<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarter ended February 28, 1995 or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _ to _.
COMMISSION FILE NUMBER 1-8996
SANDY CORPORATION
(Exact name of registrant as specified in its charter)
MICHIGAN 38-1953934
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 West Big Beaver Road, Troy, Michigan 48084
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (810) 649-0800
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 / /
The registrant had 2,273,392 shares of Common Stock (par value $0.01)
outstanding as of March 24, 1995.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Earnings 3-4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-9
PART II. OTHER INFORMATION
-----------------
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
</TABLE>
1
<PAGE> 3
SANDY CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 28 AUGUST 31
----------------------------- -----------
ASSETS 1995 1994 1994
----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (1)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 8,450,021 $ 4,664,170 $ 5,144,490
Accounts receivable:
Billed 5,600,447 6,511,603 7,225,683
Unbilled 3,348,683 4,541,751 5,011,922
Inventories 552,767 1,100,792 787,204
Prepaid income taxes 74,311 0 0
Other current assets 280,706 411,908 610,116
Deferred taxes on income 394,000 245,000 492,000
----------- ----------- -----------
TOTAL CURRENT ASSETS 18,700,935 17,475,224 19,271,415
OTHER ASSETS 278,714 222,713 228,553
LEASEHOLD IMPROVEMENTS, EQUIPMENT,
FURNITURE & FIXTURES 5,155,873 5,311,091 5,139,625
Less accumulated depreciation and amortization (4,419,770) (4,241,753) (4,298,060)
----------- ----------- -----------
736,103 1,069,338 841,565
----------- ----------- -----------
TOTAL ASSETS $ 19,715,752 $ 18,767,275 $ 20,341,533
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,554,838 $ 2,757,087 $ 3,195,628
Accrued compensation 632,201 536,423 1,655,378
Advanced billings to customers 2,859,534 3,896,385 3,370,826
Other current liabilities 755,987 651,171 809,140
Income taxes payable 0 94,650 122,210
Dividends payable 0 68,316 0
----------- ----------- -----------
TOTAL CURRENT LIABILITIES 7,802,560 8,004,032 9,153,182
OTHER LIABILITIES 80,471 632,854 29,510
DEFERRED TAXES ON INCOME 152,000 9,000 194,000
----------- ----------- -----------
TOTAL LIABILITIES 8,035,031 8,645,886 9,376,692
STOCKHOLDERS' EQUITY
Common stock par value $.01, authorized 8,000,000
shares; issued and outstanding 2,273,392 shares at
February 28, 1995 and August 31, 1994 and 2,277,192
shares at February 28, 1994 22,734 22,772 22,734
Additional paid-in capital 8,924,852 8,948,082 8,924,852
Retained earnings 2,733,135 1,150,535 2,017,255
----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY 11,680,721 10,121,389 10,964,841
-----------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,715,752 $ 18,767,275 $ 20,341,533
=========== =========== ===========
</TABLE>
(1) The balance sheet at August 31, 1994 has been excerpted from the audited
financial statements at that date and condensed.
2
<PAGE> 4
SANDY CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------
FEBRUARY 28, 1995 FEBRUARY 28, 1994
--------------------- ---------------------
<S> <C> <C>
Revenue:
Services $ 10,063,318 $ 7,566,463
Products 2,063,764 2,245,861
------------ ------------
12,127,082 9,812,324
------------ ------------
Costs and Expenses:
Cost of Services 7,471,647 5,432,733
Cost of Products 1,822,628 2,042,966
Account Service Expense 1,274,098 846,708
General and Administrative 949,553 921,298
------------ ------------
11,517,926 9,243,705
------------ ------------
OPERATING INCOME 609,156 568,619
Interest Income 53,577 28,487
------------ ------------
Income before income taxes 662,733 597,106
Income Taxes 223,000 199,000
------------ ------------
NET INCOME $ 439,733 $ 398,106
============ ============
Per share data:
Net Income per share $0.19 $0.17
============ ============
Dividends declared per share $0.04 $0.03
============ ============
Weighted average common and
common equivalent shares outstanding 2,351,925 2,346,239
============ ============
</TABLE>
3
<PAGE> 5
SANDY CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------------------------------
FEBRUARY 28, 1995 FEBRUARY 28, 1994
--------------------- ---------------------
<S> <C> <C>
Revenue:
Services $ 19,919,919 $ 14,810,410
Products 4,453,517 4,737,576
------------ ------------
24,373,436 19,547,986
------------ ------------
Costs and Expenses:
Cost of Services 14,994,926 11,074,625
Cost of Products 3,941,441 4,262,631
Account Service Expense 2,288,516 1,621,720
General and Administrative 1,876,720 1,662,916
------------ ------------
23,101,603 18,621,892
------------ ------------
OPERATING INCOME 1,271,833 926,094
Interest Income 93,919 63,503
------------ ------------
Income before income taxes 1,365,752 989,597
Income Taxes 468,000 341,000
------------ ------------
NET INCOME $ 897,752 $ 648,597
============ ============
Per share data:
Net Income per share $0.38 $0.28
============ ============
Dividends declared per share $0.08 $0.06
============ ============
Weighted average common and
common equivalent shares outstanding 2,352,255 2,340,675
============ ============
</TABLE>
4
<PAGE> 6
SANDY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------------------------------------
FEBRUARY 28, 1995 FEBRUARY 28, 1994
--------------------- ---------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 897,752 $ 648,597
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation and amortization 121,710 156,212
Deferred income taxes 56,000 (37,000)
Reserve (payments) for pension (606,738) 67,654
Changes in operating assets
and liabilities:
(Increase) decrease in accounts receivable 3,288,475 (2,256,010)
Decrease in inventories 234,437 392,995
Decrease in other assets 329,410 35,148
Increase in long-term assets (50,161) (22,713)
Decrease in accounts
payable and accrued expenses (110,382) (866,293)
Decrease in income taxes payable (196,521) (17,569)
Increase (decrease) in advanced
billings to customers (511,292) 667,568
Increase in long-term liabilities 50,961 0
----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 3,503,651 (1,231,411)
----------- -----------
INVESTING ACTIVITIES:
Term loan agreement 0 (200,000)
Capital expenditures (16,248) (24,202)
----------- -----------
NET CASH USED IN
INVESTING ACTIVITIES (16,248) (224,202)
----------- -----------
FINANCING ACTIVITIES:
Dividends paid (181,872) (68,343)
Repurchase of common stock 0 (5,391)
----------- -----------
NET CASH USED IN
FINANCING ACTIVITIES (181,872) (73,734)
----------- -----------
NET INCREASE (DECREASE) IN CASH 3,305,531 (1,529,347)
CASH AT BEGINNING OF PERIOD 5,144,490 6,193,517
----------- -----------
CASH AT END OF PERIOD $ 8,450,021 $ 4,664,170
=========== ===========
</TABLE>
5
<PAGE> 7
SANDY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Consolidated Balance Sheets as of February 28, 1995 and February 28, 1994,
and the Consolidated Statements of Earnings for the three and six month periods
ended February 28, 1995 and 1994, and the Consolidated Statements of Cash Flows
for the six month periods ended February 28, 1995 and February 28, 1994, have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion of
management, all adjustments necessary to present fairly the financial position
at February 28, 1995, and the results of operations and cash flows for the
periods presented have been made. All such adjustments are of a normal
recurring nature. The results of operations for the three and six month
periods ended February 28, 1995 are not necessarily indicative of the operating
results for the full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. These financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's 1994 annual report on Form 10-K.
6
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FISCAL 1995 SECOND QUARTER COMPARED TO FISCAL 1994
Services revenue for the second quarter of fiscal 1995 was $10,063,000, a 33.0%
increase from the $7,566,000 in the same quarter of fiscal 1994. The revenue
increase was primarily due to increases in retail training and consulting
services, customer care systems training, and sales and management process
improvement principles training for an expanded automotive client base. The
Company believes the increase in these services is due in part to the
competitive nature of the automotive industry and the continued emphasis
clients have placed on customer satisfaction and process improvement to achieve
competitive advantage.
Products revenue for the second quarter of fiscal 1995 was $2,064,000, an 8.1%
decrease from the $2,246,000 in the same quarter of fiscal 1994. The revenue
decrease was due in part to a reduction in units shipped caused by reduced
vehicle production at one of the Company's automotive clients. Also, the
average price per unit decreased as part of a long-term contract.
The Company's backlog of orders as of February 28, 1995 was $42,725,000
compared to $42,836,000 at February 28, 1994. Of the $42,725,000 in backlog at
February 28, 1995, approximately $27,600,000 is expected to be recognized in
revenue over the next twelve months. At February 28, 1994, approximately
$27,000,000 of the $42,836,000 in backlog was expected to be recognized in
revenue within twelve months.
The Cost of Services as a percent of services revenue increased for the second
quarter of fiscal 1995 to 74.2% from 71.8% for the same period of fiscal 1994.
The principal reason for this increase is lower profitability on certain
projects for some of the Company's automotive clients.
The Cost of Products as a percent of products revenue decreased for the second
quarter of fiscal 1995 to 88.3% from 91.0% for the same period in fiscal 1994.
The principal reason for this decrease was production efficiencies realized in
the current period and first year program development costs incurred in the
prior year.
Account Service Expense increased in the second quarter of fiscal 1995 by
approximately $427,000 or 50.5% to $1,274,000 compared to $847,000 for the same
quarter of fiscal 1994. This increase was primarily due to increased payroll
and related expenses for new staff required to support higher revenue volume
and increased proposal activity.
General and Administrative expenses increased slightly in the second quarter of
fiscal 1995 by approximately $29,000 or 3.1% to $950,000 from $921,000 for the
same quarter of fiscal 1994.
Total Account Service Expense and General and Administrative expenses as a
percent of total revenue was approximately the same for the second quarter of
fiscal 1995, 18.3%, as the second quarter of fiscal 1994, 18.0%.
7
<PAGE> 9
FISCAL 1995 SECOND QUARTER COMPARED TO FISCAL 1994 - CONTINUED
Interest Income, predominately from tax-exempt investments, increased in the
second quarter of fiscal 1995 to approximately $54,000 from $28,000 for the
same quarter in fiscal 1994. The increase was due to a higher average
investment balance and higher short term interest rates in the current period.
Income taxes increased $24,000 in the second quarter of fiscal 1995 to $223,000
from $199,000 in the second quarter of fiscal 1994. The increase is due to
higher income before taxes.
FIRST SIX MONTHS OF FISCAL 1995 COMPARED TO FIRST SIX MONTHS OF FISCAL 1994
Services revenue for the first six months of fiscal 1995 was $19,920,000
compared to $14,810,000 for the same period in fiscal 1994, a $5,110,000 or
34.5% increase. The revenue increase was primarily due to increases in retail
training and consulting services, customer satisfaction systems training, and
dealer communication services with various automotive clients in the current
period. The Company believes the increase in these services is due in part to
the competitive nature of the automotive industry and the continued emphasis
clients have placed on customer satisfaction and process improvement to achieve
competitive advantage.
Products revenue for the first six months of fiscal 1995 was $4,454,000
compared to $4,738,000 for the same period in fiscal 1994, a $284,000 or 6.0%
decrease. The revenue decrease is primarily due to a reduction in the average
price per unit as part of a long-term contract.
The Cost of Services as a percent of services revenue was approximately the
same for the first six months of fiscal 1995, 75.3% compared to 74.8% for the
first six months of fiscal 1994.
The Cost of Products as a percent of products revenue decreased for the first
six months of fiscal 1995 to 88.5% from 90.0% for the same period in fiscal
1994. The principal reason for this decrease was production efficiencies
realized in the current period and first year program development costs
incurred in the prior year.
Account Service Expense increased for the first six months of fiscal 1995 by
approximately $667,000 or 41.1% to $2,289,000 compared to $1,622,000 for the
same period in fiscal 1994. This increase was primarily due to increased staff
required to support higher revenue volume and increased proposal activity.
General and Administrative expenses for the first six months of fiscal 1995
increased approximately $214,000 or 12.9% to $1,877,000 from $1,663,000 in the
comparable period in fiscal 1994. The increase is primarily attributable to
additional expenses related to exploring potential acquisitions, development of
client-based information systems and internal processes, and higher staff
training expenses.
8
<PAGE> 10
FIRST SIX MONTHS OF FISCAL 1995 COMPARED TO FIRST SIX MONTHS OF FISCAL 1994 -
CONTINUED
Total Account Service Expense and General and Administrative expenses as a
percent of total revenue was approximately the same for the first six months of
fiscal 1995, 17.1%, as the first six months of fiscal 1994, 16.8%.
Interest Income, predominately from tax-exempt investments, was approximately
$94,000 for the first six months of fiscal 1995 compared to $64,000 for the
same period in fiscal 1994. This increase is due to the Company's improved
cash position and higher short term interest rates in the current period.
Income taxes increased $127,000 in the first six months of fiscal 1995 to
$468,000 from $341,000 in fiscal 1994. The increase is due to higher income
before taxes.
LIQUIDITY AND CAPITAL RESOURCES
At February 28, 1995, the Company had working capital of approximately
$10,898,000, which included a cash balance of $8,450,000. The Company's
primary need for cash is to support its ongoing operating activities. The
Company's primary sources of liquidity are cash provided from operations and a
$7,500,000 unsecured line of credit arrangement at Comerica Bank. Under the
line of credit arrangement which expires on September 1, 1995, and is expected
to be renewed, Company borrowings bear interest at .25% over the prime rate.
At February 28, 1995, the Company had no balance outstanding under its line of
credit. The Company believes that such sources are adequate to meet its cash
and working capital needs.
During the first six months of fiscal 1995, the Company had a net increase in
cash of approximately $3,306,000. Cash provided by operating activities
amounted to $3,504,000, due primarily to a decrease in accounts receivable
attributable to improved cash collections and higher earnings before
depreciation and amortization in the current period; partially offset by the
funding of a retirement benefit. Cash used for capital expenditures totaled
$16,000, and cash used for dividend payments amounted to $182,000.
9
<PAGE> 11
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held on January 24,
1995. At the Annual Meeting, the following persons were elected as
Directors: Richard J. Burstein, George J. Forrest, Raymond A.
Ketchledge, Alan V. Kidd, Jay W. Lorsch, Alan M. Sandy, Lewis G.
Sandy, William H. Sandy and John T. Sheehy.
Also, the following proposal was approved at the Company's Annual
Meeting:
<TABLE>
<CAPTION>
Affirmative Negative Votes
Votes Votes Withheld
---------------------------------------------------
<S> <C> <C> <C> <C>
1. Approval of the Sandy
Corporation Director Stock
Option Plan 2,002,259 132,392 6,966
</TABLE>
No other matters were submitted for a vote at the meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
10(a) Employment Agreement with Raymond A. Ketchledge
effective as of September 1, 1994.
10(b) Sandy Corporation Director Stock Option Plan as
adopted by the Board of Directors on October 25,
1994.
27 Financial Data Schedule for the Quarter Ended
February 28, 1995.
(b) REPORTS ON FORM 8-K:
No report on Form 8-K was filed during the quarter for which this
Quarterly Report on Form 10-Q is filed.
10
<PAGE> 12
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.
Sandy Corporation
(Registrant)
DATE:April 12, 1995 By:/s/WILLIAM H. SANDY
----------------------------- ------------------------------
William H. Sandy
Chairman of the Board and
Chief Executive Officer
By:/s/RAYMOND A. KETCHLEDGE
------------------------------
Raymond A. Ketchledge
President and
Chief Operating Officer
By:/s/JOHN G. ZIMMERMAN
------------------------------
John G. Zimmerman
Group Vice President and
Chief Financial Officer
11
<PAGE> 1
EXHIBIT 10(A)
SANDY CORPORATION
DIRECTOR STOCK OPTION PLAN
1. Definitions: As used herein, the following terms shall have the
following meanings:
(a) "Plan" shall mean this Director Stock Option Plan.
(b) "Company" shall mean Sandy Corporation, a Michigan corporation, or
any successor thereof.
(c) "Participant" shall mean the directors designated in Paragraph 4
hereof, for participation in this Plan.
(d) "Nonqualified Option" shall mean an option to purchase Common
Stock of the Company which meets the requirements set forth in this Plan
but does not meet the definition of an incentive stock option set forth in
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
2. Administration: This Plan shall be administered by the members of the
Board of Directors of the Company (the "Board") who are also employees of the
Company (the "Administrators"); provided that if at any time there are fewer
than two members of the Board who are employees of the Company, then at such
time this Plan shall be administered by the entire Board. Subject to the
provisions of this Plan, the Administrators are authorized to interpret this
Plan, to promulgate, amend and rescind rules and regulations relating to this
Plan and to make all other determinations necessary or advisable for its
administration. Interpretation and construction of any provision of this Plan by
the Administrators shall be final and conclusive.
3. Maximum Number of Shares Subject to Plan: The number of shares subject
to option and sale under this Plan shall not exceed 20,000 shares in the
aggregate of the Common Stock of the Company, which may consist in whole or in
part of the authorized and unissued or reacquired Common Stock of the Company.
Unless this Plan shall have been terminated, shares covered by canceled or
expired options under this Plan shall again be available for option and sale.
In the event that the outstanding shares of Common Stock of the Company
shall be increased by a stock dividend or changed into or exchanged for a
different number or kind of shares of stock or other securities of the Company
or of another corporation, whether by reason of merger, consolidation,
recapitalization, reclassification, reorganization, split-up, combination of
shares, statutory share exchange or otherwise, the number, price and kind of
shares available for option and of the shares subject to any option, and the
number and kind of shares subject to each option to be granted under this Plan,
as fixed by Paragraph 5, shall be appropriately adjusted. Notwithstanding the
foregoing, the Company shall not be required to issue fractional shares pursuant
to this Plan.
4. Participants: The Participants under this Plan shall be the Company's
directors who serve or have served as directors of the Company for at least four
years and during such four year period are not officers or employees of the
Company or of any subsidiary in which the Company owns more than 50% of the
total combined voting power of all classes of stock.
5. Allotment of Shares: On the later of (i) October 25, 1994 or (ii) the
fourth anniversary of the date upon which an individual is first elected or
appointed to serve on the Company's Board of Directors, each Participant shall
automatically be granted a Nonqualified Option to purchase 2,000 shares of the
Company's Common Stock.
6. Option Price: The option price per share for options granted under this
Plan shall be the fair market value of the Company's Common Stock on the date on
which such option is granted. Fair market value of a share shall be the mean
between the highest and lowest quoted selling prices of the
<PAGE> 2
Company's stock on any exchange or other market on which the shares of Common
Stock of the Company shall be traded on such date, or if the selling prices are
not reported, the mean between the closing bid and asked prices of the Company's
Common Stock on such date, or if there are no reported bid and asked prices of
the Company's stock on such date, on the next following day on which there are
quoted prices.
7. Granting and Exercise of Options: The granting of options hereunder
shall be effected by any of the Company's officers in accordance with the
provisions of this Plan, by execution of instruments in writing.
The options granted pursuant to this Plan shall be exercisable beginning on
the date of grant. Options may be exercised only within ten years of the date of
grant.
8. Payment of Option Price: At the time of the exercise in whole or in part
of any option granted hereunder, payment in full (a) in cash or (b) with the
consent of the Administrators, in its sole discretion, (i) in Common Stock of
the Company, or (ii) by a promissory note payable to the order of the Company
which is acceptable to the Administrators, or (iii) by delivery of irrevocable
instructions of a stockbroker to promptly deliver to the Company full payment
for the shares with respect to which the stock option is exercised from the
proceeds of the stockbroker's sale of, or loan against, some or all of the
shares, shall be made by the Participant for all shares so purchased. Such
payment may, with the consent of the Administrators, also consist of a cash down
payment and delivery of such a promissory note in the amount of the unpaid
exercise price. No Participant shall have any of the rights of a shareholder of
the Company under any such option until the actual issuance of shares to said
Participant, and prior to such issuance no adjustment shall be for dividends,
distributions or other rights in respect of such shares, except as provided in
Paragraph 3.
9. Non-transferability of Option: No option granted under this Plan to a
Participant shall be transferable by such Participant other than by will or laws
of descent and distribution or pursuant to a qualified domestic relations order
as defined by the Code or Title I of the Employee Retirement Income Security
Act, or the rules thereunder, and such option shall be exercisable, during the
lifetime of the Participant, only by the Participant.
10. Death of Participant: If the service of the Participant as a director
of the Company is terminated by the death of the Participant, his or her option
may be exercised within 12 months of his or her death, but in no event
subsequent to the expiration date of the option, by the legal representative of
the Participant's estate or the person or persons to whom the rights of the
Participant shall pass by will or by the laws of descent and distribution.
11. Other Termination of Service: If a Participant ceases to be a director
of the Company for any cause other than death before an option granted under
this Plan has been fully exercised, such Participant shall have the right for a
period of three months following the date he or she ceases to be a director, but
in no event subsequent to the expiration date of the option, to exercise any
remaining portion of his or her option.
12. Investment Purpose: Unless a registration statement covering the stock
offering pursuant to this Plan is in effect under the Securities Act of 1933,
all stock purchased upon the exercise of any option granted hereunder shall be
acquired for such person's own account, for investment and not with a view to,
or for, sale in connection with any distribution thereof, and any subsequent
offer for sale of any such shares shall be made either pursuant to (a) a
Registration Statement on an appropriate form under the Securities Act of 1933,
as amended (the "Securities Act"), which Registration Statement has become
effective and is current with respect to the shares being offered and sold, or
(b) a specific exemption from the registration requirements of the Securities
Act, but in claiming such exemption the Participant shall, prior to any offer
for sale or sale of such shares, obtain a favorable
2
<PAGE> 3
written option from counsel for or approved by the Company as to the
availability of such exemption. Each notice of the exercise of such option shall
be accompanied by a representation in writing signed by the Participant or any
other person exercising an option granted under this Plan to that effect. The
Company may endorse an appropriate legend referring to the foregoing
restrictions upon the certificate or certificates representing any shares
purchased pursuant to exercise of an option granted under this Plan.
13. Withholding Payment: If, upon the exercise of any Nonqualified Option,
there shall be payable by the Company any amount for income tax withholding, at
the discretion of the Administrators, either the Company shall appropriately
reduce the amount of stock to be delivered to the Participant upon exercise of
the Nonqualified Option or the Participant shall pay such amount to the Company,
to reimburse the Company for such income tax withholding.
14. Effectiveness of Plan and Shareholder Approval: This Plan shall be
effective on the date the Board of Directors of the Company adopts this Plan,
provided that the shareholders of the Company approve this Plan within 12 months
after its adoption by the Board of Directors. No option granted under this Plan
shall be exercisable unless and until this Plan shall have been approved at a
meeting of the Company's shareholders called to approve this Plan and at which a
quorum is present. Approval shall be by a majority of those shares present in
person or by proxy at the meeting.
15. Termination, Duration and Amendments of Plan: This Plan may be
abandoned or terminated at any time by the Administrators. Unless sooner
terminated, this Plan shall terminate on October 24, 2004, and no options may be
granted under this Plan after October 24, 2004. The termination of this Plan
shall not affect the validity of any option which is outstanding on the date of
termination.
For the purpose of conforming to any changes in applicable law or
governmental regulations, or for any other lawful purpose, the Board of
Directors shall have the right, with or without approval of the shareholders of
the Company, to amend or revise the terms of this Plan at any time; provided,
however, that no such amendment or revision shall (i) increase the maximum
number of shares in the aggregate which are subject to this Plan, (subject,
however, to the provisions of Paragraph 3), change the definition of
"Participant" under this Plan, change the allotment of shares as provided in
Paragraph 5, change the option price set forth in Paragraph 6, change the date
set forth in Paragraph 7, or materially increase the benefits accruing to
Participants under this Plan, without approval or ratification of the
shareholders of the Company, or (ii) change the option price (except as
contemplated by Paragraph 3) or alter or impair any option which shall have been
previously granted under this Plan, without the consent of the holder thereof.
Notwithstanding anything to the contrary contained in this Plan, the provisions
of Paragraphs 4, 5, 6, and 7 shall not be amended more than once every six
months, other than to comport with changes in the Code, the Employee Retirement
Income Security Act, or the rules thereunder.
As adopted by the Board of Directors on October 25, 1994.
3
<PAGE> 1
EXHIBIT 10(b)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") dated as of January 24, 1995 and
effective as of September 1, 1994, by and between SANDY CORPORATION, a Michigan
corporation (the "Company"), and RAYMOND A. KETCHLEDGE (referred to herein as
"Executive").
WITNESSETH:
WHEREAS, The Company currently employs Executive in a managerial and
executive capacity pursuant to an Employment Agreement dated as of September 1,
1992 (the "Prior Agreement"), the term of which expires on September 1, 1995;
and
WHEREAS, The Company desires to continue to employ Executive in such
capacity upon the terms and conditions hereinafter set forth; and
WHEREAS, Executive desires to continue in the employ of the Company, upon
such terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the covenants and promises hereinafter
contained, the Company and Executive each hereby agrees as follows:
1. Prior Agreement. The Prior Agreement is hereby terminated effective as
of September 1, 1994, and neither party shall have any further obligations to
the other party thereunder.
2. Executive's Duties. Executive is employed and shall serve as President
and Chief Operating Officer of the Company, and he shall have all of the
powers, prerogatives and duties as are customarily and appropriately vested in
the President and Chief Operating Officer of a business, reporting to and
subject to the supervision of the Company's Chairman of the Board. Executive's
duties may be changed by the Company's Board of Directors in the event that
Executive is promoted; such a promotion shall not otherwise affect this
Agreement.
3. Full-Time Employment. Executive shall devote substantially all of his
business time to the interests of the Company and to the discharge of his
duties and responsibilities to the Company. Executive shall not serve on the
board of directors of any other business corporations without the prior
approval of the Company's Chairman of the Board. Nothing herein shall prevent
the Executive from making passive investments in other corporations.
4. Employment Term. Executive shall be employed until this Agreement
shall be terminated as provided in Section 11 below (the "Term").
<PAGE> 2
5. Annual Base Salary. For his service to the Company hereunder,
Executive shall initially be paid a base salary at the rate of $264,000 per
annum ("Base Salary"). Executive's Base Salary shall be payable to him no less
frequently than biweekly. Executive's annual Base Salary shall be adjusted on
each September 1 during the Term beginning with September 1, 1995; the annual
percentage change in Executive's Base Salary (without taking into consideration
any bonus payments paid pursuant to Section 6 of this Agreement) shall be not
less than the increase in the Consumer Price Index For All Urban Consumers for
Detroit, Michigan (1982-84 = 100) published by the U.S. Bureau of Labor
Statistics for the prior 12-month period ended December 31, and such adjusted
salary shall become Executive's Base Salary for the year following such
September 1. The Base Salary shall not be decreased during the Term.
6. Bonus.
(a) In addition to the payment of Executive's annual Base Salary
pursuant to Section 5, the Company shall pay Executive an annual bonus based
upon the Pre-Tax Income of the Company for the prior fiscal year ending August
31, beginning with the fiscal year ending August 31, 1995, in accordance with
the following formula:
<TABLE>
<CAPTION>
Pre-Tax Income of the Company Bonus
- - ----------------------------- -----
<S> <C>
up to $1,000,000 No bonus
$1,000,001 to $1,200,000 4% of the excess of Pre-Tax Income of the
Company over $1,000,000
$1,200,001 to $1,800,000 The above-calculated $8,000 plus 5% of the
excess of Pre-Tax Income of the Company
over $1,200,000
$1,800,001 and greater The above-calculated $38,000 plus 6% of the
excess of Pre-Tax Income of the Company
over $1,800,000, until Executive's bonus is
equal to 100% of Executive's Base Salary
for such fiscal year; thereafter, 3% of any
additional Pre-Tax Income of the Company
beyond such point.
</TABLE>
Such annual bonus (or any prorated portion thereof payable pursuant to this
Agreement) shall be paid to Executive on the later of November 30 or 15 days
following the date of the final issuance of the report of the independent
certified public accountants then auditing the books of the Company (the
"Auditors") for such fiscal year. In addition, at the sole discretion of the
Company's Board of Directors, the Company may pay Executive additional bonuses
from time to time based upon the Company's performance and the Executive's
contribution to that performance. The foregoing measuring points for
determining Executive's bonus ($1,000,000,
-2-
<PAGE> 3
$1,200,000 and $1,800,000) shall be adjusted annually, beginning in 1996, based
on the increase in the Consumer Price Index for All Urban Consumers for
Detroit, Michigan (1982-84=100) published by the U.S. Bureau of Labor
Statistics for the prior 12-month period ended December 31.
(b) The term "Pre-Tax Income of the Company" shall be the pre-tax income
of the Company, prior to any employee bonuses paid pursuant to the Company's
standard annual bonus program (similar to that program in place for fiscal
1994), and adjusted for increases in outstanding shares of the Company's common
stock as provided in the next sentence, but otherwise determined in accordance
with generally accepted accounting principles, consistently applied. To adjust
for increases in outstanding shares of the Company's common stock, the pre-tax
income of the Company, prior to any employee bonuses, shall be divided by the
weighted average fully diluted shares outstanding for the fiscal year in
question (less any shares issued after the date hereof as a result of stock
splits, stock dividends or other issuances without consideration) and then
multiplied by 2,350,987 (the number of shares outstanding, on a fully diluted
basis, on August 31, 1994). Thus, if for a given year the Pre-Tax Income of
the Company prior to adjustment for increases in outstanding shares were
$6,000,000 and the weighted average fully diluted shares outstanding were
4,000,000, the Pre-Tax Income of the Company would be $3,526,481 ($6,000,000 /
4,000,000 x 2,350,987). Any prorated bonus payable pursuant to this Agreement
shall be based upon the Pre-tax Income of the Company for the relevant full
fiscal year, and not upon interim financial results.
(c) The computation of Pre-Tax Income of the Company pursuant to this
Section 6 shall be reflected in financial statements duly certified by the
Auditors. Within 10 days after the certification of each such statement, such
statement shall be delivered to Executive and to the Company and, in the
absence of material misstatement, shall be final.
(d) In the event that the Pre-Tax Income of the Company is less than
$1,000,000 in any fiscal year, then for the 12 months following the
determination of the Pre-Tax Income of the Company for such fiscal year, the
Company's Board of Directors may, in its discretion, reduce Executive's Base
Salary by an amount equal to up to 15% of such Base Salary.
7. Benefits.
(a) Executive shall be authorized to incur reasonable expenses on behalf
of, in furtherance of and related to the business of the Company, including,
but not limited to, traveling expenses, entertainment expenses and similar
items. The Company shall fully reimburse Executive for all such expenses upon
presentation by Executive from time to time of an itemized account of such
expenditures, with appropriate evidence of each expenditure.
(b) Executive shall have the right to take a paid vacation of four weeks
each year, in addition to such holidays as are normally observed by the
Company.
-3-
<PAGE> 4
(c) The Company, at its cost, shall provide Executive with the use of a
new leased automobile of Executive's choice acceptable to the Company's
Chairman of the Board every two years during the term of this Agreement. All
insurance, fuel, operating and maintenance expenses (including business related
car telephone expenses) of such automobile shall be paid by the Company.
(d) The Company, at its cost, shall provide Executive with $350,000 in
face amount of life insurance. The Company shall also provide Executive with
such other fringe benefits, including, but not limited to, health insurance
(for Executive and his family), medical expense reimbursement (up to $3,500 per
year under the Company's Medical Reimbursement Plan for senior executives),
disability insurance (not less than $10,000 per month) or pension plans or
profit sharing plans, as are presently provided to or as may be generally made
available in the future to other executive employees of the Company.
(e) With respect to each full fiscal year of the Company during the Term,
the Company shall either (i) pay Executive $15,000 on September 1 of each year,
in lieu of providing additional retirement benefits, or (ii) advance on
September 1 of such year $15,000 for the purchase of insurance, in accordance
with an arrangement agreed upon by Executive and the Company.
8. Non-Competition; Solicitation. During the Term, and for 3 years
thereafter, Executive shall not, directly or indirectly (unless Executive is
terminated pursuant to Section 11(a)(iv)):
(a) induce or solicit any employee of the Company to leave the employ of,
any independent contractor to terminate any independent contractor relationship
with, or any customer or other party which transacts business with the Company
to adversely change any relationship with, the Company; or
(b) compete with any business conducted during the Term by the Company or
be employed by, consult with, own any capital stock of, or have any financial
interest of any kind in, any individual, person or entity, wherever located,
which engages in any business conducted during the Term by the Company.
9. Confidentiality.
(a) Except as required in Executive's duties to the Company or as
authorized in writing by the Company, Executive shall not at any time, either
during or after termination of his employment with the Company, disclose or
use, directly or indirectly, any confidential information of the Company of
which Executive gains knowledge during or by reason of his employment by the
Company. "Confidential information of the Company" means information treated
by the Company as proprietary, secret or closely guarded and developed by or
for the Company and which is not otherwise known in any business in which the
Company is engaged during the Term, and includes but is not limited to
information treated by the Company as
-4-
<PAGE> 5
proprietary, secret or closely guarded and developed by or for
the Company, whether now owned or hereafter during the Term
obtained, concerning plans, marketing and sales methods,
materials, processes, procedures, devices utilized by the Company,
business form, prices, suppliers, customers with which the Company
deals which have been treated as confidential, plans for
development of new products, services and expansion into new
areas or markets, internal operations and any variations, trade
secrets, proprietary information and other confidential
information of any type together with all written, graphic and
other materials relating to all or any part of the same.
"Confidential information of the Company" does not include
general skills and general knowledge of an industry obtained by
reason of Executive's association with the Company or information
known by Executive prior to the commencement of his employment
with the Company. Executive acknowledges, being so advised by
the Company, that the confidential information of the Company is
valuable, special and unique to its business and on which such
business depends, and is proprietary to the Company, and that the
Company wishes to protect such confidential information by
keeping it secret and confidential for the sole use and benefit
of the Company. Executive will take all steps reasonably
requested by the Company to insure that all such confidential
information is kept secret and confidential for the sole use and
benefit of the Company.
(b) Upon termination of this Agreement or at any other time
the Company may in writing so request, Executive shall promptly
deliver to the Company all materials concerning any confidential
information of the Company, copies thereof and any other
materials of the Company which are in the possession or under the
control of Executive, and Executive shall not make or retain any
copy or extract thereof.
10. Remedies.
(a) Executive and the Company acknowledge and agree that the
covenants and undertakings contained in Sections 8 and 9 relate
to matters which the Company has advised Executive are of a
special, unique and extraordinary character and that a violation
of any of the terms of such sections may cause irreparable injury
to the Company, the amount of which may be impossible to estimate
or determine and which cannot be adequately compensated.
Therefore, Executive agrees that the Company shall be entitled,
as a matter of course, to an injunction, restraining order or
other equitable relief from any court of competent jurisdiction,
restraining any violation or threatened violation of any of such
terms by Executive and such other persons as the court shall
order.
(b) Rights and remedies provided for in this Agreement are
cumulative and shall be in addition to rights and remedies
otherwise available to the parties under any other agreement or
applicable law. The rights and remedies provided in Sections 8
and 9 shall be for the benefit of the parties only. There are no
third party beneficiaries of any kind under Sections 8 and 9.
-5-
<PAGE> 6
11. Termination of Agreement.
(a) The employment of Executive shall be terminated upon the
first to occur of the following events:
(i) The death of Executive.
(ii) The Company's termination of Executive's employment for
cause. For purposes of this Agreement, "cause" shall mean only
Executive's (A) conviction on felony charges, (B) intentional
dishonesty in his relations with, for or on behalf of the Company
or (C) gross and continuous neglect of duties following ten
(10) days' written notice to Executive by the Company. In the
event Executive's employment is terminated pursuant to this
Section 11(a)(ii), no further amounts shall be paid to Executive
under this Agreement except that Executive shall be entitled to
receive accrued Base Salary on the date of his termination and
the bonus for the fiscal year of termination of employment,
adjusted on a pro rata basis, based upon the number of complete
months Executive was employed during such fiscal year.
(iii) The disability (as defined below) of Executive.
"Disability" means the inability of Executive to perform
substantially all of his duties as President and Chief Operating
Officer of the Company following a period of five continuous
months during which Executive was unable to perform substantially
all of his duties. A decision to so terminate the employment of
Executive must be made by the Chairman of the Board of the
Company in good faith, and must be based upon a medical report
(issued by a physician, who shall be selected jointly by a
physician selected by the Company and by a physician selected by
Executive) which shall establish that Executive's disability is
likely to continue for at least three months beyond such five-
month period. The Base Salary, annual bonus and benefits
provided for under the terms of this Agreement shall continue
during the period of Executive's disability until Executive's
employment shall be terminated by the Company.
(iv) On any date specified in a written notice to Executive
by the Company's Chairman of the Board. In the event Executive's
employment is terminated pursuant to this Section 11(a)(iv),
Executive shall receive Base Salary following the date of such
written notice, payable as, if and when such Base Salary would
otherwise have been payable to Executive during the one year
period following the date specified in such written notice, plus
a portion of the bonus payable pursuant to Section 6 above,
adjusted on a pro rata basis, based upon the number of months
prior to the effective date of the termination of Executive's
employment during the Company's fiscal year in which such
termination occurred; provided, however, that if a Change in
Control occurs during the Term, and Executive's employment is
terminated pursuant to this Section 11(a)(iv) within one year
thereafter, the period for which the Executive is entitled to
receive Base Salary (payable as provided above) shall be extended
to eighteen months.
-6-
<PAGE> 7
(b) Executive may terminate his employment with the Company upon 120 days
prior written notice to the Company, but upon giving such notice, the Company
may accelerate the date of termination to any date it deems appropriate. In
such event, Executive shall be entitled to receive accrued Base Salary, payable
on the date of the termination of his employment, but no bonus payments for the
fiscal year in which termination occurs.
12. Stock Options. The stock options provided for in the Prior Agreement
(which are being granted in annual installments through 1996) are hereby
ratified and confirmed. While Executive shall be eligible to receive
additional option grants, as approved by the Board of Directors or by a
Committee thereof, thereafter during the Term of this Agreement, which may be
granted by the Board of Directors or by a committee thereof in their sole
discretion, those future stock option grants may be less than Executive would
receive if the prior options had not been granted to him.
13. Change in Control. For purposes of this Agreement, a "Change in
Control" means any event that results in any person or any persons acting as a
group, other than William H. Sandy or any member of his family, beneficially
owning a majority of the Company's Common Stock.
14. Applicable Law. This Agreement and the relationship of the parties
hereto shall be construed by and in accordance with the laws of the State of
Michigan.
15. Heirs and Successors Bound. This Agreement shall be binding on the
heirs, administrators and executors of Executive and upon the successors or
assigns of the Company, including, but not limited to, any corporation formed
as the result of a merger or consolidation of the Company, or any Company
purchasing the Company's business or substantially all of its assets.
16. Amendment of Agreement. There are no agreements or understandings,
either oral or written, between the parties other than those set forth in this
Agreement, and there are no agreements or understandings which in any way
alter, modify, amend or otherwise change this Agreement. No alteration,
modification, amendment or other change of this Agreement shall be binding
on the parties unless in writing, approved by the Board of Directors of the
Company and executed by an authorized officer of the Company and by Executive.
17. Notice. Any notice or demand which by any provision of this Agreement
is required or permitted to be given shall be deemed to have been sufficiently
given or served for all purposes by being sent as certified mail, postage
prepaid, to the Company at its business address or to Executive at his
residence address.
18. Section Headings. The section headings contained in this Agreement
are for convenient reference only, and shall not in any way affect the meaning
or interpretation of this Agreement.
-7-
<PAGE> 8
19. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
20. Approval of Board of Directors. The Company's obligations pursuant to
this Agreement shall be contingent upon approval of this Agreement by the
Company's Board of Directors.
21. Arbitration. Any dispute between the parties hereto as to any matter
arising under this Agreement shall be resolved pursuant to arbitration in Troy,
Michigan under the rules and regulations of the American Arbitration
Association; provided, however, that matters relating to discovery and evidence
shall be governed by the Federal Rules of Civil Procedure and by the Federal
Rules of Evidence, respectively. The arbitrator for any such arbitration shall
be jointly selected by the Company and Executive; in the event that the Company
and Executive are unable to agree on an arbitrator, the Company and Executive
shall each select an arbitrator, and such arbitrators shall jointly select an
arbitrator. The Company and Executive shall share equally the fees of the
arbitrators for each such arbitration. Pursuant to MCLA section 600.5001, the
Company and Executive agree that a judgment of any Michigan circuit court may
be rendered upon any arbitration award made pursuant to this Section.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
on the date hereinabove set forth.
SANDY CORPORATION,
a Michigan corporation
By:/s/ WILLIAM H. SANDY
-----------------------------------
William H. Sandy
Its: Chairman of the Board
/s/ RAYMOND A. KETCHLEDGE
--------------------------------------
Raymond A. Ketchledge
-8-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule Contains Summary Financial Information Extracted from Sandy
Corporation's unaudited financial statements for the six months ended February
28, 1995 and is qualified in its entirety by reference to such financial
statements
</LEGEND>
<CIK> 0000778107
<NAME> SANDY CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1995
<PERIOD-END> FEB-28-1995
<EXCHANGE-RATE> 1
<CASH> 8,450
<SECURITIES> 0
<RECEIVABLES> 5,600<F1>
<ALLOWANCES> 0
<INVENTORY> 553
<CURRENT-ASSETS> 18,701
<PP&E> 5,156
<DEPRECIATION> 4,420
<TOTAL-ASSETS> 19,716
<CURRENT-LIABILITIES> 7,803
<BONDS> 0
<COMMON> 23
0
0
<OTHER-SE> 11,658
<TOTAL-LIABILITY-AND-EQUITY> 19,716
<SALES> 4,454
<TOTAL-REVENUES> 24,373
<CGS> 3,941
<TOTAL-COSTS> 18,936
<OTHER-EXPENSES> 4,165
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,366
<INCOME-TAX> 468
<INCOME-CONTINUING> 898
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 898
<EPS-PRIMARY> .38
<EPS-DILUTED> 0
<FN>
<F1>
Accounts receivable represents billed amounts and is shown
net of allowance for doubtful accounts.
</FN>
</TABLE>
