<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1996
------------------------------------
Commission File Number 0-10937
------------------------------
SUN COAST INDUSTRIES, INC.
--------------------------
(Exact name of Registrant)
Delaware #59-1952968
- ------------------------------- ------------------------------------
(State of Incorporation) (IRS Employer Identification No.)
2700 South Westmoreland Ave., Dallas, TX 75233
-----------------------------------------------
(Address of principal executive offices)
(214) 373-7864
-------------------------------
(Registrant's telephone number)
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 the number of shares outstanding of each of the issuers' classes of
common stock, as of May 8, 1996, the latest practable date.
Class Outstanding at May 8, 1996
----- --------------------------
Common stock $0.01 par value 4,004,229
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SUN COAST INDUSTRIES, INC.
INDEX
<TABLE>
<S> <C>
Part I. Financial Information
- -----------------------------
Item I - Financial Statements
Condensed Consolidated Balance Sheets --March 31, 1996
and June 30, 1995 3
Condensed Consolidated Statements of Operations - Nine Months
ended March 31, 1996 and 1995 5
Condensed Consolidated Statements of Operations -- Three Months
ended March 31, 1996 and 1995 6
Condensed Consolidated Statements of Cash Flows -- Nine
Months ended March 31, 1996 and 1995 7
Notes to Condensed Consolidated Financial Statements 8
Item II - Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Part II. Other Information
- --------------------------
Items 1 through 6 17
</TABLE>
2
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PART I. FINANCIAL INFORMATION
Item I. FINANCIAL STATEMENTS
SUN COAST INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
March 31,
1996 June 30,
(unaudited) 1995
----------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 583 $ 1,173
Accounts receivable, net of allowance for
doubtful accounts of $172 and $312 12,104 9,602
Inventories 11,106 13,248
Other current assets 391 394
--------- -------
Total current assets 24,184 24,417
Property, plant and equipment, net of accumulated
depreciation of $23,116 and $19,277 29,124 29,739
Intangible assets 962 1,026
Other assets 1,927 2,014
--------- --------
Total assets $ 56,197 $ 57,196
========= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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SUN COAST INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except par value)
<TABLE>
<CAPTION>
March 31,
1996 June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited) 1995
----------- ---------
<S> <C> <C>
Current liabilities:
Accounts payable $ 6,947 $ 4,456
Accrued expenses 1,948 2,179
Current portion
of long-term debt 26,251 2,958
Deferred income taxes 493 879
-------- -------
Total current liabilities 35,639 10,472
Other liabilities 12 57
Long-term debt 3,205 27,464
Deferred income taxes 2,684 2,430
-------- -------
Total liabilities 41,540 40,423
-------- -------
Stockholders' equity:
Common stock, $.01 par value; 40,000,000
shares authorized; issued 4,017,629 and
4,005,629 and outstanding 4,004,229 and 4,005,629 40 40
Additional paid-in capital 11,222 11,300
Currency translation adjustment (643) -
Retained earnings 4,038 5,433
-------- -------
Total stockholders' equity 14,657 16,773
-------- -------
Total liabilities and stockholders' equity $ 56,197 $57,196
======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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SUN COAST INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
---------
1996 1995
---- ----
<S> <C> <C>
Sales $ 58,984 $ 65,141
Costs and expenses:
Cost of sales 49,756 50,720
Selling, general and administrative expense 9,898 9,588
Interest, net 1,447 1,313
----------- ----------
61,101 61,621
----------- ----------
(Loss) income before provision for income taxes (2,117) 3,520
Provision for income taxes 722 (1,300)
----------- ----------
Net (loss) income $ (1,395) $ 2,220
=========== ==========
Net (loss) income per common share $ (0.35) $ 0.55
=========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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SUN COAST INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
1996 1995
---- ----
<S> <C> <C>
Sales $ 21,033 $21,562
Costs and expenses:
Cost of sales 18,267 17,207
Selling, general and administrative expense 3,973 3,303
Interest, net 504 514
-------- -------
22,744 21,024
-------- -------
(Loss) income before provision for income taxes (1,711) 538
Provision for income taxes 567 (232)
-------- -------
Net (loss) income ($ 1,144) $ 306
======== =======
Net (loss) income per common share ($ 0.29) $ 0.08
======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
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SUN COAST INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
---------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $(1,395) $2,220
Adjustments to reconcile net income to
net cash provided by (used in) operations:
Depreciation and amortization 4,250 3,596
Deferred taxes (124) 74
Changes in assets and liabilities:
Accounts receivable (2,670) (1,648)
Inventories 2,036 (4,783)
Other current assets (150) 371
Intangible and other assets (244) 234
Accounts payable and accrued expenses 2,223 (2,482)
------- ------
Net cash provided by (used in) operations 3,926 (2,418)
------- ------
Cash flows from investing activities:
Capital expenditures (3,467) (6,720)
------- ------
Net cash used in investing activities (3,467) (6,720)
------- ------
Cash flows from financing activities:
Proceeds from long-term debt 2,958 10,069
Repayments of long-term debt (3,925) (2,950)
Issuance of Common Stock 72 245
------- ------
Net cash (used in) provided by financing activities (895) 7,364
------- ------
Effect of exchange rate changes on cash (154) -
Change in cash and cash equivalents (590) (1,774)
Cash and cash equivalents at beginning of period 1,173 1,824
------- ------
Cash and cash equivalents at end of period $ 583 $ 50
======= ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
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SUN COAST INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 1 - THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company's (defined below) interim financial statements are unaudited
and should be read in conjunction with the consolidated financial
statements and notes thereto in its Form 10-K and Annual Report to
Stockholders for the year ended June 30, 1995.
In the opinion of management, the accompanying consolidated financial
statements contain all adjustments, consisting only of those of a normal
recurring nature, necessary for a fair statement of the results of
operations for the interim periods presented.
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 have
been generated for this latest division to date.
Industry Segment
The Company operates in a single industry segment, supplying consumer and
commercial related plastic products on a direct and indirect basis,
utilizing similar production processes and methods.
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SUN COAST INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 1 - THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
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 period 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.
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, 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. The carrying values and amortization periods
of intangibles are periodically evaluated by the Company to determine
whether current events and circumstances warrant adjustment.
9
<PAGE> 10
SUN COAST INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 1 - THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
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.
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.
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
liabilities were in existence at March 31, 1996 and June 30, 1995.
Net Income (Loss) Per Common Share
Net income (loss) per common share is computed by dividing net income
(loss) by the weighted average number of common shares outstanding during
each period after giving effect to stock options and warrants considered
to be dilutive common stock equivalents. All stock options and warrants
were considered anti-dilutive for the three and nine months ended March
31, 1996.
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SUN COAST INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 1 - THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
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.
Statement 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.
Foreign Currency Translation and Transactions
The Company's foreign subsidiary uses the local currency as the functional
currency. Translation gains or losses are included as a component of
stockholders' equity. Gains or losses from foreign currency transactions
are included in net income.
NOTE 2 - INVENTORIES
<TABLE>
<CAPTION>
March 31,
1996 June 30,
(unaudited) 1995
----------- ------
(in thousands)
<S> <C> <C>
Raw Materials $ 3,844 $ 5,224
Work-in-process 934 806
Finished goods 7,147 7,792
-------- -------
11,925 13,822
Obsolescence reserve (819) (574)
-------- -------
$ 11,106 $13,248
======== =======
</TABLE>
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<PAGE> 12
NOTE 3 - LONG TERM DEBT
<TABLE>
<CAPTION>
March 31,
1996 June 30,
(unaudited) 1995
----------- ------
(in thousands)
<S> <C> <C>
Term loan $ 6,245 $ 7,167
Revolving credit line 12,159 11,020
Capital expenditures term loan 7,611 8,278
Industrial development revenue bonds 2,213 2,325
Subordinated notes payable 1,000 1,300
Capitalized lease obligations 228 332
-------- --------
29,456 30,422
Current maturities on original
maturity schedule (2,865) (2,958)
Long term debt classified as current (23,386) -
-------- --------
$ 3,205 $ 27,464
======== ========
</TABLE>
In December 1995, the Company refinanced its existing indebtedness
with a new lender and increased its credit facility to provide a total of
$35.7 million in borrowings secured by substantially all the assets of the
Company. The facility provides for borrowings under three separate sub
facilities - (i) two separate one-time term advances in an aggregate
principal amount of $6.7 million payable in quarterly installments through
April 1, 2001, (ii) multiple term advances for capital expenditures in an
aggregate principal amount of $14 million payable in quarterly installments
over 2 to 7 years, and (iii) a $15.0 million revolving loan, due December
31, 1998. As of March 31, 1996, outstanding borrowings under the credit
facility included $6.2 million under the two term loans, $7.6 million under
the capital expenditure term loan and $12.2 million under the revolving
credit line. At March 31, 1996, based on the Company's borrowing formula,
incremental borrowing availability was approximately $2.8 million under the
revolving credit line. The Company may fund principal repayments on
portions of its term debt through advances on 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. The loan agreement contains various covenants,
including maintaining certain financial ratios and tests, and limitations
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 leverage, fixed charge coverage and tangible
net worth.
The Company was not in compliance with two of its loan covenants at March
31, 1996: (1) The Company's Tangible Net Worth (as defined in the Credit
Facility) was below the required minimum of $14,650,000 and (2) the
Company's Fixed Charge Coverage Ratio (as defined in the Credit Facility)
was below the required minimum of 1.3 to 1.0. On May 9, 1996, the Company
obtained a waiver of these covenants as of March 31, 1996. However, the
same or more restrictive covenants must be met in future periods. As a
result, the debt will be subject to acceleration at future dates in the
absence of refinancing, additional equity or additional covenant waivers or
loan modifications, and, therefore, has been classified as a current
liability on the consolidated balance sheet at March 31, 1996. In relation
to this waiver the lender increased its interest rate by 1.25% to 1.75%
spread over the relevant borrowing rate index.
The Company is currently pursuing various strategic and financing
alternatives that may satisfy its covenant requirements, although there is
no assurance that such alternatives will be in place by June 30, 1996, the
next measurement date for the loan covenant compliance, or thereafter. In
the event of non-compliance,
12
<PAGE> 13
management intends to seek the necessary waivers or amendments such that
the loan agreement will remain in force; however, there can be no assurance
that the Company's lender will grant such additional waivers or amendments.
Item II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996, Compared to the Three Months Ended
March 31, 1995
Sales for the three months ended March 31, 1996, decreased $529,000 or
2.4%, when compared to the same period in 1995. Closure Division's sales
increased 6.1% due to increased demand. Consumer Products and Foodservice
Divisions' sales decreased 9.1% as a result of the downturn in the retail
economy. Chemical Division's sales decreased 4.6% due to a weak housing
market and customer efforts to better manage their inventory to lower
levels.
Cost of sales as a percentage of net sales increased to 86.8% from 79.8%.
The decline in gross margin was primarily the result of volume declines in
the Foodservice and Consumer Products Divisions causing shortfalls in the
absorption of fixed costs. In addition, substantially all of the Company's
major raw materials incurred unprecedented and repeated price increases
over the past year. While the Company is currently experiencing some
declines in raw material costs, these declines did not occur in time to
impact the quarter. Further, other costs continue to increase and the
overall impact to future earnings is not predictable.
Selling, general and administrative expense ("SG&A") increased $670,000
to 18.9% of sales for the three months ended March 31, 1996, as compared to
15.3% of sales for the three months ended March 31, 1995. Severance for
the former President of the Company, and related expenses, including costs
associated with the recruitment of the new President, were the primary
cause of this increase.
Interest expense has remained relatively constant at $504,000 for the three
months ended March 31, 1996 from $514,000 for the three months ended March
31, 1995.
Net income decreased $1,450,000 from the comparable prior fiscal period
primarily because of the impact on gross margin of depressed sales volumes,
and the increase in SG & A noted above.
13
<PAGE> 14
Nine Months Ended March 31, 1996, Compared to the Nine Months Ended
March 31, 1995
Sales decreased $6,157,000 or 9.4% for the nine months ended March 31,
1996, as compared to the nine months ended March 31, 1995. Sales in the
Chemical Division decreased by 9.6% for the nine months ended March 31,
1996 from the same period in 1995, primarily as a result of decreased
industry demand. Sales in the Consumer Products and Foodservice Divisions
decreased by 21.9% for the nine months ended March 31, 1996 from the same
period in 1995, resulting from a sluggish retail economy and because of
significant children's licensed product sales in the 1995 period that did
not recur in the 1996 period. Sales in the Closures Division increased
3.3% for the nine months ended March 31, 1996 from the same period in 1995.
Cost of sales as a percentage of sales increased to 84.4% for the nine
months ended March 31, 1996 from 77.9% in the same period in 1995. The
decrease in gross margin was primarily the result of raw material price
increases and decreased production volumes. While raw materials prices
have increased significantly during the past year and may increase further,
the Company cannot predict future trends with any certainty.
Selling, general and administrative expense ("SG&A") increased by 3.2% for
the nine months ended March 31, 1996 from the same period in 1995. SG&A
increased as a percentage of sales to 16.8% for the nine months ended March
31, 1996 from 14.7% for the nine months ended March 31, 1995, due to
certain fixed administrative costs and the severance related expenses
discussed previously.
Interest expense increased 10.2% for the nine months ended March 31, 1996
from the same period in 1995 due primarily to increased borrowing. The
average borrowing during the nine months ended March 31, 1996 was $28.9
million compared to $25.5 million during the same period in 1995.
Net income decreased $3,615,000 for the nine months ended March 31, 1996
from the nine month period ended March 31, 1995 as a result of lower sales
volumes and the other factors described above.
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<PAGE> 15
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 the nine months ended March 31, 1996, the Company
decreased net borrowings by $1.0 million. Cash flow from operations
generated $3.9 million.
Capital expenditures for the nine months ended March 31, 1996 were $3.5
million. Anticipated future capital additions should approximate less than
$1 million for the remainder of fiscal 1996 and management anticipates
current debt capacity and cash flow from operations should be adequate to
fund this level of expenditure.
In December 1995, the Company refinanced its existing indebtedness with a
new lender and increased its credit facility to provide a total of $35.7
million in borrowings secured by substantially all the assets of the
Company. The facility provides for borrowings under three separate
subfacilities - (i) two separate one-time term advances in an aggregate
principal amount of $6.7 million payable in quarterly installments through
April 1, 2001, (ii) multiple term advances for capital expenditures in an
aggregate principal amount of $14.0 million payable in quarterly
installments over 2 to 7 years, and (iii) a $15.0 million revolving loan,
due December 31, 1998. As of March 31, 1996, outstanding borrowings under
the credit facility included $6.2 million under the two term loans, $7.6
million under the capital expenditure term loan and $12.2 million under the
revolving credit line. At March 31, 1996, based on the Company's borrowing
formula, incremental borrowing availability was approximately $2.8 million
under the revolving credit line. The Company may fund principal repayments
on portions of its term debt through advances on 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. The loan agreement contains various covenants,
including maintaining certain financial ratios and tests, and limitations
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 leverage, fixed charge coverage, and tangible
net worth.
The Company was not in compliance with two of its loan covenants at March
31, 1996: (1) The Company's Tangible Net Worth (as defined in the Credit
Facility) was below the required minimum of $14,650,000 and (2) the
Company's Fixed Charge Coverage Ratio (as defined in the Credit Facility)
was below the required minimum of 1.3 to 1.0. On May 9, 1996, the Company
obtained a waiver of these covenants as of March 31, 1996. However, the
same or more restrictive covenants must be met in future periods. As a
result, the debt will be subject to acceleration at future dates in the
absence of refinancing, additional equity or additional covenant waivers or
loan modifications and, therefore, has been classified as a current
liability on the consolidated balance sheet at March 31, 1996. In relation
to this waiver the lender increased its interest rate by 1.25% to 1.75%
spread over the relevant borrowing rate index.
The Company is currently pursuing various strategic and financing
alternatives that may satisfy its covenant requirements, although there is
no assurance that such alternatives will be in place by June 30, 1996, the
next measurement date for the loan covenant compliance, or thereafter. In
the event of non-compliance, management intends to seek the necessary
waivers or amendments such that the loan agreement will remain in force;
however, there can be no assurance that the Company's lender will grant
such additional waivers or amendments.
Disclosures Regarding Forward-Looking Statements
This report on Form 10-Q includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All
statements other than statements of historical facts included in this Form
10-Q, including, without limitation, statements contained in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" regarding the Company's financial position, business strategy,
plans and objectives of management of the Company for future operations,
and industry conditions, are forward-looking statements. Although the
Company believes that the expectations reflected in any such
forwarding-looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct. Any forward-looking
statements herein are subject to certain risks and uncertainties in the
Company's business, including, but not limited to, the intense competition
in its markets, its recent experience of increasing raw materials prices,
the absence of assurance of strategic and financing alternatives, Mexican
currency fluctuations and its reliance on certain key customers; all of
which may be beyond the control of the Company. Any one or more of these
factors could cause actual results to differ materially from those
expressed in any forward-looking statement. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on
its behalf are expressly qualified in their entirety by the cautionary
statements disclosed in this paragraph and otherwise in this report.
15
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SUN COAST INDUSTRIES, INC.
MARCH 31, 1996
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
None.
Item 2 - Changes in Securities
None.
Item 3 - Defaults Upon Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
None.
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports in Form 8K
(a) Exhibits:
10.1 Retention Bonus Agreement, dated March 11, 1996,
between the Company and Cynthia R. Morris.
10.2 Amended Severance Agreement, dated March 13, 1996,
between the Company and Cynthia R. Morris.
10.3 Severance Agreement, dated as of April 22, 1996
between the Company and Eddie Lesok
10.4 Letter dated May 9, 1996, waiving violation of
certain provisions of the Loan Agreement
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Sun Coast Industries, Inc.
---------------------------------------------------------------
Registrant
5/13/96 By:
- --------- ------------------------------------------------------------
Date Eddie Lesok, President and Chief Executive Officer
5/13/96 By:
- --------- ------------------------------------------------------------
Date Cynthia R. Morris, CFO, Secretary and Treasurer
17
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.1 Retention Bonus Agreement, dated March 11, 1996, between the Company
and Cynthia R. Morris.
10.2 Amended Severance Agreement, dated March 13, 1996, between the
Company and Cynthia R. Morris.
10.3 Severance Agreement, dated as of _______ between the Company and
Eddie Lesok
</TABLE>
<PAGE> 1
EXHIBIT 10.1
SUN COAST INDUSTRIES, INC.
Retention Bonus Agreement
This Retention Bonus Agreement ("Agreement") is made and effective as
of the 11th day of March, 1996, by and between Sun Coast Industries, Inc., a
Delaware corporation having its principal place and 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 Employee, following the resignation of R.
Carter Pate as President and Chief Executive Officer and during the transition
to a new Chief Executive Officer. The Board believes it is imperative to
encourage the Employee's full attention and dedication to the Company
currently.
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, intending to be legally bound hereby, agree
as follows:
1. Payment of Retention Bonus Amount. The Company shall pay
Employee, as additional compensation, $225,000 (the "Retention Bonus") on the
earliest to occur of the following:
(a) September 30, 1996, if the Employee is then employed
by the Company;
(b) the date on which the Employee's employment is
terminated by the Company other than for Cause; or
(c) the date on which the Employee's employment is
terminated by the Employee for Good Reason.
If at the time a Retention Bonus is payable hereunder, the Employee has
received payment of the Severance Amount pursuant to the Severance Agreement
dated as of August 8, 1995, the amount of the Retention Bonus payable hereunder
shall be reduced, but not below zero, by the Severance Amount so paid.
2. Definitions. As used in this Agreement:
"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
<PAGE> 2
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 the Employee by the Chief Executive
Officer of the Company or the Board, which specifically identifies the manner
in which such officer or the Board 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, after reasonable notice to Employee and an
opportunity for Employee, together with Employee's counsel, to be heard before
the Board, 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.
"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 of this Agreement to duties that
are, taken as a whole, inconsistent with Employee's range and
duration of experience;
(B) A reduction in Employee's base salary from
that provided to her immediately prior to the date of this
Agreement;
(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,
provided the Retention Bonus shall be considered to be in lieu
of any bonus that would otherwise be considered with respect
to Employee for the Company's fiscal year 1996; 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 date of this Agreement).
3. Consultation and Cooperation. In consideration of the
Retention Bonus, and without further consideration but subject to reimbursement
of the Employee's reasonable expenses, Employee agrees that if Employee elects
to resign without Good Reason after the payment of the Retention Bonus, the
Company for the six-month period following such resignation may request that
Employee consult and cooperate with it, and Employee agrees to be
available at mutually agreeable
2
<PAGE> 3
times, personally or by telephone, as necessary, at reasonable times and
without unreasonable interference with Employee's new employment or personal
activities, to consult and provide such information as may from time to time be
reasonably requested by the Company in connection with various business matters
in which Employee was involved during Employee's active employment with the
Company, or about which Employee has knowledge.
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 al purposes by, the laws of the State of Texas.
6. Severability. If a court of competent jurisdiction determines
that any provision of 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.
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.
3
<PAGE> 4
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 Employee's right to
receive payments hereunder shall not be assignable or transferable, whether by
pledge, creation of a security interest or otherwise, or other than a transfer
by her 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 such assignment shall not release the
Company from its obligations hereunder); 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.
4
<PAGE> 5
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
5
<PAGE> 1
EXHIBIT 10.2
SUN COAST INDUSTRIES, INC.
Amended Severance Agreement
This Amended Severance Agreement ("Agreement") is made and effective as
of the 13th day of March, 1996, 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") and supersedes the Severance Agreement
dated as of August 8, 1995 between the Company and Employee (the "Original
Severance Agreement").
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: (x) Employee may elect to have such
amount paid in equal monthly installments over a period not to exceed
13 months and (y) notwithstanding any provision herein to the contrary,
no amount shall be paid pursuant to this subparagraph 1(a) if Employee
has received payment under that certain Retention Bonus Agreement of
even date herewith between the Company and Employee within six months
prior to the Termination Date;
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<PAGE> 2
(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 her 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 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; and
(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 her
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 her 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
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<PAGE> 3
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:
(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
-3-
<PAGE> 4
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 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.
-4-
<PAGE> 5
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.
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 her 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
12. Previous Agreement. This Agreement supersedes the Original
Severance Agreement. Upon execution and delivery by the parties of this
Agreement, the Original Severance Agreement shall have no further force or
effect.
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: __________________________________________
Stephen P. Smiley, Chairman of the Board
EMPLOYEE
_______________________________________________
Cynthia R. Morris
-6-
<PAGE> 1
EXHIBIT 10.3
SUN COAST INDUSTRIES, INC.
Severance Agreement
This Severance Agreement ("Agreement") is made and effective as of the
22nd day of April, 1996, by and between Sun Coast Industries, Inc., a Delaware
corporation having its principal place of business in Dallas, Dallas County,
Texas (the "Company"), and Eddie Lesok, an individual currently residing in Fort
Worth, 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
Sun Coast Industries, Inc. ("Sun Coast"), a Delaware corporation, 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
<PAGE> 2
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 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) Sun Coast 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 with Sun Coast 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 current
location (including any required business
-2-
<PAGE> 3
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:
(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;
(iii) the stockholders of the Company shall
approve a sale of all or substantially all of the assets of
the Company;
(iv) a stock sale, reorganization, merger or
consolidation of Plastics Manufacturing Company, a Nevada
corporation ("PMC"), takes place and the Company and/or its
subsidiaries do not, immediately thereafter, own more than 50%
of the combined voting power entitled to vote generally in the
election of directors of the sold, reorganized, merged or
consolidated company's then outstanding voting securities; or
(v) all or substantially all of the assets of
PMC are sold.
(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
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<PAGE> 4
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 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: Eddie Lesok
5005 Crestline Road
Fort Worth, Texas 76107
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<PAGE> 5
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.
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
-5-
<PAGE> 6
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.
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: _________________________________________
Stephen P. Smiley, Chairman of the Board
EMPLOYEE
______________________________________________
Eddie Lesok
-6-
<PAGE> 1
EXHIBIT 10.4
May 9, 1996
VIA CERTIFIED MAIL #P649 010 113
AND REGULAR MAIL
Mr. Eddie Lesok, CEO
Ms. Cynthia Morris, CFO
Sun Coast Holdings, Inc.
2700 Westmoreland Ave.
Dallas, Texas 75233
RE: LOAN AGREEMENT (AS AMENDED FROM TIME TO TIME, THE "LOAN AGREEMENT")
BETWEEN COMERICA BANK-TEXAS ("LENDER") AND SUN COAST HOLDINGS, INC.,
("BORROWER") DATED DECEMBER 20, 1995.
Dear Mr. Lesok and Ms. Morris:
Unless otherwise defined herein, capitalized terms used herein shall
have the meanings given such terms in the Loan Agreement. As of March 31, 1996,
Borrower was in violation of certain provisions of the Loan Agreement and has
requested Lender to provide a limited waiver of such violations.
In consideration of Lender granting the limited waiver set forth
herein, Lender and Borrower (with the express consent and confirmation of
Guarantors) agree as follows:
1. Notwithstanding the provisions of Section 11.5 of the Loan
Agreement, as of March 31, 1996, Borrower shall not be deemed to
have been in default under the Loan Agreement simply because as of
such date, Tangible Net Worth (as defined in the Loan Agreement) was
less than the required $14,650,000 however, after March 31, 1996,
the provisions of Section 11.5 of the Loan Agreement shall apply
as originally written and shall govern all periods subsequent to
March 31, 1996.
2. Notwithstanding the provisions of Section 11.7 of the Loan
Agreement, as of March 31, 1996, Borrower shall not be deemed to
have been in default under the Loan Agreement simply because as of
such date, Fixed Charge Coverage (as defined in the Loan Agreement)
was less than the required 1.30 to 1.0 however, after March 31,
1996, the provisions of Section 11.7 of the Loan Agreement shall
apply as originally written and shall govern all periods subsequent
to March 31, 1996.
<PAGE> 2
SUN COAST WAIVER
MAY 9, 1996
PAGE 2
3. Effective May 15, 1996, and until Lender notifies Borrower otherwise
in writing, the Applicable Margin shall be 0.75% for Prime Rate
Advances and 3.00% for CD Advances and for LIBOR Advances.
The preceding waiver and modification is for a limited time and purpose
herein expressed. Such waiver shall not adversely affect or impair any rights
or remedies available to Lender under the Loan Agreement, or otherwise, and
shall not constitute a waiver of any subsequent defaults or other violations of
the provisions of the Agreement and shall not imply that the Lender will in
the future grant any other waivers or modifications.
The preceding waiver and modification shall not be effective until Lender
shall have received a copy of this letter bearing the original signatures of
Borrower and the Guarantors. To the extent this letter constitutes a notice, it
is being transmitted as a courtesy to you and is not an admission that any
written notice is otherwise due you, nor is it an election or waiver of
remedies by Lender.
Sincerely,
/s/ MELINDA A. CHAUSSE
- ----------------------
Melinda A. Chausse
Vice President
ACKNOWLEDGED, ACCEPTED AND AGREED TO
AS OF THE DATE OF THE ABOVE LETTER:
BORROWER
SUN COAST HOLDINGS, INC.
BY:
---------------------------
ITS:
---------------------------
ACKNOWLEDGED, ACCEPTED AND AGREED TO
(AND CONFIRMING IN ALL RESPECTS THE GUARANTY OF EACH OF THE UNDERSIGNED
GUARANTORS) AS OF THE DATE OF THE ABOVE LETTER:
GUARANTORS:
SUN COAST HOLDINGS, INC.
BY:
---------------------------
ITS:
---------------------------
<PAGE> 3
SUN COAST CLOSURES, INC.
BY:
---------------------------
ITS:
---------------------------
PLASTICS MANUFACTURING COMPANY
BY:
---------------------------
ITS:
---------------------------
CUSTOM LAMINATES, INC.
BY:
---------------------------
ITS:
---------------------------
SUN COAST ACQUISITION, INC.
BY:
---------------------------
ITS:
---------------------------
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