. (filed as Exhibit 10.7 to the Company's Quarterly
Report on Form 10-Q for the Quarter Ended March 31, 1994 and incorporated herein by
reference).
10.8 Continuing Guaranty by Custom Laminates, Inc., dated as of April 29, 1994 for the benefit of
Bank of America Texas, N.A. (filed as Exhibit 10.8 to the Company's Quarterly Report on Form
10-Q for the Quarter Ended March 31, 1994 and incorporated herein by reference).
10.9 Assignment of Notes, Liens, and Loan Documents executed by Bank America Business Credit, Inc.
successor to SPBC, Inc. (filed as Exhibit 10.9 to the Company's Quarterly Report on Form 10-Q
for the Quarter Ended March 31, 1994 and incorporated herein by reference).
10.10 Assumption Agreement dated as of April 29, 1994 among Sun Coast Holdings, Inc., Plastics
Manufacturing Company, Sun Coast Closures, Inc., the Company, and Bank of America Texas, N.A.
(filed as Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q for the Quarter Ended
March 31, 1994 and incorporated herein by reference).
10.11 Modification of Note and Deed of Trust effective as of April 29, 1994 among Bank of America
Texas, N.A., Plastics Manufacturing Company, the Company and Sun Coast Holdings, Inc. (filed
as Exhibit 10.11 to the Company's Quarterly Report on Form 10-Q for the Quarter Ended March
31, 1994 and incorporated herein by reference).
10.12 1984 Incentive Stock Option Plan (filed as Exhibit 4.1 to the Company's Registration
Statement on Form S-8 filed with the Securities and Exchange Commission on March 15, 1993 and
incorporated herein by reference).
10.13 First Amendment to Amended and Restated Loan and Security Agreement dated as of September 21,
1994 (filed as Exhibit 10.13 to the Company's Registration Statement on Form S-2 filed with the
Securities and Exchange Commission on February 17, 1995 and incorporated herein by reference).
10.14 Second Amendment to Amended and Restated Loan and Security Agreement dated as of November 23,
1994 (filed as Exhibit 10.14 to the Company's Registration Statement on Form S-2 filed with the
Securities and Exchange Commission on February 17, 1995 and incorporated herein by reference).
10.15 1987 Incentive Stock Option Plan (filed as Exhibit 4.1 to the Company's Registration
Statement on Form S-8 filed with the Securities and Exchange Commission on March 15, 1993 and
incorporated herein by reference).
10.16 1993 Incentive and Non-Statutory Stock Option Plan (filed as Exhibit 4.1 to the Company's
Registration Statement on Form S-8 filed with the Securities and Exchange Commission on March
15, 1993 and incorporated herein by reference.).
</TABLE>
<PAGE> 40
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.17 1994 Long-Term Incentive Plan (filed as Exhibit 4.1 to the Company's Registration Statement
on Form S-8 filed with the Securities and Exchange Commission on December 16, 1994 and
incorporated herein by reference).
10.18 1994 Director Stock Option Plan (filed as Exhibit 4.1 to the Company's Registration Statement
on Form S-8 filed with the Securities and Exchange Commission on December 16, 1994 and
incorporated herein by reference).
10.19 Form of Director and Officer Indemnification Agreements entered into between the Company and
each director and executive officer as of July 3, 1995.
10.20 Loan, Mortgage and Security Agreement between Manatee County, Florida and Sun Coast Plastics,
Inc. dated as of December 1, 1985 relating to Manatee County, Florida Industrial Development
Revenue Bonds, 1985 Series (Sun Coast Plastics, Inc. Project) (filed as Exhibit 10.20 to the
Company's Registration Statement on Form S-2 filed on February 17, 1995 and incorporated
herein by reference).
10.21 Trust Indenture between Manatee County, Florida and Sun Bank, National Association, as
Trustee, dated as of December 1, 1985, relating to Manatee County, Florida Industrial
Development Revenue Bonds, 1985 Series (Sun Coast Plastics, Inc. Project) (filed as Exhibit
10.21 to the Company's Registration Statement on Form S-2 filed on February 17, 1995 and
incorporated herein by reference).
10.22 United States of America, State of Florida, Manatee County Industrial Development Revenue
Bond, 1985 Series (Sun Coast Plastics, Inc. Project) (filed as Exhibit 10.22 to the Company's
Registration Statement on Form S-2 filed on February 17, 1995 and incorporated herein by
reference).
10.23 Rights Agreement, dated as of June 6, 1995, between the Company and American Stock Transfer &
Trust Company (filed as Exhibit 1 to the Company's Current Report on Form 8-K dated June 6,
1995 and incorporated herein by reference).
10.24 Severance Agreement, dated as of August 8, 1995, between the Company and R. Carter Pate.
10.25 Severance Agreement, dated as of August 8, 1995, between the Company and Cynthia R. Morris.
10.26 Third Amendment to Amended and Restated Loan and Security Agreement dated as of the 22nd day
of March, 1995.
10.27 Fourth Amendment to Amended and Restated Loan and Security Agreement dated as of the September
28, 1995.
18.1 Letter dated September 25, 1995 from KPMG Peat Marwick LLP to the Company regarding
preferability of FIFO.
21 Subsidiaries of the Company.
23.1 Consent of KPMG Peat Marwick LLP.
27 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 3.3
RESOLVED, that Section 11 of Article II of the bylaws of the
Corporation is hereby renumbered Section 13 and Section 10 of such bylaws is
deleted and replaced with the following new Sections 10, 11 and 12:
Section 10. Conduct of Meetings by Presiding Person. All
determinations of the presiding person at each meeting of stockholders
shall be conclusive unless a matter is determined otherwise upon
motion duly adopted by the affirmative vote of the holders of at least
80% of the voting power of the shares of capital stock of the
Corporation entitled to vote in the election of directors held by
stockholders present in person or represented by proxy at such
meeting. Accordingly, in any meeting of stockholders or part thereof,
the presiding person shall have the sole power to determine
appropriate rules or to dispense with theretofore prevailing rules.
Without limiting the foregoing, the following rules shall apply:
(a) The presiding person may ask or require that anyone
not a bona fide stockholder or proxy leave the meeting.
(b) A resolution or motion shall be considered for vote
only if proposed by a stockholder or duly authorized proxy, and
seconded by an individual, who is a stockholder or a duly authorized
proxy, other than the individual who proposed the resolution or
motion, subject to compliance with any other requirements concerning
such a proposed resolution or motion contained in these bylaws. The
presiding person may propose any motion for vote. The order of
business at all meetings of stockholders shall be determined by the
presiding person.
(c) The presiding person may impose any reasonable limits
with respect to participation in the meeting by stockholders,
including, but not limited to, limits on the amount of time at the
meeting taken up by the remarks or questions of any stockholder,
limits on the numbers of questions per stockholder, and limits as to
the subject matter and timing of questions and remarks by
stockholders.
(d) Before any meeting of stockholders, the Board of
Directors may appoint any persons other than nominees for office to
act as inspectors of election at the meeting or its adjournment. If
no inspectors of election are so appointed, the presiding person may,
and on the request of any stockholder or a stockholder's proxy shall,
appoint inspector(s) of election at the meeting of stockholders. If
any person appointed as inspector fails to appear or fails or refuses
to act, the presiding person may, and upon the request of any
stockholder or a stockholder's proxy shall, appoint a person to fill
such vacancy.
The duties of these inspectors shall be as follows:
<PAGE> 2
(i) Determine the number of shares outstanding
and the voting power of each, the shares represented at the
meeting, the existence of a quorum, and the authenticity,
validity and effect of proxies;
(ii) Receive votes or ballots;
(iii) Hear and determine all challenges and
questions in any way arising in connection with the right to
vote;
(iv) Count and tabulate all votes;
(v) Report to the Board of Directors the results
based on the information assembled by the inspectors; and
(vi) Do any other acts that may be proper to
conduct the election or vote with fairness to all
stockholders.
Notwithstanding the foregoing, the final certification of the results
of any election or other matter acted upon at a meeting of
stockholders shall be made by the Board of Directors.
Section 11. Nomination of Directors. Nominations for the
election of directors may be made by the Board of Directors or by any
stockholder (a "Nominator") entitled to vote in the election of
directors. Such nominations, other than those made by the Board of
Directors, shall be made in writing pursuant to timely notice
delivered to or mailed and received by the Secretary of the
Corporation as set forth in this Section 11. To be timely in
connection with an annual meeting of stockholders, a Nominator's
notice, setting forth the name and address of the person to be
nominated, shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than ninety
days nor more than 180 days prior to the date on which the immediately
preceding year's annual meeting of stockholders was held. To be
timely in connection with any election of a director at a special
meeting of the stockholders, a Nominator's notice, setting forth the
name of the person to be nominated, shall be delivered to or mailed
and received at the principal executive offices of the Corporation not
less than forty days nor more than sixty days prior to the date of
such meeting; provided, however, that in the event that less than
fifty days' notice or prior public disclosure of the date of the
special meeting of the stockholders is given or made to the
stockholders, the Nominator's notice to be timely must be so received
not later than the close of business on the seventh day following the
day on which such notice of date of the meeting was mailed or such
public disclosure was made. At such time, the Nominator shall also
submit written evidence, reasonably satisfactory to the Secretary of
the Corporation, that the Nominator is a stockholder of the
Corporation and shall identify in writing (i) the name and address of
the Nominator, (ii) the number of shares of each class of capital
-2-
<PAGE> 3
stock of the Corporation owned beneficially by the Nominator, (iii)
the name and address of each of the persons with whom the Nominator is
acting in concert and (iv) the number of shares of capital stock
beneficially owned by each such person with whom the Nominator is
acting in concert pursuant to which the nomination or nominations are
to be made. At such time, the Nominator shall also submit in writing
(i) the information with respect to each such proposed nominee that
would be required to be provided in a proxy statement prepared in
accordance with Regulation 14A under the Securities Exchange Act of
1934, as amended, and (ii) a notarized affidavit executed by each such
proposed nominee to the effect that, if elected as a member of the
Board of Directors, he will serve and that he is eligible for election
as a member of the Board of Directors. Within thirty days (or such
shorter time period that may exist prior to the date of the meeting)
after the Nominator has submitted the aforesaid items to the Secretary
of the Corporation, the Secretary of the Corporation shall determine
whether the evidence of the Nominator's status as a stockholder
submitted by the Nominator is reasonably satisfactory and shall notify
the Nominator in writing of his determination. The failure of the
Secretary of the Corporation to find such evidence reasonably
satisfactory, or the failure of the Nominator to submit the requisite
information in the form or within the time indicated, shall make such
nomination ineffective for the election at the meeting at which such
person is proposed to be nominated. The presiding person at each
meeting of stockholders shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance
with the procedures prescribed by these bylaws, and if he should so
determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
Section 12. Stockholder Proposals. In order for business to
be properly brought before a meeting of stockholders by a stockholder,
the business must be legally proper and written notice thereof must
have been filled with the Secretary of the Corporation not less than
90 nor more than 180 days prior to the meeting. Each such notice
shall set forth:
(a) The name and address of the stockholder who intends
to make the proposal as the same appear in the Corporation's records;
(b) The class and number of shares of stock of the
Corporation that are beneficially owned, directly or indirectly, by
such stockholder; and
(c) A clear and concise statement of the proposal and the
stockholder's reasons for supporting it.
The filing of a stockholder notice as required above shall
not, in and of itself, constitute the making of the proposal described
therein.
If the person presiding at a meeting of stockholders
determines that any proposed business has not been properly brought
before the meeting, he
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<PAGE> 4
shall declare such business out of order; and such business shall not
be conducted at the meeting.
RESOLVED FURTHER, that the proper officers of the Corporation be, and
each of them hereby is, authorized and directed, jointly and severally, for and
on behalf of the Corporation, to execute and deliver any and all certificates,
agreements and other documents, take any and all steps and do any and all
things which they may deem necessary or advisable in order to effectuate the
purposes of each and all of the foregoing resolutions.
-4-
<PAGE> 1
EXHIBIT 10.19
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "Agreement"), made and entered
into as of the 3rd day of July, 1995, by and between Sun Coast Industries,
Inc., a Delaware corporation (the "Corporation"), and ________________
("Director").
W I T N E S S E T H:
WHEREAS, it is essential to the Company to retain and attract as
directors the most capable persons available;
WHEREAS, Director is a director and an officer of the Company;
WHEREAS, both the Company and Director recognize the risk of
litigation and other claims being asserted against directors and officers of
public companies; and
WHEREAS, in recognition of Director's need for substantial protection
against personal liability in order to maintain continued service to the
Company in an effective manner and to provide Director with specific
contractual assurance that the protection will be available to Director, the
Company desires to provide in this Agreement for the indemnification of and the
advance of expenses to Director to the full extent permitted by law, as set
forth in this Agreement;
NOW THEREFORE, in consideration of the premises and mutual agreements
contained herein, including Director's continued service to the Corporation,
the Corporation and Director hereby agree as follows:
Section 1. Definitions. The following terms, as used herein,
shall have the following respective meanings:
"Change of Control" means a change in control of the Corporation after
the date of this Agreement in any one of the following circumstances: (a)
there shall have occurred an event required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on
any similar schedule or form) promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), whether or not the Corporation is then
subject to such reporting requirement; (b) any "person" (as such term is used
in Sections 13(d) and 14(d) of the Exchange Act) shall have become the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Corporation representing 20% or more of the
combined voting power of the Corporation's then outstanding voting securities
without prior approval of at least two-thirds of the members of the Board of
Directors in office immediately prior to such person's attaining such
percentage interest; (c) the Corporation is a party to a merger, consolidation,
sale of assets or other reorganization, or a proxy contest, as a consequence of
which members of the Board of Directors in office immediately prior to such
transaction or event constitute less than a majority of the Board of Directors
thereafter or (d) during any period of two consecutive years, individuals who
at the beginning of such period constituted the
<PAGE> 2
Board of Directors (including for this purpose any new director whose election
or nomination for election by the Corporation's stockholders was approved by a
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of such period) cease for any reason to constitute
at least a majority of the Board of Directors.
"D.G.C.L." means the Delaware General Corporation Law, as currently in
effect or as amended from time to time.
"Expenses" shall include reasonable attorneys' fees, retainers, court
costs, transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending, preparing to
prosecute or defend, investigating or being or preparing to be a witness in a
Proceeding.
"Independent Counsel" means a law firm, or member of a law firm, that
is experienced in matters of corporation law and neither presently is, nor in
the five years previous to his or her selection or appointment has been,
retained to represent: (a) the Corporation or Director in any matter material
to either such party, (b) any other party to the Proceeding giving rise to a
claim for indemnification hereunder or (c) the beneficial owners, directly or
indirectly, of securities of the Corporation representing 5% or more of the
combined voting power of the Corporation's then outstanding voting securities.
"Matter" is a claim, a material issue, or a substantial request for
relief.
"Proceeding" includes any action, suit, arbitration, alternate dispute
resolution mechanism, investigation, administrative hearing or any other
proceeding, whether civil, criminal, administrative or investigative, except
one initiated by Director pursuant to Section 10 of this Agreement to enforce
his or her rights under this Agreement.
Section 2. Indemnification. The Corporation shall indemnify,
and advance Expenses to, Director to the fullest extent permitted by applicable
law in effect on the date of the effectiveness of this Agreement, and to such
greater extent as applicable law may thereafter permit. The rights of Director
provided under the preceding sentence shall include, but not be limited to, the
right to be indemnified to the fullest extent permitted by Section 145(b) of
the D.G.C.L. in Proceedings by or in the right of the Corporation and to the
fullest extent permitted by Section 145(a) of the D.G.C.L. in all other
Proceedings. The provisions set forth below in this Agreement are provided in
furtherance, and not by way of limitation, of the obligations expressed in this
Section 2.
Section 3. Expenses Related to Proceedings. If Director is, by
reason of his or her status as a director of the Corporation, a witness in or a
party to and is successful, on the merits or otherwise, in any Proceeding, he
or she shall be indemnified against all Expenses actually and reasonably
incurred by him or her or on his or her behalf in connection therewith. If
Director is not wholly successful in such Proceeding but is successful, on the
merits or otherwise, as to any Matter in such Proceeding, the Corporation shall
indemnify
-2-
<PAGE> 3
Director against all Expenses actually and reasonably incurred by him or her or
on his or her behalf relating to each Matter. The termination of any Matter in
such a Proceeding by dismissal, with or without prejudice, shall be deemed to
be a successful result as to such Matter.
Section 4. Advancement of Expenses. Director shall be advanced
Expenses within ten days after requesting them to the fullest extent permitted
by Section 145(e) of the D.G.C.L.
Section 5. Request for Indemnification. To obtain
indemnification Director shall submit to the Corporation a written request with
such information as is reasonably available to Director. The Secretary of the
Corporation shall promptly advise the Board of Directors of such request.
Section 6. Determining Entitlement to Indemnification if No
Change of Control. If there has been no Change of Control at the time the
request for indemnification is sent, Director's entitlement to indemnification
shall be determined in accordance with Section 145(d) of the D.G.C.L. If
entitlement to indemnification is to be determined by Independent Counsel, the
Corporation shall furnish notice to Director within ten days after receipt of
the request for indemnification, specifying the identity and address of
Independent Counsel. Director may, within fourteen days after receipt of such
written notice of selection, deliver to the Corporation a written objection to
such selection. Such objection may be asserted only on the ground that the
Independent Counsel so selected does not meet the requirements of Independent
Counsel and the objection shall set forth with particularity the factual basis
of such assertion. If there is an objection to the selection of Independent
Counsel, either the Corporation or Director may petition the Court of Chancery
of the State of Delaware or any other court of competent jurisdiction for a
determination that the objection is without a reasonable basis and/or for the
appointment of Independent Counsel selected by the court.
Section 7. Determining Entitlement to Indemnification if Change
of Control. If there has been a Change of Control at the time the request for
indemnification is sent, Director's entitlement to indemnification shall be
determined in a written opinion by Independent Counsel selected by Director.
Director shall give the Corporation written notice advising of the identity and
address of the Independent Counsel so selected. The Corporation may, within
seven days after receipt of such written notice of selection, deliver to
Director a written objection to such selection. Director may, within five days
after the receipt of such objection from the Corporation, submit the name of
another Independent Counsel and the Corporation may, within seven days after
receipt of such written notice of selection, deliver to Director a written
objection to such selection. Any objection is subject to the limitations in
Section 6 of this Agreement. Director may petition the Court of Chancery of
the State of Delaware or any other court of competent jurisdiction for a
determination that the Corporation's objection to the first and/or second
selection of Independent Counsel is without a reasonable basis and/or for the
appointment as Independent Counsel of a person selected by the court.
-3-
<PAGE> 4
Section 8. Procedures of Independent Counsel. If there has
been a Change of Control before the time the request for indemnification is
sent by Director, Director shall be presumed (except as otherwise expressly
provided in this Agreement) to be entitled to indemnification upon submission
of a request for indemnification in accordance with Section 5 of this
Agreement, and thereafter the Corporation shall have the burden of proof to
overcome the presumption in reaching a determination contrary to the
presumption. The presumption shall be used by Independent Counsel as a basis
for a determination of entitlement to indemnification unless the Corporation
provides information sufficient to overcome such presumption by clear and
convincing evidence or the investigation, review and analysis of Independent
Counsel convinces him or her by clear and convincing evidence that the
presumption should not apply.
Except in the event that the determination of entitlement to
indemnification is to be made by Independent Counsel, if the person or persons
empowered under Section 6 or 7 of this Agreement to determine entitlement to
indemnification shall not have made and furnished to Director in writing a
determination within sixty days after receipt by the Corporation of the request
therefor, the requisite determination of entitlement to indemnification shall
be deemed to have been made and Director shall be entitled to such
indemnification unless Director knowingly misrepresented a material fact in
connection with the request for indemnification or such indemnification is
prohibited by law. The termination of any Proceeding or of any Matter therein,
by judgment, order, settlement or conviction, or upon a plea of nolo contendere
or its equivalent, shall not (except as otherwise expressly provided in this
Agreement) of itself adversely affect the right of Director to indemnification
or create a presumption that (a) Director did not act in good faith and in a
manner that he or she reasonably believed, in the case of conduct in his or her
official capacity as a director of the Corporation, to be in the best interests
of the Corporation or in all other cases that at least his or her conduct was
not opposed to the Corporation's best interests, or (b) with respect to any
criminal Proceeding, that Director had reasonable cause to believe that his or
her conduct was unlawful.
Section 9. Expenses of Independent Counsel. The Corporation
shall pay any and all reasonable fees and expenses of Independent Counsel
incurred acting pursuant to this Agreement and in any proceeding to which it is
a party or witness in respect of its investigation and written report and shall
pay all reasonable fees and expenses incident to the procedures in which such
Independent Counsel was selected or appointed. No Independent Counsel may
serve if a timely objection has been made to his or her selection until a court
has determined that such objection is without a reasonable basis.
Section 10. Trial De Novo. In the event that (a) a determination
is made pursuant to Section 6 or 7 of this Agreement that Director is not
entitled to indemnification under this Agreement, (b) advancement of Expenses
is not timely made pursuant to Section 4 of this Agreement, (c) Independent
Counsel has not made and delivered a written opinion determining the request
for indemnification (i) within ninety days after being appointed by a court,
(ii) within ninety days after objections to his or her selection have been
overruled by a court or (iii) within ninety days after the time for the
Corporation or Director to object to his or her selection or (d) payment of
indemnification is not made within five days after
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<PAGE> 5
a determination of entitlement to indemnification has been made or deemed to
have been made pursuant to Section 6, 7 or 8 of this Agreement, Director shall
be entitled to an adjudication in any court of competent jurisdiction of his or
her entitlement to such indemnification or advancement of Expenses. In the
event that a determination shall have been made that Director is not entitled
to indemnification, any judicial proceeding or arbitration commenced pursuant
to this Section 10 shall be conducted in all respects as a de novo trial on the
merits, and Director shall not be prejudiced by reasons of that adverse
determination. If a Change of Control shall have occurred, in any judicial
proceeding commenced pursuant to this Section 10, the Corporation shall have
the burden of proving that Director is not entitled to indemnification or
advancement of Expenses, as the case may be. If a determination shall have
been made or deemed to have been made that Director is entitled to
indemnification, the Corporation shall be bound by such determination in any
judicial proceeding commenced pursuant to this Section 10, or otherwise, unless
Director knowingly misrepresented a material fact in connection with the
request for indemnification, or such indemnification is prohibited by law.
The Corporation shall be precluded from asserting in any judicial
proceeding commenced pursuant to this Section 10 that the procedures and
presumptions of this Agreement are not valid, binding and enforceable and shall
stipulate in any such court that the Corporation is bound by all provisions of
this Agreement. In the event that Director, pursuant to this Section 10, seeks
a judicial adjudication to enforce his or her rights under, or to recover
damages for breach of, this Agreement, Director shall be entitled to recover
from the Corporation, and shall be indemnified by the Corporation against, any
and all Expenses actually and reasonably incurred by him or her in such
judicial adjudication, but only if he or she prevails therein. If it shall be
determined in such judicial adjudication that Director is entitled to receive
part but not all of the indemnification or advancement of Expenses sought, the
Expenses incurred by Director in connection with such judicial adjudication or
arbitration shall be appropriately prorated.
Section 11. Non-Exclusivity. The rights of indemnification and
to receive advancement of Expenses as provided by this Agreement shall not be
deemed exclusive of any other rights to which Director may at any time be
entitled under applicable law, the Certificate of Incorporation, Bylaws, a vote
of stockholders, a resolution of the Board of Directors or otherwise. No
amendment or modification of this Agreement or any provision hereof shall be
effective as to any Director for acts, events and circumstances that occurred,
in whole or in part, before such amendment or modification. The provisions of
this Agreement shall continue as to an Director whose status as a director of
the Corporation has ceased and shall inure to the benefit of his or her heirs,
executors and administrators.
Section 12. Insurance and Subrogation. To the extent the
Corporation maintains an insurance policy or policies providing liability
insurance for directors or officers of the Corporation or of any other
corporation, partnership, joint venture, trust employee benefit plan or other
enterprise which such person serves at the request of the Corporation,
Directors shall be covered by such policy or policies in accordance with its or
their terms to the maximum extent of coverage available for any such director
or officer under such policy or policies.
-5-
<PAGE> 6
In the event of any payment hereunder, the Company shall be subrogated
to the extent of such payment to all the rights of recovery of Director, who
shall execute all papers required and take all action necessary to secure such
rights, including execution of such documents as are necessary to enable the
Company to bring suit to enforce such rights.
The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if, and to the extent
that, Director has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
Section 13. Severability. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby; and, to the
fullest extent possible, the provisions of this Agreement shall be construed so
as to give effect to the intent manifested by the provision held invalid,
illegal or unenforceable.
Section 14. Circumstances When Director is Not Entitled to
Indemnification. Notwithstanding any other provision of this Agreement,
Director shall not be entitled to indemnification or advancement of Expenses
under this Agreement with respect to any Proceeding, or any Matter therein,
brought or made by Director against the Corporation.
Section 15. Notices. Any communication required or permitted to
the Corporation shall be addressed to the Secretary of the Corporation and any
such communication to Director shall be given in writing by depositing the same
in the United States mail, with postage thereon prepaid, addressed to the
person to whom such notice is directed at the address of such person on the
records of the Corporation, and such notice shall be deemed given at the time
when the same shall be so deposited in the United States mail.
Section 16. Choice of Law. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
DELAWARE.
Section 17. Consent to Jurisdiction. THE CORPORATION AND
DIRECTOR EACH HEREBY IRREVOCABLY CONSENT TO THE JURISDICTION OF THE COURTS OF
THE STATE OF DELAWARE FOR ALL PURPOSES IN CONNECTION WITH ANY ACTION OR
PROCEEDING WHICH ARISES OUT OF OR RELATES TO THIS AGREEMENT AND AGREE THAT ANY
ACTION INSTITUTED UNDER THIS AGREEMENT SHALL BE BROUGHT ONLY IN THE STATE
COURTS OF THE STATE OF DELAWARE.
Section 18. Amendment. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless made in a writing
signed by each of the parties hereto.
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<PAGE> 7
IN WITNESS WHEREOF, the Company and Director have executed this
Agreement as of the day and year first above written.
SUN COAST INDUSTRIES, INC.
By: _________________________________
R. Carter Pate
President
_____________________________________
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<PAGE> 1
EXHIBIT 10.24
SUN COAST INDUSTRIES, INC.
Severance Agreement
This Severance Agreement ("Agreement") is made and effective as of the
8th day of August 1995, by and between Sun Coast Industries, Inc., a Delaware
corporation having its principal place of business in Dallas, Dallas County,
Texas (the "Company"), and R. Carter Pate, an individual currently residing in
Plano, Texas ("Employee").
RECITALS
The Board of Directors of the Company (the "Board") has determined
that it is in the best interest of the Company to assure that the Company will
have the continued dedication of the Employee, notwithstanding the possibility,
threat or occurrence of a Change of Control (as defined below). The Board
believes it is imperative to diminish the inevitable distraction of the
Employee by virtue of the personal uncertainties and risks created by a pending
or threatened Change of Control, to encourage the Employee's full attention and
dedication to the Company currently and in the event of any threatened or
pending Change of Control, and to provide Employee with compensation and
benefit arrangements upon a Change of Control which insures that such
compensation and benefits are competitive with other corporations.
AGREEMENT
Now, therefore, in consideration of Employee's continued employment by
the Company, as well as the promises, covenants and obligations contained
herein, the Company and Employee agree as follows:
1. Payment of Severance Amount. Upon the occurrence of a
Termination Event (as defined in paragraph 2), the Company shall:
(a) pay Employee an amount equal to (i) Employee's Base
Annual Salary (as defined in paragraph 2) multiplied by the Employment
Term Factor (as defined in paragraph 2), (ii) less all principal of
any loans from the Company to Employee, as well as any interest then
due thereon, payable as a lump sum cash payment within 30 days after
the date of the termination constituting such Termination Event (the
"Termination Date"), provided, Employee may elect to have such amount
paid in equal monthly installments over a period not to exceed 13
months;
(b) provide Employee with life, disability and medical
insurance at the level provided at either the date of the Change of
Control (as defined in paragraph 2) or the Termination Date, as
Employee shall in his sole discretion elect by providing written
notice thereof to the Company, for a period of time equal to twelve
(12) months multiplied by the Employment Term Factor (as defined in
paragraph 2) following the Termination Date, or such shorter period
until Employee shall obtain substantially equivalent insurance
coverage from a subsequent employer, if any, in the same manner as if
Employee's employment had not been terminated until the end of such
period. Employee shall immediately notify the Company upon obtaining
any insurance from a
<PAGE> 2
subsequent employer and shall provide all information required by the
Company regarding such insurance to enable the Company to make a
determination of whether such insurance is substantially equivalent.
(c) for a period of twelve months from and after such
Termination Event, or until such earlier time as the Employee obtains
other employment, provide the Employee with outplacement services of a
firm of Employee's choice.
(d) pay all reasonable legal fees and expenses incurred
by Employee in seeking to obtain or enforce any right or benefit
provided by the Agreement.
2. Definitions.
(a) A "Termination Event" shall be deemed to have
occurred if:
(i) The Company or any successor thereto shall
terminate Employee's employment for any reason other than for
Cause; or
(ii) The Employee shall voluntarily terminate his
employment within one (1) year of a Change of Control for
"Good Reason." For purposes of this Agreement, "Good Reason"
shall mean any of the following (without Employee's express
written consent):
(A) A significant and material change in
the nature or scope of the Employee's duties from
those engaged in immediately prior to the date on
which a Change of Control occurs to duties that are,
taken as a whole, inconsistent with Employee's range
and duration of experience; provided, however, that
Employee's title, scope of responsibility and
authority may be altered (by reason of the creation
of or filling of offices with the Company senior to
Employee's office or otherwise) without constituting
"Good Reason" so long as Employee's new duties are
not inconsistent with his prior experience;
(B) A reduction in Employee's base
salary from that provided to him immediately prior to
the date the Change of Control occurs;
(C) A diminution in Employee's
eligibility to participate in bonus, stock option or
other incentive compensation plans or employee
benefit plans (including medical, dental, life
insurance and long-term disability plans) provided
for executives with comparable duties; and
(D) Any required relocation of Employee
of more than thirty miles from Employee's the current
location (including any required business travel in
excess of the greater of 90 days per year or the
level of business travel of Employee prior to the
most recent Change of Control).
(b) A "Change of Control" shall be deemed to have
occurred if:
-2-
<PAGE> 3
(i) individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least fifty-one percent (51%) of the
Board, provided that any person becoming a director subsequent
to the date hereof whose election, or nomination for election
by the Company's stockholders was approved by a vote of at
least a majority of the directors then comprising the
Incumbent Board shall be, for purposes of this Agreement,
considered as though such person were a member of the
Incumbent Board;
(ii) the stockholders of the Company shall approve
a reorganization, merger or consolidation, in each case, with
respect to which persons who were the stockholders of the
Company immediately prior to such reorganization, merger or
consolidation do not, immediately thereafter, own more than
fifty percent (50%) of the combined voting power entitled to
vote generally in the election of directors of the
reorganized, merged or consolidated company's then outstanding
voting securities, or of a liquidation or dissolution of the
Company or of the sale of all or substantially all of the
assets of the Company; or
(iii) the stockholders of the Company shall approve
a sale of all or substantially all of the assets of the
Company.
(c) "Employment Term Factor" is equal to (i) the sum of
(a) twelve plus (b) the number of years' service Employee has with the
Company (ii) divided by twelve. In no event will the Employment Term
Factor exceed three (3.0).
(d) "Base Annual Salary" shall, as determined on the
Termination Date, be equal to the greater of (i) Employee's annual
salary on the date of the earliest Change of Control to occur during
the eighteen month period prior to the Termination Date plus any
bonuses or special incentive payments received in the twelve months
prior to such Change of Control or (ii) Employee's annual salary on
the Termination Date plus any bonuses or special incentive payments
received in the prior twelve months.
(e) "Cause" as used herein with respect to termination of
Employee's employment shall mean termination upon (A) the willful and
continued failure by Employee to substantially perform Employee's
duties with the Company (other than any such failure resulting from
Employee's incapacity due to physical or mental illness), after a
demand for substantial performance is delivered to you by the Chief
Executive Officer of the Company or the Board of Directors, which
specifically identifies the manner in which such officer or the Board
of Directors believes that Employee has not substantially performed
Employee's duties, or (B) the willful engaging by Employee in
misconduct which is materially injurious to the Company, monetarily or
otherwise. For purposes of this paragraph, no act, or failure to act,
on Employee's part shall be considered "willful" unless done, or
omitted to be done, by Employee not in good faith and without
reasonable belief that Employee's action or omission was in the best
interest of the Company. Notwithstanding the foregoing, Employee
shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to Employee a copy of a notice of
termination from the Chief Executive Officer of the Company or the
Board of Directors, after reasonable notice to Employee and an
opportunity for Employee, together
-3-
<PAGE> 4
with Employee's counsel, to be heard before the Board of Directors,
finding that, in the good faith opinion of the Board, Employee was
guilty of conduct set forth above in clauses (A) or (B) of the first
sentence of this subparagraph and specifying the particulars thereof
in detail.
3. Parachute Payment Limitations. Any other provision of this
Agreement to the contrary notwithstanding, if the total amount of payments and
benefits to be paid or provided to Employee under this Agreement which are
considered to be "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), when added to any other
such "parachute payments" received by Employee from the Company or from a
member of the Company's affiliated group (as provided in Code Section
280G(d)(5)), whether or not under this Agreement, are in excess of the amount
Employee can receive without causing the Company to lose its deduction with
respect to all or any portion of such total amount on account of Code Section
280G, the amount of payments and benefits to be paid or provided to Employee
under this Agreement which are parachute payments shall be reduced to the
highest amount which will not cause the Company to lose its deduction with
respect to any such payments and benefits on account of Code Section 280G.
4. Notices. For purposes of this Agreement, notices and all
other communications provided for herein shall be in writing and shall be
deemed to have been duly given when personally delivered or when mailed by
United States registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to the Company to: Sun Coast Industries, Inc.
2700 South Westmoreland
Dallas, Texas 75233
Attention: Chairman of the Board
If to Employee to: R. Carter Pate
2821 Chapman
Plano, Texas 75093
or to such other address as either party may furnish to the other in writing in
accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
5. Applicable Law. This contract is entered into under, and
shall be governed for all purposes by, the laws of the State of Texas.
6. Severability. If a court of competent jurisdiction determines
that any provision of this Agreement is invalid or unenforceable, then the
invalidity or unenforceability of that provision shall not affect the validity
or enforceability of any other provision of this Agreement, and all other
provisions shall remain in full force and effect.
7. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same Agreement.
-4-
<PAGE> 5
8. Withholding of Taxes. Company may withhold from any benefits
payable under this Agreement all federal, state, city or other taxes as may be
required pursuant to any law or governmental regulation or ruling.
9. No Employment Agreement. Nothing in this Agreement shall give
employee any rights (or impose any obligations) to continued employment by the
Company or any subsidiary thereof or successor thereto, nor shall it give the
Company any rights (or impose any obligations) with respect to continued
performance of duties by Employee for the Company or any subsidiary thereof or
successor thereto.
10. Assignment.
(a) This Agreement is personal in nature and neither of
the parties hereto shall, without the consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder, except
as provided in the remainder of this paragraph 10. Without limiting
the foregoing, Employee's right to receive payments hereunder shall
not be assignable or transferable, whether by pledge, creation of a
security interest or otherwise, other than a transfer by his will or
by the laws of descent or distribution, and in the event of any
attempted assignment or transfer contrary to this paragraph 10 the
Company shall have no liability to pay any amount so attempted to be
assigned or transferred. This Agreement shall inure to the benefit of
and be enforceable by Employee's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees
and legatees.
(b) The Company may: (x) as long as it remains obligated
with respect to this Agreement, cause its obligations hereunder to be
performed by a subsidiary or subsidiaries for which Employee performs
services, in whole or in part; (y) assign this Agreement and its
rights hereunder in whole, but not in part, to any corporation with or
into which it may hereafter merge or consolidate or to which it may
transfer all or substantially all of its assets, if said corporation
shall by operation of law or expressly in writing assume all
liabilities of the Company hereunder as fully as if it has been
originally named the Company herein; but may not otherwise assign this
Agreement or its rights hereunder. Subject to the foregoing, this
Agreement shall inure to the benefit of and be enforceable by the
Company's successors and assigns.
11. Modifications. This Agreement shall not be varied, altered,
modified, canceled, changed or in any way amended except by mutual agreement of
the parties in a written instrument executed by the parties hereto or their
legal representatives.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above written.
SUN COAST INDUSTRIES, INC.
By: /s/ Stephen P. Smiley
----------------------------------------
Stephen P. Smiley, Chairman of the Board
EMPLOYEE
/s/ R. Carter Pate
--------------------------------------------------
R. Carter Pate
-6-
<PAGE> 1
EXHIBIT 10.25
SUN COAST INDUSTRIES, INC.
Severance Agreement
This Severance Agreement ("Agreement") is made and effective as of the
8th day of August 1995, by and between Sun Coast Industries, Inc., a Delaware
corporation having its principal place of business in Dallas, Dallas County,
Texas (the "Company"), and Cynthia R. Morris, an individual currently residing
in Dallas, Texas ("Employee").
RECITALS
The Board of Directors of the Company (the "Board") has determined
that it is in the best interest of the Company to assure that the Company will
have the continued dedication of the Employee, notwithstanding the possibility,
threat or occurrence of a Change of Control (as defined below). The Board
believes it is imperative to diminish the inevitable distraction of the
Employee by virtue of the personal uncertainties and risks created by a pending
or threatened Change of Control, to encourage the Employee's full attention and
dedication to the Company currently and in the event of any threatened or
pending Change of Control, and to provide Employee with compensation and
benefit arrangements upon a Change of Control which insures that such
compensation and benefits are competitive with other corporations.
AGREEMENT
Now, therefore, in consideration of Employee's continued employment by
the Company, as well as the promises, covenants and obligations contained
herein, the Company and Employee agree as follows:
1. Payment of Severance Amount. Upon the occurrence of a
Termination Event (as defined in paragraph 2), the Company shall:
(a) pay Employee an amount equal to (i) Employee's Base
Annual Salary (as defined in paragraph 2) multiplied by the Employment
Term Factor (as defined in paragraph 2), (ii) less all principal of
any loans from the Company to Employee, as well as any interest then
due thereon, payable as a lump sum cash payment within 30 days after
the date of the termination constituting such Termination Event (the
"Termination Date"), provided, Employee may elect to have such amount
paid in equal monthly installments over a period not to exceed 13
months;
(b) provide Employee with life, disability and medical
insurance at the level provided at either the date of the Change of
Control (as defined in paragraph 2) or the Termination Date, as
Employee shall in his sole discretion elect by providing written
notice thereof to the Company, for a period of time equal to twelve
(12) months multiplied by the Employment Term Factor (as defined in
paragraph 2) following the Termination Date, or such shorter period
until Employee shall obtain substantially equivalent insurance
coverage from a subsequent employer, if any, in the same manner as if
Employee's employment had not been terminated until the end of such
period. Employee shall immediately notify the Company upon obtaining
any insurance from a
<PAGE> 2
subsequent employer and shall provide all information required by the
Company regarding such insurance to enable the Company to make a
determination of whether such insurance is substantially equivalent.
(c) for a period of twelve months from and after such
Termination Event, or until such earlier time as the Employee obtains
other employment, provide the Employee with outplacement services of a
firm of Employee's choice.
(d) pay all reasonable legal fees and expenses incurred
by Employee in seeking to obtain or enforce any right or benefit
provided by the Agreement.
2. Definitions.
(a) A "Termination Event" shall be deemed to have
occurred if:
(i) The Company or any successor thereto shall
terminate Employee's employment for any reason other than for
Cause; or
(ii) The Employee shall voluntarily terminate his
employment within one (1) year of a Change of Control for
"Good Reason." For purposes of this Agreement, "Good Reason"
shall mean any of the following (without Employee's express
written consent):
(A) A significant and material change in
the nature or scope of the Employee's duties from
those engaged in immediately prior to the date on
which a Change of Control occurs to duties that are,
taken as a whole, inconsistent with Employee's range
and duration of experience; provided, however, that
Employee's title, scope of responsibility and
authority may be altered (by reason of the creation
of or filling of offices with the Company senior to
Employee's office or otherwise) without constituting
"Good Reason" so long as Employee's new duties are
not inconsistent with his prior experience;
(B) A reduction in Employee's base
salary from that provided to him immediately prior to
the date the Change of Control occurs;
(C) A diminution in Employee's
eligibility to participate in bonus, stock option or
other incentive compensation plans or employee
benefit plans (including medical, dental, life
insurance and long-term disability plans) provided
for executives with comparable duties; and
(D) Any required relocation of Employee
of more than thirty miles from Employee's the current
location (including any required business travel in
excess of the greater of 90 days per year or the
level of business travel of Employee prior to the
most recent Change of Control).
(b) A "Change of Control" shall be deemed to have
occurred if:
-2-
<PAGE> 3
(i) individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least fifty-one percent (51%) of the
Board, provided that any person becoming a director subsequent
to the date hereof whose election, or nomination for election
by the Company's stockholders was approved by a vote of at
least a majority of the directors then comprising the
Incumbent Board shall be, for purposes of this Agreement,
considered as though such person were a member of the
Incumbent Board;
(ii) the stockholders of the Company shall approve
a reorganization, merger or consolidation, in each case, with
respect to which persons who were the stockholders of the
Company immediately prior to such reorganization, merger or
consolidation do not, immediately thereafter, own more than
fifty percent (50%) of the combined voting power entitled to
vote generally in the election of directors of the
reorganized, merged or consolidated company's then outstanding
voting securities, or of a liquidation or dissolution of the
Company or of the sale of all or substantially all of the
assets of the Company; or
(iii) the stockholders of the Company shall approve
a sale of all or substantially all of the assets of the
Company.
(c) "Employment Term Factor" is equal to (i) the sum of
(a) twelve plus (b) the number of years' service Employee has with the
Company (ii) divided by twelve. In no event will the Employment Term
Factor exceed three (3.0).
(d) "Base Annual Salary" shall, as determined on the
Termination Date, be equal to the greater of (i) Employee's annual
salary on the date of the earliest Change of Control to occur during
the eighteen month period prior to the Termination Date plus any
bonuses or special incentive payments received in the twelve months
prior to such Change of Control or (ii) Employee's annual salary on
the Termination Date plus any bonuses or special incentive payments
received in the prior twelve months.
(e) "Cause" as used herein with respect to termination of
Employee's employment shall mean termination upon (A) the willful and
continued failure by Employee to substantially perform Employee's
duties with the Company (other than any such failure resulting from
Employee's incapacity due to physical or mental illness), after a
demand for substantial performance is delivered to you by the Chief
Executive Officer of the Company or the Board of Directors, which
specifically identifies the manner in which such officer or the Board
of Directors believes that Employee has not substantially performed
Employee's duties, or (B) the willful engaging by Employee in
misconduct which is materially injurious to the Company, monetarily or
otherwise. For purposes of this paragraph, no act, or failure to act,
on Employee's part shall be considered "willful" unless done, or
omitted to be done, by Employee not in good faith and without
reasonable belief that Employee's action or omission was in the best
interest of the Company. Notwithstanding the foregoing, Employee
shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to Employee a copy of a notice of
termination from the Chief Executive Officer of the Company or the
Board of Directors, after reasonable notice to Employee and an
opportunity for Employee, together
-3-
<PAGE> 4
with Employee's counsel, to be heard before the Board of Directors,
finding that, in the good faith opinion of the Board, Employee was
guilty of conduct set forth above in clauses (A) or (B) of the first
sentence of this subparagraph and specifying the particulars thereof
in detail.
3. Parachute Payment Limitations. Any other provision of this
Agreement to the contrary notwithstanding, if the total amount of payments and
benefits to be paid or provided to Employee under this Agreement which are
considered to be "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), when added to any other
such "parachute payments" received by Employee from the Company or from a
member of the Company's affiliated group (as provided in Code Section
280G(d)(5)), whether or not under this Agreement, are in excess of the amount
Employee can receive without causing the Company to lose its deduction with
respect to all or any portion of such total amount on account of Code Section
280G, the amount of payments and benefits to be paid or provided to Employee
under this Agreement which are parachute payments shall be reduced to the
highest amount which will not cause the Company to lose its deduction with
respect to any such payments and benefits on account of Code Section 280G.
4. Notices. For purposes of this Agreement, notices and all
other communications provided for herein shall be in writing and shall be
deemed to have been duly given when personally delivered or when mailed by
United States registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to the Company to: Sun Coast Industries, Inc.
2700 South Westmoreland
Dallas, Texas 75233
Attention: Chairman of the Board
If to Employee to: Cynthia R. Morris
11031 Hillcrest Road
Dallas, Texas 75230
or to such other address as either party may furnish to the other in writing in
accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
5. Applicable Law. This contract is entered into under, and
shall be governed for all purposes by, the laws of the State of Texas.
6. Severability. If a court of competent jurisdiction determines
that any provision of this Agreement is invalid or unenforceable, then the
invalidity or unenforceability of that provision shall not affect the validity
or enforceability of any other provision of this Agreement, and all other
provisions shall remain in full force and effect.
7. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same Agreement.
-4-
<PAGE> 5
8. Withholding of Taxes. Company may withhold from any benefits
payable under this Agreement all federal, state, city or other taxes as may be
required pursuant to any law or governmental regulation or ruling.
9. No Employment Agreement. Nothing in this Agreement shall give
employee any rights (or impose any obligations) to continued employment by the
Company or any subsidiary thereof or successor thereto, nor shall it give the
Company any rights (or impose any obligations) with respect to continued
performance of duties by Employee for the Company or any subsidiary thereof or
successor thereto.
10. Assignment.
(a) This Agreement is personal in nature and neither of
the parties hereto shall, without the consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder, except
as provided in the remainder of this paragraph 10. Without limiting
the foregoing, Employee's right to receive payments hereunder shall
not be assignable or transferable, whether by pledge, creation of a
security interest or otherwise, other than a transfer by his will or
by the laws of descent or distribution, and in the event of any
attempted assignment or transfer contrary to this paragraph 10 the
Company shall have no liability to pay any amount so attempted to be
assigned or transferred. This Agreement shall inure to the benefit of
and be enforceable by Employee's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees
and legatees.
(b) The Company may: (x) as long as it remains obligated
with respect to this Agreement, cause its obligations hereunder to be
performed by a subsidiary or subsidiaries for which Employee performs
services, in whole or in part; (y) assign this Agreement and its
rights hereunder in whole, but not in part, to any corporation with or
into which it may hereafter merge or consolidate or to which it may
transfer all or substantially all of its assets, if said corporation
shall by operation of law or expressly in writing assume all
liabilities of the Company hereunder as fully as if it has been
originally named the Company herein; but may not otherwise assign this
Agreement or its rights hereunder. Subject to the foregoing, this
Agreement shall inure to the benefit of and be enforceable by the
Company's successors and assigns.
11. Modifications. This Agreement shall not be varied, altered,
modified, canceled, changed or in any way amended except by mutual agreement of
the parties in a written instrument executed by the parties hereto or their
legal representatives.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above written.
SUN COAST INDUSTRIES, INC.
By: /s/ Stephen P. Smiley
----------------------------------------
Stephen P. Smiley, Chairman of the Board
EMPLOYEE
/s/ Cynthia R. Morris
--------------------------------------------------
Cynthia R. Morris
-6-
<PAGE> 1
EXHIBIT 10.26
THIRD AMENDMENT TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS THIRD AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT (this "Amendment") is dated as of the 22nd day of March, 1995, and
entered into by and between (i) BANK OF AMERICA TEXAS, N.A., a national banking
association, with offices at 1925 W. John Carpenter Freeway, Irving, Texas
75063-3297 (the "Lender") as assignee of BankAmerica Business Credit, Inc., and
(ii) SUN COAST HOLDINGS, INC., a Nevada corporation, with offices at 300 South
Fourth Street, Bank of America Plaza, Suite 1100, Las Vegas, Nevada 89101
(herein referred to as "Borrower"), Borrower being a wholly-owned subsidiary of
(iii) SUN COAST INDUSTRIES, INC., a Delaware corporation, with offices at 2700
S. Westmoreland, Dallas, Texas 75233 (herein referred to as "Industries"),
(iv) PLASTICS MANUFACTURING COMPANY, a Delaware corporation, with offices at
2700 S. Westmoreland, Dallas, Texas 75233 ("Plastics"), (v) SUN COAST
CLOSURES, INC., a Florida corporation with offices at 7350 26th Court East,
Sarasota, Florida 34243 ("Closures"), (vi) ALLIANCE MANUFACTURING, INC., a
Tennessee corporation, with offices at 820 Esther Ln., Murfreesboro, Tennessee
37130 ("AFE"), and (vii) CUSTOM LAMINATES, INC., a Nevada corporation, with
offices at 2700 S. Westmoreland, Dallas, Texas 75233 ("Laminates").
Industries, Plastics, Closures, AFE and Laminates are referred to from time to
time herein individually as "Guarantor" and jointly as "Guarantors."
WHEREAS, Lender, Borrower and Guarantors have entered into an Amended
and Restated Loan and Security Agreement dated as of April 29, 1994, as amended
by that certain First Amendment to Amended and Restated Loan and Security
Agreement dated effective as of June 30, 1994 (the "First Amendment") and the
Second Amendment to Amended and Restated Loan and Security Agreement dated as
of November 23, 1994 (the "Second Amendment") (as so amended by the First
Amendment and the Second Amendment, and as amended and modified from time to
time, the "Agreement");
WHEREAS, in connection with the execution of the Agreement, Borrower
executed and delivered unto Lender that certain Amended and Restated Capital
Expenditures Term Note dated of even date therewith, in the maximum original
principal amount of $10,000,000.00, payable to the order of Lender (the
"Note");
WHEREAS, Borrower has requested and Lender has agreed to extend to
Borrower an additional term loan in the principal amount of $3,500,000 which
term loan is memorialized by that certain Additional Term Note dated of even
date herewith in the original principal amount of $3,500,000 (the "Additional
Note"); and
WHEREAS, Lender, Borrower and Guarantors desire to amend the Agreement
and the Note as hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth in the Agreement and this Amendment, and other good and
valuable consideration, the receipt
<PAGE> 2
and sufficiency of which are hereby acknowledged, the parties, intending to be
legally bound, hereby agree as follows:
ARTICLE I
Amendments to Definitions
Section 1.01. Definitions. Capitalized terms used in this
Amendment, to the extent not otherwise defined herein, shall have the same
meanings as in the Agreement, as amended hereby.
Section 1.02. Amendment to Definition of "Applicable Interest
Rate". The term "Applicable Interest Rate" as defined in the Agreement is
amended in its entirety to read as follows:
" Applicable Interest Rate means at all times a per annum
interest rate as follows:
(a) in the case of Reference Rate Revolving
Loans, a fluctuating rate equal to the Reference Rate; or
(b) in the case of Offshore Rate Revolving Loans,
a fixed rate equal to the Offshore Rate plus one percent (1%);
or
(c) in the case of Reference Rate Term Loans, a
fluctuating rate equal to the Reference Rate; or
(d) in the case of Offshore Rate Term Loans, a
fixed rate equal to the Offshore Rate plus one percent (1%);
or
(e) in the case of Reference Rate Capex Loans, a
fluctuating rate equal to the Reference Rate; or
(f) in the case of Offshore Rate Capex Loans, a
fixed rate equal to the Offshore Rate plus one percent (1%);
or
(g) at any time after the Renewal Date, Borrower
may elect to fix the interest rate (a "Fixed Rate") with
respect to either the Term Loan or the Capital Expenditures
Term Loan from the date of such election until the final
maturity date of such Loans, and the Fixed Rate shall be Bank
of America's Fixed Rate Index on the date of such election for
the applicable Interest Period plus one percent (1%) for the
Term Loan and the Capital Expenditures Term Loan. Once a
Fixed Rate has been elected for a Loan, no other Interest Rate
Election may be made with respect to the Loan subject to the
Fixed Rate."
<PAGE> 3
Section 1.03. Amendment to Definition of the Term Availability.
The term "Availability" as defined in the Agreement is amended in its entirety
to read as follows:
" Availability means at any time the lesser of:
A. The amount of Fifteen Million and no/100 Dollars
($15,000,000.00) (the "Maximum Revolving Credit
Line"), or
B. The sum of
(1) eighty percent (80%) of the amount of
Eligible Accounts, plus
(2) the lesser of
(a) fifty percent (50%) of the value of
Eligible Inventory; or
(b) up to fifty percent (50%) of the
Availability;
provided, however, that at all times Availability shall be
reduced by the sum of:
(i) the unpaid balance of Revolving
Loans at that time; and
(ii) the aggregate undrawn face amount of
all outstanding Letters of Credit
which the Lender has, or has caused
to be, issued or obtained for the
Borrower's account; and
(iii) reserves for potential landlord
liens in amounts reasonably required
by Lender and identified by Lender
to Borrower."
Section 1.04. The definitions "Closures Availability", "Closures
Eligible Accounts", Closures Eligible Inventory", "Closures Revolving Loans",
"Plastics Availability", "Plastics Eligible Accounts", "Plastics Eligible
Inventory", and "Plastics Revolving Loans" are hereby deleted from the
Agreement.
-3-
<PAGE> 4
ARTICLE II
Amendments to Sections
Section 2.01. Amendment to Section 2.1 of the Agreement. Section
2.1 of the Agreement is hereby amended in its entirety to read as follows:
"2.1 Total Facility. Subject to the terms and conditions
of this Agreement, the Lender shall make available up to a
Thirty-Three Million Three Hundred Thousand and No/100 Dollars
($33,300,000.00) total credit facility (the "Total Facility") for
Borrower's use from time to time during the term of this Agreement.
The Total Facility shall be comprised of: (a) a revolving line of
credit up to the limits of the Availability, consisting of Revolving
Loans and Letters of Credit as described in Section 2.2 and Section
2.5, (b) a Capital Expenditures Term Loan as described in Section 2.3,
and (c) a Term Loan as described in Section 2.4."
Section 2.02. Amendment to Section 2.3 of the Agreement. Section
2.3(i)(a) of the Agreement is hereby amended to read as follows:
"(a) the aggregate amount of up to Eleven Million and No/100
Dollars ($11,000,000) during the term of this Agreement. "
All other provisions of Section 2.3 remain unchanged.
Section 2.03. Amendment to Section 2.4 of the Agreement. Section
2.4 of the Agreement is hereby amended in its entirety to read as follows:
"2.4 Term Loan. The Lender has previously made a Term
Loan to Borrower in the original aggregate principal amount of
$4,000,000 repayable in accordance with the terms of a certain
promissory note previously authorized, issued and delivered by
Plastics and Industries to Lender, and assumed by Borrower, in the
form attached as Exhibit C-2 to the Agreement. Borrower has, of even
date with this Amendment, executed an additional Term Note (the
"Additional Term Note") in the aggregate principal amount of
$3,500,000 repayable in accordance with the terms of such Additional
Term Note the form of which is attached to this Amendment as Exhibit
C-3. The indebtedness represented by the Term Note and the Additional
Term Note is referred to herein as the "Term Loan". Upon the
termination of this Agreement for whatever reason, the entire unpaid
balance of the Term Loan (both principal and accrued interest) shall
become immediately due and payable in full."
Section 2.04. Amendment to Section 2.5 of the Agreement. The
second sentence of Section 2.5 is hereby amended to read in its entirety:
"Without intending to limit the Lender's discretion with
respect to Letters of Credit, the Lender will not cause to be opened
any Letter of Credit if: (a) the maximum
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<PAGE> 5
face amount of the requested Letter of Credit is less than $25,000; or
(b) the maximum face amount of the requested Letter of Credit, plus
the aggregate undrawn face amount of all outstanding Letters of
Credit, would exceed $2,000,000; or (c) the maximum face amount of the
requested Letter of Credit, and all commissions, fees, and charges due
from Borrower to Lender in connection with the opening thereof, exceed
the Availability at such time."
All other provisions of Section 2.5 remain unchanged.
Section 2.06. Amendment to Section 4.2 of the Agreement. Section
4.2 of the Agreement is hereby amended in its entirety to read as follows:
"4.2 Repayment of Term Loan. The Borrower shall repay the
principal under the Term Note in twenty-seven (27) consecutive
quarterly installments of Sixty-Six Thousand Six Hundred Sixty-Six and
No/100 Dollars ($66,666) each, commencing on the first day of July,
1994 and continuing on the same day of each consecutive Fiscal Quarter
thereafter, with a final installment of the remaining balance due on
April 1, 2001. The Borrower shall repay the principal of the
Additional Term Note in three annual principal installments as
follows: $1,000,000 on April 1, 1996; $1,250,000 on April 1, 1997;
and $1,250,000 on April 1, 1998."
Section 2.07. Amendment to Section 9.16(b) of the Agreement.
Section 9.16(b) of the Agreement is hereby amended in its entirety to read as
follows:
"(b) Borrower may form a wholly-owned United States
Subsidiary which may in turn form a wholly-owned Mexican Subsidiary.
This Mexican Subsidiary may purchase the major assets (through either
a stock or asset purchase) of a Mexico City based injection molder and
may pay all or part of the following consideration therefor: (i)
approximately $1,800,000 in cash, (ii) a note issued by the Mexican
Subsidiary for approximately $500,000 or the peso equivalent of such
sum (with the risk of devaluations of the peso being borne by the
issuer of the note), and (iii) a note issued by the Mexican Subsidiary
for approximately $750,000 or the peso equivalent of such sum (with
the risk of devaluations of the peso being borne by the holder of the
note). Borrower may provide the two foregoing Subsidiaries (x) with
(A) the funds necessary to make the cash payments in subparagraph (i);
and, in addition, (y) with (B) up to a $500,000 working capital
facility; and (C) sufficient funds to enable the Subsidiaries to make
their regularly scheduled payments of principal only* under the notes
described in subparagraphs (ii) and (iii) in an amount not to exceed
$500,000 per year, provided (x) no Event of Default has occurred and
is continuing under the Agreement or (y) the making of any such
payment would result in an Event of Default. [*The Subsidiaries will
be required to make interest payments under the notes.] Borrower
will, at Lenders' request, cause either or both of such Subsidiaries
to execute an Affiliate Guaranty, pledge its stock in such United
States Subsidiary to Lender, and/or cause such United Stated
Subsidiary to pledge its stock in such Mexican Subsidiary to Lender.
Either Borrower or Industries may guarantee one
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<PAGE> 6
or both of the foregoing notes, but any such guaranty must be fully
subordinated to its Obligations to Lender."
Section 2.08. Amendment to Section 9.17 of the Agreement. Section
9.17 of the Agreement is hereby amended in its entirety to read as follows:
"9.17 Capital Expenditures. Neither Industries nor any of
its Subsidiaries shall make or incur any Capital Expenditure if, after
giving effect thereto, the aggregate amount of all Capital
Expenditures by the Borrower and its Subsidiaries would exceed Eleven
Million and No/100 Dollars ($11,000,000) for the Fiscal Year ending
June 30, 1995; Six Million and No/100 Dollars ($6,000,000) for the
Fiscal Year ending June 30, 1996; and Five Million and No/100 Dollars
($5,000,000) for each Fiscal Year ending thereafter."
Section 2.09. Amendment to Section 9.19 of the Agreement. Section
9.19 of the Agreement is hereby amended in its entirety to read as follows:
"9.19 Debt Ratio. Industries and its Subsidiaries on a
consolidated basis will not permit the ratio of Debt to Adjusted
Tangible Net Worth to exceed the following amounts during the
following respective periods:
<TABLE>
<CAPTION>
Period Ending Ratio
------------- -----
<S> <C>
11/23/94 to 6/30/95 2.4 to 1
7/1/95 to 6/30/96 2.25 to 1
7/1/96 to 6/30/97 2.0 to 1
7/1/97 and thereafter 1.75 to 1"
</TABLE>
Section 2.10. Amendment to Section 9.20 of the Agreement. Section
9.20 of the Agreement is hereby amended in its entirety to read as follows:
"9.20 Current Ratio. Industries and its Subsidiaries on a
consolidated basis will not permit the ratio of (a) Current Assets to
(b) Current Liabilities to be less than 1.1 to 1 at the end of any
Fiscal Quarter. Outstanding Revolving Loans shall be included as part
of Current Liabilities."
Section 2.11. Amendment to Section 9.21 of the Agreement. Section
9.21 of the Agreement is hereby amended in its entirety to read as follows:
"9.21 Adjusted Tangible Net Worth.
(a) Industries and its Subsidiaries on a consolidated
basis will not permit Adjusted Tangible Net Worth to be less
than the following amounts during the following respective
periods:
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<PAGE> 7
<TABLE>
<CAPTION>
Period Ending Amount
------------- ------
<S> <C>
Current to 6/30/95 $ 16,000,000
7/1/95 to 6/30/96 18,000,000
7/1/96 to 6/30/97
and thereafter 22,000,000
</TABLE>
(b) Plastics will not permit the Plastics Adjusted
Tangible Net Worth to be less than $4,000,000 at any time.
(c) Closures will not permit the Closures Adjusted
Tangible Net Worth to be less than $3,000,000 at any time."
ARTICLE III
Miscellaneous
Section 3.01. Ratifications. The terms and provisions set forth in
this Amendment shall modify and supersede all inconsistent terms and provisions
set forth in the Agreement and, except as expressly modified and superseded by
this Amendment, the terms and provisions of the Agreement and the Note,
including, without limitation, all financial covenants contained therein, are
ratified and confirmed and shall continue in full force and effect. Lender,
Borrower and each Guarantor agree that the Agreement, as amended hereby, and
the Note shall continue to be legal, valid, binding and enforceable in
accordance with its terms.
Section 3.02. Representations and Warranties. Borrower and each
Guarantor hereby represents and warrants to Lender that the execution, delivery
and performance of this Amendment and all other loan documents to which it is
or is to be a party executed and/or delivered in connection herewith, have been
authorized by all requisite corporate action on the part of Borrower or such
Guarantor and will not violate the Certificate or Articles of Incorporation or
Bylaws of Borrower or such Guarantor.
Section 3.03. Conditions. The effectiveness of this Amendment is
subject to the satisfaction of the following conditions precedent (unless
specifically waived in writing by the Lender):
(a) Each Loan Party shall have executed and delivered
such other documents and instruments as Lender may require, including,
without limitation, a certificate executed by an officer of each Loan
Party certifying as to the following:
(i) Resolutions. The Board of Directors of each
Loan Party have adopted resolutions which authorize the
execution, delivery, and performance by such Loan Party of
this Agreement and the other Loan Documents to which such Loan
Party is or is to be a party;
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<PAGE> 8
(ii) Incumbency. The incumbency of the officers of
such Loan Party authorized to sign this Agreement and each of
the other Loan Documents to which such Loan Party is or is to
be a party;
(iii) Articles of Incorporation. The certificate or
articles of incorporation of each Loan Party;
(iv) Bylaws. The bylaws of each Loan Party;
(v) Good Standing, etc. The existence, good
standing and qualification of each Loan Party.
(b) All corporate proceedings taken in connection with
the transactions contemplated by this Amendment and all documents,
instruments and other legal matters incident thereto shall be
satisfactory to Lender and its legal counsel, Jenkens & Gilchrist, a
Professional Corporation.
Section 3.04. Survival of Representations and Warranties. All
representations and warranties made in the Agreement or any other document or
documents relating thereto, including, without limitation, any Loan Document
furnished in connection with this Amendment, shall survive the execution and
delivery of this Amendment and the other Loan Documents, and no investigation
by Lender or any closing shall affect the representations and warranties or the
right of Lender to rely thereon.
Section 3.05. Reference to Agreement. The Agreement and the Note,
each of the Loan Documents, and any and all other agreements, documents or
instruments now or hereafter executed and delivered pursuant to the terms
hereof or pursuant to the terms of the Agreement as amended hereby, are hereby
amended so that any reference therein to the Agreement shall mean a reference
to the Agreement as amended hereby.
Section 3.06. Severability. Any provision of this Amendment held
by a court of competent jurisdiction to be invalid or unenforceable shall not
impair or invalidate the remainder of this Amendment and the effect thereof
shall be confined to the provision so held to be invalid or unenforceable.
Section 3.07. APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN
DOCUMENTS EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE
PERFORMABLE IN THE STATE OF TEXAS AND SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
Section 3.08. Successors and Assigns. This Amendment is binding
upon and shall inure to the benefit of Lender, Borrower, Guarantors and their
respective successors and assigns; provided, however, that neither Borrower nor
any Guarantor may assign or transfer any of its rights or obligations hereunder
without the prior written consent of Lender. Lender may assign
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<PAGE> 9
any or all of its rights or obligations hereunder without the prior consent of
Borrower and Guarantors.
Section 3.09. Counterparts. This Amendment may be executed in one
or more counterparts, each of which when so executed shall be deemed to be an
original, but all of which when taken together shall constitute one and the
same instrument.
Section 3.10. Effect of Waiver. No consent or waiver, express or
implied, by Lender to or of any breach of or deviation from any covenant or
condition of the Agreement or duty shall be deemed a consent or waiver to or of
any other breach of or deviation from the same or any other covenant, condition
or duty.
Section 3.11. Headings. The headings, captions and arrangements
used in this Amendment are for convenience only and shall not affect the
interpretation of this Amendment.
Section 3.12. Expenses of Lender. Borrower agrees to pay on demand
(i) all costs and expenses reasonably incurred by Lender in connection with the
preparation, negotiation and execution of this Amendment and the other Loan
Documents executed pursuant hereto and any and all subsequent amendments,
modifications, and supplements hereto or thereto, including, without
limitation, the costs and fees of Lender's legal counsel and the allocated cost
of staff counsel and (ii) all costs and expenses reasonably incurred by Lender
in connection with the enforcement and termination of any rights under the
Agreement, this Amendment and/or other Loan Documents, including, without
limitation, the reasonable costs and fees of Lender's legal counsel and the
allocated cost of staff counsel.
Section 3.13. CONSENTS AND REAFFIRMATIONS. Each Grantor hereby
consents to the terms and conditions of this Amendment and reaffirms its
obligations under its Guaranty and agrees that the Security Interests granted
to Lender pursuant to the Loan Documents, together with such Guaranty, remain
in full force and effect and are hereby ratified and confirmed.
Section 3.14. NO ORAL AGREEMENTS. THIS AMENDMENT, TOGETHER WITH
THE OTHER LOAN DOCUMENTS AS WRITTEN, REPRESENT THE FINAL AGREEMENTS AMONG
LENDER, BORROWER GUARANTORS AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
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<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Amendment on the
date first above written.
BANK OF AMERICA TEXAS, N.A.
By:/s/ Donald P. Hellman
Donald P. Hellman
Vice President
SUN COAST HOLDINGS, INC.
By:/s/ Cynthia R. Morris
Cynthia R. Morris
Vice Chairman of the Board
SUN COAST INDUSTRIES, INC.
By:/s/ Cynthia R. Morris
Cynthia R. Morris
Treasurer
PLASTICS MANUFACTURING COMPANY
By:/s/ Cynthia R. Morris
Cynthia R. Morris
Vice President
SUN COAST CLOSURES, INC.
By:/s/ R. Carter Pate
R. Carter Pate
Chief Executive Officer
ALLIANCE MANUFACTURING, INC.
By:/s/ Cynthia R. Morris
Cynthia R. Morris
Vice President
-10-
<PAGE> 11
CUSTOM LAMINATES, INC.
By:/s/ Cynthia R. Morris
Cynthia R. Morris
Vice President
-11-
<PAGE> 1
EXHIBIT 10.27
FOURTH AMENDMENT TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS FOURTH AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT (this "Amendment") is dated as of the 28th day of September, 1995,
and entered into by and between (i) BANK OF AMERICA TEXAS, N.A., a national
banking association, with offices at 1925 W. John Carpenter Freeway, Irving,
Texas 75063-3297 (the "Lender") as assignee of BankAmerica Business Credit,
Inc., and (ii) SUN COAST HOLDINGS, INC., a Nevada corporation, with offices at
300 South Fourth Street, Bank of America Plaza, Suite 1100, Las Vegas, Nevada
89101 (herein referred to as "Borrower"), Borrower being a wholly-owned
subsidiary of (iii) SUN COAST INDUSTRIES, INC., a Delaware corporation, with
offices at 2700 S. Westmoreland, Dallas, Texas 75233 (herein referred to as
"Industries"), (iv) PLASTICS MANUFACTURING COMPANY, a Delaware corporation,
with offices at 2700 S. Westmoreland, Dallas, Texas 75233 ("Old Plastics"),
(v) PLASTICS MANUFACTURING COMPANY, a Nevada corporation, with offices at 2700
S. Westmoreland, Dallas, Texas 75233 ("New Plastics"), (vi) SUN COAST CLOSURES,
INC., a Florida corporation with offices at 7350 26th Court East, Sarasota,
Florida 34243 ("Closures"), and (vi) CUSTOM LAMINATES, INC., a Nevada
corporation, with offices at 2700 S. Westmoreland, Dallas, Texas 75233
("Laminates"). Industries, Old Plastics, New Plastics, Closures and Laminates
are referred to from time to time herein individually as "Guarantor" and
jointly as "Guarantors."
WHEREAS, Lender, Borrower and Guarantors (other than New Plastics)
entered into an Amended and Restated Loan and Security Agreement dated as of
April 29, 1994, as amended by that certain First Amendment to Amended and
Restated Loan and Security Agreement dated effective as of June 30, 1994 (the
"First Amendment"), the Second Amendment to Amended and Restated Loan and
Security Agreement dated as of November 23, 1994 (the "Second Amendment") and
the Third Amendment to Amended and Restated Loan and Security Agreement dated
as of March 22, 1995 (the "Third Amendment") (as so amended by the First
Amendment, the Second Amendment and the Third Amendment, and as amended and
modified from time to time, the "Agreement");
WHEREAS, in connection with the execution of the Agreement, Borrower
executed and delivered unto Lender that certain Amended and Restated Capital
Expenditures Term Note dated of even date therewith, in the maximum original
principal amount of $10,000,000.00, payable to the order of Lender (the
"Note");
WHEREAS, Borrower intends to liquidate Old Plastics and to contribute
the assets of Old Plastics to New Plastics, and, subject to the terms and
conditions of this Amendment, Lender has consented to such liquidation;
<PAGE> 2
WHEREAS, Borrower has formed a new wholly-owned Subsidiary, New
Plastics, which has acquired or will acquire the assets of Old Plastics and
which has agreed to become a Guarantor under the Agreement in conjunction with
this Amendment and to grant to Lender a security interest in all of its assets;
and
WHEREAS, Lender, Borrower and Guarantors desire to amend the Agreement
and the Note as hereinafter set forth and New Plastics desires to become a
party to the Agreement;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth in the Agreement and this Amendment, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, hereby agree as
follows:
ARTICLE I
Amendments to Definitions
Section 1.01. Definitions. Capitalized terms used in this
Amendment, to the extent not otherwise defined herein, shall have the same
meanings as in the Agreement, as amended hereby.
Section 1.02. Amendment to Definition of "Applicable Interest
Rate". The term "Applicable Interest Rate" as defined in the Agreement is
amended in its entirety to read as follows:
"'Applicable Interest Rate' means at all times a per annum
interest rate equal to the Reference Rate; provided, however, that if
the ratio of Debt to Adjusted Tangible Net Worth exceeds 1.75 to 1 as
of March 31, 1996 then the Applicable Interest Rate will be, at all
times thereafter beginning on April 1, 1996, a per annum interest rate
equal to the Reference Rate plus one percent (1%)."
Section 1.03. The definitions "Capex Loan Offshore Rate", "Capex
Loan Reference Rate", "Interest Period", "Interest Rate Election", "Interest
Rate Election Notice", "Offshore Rate", "Offshore Rate Capex Loans", "Offshore
Rate Loans", "Offshore Rate Revolving Loans", "Offshore Rate Term Loans",
"Revolving Loan Offshore Rate" and "Term Loan Offshore Rate" are hereby deleted
from the Agreement.
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<PAGE> 3
Section 1.04. The definitions "Reference Rate Capex Loans",
"Reference Rate Revolving Loans", "Reference Rate Term Loans", "Revolving Loan
Reference Rate", "Term Loan Reference Rate" and "Capex Loan Reference Rate" are
each amended by deleting any reference to the "subpart" of the definition of
Applicable Interest Rate.
Section 1.05. Article 1 of the Agreement is further amended by the
addition of the following definitions:
"'Mandatory Capex Prepayment' means a prepayment of the
Capital Expenditures Term Loan which equals 80% of the original cost
or liquidation value of each item of Equipment which is transferred to
Mexico pursuant to the Mexican Leases.
'Mexican Assignments' means each and every Collateral
Assignment of Lease executed by Borrower or any Guarantor in favor of
Lender related to the Mexican Leases.
'Mexican Leases' means the leases by Borrower of any of its
Equipment to any of its Mexican Affiliates, including but not limited
to, NovaPlast, S.A. de C.V.
'Payment Account' means each blocked bank account or bank
account associated with a lock box, established pursuant to Section
6.10, to which the funds of the Borrower (including, without
limitation, Proceeds of Accounts and other Collateral) are deposited
or credited and which is maintained in the name of the Lender or the
Borrower, as the Lender may determine, on terms acceptable to the
Lender.
'Unused Line Fee' shall have the meaning set forth in Section 3.4."
ARTICLE II
Amendments to Sections
Section 2.01. Termination of Interest Rate Options. Borrower
agrees and acknowledges that it no longer has the option to request Offshore
Rate Loans, and that all Loans going forward will be Reference Rate Loans.
Section 2.02. Amendment to Section 2.3 of the Agreement. Section
2.3(i)(a) of the Agreement is hereby amended to read as follows:
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<PAGE> 4
"(a) the aggregate amount of up to Nine Million and No/100
Dollars ($9,000,000) during the term of this Agreement. "
All other provisions of Section 2.3 remain unchanged.
Section 2.03. Amendment to Section 3.4 of the Agreement. A new
Section 3.4 is hereby added to the Agreement and reads in its entirety as
follows:
"3.4 Unused Line Fee. For every month during the term of
this Agreement, the Borrower shall pay the Lender a fee (the "Unused
Line Fee") in an amount equal to three-eighths of one percent (0.375%)
per annum, multiplied by the amount by which (a) the Maximum Revolving
Credit Line then in effect exceeds the average closing daily unpaid
balance of all Revolving Loans and all issued but undrawn Letters of
Credit during such month, with the unpaid balance calculated for this
purpose by applying payments immediately upon receipt. Such a fee, if
any, shall be calculated on the basis of a year of three hundred sixty
(360) days and actual days elapsed, shall begin to accrue on September
28, 1995, and shall be payable to the Lender on the first day of each
Fiscal Quarter prior to the termination of this Agreement commencing
on October 1, 1995 and with a final payment due and owing on the
termination of this Agreement, with respect to the prior quarter or
portion thereof."
Section 2.04. Amendment to Section 4.4 of the Agreement. Section
4.4 of the Agreement is hereby amended by the addition of new subparagraph (d)
which reads in its entirety as follows:
"(d) Whenever Equipment is transferred to Mexico pursuant
to a Mexican Lease, Borrower shall pay to Lender a Mandatory Capex
Prepayment, provided however, that the initial Mandatory Capex
Prepayment may be deferred by Borrower until March 31, 1996."
All other provisions of Section 4.4 remain unchanged.
Section 2.05. Amendment to Section 4.5 of the Agreement. Section
4.5 of the Agreement is hereby amended in its entirety to read as follows:
"4.5 Repayment of Term Loan. The Borrower shall repay the
principal of the Capital Expenditures Term Loan in consecutive
quarterly installments of Four Hundred Thirty Seven Thousand Five
Hundred and No/100 Dollars ($437,500) each, commencing on the first
day of October, 1995 and continuing on the first day of each
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<PAGE> 5
consecutive Fiscal Quarter thereafter, with a final installment of the
remaining balance due on April 1, 2000."
Section 2.06. Amendment to Section 6.8 of the Agreement. Section
6.8 of the Agreement is hereby amended in its entirety to read as follows:
"6.8 Collateral Reporting. The Borrower will
provide the Lender each month with a Borrowing Base
Certificate in the Form of Exhibit R (the "Collateral Report")
which is attached to the Agreement and made a part hereof.
Such Collateral Report will be submitted no later than the
last day of the month following the month for which the
information contained in the Collateral Report has been
compiled. In addition, five (5) days prior to any date for
which a Revolving Loan has been requested, Borrower will
submit to Lender a current accounts receivable aging report."
Section 2.07. Amendment to Section 6.10 of the Agreement. Section
6.10 of the Agreement is hereby amended in its entirety to read as follows:
"6.10 Collection of Accounts. (a) Until the Lender
notifies the Borrower to the contrary, the Borrower shall make
collection of all Accounts and other Collateral for the Lender and
shall receive all payments as the Lender's trustee. After an Event of
Default has occurred, if the Lender requests, the Borrower shall
establish a lock-box service for collections of Accounts at a bank
mutually acceptable to the Lender and the Borrower and pursuant to
documentation satisfactory to the Lender. If such lock-box service is
established, the Borrower shall instruct all Account Debtors to make
all payments directly to the address established for such service.
If, notwithstanding such instructions, the Borrower receives any
Proceeds of Accounts, it shall receive such payments as the Lender's
trustee and shall immediately deliver such payments to the Lender in
their original form duly endorsed in blank or deposit them into a
Payment Account, as the Lender may direct. All collections received
in any such lock box or Payment Account or directly by the Borrower or
the Lender, and all funds in any Payment Account or other account to
which such collections are deposited, shall be the sole property of
the Lender and subject to the Lender's sole control. The Borrower, at
the Lender's request, shall execute and deliver to the Lender such
documents as the Lender shall require to grant the Lender access to
any post office box in which collections of Accounts are received.
(b) If sales of Inventory are made for cash, the Borrower
shall immediately deliver to the Lender the identical checks, cash or
other forms of payment which the Borrower receives."
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<PAGE> 6
Section 2.08. Amendment to Section 7.2 of the Agreement. Section
7.2 of the Agreement is hereby amended by the addition of new subsection (g)
which reads as follow:
"(g) As soon as available, but in any event not later than
thirty (30) days after the end of each month, (i) monthly financial
statements in a format comparable to the financial forecasts attached
to this Amendment as Appendix 1, with a gross profit margin analysis
by segment as set forth on Appendix 2, and (ii) monthly status reports
on Capital Expenditures related to NovaPlast, S.A. de C.V. accompanied
by a comparison of all such Capital Expenditures to the Capital
Expenditures set forth on Borrower's plan, a copy of which will be
attached to this Amendment no later than October 6, 1995 as Appendix
3. If the monthly financial statements and gross profit margin
analysis described in subsection (i) above deviate significantly from
Borrower's plan therefor, a narrative explanation of such deviations
will be required."
Section 2.09. Amendment to Section 9.16(b) of the Agreement.
Section 9.16(b) of the Agreement is hereby amended in its entirety to read as
follows:
"(b) Borrower has formed a wholly-owned United States
Subsidiary, Sun Coast Acquisition, Inc., which has formed in turn a
wholly-owned Mexican Subsidiary, Sun Coast de Mexico, S.A. de C.V.
("S.C. Mexico"). S.C. Mexico has purchased the stock of NovaPlast,
S.A. de C.V. ("NovaPlast") for (i) approximately $1,000,000 in cash
(including the repayment of certain bank debt owed by NovaPlast), (ii)
a note for approximately $300,000, and (iii) a note for approximately
$1,000,000, the two notes being referred to as the "Acquisition
Notes". Borrower may provide the two foregoing Subsidiaries (A) up to
a $750,000 working capital facility, and (B) sufficient funds to
enable the Subsidiaries to make their regularly scheduled payments of
principal only* under the Acquisition Notes in an amount not to exceed
$500,000 per year, provided (x) no Event of Default has occurred and
is continuing under the Agreement or (y) the making of any such
payment would result in an Event of Default. The Subsidiaries will be
required to make interest payments under the notes. NovaPlast may
incur up to $250,000 in third party debt for capital expenditures
which debt may be guaranteed by Borrower and its Affiliates. Borrower
and the Guarantors may enter into the Mexican Leases which relate to
the Equipment set forth on Appendix 4 hereto (the "Identified
Equipment") subject to (i) Borrower's payment to Lender of the
Mandatory Capex Prepayment, and (ii) Borrower's or the lessor
Guarantor's execution of the Mexican Assignments. If Borrower or any
Guarantor wishes to enter into any Mexican Leases relating to
Equipment other than the Identified Equipment, Borrower must first
obtain Lender's approval which approval may be withheld at Lender's
sole discretion. Borrower will, at Lenders' request, cause either or
both of such Subsidiaries to execute an Affiliate Guaranty, pledge its
stock in such United States Subsidiary to Lender,
-6-
<PAGE> 7
and/or cause such United Stated Subsidiary to pledge its stock in such
Mexican Subsidiary to Lender."
Section 2.10. Amendment to Section 9.17 of the Agreement. Section
9.17 of the Agreement is hereby amended in its entirety to read as follows:
"9.17 Capital Expenditures. Neither Industries nor any of
its Subsidiaries shall make or incur any Capital Expenditure if, after
giving effect thereto, the aggregate amount of all Capital
Expenditures by the Borrower and its Subsidiaries would exceed One
Million One Hundred Thousand and No/100 Dollars ($1,100,000) for the
Fiscal Quarter ending September 30, 1995; Nine Hundred Fifty-Five
Thousand and No/100 Dollars ($955,000) for the Fiscal Quarter ending
December 31, 1995; Three Hundred Fifty Thousand and No/100 Dollars
($350,000) for the Fiscal Quarter ending March 31, 1996; and Two
Hundred Seventy-Five Thousand and No/100 Dollars ($275,000) for the
Fiscal Quarter ending June 30, 1996 and each Fiscal Quarter ending
thereafter."
Section 2.11. Amendment to Section 9.18 of the Agreement. Section
9.18 of the Agreement is hereby amended in its entirety to read as follows:
"9.18 Industries and its Subsidiaries will maintain on a
consolidated basis a Cash Flow Ratio of not less than the following
ratios at the end of each of the following Fiscal Quarters:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Ratio
<S> <C>
September 30, 1995 1.25 to 1
December 31, 1995 1 to 1
March 31, 1996 1.20 to 1
June 30, 1996 and each
Fiscal Quarter thereafter 1.85 to 1
</TABLE>
This ratio will be calculated at the end of each Fiscal Quarter using
the Cash Flow from that quarter and each of the three immediately
preceding quarters. The current portion of long term debt will be
measured as of the last day of such Fiscal Quarter, and will exclude
the liabilities of Borrower under the Revolving Loan facility."
-7-
<PAGE> 8
Section 2.12. Amendment to Section 9.19 of the Agreement. Section
9.19 of the Agreement is hereby amended in its entirety to read as follows:
"9.19 Debt Ratio. Industries and its Subsidiaries on a
consolidated basis will not permit the ratio of Debt to Adjusted
Tangible Net Worth to exceed the following ratios at the end of each
of the following respective Fiscal Quarters:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Ratio
<S> <C>
September 30, 1995 3 to 1
December 31, 1995 3 to 1
March 31, 1996 2.85 to 1
June 30, 1996 and each
Fiscal Quarter thereafter 2.55 to 1"
</TABLE>
Section 2.13. Amendment to Section 9.20 of the Agreement. Section
9.20 of the Agreement is hereby amended in its entirety to read as follows:
"9.20 Current Ratio. Industries and its Subsidiaries on a
consolidated basis will not permit the ratio of (a) Current Assets to
(b) Current Liabilities to be less than 1 to 1 at the end of any
Fiscal Quarter. Outstanding Revolving Loans shall be included as part
of Current Liabilities."
Section 2.14. Amendment to Section 9.21 of the Agreement. Section
9.21 of the Agreement is hereby amended in its entirety to read as follows:
"9.21 Adjusted Tangible Net Worth.
(a) Industries and its Subsidiaries on a consolidated
basis will not permit Adjusted Tangible Net Worth to be less
than the following amounts at the end of each of the following
Fiscal Quarters:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Amount
<S> <C>
September 30, 1995 $ 13,775,000
December 31, 1995 $ 13,500,000
March 31,1 996 $ 14,100,000
June 30, 1996, and each
Fiscal Quarter thereafter $ 15,325,000
</TABLE>
-8-
<PAGE> 9
(b) Plastics will not permit the Plastics Adjusted
Tangible Net Worth to be less than the following amounts at
the end of each of the following Fiscal Quarters:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Amount
<S> <C>
September 30, 1995 $ 2,100,000
December 31, 1995 $ 1,400,000
March 31, 1996 $ 1,525,000
June 30, 1996, and each
Fiscal Quarter thereafter $ 2,000,000
</TABLE>
(c) Closures will not permit the Closures Adjusted
Tangible Net Worth to be less than the following amounts at
the end of each of the following Fiscal Quarters:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Amount
<S> <C>
September 30, 1995 $ 4,900,000
December 31, 1995 $ 5,150,000
March 31, 1996 $ 5,400,000
June 30, 1996, and each
Fiscal Quarter thereafter $ 5,800,000"
</TABLE>
2.15. Amendments to Article 12 of the Agreement. Article 12 is
hereby amended to read in its entirety as follows:
"The initial term of this Agreement shall be from the Renewal
Date to January 31, 1997 (the "Termination Date"). The
Borrower may also terminate this Agreement at any time during
its initial term if: (a) it gives the Lender ten (10) days
prior written notice of termination by registered or certified
mail; and (b) it pays and performs all Obligations on or prior
to the effective date of termination. If Borrower prepays all
Obligations on or prior to October 31, 1995, Borrower shall
pay Lender a prepayment premium in an amount equal to one
percent (1%) of the then outstanding balance of all Loans and
Letter of Credit. The Lender may also terminate this
Agreement as provided in Section 11.2. Upon the effective
date of termination of this Agreement for any reason
whatsoever, all Obligations (including, without limitation,
all unpaid principal of and accrued interest on the Term Loan
and the Capital
-9-
<PAGE> 10
Expenditures Term Loan) shall become immediately due and
payable. Notwithstanding the termination of this Agreement,
until all Obligations are paid and performed in full (other
than indemnification obligations which are to survive the
termination hereof), the Lender shall retain all its rights
and remedies hereunder (including, without limitation, in all
then existing and after-arising Collateral).
ARTICLE III
Modification of Note
Section 3.01. Superseding Provisions. In the event and to the
extent that any terms and provisions set forth in the Note are inconsistent
with the terms and provisions set forth in this Amendment, then the terms and
provisions of this Amendment shall modify and supersede any such inconsistent
terms and provisions.
ARTICLE IV
Miscellaneous
Section 4.01. Ratifications; Grant of Security Interest. The terms
and provisions set forth in this Amendment shall modify and supersede all
inconsistent terms and provisions set forth in the Agreement and, except as
expressly modified and superseded by this Amendment, the terms and provisions
of the Agreement and the Note, including, without limitation, all financial
covenants contained therein, are ratified and confirmed and shall continue in
full force and effect. Lender, Borrower and each Guarantor agree that the
Agreement, as amended hereby, and the Note shall continue to be legal, valid,
binding and enforceable in accordance with their terms. New Plastics
specifically ratifies the Agreement and agrees that it is hereby made a party
thereto and is bound by all the terms and provisions thereof. In connection
therewith, New Plastics hereby grants to Lender a security interest in all of
the Collateral of New Plastics, including, but not limited to, all of the
Receivables, Inventory, Equipment, Proprietary Rights and Proceeds of New
Plastics.
Section 4.02. Representations and Warranties. Each of Borrower and
each Guarantor (each being referred to as a "Loan Party") hereby represents and
warrants to Lender that the execution, delivery and performance of this
Amendment and all other loan documents to which it is or is to be a party
executed and/or delivered in connection herewith, have been authorized by all
requisite corporate action on the part of Borrower or such Guarantor and will
not violate the Certificate or Articles of Incorporation or Bylaws of Borrower
or such Guarantor.
-10-
<PAGE> 11
Section 4.03. Conditions. The effectiveness of this Amendment is
subject to the satisfaction of the following conditions precedent (unless
specifically waived in writing by the Lender):
(a) Each Loan Party shall have executed and delivered
such other documents and instruments as Lender may require, including,
without limitation, a certificate executed by an officer of each Loan
Party certifying as to the following:
(i) Resolutions. The Board of Directors of each
Loan Party has adopted resolutions which authorize the
execution, delivery, and performance by such Loan Party of
this Agreement and the other Loan Documents to which such Loan
Party is or is to be a party;
(ii) Incumbency. The incumbency of the officers of
such Loan Party authorized to sign this Agreement and each of
the other Loan Documents to which such Loan Party is or is to
be a party;
(iii) Articles of Incorporation. The certificate or
articles of incorporation of each Loan Party;
(iv) Bylaws. The bylaws of each Loan Party;
(v) Good Standing, etc. The existence, good
standing and qualification of each Loan Party.
(b) Borrower shall have delivered to Lender a list of all
Equipment that may be leased under the Mexican Leases.
(c) Borrower will pay to Lender an amendment fee in the
amount of $25,000.00.
(d) All corporate proceedings taken in connection with
the transactions contemplated by this Amendment and all documents,
instruments and other legal matters incident thereto shall be
satisfactory to Lender and its legal counsel, Jenkens & Gilchrist, a
Professional Corporation.
Section 4.04. Survival of Representations and Warranties. All
representations and warranties made in the Agreement or any other document or
documents relating thereto, including, without limitation, any Loan Document
furnished in connection with this Amendment, shall survive the execution and
delivery of this Amendment and the other Loan
-11-
<PAGE> 12
Documents, and no investigation by Lender or any closing shall affect the
representations and warranties or the right of Lender to rely thereon.
Section 4.05. Reference to Agreement. The Agreement and the Note,
each of the Loan Documents, and any and all other agreements, documents or
instruments now or hereafter executed and delivered pursuant to the terms
hereof or pursuant to the terms of the Agreement as amended hereby, are hereby
amended so that any reference therein to the Agreement shall mean a reference
to the Agreement as amended hereby.
Section 4.06. Severability. Any provision of this Amendment held
by a court of competent jurisdiction to be invalid or unenforceable shall not
impair or invalidate the remainder of this Amendment and the effect thereof
shall be confined to the provision so held to be invalid or unenforceable.
Section 4.07. APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN
DOCUMENTS EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE
PERFORMABLE IN THE STATE OF TEXAS AND SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
Section 4.08. Successors and Assigns. This Amendment is binding
upon and shall inure to the benefit of Lender, Borrower, Guarantors and their
respective successors and assigns; provided, however, that neither Borrower nor
any Guarantor may assign or transfer any of its rights or obligations hereunder
without the prior written consent of Lender. Lender may assign any or all of
its rights or obligations hereunder without the prior consent of Borrower and
Guarantors.
Section 4.09. Counterparts. This Amendment may be executed in one
or more counterparts, each of which when so executed shall be deemed to be an
original, but all of which when taken together shall constitute one and the
same instrument.
Section 4.10. Effect of Waiver. No consent or waiver, express or
implied, by Lender to or of any breach of or deviation from any covenant or
condition of the Agreement or duty shall be deemed a consent or waiver to or of
any other breach of or deviation from the same or any other covenant, condition
or duty.
Section 4.11. Headings. The headings, captions and arrangements
used in this Amendment are for convenience only and shall not affect the
interpretation of this Amendment.
-12-
<PAGE> 13
Section 4.12. Releases. As a material inducement to Lender to
enter into this Amendment, each of Borrower and each Guarantor (including Old
Plastics) hereby represents and warrants that there are no claims or offsets
against, or defenses or counterclaims to, the terms and provisions of and the
other obligations created or evidenced by the Agreement or the other Loan
Documents. Each of Borrower and each Guarantor hereby releases, acquits, and
forever discharges Lender, and its successors, assigns, and predecessors in
interest, their parents, subsidiaries and affiliated organizations, and the
officers, employees, attorneys, and agents of each of the foregoing (all of
whom are herein jointly and severally referred to as the "Released Parties")
from any and all liability, damages, losses, obligations, costs, expenses,
suits, claims, demands, causes of action for damages or any other relief,
whether or not now known or suspected, of any kind, nature, or character, at
law or in equity, which Borrower or any Guarantor now has or may have ever had
against any of the Released Parties, including, but not limited to, those
relating to (a) usury or penalties or damages therefor, (b) allegations that a
partnership existed between Borrower or any Guarantor and the Released Parties,
(c) allegations of unconscionable acts, deceptive trade practices, lack of good
faith or fair dealing, lack of commercial reasonableness or special
relationships, such as fiduciary, trust or confidential relationships, (d)
allegations of dominion, control, alter ego, instrumentality, fraud,
misrepresentation, duress, coercion, undue influence, interference or
negligence, (e) allegations of tortious interference with present or
prospective business relationships or of antitrust, or (f) slander, libel or
damage to reputation; all hereinafter being collectively referred to as the
"Claims", all of which Claims are hereby waived.
Section 4.13. Expenses of Lender. Borrower agrees to pay on demand
(i) all costs and expenses reasonably incurred by Lender in connection with the
preparation, negotiation and execution of this Amendment, all prior notices and
correspondence related hereto, and the other Loan Documents executed pursuant
hereto and any and all subsequent amendments, modifications, and supplements
hereto or thereto, including, without limitation, the costs and fees of
Lender's legal counsel and the allocated cost of staff counsel and (ii) all
costs and expenses reasonably incurred by Lender in connection with the
enforcement and termination of any rights under the Agreement, this Amendment
and/or other Loan Documents, including, without limitation, the reasonable
costs and fees of Lender's legal counsel and the allocated cost of staff
counsel.
Section 4.13. CONSENTS AND REAFFIRMATIONS. Each Guarantor hereby
consents to the terms and conditions of this Amendment and reaffirms its
obligations under its Guaranty and agrees that the Security Interests granted
to Lender pursuant to the Loan Documents, together with such Guaranty, remain
in full force and effect and are hereby ratified and confirmed.
-13-
<PAGE> 14
Section 4.14. NO ORAL AGREEMENTS. THIS AMENDMENT, TOGETHER WITH
THE OTHER LOAN DOCUMENTS AS WRITTEN, REPRESENT THE FINAL AGREEMENTS AMONG
LENDER, BORROWER AND ALL GUARANTORS AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties have executed this Amendment on the
date first above written.
BANK OF AMERICA TEXAS, N.A.
By:
Donald P. Hellman
Vice President
SUN COAST HOLDINGS, INC.
By:
Cynthia R. Morris
Vice Chairman of the Board
SUN COAST INDUSTRIES, INC.
By:
Cynthia R. Morris
Treasurer
PLASTICS MANUFACTURING COMPANY,
a Nevada corporation
By:
Cynthia R. Morris
Vice President
-14-
<PAGE> 15
PLASTICS MANUFACTURING COMPANY,
a Delaware corporation
By:
Cynthia R. Morris
Vice President
SUN COAST CLOSURES, INC.
By:
R. Carter Pate
Chief Executive Officer
CUSTOM LAMINATES, INC.
By:
Cynthia R. Morris
Vice President
-15-
<PAGE> 1
Exhibit 18.1
KPMG Peat Marwick LLP
200 Crescent Court
Suite 300
Dallas, TX 75201-1885
September 25, 1995
Sun Coast Industries, Inc.
Dallas, TX
Ladies and Gentlemen:
We have audited the consolidated balance sheets of Sun Coast Industries, Inc.,
and subsidiaries as of June 30, 1995 and 1994, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
each of the years in the three-year period ended June 30, 1995, and have
reported thereon under date of August 22, 1995, except as to Note 5, which is
as of September 25, 1995. The aforementioned consolidated financial statements
and our audit report thereon are included in the Company's annual report on
Form 10-K for the year ended June 30, 1995. As stated in Note 2 to those
financial statements, the Company changed its method of determining the cost of
its major subsidiary's inventories from the last-in, first-out (LIFO) method to
the first-in, first-out (FIFO) method and states that the newly adopted
accounting principle is preferable in the circumstances because the FIFO method
of inventory valuation results in a better matching of costs incurred with
current revenues (because of anticipated decrements in quantities), conforms
the subsidiary's inventory valuation method to that followed by all other Sun
Coast subsidiaries and more appropriately reflects the Company's financial
position as it reflects more recent costs in the balance sheet. In accordance
with your request, we have reviewed and discussed with Company officials the
circumstances and business judgment and planning upon which the decision to
make this change in the method of accounting was based.
With regard to the aforementioned accounting change, authoritative criteria
have not been established for evaluating the preferability of one acceptable
method of accounting over another acceptable method. However, for purposes of
Sun Coast Industries, Inc.'s compliance with the requirements of the Securities
and Exchange Commission, we are furnishing this letter.
Based on our review and discussion, with reliance on management's business
judgment and planning, we concur that the newly adopted method of accounting is
preferable in the Company's circumstances.
Very truly yours,
<PAGE> 1
EXHIBIT 21
SUN COAST INDUSTRIES, INC.
SUBSIDIARIES
Sun Coast Holdings, Inc., a Nevada corporation
Sun Coast Closures, Inc., a Florida corporation
Plastics Manufacturing Company, a Nevada corporation
Custom Laminates, Inc., a Nevada corporation
Nova Plast S.A. de C.V., a Mexican corporation
<PAGE> 1
Exhibit 23.1
The Board of Directors
Sun Coast Industries, Inc.:
We consent to incorporation by reference in the registration statements (No.
33-59652, 33-80238, 33-87538 and 33-87544) on Form S-8 of Sun Coast Industries,
Inc. and subsidiaries of our report dated August 22, 1995, except as to Note 5,
which is as of September 20, 1995, relating to the consolidated balance sheets
of Sun Coast Industries, Inc. and subsidiaries as of June 30, 1994 and 1995,
and the related consolidated statements of income, cash flows and stockholders'
equity for each of the years in the three-year period ended June 30, 1995, and
the related schedule, which report appears in the June 30, 1995, annual report
on Form 10-K of Sun Coast Industries, Inc.
Our report refers to a change in the method of accounting for certain
inventories.
KPMG PEAT MARWICK LLP
Dallas, Texas
September 25, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 1,173
<SECURITIES> 0
<RECEIVABLES> 9,914
<ALLOWANCES> 312
<INVENTORY> 13,248
<CURRENT-ASSETS> 24,417
<PP&E> 49,016
<DEPRECIATION> 19,277
<TOTAL-ASSETS> 57,196
<CURRENT-LIABILITIES> 10,472
<BONDS> 0
<COMMON> 40
0
0
<OTHER-SE> 16,733
<TOTAL-LIABILITY-AND-EQUITY> 57,196
<SALES> 85,987
<TOTAL-REVENUES> 85,987
<CGS> 68,441
<TOTAL-COSTS> 68,441
<OTHER-EXPENSES> 14,043
<LOSS-PROVISION> 232
<INTEREST-EXPENSE> 1,715
<INCOME-PRETAX> 1,788
<INCOME-TAX> 743
<INCOME-CONTINUING> 1,045
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,045
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
