April 11, 1995
Dear Shareholder:
The Directors and Officers of The Somerset Group, Inc. (the
"Corporation") join me in extending to you a cordial invitation
to attend the annual meeting of our shareholders. This meeting
will be held on Thursday, April 27, 1995, at 9:00 a.m., EST, in
the First Indiana Plaza Conference Center, Ohio and Pennsylvania
Streets, Seventh Floor, Indianapolis, Indiana.
At the annual meeting, in addition to the election of directors,
shareholders will be asked to consider and vote upon the approval
of a proposed sale by the Corporation of the assets and
businesses of the Grove City, Ohio and Westfield, Indiana
precast/prestressed concrete facilities of its American Precast
Concrete Division (the "Transaction"), to Fabcon, Incorporated
(the "Buyer") for an estimated $5.9 million in cash. In
connection therewith, the Buyer will assume certain liabilities
and obligations related to the businesses being sold.
The formal notice of the annual meeting and the proxy statement
appear on the following pages. Please give this information your
careful attention.
The Board of Directors has unanimously approved the Transaction
and unanimously recommends that you vote FOR approval of the
Transaction.
In view of the importance of the action to be taken, we urge you
to complete, sign, and date the enclosed proxy and to return it
promptly in the enclosed envelope, whether or not you plan to
attend the annual meeting of shareholders. (Returning the proxy
does not affect your right to vote in person on all matters
brought before the meeting.)
Sincerely,
Robert H. McKinney
Chairman and Chief Executive Officer
FIRST INDIANA PLAZA
135 NORTH PENNSYLVANIA STREET
SUITE 2800
INDIANAPOLIS, IN 46204
(317) 634-1400<PAGE>
THE SOMERSET GROUP, INC.
135 North Pennsylvania Street
Suite 2800
Indianapolis, Indiana 46204
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of The Somerset Group, Inc.:
NOTICE IS HEREBY GIVEN that the annual meeting of the
shareholders of The Somerset Group, Inc. (the "Corporation") will
be held on Thursday, April 27, 1995, at 9:00 a.m., EST, in the
First Indiana Plaza Conference Center, Ohio and Pennsylvania
Streets, Seventh Floor, Indianapolis, Indiana, to consider and
take action on the following matters:
1. Election of Directors. The election of directors as set
forth in the Proxy Statement.
2. The Sale Transaction. Approval of a proposed sale by the
Corporation of the assets and businesses of the Grove City, Ohio
and Westfield, Indiana precast/prestressed concrete facilities
of its American Precast Concrete Division (the "Transaction"), to
Fabcon, Incorporated (the "Buyer") for an estimated $5.9 million
in cash. In connection therewith, the Buyer will assume
certain liabilities and obligations related to the businesses
being sold. The Transaction (in the context of the overall plan
of the Corporation to dispose of the precast/prestressed concrete
operations of its American Precast Concrete Division, as
described in the attached proxy statement) involves the sale of
substantially all of the operating assets of the Corporation.
The material terms and conditions applicable to the Transaction
are set forth in the Asset Purchase Agreement dated as of
February 20, 1995 among the Corporation and its wholly-owned
subsidiaries Precast Concrete Systems, Inc. and Concrete
Carriers, Inc., and the Buyer, a copy of which (including forms
of the related Noncompetition Agreements) is attached to the
Proxy Statement as Appendix I.
3. Other Business. The transaction of such other business as
properly may come before the meeting and any adjournments
thereof.
Only shareholders of record at the close of business on February
24, 1995 are entitled to vote at the meeting or any adjournment
thereof. Approval of the Transaction requires the affirmative
vote of the holders of a majority of the shares of the
Corporation's Common Stock entitled to vote at the meeting.
THE BOARD OF DIRECTORS OF THE SOMERSET GROUP, INC.
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE
TRANSACTION.
By order of the Board of Directors
Sharon J. Sanford
Secretary
April 11, 1995
IMPORTANT
PLEASE MARK, SIGN AND RETURN THE ENCLOSED PROXY. NO POSTAGE IS
NECESSARY IF MAILED IN THE UNITED STATES.
THE SOMERSET GROUP, INC.
135 North Pennsylvania Street
Suite 2800
Indianapolis, Indiana 46204
(317) 634-1400
PROXY STATEMENT
The accompanying proxy is solicited by the Board of
Directors of The Somerset Group, Inc. (the "Corporation") for use
at the annual meeting of shareholders to be held on Thursday,
April 27, 1995, at 9:00 a.m., EST, in the First Indiana Plaza
Conference Center, Ohio and Pennsylvania Streets, Seventh Floor,
Indianapolis, Indiana, and any adjournments thereof (the
"Annual Meeting"). The Notice of Annual Meeting of Shareholders,
this Proxy Statement and accompanying form of proxy are first
being sent or given to shareholders on or about April 11,
1995.
At the Annual Meeting, shareholders will be asked to elect
two directors to hold office until the 1998 annual meeting of
shareholders and until their respective successors are duly
elected and qualified. Shareholders will also be asked to
consider and vote upon the approval of a proposed sale (the
"Transaction") by the Corporation of the assets and businesses of
the Grove City, Ohio and Westfield, Indiana precast/prestressed
concrete facilities of its American Precast Concrete Division
(together, the "Business"), to Fabcon, Incorporated (the "Buyer")
for an estimated $5.9 million in cash. In connection therewith,
the Buyer will assume certain liabilities and obligations related
to the Business. The material terms and conditions applicable
to the Transaction are set forth in the Asset Purchase Agreement
dated as of February 20, 1995 among the Corporation and its
wholly-owned subsidiaries Precast Concrete Systems, Inc. and
Concrete Carriers, Inc. (which, together with the Corporation,
are hereinafter referred to as the "Sellers"), and the Buyer (the
"Agreement"). (A copy of the Agreement and the forms of the
related Noncompetition Agreements of the Sellers and certain
executive officers of the Corporation are attached as Appendix I
to this Proxy Statement.) The Corporation currently intends to
use the net proceeds of the Transaction to pursue new business
opportunities which may become available to it. The Board of
Directors has not currently identified any such specific
opportunities, but such opportunities may relate to providing
financial services.
The Corporation will retain the business and assets of the
precast/prestressed concrete operations of its American Precast
Concrete Division located in Indianapolis, Indiana (the
"Indianapolis Facility") which is engaged in marketing, selling,
manufacturing, distributing, and installing structural and
architectural precast and prestressed building components.
However, the Board of Directors intends to pursue a sale of the
Indianapolis Facility during 1995, although there can be no
assurance that a sale will occur. In connection with the
Transaction, the Sellers and certain of the Corporation's
executive officers will become subject to Noncompetition
Agreements (copies of which are included in Appendix I) which may
affect the continuing operations and potential sale of the
Indianapolis Facility. The Corporation does not currently
intend to seek shareholder approval of the sale of the
Indianapolis Facility, or of any future acquisitions, except to
the extent required by law or the rules of NASDAQ. The
Transaction will not result in any change in the capital stock of
the Corporation.
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY 1
VOTING AND PROXY INFORMATION 3
Record Date 3
Vote Required 3
Proxies 3
No Appraisal or Dissenters' Rights 4
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF 4
PROPOSAL NO. 1: ELECTION OF DIRECTORS 5
Certain Committees of the Board of Directors 7
Certain Transactions 8
PROPOSAL NO. 2: THE TRANSACTION 8
General 8
Purpose and Background of the Transaction 9
Negotiations 10
Use of Net Proceeds 12
Recommendation of the Board of Directors 13
Certain Effects of the Transaction 13
Description of the Agreement 15
COMPENSATION OF DIRECTORS AND EXECUTIVE COMPENSATION 20
(a) Summary Compensation Table 20
(b) Options Tables 21
(c) Compensation of Directors 21
SHAREHOLDER PROPOSALS 22
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 22
FINANCIAL STATEMENTS AND OTHER INFORMATION 22
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION 23
OTHER MATTERS 30
APPENDIX I -- Asset Purchase Agreement, Forms of Noncompetition
Agreements, and Schedule 3
<PAGE>
SUMMARY
Certain significant matters discussed in the Proxy Statement are
summarized below. This Summary is not intended to be complete
and is qualified in all respects by reference to the more
detailed information appearing or incorporated by referenced in
this Proxy Statement. Shareholders are urged to review carefully
the entire Proxy Statement (including Appendix I which is
attached and the Annual Report to Shareholders incorporated
herein by reference.)
General
Time, Date and Place of Annual Meeting
The Annual Meeting will be held on Thursday, April 27, 1995, at
9:00 a.m., EST, in the First Indiana Plaza Conference Center,
Ohio and Pennsylvania Streets, Seventh Floor, Indianapolis,
Indiana.
Purposes of the Annual Meeting
The purposes of the Annual Meeting are (i) to elect two
directors to hold office until the 1998 annual meeting of
shareholders and until their respective successors are duly
elected and qualified; (ii) to consider and vote upon the
approval of the Transaction involving the sale of the
Business to the Buyer on terms and conditions described herein;
and (iii) to transact such other business as may properly come
before the Annual Meeting.
Record Date
Only shareholders of record as of the close of business on
February 24, 1995 (the "Record Date") will be entitled to notice
of, and to vote at, the Annual Meeting. On the Record Date,
the Corporation had only one class of stock, its common stock, of
which 1,638,746 shares were outstanding.
Vote Required
The election of directors will be determined by a plurality of
the shares present in person or represented by proxy. The holder
of each outstanding share of Common Stock is entitled to vote for
as many persons as there are directors to be elected. Regarding
the approval of the Transaction, the affirmative vote of holders
of a majority of the outstanding shares of Common Stock is
required. Based upon the number of shares of Common Stock held
by the directors and executive officers of the Corporation
(806,218) and their intention to vote in favor of the
Transaction, it appears likely that the Transaction will be
approved by the shareholders. See "VOTING AND PROXY INFORMATION
- -- Vote Required."
No Appraisal or Dissenters' Rights
Because the Common Stock is traded on the NASDAQ National Market
System, Indiana law does not provide any appraisal or dissenters'
rights with respect to shareholders who object to or vote against
approval of the Transaction.
Election of Directors
At the Annual Meeting, the shareholders will elect two directors
to hold office until the 1998 annual meeting of shareholders and
until their successors are duly elected and qualified. The board
nominees for election as directors at the Annual Meeting are
Robert H. McKinney and Michael L. Smith. Both of the nominees
are currently serving as directors of the Corporation.
See "PROPOSAL NO. 1: ELECTION OF DIRECTORS."
The Transaction
Recommendation of the Board of Directors
The Board of Directors believes that the Transaction is fair to,
and in the best interests of, the Corporation and all of its
shareholders and recommends that the shareholders approve the
Transaction. See "PROPOSAL NO. 2: THE TRANSACTION --
Recommendation of the Board of Directors."
The purchase price for the Business was determined by arm's
length negotiations between the Corporation and the Buyer. The
negotiations resulting in the Transaction as set forth in the
terms and conditions of the Agreement were the culmination of
various discussions between the Corporation and the Buyer. See
"PROPOSAL NO. 2: THE TRANSACTION -- Negotiations."
Description of the Transaction
The Transaction involves the sale of the Business by the
Corporation to the Buyer for an estimated $5.9 million in cash.
The Business consists of the assets and businesses of the Grove
City, Ohio and Westfield, Indiana precast/prestressed concrete
facilities of the American Precast Concrete Division of the
Corporation. In connection with the Transaction, the Buyer will
assume certain liabilities and obligations related to the
Business. For a more detailed description of the Transaction,
see "PROPOSAL NO. 2: THE TRANSACTION -- General," and for a
description of the general provisions of the Agreement, see
"PROPOSAL NO. 2: THE TRANSACTION -- Description of the
Agreement."
Certain Income Tax Consequences
The Corporation will recognize federal and state income taxes in
connection with the Transaction. For a discussion of material
tax consequences to the Corporation, see "PROPOSAL NO. 2: THE
TRANSACTION -- Certain Effects of the Transaction -- Federal
Income Tax Consequences."
Change in Business and Operations of the Corporation
The Board of Directors intends to pursue a sale of the
Indianapolis Facility during 1995. That possible sale, combined
with the sale of the Business in the Transaction, likely will
change the Corporation's involvement in the precast/prestressed
concrete industry. For a discussion of the anticipated role of
the Corporation in that industry, and the options being
considered by the Board of Directors as to the Indianapolis
Facility, see "PROPOSAL NO. 2: THE TRANSACTION -- Certain Effects
of the Transaction -- Change in Business and Operations of
the Corporation." The Transaction will not affect the current
ownership by the Corporation of Common Stock of First Indiana
Corporation.
<PAGE>
VOTING AND PROXY INFORMATION
Record Date
Only shareholders of record as of the close of business on the
Record Date, February 24, 1995, will be entitled to notice of,
and to vote at, the Annual Meeting. On the Record Date, the
Corporation had 1,638,746 shares of Common Stock outstanding.
Vote Required
The quorum necessary for the Annual Meeting to be held is
819,374 votes represented in person or by proxy. The election of
directors will be determined by a plurality of the shares
present in person or represented by proxy. The holder of each
outstanding share of Common Stock is entitled to vote for as many
persons as there are directors to be elected. The affirmative
vote of holders of a majority of the outstanding shares of Common
Stock will be required for approval of the Transaction. Any
other matters to come before the meeting will be determined
by a majority of the shares present in person or represented by
proxy. An abstention, non-vote, or broker non-vote on the
approval of the Transaction will have the same effect as a vote
against that matter. An abstention, non-vote, or broker non-vote
will not change the number of votes cast for or against the
election of any director or for or against any other matter to
come before the meeting. Any shareholder giving a proxy has the
power to revoke it at any time before it is voted.
The approval of the Transaction will require 819,374 affirmative
votes. The executive officers and directors of the Corporation
have informed management of the Corporation that they intend to
vote the shares of the Common Stock which such individuals own in
favor or the Transaction. Those individuals own, in the
aggregate, 806,218 shares of the Common Stock, or
49.2% of the outstanding Common Stock. Accordingly, it appears
likely that the Transaction will be approved by the shareholders.
Proxies
A proxy in the enclosed form, if properly executed, duly
returned to the Corporation and not revoked, will be voted in
accordance with the instructions contained therein. The shares
represented by executed but unmarked proxies will be voted FOR
the two persons nominated for election as directors referred to
herein and FOR the approval of the Transaction. If any other
matters are properly brought before the Annual Meeting, the
persons named in the enclosed form of proxy will vote the shares
represented thereby on such matters in accordance with their best
judgment. Other than the election of directors and the approval
of the Transaction, the Board of Directors has no knowledge of
any matters to be presented for action by the shareholders at
the Annual Meeting. Execution of a proxy given in response to
this solicitation will not affect a shareholder's right to attend
and to vote in person at the Annual Meeting. Presence at the
Annual Meeting of a shareholder who has signed a proxy does not
in itself revoke the proxy. Any shareholder giving a proxy may
revoke it at any time before it is voted by giving notice thereof
to the Corporation in writing or at the Annual Meeting or by
providing a proxy bearing a later date.
The entire expense of preparing, assembling, printing and
mailing the proxy form and material used in the solicitation of
proxies will be paid by the Corporation. The solicitation will
not be made by specially engaged employees or paid solicitors.
In addition to the use of the mails, solicitation may be made by
employees of the Corporation by telephone, telegraph, cable
or personal interview.
No Appraisal or Dissenters' Rights
Because the Common Stock is traded on the NASDAQ National Market
System, Indiana law does not provide any appraisal or dissenters'
rights with respect to shareholders who object to or vote against
approval of the Transaction.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Only shareholders of record as of the close of business on
February 24, 1995 will be entitled to vote at the Annual Meeting.
The Corporation has only one class of stock, its common stock,
of which 1,638,746 shares were outstanding as of the close of
business on February 24, 1995.
The following table shows, as of February 24, 1995, the number
and percentage of shares of common stock owned beneficially by
(i) each person who owned beneficially more than 5% of the issued
and outstanding common stock of the Corporation and (ii)
executive officers and directors as a group:
Name and Address Percent
of Beneficial Amount and Nature of of
Owner Beneficial Ownership Class
Robert H. McKinney
135 N. Pennsylvania St.
Suite 2800
Indianapolis, Indiana 46204 408,394(1) 24.5%
Marni McKinney Jakubovie
135 N. Pennsylvania St.
Suite 2800
Indianapolis, Indiana 46204 339,168(2) 20.5%
Marvin C. Schwartz
c/o Neuberger & Berman
605 Third Avenue
New York, New York 10158 119,500(3) 7.4%
William L. Elder
Southern Indiana Railway, Inc.
320 N. Meridian Street, Room 911
Indianapolis, Indiana 46204 84,526(4) 5.2%
All executive officers and
directors as a group 883,888(5) 51.6%
(9 persons)
The above named persons have sole voting power and sole
investment power.
(1) Includes 360,815 shares owned directly, 1,615 shares owned
jointly with his wife, 18,152 shares owned of record by his
wife, 1,112 shares held in trust under the Corporation's
401(k) Savings Plan, and 26,700 shares subject to options
granted under the Corporation's Stock Incentive Plans.
(2) Includes 308,865 shares held in two irrevocable trusts
established by Robert H. McKinney for the benefit
of his children, including Marni McKinney Jakubovie and
Kevin K. McKinney. The above number also
includes 17,740 shares which Ms. Jakubovie owns
individually, 63 shares held in trust under the
Corporation's 401(k) Savings Plan, and 12,500 shares subject
to options granted under the Corporation's
Stock Incentive Plans.
(3) This information is taken from the Schedule 13D Report dated
February 26, 1992, and filed by the
shareholder with the Securities and Exchange Commission
concerning shares held by it. It does not reflect
any changes in those shareholdings which may have occurred
since the date of such filing.
(4) Includes 80,526 shares which Mr. Elder owns individually and
4,000 shares subject to options granted under the 1991
Director Stock Option Plan.
(5) Includes 58,600 shares subject to options granted under the
Corporation's Stock Incentive Plans, 16,000
shares subject to options granted under the 1991 Director
Stock Option Plan, and 3,070 shares held in trust
under the Corporation's 401(k) Savings Plan.
PROPOSAL NO. 1: ELECTION OF DIRECTORS
Two directors are to be elected. Robert H. McKinney and
Michael L. Smith have been nominated for a term of three years
and until their successors are elected and qualified. If, at the
time of the 1995 annual meeting of shareholders any of such
nominees should be unable or decline to serve, the discretionary
authority provided in the proxy may be exercised to vote for
a substitute or substitutes. The Board of Directors has no
reason to believe that any substitute nominee or nominees will be
required.
The Board of Directors unanimously recommends the election
of the following nominees:
Name, Age, Principal Common Stock
Occupation(s) and Beneficially Percent
Business Experience Director Owned on of
During Past 5 Years Since February 24, 1995 Class
The NOMINEES for election
are:
Robert H. McKinney, Age 69 1985 408,394(4) 24.5%
Chairman and Chief Executive
Officer of the Corporation;
Chairman and Chief Executive
Officer of First Indiana Corporation,
a savings and loan holding
company; Chairman of First
Indiana Bank, A Federal Savings
Bank; retired Partner of Bose
McKinney & Evans, attorneys;
Director of First Indiana Corporation
and Lilly Industries, Inc.; Chairman,
Federal Home Loan Bank Board (1977-1979).
Name, Age, Principal Common Stock
Occupation(s) and Beneficially Percent
Business Experience Director Owned on of
During Past 5 Years Since February 24, 1995 Class
Michael L. Smith, Age 46 1988 4,100(1) (2)
Chairman, President and Chief Executive
Officer, Mayflower Group, Inc.,
diversified transportation
services; Director of Mayflower
Group, Inc., First Indiana
Corporation, and Acordia, Inc.
Directors whose terms expire
in 1996:
H. J. Baker, Age 67 1986 5,250(1) (2)
Chairman Emeritus, BMW
Constructors, Inc.,
mechanical contractors;
Director of First Indiana
Corporation and Lilly
Industries, Inc.
William L. Elder, Age 72 1986 84,526(1) 5.2%
Formerly Chairman of Southern
Indiana Commerce Corporation;
formerly President of Southern
Indiana Railway, Inc.; formerly
Director of Merchants National
Corporation, a bank holding company,
and Merchants National Bank and
Trust Company.
Marni McKinney Jakubovie, 1987 339,168(5) 20.5%
Age 38 President and Chief Operating
Officer of the Corporation; Vice
Chairman and Director of First
Indiana Corporation and First Indiana
Bank, A Federal Savings Bank; formerly
Executive Vice President of the
Corporation (1987-1992); Vice
Chairman of, and formerly Vice
President and Director of Strategic
Planning of, First Indiana Bank, A
Federal Savings Bank; formerly Vice
President of First Indiana Corporation.<PAGE>
Name, Age, Principal
Common Stock
Occupation(s) and Beneficially Percent
Business Experience Director Owned on of
During Past 5 Years Since February 24, 1995 Class
Directors whose term expires
in 1997:
Douglas W. Huemme, Age 53 1990 4,000(1) (2)
Chairman, President and Chief
Executive Officer, Lilly
Industries, Inc., industrial coatings;
formerly Vice President and Group
Executive - Chemicals
Group, Whittaker Corporation.
Kevin K. McKinney, Age 37 1990 12,152(3) (2)
Vice President of the
Corporation; Publisher of NUVO
Newsweekly and Chairman and President
of NUVO, Inc.; formerly President;
Mid America Media; formerly
Chairman, Indianapolis Extra,
Ltd.
______________
(1) Includes 4,000 shares subject to an option granted
under the 1991 Director Stock Option Plan.
(2) The number of shares represents less than 1% of the
outstanding shares of the Corporation.
(3) Includes 7,740 shares owned directly, 4,400 shares
subject to options granted under the Corporation's
Stock Incentive Plans and 12 shares held in trust under
the Corporation's 401(k) Savings Plan. Mr. McKinney is
a son of Robert H. McKinney and a brother of Marni
McKinney Jakubovie.
(4) See note (1) to the table under heading "Voting
Securities and Principal Holders Thereof" above.
(5) See note (2) to the table under heading "Voting
Securities and Principal Holders Thereof" above. Ms.
Jakubovie is a daughter of Robert H. McKinney and a
sister of Kevin K. McKinney.
The Board of Directors met four times during the
Corporation's last fiscal year. All directors attended in excess
of 75% of the aggregate of (1) the total number of meetings of
the Board of Directors and (2) the total number of meetings held
by all committees on which he or she served.
Nominees for election as a director of the Corporation are
selected by the Board of Directors.
Certain Committees of the Board of Directors
Among other committees, the Board of Directors has an Audit
Committee, a Compensation and Policy Committee and a Stock
Administration Committee.
The functions of the Audit Committee are: (1) to review
audits of the accounting records of the Corporation and its
financial statements performed by independent auditors, (2) to
confer with the independent auditors and officers of the
Corporation regarding accounting and financial statements and
internal controls, (3) to recommend to the Board the engagement
or discharge of the independent auditors and (4) to perform such
other functions as the Committee deems necessary or desirable.
The members of the Audit Committee are: H. J. Baker
(Chairperson), Douglas W. Huemme and Michael L. Smith. The
Committee met once during the last fiscal year of the
Corporation.
The functions of the Compensation and Policy Committee are
to review and make recommendations to the Board of Directors with
respect to the compensation of the officers and key employees of
the Corporation and its subsidiaries and review other policy
matters. The members of the Compensation and Policy Committee
are: William L. Elder (Chairperson), Douglas W. Huemme and
Michael L. Smith. The Committee met twice during the last fiscal
year of the Corporation.
The functions of the Stock Administration Committee are to
administer and grant stock options, stock appreciation rights and
performance shares under the Corporation's 1986 and 1991
Stock Incentive Plans and to exercise certain discretionary
authority under the Corporation's 401(k) Savings Plan. Members
of the Stock Administration Committee are: Michael L. Smith
(Chairperson), H. J. Baker and Douglas W. Huemme. The Committee
met once during the last fiscal year of the Corporation.
Certain Transactions
In May 1993, the Corporation extended from June 1, 1993 to
June 1, 1995 the maturity date of a promissory note payable to
the Corporation by NUVO, Inc. The promissory note resulted from
the sale of assets by the Corporation to Nuvo, Inc. in 1990.
Robert H. McKinney, Marni McKinney Jakubovie, and Kevin K.
McKinney are shareholders and directors of NUVO, Inc., and Kevin
K. McKinney is the Chairman and President of NUVO, Inc. The
principal amount of the promissory note is approximately
$101,000, and the promissory note bears interest at the rate of
nine percent (9.0%) per annum. The promissory note is secured by
a security interest in substantially all of the assets of NUVO,
Inc., and the note is current as of the date hereof.
PROPOSAL NO. 2: THE TRANSACTION
General
The Transaction involves the sale of the Business by the
Corporation to the Buyer for cash currently estimated to be $5.9
million. The Business consists of the assets and businesses
of the Grove City, Ohio and Westfield, Indiana
precast/prestressed concrete facilities of the American Precast
Concrete Division of the Corporation, which produce and sell
precast and prestressed concrete building components for use as
exterior wall panels and in flooring and roofing systems. The
concrete products produced and sold by the Business are used in
construction of new commercial, industrial and retail structures.
The Transaction does not involve the sale of the Indianapolis
Facility. The Indianapolis Facility is engaged in marketing,
selling, manufacturing, distributing, and installing structural
and architectural precast and prestressed concrete building
components specifically designed and engineered for individual
projects. The concrete products produced and sold by the
Indianapolis Facility are used in the construction of structures
such as sports stadiums, parking systems, and certain types of
office buildings. However, the Board of Directors will pursue a
sale of the Indianapolis Facility in 1995. See "-- Certain
Effects of the Transaction -- Change in Business and Operations
of the Corporation."
The estimated $5.9 million of cash gross proceeds consists
of the following: $5.0 million for the sale of the fixed assets
of the Business including real property and buildings and
equipment; and the value as of the closing of the Transaction of
other assets such as raw materials and contracts for projects
which are in process but which are not yet complete. The
values of such assets as of the closing date will not finally be
determined until after the closing date, and therefore they can
only be estimated at this time. (The estimate of the total gross
purchase price contained in this Proxy Statement is based upon
the expected amounts and values of raw materials, the contracts
for work in process, and the other assets using historical
information.) The $5.0 million portion of the purchase price and
approximately one-half of the remaining portion of the estimated
purchase price will be paid on the closing date, and the
remainder will be paid following closing (subject to a dispute
resolution procedure contained in the Agreement). Also, a
portion of the purchase price may be withheld by the Buyer to pay
for certain environmental remediation work to be performed
following the closing as described in the Agreement. See "--
Description of the Agreement -- Purchase Price."
The date of the Annual Meeting was set by the Board of
Directors based on the time required for soliciting proxies by
this Proxy Statement and by the time necessary for the
Corporation's independent auditors to complete the audited
financial statements included in the accompanying Annual Report
to Shareholders and for management to provide that Annual Report
to Shareholders. As an accommodation to the Buyer's desire to
obtain the benefit of the Business as soon as possible, the
parties agreed in the Agreement to credit against the purchase
price the operating income of the Business attributable to the
period (the "Interim Period") from April 1, 1995 through the
closing date (which is currently expected to be in late April)
less an amount equal to the sum of interest which the Corporation
could have earned during the Interim Period had the portion of
the purchase price payable at closing been paid on April 1, 1995,
and interest on cash used by the Corporation to operate the
Business during the Interim Period.
In connection with the Transaction, the Buyer will assume
certain liabilities and obligations related to the Business. The
assumed liabilities and obligations generally are those arising
under current construction projects of the Business and related
to the assets being purchased, but do not include operational
liabilities and obligations such as those arising under employee
benefit plans. Also, the Corporation has agreed to indemnify the
Buyer for certain pre-closing obligations which may arise
following the sale and for violations of representations
and warranties of the Seller contained in Agreement. For a more
detailed description of these types of obligations and other
material provisions of the Agreement, see "-- Description of the
Agreement" below.
There is no relationship or affiliation between the Buyer
and the Corporation other than the Corporation being a licensee
of the Buyer as to certain intellectual property and related
rights pertaining to the "Span Deck" concrete panel production
method. That relationship has been in existence for over 10
years. The concrete products produced by the Corporation are
sold by the Corporation and are not produced for resale to the
Buyer. The Corporation receives a royalty based upon the amount
of the product produced and sold using this method. In light of
the fact that the facilities used to produce the product using
this process will be purchased in the Transaction, this
relationship will end upon consummation of the Transaction.
Purpose and Background of the Transaction
The Board of Directors believes that selling the Business at
this time is consistent with the overall goal of the Corporation
of maintaining and increasing shareholder value. Specifically,
there are three major reasons why selling the Business will help
the Corporation achieve that goal, which are as follows:
First, over the last few years, the Corporation has
accomplished, as part of its strategic planning, disposition of
business segments which are not consistent with the Corporation's
long-term business goals. As part of this on-going process, the
Board of Directors from time to time has considered whether the
Corporation should maintain or expand its precast/prestressed
concrete operations. Specifically, the Board of Directors has
been concerned that there is little opportunity for the
Corporation to expand the Business, either through acquisitions
or internal growth, which would result in the Corporation earning
an appropriate return on investment for the shareholders. This,
combined with the concern of the Board of Directors that the
earnings of the Business might not justify the significant
amounts of capital necessary to maintain the current operations
of the Business, led the Board of Directors again to review the
role of the Corporation in the concrete products industry after
the initial contacts by the Buyer. The Board determined that
these concerns were still valid, and that the increased
profitability of the Business during 1994 and 1995 provided an
opportune time for negotiating a sale of the Business.
Second, the precast/prestressed concrete business is highly
cyclical, and the resulting fluctuations in revenues and profits
make it difficult for management to maintain and increase
profitability of the Corporation on a consistent basis, which is
one of the strategic goals of the Corporation. The Corporation,
like most public companies, is concerned about how the investment
community will view fluctuations in net income and how these
perceptions will affect the price of its Common Stock.
Acquisitions or expansion would require the expenditure of
significant capital and would not necessarily mitigate the
cyclical nature of the precast/prestressed concrete industry.
Accordingly, the Board of Directors has determined to search for
more appropriate uses of the capital currently invested in the
Business. (See the discussion below in "-- Use of Net Proceeds"
concerning the expected amounts of working capital that will
become available following the collection of accounts receivable
that are not being sold in the Transaction.)
Third, the current role of the Corporation in the financial
institutions industry also is a factor in the decision to sell
the Business. By owning a significant percentage of the
outstanding capital stock of First Indiana Corporation, which
owns First Indiana Bank, A Federal Savings Bank ("First
Indiana"), the Corporation is a registered "savings and loan
holding company" of First Indiana under applicable federal
regulations. As such, the Corporation would not be able to
continue its ownership of First Indiana if First Indiana
Corporation were to acquire another savings association unless
the Corporation divested itself of its businesses not directly
related to providing financial services. Also, if First Indiana
were to convert to a different type of financial institution
charter such as a commercial bank, the Corporation would become a
different type of holding company and might be subject to even
more stringent limitations on its activities. The Board of
Directors of the Corporation is not aware that either First
Indiana Corporation or First Indiana has any plans to undertake
any such acquisition or charter change. Nevertheless, by
disposing of its precast/prestressed concrete operations, the
Corporation will enhance its ability, directly or through its
investment in First Indiana, to engage in a full range of
activities in connection with providing financial services.
In addition to the considerations described above, the Board
of Directors believes that the terms of the Transaction set forth
in the Agreement are favorable to the Corporation and its
shareholders, as discussed in "-- Recommendation of the Board of
Directors" below. Accordingly, the Board of Directors recommends
that the shareholders approve the Transaction.
Negotiations
Representatives of the Corporation and the Buyer engaged in
preliminary discussions from time to time prior to 1994 in
connection with a possible acquisition by the Buyer of all or a
portion of the precast/prestressed concrete operations of the
Corporation. However, due primarily to the low profitability
level of the Business at that time and the resulting difficulty
at that point of negotiating a transaction which would involve a
purchase price for the Business considered appropriate by
management of the Corporation, the parties did not engage in
serious negotiations. For instance, in 1990, management of the
Corporation and the Buyer discussed the possibility of a sale
transaction, but the Buyer was not interested in purchasing the
Business. Accordingly, those discussions ended when the Buyer
suggested that it would buy just the Grove City, Ohio facilities.
Management of the Corporation reported this to the Corporation's
Board of Directors on August 15, 1990.
The Buyer again approached management of the Corporation in
early 1993 to discuss the purchase of the Business. However, the
Buyer stated that it was willing to pay just $2.0 million for the
Business. Management of the Corporation viewed that price as
totally inadequate, and therefore the Corporation did not pursue
formal negotiations. Management of the Corporation informed the
Board of Directors on February 17 and April 21, 1993 of the lack
of progress in these discussions.
However, with improvement in the market for
precast/prestressed concrete products in early 1994, the Buyer
again approached management of the Corporation, and negotiations
commenced because the Buyer's preliminary indication of value was
within a range that the Corporation's management believed merited
further discussions. For instance, following several preliminary
telephone conversations, executives of the Buyer and the
Corporation met on April 20, 1994 to discuss a possible sale
transaction. At that meeting, general terms such as purchase
price were discussed. Additional telephone conversations
followed that meeting, and another meeting was held on June 10,
1994 in Indianapolis at which issues such as structure of the
transaction, insurance coverage, tax liabilities, environmental
considerations, and the sales level of the Business were
discussed. Further telephone and written communications
followed. However, on July 28, 1994, an executive of the Buyer
informed the Corporation's Chief Executive Officer that the Buyer
was considering various alternatives including building its own
facility, and therefore the Buyer was not interested in pursuing
a sale transaction. Management of the Corporation informed the
Board of Directors of this at the Board's August 17, 1994
meeting.
Nevertheless, management of the Corporation kept in contact
with executives of the Buyer, and in early September the
negotiations resumed. Initially, executives of the Buyer and
the Corporation telephoned each other to continue the discussion
of various matters related to structuring the Transaction. On
October 11, 1994, executives of the Buyer and the Corporation
met in Indianapolis, and each party's attorney was also present.
Further telephone conversations and written correspondence
followed, and the parties and their attorneys met again on
November 16, 1994 to finalize the general structure and terms of
the Transaction. The Corporation's Board of Directors approved
the Transaction on November 17, 1994, and the parties entered
into a non-binding letter of intent on November 21, 1994. After
entering into the letter of intent, the parties negotiated a
definitive purchase agreement, and on February 20, 1995, the
parties entered into the Agreement incorporating the terms of the
Transaction.
Prior to approving the Transaction, the Board of Directors
of the Corporation considered various alternatives to the
Transaction, including continued operation of the Business,
expansion of the operations of the Business, or acquisition of
one or more additional operations similar to the Business.
However, for the reasons outlined above, the Board of Directors
did not and does not view those alternatives as viable or
consistent with the long-term interest of the Corporation
and its shareholders. Furthermore, the Board of Directors did
not have a third-party appraise the estimated value of the assets
of the Business or attempt to initiate a bidding process or
otherwise engage other potential buyers of the Business in
discussions relating to the potential acquisition because of the
limited number of potential buyers and the attractive terms
available from the Buyer (in particular the fact that the
purchase price is to be paid in cash) due to the unique fit
of the Business in the product mix and geographical markets of
the Buyer. Instead, management contacted various other
executives in its industry in an attempt to ascertain the
interest in purchasing the Business, and also contacted industry
consultants in order to ascertain whether any potential buyers
would be interested in purchasing the Business. None of these
efforts resulted in an interested potential buyer. This,
combined with the fact that the Transaction provides for cash
consideration equal to two times the book value of the assets
being sold and which is more than ten times the average yearly
net income earned by the Business during fiscal years 1991, 1992,
1993, and 1994, the Board of Directors believed continued
negotiations with the Buyer was in the best interest of the
Corporation and its shareholders. Therefore, the Board
of Directors negotiated extensively with the Buyer in setting the
terms of the Transaction, and concluded that the Transaction as
outlined in the Agreement presented the best course of action
for the Corporation at this time and provides a unique
opportunity for the Corporation to obtain on a current basis a
fair cash price for the Business.
As discussed below in "-- Recommendation of the Board of
Directors," the Board of Directors considered several factors in
approving the Transaction and recommending it to the
Corporation's shareholders. Nevertheless, the primary two
factors upon which that approval and recommendation are based is
that the Transaction involves a purchase price equal to two times
the book value of the assets being sold and that the purchase
price is paid in cash.
Use of Net Proceeds
While not itself constituting net proceeds of the
Transaction, the Corporation will receive additional cash as
accounts receivable of the Business outstanding as of the closing
of the Transaction are paid. These receivables, currently
estimated to be approximately $2.3 million (net of payment of
certain related accounts payable), resulting from projects
completed prior to consummation of the Transaction, are not being
sold to the Buyer as part of the Transaction. Accordingly, as
these accounts receivable are collected during the several months
following consummation of the Transaction, that cash will also be
available for investment by the Corporation or for use as working
capital. If not retained by the Corporation as working capital,
it is expected that such funds will be invested in a similar
manner as the net proceeds from the Transaction described below.
The gross amount of cash expected ultimately to be available
to the Corporation as a result of the Transaction is expected to
be approximately $8.2 million (approximately $5.9 million of
gross cash proceeds and $2.3 million of retained accounts
receivable less certain payables). Of course, the actual net
cash proceeds available to the Corporation will be less after
payment of applicable federal and state taxes and after payment
of expenses incurred by the Corporation in connection with the
Transaction, including legal and accounting fees. Currently,
the net proceeds of the Transaction itself are expected to be
$5.4 million, and the net amount of cash ultimately expected to
be available to the Corporation as a result of the Transaction is
$6.8 million. See "UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
INFORMATION."
Although the Corporation does not have any current plans or
proposals with respect to the redeployment of its cash following
the consummation of the Transaction, the Corporation intends
actively to review various potential acquisitions and other
opportunities that might become available, although no specific
acquisition or other opportunity has been identified. For
the reasons described above, the Board of Directors may seek to
investigate acquisition of one or more businesses providing
financial services, but the Board of Directors will consider all
appropriate opportunities. Immediately following the
consummation of the Transaction, it is expected that the
Corporation will invest the net proceeds from the Transaction
primarily in United States government securities and other
short-term investments. The Corporation will not become an
investment company subject to the Investment Company Act of 1940
because of its ownership of a significant amount of the
outstanding common stock of First Indiana Corporation and certain
other related factors.
Recommendation of the Board of Directors
The Board of Directors of the Corporation has unanimously
approved the Transaction and the Agreement, subject to the
approval thereof by the shareholders of the Corporation. THE
BOARD OF DIRECTORS OF THE CORPORATION BELIEVES THE TRANSACTION IS
FAIR TO THE CORPORATION AND ALL OF ITS SHAREHOLDERS, AND
THEREFORE RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
TRANSACTION.
The material factors considered by the Board in making such
recommendation include the
following:
-- Management and the Board of Directors of the
Corporation view the price offered as representing a
fair price for the assets of the Business on a current
basis. For instance, the $5.0 million gross cash
consideration in the Transaction equals more than ten
times the yearly average net income (after tax) of the
Business during 1991, 1992, 1993, and 1994. While the
Board of Directors did not set any particular targets
or ranges of values to be achieved in the sale of the
Business, the Board of Directors believes the
consideration to be received in the Transaction
to be appropriate in light of the earnings history of
the Business.
-- The proposed purchase price represents approximately a
$2.3 million premium over the book value of the assets
to be sold before giving effect to certain costs and
expenses that will be incurred in the Transaction.
Also, the gross purchase price equals twice the book
value of the assets sold.
-- The Transaction will provide the Corporation with a
substantial source of cash that may be used to repay
debt and pursue new opportunities consistent with the
Corporation's strategic goals.
-- The Corporation will retain approximately $2.3 million
of accounts receivable (after the payment of certain
related payables).
Although the amount of the purchase price to be received and
the fact that it is to be paid in cash are the primary factors
considered by the Board of Directors, the decision to approve and
recommend the Transaction reflected consideration of all of these
factors and the general considerations described above. See also
"-- Purpose and Background of the Transaction" above. None of the
officers or directors of the Corporation, or any of its
affiliates, has any interest in the Transaction which was in any
way a consideration by the Board of Directors in negotiating
or approving the Transaction.
Certain Effects of the Transaction
The consummation of the Transaction will have certain
material effects on the Corporation and its business and
operations. Among such effects are the following:
Change in Business and Operations of the Corporation
Subsequent to the consummation of the Transaction, the
Corporation's involvement in the precast/prestressed concrete
business will significantly decrease. Furthermore, if a sale of
the operations of the Indianapolis Facility occurs as discussed
below, the Corporation will no longer be involved in that
business. If a sale of the Indianapolis Facility does not occur
during 1995, the Board of Directors will continue to analyze and
consider alternatives for disposition of the Indianapolis
Facility. Regardless, upon the consummation of the Transaction,
the Corporation intends actively to pursue acquisitions and other
opportunities. Any such acquisitions may involve businesses
providing financial services, although the Board of Directors
will consider all viable alternatives. Accordingly, the business
and assets of the Corporation following the Transaction may be
materially different. The Corporation, however, will not become
an investment company.
The Board of Directors of the Corporation intends to sell
the Indianapolis Facility in 1995 if terms favorable to the
Corporation and its shareholders can be negotiated. Currently,
senior management of the Corporation is involved in informal
discussions with operating management of the Corporation's
American Precast Concrete Division and employees at the
Indianapolis Facility concerning possible acquisition of the
Indianapolis Facility from the Corporation. At this time, no
material terms of any such sale, including the purchase price,
have been determined. Furthermore, any transaction would require
a binding purchase agreement subject to certain conditions
precedent. Accordingly, there can be no guarantee that a sale of
the Indianapolis Facility will occur. If a sale of the
Indianapolis Facility does not occur, the Board of Directors
will consider all viable alternatives for the operations of the
Indianapolis Facility. In any event, the Board of Directors does
not currently intend to significantly expand the operations of
the Indianapolis Facility.
The Sellers and the executive officers subject to the
Noncompetition Agreements have agreed that for a period of three
years following the consummation of the Transaction they will
require any purchaser of the Indianapolis Facility to agree, for
the remainder of that three year period, to operate the
Indianapolis Facility in compliance with the restrictions
contained in the Noncompetition Agreements. Accordingly, this
requirement may limit the ability of the Corporation to sell the
Indianapolis Facility. See "-- Description of the Agreement --
Noncompetition Agreements" below.
Bank Debt
The Corporation's bank credit agreements require that upon a
sale of "substantially all" of the Corporation's operating
assets, the Corporation repay its outstanding bank indebtedness
of approximately $5.5 million. It is not clear if that repayment
requirement applies to the Transaction. Nevertheless, the
Corporation has requested the banks to waive such a requirement,
and the banks have agreed. Accordingly, the Corporation does not
contemplate that it will repay such debt upon consummation of the
Transaction or soon thereafter. Future credit arrangements
will be reviewed by the Corporation in light of the Corporation's
capital needs.
Income Tax Consequences
The Transaction will be a taxable event to the Corporation
for both federal and state income tax purposes, and is expected
to result in the Corporation recognizing a taxable gain of
approximately $2.9 million. Of that taxable gain, approximately
$950,000 is expected to be deemed to be recapture of accelerated
depreciation deductions which would be taxed as ordinary income
to the Corporation. The Corporation will be able to offset
approximately $593,000 of such taxable income by using net
operating loss carryforwards. Accordingly, the resulting
aggregate federal and state income tax liability to the
Corporation is expected to be approximately $911,000. The
Transaction will not result in any tax consequences directly to
the shareholders of the Corporation.
Pursuant to current federal income tax laws and regulations,
entities may under certain circumstances be deemed to be
"personal holding companies." If an entity is a personal holding
company, all of its taxable earnings which are not distributed to
shareholders are taxed at the highest personal rate (which
currently is 39.6%). Furthermore, that tax is applied after the
corporation has paid federal income tax at the normal corporate
tax rate on such earnings. Generally, the Corporation could be a
personal holding company with respect to any tax year in which
more than 50% in value of its equity interests are owned by a
limited number of persons and it has "passive" income (i.e.,
income earned from investments rather than from active
businesses) comprising 60% or more of its ordinary taxable income
during such year. Through operation of the federal income tax
ownership attribution rules, the limited ownership requirement
may apply to the Corporation. However, because approximately
$950,000 of the taxable gain resulting from the Transaction is
expected to be deemed to be recapture of accelerated
depreciation deductions, which is treated as ordinary income and
not as passive income, and because the Corporation will have
owned the Business for approximately four months of 1995
and will have owned the Indianapolis Facility for at least a
significant portion of 1995, it is highly unlikely that passive
income will equal or exceed 60% of ordinary taxable income for
1995. Accordingly, it appears that the Corporation will not be a
personal holding company in 1995. Furthermore, management
intends through acquisitions or otherwise to avoid qualifying
as a personal holding company in future years, although there can
be no assurance that the Corporation will not become a personal
holding company for one or more such years.
Accounting Treatment
The Transaction will be accounted for as a sale of the
assets of the Business and a gain is expected to be recorded to
the extent that the net proceeds from the sale exceed the
carrying value of such assets. Such accounting gain is expected
to be approximately $2.0 million. Such gain will be deemed to be
income in the Corporation's statements of income beginning with
those for the second quarter of 1995. However, certain expenses
incurred in connection with consummation of the Transaction, such
as accounting and legal expenses, as well as the income tax
applicable to such gain, will be accounted for in the same
statements of income and will thereby reduce the amount of the
gain.
Governmental and Regulatory Approvals
The Corporation is aware of no material governmental or
regulatory approvals required for the consummation of the
Transaction, other than compliance with applicable securities
laws as to proxy solicitation and Indiana corporate law as to
approval of the Transaction.
Description of the Agreement
The summary of the Agreement which follows is subject to,
and qualified in its entirety by, the complete text of the
Agreement and the Noncompetition Agreements which are attached
to this Proxy Statement as Appendix I. The following is only, in
light of space restraints, a summary setting forth a description
of all material terms and conditions of the Agreement and the
Noncompetition Agreements. Each shareholder is encouraged to
refer to the complete text of the Agreement and the
Noncompetition Agreements as he or she reviews the following
summary.
Assets to be Sold
The Agreement provides for the purchase by the Buyer of
substantially all of the assets of the Business, including
machinery, equipment and vehicles, inventories of raw materials,
and other tangible personal property, certain intellectual
property rights, certain real estate and improvements thereon,
certain prepaid sales commissions and certain contracts and
documents relating to the Business. The contracts to be sold
consist mostly of contracts pertaining to providing
precast/prestressed concrete products for projects which will not
be completed as of the date of consummation of the Transaction.
Assets not included in the Transaction, in addition to the assets
related to the operation of the Indianapolis Facility, include
all of the Corporation's cash and cash equivalents, any
securities owned by it (including Common Stock of First Indiana
Corporation), rights to certain prepaid expenses, certain
inventory items, all accounts receivable other than those
relating to contracts for projects in process and which are not
explicitly assumed by Buyer, and all rights in the names
"American Precast Concrete" and "Ampark." See Section 1
of the Agreement.
Purchase Price
The estimated cash consideration of approximately $5.9
million consists of the following: $5.0 million for the sale of
the fixed assets of the Business including real property and
buildings and equipment; and the value as of the closing of the
Transaction of other assets such as raw materials and contracts
for projects which are in process but which are not yet complete.
The value of such assets as of the closing date will not finally
be determined until after the closing date, and therefore they
can only be estimated at this time. (The estimate of the total
gross purchase price contained in this Proxy Statement is based
upon the expected amounts and value of raw materials, the
contracts for work in process, and the other assets using
historical information.) See Section 2.1 of the Agreement.
The $5.0 million portion of the purchase price and
approximately one-half of the remaining portion of the estimated
purchase price will be paid on the closing date, and the
remainder will be paid within fifty (50) days thereafter, subject
to certain delay if the parties disagree as to the determination
of the final purchase price described in the remaining portion
of this paragraph. Within twenty (20) days following the
consummation of the Transaction, the Sellers are required to
prepare certain schedules setting forth their calculation of the
amounts due and owing from the Buyer as the payment of the
portion of the purchase price which is not fixed. The Agreement
provides that the Buyer may object to such calculation, and if
the parties are not able to resolve their differences as to such
calculation, an independent certified public accounting firm is
to be retained to resolve the matter. Any payment between the
parties necessary as a result of such dispute resolution shall be
made within five (5) days of the determination by the
accounting firm. See Section 2 of the Agreement.
Also, the Agreement provides that the Buyer shall be
entitled to withhold an amount to be determined as of the closing
date in connection with costs of certain environmental
remediation subsequent to closing. The Sellers will be entitled
to receive the remaining portion of such amount which is not used
to pay for those remediation efforts. See "-- Covenants and
Conditions" below.
Damage or Destruction to the Assets being Sold
The Agreement provides that in the event of any material
damage, destruction, condemnation or loss (any such event being a
"Loss") to the assets to be sold to the Buyer prior to the
closing date, the Buyer may elect not to consummate the
Transaction or, if the Buyer decides to proceed, it may elect
either to (i) reduce the purchase price by an amount equal to the
fair market value of such assets prior to the Loss, less the
salvage value of such assets following the Loss or (ii) require
the Corporation to assign to the Buyer all insurance and/or
condemnation proceeds payable to the Corporation on account of
such Loss and to pay to the Buyer the amount of any deductible
under any such insurance. See Section 6 of the Agreement.
Assumed Liabilities
In connection with the Transaction, the Buyer will assume
certain liabilities and obligations related to the Business. The
Agreement provides that the Buyer will assume all of the
liabilities and obligations of the Corporation arising from and
after the closing date under contracts and projects in process
specifically transferred to the Buyer as part of the Transaction.
Those assumed liabilities will not include liabilities relating
to employee benefit plans, employment agreements or other
agreements of a general operational nature. The assumed
liabilities will include, however, obligations under certain
contracts and agreements specifically transferred to the Buyer as
part of the Transaction. See Section 3 of the Agreement.
Noncompetition Agreements
As part of the Transaction, each of the Sellers, and Robert
H. McKinney and Marni McKinney Jakubovie personally, is required
to enter into a Noncompetition Agreement providing that for a
period of three years after the consummation of the Transaction,
none of them will directly or indirectly engage in or have an
equity interest in any business which engages in marketing,
selling, manufacturing, distributing and installing precast and
prestressed concrete products and which is competitive with the
Business as conducted on the closing date. Also, none of those
entities or persons may solicit customers of the Business,
interfere with the relationships between the Business and its
customers, or solicit for hire any officer or employee of the
Buyer engaged in the Business. The geographical scope of the
Noncompetition Agreement is limited to the states of Indiana,
Ohio, Illinois, Michigan, Kentucky, Pennsylvania and West
Virginia.
Each of the Noncompetition Agreements provides for certain
exceptions to these limitations relating to the continued
operation and prospective sale of the Indianapolis Facility.
See the forms of the Noncompetition Agreement attached to the
Agreement in Appendix I.
Representations
The Sellers make several representations and warranties to
the Buyer in the Agreement, including, among others,
representations as to: (i) each Seller's corporate status and
good standing; (ii) each Seller's authorization with respect to,
and execution of, the Agreement and the enforceability thereof;
(iii) the absence of any violation of or the creation of any
default with respect to any of the Seller's articles of
incorporation, by-laws or other agreements or rulings binding
upon it; (iv) the absence of certain litigation; (v) compliance
with various laws and regulations; (vi) compliance with
applicable environmental laws; (vii) levels of compensation and
other matters pertaining to employees; (viii) certain employee
benefit plans relating to the Business; (ix) title to property
and condition of assets; (x)intellectual property rights relating
to the Business; (xi) certain financial statements provided to
the Buyer by the Corporation relating to the Business; (xii) the
absence of certain changes or events with respect to the
Business; (xiii) taxes relating to the Business; (xiv) capital
projects related to the Business; and (xv) the Corporation's
insurance relating to the Business. See Section 9 of the
Agreement.
The Agreement also contains representations and warranties
of the Buyer to the Sellers as to (i) its corporate status and
good standing; (ii) the absence of any violation of or the
creation of any default with respect to its articles of
incorporation, by-laws or other agreements or rulings
binding the Buyer as a result of the execution, delivery and
performance of the Agreement; and (iii) its authorization with
respect to, and execution of, the Agreement and enforceability
thereof. See Section 10 of the Agreement.
Subject to exceptions defined in the Agreement, the
representations and warranties in the Agreement will survive the
closing for a period of 18 months. Under the Agreement, the
Corporation agrees to indemnify the Buyer against breaches of
representations and warranties made by the Sellers provided that
such claim for indemnification is brought within the 18-month
period (unless the misrepresentation resulted from fraud, in
which case there is no such time limitation.) The Corporation is
not required to indemnify Buyer for any such claims until and
unless the aggregate damages and expenses paid incurred by Buyer
in connection with such claims exceeds $100,000, and then only
for the amount of the excess. The Agreement also provides for
similar indemnification from the Buyer to the Sellers. See
Sections 23, 17 and 18 of the Agreement.
Covenants and Conditions
The Agreement contains covenants of the parties relating to
actions to be taken prior to the closing date, which, among other
things, include requirements that: (i) the Sellers generally
cause the Business to be operated and carried on in the ordinary
course consistent with Sellers' past business practices; (ii) the
Sellers afford the Buyer access to the Business and certain data
related thereto; (iii) the parties cooperate with each other in
good faith; and (iv) the parties obtain all consents and
approvals required from governmental and regulatory authorities
and private third parties necessary to consummate the Transaction
and to enable the Buyer thereafter to carry on the Business
without material disruption. In addition, the Agreement sets
forth certain terms and conditions pertaining to labor and
employment matters. For instance, the Buyer is not required to
hire any person currently employed at the Business, although the
Sellers must afford the Buyer an opportunity to interview any
employees the Buyer identifies for possible employment by the
Buyer following consummation of the Transaction. Also, the
parties will coordinate certain matters such as the days of
vacation credited to former employees of the Business who are
hired by the Buyer. See Sections 13 and 5 of the Agreement.
The Agreement requires the Sellers to remedy certain
environmental concerns of the Buyer pertaining to the Business.
Those concerns are summarized on Schedule 3 to the Agreement,
that schedule being included at the end of Appendix I. The
concerns relate to certain underground storage tank matters,
removal of certain drums, and a transformer leak. The
Agreement contemplates, however, that Sellers may not be able to
complete all such remediation efforts as of the closing date.
Accordingly, the Agreement provides that the Sellers shall
provide to the Buyer on or before ten days prior to the expected
closing date a summary of all environmental remediation
performed, a summary of the cost incurred, and a detailed
estimate of the expected cost remaining to complete such
remediation efforts. Such summary will be updated on the date of
closing. The Buyer shall be entitled to withhold at closing an
amount equal to the estimated remediation costs, but such amount
will be no greater than $200,000 less costs of remediation
incurred by Sellers prior to closing. Currently, the Sellers
estimate that those remediation costs will total less than
$100,000. Once those remediation efforts have been completed,
any portion of the amount withheld which is not used to pay for
such remediation efforts shall be paid by Buyer to the Sellers.
Nevertheless, if at the time of closing the remaining amount of
environmental remediation required to be done after closing is
expected to cost more than $500,000 (less costs of remediation
previously incurred by Sellers), the Buyer may terminate the
Agreement and not proceed to consummate the Transaction if the
Sellers do not agree to incur such costs. See Section 8 of the
Agreement.
The respective obligations of the Seller and the Buyer to
consummate the Transaction are subject to, among other things,
the following conditions: (i) the approval of the Transaction by
the shareholders of the Corporation; (ii) the absence of any
statute, regulation, order, decree or injunction which has the
effect of prohibiting or invalidating the consummation of the
Transaction; (iii) the execution of the Noncompetition
Agreements; (iv) the accuracy in all material respects of the
representations and warranties of the parties contained in the
Agreement as of the closing date; (v) the receipt of all
necessary consents; and (vi) receipt of certain legal opinions,
closing certificates and other documents (including all necessary
instruments of assignment, licenses and consents) by the
respective parties. See Sections 11 and 12 of the Agreement.
Termination
The Agreement may be terminated any time prior to
consummating the Transaction by: ,(i) the mutual written
agreement of the parties; (ii) either party if there has been a
material misrepresentation or material breach on the part of the
other party of the representations, warranties or covenants set
forth in the Agreement and such breach is not cured within thirty
days after notice; (iii) either party if the Transaction has not
been consummated by April 28, 1995 (unless such failure is due to
the failure of the party seeking to terminate the Agreement);
and (iv) either party, if any court or other government body of
competent jurisdiction in the United States has taken any action
restraining, enjoining or otherwise prohibiting the Transaction,
provided such action has become final and non-appealable. See
Section 19 of the Agreement.<PAGE>
COMPENSATION OF DIRECTORS
AND EXECUTIVE COMPENSATION
(a) Summary Compensation Table.
The following table sets forth the compensation awarded to,
earned by, or paid by the Corporation during the last three
fiscal years to Mr. McKinney as Chairman and Chief Executive
Officer of the Corporation, and to the two executive officers
whose cash compensation in 1994 exceeded $100,000.
Long Term
Compensation
Annual Compensation Awards
Restricted Securities All
Name and Stock Underlying Other
Principal Salary Bonus Awards Option Compensation
Position Year ($) ($) ($) (#) ($)
R. McKinney 1994 $ 75,000 $30,000 $122,500(1)3,500 $1,135(2)
Chairman/Chief 1993 $ 75,563 $ 6,024 -- 3,500 $1,553
Exec Officer 1992 $ 86,857 -- -- 3,500 $1,550
of the Corp
J. Richter 1994 $ 95,298 $40,000 -- 2,500 $1,464(2)
Exec V P & 1993 $ 90,202 $ 6,600 -- 2,500 $1,654
Chief Finance 1992 $ 88,334 $ 1,500 -- 2,500 $1,803
Officer of the Corp
G. Oakes 1994 $103,452 $45,500 -- 2,500 $1,524(2)
President, 1993 $ 96,827 $ 6,706 -- 2,500 $1,703
Amer Precast 1992 $ 92,342 $ 2,068 -- 2,000 $1,566
Division
___________________
(1) Represents the market value on the date of grant of 10,000
shares of restricted stock granted to Mr. McKinney under
the 1991 Stock Incentive Plan, which shares had a market
value of $127,500 on December 31, 1994. The restricted
stock will vest on March 31, 1997 if the Corporation
attains certain performance targets and receives dividends
in the same manner and to the same extent as unrestricted
shares of the Corporation's Common Stock.
(2) Consists of premiums during 1994 for term life insurance
policies for Messrs. McKinney, Richter and Oakes in the
amounts of $572, $763, and $763, respectively, and the
Corporation's contributions to the Corporation's 401(k)
Savings Plan during 1994 for the accounts of Messrs.
McKinney, Richter and Oakes in the amounts of $563, $701,
and $761, respectively.
(b) Options Tables.
The following table sets forth the grants of stock options made
during fiscal year 1994 to Mr. McKinney, Mr. Richter, and Mr.
Oakes.
Number
of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees or Base
Granted in Fiscal Price
Name (#) Year 1994 ($/Share) Expire Date
R.McKinney 3,500 14.8% $13.00 Feb 16, 2004
J.Richter 2,500 10.6% $13.00 Feb 16, 1999
G.Oakes 2,500 10.6% $13.00 Feb 16, 1999
The following table sets forth on an aggregate basis each
exercise of stock options during fiscal year 1994 by Mr.
McKinney, Mr. Richter, and Mr. Oakes, and the December 31, 1994
value of the unexercised options of each such executive officer.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND
FISCAL YEAR-END OPTION VALUES
Number of Securities
Unexercised Value of Unexercised
Shares Options at Options at
Acquired Value Dec 31,1994 Dec 31, 1994
Name Exer Realized Exer Unexer Exer Unexer
R. McKinney -- -- 26,700 -- $101,956 --
J. Richter 2,900 $21,025 7,000 5,000 $ 42,187 $8,437
G. Oakes 7,200 $46,975 -- 5,000 -- $8,437
(c) Compensation of Directors.
During the Corporation's last fiscal year, directors who are
not salaried officers received a quarterly fee of $1,000 per
quarter, a fee of $500 for each Board meeting attended, and a fee
of $300 for each Board committee meeting attended.
Under the Corporation's 1991 Director Stock Option Plan, the
plan provides for the issuance of non-qualified options to
purchase 1,000 shares to each outside director of the Corporation
on August 14, 1991 and thereafter on the date of each annual
meeting of shareholders. No option is exercisable during the
period of one year following the date of grant of such option,
and options granted under the plan must specify an exercise price
of not less than 100% of the market price of the shares at the
date of grant.
SHAREHOLDER PROPOSALS
Proposals of Shareholders intended to be presented at the
next annual meeting must be received by the Corporation for
inclusion in the proxy statement and form of proxy relating to
that meeting no later than November 24, 1995. Any such proposals
should be sent to the attention of the Secretary of the
Corporation. Shareholder proposals not included in the
Corporation's 1996 proxy solicitation materials must, in order to
be considered at the 1996 Annual Meeting, be submitted in writing
to the Secretary of the Corporation at least sixty days before
the date of the 1996 Annual Meeting, or, if the 1996 Annual
Meeting is held prior to March 20, 1996, within ten days after
notice of the Annual Meeting is mailed to shareholders. The Board
of Directors of the Corporation will review any shareholder
proposals that are filed as required, and will determine whether
such proposals meet applicable criteria for inclusion in its 1996
proxy solicitation materials or consideration at the 1996 Annual
Meeting.
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as
amended, requires the Corporation's officers and directors, and
persons who own more than 10% of the Corporation's Common Stock,
to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Officers, directors and
greater than 10% shareholders are required by Securities and
Exchange Commission regulations to furnish the Corporation with
copies of all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished
to the Corporation, the Corporation believes that during 1994,
all Section 16(a) filing requirements applicable to its officers,
directors and greater than 10% beneficial owners were met.
FINANCIAL STATEMENTS AND OTHER INFORMATION
The Corporation's financial statements for the fiscal year
ended December 31, 1994, were audited by KPMG Peat Marwick LLP
("Peat Marwick"). The Corporation has selected Peat Marwick as
its independent auditor for the fiscal year ending December 31,
1995. Representatives of Peat Marwick are expected to attend the
annual meeting, with the opportunity to make a statement if they
desire to do so, and will be available to respond to appropriate
questions.
The Annual Report of the Corporation for the year ended
December 31, 1994, including audited financial statements, has
been mailed to the shareholders. Parts I and II, and the
financial statements and financial information listed in Item
14(a)(1) and (2) thereof, are hereby incorporated into this Proxy
Statement and shall be deemed to be a part of the proxy
solicitation material.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Set forth below are certain unaudited pro forma consolidated
financial statements. The first two financial statements relate
to the Corporation as a whole, and the last two statements relate
to the Business.
OTHER MATTERS
The Board of Directors knows of no other matters to be
brought before this Annual Meeting. However, if other matters
should come before the meeting, it is the intention of each
person named in the proxy to vote such proxy in accordance with
his judgment on such matters.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. Therefore,
shareholders who do not expect to attend in person are urged to
execute and return the proxy.
For the Board of Directors,
s/Sharon J. Sanford
Sharon J. Sanford
Secretary
April 11, 1995
<TABLE>
THE SOMERSET GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED ST
Year Ended December 31, 1994
Pro Forma
Pro Forma Adjustments Adjusted
Historical Note Debit Note Credit Balance
<S> <C> <C> <C> <C> <C>
Income:
Net sales 23,467,000 (a) 13,941,000 $7,050,000
(b) 2,476,000
(a) 10,054,000
Cost of sales 19,164,000 (b) 2,671,000 6,439,000
--------- --------- --------- ---------
Gross Profit 4,303,000 16,417,000 12,725,000 611,000
Equity in earnings of
First Indiana Corporation 2,616,000 2,616,000
Other 146,000 (b) 76,000 70,000
--------- --------- --------- ---------
Total Income 7,065,000 16,493,000 12,725,000 3,297,000
Expenses: (a) 341,000
Selling expenses 568,000 (b) 53,000 174,000
(a) 1,208,000
General and administrative expense 1,927,000 (b) 67,000 502,000
(d) 150,000
(a) 79,000
(b) 2,000
Interest expense 438,000 (c) 357,000
--------- --------- --------- ---------
Total Expenses 2,933,000 -- 1,900,000 1,033,000
Operating income before taxes and
minority interest 4,132,000 16,493,000 14,625,000 2,264,000
Income tax expense 1,608,000 (b) 125,000 (e) 839,000 894,000
--------- --------- --------- ---------
2,524,000 16,618,000 15,464,000 1,370,000
Minority interest in loss of subs 93,000 (b) 93,000
--------- --------- --------- ---------
Income from continuing operations 2,617,000 16,711,000 15,464,000 1,370,000
========= ========= ========= =========
Per average share outstanding $1.57 $0.82
Average shares outstanding 1,662,255 1,662,255
</TABLE>
<TABLE>
THE SOMERSET GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BA
December 31, 1994
Pro Forma
Pro Forma Adjustments Adjusted
Historical Note Debit Note Credit Balance
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Current Assets: (a) $5,866,000 (b) $485,000
Cash and cash equivalents $2,006,000 (c) 2,308,000 (d) 911,000 $8,784,000
Trade accounts, notes and other receivables (a) 440,000
less allowance for doubtful acco 6,070,000 (c) 2,421,000 3,209,000
(a) 256,000
Contracts in progress, unbilled 1,769,000 (c) 590,000 923,000
Inventories 390,000 (a) 155,000 235,000
Prepaid expenses 109,000 (a) 15,000 94,000
Net assets held for sale (f) 1,000,000 1,000,000
--------- --------- --------- ---------
Total Current Assets 10,344,000 9,174,000 5,273,000 14,245,000
Investment in First Indiana Corp 24,265,000 -- 24,265,000
Property, Plant and Equipment:
Original cost 10,280,000 (a) 5,800,000 243,000
(f) 4,237,000
(a) 3,322,000
Less accumulated depreciation (6,126,000) (f) 2,622,000 (182,000)
--------- --------- --------- ---------
4,154,000 5,944,000 10,037,000 61,000
Other Assets 1,041,000 -- 1,041,000
Total Assets 39,804,000 15,118,000 15,310,000 39,612,000
========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities
Acccounts payable, accrued expenses
and other payables $3,041,000 (c) $703,000 $2,338,000
Billings in excess of costs and
recognized profit 451,000 -- 451,000
--------- --------- --------- ---------
Total Current Liabilities 3,492,000 703,000 2,789,000
Long-Term Notes Payable - Banks 5,500,000 -- 5,500,000
(d) 106,000
Deferred income taxes 4,383,000 (f) 243,000 4,034,000
Shareholders Equity 26,429,000 (f) 372,000 (e) 1,232,000 27,289,000
Total Liabilities and
Shareholders Equity 39,804,000 1,424,000 1,232,000 39,612,000
========= ========= ========= ==========
</TABLE>
THE SOMERSET GROUP, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
YEAR ENDED DECEMBER 31, 1994
Unaudited Pro Forma Consolidated Condensed Balance Sheet
The Unaudited Pro Forma Consolidated condensed Balance Sheet
("Balance Sheet") as of December 31,1994 reflects the adjustments
necessary to record the disposition of the product lines and
assets of theCorporation's Grove City, Ohio and Westfield
facilities and other related assets.
The following assumptions were made in preparing the pro
forma adjustments.
(a) Estimated cash proceeds from the disposition of assets,
and the cash payment for expenses as a result of the
sale transaction.
(b) The cash payment of estimated expenses to fulfill the
requirements of the terms of the sale transaction.
(c) Estimated cash proceeds from the liquidation of working
capital of the business sold.
(d) Payment of estimated income taxes due on the gain on
sale of assets (a above) net of remaining tax loss
carryforward.
(e) The gain on disposition of assets of $1,232,000, net of
taxes of $805,000 is included in Shareholders Equity.
(f) Write-down of the assets of the Indianapolis facility
of $372,000, net of income tax benefit of $243,000, and
reclassification of the assets to net assets held for
sale. The write-down of assets to be sold to estimated
net realizable value of $1,000,000 was based upon the
limited market for sale of such specialty facilities
and the effect of the non-competition provisions ofthe
sale transaction on future operations.
<PAGE>
THE SOMERSET GROUP, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
YEAR ENDED DECEMBER 31, 1994
Unaudited Pro Forma Consolidated Condensed Statements of
Operations
The Unaudited Pro Forma Consolidated Condensed Statements of
Operations for the twelve-months ended December 31, 1994 have
been prepared assuming the disposition of the product lines and
assets of the Corporation's Grove City, Ohio and Westfield
facilities and other related assets had occurred on January 1,
1994. The following assumptions were made in preparing the
statements of operations.
(a) Net sales, cost of sales, selling, general and
administrative and interest expenses which relate to
the product lines and assets sold.
(b) Statement of operations and minority interest of 51%
owned subsidiary that was sold on October 31, 1994,
that is included in consolidated historical results for
the ten-month period during 1994, and reversal of the
gain on sale of the stock of the subsidiary.
(c) Interest expense has not been further reduced since the
Company has not anticipated the early retirement of
outstanding long-term debt.
(d) The statements of operations reflect estimated charges
for restructuring operations which are applicable to
the continuing business, and consists of severance pay
and cost related to employee terminations.
(e) The income tax expense included in the statements of
operations is based upon the pro forma income of the
Company.
<TABLE>
The Somerset Group, Inc.
Unaudited Combined Condensed Balance Sheets
Business to be Sold
December 31, 1994 December 31, 1993
Combined To Be To Be Combined To Be To Be
Assets Total Sold Retained Total Sold Retained
Current Assets
<S> <C> <C> <C> <C>
Cash and cash equivalents $373,000 --- $373,000 $438,000 --- $438,000
Trade accounts, notes and other receivables
less allowance for doubtful account 2,861,000 440,000 2,421,000 1,854,000 284,000 1,570,000
Contracts in progress, unbilled 846,000 256,000 590,000 625,000 188,000 437,000
Raw material inventories 155,000 155,000 92,000 92,000 ---
Prepaid expenses 15,000 15,000 --- 25,000 25,000 ---
--------- --------- --------- --------- --------- ---------
Total Current Assets 4,250,000 866,000 3,384,000 3,034,000 589,000 2,445,000
Property, Plant & Equipment:
Original cost 5,800,000 5,800,000 --- 5,652,000 5,652,000 ---
Less accumulated depreciation 3,322,000 3,322,000 --- 3,115,000 3,115,000 ---
--------- --------- --------- --------- --------- ---------
2,478,000 2,478,000 --- 2,537,000 2,537,000 ---
Total Assets $6,728,000 $3,344,000 $3,384,000 $5,571,000 $3,126,000 $2,445,000
========= ========= ========= ========= ========= =========
Liabilities
Current Liabilities
Accounts payable, accrued expenses
and other payables $703,000 --- $703,000 $766,000 --- 766,000
Deferred Income Taxes 478,000 --- 478,000 625,000 --- 625,000
Shareholders Equity 5,547,000 --- 5,547,000 4,180,000 --- 4,180,000
Total Liabilities and Shareholders $6,728,000 ---$6,728,000 $5,571,000 ---$5,571,000
========= ========= ========= ========= ========= =========
</TABLE>
See accompanying Notes to Unaudited Combined Condensed Statements of Business to
to be sold.
<TABLE>
The Somerset Group, Inc.
Unaudited Combined Condensed Statements of Operations
Business To Be Sold
Years Ended December 31,
1994 1993 1992
<S> <C> <C> <C> <C>
Net sales 13,941,000 $8,937,000 $8,739,000
Cost of sales 10,054,000 7,012,000 6,991,000
--------- --------- ---------
Gross profit 3,887,000 1,925,000 1,748,000
Expenses:
Selling expenses 341,000 305,000 309,000
General and administrative expens 1,208,000 912,000 878,000
--------- --------- ---------
1,549,000 1,217,000 1,187,000
Operating income 2,338,000 708,000 561,000
Interest expense 79,000 56,000 53,000
Income before income taxes 2,259,000 652,000 508,000
Income tax expense 892,000 258,000 200,000
--------- --------- ---------
Net income $1,367,000 $394,000 $308,000
========= ========= =========
</TABLE>
The Somerset Group, Inc.
Notes to Unaudited Combined Condensed Statements
of Business to be Sold
The Unaudited Combined Condensed Statements of Operations for the
three years ended December 31, 1994 and the Unaudited Combined
Condensed Balance Sheets as of December 31, 1994 and December 31,
1993 were prepared from the financial books and records of the
operations being sold to Fabcon, Incorporated, reflect all
adjustments which are, in the opinion of management, necessary to
fairly state the results for the periods reflected, and contain
the following accounting policies and procedures.
1) The accounting policies and information contained in The
Somerset Group, Inc. Notes to Consolidated Financial
Statements, for the corresponding time periods and dates
shown in the annual report to shareholders for year ended
December 31, 1994, apply to these statements of the Business
to be Sold.
2) All sales, cost of sales, and gross profit are recorded
under construction contracts with customers. Products are
not manufactured for finished goods inventory. Sales, cost
of sales, and gross profit are the actual amounts for work
completed on contracts for products manufactured at the
Grove City, Ohio and Westfield, Indiana plants.
3) Selling expenses applicable to the Business to be Sold were
determined from actual sales commissions paid for the
contracts included in sales, plus an allocation of all other
selling expenses based on a percentage of sales of the
Business to be Sold to total sales. Management believes
this method of allocation to be reasonable.
4) General and administrative expenses applicable to the
Business to be Sold were determined from actual expenses
incurred by the Grove City, Ohio and Westfield, Indiana
facilities, plus an allocation of common expenses based upon
the time devoted by personnel contained in the common pool
of general and administrative expenses. Management believes
this method of allocation to be reasonable.
5) Interest expense was determined from the advances of cash
made by The Somerset Group, Inc. to the two facilities to
fund their working capital requirements throughout the year
at prime plus 1% interest rate.
6) Federal income tax expense has been determined using a rate
on the pre-tax income comparable to the corporation's
composite consolidated rate for all federal, state, and
local income taxes.
7) The items contained in Unaudited Combined Condensed Balance
Sheets as "To Be Sold" represent the assets and liabilities
that are subject to the sale agreement with Fabcon,
Incorporated. The "To Be Retained" items represent the
assets and liabilities not subject to the sale agreement
that will be settled by the registrant under normal
collection and payment terms.
ASSET PURCHASE AGREEMENT
among
FABCON, INCORPORATED,
THE SOMERSET GROUP, INC.,
PRECAST CONCRETE SYSTEMS, INC.
and
CONCRETE CARRIERS, INC.
Dated as of February 20, 1995
TABLE OF CONTENTS
1. PURCHASE AND SALE OF ASSETS 1
1.1 Generally 1
1.2 Excluded Assets 4
2. PURCHASE PRICE 5
2.1 Generally 5
2.2 Closing Date Assets and Pro Forma Adjusted Interim Income 5
2.3 Contracts-in-Process 6
2.4 Resolution of Accounting Disputes 7
2.5 Manner of Payment of the Purchase Price 8
2.6 Allocation of Fixed Asset Price 9
2.7 Repurchase of Certain Accounts Receivables 9
3. ASSUMPTION OF LIABILITIES 10
4. CLOSING 10
4.1 Generally 10
4.2 Prorations 11
5. LABOR AND EMPLOYMENT MATTERS 11
5.1 Generally 11
5.2 Employment Transition Provisions 12
5.3 Vacation 12
5.4 Benefit Plans 13
6. LOSS, DESTRUCTION, CONDEMNATION OR DAMAGE TO ASSETS 13
7. TITLE EXAMINATION 13
7.1 Delivery of Commitments 13
7.2 Survey 13
7.3 Title Objections 14
7.4 Cooperation 14
8. ENVIRONMENTAL OBJECTIONS 14
8.1 Phase I Environmental Assessments 14
8.2 Sellers' Activities Prior to Closing Date 14
8.3 Certain Uncured Environmental Objections 15
8.4 Activities Subsequent to Closing Date 15
8.5 Right of Buyer to Terminate Agreement in Connection with
Environmental Objections 16
9. REPRESENTATIONS AND WARRANTIES OF SELLERS 16
9.1 Corporate Organization 16
9.2 Authorization of Agreement 16
9.3 Conflicting Agreements, Governmental Consents 17
9.4 Actions, Suits, Proceedings 17
9.5 Compliance with Laws and Other Instruments 17
9.6 Environmental Matters 18
9.7 Employees 20
9.8 Employee Plans 20
9.9 Labor Matters 20
9.10 Title to Real Property 21
9.11 Title to Personal Property 21
9.12 Condition of Assets 21
9.13 Contracts 21
9.14 Intellectual Property Rights 21
9.15 Licenses and Permits 23
9.16 Financial Information 23
9.17 Business Changes 23
9.18 Taxes 24
9.19 Capital Projects 24
9.20 Composition of Assets 25
9.21 Insurance 25
9.22 Brokers and Finders 25
9.23 Full Disclosure 25
10. REPRESENTATIONS AND WARRANTIES OF BUYER 25
10.1 Organization 25
10.2 Conflicting Agreements, Governmental Consents 25
10.3 Corporate Authority 26
10.4 Brokers and Finders 26
10.5 Full Disclosure 26
11. CONDITIONS TO OBLIGATION OF BUYER TO CLOSE 26
11.1 Representations and Warranties 26
11.2 Observance and Performance 26
11.3 No Adverse Change 26
11.4 Officers' Certificate 26
11.5 Due Diligence 27
11.6 Searches 27
11.7 Consents of Third Parties 27
11.8 Notices 27
11.9 Regulatory Approvals 28
11.10 Legal Opinion 28
11.11 No Legal Actions 28
11.12 Noncompetition Agreements 28
11.13 Span-Deck Royalties 28
11.15 Closing Documents 28
11.15 Closing Documents 28
12. CONDITIONS TO OBLIGATION OF SELLERS TO CLOSE 28
12.1 Representations and Warranties 28
12.2 Observance and Performance 28
12.3 Officers' Certificate 29
12.4 Legal Opinion 29
12.5 Shareholder Approval 29
12.6 No Legal Actions 29
13. OPERATION OF BUSINESS PRIOR TO CLOSING; COOPERATION 29
13.1 Maintenance of Business 29
13.2 Employees 29
13.3 No Disposition of Assets 29
13.4 No Additional Liens 30
13.5 No Modification of Agreements 30
13.6 Maintenance of Tangible Assets 30
13.7 Capital Expenditures 30
13.8 No Extraordinary Agreements 30
13.9 Maintenance of Insurance 30
13.10 Accounts Receivable; Accounts Payable 30
13.11 Inventories; Supplies 30
13.12 Ordinary Course Operations 30
13.13 Notices to Vendors and Customers 30
13.14 Removal of Broken Concrete 31
13.15 Cooperation 31
13.16 Inspection Rights 31
13.17 Shareholder Approval 31
14. POST-CLOSING MATTERS 31
14.1 Post-Closing Inspection Rights 31
14.2 Warranties; Completion of Contracts 32
14.3 Indianapolis Facility 32
14.3 Indianapolis Facility 32
15. BULK TRANSFER LAW 32
16. TAXES, FEES AND OTHER EXPENSES 32
16.1 Taxes and Fees 32
16.2 Expenses 33
17. INDEMNIFICATION BY SELLERS 33
17.1 Generally 33
17.2 Deductible 33
17.3 Termination of Indemnification 34
17.4 Procedures 34
17.5 Settlement and Compromise 34
18. INDEMNIFICATION BY BUYER 35
18.1 Generally 35
18.2 Deductible 35
18.3 Termination of Indemnification 36
18.4 Procedures 36
18.5 Settlement and Compromise 36
19. TERMINATION OF AGREEMENT 36
19.1 Mutual Consent 36
19.2 Breach of Agreement 37
19.3 Delayed Closing 37
19.4 Government Action 37
20. ASSIGNMENT 37
21. COVENANT OF FURTHER ASSURANCES 37
22. CONFIDENTIALITY AND NONDISCLOSURE 37
23. SURVIVAL OF REPRESENTATIONS AND WARRANTIES 38
24. PUBLIC ANNOUNCEMENT 38
25. ENTIRE AGREEMENT 38
26. AMENDMENT AND WAIVER 38
27. CHOICE OF LAW 38
28. SEVERABILITY 38
29. COUNTERPARTS 38
30. NOTICES 38
31. SELLERS' KNOWLEDGE 39
Schedule 1 Pro Forma Asset Schedule
Schedule 2 Allocation of Purchase Price
Schedule 3 Environmental Objections
EXHIBIT A -- Description of Real Property
EXHIBIT B -- Tangible Personal Property at the Facilities
EXHIBIT C -- Tangible Personal Property at the Kitley Facility
EXHIBIT D -- Vehicles
EXHIBIT E -- Assumed Contracts
EXHIBIT F -- Intellectual Property
EXHIBIT G -- Licenses and Permits
EXHIBIT H -- Project Contracts
EXHIBIT I -- Permitted Employees
EXHIBIT J -- Disclosure Schedule
EXHIBIT K -- Employee Benefit Plans
EXHIBIT L -- Financial Statements
EXHIBIT M-- Insurance
EXHIBIT N -- Form of Opinion of Counsel to Sellers
EXHIBIT O -- Form of Noncompetition Agreement
EXHIBIT P -- Form of Opinion of Counsel to Buyer
INDEX OF DEFINED TERMS
TERM REFERENCES
Assets 1.1 (at beginning)
Assumed Contracts 1.1(g)
Assumed Liabilities 3
Benefit Plans 9.10
Business Preamble
Buyer Preamble
Closing 4
Closing Date 4
Closing Date Assets 2.1
Closing Date Asset Schedule 2.4
Closing Date Contracts-in-Process Receivables 2.4
COBRA 5.2
Code 9.10
Completed Contracts 2.3(a)
Confidentiality Agreement 13.16
Contract-in-Process 2.3(a)
Contract-in-Process Receivables 2.3(c)
CCI Preamble
Disclosure Schedule 9
Environmental Law 9.6
Environmental Objection 8.2
Equipment 1.1(b)
ERISA 9.10
Estimated Contribution Margin 2.3(c)
Excluded Assets 1.2
Excluded Business Preamble
Excluded Inventory 1.2(d)
Facilities 1.1(a)
Fixed Assets 1.1 (at end)
Fixed Asset Price 2.1
Grove City Facility 1.1(a)
Hazardous Substance 9.6
Indianapolis Facility Preamble
Interim Period 2.1
Inventory 1.1(f)
Noncompetition Agreements 11.12
OSHA 1.1(k)
PCSI Preamble
Permitted Encumbrances 1.1 (at end)
Prepaid Sales Commissions 2.2
Product Lines Preamble
Pro Forma Asset Schedule 2.2
Pro Forma Adjusted Interim Net Income 2.1
Proposed Closing Date Asset Schedule 2.2
Proposed Closing Date Contracts-in-Process Receivable 2.3(d)
Proposed Pro Forma Adjusted Interim Net Income 2.2
Purchase Price 2.1
Real Estate 1.1(a)
Sellers Preamble
Sellers' Noncompetition Agreement 11.2
Somerset Preamble
Westfield Facility 1.1(a)
ASSET PURCHASE AGREEMENT
AGREEMENT dated as of February 20, 1995 by and among
FABCON, INCORPORATED, a Minnesota corporation ("Buyer"), and THE
SOMERSET GROUP, INC., an Indiana corporation ("Somerset"),
PRECAST CONCRETE SYSTEMS, INC., an Indiana corporation ("PCSI"),
and CONCRETE CARRIERS, INC., an Indiana corporation ("CCI" and,
together with Somerset and PCSI, collectively "Sellers" and
individually a "Seller").
RECITALS
WHEREAS, Somerset is engaged, among other things, in
the business of marketing, selling, manufacturing, distributing
and installing precast/prestressed concrete products (the
"Product Lines") at plants in Grove City, Ohio, and Westfield,
Indiana;
WHEREAS, Somerset is the record and beneficial owner of
all of the outstanding capital stock of PCSI and CCI; and
WHEREAS, Sellers desire to sell and Buyer desires to
purchase all of the assets of Sellers utilized in, related to or
arising from the Product Lines located at the Grove City, Ohio
and Westfield, Indiana plants of Sellers and certain of the
tangible assets (but not the business) of Sellers specifically
described in this Agreement relating to the Product Lines and
located at a plant maintained by Sellers in Indianapolis, Indiana
(hereinafter the "Indianapolis Facility"), for the marketing,
sales, manufacture, distribution and installation of
precast/prestressed concrete products (the assets to be purchased
under this Agreement being hereinafter collectively referred to
as the "Business") on the terms and subject to the conditions of
this Agreement; and
WHEREAS, the Sellers desire to continue to engage in
the business of marketing, selling, manufacturing, distributing
and installing precast/prestressed concrete products at the
Indianapolis Facility (such business being hereinafter referred
to as the "Excluded Business"), subject to the terms and
conditions of this Agreement and the Sellers' Noncompetition
Agreement (as hereinafter defined).
NOW, THEREFORE, in consideration of the foregoing
recitals and of the mutual covenants and conditions contained
herein, the parties hereby agree as follows:
1. PURCHASE AND SALE OF ASSETS
1.1 Generally. On the terms and subject to the
conditions of this Agreement, Sellers agree to sell, transfer,
convey and deliver to Buyer, and Buyer agrees to purchase from
Sellers, on and as of the Closing Date (as hereinafter defined),
the following property and assets of Sellers utilized in, related
to or arising from the Business (collectively the "Assets"),
other than the Excluded Assets (as hereinafter defined), which
shall include without limitation the following:
(a) The manufacturing facility of Sellers located in
Westfield, Indiana, including the real property legally
described in Exhibit A-1 hereto, and the manufacturing
facility of Sellers located in Grove City, Ohio, including
the real property described on Exhibit A-2 hereto (the real
property described in Exhibits A-1 and A-2 being hereinafter
collectively referred to as the "Real Estate"), in each
case, together with all buildings, structures,
installations, fixtures and other improvements situate
thereon and all easements, rights of way and other rights,
interests and appurtenances of Sellers therein or thereunto
pertaining (each such facility and the Real Estate on which
such facility is located are hereinafter referred to
respectively as the "Westfield Facility" and "Grove City
Facility" and collectively hereinafter referred to as the
"Facilities");
(b) All machinery, equipment, office equipment,
computer hardware and software, tools, dies, motor vehicles
and trailers, spare parts, accessories, furniture, fixtures,
leasehold improvements and other tangible personal property
owned by Sellers as of the date of this Agreement and
located at the Facilities, including without limitation the
items listed on Exhibit B hereto, and the additional
tangible personal property owned by Sellers located at the
Indianapolis Facility and listed on Exhibit C hereto
(hereinafter collectively referred to as the "Equipment");
(c) The automobiles, trucks, trailers, automotive
equipment and other vehicles owned by Sellers and listed on
Exhibit D hereto;
(d) All rights of Sellers under any warranty or
guarantee by any manufacturer, supplier or other transferor
of any of the Assets;
(e) All rights of Sellers under Contracts-in-Process
(as hereinafter defined) and receivables related to
Contracts-in-Process;
(f) Except for the Excluded Inventory (as hereinafter
defined), all inventory of raw materials, packaging
materials and supplies of Sellers utilized in, related to or
arising from the Business, including without limitation all
raw steel and steel assemblies finished and in process
related to the Business and located at the Indianapolis
Facility (the "Inventory");
(g) All rights of Sellers under the contracts,
agreements and other commitments specifically identified in
Exhibit E hereto, if any (hereinafter collectively referred
to as the "Assumed Contracts");
(h) Subject to the provisions of Section 9.15 and
Section 14.3 hereof, all interests of Sellers in any
copyrights, patents, trade secrets, inventions, know-how,
confidential information and other intellectual property
utilized in, related to or arising from the Business,
together with pending applications for any of the foregoing,
including without limitation those identified in Exhibit F
hereto;
(i) All rights of Sellers under any franchises,
approvals, permits, licenses, orders, registrations,
certificates, variances, and similar rights obtained from
governments and governmental agencies to the extent
applicable to the Business and to the extent assignable to
Buyer, including without limitation the licenses and permits
listed in Exhibit G hereto;
(j) Prepaid Sales Commissions (as hereinafter
defined);
(k) To the extent only relating to the Business and in
the possession of Sellers, (i) all sales records directly
relating to Contracts-in-Process, current purchase records,
customer lists, supplier lists, advertising and promotional
materials, current production records and other records
related to the Business; (ii) all deeds and other
instruments, maps, and profiles related to the Business;
(iii) all real estate and engineering data, blueprints and
other property records related to the Business; (iv) all
records regarding the Occupational Safety and Health Act
("OSHA") and other governmental examinations and clearances
related to the Business; and (v) all personnel records
relating to employees of Seller hired by Buyer at or after
Closing in accordance with the terms of Section 5 of this
Agreement; provided, however, that (i) Sellers may make and
retain copies of any records transferred to Buyer and (ii)
Buyer shall have reasonable access after the Closing Date,
subject to compliance with the Confidentiality Agreement (as
hereinafter defined), to review and copy relevant portions
of such other documents of the nature described in this
Section 1.1(k) to the extent in the possession of Sellers
and which are reasonably necessary to the conduct of the
Business or which relate to any work conducted by Buyer
after the Closing Date pursuant to Section 14.2 hereof; and
(l) All goodwill and other general intangibles of
Sellers utilized in, related to or arising from the
Business.
The Assets described in Sections 1.1(a), 1.1(b), 1.1(c), 1.1(d),
1.1(g), 1.1(h), 1.1(i), 1.1(k) and 1.1(l) are sometimes
hereinafter collectively referred to herein as the Fixed Assets.
Except as specifically provided in this Agreement, including any
Exhibits thereto, the Assets will be transferred by Sellers to
Buyer in accordance with this Agreement free and clear of all
liens, security interests or encumbrances, other than (i) liens
for taxes not yet due and payable, and (ii) other liens, charges
or encumbrances incidental to the conduct of the Business in the
ordinary course or the ownership of the Assets which were not
incurred in connection with the borrowing of money or the
obtaining of advances or credit and which do not in the aggregate
materially detract from the value of the Assets or materially
impair or interfere with the use thereof in the operation of the
Business (collectively, the "Permitted Encumbrances").
1.2 Excluded Assets. Notwithstanding other contrary
provisions of this Agreement, the following property and assets
of Sellers are excluded from the sale to Buyer (the "Excluded
Assets"):
(a) All of Sellers' cash and cash equivalents;
(b) All securities owned by Sellers;
(c) All rights of Sellers under any claims, deposits,
refunds, causes of action, choses in action, rights of
recovery, rights of set off and rights of recoupment
(including any such items relating to the payment or refund
of taxes and all prepaid expenses other than Prepaid Sales
Commissions);
(d) All inventory of precast/prestressed concrete
products which relate to specific Completed Contracts (as
hereinafter defined) on the Closing Date, including without
limitation all inventory of such products manufactured for
Duke Construction Management, Inc. for building number 23
for the Southfield TechneCenter II in Southfield, Michigan
which are stored at the Westfield Facility, all subject to
the terms of Section 14.2 hereof (the "Excluded Inventory");
(e) All receivables of Seller other than
Contract-in-Process Receivables, including without
limitation all receivables related to Completed Contracts;
(f) All right, title and interest of Sellers in and to
the trademarks and tradenames "American Precast Concrete"
and "Ampark";
(g) The Excluded Business, including the estimating
and costing software specifically used in connection with
products manufactured at the Indianapolis Facility and all
tangible personal property of Sellers located at the
Indianapolis Facility other than the assets listed on
Exhibit C hereto and inventory described in Section 1.1(f);
(h) The corporate charter, qualifications to conduct
business as a foreign corporation, arrangements with
registered agents relating to foreign qualifications,
taxpayer and other identification numbers, general ledgers,
tax returns, seals, minute books, stock transfer books and
similar documents of Sellers relating to the organization,
maintenance and existence of Sellers as corporations
(provided that Buyer shall have access thereto to the extent
reasonably necessary for the operation of the Business and
the preparation of tax returns and financial statements of
Buyer following the Closing Date); and
(i) All rights of Sellers under leases for two tractor
trailers currently used in connection with the Business.
2. PURCHASE PRICE
2.1 Generally. Buyer shall pay to Sellers for the
Assets in the manner set forth below, an amount equal to (i) the
sum of (a) $5,000,000 for the Fixed Assets (the "Fixed Asset
Price"), (b) the Closing Date Assets determined in accordance
with Section 2.2 hereof, and (c) the aggregate amount of the
Contract-in-Process Receivables determined in accordance with
Section 2.3 hereof, less(ii) the Proforma Adjusted Interim Net
Income determined in accordance with Section 2.2 hereof
(hereinafter collectively referred to as the "Purchase Price").
The term "Closing Date Assets" as used herein shall mean the
Inventory and the Prepaid Sales Commissions as of the Closing
Date and any other specific assets or liabilities which Buyer and
Seller may agree in writing to have Buyer purchase and assume,
respectively, on the Closing Date; provided, however, that the
Closing Date Assets shall not include any Fixed Assets or assets
included in the Contracts-in-Process Receivables as determined in
accordance with Section 2.3 hereof. The term "Pro Forma Adjusted
Interim Net Income" as used herein shall mean (i) net income
before taxes and interest for the Business during the period
commencing on April 1, 1995 and ending on the Closing Date (the
"Interim Period"), less (iii) the product of (x) the sum of an
amount equal to the Purchase Price to be paid by Buyer to Sell
pursuant to Section 2.5(a) hereof and the amount of net cash used
by Sellers in connection with the Business during the Interim
Period times (y) a percentage equal to the prime interest rate
quoted and announced by First Indiana Bank on the Closing Date
times the number of days in the Interim Period divided by 365.
2.2 Closing Date Assets and Pro Forma Adjusted Interim
Net Income. As soon as practicable, but not later than 20 days
after the Closing Date, Sellers, with the assistance and
cooperation of Buyer, shall prepare a schedule of the Closing
Date Assets (the "Proposed Closing Date Asset Schedule") and a
schedule of the Pro Forma Interim Net Income (the "Proposed Pro
Forma Adjusted Interim Net Income Schedule"). Such schedules
shall be prepared as of the close of business on the Closing Date
in accordance with generally accepted accounting principles,
consistently applied; provided, however, that the Proposed
Closing Date Asset Schedule shall reflect the Inventory at cost
on a first-in, first-out basis with an allowance for obsolete
inventory (if any). Subject to Section 2.1 hereof and this
Section 2.2, the Proposed Closing Date Asset Schedule shall be
prepared on a basis consistent with the pro forma December 31,
1994 Asset Schedule set forth on Schedule 1 hereto (the "Pro
Forma Asset Schedule"). The Pro Forma Asset Schedule sets forth
the Closing Date Assets as if the transactions contemplated by
this Agreement had occurred on December 31, 1994 and is included
solely for the purpose of illustration to guide the preparation
of the Proposed Closing Date Asset Schedule. The Proposed
Closing Date Asset Schedule shall include a percentage of the
prepaid sales commissions allocable to each Contract-in-Process
equal to the percentage of such contract not completed as of the
Closing Date determined in accordance with Section 2.3 hereof
(the "Prepaid Sales Commissions"). Subject to Section 2.1 hereof
and this Section 2.2, the Proposed Pro Forma Adjusted Interim Net
Income Schedule shall be prepared on a basis consistent with the
interim profit and loss statements attached hereto as Exhibit L.
2.3 Contracts-in-Process.
(a) On the Closing Date, Buyer and Sellers will review
the status of the project contracts and any outstanding
project quotes and commitments listed on Exhibit H hereto,
and any additional project contracts, including outstanding
project quotes or commitments, to which Sellers may become a
party pursuant to this Agreement between the date hereof and
the Closing Date which shall be listed as a supplement to
Exhibit H delivered to Buyer not later than 10 days prior to
the Closing Date. Any such contract of Sellers which is 90%
or more completed as of the Closing Date (based on the
calculation set forth in Section 2.3(c) hereof), whether or
not listed on Exhibit H, shall be deemed a "Completed
Contract." All other contracts, quotes and commitments
listed on Exhibit H, including those identified in
supplements thereto, shall be deemed to be "Contracts-in-
Process." Completed Contracts and Contracts-in-Process
shall be deemed to include associated precast/prestressed
concrete products completed or in process in connection with
such contracts.
(b) All Completed Contracts shall remain the sole
responsibility of Sellers, subject to any obligations of
Buyer to perform work in accordance with Section 14.2
hereof, and Sellers shall be entitled to the benefit of any
accounts receivable billed or to be billed with respect to
such Completed Contracts.
(c) On the Closing Date, Sellers will estimate all
costs (by product or activity) required to complete each
Contract-in-Process on a basis consistent with prior
accounting practices. Such estimated costs-to-complete will
be added to costs already incurred by Sellers as of the
Closing Date on such contract and the total cost compared to
the contract price under such contract to arrive at an
estimated contribution margin for such contract (the
"Estimated Contribution Margin"). The amount of the
Estimated Contribution Margin allocable to Sellers shall be
determined by multiplying the Estimated Contribution Margin
by the percentage completed for such contract as of the
Closing Date. The percentage completed for each Contract-in-
Process shall be computed based upon the weighted average of
(i) the completed square footage of product manufactured
divided by the total square footage of product covered by
such contract and (ii) the actual costs incurred by Sellers
for delivery, installation and other non-manufacturing costs
under such contract divided by the estimated total of
non-manufacturing costs, weighted in proportion to the
estimated total manufacturing costs and non-manufacturing
costs, respectively, required to complete such
Contract-in-Process. The amount of the receivable for each
Contract-in-Process ("Contract-in-Process Receivable") shall
equal the sum of costs incurred by Sellers with respect to
such contract as of the Closing Date, plus the Estimated
Contribution Margin (if positive) on such contract allocable
to the Sellers as of the Closing Date, less contract
progress payments received by Sellers under such contract
prior to the Closing Date. If the Estimated Contribution
Margin on any Contract-in-Process is less than 10% of the
contract price (or negative), the amount of the related
Contract-in-Process Receivable shall be reduced by an amount
equal to (A) Buyer's percentage share of the Estimated
Contribution Margin for such Contracts-in-Process times (B)
the difference between an amount equal to 10% of the
Contract price and the Estimated Contribution Margin for
such Contracts-in-Process.
(d) On the Closing Date, Sellers shall deliver to
Buyer a schedule setting forth their estimate of the
aggregate amount of the Contracts-in-Process Receivables as
of the Closing Date, calculated by Sellers in accordance
with Section 2.3(c) hereof and using the most recent
financial information reasonably available to Sellers. For
purposes of this Agreement, the aggregate amount of the
Contracts-in-Process Receivables as of the Closing Date as
set forth on such schedule, as such schedule may be updated
pursuant to Section 2.4 hereof, shall be referred to as the
"Proposed Closing Date Contracts-in-Process Receivables."
The parties acknowledge and agree that such schedule
delivered on the Closing Date will not reflect all
applicable amounts and will be preliminary only, and that
the updated schedule of Proposed Closing Date
Contracts-in-Process Receivables delivered in accordance
with the next sentence will be the relevant schedule of the
Proposed Closing Date Contracts-in-Process Receivables for
purposes of determining the final Purchase Price and
identifying Contracts-in-Process. On or prior to the 20th
day after the Closing Date, Sellers shall furnish to Buyer
an updated schedule of Proposed Closing Date
Contracts-in-Process Receivables and all calculations and
supporting documentation with respect to the Contract-in-
Process Receivable for each Contract-in-Process. Sellers
shall also provide representative historical information on
prior completed contracts related to the Product Lines, as
reasonably requested by Buyer, in order to permit review of
Sellers' computations.
2.4 Resolution of Accounting Disputes. Sellers shall
permit Buyer and its independent certified public accountants,
KPMG Peat Marwick, to review all accounting records and all work
papers and computations used by them in the preparation of the
Proposed Closing Date Asset Schedule and Proposed Pro Forma
Adjusted Interim Net Income Schedule and in the calculation of
the Proposed Closing Date Contracts-in-Process Receivables.
Sellers shall update the Proposed Closing Date Asset Schedule,
Proposed Pro Forma Adjusted Interim Net Income Schedule and
Proposed Closing Date Contracts-in-Process Receivables schedule
during the 20-day period following delivery of such schedules to
Buyer. If Buyer does not give notice of dispute to Sellers
within 30 days after the latest of the receipt by Buyer of the
updated Proposed Closing Date Asset Schedule, Proposed Pro Forma
Adjusted Interim Net Income Schedule and the Proposed Closing
Date Contracts-in-Process Receivables, then the Proposed Closing
Date Asset Schedule shall become the "Closing Date Asset
Schedule", the Proposed Pro Forma Adjusted Interim Net Income
Schedule shall become the Pro Forma Adjusted Interim Net Income
Schedule and the Proposed Closing Date Contracts-in-Process
Receivables shall become the "Closing Date Contracts-in-Process
Receivables." Any notice of dispute submitted by Buyer shall
relate only to specific assets or liabilities included on the
Proposed Closing Date Asset Schedule, specific income or expense
items included on the Proposed Pro Forma Adjusted Interim Net
Income Schedule and specific Contracts-in-Process included in the
Proposed Closing Date Contracts-in-Process Receivables which
Buyer disputes in good faith and any such notice of dispute shall
fully explain the basis on which the Buyer contends that the
Proposed Closing Date Asset Schedule, Proposed Pro Forma Adjusted
Interim Net Income Schedule or the Proposed Closing Date
Contracts-in-Process Receivables were not determined in
accordance with the terms of this Agreement. If Buyer gives
notice of dispute to Sellers within such 30-day period, Sellers
and Buyer shall negotiate in good faith to resolve the dispute.
If, after 15 days from the date notice of dispute is given
hereunder, Sellers and Buyer cannot agree on the resolution of
the dispute, Sellers shall, within 30 days from the date notice
of dispute is given, designate by notice to Buyer, an
internationally recognized "Big Six" independent certified public
accounting firm which neither Sellers nor Buyer shall have
retained in any capacity during the three-year period preceding
the execution of this Agreement, with experience in job costing
on construction contracts, to resolve such disputes. If Sellers
shall fail to designate such firm within such 30-day period,
Buyer shall be permitted to so designate an independent
accounting firm meeting the criteria set forth in the preceding
sentence to resolve such disputes. The decision of the
independent accounting firm in accordance with this Section 2.4
shall be rendered in writing within 30 days after selection of
the independent accounting firm and shall be final and binding on
the parties. If after resolution of all disputes by the
designated independent accounting firm, the sum of the Closing
Date Assets, the Pro Forma Adjusted Interim Net Income and the
Closing Date Contracts-in-Process Receivables shall be within
$50,000 of the sum of the Closing Date Assets set forth on the
Proposed Closing Date Asset Schedule, the Pro Forma Adjusted
Interim Net Income set forth on the Proposed Pro Forma Adjusted
Interim Net Income Schedule and the Proposed Closing Date
Contracts-in-Process Receivables, Buyer shall be responsible for
all expenses pertaining to the resolution of such dispute. If
the difference between such totals is not within $50,000, Sellers
shall be responsible for all fees and expenses pertaining to the
resolution of such dispute.
2.5 Manner of Payment of the Purchase Price.
(a) At the Closing, Buyer shall pay to Sellers, by
wire transfer of immediately available funds to such account
or accounts as shall be specified by Sellers, an amount
equal to (i) the Fixed Asset Price plus (ii) 50% of the sum
of (x) the Closing Date Assets based upon valuation of such
Assets as of December 31, 1994 in accordance with Section
2.2 hereof, or such later date as Buyer and Sellers may
mutually agree, and (y) the aggregate amount of the Proposed
Closing Date Contracts-in-Process Receivables as reflected
in the preliminary schedule of Proposed Closing Date
Contracts-in-Process Receivables as submitted by Sellers on
the Closing Date pursuant to Section 2.3(d) hereof.
(b) Within 50 days after the Closing Date, Buyer shall
pay to Sellers, by wire transfer of immediately available
funds to such account or accounts as shall be specified by
the Sellers, an amount equal to (i) the sum of (x) the
Closing Date Assets as determined in accordance with
Section 2.2 hereof and (y) the Closing Date
Contracts-in-Process Receivables as determined in accordance
with Section 2.3 hereof, except only with respect to
specific Closing Date Assets or Closing Date Contracts-in-
Process Receivables as to which disputes submitted by Buyer
in accordance with Section 2.4 hereof are then pending, less
(ii) the sum of (A) the amount paid to Sellers on or after
the Closing Date pursuant to Section 2.5(a)(ii) above and
(B) the Pro Forma Adjusted Interim Net Income (except as to
any amounts as to which disputes submitted by Buyer in
accordance with Section 2.4 hereof are pending).
(c) Buyer shall pay to Sellers by wire transfer of
immediately available funds to such account or accounts as
shall be specified by Sellers, all amounts with respect to
specific Closing Date Assets, Pro Forma Adjusted Interim Net
Income and Closing Date Contracts-in-Process Receivables as
to which disputes have been submitted by Buyer in accordance
with Section 2.4, within five days after Buyer receives
notice of the decision of the independent accounting firm
under Section 2.4.
All amounts payable by Buyer under this Section 2.5 shall be
payable in full without rights of set-off or recoupment.
2.6 Allocation of Fixed Asset Price. The parties
shall allocate the Fixed Asset Price to the Fixed Assets and to
the Noncompetition Agreements (as hereinafter defined) in a
manner consistent with the estimated allocation set forth on
Schedule 2 hereto. The parties acknowledge that the
Noncompetition Agreements are agreements for which Buyer has
separately bargained.
2.7 Repurchase of Certain Accounts Receivables. With
respect to each Contract-in-Process, Sellers shall guarantee at
Closing that Buyer will receive subsequent payments on progress
billings outstanding as of the Closing and for billings made
subsequent to Closing under the terms of such Contract-in-Process
as follows:
(a) With respect to amounts outstanding for
progress billings at Closing and billings made subsequent to
Closing, excluding retainage amounts contained in or
applicable to such billings, Buyer will receive payments at
least equal to the amount paid to Sellers under Section 2.5
with respect to such Contracts-in-Process (less retainage
described above) within 90 days after the final billing with
respect to each such Contract-in-Process;
(b) With respect to retainage contained in or
applicable to progress payments at Closing and billings
completed subsequent to Closing, Buyer will receive, within
180 days after final billing with respect to such
Contract-in-Process, payments with respect to such Contract-
in-Process which, when added to payments made under (a)
above, shall at least equal the amount of the Contract-in-
Process Receivable paid to Sellers at Closing.
In the event that any amounts with respect to a Contract-in-
Process shall not be paid to Buyer in accordance with
Section 2.7(a) or (b) above, then Buyer shall reassign to Sellers
an unpaid portion of such billings equal to such amounts upon
notice to Sellers. Sellers shall pay such amount to Buyer within
15 days and Buyer shall during such period afford Sellers access
to all information and documents relating to such Contract-in-
Process reasonably requested by Sellers. Notwithstanding any
obligation of Sellers pursuant to this Section 2.7, Buyer shall
in all respects retain full responsibility for such Contract-in-
Process, including the obligation to perform work in accordance
with Section 14.2 hereof. In addition, any obligation of Sellers
under this Section with respect to Contract-in-Process
Receivables shall be applicable only if Buyer shall subsequent to
Closing perform in accordance with the terms of such Contract-in-
Process and shall use commercially reasonable efforts to collect
billings in connection with such Contract-in-Process.
3. ASSUMPTION OF LIABILITIES. Except as hereinafter
specifically provided, Buyer shall not assume any liabilities or
obligations of Sellers and Sellers shall be solely liable for all
liabilities and obligations arising from or in connection with
ownership of the Assets or operation of the Business and
incidents and occurrences prior to the Closing Date, whether or
not reflected in their books and records. Subject to the
conditions of this Agreement, Buyer agrees to assume from
Sellers, on and as of the Closing Date, all of the liabilities
and obligations of Sellers arising from and after the Closing
Date under (i) Contracts-in-Process, (ii) the Assumed Contracts
and (iii) such additional contracts, agreements and commitments
as are entered into by Sellers after the date of this Agreement
in the ordinary course of Business, consistent with Section 13.8
hereof, to the extent that such additional contracts, agreements
and commitments are agreed to be assumed by Buyer in writing at
the Closing (collectively, the "Assumed Liabilities").
4. CLOSING.
4.1 Generally. The closing of the transactions
contemplated by this Agreement (the "Closing") shall take place
at the offices of Somerset in Indianapolis, Indiana at 10:00 a.m.
on April 28, 1995, or such other date as Buyer and Sellers may
mutually agree (the actual date of the Closing being hereinafter
referred to as the "Closing Date"). At the Closing (a) Buyer
shall (i) pay to Sellers a portion of the Purchase Price as
specified in Section 2.5(a) hereof, (ii) deliver to Sellers the
various certificates, instruments and documents referred to in
Section 12 hereof and (iii) deliver to Sellers such assumptions
as Sellers may reasonably request to evidence the assumption by
Buyer of the Assumed Liabilities, and (b) Sellers shall (i)
deliver to Buyer general warranty deeds in recordable form for
the Real Estate and such other bills of sale, assignments and
other documents of transfer reasonably required to transfer to
Buyer the interest of Sellers in the Assets and (ii) deliver to
Buyer the various certificates, instruments and documents
referred to in Section 11 hereof.
4.2 Prorations. On the Closing Date, utility charges,
rents under assumed leases, property taxes and other similar
obligations to third parties shall be prorated between Sellers
and Buyer. For the purposes of prorating real estate taxes,
Sellers shall be liable for all such taxes assessed in 1995
prorated to the Closing Date. Such taxes shall be prorated as of
the Closing Date based on the most recent tax rates and
assessments in effect with respect to the Facilities and such
taxes will thereafter be paid by Buyer. To the extent that the
actual amount of taxes for 1995 exceed the amount so estimated,
Sellers shall pay to Buyer the proportionate share of such
increase promptly after such taxes are announced. On the Closing
Date, Sellers shall pay all real property assessments and similar
charges, and any accrued interest thereon, including any special
assessments.
5. LABOR AND EMPLOYMENT MATTERS
5.1 Generally. Without limiting the generality of
Section 3 hereof, except as provided in this Section 5, Buyer
shall not assume any employment or employee benefit obligation or
any wage or salary payment obligation of Sellers, including
without limitation those obligations arising under any pension,
profit sharing, deferred compensation, bonus, stock option,
severance, welfare, sick leave, vacation, wage or other employee
benefit or compensation plan, procedure, policy or practice of
Sellers regardless of whether such plan, procedure, policy or
practice is disclosed to Buyer. Sellers shall afford Buyer a
reasonable opportunity to interview their employees specifically
listed on Exhibit I attached hereto (and any replacements
therefor in the ordinary course of business prior to the Closing
Date ) for prospective employment by Buyer (the "Permitted
Employees") if so requested by Buyer, and shall not attempt to
retain in their employ any such Permitted Employees whom Buyer
desires to hire, or to otherwise interfere with Buyer's
discussions with such Permitted Employees. The Permitted
Employees include all manufacturing and supervisory employees of
Sellers located at the Facilities. Buyer shall be entitled (but
shall have no obligation) to offer employment to any Permitted
Employee, on terms and conditions established by Buyer, which
shall be reasonably comparable to the terms and conditions
generally available to similarly situated employees of Buyer.
Sellers shall furnish to Buyer such information in their
personnel files with respect to Permitted Employees as Buyer may
reasonably request in connection with determining whether to
employ such Permitted Employee. The provisions of this Section 5
shall not constitute an employment contract to employ any
particular employee for any specified period of time. Without
the prior written consent of Sellers, Buyer shall not interview,
offer employment to, or employ any employee of Sellers who is not
a Permitted Employee in connection with the Facilities or in any
capacity related to the manufacture or sale of precast or
prestressed concrete products by Buyer within the United States,
during a period of two years from and after the Closing Date
unless (i) any such employee has been previously terminated by
Sellers and (ii) has not been rehired by a purchaser of the
Indianapolis Facility within 30 days after the closing of the
purchase of the Indianapolis Facility. At the Closing, Buyer
shall deliver to Sellers a schedule indicating which of the
Permitted Employees have accepted employment with Buyer
subsequent to the Closing, to which of the Permitted Employees
Buyer has made offers of employment which have not been accepted
as of the Closing Date and which of the Permitted Employees have
as of the Closing Date rejected offers of employment by Buyer.
5.2 Employment Transition Provisions. Sellers shall,
effective on the Closing Date, terminate the employment of each
Permitted Employee. Seller may at its option, however, continue
subsequent to Closing Date to employ any Permitted Employee whom
Buyer does not intend to employ at Closing. On the Closing Date,
or as soon as practicable thereafter, but in any event no later
than the earlier of the date required by applicable law or the
date that would otherwise have been the next regularly scheduled
payday for each such person, Sellers shall pay each such person
all accrued wages, salary, commission, bonus and other employee
compensation payments for all periods prior to the Closing Date.
In addition, Sellers shall pay or provide for all other employee
benefits maintained by Sellers for all periods prior to the
Closing Date, including, subject to Section 5.3 hereof, all
earned and accrued vacation, all in accordance with applicable
law, and shall satisfy all obligations imposed by applicable
federal or state law (including without limitation the
Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended ("COBRA")) relating to health benefit contribution
privileges of any former employee of Sellers whether terminated
by Sellers incident to the Closing or otherwise.
5.3 Vacation. Promptly after the Closing, Sellers and
Buyer shall jointly prepare a schedule setting forth for each
employee of Sellers who accepts employment by Buyer (i) the
number of days of vacation earned by such employee for his
current year of employment but unused as of the Closing Date,
(ii) the number of days of vacation, if any, accrued for such
employee as of the Closing Date for his next year of employment
(such accrual to be based upon the number of days in the
employee's current year of employment to and including the
Closing Date), and (iii) the value of such earned and accrued
vacation, based upon the level of compensation paid by Sellers to
such employee immediately prior to the Closing Date. Up to a
maximum of 10 days per individual employee, Buyer shall recognize
such earned and accrued vacation of the employees of Sellers who
accept employment with Buyer (the value of which shall be deemed
to be an Assumed Liability under this Agreement), and shall
provide such vacation to the employees while employed by Buyer
pursuant to Buyer's existing vacation schedule. Sellers shall at
the Closing pay to Buyer an amount equal to such earned and
accrued vacation of such employees as of the Closing Date, based
upon the level of compensation paid by Sellers to such employees
immediately prior to the Closing Date.
5.4 Benefit Plans. Buyer is not assuming
responsibility for any of the Benefit Plans (as hereinafter
defined).
6. LOSS, DESTRUCTION, CONDEMNATION OR DAMAGE TO
ASSETS. If between the date of this Agreement and the Closing
Date any material portion of the tangible Assets are lost,
destroyed, or condemned or suffer any material damage, and if
Buyer shall have waived the conditions precedent contained in
Sections 11.1 and 11.2, if applicable, then, at the sole option
of Buyer, either (a) the Fixed Asset Price shall be reduced by
the excess of (i) the fair market value of such Assets prior to
such loss, destruction, condemnation or damage, over (ii) the
salvage value, if any, of such Assets following such loss,
destruction, condemnation or damage, or (b) no adjustment to the
Fixed Asset Price shall be made and Sellers shall, on the Closing
Date, assign to Buyer all insurance and/or condemnation proceeds
payable to Sellers on account of such loss, destruction,
condemnation or damage pursuant to an assignment in form and
substance satisfactory to Buyer and pay to Buyer the amount of
any deductible under any such insurance.
7. TITLE EXAMINATION
7.1 Delivery of Commitments. Sellers have, at their
expense, caused to be prepared and delivered to Buyer commitments
for American Land Title Association ("ALTA") Owner's Policy Form
B-1970 (if available) title insurance policies by American Realty
Title Insurance Company (as to the Grove City Facility) and
Chicago Title Insurance Company (as to the Westfield Facility).
Said commitments include, or at the Closing will include,
provisions for endorsements deleting or limiting to the
reasonable satisfaction of Buyer the standard exceptions and
agreements to provide a 3.1 zoning endorsement. The amount of
the commitment with respect to the Westfield Facility shall be
$1,760,000 and the amount of the commitment with respect to the
Grove City Facility shall be $2,240,000. Sellers shall pay the
costs for such title insurance commitments, including without
limitation the cost of continuing the abstracts for the subject
real property and the premiums for the final title policies based
thereon. Sellers shall use their best efforts to cause final
title policies based on such title insurance commitments to be
issued to Buyer within a commercially reasonable time following
the Closing.
7.2 Survey. Sellers have, at their expense, furnished
Buyer with a current survey of each parcel of the Real Estate by
a reputable surveyor selected by Sellers, showing access, the
location of all points and lines referred to in the legal
description, the location and dimension of all easements,
buildings, improvements, parking areas, encroachments, if any,
and utility lines available to each parcel of the Real Estate in
adjacent public rights-of-way or recorded easements therefor,
together with the legal description of said real estate, which
shall prior to the Closing be certified to Sellers, Buyer,
Buyer's lender with respect to financing for the transactions
contemplated by this Agreement and to the applicable title
company and otherwise acceptable to said title insurance
companies.
7.3 Title Objections. Buyer has notified Sellers of
certain objections to title to said property pursuant to the
letter and memorandum of Baker & Hostetler dated February 8, 1995
and the letter of Faegre & Benson dated February 16, 1995.
Sellers shall use reasonable efforts to cure such objections
prior to the scheduled Closing Date. Unless Buyer waives its
objections, the Closing Date shall be extended for 15 days or
until such earlier date, if any, as the objections have been
cured. In the event Sellers are unable to cure such objections
within such period, then Buyer shall have the right and option to
terminate this Agreement, or to waive its objections, or to allow
Sellers additional time in which to cure such objections, in
which case the Closing Date shall be appropriately further
extended. Notwithstanding the foregoing, in the event Sellers
and Buyer agree upon a reduction in the Fixed Asset Price so as
to compensate Buyer for such objections to title, the
transactions contemplated by this Agreement shall close in
accordance with the terms of this Agreement, except for the
reduction in the Fixed Asset Price and charges resulting from the
title defect that is the subject of the objection, and any other
terms as the parties may agree upon in writing.
7.4 Cooperation. Sellers shall cooperate with Buyer
both before and after the Closing in connection with the efforts
of Buyer, if any, to cure any objections to title raised by Buyer
which are not cured before the Closing Date, if Buyer elects to
close notwithstanding such objections.
8. ENVIRONMENTAL OBJECTIONS
8.1 Phase I Environmental Assessments. Buyer has
caused Phase I Environmental Site Assessments to be performed by
CTL Engineering, Inc. ("CTL Engineering"), at Buyer's expense,
for the purpose of determining whether any material environmental
risks would be associated with the ownership of the Real Estate
and other Assets or the operation of the Business. Based on such
Phase I Environmental Site Assessments, the parties have
identified specific environmental objections in connection with
the Real Estate, the Assets or the Business described in Schedule
3 hereto.
8.2 Sellers' Activities Prior to Closing Date.
Subject to Section 8.3 hereof, Sellers shall use reasonable
efforts, at their expense, to remedy the Environmental Objections
to the extent practicable prior to the Closing Date, and the
Sellers shall commence or continue such efforts as soon as
practicable after the date hereof. "Environmental Objections"
mean the items specifically identified in Schedule 3 hereto and
any other "recognized environmental condition" (as such term is
defined in ASTM Practice E1527) discovered in the process of the
remediation of the items listed in Schedule 3 hereto. Sellers
may at their option retain CTL Engineering or other reputable
environmental consulting firm to assist Sellers in performing its
activities under this Section 8. The parties acknowledge and
agree that Environmental Objections numbers 2 through 10 on
Schedule 3 hereto shall be deemed cured and satisfied in full if
Sellers shall remove the drums described in Schedule 3 hereto and
if the surface staining described in such Environmental
Objections, together with related subsoil contamination, shall be
removed to the extent that any remaining concentrations of such
contamination shall be at levels which CTL Engineering reasonably
determines do not require action by the applicable state agency.
The parties further acknowledge and agree that Environmental
Objection number 1 on Schedule 3 hereto (the "Grove City UST
Remediation") shall be deemed cured and satisfied in full upon
the completion of the remediation plan for such Environmental
Objection set forth in the proposal dated October 17, 1994
prepared by BBU Services and receipt of the appropriate evidence
of closure from the applicable state agency.
8.3 Certain Uncured Environmental Objections. The
parties recognize that remediation of the Environmental
Objections described in Section 8.2, including in particular the
work required in connection with the Grove City UST Remediation,
may not practicably be completed by Sellers prior to the Closing
Date due to the nature or scope of the work required, the need
for regulatory approvals (if any), and site conditions. On or
before ten days prior to the Closing Date, Sellers shall furnish
to Buyer written notice ("Sellers' Notice") describing the
specific remedial measures taken by Sellers prior to the Closing
Date in connection with the Environmental Objections, the extent
(as applicable) to which the Environmental Objections have been
cured and satisfied in full in accordance with Section 8.2, a
summary of all direct costs incurred by Sellers in connection
therewith, and a work plan for completing any remaining work
required in order to cure all Environmental Objections based upon
conditions known at that time, including a detailed estimate by
specific Environmental Objection of the top level of the
reasonable expected range of costs to complete such work prepared
by CTL Engineering ("Sellers' Work Plan"). On the Closing Date,
Sellers shall furnish to Buyer an update to Sellers' Work Plan if
necessary to reflect conditions discovered since the initial
delivery of Sellers' Work Plan. Sellers shall simultaneously
furnish to Buyer all relevant information, including but not
limited to copies of invoices and test results, relating to the
Sellers' Notice. An amount equal to the cost of remediation, as
estimated in Sellers' Work Plan (but in no event exceeding
$200,000 less the costs of remediation incurred by Sellers after
the date hereof and prior to the Closing Date), shall be withheld
from the Fixed Asset Price payable at Closing.
8.4 Activities Subsequent to Closing Date. If any
portion of the Fixed Asset Price shall have been deferred under
Section 8.3 hereof, Buyer shall as soon as practicable after the
Closing Date take only such actions as shall be commercially
reasonable to cure the Environmental Objections in accordance
with Seller's Work Plan. Upon the completion of all work set
forth in Seller's Work Plan other than the Grove City
Remediation, Buyer shall provide written notice to Sellers of the
specific additional remedial measures taken by Buyer, together
with a summary of all direct costs incurred by Buyer in
connection therewith, and including all supporting documentation.
Buyer shall promptly pay to Sellers the balance of the Fixed
Asset Price deferred under Section 8.3 hereof less (i) the total
amount of such direct costs incurred by Buyer, plus (ii) the
estimated costs of the Grove City Remediation, as estimated in
Sellers' Work Plan. Upon the earlier to occur of (x) completion
of the Grove City Remediation and (y) the end of the two-year
period following the Closing Date, Buyer shall promptly pay to
Sellers the balance of any such funds not expended in connection
with the Grove City Remediation.
Notwithstanding any other provision of this
Agreement, the aggregate obligation of Sellers to Buyer with
respect to compliance of the Facilities, the Assets and the
Business with Environmental Law (as hereinafter defined) shall be
limited to the amounts payable or paid by Sellers (directly or
through deduction from the Fixed Asset Price) in accordance with
this Section 8, except only with respect to the obligation of
Sellers under this Agreement in connection with any breach by
Sellers of representations or warranties contained in Section 9.6
hereof.
8.5 Right of Buyer to Terminate Agreement in
Connection with Environmental Objections. Notwithstanding any
other provision of this Section 8, in the event that the
aggregate estimated costs of remediating the Environmental
Objections as set forth in Seller's Work Plan exceeds $500,000
less the costs of remediation incurred by Sellers after the date
hereof and prior to the Closing Date, and if Sellers refuse to
adjust the Fixed Asset Price by the full amount of such estimated
costs, Buyer shall not be obligated to consummate the transaction
contemplated by this Agreement, and may terminate the Agreement
without further obligation to either party. If Buyer elects to
close notwithstanding any such determination, the obligations of
Sellers with respect to the remediation of the Environmental
Objections shall be limited as provided in this Section 8.
9. REPRESENTATIONS AND WARRANTIES OF SELLERS. Except
as otherwise disclosed in Exhibit J attached hereto, Sellers
hereby, jointly and severally, represent and warrant to Buyer as
follows:
9.1 Corporate Organization. Each Seller is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Indiana. Sellers have the
corporate power and authority to carry on their respective
businesses as now being conducted. Sellers are duly qualified or
licensed to do business as foreign corporations and are in good
standing in Ohio and each other jurisdiction wherein the nature
of their respective activities or their respective properties
owned or leased makes such qualification necessary and failure to
be so qualified or licensed would have a material adverse effect
upon the Business or the Assets.
9.2 Authorization of Agreement. Each Seller has the
requisite corporate power to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. Provided
the Closing occurs as contemplated hereunder, the execution and
delivery by Sellers of this Agreement and Sellers' Noncompetition
Agreement and the other agreements, documents and instruments
contemplated hereby, and the consummation of the transactions
contemplated hereby and thereby, have been, or will at the
Closing be, duly authorized by all necessary corporate action on
the part of Sellers. This Agreement and Sellers' Noncompetition
Agreement and all other instruments required hereby to be
executed and delivered by Sellers are, or when delivered will be,
legal, valid and binding obligations of Sellers, enforceable
against Sellers in accordance with their respective terms,
subject only to the corporate action by Sellers described in the
preceding sentence.
9.3 Conflicting Agreements, Governmental Consents.
The execution and delivery by Sellers of this Agreement, Sellers'
Noncompetition Agreement and the other agreements, documents and
instruments contemplated hereby, the consummation of the
transactions contemplated hereby or thereby, and the performance
or observance by the Sellers of any of the terms or conditions
hereof or thereof, will not (a) conflict with, or result in a
breach or violation of the terms or conditions of, or constitute
a default under, or result in the creation of any lien on any of
the Assets pursuant to, the Articles of Incorporation or By-Laws
of any Seller, any award of any arbitrator, or any indenture,
contract or agreement (including any agreement with
stockholders), instrument, order, judgment, decree, statute, law,
rule or regulation to which any Seller or the Assets is subject,
or (b) require any consent or approval of or filings with, any
federal, state or local governmental agency or authority other
than routine filings and registrations in connection with the
transfer of the Business and Assets not required to be made prior
to the Closing.
9.4 Actions, Suits, Proceedings. There are no
requests, notices, investigations, claims, demands, actions,
suits or other legal or administrative proceedings pending or, to
the best knowledge of Sellers, threatened against any Seller or
any of their respective properties in any court or before any
federal, state, municipal or other governmental agency which, (a)
if decided adversely to such Seller, would have a materially
adverse effect upon the Business, the Real Estate or the other
Assets, (b) seek to restrain or prohibit the transactions
contemplated by this Agreement or obtain any damages in
connection therewith, or (c) in any way call into question the
validity of this Agreement or the Noncompetition Agreement; nor
is any Seller in default with respect to any order of any court
or governmental agency entered against it in respect of the
Business, the Real Estate or any of the other Assets. Sellers
have not received notice of the initiation of any condemnation
proceeding with respect to the Real Estate, or offer or sale in
lieu thereof, or any judgments, orders, decrees, stipulations,
settlement agreements, liens or injunctions relating in any way
to the Real Estate (other than Permitted Encumbrances), which
have not been wholly and completely settled, complied with and
discharged. To the knowledge of Sellers, there is no plan, study
or effort by any governmental authority or agency which in any
way affects or would affect the present use or zoning of the Real
Estate, nor any existing, proposed or contemplated plan to widen,
modify or realign any street or highway adjoining the Real
Estate.
9.5 Compliance with Laws and Other Instruments. To
the knowledge of Sellers, the Business has been and is being
conducted in all material respects with all applicable laws,
rules or regulations of all governmental authorities. Sellers
have not received notice from any applicable governmental
authority of any material violation of any applicable law, rule
or regulation relating to the Business, the Real Estate or any of
the other Assets. There are no requests, notices,
investigations, claims, demands, actions, administrative
proceedings, hearings or other governmental claims or proceedings
pending against Sellers alleging or investigating the existence
of any such violation. Notwithstanding anything herein to the
contrary, the provisions of this Section 9.5 do not apply to
compliance with environmental rules, laws, or regulations,
employee plans, labor matters, intellectual property rights,
licenses and permits, or taxes, the subject matter of which are
described in representations and warranties contained in
Sections 9.6, 9.8, 9.9, 9.14, 9.15, and 9.18, respectively.
Sellers are not in violation of their respective Articles of
Incorporation or By-Laws.
9.6 Environmental Matters.
(a) For purposes of this Agreement,
(i) "Environmental Assessments" mean the Phase I
Environmental Site Assessments conducted by CTL
Engineering, Inc. in connection with the Facilities,
and any other or subsequent reports, assessments, or
investigations, or any information obtained in
connection with inspections, investigations, or work at
the Facilities, conducted or obtained by Sellers,
Buyer, CTL Engineering, Inc., or any other person or
entity as of or prior to the Closing Date in connection
with the status or condition of the Real Estate or
Facilities, or compliance of the Business, Real Estate
or Facilities with Environmental Law.
(ii) "Environmental Law" means the Comprehensive
Environmental Response, Compensation and Liability Act,
42 U.S.C. 9601 et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. 6901 et seq., the Federal
Water Pollution Control Act, 33 U.S.C. 1201 et seq.,
the Clean Water Act, 33 U.S.C. 1321 et seq., the
Clean Air Act, 42 U.S.C. 7401 et seq., and any other
federal, state, local or other governmental statute,
regulation, law or ordinance dealing with the
protection of human health, natural resources or the
environment;
(iii) "Hazardous Substance" means any pollutant,
contaminant, hazardous substance or waste, solid waste,
petroleum or any fraction thereof, or any other
chemical, substance or material listed or identified in
or regulated by any Environmental Law; and
(iv) "RCRA Hazardous Waste" means a hazardous
waste, as that term is defined in and pursuant to the
Resource Conservation and Recovery Act, 42 U.S.C.
6901 et seq. ("RCRA").
(b) To the knowledge of Sellers and except as
otherwise disclosed in Exhibit J or in the Environmental
Assessments, (i) no Hazardous Substances have during the
period of Sellers' ownership of the Real Estate been buried,
spilled, leaked, discharged, emitted, generated, stored,
used or released, and no (ii) Hazardous Substances are now
present, in, on, or under the Real Estate except (as to (i)
and (ii) above) for quantities of Hazardous Substances
stored or used by the Sellers in the ordinary course of
their business and in material compliance with all
applicable Environmental Law.
(c) To the knowledge of Sellers, except as otherwise
disclosed in Exhibit J or in the Environmental Assessments,
the Real Estate and the other Assets are not being used, and
neither the Real Estate nor any of the other Assets ever has
been used, in connection with the treatment, storage or
disposal of RCRA Hazardous Wastes, as such activities are
defined in RCRA.
(d) To the knowledge of Sellers and except as
otherwise disclosed in Exhibit J or the Environmental
Assessments, there are not now and never have been any
underground or aboveground storage tanks or other
containment facilities of any kind on the Real Estate which
contain or ever did contain any Hazardous Substances.
(e) To the knowledge of Sellers, the Real Estate is
not and never has been listed on the National Priorities
List, the Comprehensive Environmental Response, Compensation
and Liability Information System or any similar federal,
state or local list, schedule, log, inventory or database.
(f) To the knowledge of Sellers, Sellers have
delivered, or will have delivered prior to the Closing Date,
to Buyer true and complete copies of all consultant reports
and all federal, state or local authorizations, permits,
licenses, disclosures and other documents in their
possession, custody or control describing or relating in any
way to the Business, the Real Estate or any of the other
Assets which describe, mention or discuss the status thereof
with respect to any Environmental Law.
(g) To the knowledge of Sellers, except as otherwise
disclosed in Exhibit J or in the Environmental Assessments,
there are not and there never have been any requests,
notices, investigations, claims, demands, actions, suits or
other legal or administrative proceedings relating in any
way to the Business, the Real Estate or any of the other
Assets, alleging liability of Sellers under, violation by
Sellers of, or noncompliance by Sellers with any
Environmental Law or any license, permit or other
authorization issued pursuant thereto. To the knowledge of
Sellers, except as otherwise disclosed in Exhibit J or in
the Environmental Assessments, no such matter is threatened
or impending, nor does there exist any substantial basis
therefor.
(h) To the knowledge of Sellers, except as otherwise
disclosed in Exhibit J or in the Environmental Assessments,
Sellers operate and at all times have operated the Business
in material compliance with all applicable Environmental
Law, and all licenses, permits and other authorizations
required pursuant to any Environmental Law and necessary for
the lawful and efficient operation of the Business are in
Sellers' possession and are in full force and effect. To
the knowledge of Sellers, there is no threat that any such
permit, license or other authorization will be withdrawn,
terminated, not renewed, or otherwise materially limited or
changed.
9.7 Employees. Exhibit I hereto lists all Permitted
Employees at the date hereof engaged in operation of the Business
and in the case of each such Permitted Employee sets forth the
position, level of base compensation, provision for bonus
compensation, if any, earned and accrued vacation, date of
employment, and years of employment recognized for determining
eligibility for participation in, and vesting and credited
service under the Benefit Plans, as the case may be.
9.8 Employee Plans. Set forth on Exhibit K attached
hereto is a list of all life, health, dental, accident or
disability plans, workers' compensation and other insurance
plans, and any other similar employee benefit plans, practices,
policies or arrangements, whether written or oral, which are
maintained by any Seller for the benefit of (or under which any
Seller has any obligations, whether absolute or contingent, to)
any Permitted Employees, including but not limited to any such
"employee benefit plan" which is subject to the Employee
Retirement Income Security Act of 1974 ("ERISA") (hereinafter
collectively referred to as "Benefit Plans"). Sellers have
afforded Buyer an opportunity to review true and correct copies
or summaries of all such Benefit Plans. Except as provided in
Exhibit K, at no time during the 72-month period preceding the
Closing Date has any Seller or any entity aggregated with any
Seller under Section 414(b), (c), (m) or (o) of the Internal
Revenue Code of 1986, as amended, or Section 4001 of ERISA
maintained or contributed to, with respect to the Business, any
plan which is a multi-employer plan as defined in Section
4001(a)(3) of ERISA or any plan which is a defined benefit
pension plan subject to Title IV of ERISA.
9.9 Labor Matters. There are no existing labor
disputes or disturbances which materially adversely affect the
Business or the future prospects of the Business. There are no
existing employment agreements or collective bargaining
agreements between Sellers and any of their respective employees
engaged in operation of the Business or any collective bargaining
unit representing any such employees, and no such agreements are
currently in the process of being negotiated. No petition has
been filed or is pending with the National Labor Relations Board
by any labor organization or any group of employees for an
election or certification regarding the representation of any
group of any Seller's employees engaged in the operation of the
Business by a labor organization. To the knowledge of Sellers,
there is no present solicitation or campaign by any labor
organization or employee for the representation of any Seller's
employees engaged in the operation of the Business by a labor
organization.
9.10 Title to Real Property. Exhibits A-1 and A-2
hereto correctly identify the Real Estate. Sellers have good and
marketable title to the Real Estate, free and clear of all
mortgages, liens and encumbrances, other than Permitted
Encumbrances.
9.11 Title to Personal Property. Sellers have good
title to all personal property included in the Assets, free and
clear of all mortgages, liens, pledges, charges and encumbrances,
other than Permitted Encumbrances.
9.12 Condition of Assets. The tangible Fixed Assets
are in operable condition subject to ordinary wear and tear and
subject to requirements to provide maintenance and replacement of
specific Fixed Assets in the ordinary course from time to time in
view of the age of such Fixed Assets. The inventory is in the
aggregate usable in connection with the manufacturing operations
at the Facilities, subject to normal allowances for obsolete and
unusable inventories in the ordinary course of business. All
Inventory is located at the Facilities, except for raw steel and
steel subassemblies intended for use at the Facilities but stored
at the Indianapolis Facility.
9.13 Contracts. Exhibit E hereto sets forth correctly
all contracts, indentures, guarantees, leases, commitments or
other agreements related to the Business to which any Seller is a
party or by which it is bound, which involves anticipated future
expenditures by or payment of proceeds to any Seller in excess of
$10,000, except the Completed Contracts and Contracts-in-Process.
Exhibit H hereto is a true and correct list of all current
project contracts related to the Business. Sellers and, to the
knowledge of Sellers, each other party thereto, have
substantially performed all obligations required to be performed
by them to date, and are not in default in any material respect,
under any of the instruments or agreements described above.
Except as described in Exhibit E and H, the instruments and
agreements described above which are to be assigned to Buyer
hereunder are each in full force and effect and are assignable to
Buyer without the consent of third parties, and Sellers have not
waived or assigned to any other person any of their respective
rights thereunder. Sellers have delivered or made available to
Buyer true and correct copies of all such contracts, indentures,
guaranties, leases, commitments and other agreements.
9.14 Intellectual Property Rights.
(a) To the knowledge of Sellers, Sellers own or
possess, are licensed under, or otherwise have lawful access
to, all patents, trade secrets, know-how, other confidential
information, trademarks, service marks, copyrights, mask
works, trade names, logos and other intellectual property,
whether registered or unregistered, necessary for the lawful
conduct of the Business as now conducted or intended to be
conducted, without (to the knowledge of Sellers) any
infringement of or conflict with the industrial or
intellectual property rights of others. Sellers do not know
of any unauthorized use or disclosure or misappropriation of
any of their respective registered intellectual property,
and Sellers have taken reasonable steps in light of the
nature of the business to protect against the unauthorized
use or disclosure of their intellectual property (or of the
intellectual property of others entrusted to Sellers).
(b) Exhibit F hereto lists and describes correctly all
patents and all registered copyrights, mask works, and other
registered intellectual property (and all applications for
any of the foregoing) included in the Assets, all of which
are owned of record solely in the name of the Sellers listed
thereon, are beneficially owned solely by the Sellers listed
thereon, and have not been licensed or otherwise been made
available by any Seller for use by others. All such patents
and registered intellectual property rights are in full
force and effect and will not expire or require renewal
until the respective dates (if any) set forth in Exhibit F.
Sellers (i) do not own or have any license or other interest
in or to any other patents or registered copyrights, mask
works, or other registered intellectual property (or
applications for any of the foregoing), other than
tradenames, trademarks and service marks included in the
Excluded Assets, (ii) do not own or use in the Business any
unregistered intellectual property, other than technical
know-how, software applications and programs, and business
information necessary for the operation of the Business, and
(iii) do not license from persons or entities other than
Buyer the right to use any industrial or intellectual
property.
(c) Sellers have no reason to believe that (i) any of
the registered intellectual properties owned or used by
Sellers in the Business are invalid or unenforceable
(whether due to the existence of prior art, inequitable
conduct such as patent fraud or misuse, prior use or
creation, abandonment or otherwise), (ii) any payments to
governmental agencies required to maintain the effectiveness
of any patents or any registered intellectual properties
have not been timely paid, or (iii) any pending applications
of Sellers for patents or for registration of other
intellectual property will be denied or will be materially
restricted or conditioned, or any prior art or other
information or circumstance exists which would cause such
denial, restriction or condition.
(d) (i) Sellers have not received any communications
from any person or entity containing any express or implied
allegation that any Seller is or may be infringing any of
such person's or entity's intellectual property, and (ii) is
not currently evaluating any intellectual property of
another person or entity (and has not conducted any such
evaluations in the past five years) to determine whether a
license thereof is necessary or desirable or whether such
intellectual property may otherwise have a material effect
on any Seller's existing or planned business, products or
services.
9.15 Licenses and Permits. Exhibit G hereto correctly
describes all material licenses and permits granted to or by
Sellers in connection with the operation of the Business.
Sellers have all material licenses and permits required by law or
otherwise necessary for the proper operation of the Business.
All material licenses and permits granted to Sellers are in full
force and effect, and no action to terminate, withdraw, not renew
or materially limit or otherwise change any such license or
permit is, to the knowledge of Sellers, pending or has been
threatened by any governmental agency or other party. The
consummation of the transactions contemplated by this Agreement
will not violate the provisions of any such license or permit.
Such licenses or permits are assignable only in accordance with
their terms or if otherwise permitted by applicable law. Sellers
have delivered to Buyer true and correct copies of all such
licenses and permits.
9.16 Financial Information. Attached hereto as
Exhibit L are (a) a consolidated balance sheet of Somerset at
December 31, 1993, together with the related statements of
stockholders' equity and cash flows then ended, and the report
thereon of KPMG Peat Marwick, certified public accountants, (b) a
pro forma balance sheet of Sellers for the Business at
December 31, 1993, together with a profit and loss statement for
the year then ended prepared by Sellers, (c) a pro forma balance
sheet of Sellers for the Business at September 30, 1994 (the
"Balance Sheet Date") and a pro forma profit and loss statement
for the Business for the nine months then ended prepared by
Sellers, and (d) a pro forma balance sheet of Sellers for the
Business at December 31, 1994 and a pro forma profit and loss
statement for the Business for the year then ended prepared by
the Sellers. Such financial statements (a) were prepared in
accordance with the books and records of Sellers, (b) present
fairly in all material respects the financial condition of
Sellers and the Business at such dates and the results of
operations and cash flows, as applicable, for the periods therein
specified and (c) have been prepared in accordance with generally
accepted accounting principles consistent with prior periods.
9.17 Business Changes. Except for the transactions
contemplated by this Agreement, since the Balance Sheet Date,
there has not been:
(a) Any material adverse change in the Assets, the
Business or the financial condition, prospects, operations,
results of operations or business of any Seller other than
in connection with seasonal fluctuations inherent in the
Business;
(b) Any damage, destruction or loss (whether or not
covered by insurance) materially and adversely affecting the
Business or the Assets;
(c) Any sale, lease, abandonment or other disposition
of any of the assets used in or useful to the Business
materially and adversely affecting the Business, except for
dispositions of Inventory in the ordinary course of
business;
(d) Any mortgage, pledge or other lien or encumbrance
affecting any of the Assets;
(e) Any transfer of the Assets by any of the Sellers
to any shareholder or any officer, director, employee or
affiliate of Sellers or any other transfer of Purchased
Assets outside of the ordinary course of business;
(f) Any material deviation from the ordinary and usual
course by Sellers in the conduct of their respective
businesses, including, without limitation, any increase in
compensation of any Permitted Employee other than annual
increases in the ordinary course of business (including,
without limitation, any increase pursuant to any bonus,
pension, profit sharing or other plan or commitment) or the
adoption of any new benefit program, plan or other
arrangement which would affect Permitted Employees and would
have a material adverse impact on Sellers' businesses;
(g) Any material change in accounting methods or
practices followed by Sellers, including changes to
amortization or depreciation policies or write-downs in the
value of any Inventory or the Purchased Accounts
Receivables;
(h) Any material increase in any obligations or
liabilities (whether absolute, accrued, contingent or
otherwise and whether due or to become due), except items
incurred in the ordinary course of business; or
(i) Any transaction materially and adversely affecting
the Business or the Assets entered into by any Seller other
than in the ordinary course of business, except this
Agreement.
9.18 Taxes. To the knowledge of Sellers, Sellers have
filed all federal, state and local tax returns required to be
filed by them, and have paid all federal, state and local income,
profits, franchise, sales, use, property, excise, payroll, and
other taxes and assessments (including interest and penalties) to
the extent that such have become due. No claims for additional
taxes have been asserted against any Seller and no audits are
pending with respect to any tax liabilities of any Seller which
could in the aggregate materially and adversely affect the
Assets, the Business or the sale thereof in accordance with this
Agreement.
9.19 Capital Projects. No construction or other
capital projects related to the Business and which involve
anticipated future expenditures by Sellers in excess of $10,000
are in progress, have been contracted for or, to the knowledge of
Sellers, are required by applicable law or regulation in
connection with the operation of the Business. All completed
construction and other capital projects are reflected in the
balance sheet referred to in Section 9.16(c) hereof.
9.20 Composition of Assets. The Assets comprise all
material property and assets employed by Sellers in the Business,
except for the Excluded Assets. Except for the Real Estate, no
other real property owned or leased by Sellers (other than the
Indianapolis Facility) is directly used in the operation of the
Business.
9.21 Insurance. Sellers maintain property and casualty
insurance on all tangible Assets on a replacement value basis and
product liability insurance with respect to the Business as
described generally on Exhibit M hereto. All policies providing
such insurance are in full force and effect and Sellers have not
received any notice of impending cancellation or nonrenewal
thereof.
9.22 Brokers and Finders. Sellers have not retained or
engaged any broker, finder or other financial intermediary in
connection with the transaction contemplated by this Agreement.
9.23 Full Disclosure. To the knowledge of Sellers, no
representation or warranty by Sellers contained in this Agreement
or the exhibits hereto, and no written representation, statement
or certificate made or furnished, or to be made or furnished
hereafter, by any Seller or any of their respective officers or
representatives pursuant to this Agreement or in connection with
the transactions contemplated hereby, contains or will contain
any untrue statement of a material fact or omits or will omit to
state a material fact necessary to make the representations or
statements contained herein or therein not misleading.
10. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer
hereby represents and warrants to Sellers as follows:
10.1 Organization. Buyer is a corporation duly
organized, validly existing and in good standing under the laws
of the State of Minnesota and has the corporate power to execute
and deliver this Agreement and to consummate the transactions
contemplated hereby.
10.2 Conflicting Agreements, Governmental Consents.
The execution and delivery by Buyer of this Agreement, the
Noncompetition Agreements and the other agreements, documents and
instruments contemplated hereby, the consummation of the
transactions contemplated hereby or thereby, and the performance
or observance by Buyer of any of the terms or conditions hereof
or thereof, will not (a) conflict with, or result in a breach or
violation of the terms or conditions of, or constitute a default
under, the Articles of Incorporation or By-Laws of Buyer, any
award of any arbitrator, or any indenture, contract or agreement
(including any agreement with stockholders), instrument, order,
judgment, decree, statute, law, rule or regulation to which Buyer
is subject, or (b) require any filing or registration with, or
any consent or approval of, any federal, state or local
governmental agency or authority.
10.3 Corporate Authority. The execution and delivery
by Buyer of this Agreement, the Noncompetition Agreement and the
other agreements, documents and instruments contemplated hereby,
and the consummation of transactions contemplated hereby or
thereby, have been duly authorized by all necessary corporate
action. This Agreement and all other documents and instruments
required hereby to be executed and delivered by Buyer are, or
when delivered will be, legal, valid and binding obligations of
Buyer, enforceable in accordance with their respective terms.
10.4 Brokers and Finders. Buyer has not retained any
broker, finder or other financial intermediary in connection with
the transactions contemplated by this Agreement.
10.5 Full Disclosure. To the knowledge of Buyer, no
representation or warranty by Buyer contained in this Agreement
or the exhibits hereto, and no written representation, statement
or certificate made or furnished, or to be made or furnished
hereafter, by Buyer or any officer or representative of Buyer
pursuant to this Agreement or in connection with the transactions
contemplated hereby contains or will contain any untrue statement
of a material fact or omits or will omit to state a material fact
necessary to make the representations or statements contained
herein or therein not misleading.
11. CONDITIONS TO OBLIGATION OF BUYER TO CLOSE. The
obligation of Buyer to effect the closing of the transactions
contemplated by this Agreement is subject to the satisfaction
prior to or at the Closing of the following conditions:
11.1 Representations and Warranties. The
representations and warranties of Sellers contained in this
Agreement, as supplemented in accordance with this Agreement,
shall be true and correct in all material respects on the Closing
Date, with the same effect as though made on and as of the
Closing Date.
11.2 Observance and Performance. Sellers shall have
observed and performed in all material respects all covenants and
agreements required by this Agreement to be observed or performed
by Sellers on or prior to the Closing Date.
11.3 No Adverse Change. There shall have occurred no
material adverse change in the Assets or the Business as a whole
since the Balance Sheet Date.
11.4 Officers' Certificate. Sellers shall have
delivered to Buyer a certificate, dated the Closing Date,
executed by the President and the senior financial officer of
Somerset certifying to the satisfaction of the conditions
specified in Sections 11.1, 11.2 and 11.3 hereof.
11.5 Due Diligence. Prior to signing this Agreement,
Buyer has not been afforded all of the access to proprietary and
other information and personnel which it deems necessary or
desirable for its complete review of the Business and the Product
Lines; accordingly, the obligation of Buyer to effect the closing
of the transactions contemplated by this Agreement is subject to
the additional condition that the results of such review, to the
extent related to information and matters not previously known by
or disclosed to Buyer as of the date hereof, or not otherwise
contained or referred to in the schedules or exhibits to this
Agreement, shall be reasonably satisfactory to the Buyer based on
standards of operation of businesses in the precast/prestressed
concrete industry. This condition shall be deemed satisfied
unless on or prior to 20 days subsequent to the execution hereof,
Buyer shall have notified Sellers in the manner set forth herein
that the condition set forth in this Section 11.5 has not been
satisfied specifying in such notice in what respects Buyer
alleges that the Business does not conform to the standards of
operation of businesses in the precast/prestressed concrete
industry. This Section 11.5 shall not apply to compliance by
Sellers with any Environmental Law, such compliance to be
governed by Section 8 hereof.
11.6 Searches. Buyer shall have received, as of a date
no more than 10 days prior to the Closing Date, Uniform
Commercial Code Searches against Sellers from the Secretary of
State of the States of Ohio and Indiana and from such other
states and/or counties as Buyer shall reasonably request in which
the Business is located, together with tax lien and judgment
searches, in each case certified by a reporting service
satisfactory to Buyer, and disclosing no liens or security
interests against the Assets other than Permitted Encumbrances.
11.7 Consents of Third Parties. Buyer shall have
received duly executed copies of any material consents necessary
to permit the transfer of the Assets to Buyer, including without
limitation the assignment of the contracts and agreements
described in Exhibits E and H hereto without breach thereof.
Notwithstanding the above, however, if any such consent or
approval is not obtained prior to the Closing, then Buyer will
cooperate with Seller in any reasonable arrangement (including
but not limited to a sub-contract or agency arrangement)
necessary or desirable to afford the Buyer the practical benefits
and obligations under such contract for periods subsequent to
Closing consistent with the terms of this Agreement, and in such
event this condition shall be deemed satisfied notwithstanding
that third-party consent or approval shall not have been
obtained.
11.8 Notices. Sellers shall have made all filings and
registrations with all federal, state and local governmental
agencies or authorities required to be made by Sellers in
connection with the execution and delivery hereof and the
consummation of the transactions contemplated hereby.
11.9 Regulatory Approvals. Buyer shall have received
all authorizations, consents and approvals of governments and
governmental agencies required in connection with the purchase
and sale contemplated by this Agreement.
11.10 Legal Opinion. Buyer shall have received an
opinion, dated the Closing Date from Bose, McKinney & Evans,
counsel to Sellers, substantially in the form attached hereto as
Exhibit N.
11.11 No Legal Actions. No court or governmental
authority of competent jurisdiction shall have issued an order
restraining, enjoining or otherwise prohibiting the consummation
of the transactions contemplated by this Agreement, and no
person, firm, corporation or governmental agency other than the
parties shall have instituted an action or proceeding which shall
not have been previously dismissed seeking to restrain, enjoin or
prohibit the consummation of the transactions contemplated by
this Agreement.
11.12 Noncompetition Agreements. Buyer shall have
entered into noncompetition agreements (the "Noncompetition
Agreements") in substantially the form attached hereto as
Exhibit O with each of the Sellers ("Sellers' Noncompetition
Agreement"), Robert H. McKinney and Marni McKinney Jakubovie.
11.13 Span-Deck Royalties. Buyer shall have
received from Sellers payment in full of all Span-Deck royalties
through the Closing Date.
11.14 Title Commitments. Buyer shall have received
an update of the title commitments referred to in Section 7.1
showing no change in title.
11.15 Closing Documents. Buyer shall have received
such warranty deeds, in recordable form, bills of sale,
assignments and other documents of transfer reasonably required
to transfer to Buyer the interests of Sellers in the Assets
consistent with the terms of this Agreement.
12. CONDITIONS TO OBLIGATION OF SELLERS TO CLOSE. The
obligation of Sellers to effect the transactions contemplated by
this Agreement is subject to the satisfaction prior to or at the
Closing of the following conditions:
12.1 Representations and Warranties. The
representations and warranties of Buyer contained in this
Agreement shall be true and correct in all material respects on
the Closing Date, with the same effect as though made on and as
of the Closing Date.
12.2 Observance and Performance. Buyer shall have
observed and performed all covenants and agreements required by
this Agreement to be observed or performed by Buyer on or prior
to or at the Closing Date.
12.3 Officers' Certificate. Buyer shall have delivered
to Sellers a certificate, dated the Closing Date, executed by the
President and the senior financial officer of Buyer verifying to
the satisfaction of the conditions specified in Sections 12.1 and
12.2 hereof.
12.4 Legal Opinion. Sellers shall have received an
opinion, dated the Closing Date, from Faegre & Benson, counsel to
Buyer, substantially in the form attached hereto as Exhibit P.
12.5 Shareholder Approval. The sale of the Assets to
Buyer pursuant to the terms and conditions of this Agreement
shall have been approved by the shareholders of Somerset.
12.6 No Legal Actions. No court or governmental
authority of competent jurisdiction shall have issued an order
restraining, enjoining or otherwise prohibiting the consummation
of the transactions contemplated by this Agreement, and no
person, firm, corporation or governmental agency other than the
parties shall have instituted an action or proceeding which shall
not have been previously dismissed seeking to restrain, enjoin or
prohibit the consummation of the transactions contemplated by
this Agreement.
13. OPERATION OF BUSINESS PRIOR TO CLOSING;
COOPERATION. Sellers agree that, except with the prior written
consent of Buyer, from the date of this Agreement to the Closing:
13.1 Maintenance of Business. Sellers will use
reasonable efforts to preserve intact the business organization
of the Business, to keep available the services of key employees
on terms no less favorable to Sellers than those on which such
employees are presently employed, and to preserve for Buyer the
good will of suppliers, customers and others having business
relationships with the Business. Sellers will maintain their
books and records during such period in a manner consistent with
past practice.
13.2 Employees. Sellers will not increase the number
of Permitted Employees engaged in the Business except in the
ordinary course of business, or effect any increase in
compensation or employee benefits for their Permitted Employees
engaged in operating the business, except for annual raises in
the ordinary course of business and bonuses (if any) paid by
Sellers in connection with the efforts of such Permitted
Employees in effecting the transactions described in this
Agreement.
13.3 No Disposition of Assets. Sellers will not sell,
transfer, dispose of or abandon any portion of the Assets
material to operation of the Business, except in the ordinary
course of business and consistent with past practice.
13.4 No Additional Liens. Sellers will not permit any
of the Assets to become subject to any mortgage, lien, charge or
encumbrance, other than Permitted Encumbrances.
13.5 No Modification of Agreements. Sellers will not
in any respect material to the Business (a) modify or amend any
material contract, lease, commitment or agreement to be assigned
to or assumed by Buyer hereunder, or (b) waive or assign to any
third party any of its rights under any such contract, lease,
commitment or agreement.
13.6 Maintenance of Tangible Assets. Sellers will
maintain all tangible Assets consistent with the requirements of
Section 9.12 in the ordinary course of business.
13.7 Capital Expenditures. Sellers will not incur any
liability to make any expenditure or commitment for the purchase
of any capital asset in connection with the Business in excess of
$10,000.
13.8 No Extraordinary Agreements. Except in connection
with performance by Sellers of activities described in Section 8
hereof, Sellers will not enter into any contract or agreement
which relates to the Business or Assets which involves
anticipated future expenditures by Sellers in excess of $10,000
which contains terms or conditions inconsistent with past
business practices of Sellers or the continued operation of the
Business as a going concern.
13.9 Maintenance of Insurance. Sellers will continue
to carry all existing policies of insurance relating to the
Assets, or will effect renewals or replacements thereof in
substantially the same form and amount, and providing
substantially the same coverage, as such existing policies.
13.10 Accounts Receivable; Accounts Payable.
Sellers will continue to collect their accounts receivable
relating to the Business and pay their accounts payable relating
to the Business in accordance with its past business practices.
13.11 Inventories; Supplies. Sellers will maintain
their Inventories and other consumable materials and supplies at
levels consistent with their past business practices.
13.12 Ordinary Course Operations. Without limiting
the generality of the foregoing, Sellers will in all other
respects operate the Business in the ordinary course.
13.13 Notices to Vendors and Customers. On or
prior to the Closing Date, Sellers will send out notices, in form
and substance satisfactory to Buyer, notifying all of Sellers'
existing vendors and customers of the transactions contemplated
by this Agreement.
13.14 Removal of Broken Concrete. Sellers shall
remove all material amounts of broken concrete from the
Facilities prior to the Closing Date.
13.15 Cooperation. Sellers will furnish to Buyer
all information concerning Sellers, the Business and the Assets
required for inclusion in any statement or application made by
Buyer to any governmental body in connection with the
transactions contemplated by this Agreement (all of which
information Sellers represent, warrant and covenant shall when
furnished be true and complete in all material respects).
Without limiting the foregoing sentence, each party will
cooperate with the other in good faith to obtain all consents and
approvals required from governmental and regulatory authorities
and private third parties necessary to consummate the
transactions contemplated hereby and enable the Buyer thereafter
to carry on the Business without material disruption.
13.16 Inspection Rights. Sellers will permit
employees and agents of Buyer during normal business hours and on
reasonable notice to and in cooperation with Sellers to inspect
the Assets and to inspect all contracts, agreements, other
documents and records reflecting or reasonably relating to the
Assets or the Business. The Confidentiality Agreement between
Somerset and Buyer dated October 11, 1994 (the "Confidentiality
Agreement"), applies in all respects to such information and
materials provided to Buyer, including Permitted Persons (as
defined in the Confidentiality Agreement) and the terms of the
Confidentiality Agreement are incorporated herein by reference
and will survive the termination of or the Closing under this
Agreement.
13.17 Shareholder Approval. Sellers shall use
their best efforts to obtain the approval of the shareholders of
Somerset for the sale of the Assets to Buyer pursuant to the
terms and conditions of this Agreement. Without limiting the
foregoing sentence, Somerset's Board of Directors will recommend
such approval to its shareholders and shall use its best efforts
to obtain the vote of all shares held by individual members of
the Board of Directors for such approval.
14. POST-CLOSING MATTERS.
14.1 Post-Closing Inspection Rights. Buyer agrees that
all books and records delivered to Buyer by Sellers pursuant to
the provisions of this Agreement shall be open for inspection by
representatives of Sellers at any time during regular business
hours on or prior to December 31, 1996, and that Sellers during
such period at their expense may make such excerpts therefrom as
it may deem desirable. Sellers agree that all documents, records
and other materials retained by Sellers that are related to the
Real Estate, the other Assets or the Business shall be open for
inspection by representatives of Buyer at any time during regular
business hours on or prior to December 31, 1996, and that during
such period Buyer may make such excerpts therefrom at its expense
as it may deem desirable. Thereafter, each party shall offer to
the other an opportunity to copy any such documents and materials
prior to the destruction thereof.
14.2 Warranties; Completion of Contracts. If requested
by Sellers and subject to the direction and approval of Sellers,
Buyer will perform the obligations of Sellers with respect to (a)
any warranty claims on or work required to complete any Completed
Contracts, and (b) remedial work required on Contracts-in-Process
attributable to defective material or workmanship of Sellers
prior to the Closing Date. Buyer shall submit to Sellers an
invoice specifying all costs incurred with respect to any such
work performed by Buyer. For purposes hereof, such costs to
Buyer shall be direct costs for materials, use or rental of
equipment, labor (including salary and benefits), subcontractors,
if any, plus freight. Sellers agree to reimburse Buyer for all
such costs, plus a margin of 15% of such costs, payable to Buyer
promptly after submission of an invoice by Buyer. Buyer shall,
without charge to Sellers, store at the Facilities subsequent to
the Closing the Excluded Inventory for such period as is
reasonably necessary for the completion of the Completed
Contracts or compliance with other instructions of customers of
the Business.
14.3 Indianapolis Facility. The parties acknowledge
that Sellers and any purchaser of the Indianapolis Facility may
continue to engage in the business of marketing, selling,
manufacturing, distributing, and installing prestressed/precast
concrete products at its Indianapolis Facility in compliance with
the terms of Sellers' Noncompetition Agreement. Buyer
acknowledges that Sellers and their officers and employees have
obtained and possess certain general know-how and business
information (including know-how and information available
generally in the prestressed/precast concrete business) in
connection with the operation of the Business and that such
know-how and information may be and will continue to be used in
the operation of the Indianapolis Facility by Sellers or any
purchaser of the Indianapolis Facility, and any of their
respective officers, or employees, without any payment to Buyer
for the use thereof.
14.4 Use of Trademarks. Subsequent to the Closing,
Buyer shall not use the trademarks and tradenames "American
Precast Concrete" or "Ampark" or any similar trademark or
tradename.
15. BULK TRANSFER LAW. Buyer hereby waives compliance
by Sellers with the requirements of any applicable laws relating
to bulk sales and transfers and Sellers jointly and severally
agree to indemnify Buyer and hold Buyer harmless from any and all
claims, liabilities or costs arising with respect thereto,
including reasonable attorneys' fees.
16. TAXES, FEES AND OTHER EXPENSES
16.1 Taxes and Fees. Sellers shall be responsible for
and shall pay all sales, transfer, conveyance or similar taxes or
governmental charges, if any, and all deed taxes and recording
fees with respect to the sale and purchase of the Assets, whether
levied against the Assets, Sellers or Buyer.
16.2 Expenses. Except as otherwise specifically
provided herein, each party shall pay all of the costs and
expenses incurred by it in negotiating and preparing this
Agreement (and all other agreements, certificates, instruments
and documents executed in connection herewith), in performing
its obligations under this Agreement, and in otherwise
consummating the transactions contemplated by this Agreement,
including without limitation its attorneys' fees and accountants'
fees.
17. INDEMNIFICATION BY SELLERS
17.1 Generally. Subject to the terms of Section 8 and
this Section 17, Sellers hereby agree, jointly and severally, to
defend, indemnify and hold harmless Buyer against and with
respect to:
(a) Any and all liabilities and obligations of
Sellers, or any of them except to the extent assumed and
agreed to be paid by Buyer pursuant to Sections 3, 4.2 and
5.3 hereof, and any and all liabilities and obligations
arising from or in connection with ownership of the Assets
or operation of the Business on or prior to the Closing
Date, whether or not reflected in Sellers' books and records
and whether or not readily apparent on or prior to the
Closing Date, except to the extent Buyer is required to (i)
indemnify Sellers in respect thereof pursuant to Section 18
hereof or (ii) perform certain work for Sellers pursuant to
Section 14.2 hereof;
(b) Without limiting the generality of the foregoing,
any and all products liability or similar claims in respect
of products manufactured by Sellers, or any of them on or
prior to the Closing Date subject to the agreements of the
parties in Section 14;
(c) Any and all loss, injury, damage or deficiency
resulting from any misrepresentation, omission or breach of
warranty on the part of Sellers, or any of them under this
Agreement or any other agreement, instrument or document
contemplated hereby;
(d) Any and all loss, injury, damage or deficiency
resulting from any non-fulfillment of any covenant or
agreement on the part of Sellers, or any of them under this
Agreement; and
(e) Any and all demands, claims, actions, suits,
proceedings, assessments, judgments, costs and legal and
other expenses incident to any of the foregoing.
17.2 Deductible. Buyer shall not be entitled to
indemnification hereunder with respect to claims made by Buyer
under Section 17.1(c) above (or under Section 17.1(e) to the
extent related thereto), except for any claim based on the
untruth or inaccuracy of any representation or warranty made
herein or in any statement, certificate or schedule furnished
hereunder if it is determined by a court of competent
jurisdiction that Sellers made such representation or warranty
with an intent to deceive or defraud or with reckless disregard
for the truth or accuracy thereof, unless and until the aggregate
damages and expenses paid or incurred by Buyer in connection with
such claims exceeds $100,000, and then only for the amount of the
excess. Notwithstanding the foregoing sentence, this Section
17.2 shall not apply to any claim for breach of Seller's
representations under Sections 9.10 and 9.11 hereof (each a
"Title Claim").
17.3 Termination of Indemnification. The right to indemnity
under Sections 17.1(c) and (d) above (and under Section 17.1(e)
to the extent related thereto) shall terminate 18 months after
the Closing Date, except (a) for any claim based on the untruth
or inaccuracy of any representation or warranty made herein or in
any statement, certificate or schedule furnished hereunder if it
is determined by a court of competent jurisdiction that Sellers
made such representation or warranty with an intent to deceive or
defraud or with reckless disregard for the truth or accuracy
thereof, and (b) that with respect to any pending claim for
indemnity hereunder which shall have been made during such
18-month period, the right to indemnity shall not terminate until
the final determination and satisfaction of such claim.
Notwithstanding the foregoing sentence, this Section 17.3 shall
not apply to any Title Claim, any claim with respect to the
Noncompetition Agreements or any obligation of Sellers under
Sections 2.7 and 14.2 hereof.
17.4 Procedures. In the event any demands or claims are
asserted against Buyer or any actions, suits or proceedings are
commenced against Buyer for which Sellers may be obligated to
indemnify Buyer under this Section 17 without regard to the
deductible amount under Section 17.2 hereof, then Buyer shall
give timely notice thereof to Sellers (in any event within 30
days after first receiving notice of such demands or claims) in
order to permit Sellers the necessary time to evaluate the merits
of such demand, claim, action, suit or proceeding and defend,
settle or compromise the same so that Sellers' interests are not
materially prejudiced; and, in the event Buyer fails to provide
such timely notice or otherwise fails to act in a commercially
reasonable manner to mitigate any losses or damages to which such
indemnification applies, Sellers shall have no liability
whatsoever to indemnify and defend Buyer from such demand, claim,
action, suit or proceeding pursuant to this Section 17 and Buyer
shall be solely responsible for the defense thereof and any and
all liability of Buyer arising therefrom. Within 30 business
days after such notice, Sellers shall assume the defense thereof
with counsel chosen by Sellers or their respective insurers and
reasonably acceptable to Buyer. Sellers shall not be liable for
any costs or expenses incurred by Buyer in connection with any
demand, claim, action, suit or proceeding for which Sellers are
obligated to indemnify Buyer under this Section 17, provided that
Sellers shall have assumed the defense thereof in accordance with
this Section 17.
17.5 Settlement and Compromise. Sellers shall not settle or
compromise any demands, claims, actions, suits or proceedings for
which Buyer has sought indemnification from Sellers unless they
shall have given Buyer not less than 15 days prior written notice
of the proposed settlement or compromise and afforded Buyer an
opportunity to consult with Sellers regarding the proposed
settlement or compromise.
18. INDEMNIFICATION BY BUYER
18.1 Generally. Subject to the terms of this Section 18,
Buyer hereby agrees to defend, indemnify and hold harmless
Sellers against and with respect to:
(a) Any and all liabilities and obligations of
Sellers assumed by Buyer pursuant to this Agreement and any
and all liabilities and obligations arising from or in
connection with ownership of the Assets or operation of the
Business after the Closing Date, except to the extent
Sellers are required to indemnify Buyer in respect thereof
pursuant to Section 17.1;
(b) Without limiting the generality of the
foregoing, any and all products liability claims or similar
claims in respect of products manufactured by Buyer after
the Closing Date;
(c) Any and all loss, injury, damage or
deficiency resulting from any misrepresentation, omission or
breach of warranty on the part of Buyer under this
Agreement;
(d) Any and all loss, injury, damage or
deficiency resulting from any non-fulfillment of any
covenant or agreement on the part of Buyer under this
Agreement; and
(e) Any and all demands, claims, actions, suits
or proceedings, assessments, judgments, costs and legal and
other expenses incident to any of the foregoing.
18.2 Deductible. Sellers shall not be entitled to
indemnification under Section 18.1(c) above (or under
Section 18.1(e) to the extent related thereto), except for any
claim based on the untruth or inaccuracy of any representation or
warranty made herein or in any statement, certificate or schedule
furnished hereunder if it is determined by a court of competent
jurisdiction that Buyer made such representation or warranty with
an intent to deceive or defraud or with reckless disregard for
the truth or accuracy thereof, unless and until the aggregate
damages and expenses paid or incurred by Sellers in connection
with such claims exceeds $100,000, and then only for the amount
of the excess. Notwithstanding the foregoing sentence, this
Section 18.2 shall not apply to any obligation of Buyer for the
payment of the Purchase Price in accordance with this Agreement
or any obligation of Buyer under Section 14.2 hereof.
18.3 Termination of Indemnification. The right to
indemnity under Sections 18.1(c) and (d) above (and under
Section 18.1(e) to the extent related thereto) shall terminate
18 months after the Closing Date, except (a) for any claim based
on the untruth or inaccuracy of any representation or warranty
made herein or in any statement, certificate or schedule
furnished hereunder if it is determined by a court of competent
jurisdiction that Buyer made such representation or warranty with
an intent to deceive or defraud or with reckless disregard for
the truth or accuracy thereof, and (b) that with respect to any
pending claim for indemnity hereunder which shall have been made
during such 18-month period, the right to indemnity shall not
terminate until the final determination and satisfaction of such
claim. Notwithstanding the foregoing sentence, this Section 18.3
shall not apply to any obligation of Buyer for the payment of the
Purchase Price in accordance with this Agreement or any
obligation of Buyer under Sections 5.1 and 14 hereof.
18.4 Procedures. In the event any demands or claims
are asserted against Sellers or any actions, suits or proceedings
are commenced against Sellers for which Buyer is obligated to
indemnify Sellers under this Section 18 without regard to the
deductible amount under Section 18.2 hereof, then Sellers shall
give timely notice thereof to Buyer (in any event within 30 days
after first receiving notice of such demands or claims) in order
to permit Buyer the necessary time to evaluate the merits of such
demand, claim, action, suit or proceeding and defend, settle or
compromise the same so that Buyer's interest is not materially
prejudiced; and, in the event Sellers fail to provide such timely
notice or otherwise fails to act in a commercially reasonable
manner to mitigate any losses or damages to which such
indemnification applies, Buyer shall have no liability whatsoever
to indemnify and defend Sellers from such demand, claim, action,
suit or proceeding pursuant to this Section 18 and Sellers shall
be solely responsible for the defense thereof and any and all
liability of Sellers arising therefrom. Within 30 business days
after such notice, Buyer shall assume the defense thereof with
counsel chosen by Buyer and reasonably acceptable to Sellers.
Buyer shall not be liable for any costs or expenses incurred by
Sellers in connection with any demand, claim, action, suit or
proceeding for which Buyer is obligated to indemnify Sellers
under this Section 18, provided that Buyer shall have assumed the
defense hereof in accordance with this Section 18.
18.5 Settlement and Compromise. Buyer shall not settle
or compromise any demands, claims, actions, suits or proceedings
for which Sellers have sought indemnification from Buyer unless
it shall have given Sellers not less than 15 days prior written
notice of the proposed settlement or compromise and afforded
Sellers an opportunity to consult with Buyer regarding the
proposed settlement or compromise.
19. TERMINATION OF AGREEMENT. This Agreement may be
terminated at any time prior to the Closing Date:
19.1 Mutual Consent. By mutual consent of Buyer and
Sellers.
19.2 Breach of Agreement. By Buyer giving written
notice to Sellers if Sellers, or any of them, are in breach, or
by Sellers giving written notice to Buyer if Buyer is in breach,
in any material respect of any representation, warranty or
covenant contained in this Agreement, if such breach is not cured
within 30 days after such notice.
19.3 Delayed Closing. By Buyer giving written notice
to Sellers, or by Sellers giving written notice to Buyer, if the
transactions contemplated by this Agreement shall not have been
consummated by April 28, 1995, unless such failure shall be due
to the failure of the party seeking to terminate this Agreement
to perform or observe the covenants, agreements and conditions
hereof to be performed or observed by such party at or before the
Closing Date.
19.4 Government Action. By Buyer or Sellers if any
court of competent jurisdiction in the United States or other
United States governmental body shall have issued an order,
decree or ruling or taken any other action restraining, enjoining
or otherwise prohibiting the consummation of the transactions
contemplated by this Agreement and such order, decree, ruling or
other action shall have become final and non-appealable.
20. ASSIGNMENT. Sellers hereby agree that Buyer may
assign its rights under this Agreement to an affiliated entity;
provided that Buyer shall remain liable for its obligations
hereunder. This Agreement may not be otherwise assigned by
either Buyer or Sellers without the prior written consent of the
other. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto, their successors and permitted
assigns, and no person, firm or corporation other than the
parties, their successors and permitted assigns, shall acquire or
have any rights under or by virtue of this Agreement.
21. COVENANT OF FURTHER ASSURANCES. From time to time
after the Closing, at the request of Buyer and without further
consideration, Sellers will execute and deliver such other
instruments of transfer and take such other actions as Buyer may
reasonably require to transfer the Assets to, and vest title of
the Assets in, Buyer, and to put Buyer in possession of the
Assets. In the event that it shall be necessary for any Seller
to qualify to do business as a foreign corporation in any state
after the Closing in order for Buyer to enforce any material
claim, such Sellers shall so qualify promptly upon written
request of Buyer.
22. CONFIDENTIALITY AND NONDISCLOSURE. Sellers
covenant and agree from and after the date hereof until
termination of this Agreement subject to the provisions of
Section 14 to maintain in strict confidence and except in the
ordinary course of business not to use or disclose to others the
industrial and intellectual property of Sellers to be transferred
to Buyer pursuant to this Agreement to the extent that such
industrial and intellectual property of Sellers constitutes a
trade secret under applicable laws.
23. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained herein, and all other
written representations and warranties of Buyer and Sellers
contained in the instruments executed in connection with the
consummation of the transactions provided for herein, shall
survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby for a period
of 18 months after the Closing Date.
24. PUBLIC ANNOUNCEMENT. A public announcement of the
transactions contemplated by this Agreement shall be made
promptly after the date hereof. Any and all public announcements
of any kind or nature whatsoever concerning the transactions
contemplated hereby made before, on or after the Closing Date
shall require the prior written approval of Buyer and Sellers.
25. ENTIRE AGREEMENT. This Agreement, including the
exhibits and schedules attached to this Agreement, the
Noncompetition Agreements and the Confidentiality Agreement,
constitutes the entire agreement and understanding between
Sellers and Buyer with respect to the sale and purchase of the
Assets and the other transactions contemplated by this Agreement.
All prior representations, understandings and agreements between
the parties with respect to the purchase and sale of the Assets
and the other transactions contemplated by this Agreement are
superseded by the terms of this Agreement.
26. AMENDMENT AND WAIVER. Any provision of this
Agreement may be amended or waived only by a writing signed by
the party against which enforcement of the amendment or waiver is
sought.
27. CHOICE OF LAW. This Agreement shall be construed
and interpreted in accordance with the laws of the State of
Minnesota without regard to conflict of law principles.
28. SEVERABILITY. The provisions of this Agreement
shall, where possible, be interpreted so as to sustain their
legality and enforceability, and for that purpose the provisions
of this Agreement shall be read as if they cover only the
specific situation to which they are being applied. The
invalidity or unenforceability of any provision of this Agreement
in a specific situation shall not affect the validity or
enforceability of that provision in other situations or of other
provisions of this Agreement.
29. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be considered an original.
30. NOTICES. All notices given pursuant to this
Agreement shall be in writing and shall be delivered by hand or
sent by United States registered mail, postage prepaid, addressed
as follows (or to another address or person as a party may
specify on notice to the other):
(i) If to Sellers:
c/o The Somerset Group, Inc.
2800 First Indiana Plaza
135 North Pennsylvania Street
Indianapolis, Indiana 46204
Attention: Robert H. McKinney
with a copy to:
Kendall C. Crook
Bose, McKinney & Evans
2700 First Indiana Plaza
135 North Pennsylvania Street
Indianapolis, Indiana 46204
(ii) If to Buyer:
Fabcon, Incorporated
6111 West Highway 13
Savage, Minnesota 55378
Attention: David W. Hanson
with a copy to:
Steven C. Kennedy
Faegre & Benson
2200 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402
31. SELLERS' KNOWLEDGE. Any reference in this
Agreement to a Seller's or Sellers' knowledge or similar language
shall be regarded as limited to the knowledge of Sellers'
management.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed and delivered by their duly authorized
officers as of the date and year first above written.
BUYER: FABCON, INCORPORATED
s/ David W. Hanson
By David W. Hanson
Its President
SELLERS: THE SOMERSET GROUP, INC.
s/Marni McKinney Jakubovie
By Marni McKinney Jakubovie
Its President
PRECAST CONCRETE SYSTEMS, INC.
s/Joseph M. Richter
By Joseph M. Richter
Its Assistant Secretary
CONCRETE CARRIERS, INC.
s/Marni McKinney Jakubovie
By Marni McKinney Jakubovie
Its Chairman
M1:0010552.05
EXHIBIT O
-4-
NONCOMPETITION AGREEMENT
AGREEMENT dated this 28th day of April 1995, by and
between FABCON, INCORPORATED, a Minnesota corporation ("Buyer"),
and ROBERT H. McKINNEY, an individual resident of the State of
Indiana ("McKinney").
RECITALS
WHEREAS, Buyer, The Somerset Group, Inc., an Indiana
corporation ("Somerset"), Precast Concrete Systems, Inc., an
Indiana corporation ("PCSI"), and Concrete Carriers, Inc., an
Indiana corporation ("CCI" and, together with Somerset and PCSI,
collectively "Sellers" and individually a "Seller") have entered
into that certain Asset Purchase Agreement (the "Asset Purchase
Agreement") dated as of February 20, 1995, whereby Buyer will
acquire certain assets and assume certain liabilities of Sellers;
WHEREAS, McKinney is a shareholder of Somerset and will
derive substantial economic benefit from the consummation of the
transactions contemplated by the Asset Purchase Agreement; and
WHEREAS, the execution and delivery of this Agreement
is required by the terms of the Asset Purchase Agreement and is a
condition to the obligation of Buyer to consummate the
transactions contemplated by the Asset Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing
recitals and the mutual covenants and agreements contained
herein, the parties hereto agree as follows :
1. COVENANT NOT TO COMPETE.
(a) Except to the extent permitted in Section 1(b)
hereof with respect to the Indianapolis Facility (as defined
in the Asset Purchase Agreement), McKinney hereby agrees
that, for the period of three years from the Closing Date
(as defined in the Asset Purchase Agreement), he shall not,
directly or indirectly, through any person then controlling,
controlled by or under common control with him (such persons
being hereinafter collectively referred to as "Affiliates"),
alone or in association with any other person, firm,
corporation or other business organization:
(i) engage in or have any equity interest in any
business which engages in the Trade Area (as
hereinafter defined) in marketing, selling,
manufacturing, distributing and installing precast and
prestressed concrete products and which is competitive
with the Business (as defined in the Asset Purchase
Agreement) as conducted on the Closing Date (a
"Competing Business"). For purposes of this Agreement,
an equity interest shall not include any interest which
arises solely from the ownership of less than a 1%
equity interest in a corporation whose stock is
regularly traded on any national securities exchange or
in the over-the-counter market; or
(ii) in any way, directly or indirectly, for the
purpose of conducting or engaging in any competing
Business, (A) call upon, solicit or otherwise do, or
attempt to do, business with any customers of the
Business, (B) interfere or attempt to interfere with
the relationship between the Business and its
customers, or (C) solicit for hire any officers or
employees of Buyer engaged in the Business. For
purposes of this Section, the customers of the Business
shall mean persons or entities which have purchased
precast/prestressed concrete products from the Business
during the three year period prior to the Closing Date
(as defined in the Asset Purchase Agreement).
Notwithstanding any other provision of this
Section 1(a), the restrictions contained in Section
1(a)(ii)(C) shall extend for a period of two years from the
Closing Date (as defined in the Asset Purchase Agreement).
(b) Notwithstanding the provisions of Section 1(a)
hereof, nothing in this Agreement shall preclude or restrict
Sellers, McKinney or any Affiliate from (i) engaging or
continuing to engage in the business of marketing, selling,
manufacturing, distributing or installing precast and
prestressed concrete products manufactured at or in
connection with the Indianapolis Facility, including without
limitation marketing, selling, distributing and installing
such products to or for customers of the Business, (ii)
selling or otherwise disposing of the Indianapolis Facility
to any person or entity; or (iii) subsequent to any such
sale or other disposition of the Indianapolis Facility,
acquiring or maintaining any interest (as shareholder,
creditor, or otherwise) in the Indianapolis Facility or in
any person or entity which owns or operates the Indianapolis
Facility. However, McKinney agrees that, during a period of
three years after the Closing Date (subject to extension
pursuant to Section 2 hereof), neither he nor any Affiliate
will, without the prior written consent of Buyer, market,
sell, manufacture, distribute or install at or in connection
with the Indianapolis Facility concrete wall panels of any
width for a project in which (x) the lengths of the wall
panels are installed vertically for substantially the full
height of the wall sections in which they are installed, and
(y) 60% of the wall panels in such project consist of panels
described in (x) above which are identical in width. The
prior written consent of Buyer described in the preceding
sentence shall be deemed previously given by this Agreement
with respect to the following: (a) custom architectural
wall panels, individually formed and produced, and
(b) precast concrete wall panels supplied for any project in
which the Indianapolis Facility also supplies or arranges
for the supply of the structural framing system for such
project; provided that 90% or more of such structural
framing system consists of precast concrete columns and
beams. McKinney acknowledges and agrees that as a condition
to any sale of the Indianapolis Facility, Sellers shall
obtain the agreement of the purchaser to assume and agree to
comply with the terms of the restrictions described in this
Section 1(b) for the remainder of the three year period
referred to above, subject to the provisions contained in
the preceding sentences.
(c) The term "Trade Area" as used herein shall mean
the States of Indiana, Ohio, Illinois, Michigan, Kentucky,
Pennsylvania and West Virginia.
2. EXTENSION OF PERIOD. The period of time during
which McKinney is prohibited from engaging in certain activities
pursuant to the terms of this Agreement shall be extended by the
length of time during which McKinney or any Affiliate is in
breach of this Agreement, as determined in any proceeding brought
to enforce the terms of this Agreement.
3. ENFORCEMENT. If the scope of this Agreement is
too broad to permit enforcement to its full extent, then this
Agreement shall be enforced to the maximum extent permitted by
law, and McKinney hereby agrees that such scope may be judicially
modified accordingly in any proceeding brought to enforce such
restriction.
4. REMEDIES. McKinney acknowledges and agrees that
the failure by McKinney or any Affiliate from time to time to
comply with the provisions of this Agreement will result in
irreparable and continuing damage to Buyer for which there will
be no adequate remedy available to Buyer at law and that, in
addition to any damages available at law, Buyer and its
successors and assigns shall be entitled to injunctive relief and
to such other and further relief as may be proper and necessary
to ensure compliance with the provisions of this Agreement.
McKinney shall be liable for attorneys' fees and other costs and
expenses incurred in connection with any proceeding to enforce
this Agreement in which Buyer is the prevailing party.
5. SUCCESSORS AND ASSIGNS. This Agreement may not be
assigned by McKinney. This Agreement shall inure to the benefit
of Buyer and its successors and assigns, and shall be binding on
and shall inure to the benefit of McKinney and his successors and
assigns, except that this Agreement shall be binding upon and
shall inure to the benefit of a purchaser of the Indianapolis
Facility only to the extent provided in Section 1(b) hereof.
6. COMPLETE AGREEMENT. This Agreement contains the
complete agreement between the parties hereto with respect to the
matters covered herein, and supersedes all prior and
contemporaneous agreements and understandings between the parties
hereto. This Agreement may be amended or modified only in
writing signed by the parties.
7. CHOICE OF LAW. This Agreement shall be construed
and interpreted in accordance with the laws of the State of
Indiana without regard to conflict of law principles.
8. COUNTERPARTS. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an
original but all of which shall constitute but one agreement.
9. NOTICES. All notices given pursuant to this
Agreement shall be in writing and shall be delivered by hand or
sent by United States registered mail, postage prepaid, addressed
as follows (or to such other address or person as either party
may specify by notice to the other):
(i) If to Buyer:
Fabcon, Incorporated
6111 West Highway 13
Savage, Minnesota 53378
Attention: David W. Hanson
(ii) If to McKinney:
Robert H. McKinney
c/o The Somerset Group, Inc.
2800 First Indiana Plaza
135 North Pennsylvania Street
Indianapolis, Indiana 46204
IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed and delivered as of the date and year
first written above.
FABCON, INCORPORATED
By
Its President
Robert H.
McKinney
M1:0011492.05
-4-
NONCOMPETITION AGREEMENT
AGREEMENT dated this 28th day of April 1995, by and
among FABCON, INCORPORATED, a Minnesota corporation ("Buyer"),
and THE SOMERSET GROUP, INC., an Indiana corporation
("Somerset"), PRECAST CONCRETE SYSTEMS, INC., an Indiana
corporation ("PCSI"), and CONCRETE CARRIERS INC., an Indiana
corporation ("CCI" and, together with Somerset and PCSI,
collectively "Sellers" and individually a "Seller")
RECITALS
WHEREAS, Buyer and Sellers have entered into that
certain Asset Purchase Agreement (the "Asset Purchase Agreement")
dated as of February 20, 1995, whereby Buyer will acquire certain
assets and assume certain liabilities of Sellers;
WHEREAS, Sellers will derive substantial economic
benefit from the consummation of the transactions contemplated by
the Asset Purchase Agreement; and
WHEREAS, the execution and delivery of this Agreement
is required by the terms of the Asset Purchase Agreement and is a
condition to the obligation of Buyer to consummate the
transactions contemplated by the Asset Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing
recitals and the mutual covenants and agreements contained
herein, the parties hereto agree as follows :
1. COVENANT NOT TO COMPETE.
(a) Except to the extent permitted in Section 1(b)
hereof with respect to the Indianapolis Facility (as defined
in the Asset Purchase Agreement), each of Sellers hereby
agrees that, for the period of three years from the Closing
Date (as defined in the Asset Purchase Agreement), it shall
not, directly or indirectly, through any person then
controlling, controlled by or under common control with it
(such persons being hereinafter collectively referred to as
"Affiliates"), alone or in association with any other
person, firm, corporation or other business organization:
(i) engage in or have any equity interest in any
business which engages in the Trade Area (as
hereinafter defined) in marketing, selling,
manufacturing, distributing and installing precast and
prestressed concrete products and which is competitive
with the Business (as defined in the Asset Purchase
Agreement) as conducted on the Closing Date (a
"Competing Business"). For purposes of this Agreement,
an equity interest shall not include any interest which
arises solely from the ownership of less than a 1%
equity interest in a corporation whose stock is
regularly traded on any national securities exchange or
in the over-the-counter market; or
(ii) in any way, directly or indirectly, for the
purpose of conducting or engaging in any competing
Business, (A) call upon, solicit or otherwise do, or
attempt to do, business with any customers of the
Business, (B) interfere or attempt to interfere with
the relationship between the Business and its
customers, or (C) solicit for hire any officers or
employees of Buyer engaged in the Business. For
purposes of this Section, the customers of the Business
shall mean persons or entities which have purchased
precast/prestressed concrete products from the Business
during the three year period prior to the Closing Date
(as defined in the Asset Purchase Agreement).
Notwithstanding any other provision of this
Section 1(a), the restrictions contained in Section
1(a)(ii)(C) shall extend for a period of two years from the
Closing Date (as defined in the Asset Purchase Agreement).
(b) Notwithstanding the provisions of Section 1(a)
hereof, nothing in this Agreement shall preclude or restrict
Sellers, or any Affiliate from (i) engaging or continuing to
engage in the business of marketing, selling, manufacturing,
distributing or installing precast and prestressed concrete
products manufactured at or in connection with the
Indianapolis Facility, including without limitation
marketing, selling, distributing and installing such
products to or for customers of the Business, (ii) selling
or otherwise disposing of the Indianapolis Facility to any
person or entity; or (iii) subsequent to any such sale or
other disposition of the Indianapolis Facility, acquiring or
maintaining any interest (as shareholder, creditor, or
otherwise) in the Indianapolis Facility or in any person or
entity which owns or operates the Indianapolis Facility.
However, each of Sellers agrees that, during a period of
three years after the Closing Date (subject to extension
pursuant to Section 2 hereof), neither it nor any Affiliate
will, without the prior written consent of Buyer, market,
sell, manufacture, distribute or install at or in connection
with the Indianapolis Facility concrete wall panels of any
width for a project in which (x) the lengths of the wall
panels are installed vertically for substantially the full
height of the wall sections in which they are installed, and
(y) 60% of the wall panels in such project consist of panels
described in (x) above which are identical in width. The
prior written consent of Buyer described in the preceding
sentence shall be deemed previously given by this Agreement
with respect to the following: (a) custom architectural
wall panels, individually formed and produced, and
(b) precast concrete wall panels supplied for any project in
which the Indianapolis Facility also supplies or arranges
for the supply of the structural framing system for such
project; provided that 90% or more of such structural
framing system consists of precast concrete columns and
beams. Each of Sellers acknowledges and agrees that as a
condition to any sale of the Indianapolis Facility, Sellers
shall obtain the agreement of the purchaser to assume and
agree to comply with the terms of the restrictions described
in this Section 1(b) for the remainder of the three year
period referred to above, subject to the provisions
contained in the preceding sentences.
(c) The term "Trade Area" as used herein shall mean
the States of Indiana, Ohio, Illinois, Michigan, Kentucky,
Pennsylvania and West Virginia.
2. EXTENSION OF PERIOD. The period of time during
which Sellers are prohibited from engaging in certain activities
pursuant to the terms of this Agreement shall be extended by the
length of time during which Sellers or any Affiliate is in breach
of this Agreement, as determined in any proceeding brought to
enforce the terms of this Agreement.
3. ENFORCEMENT. If the scope of this Agreement is
too broad to permit enforcement to its full extent, then this
Agreement shall be enforced to the maximum extent permitted by
law, and Sellers hereby agree that such scope may be judicially
modified accordingly in any proceeding brought to enforce such
restriction.
4. REMEDIES. Sellers acknowledge and agree that the
failure by Sellers or any Affiliate from time to time to comply
with the provisions of this Agreement will result in irreparable
and continuing damage to Buyer for which there will be no
adequate remedy available to Buyer at law and that, in addition
to any damages available at law, Buyer and its successors and
assigns shall be entitled to injunctive relief and to such other
and further relief as may be proper and necessary to ensure
compliance with the provisions of this Agreement. Sellers shall
be liable for attorneys' fees and other costs and expenses
incurred in connection with any proceeding to enforce this
Agreement in which Buyer is the prevailing party.
5. SUCCESSORS AND ASSIGNS. This Agreement may not be
assigned by Sellers. This Agreement shall inure to the benefit
of Buyer and its successors and assigns, and shall be binding on
and shall inure to the benefit of Sellers and their respective
successors and assigns, except that this Agreement shall be
binding upon and shall inure to the benefit of a purchaser of the
Indianapolis Facility only to the extent provided in Section 1(b)
hereof.
6. COMPLETE AGREEMENT. This Agreement contains the
complete agreement between the parties hereto with respect to the
matters covered herein, and supersedes all prior and
contemporaneous agreements and understandings between the parties
hereto. This Agreement may be amended or modified only in
writing signed by the parties.
7. CHOICE OF LAW. This Agreement shall be construed
and interpreted in accordance with the laws of the State of
Indiana without regard to conflict of law principles.
8. COUNTERPARTS. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an
original but all of which shall constitute but one agreement.
9. NOTICES. All notices given pursuant to this
Agreement shall be in writing and shall be delivered by hand or
sent by United States registered mail, postage prepaid, addressed
as follows (or to such other address or person as either party
may specify by notice to the other):
(i) If to Buyer:
Fabcon, Incorporated
6111 West Highway 13
Savage, Minnesota 53378
Attention: David W. Hanson
(ii) If to Sellers:
The Somerset Group, Inc.
2800 First Indiana Plaza
135 North Pennsylvania Street
Indianapolis, Indiana 46204
Attention: Robert H. McKinney
IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed and delivered as of the date and year
first written above.
FABCON, INCORPORATED
By
Its President
THE SOMERSET GROUP, INC.
By
Its
PRECAST CONCRETE SYSTEMS, INC.
By
Its
CONCRETE CARRIERS, INC.
By
Its
M1:0014930.02
SCHEDULE 3
Environmental Objections
(at date of Asset Purchase Agreement)
Grove City, OH
1. Remaining contamination apparently resulting from leaks at
diesel and heating oil underground storage tank systems west of
plant building.
2. Soil staining underneath 750-gallon diesel above-ground
storage tank west of plant building.
3. Drums described in table at page 9 and photograph 16 of
Phase I report.
4. Soil staining in the vicinity of 8 - 55 gallon drums north
of the curing kiln.
5. Soil staining in the vicinity of many empty drums on eastern
portion of site, shown on photograph no. 14 of Phase I report.
Westfield, IN
6. Soil or gravel staining underneath two above-ground storage
tanks west of plant building.
7. Ten full drums inside the plant building, and associated
staining. See Phase I report, page 9 and photograph 13.
8. Full drums around and in maintenance shed, and associated
soil staining.
9. Drums on the northern part of the site, and associated
stained gravel.
10. Two drums in concrete storage yard, west of creek.
11. Pole-mounted transformer leak, described at page 9 of
Phase I report.
M1:0012072.03
The Somerset Group, Inc.
2800 First Indiana Plaza
135 N. Pennsylvania St.
Indianapolis, Indiana 46204
This proxy is solicited on behalf of the Board of Directors of
the Corporation
The undersigned hereby appoints Sharon J. Sanford and Marni
McKinney Jakubovie, and each of them, attorneys--in-fact and
proxies, with full power of substitution, to vote as designated
below all shares of The Somerset Group, Inc. (the "Corporation')
which the undersigned would be entitled to vote if personally
present at the Annual Meeting of Stockholders to be held on April
27, 1995. at 9:00 a.m., EST, and at any adjournment thereof.
1. Election of Directors
__ For all nominees listed below (except as marked to the
contrary below)
__ Withhold authority to vote for all nominees
Nominees for a term of three years:
Robert H. McKinney and Michael L. Smith
Instruction: top withhold authority to vote for any individual
nominee, write that nominee's name on the space provided below.
2. The Transaction
Vote to approve the proposed sale by the Corporation of the
assets and businesses of the Grove City, Ohio and Westfield,
Indiana precast/prestressed concrete facilities of its American
Precast Concrete Division to Fabcon, Incorporated, as more fully
described in the Corporation's Proxy Statement dated April 11,
1995.
__ FOR __ AGAINST __ ABSTAIN
3. in their discretion, the Proxies are authorized to vote such
other business as may properly come before the meeting.
This proxy when properly executed will be voted in the manner
directed herein by the undersigned shareholder. If no direction
is made, this proxy will be voted FOR Proposals 1,2 and 3.
The undersigned acknowledges receipt from The Somerset Group,
Inc. prior to the execution of this proxy, of notice of the
meeting, a proxy statement and an Annual Report to Shareholders.
Please sign exactly as name appears below. When shares are held
as joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full corporate
name by the president or other authorized officer. If a
partnership, please sign in partnership name by authorized
person.
Signature ____________________________________
Signature if held jointly _____________________________________
Date: _______________ , 1995
Please mark, sign, date and return the proxy card promptly using
the enclosed envelope.
REVOCABLE PROXY
MESSAGE TO SHAREHOLDERS
The Somerset Group, Inc. reported a substantial increase in earnings for
1994, along with completing plans to sell
several of our core businesses and redirect the company into other
ventures. For the year ended December 31,1994, Somerset reported net
income of $2.6 million, or $1.57 per share, compared with $2.2 million, or
$1.37 per share, in 1993, an increase of 15%.
Construction of commercial and industrial buildings rebounded in 1994, and
we moved quickly to capitalize on this favorable market trend. As a
result, fourth quarter sales grew 48% over the same quarter in 1993. Sales
for the year were $23.5 million, a 61% increase over sales of $14.6 million
in 1993.
Equity income from First Indiana Corporation, the Bank holding company of
which we own 21%, fell 28% to $2.6 million from $3.6 million in 1993. The
decrease resulted primarily from higher interest rates, which led to lower
loan originations and fewer gains from the sale of loans in the core
mortgage banking business of First Indiana Bank, the Corporation's
subsidiary.
As of October 31, 1994, the Company sold its 51% interest in the concrete
highway bridge business to its 49% partner, C. J. Mahan Construction Co.
This subsidiary had been activated in 1993, but no longer fit with the new
strategic direction of the Company.
The strong construction market and the appearance of a ready buyer led us
to the execution of an agreement in February 1995 for the sale of two of
our divisions, American Precast Concrete - Ohio and Span-Deck of Indiana.
These divisions will be sold during the second quarter of 1995 to
Minnesota-based Fabcon, Inc. The sale of the assets of these two divisions
will provide Somerset with approximately $7 million in cash.
We also intend to sell our remaining precast/ prestressed concrete
division, American Precast Concrete, later in 1995. This sale will
represent Somerset's withdrawal from the construction industry.
The sale of these operations is part of our long-term strategic plan to
shift our resources from manufacturing to service industries. The strong
construction levels in 1994 provided us with an opportune time to sell and
realize maximum benefit for our shareholders.
We have not yet determined the precise use of the proceeds from the sale of
these divisions. In the short run, we will use the proceeds for debt
reduction while we look for enterprises that will better complement our
investment in First Indiana Corporation.
Although First Indiana's earnings in 1994 were below those of 1993, we are
encouraged about the Bank's long-term direction. First Indiana
Corporation's earnings were its second best from operations, and the
company's margin reached a record 3.96% during 1994, compared with 3.64% in
1993. First Indiana's net interest income in 1994 was $49.2 million,
compared with $45.9 million in 1993. Given the rising rate environment,
this increase is encouraging because it reflects strong origination volume
and a favorable asset/liability mix. First Indiana's capital position
remains solid, with an equity-to-assets ratio of almost 9%. Non-performing
assets continued to fall throughout<PAGE>
1994 to $29 million, a 20% reduction from December 31, 1993.
We believe that both First Indiana and Somerset are
strategically positioned to diversify sources of income and invest in
synergistic businesses that bring value to targeted niches of the market.
The years ahead hold excitement and promise for The Somerset Group as we
redirect our assets into new businesses.
We appreciate your continuing support and look forward to sharing our
strategies as they take shape.
Sincerely,
Robert H. McKinney,
Chairman & Chief Executive Officer
Marni McKinney Jakubovie
President & Chief Operating Officer
<TABLE>
FINANCIAL HIGHLIGHTS
At and for the Years Ended December 31,
(in thousands)
1994 1993 1992
<S> <C> <C> <C>
Net sales from
continuing operations $23,467 $14,555 $15,875
====== ======= ======
Income from continuing
operations,before income
e
taxes and minority
interest $4,132 $3,631 $ 2,744
===== ===== =====
Income from continuing
operations $2,617 $2,219 $1,657
Loss from discontinued
operations --- --- (1,613)
----- ----- ------
Net income $ 2,617 $ 2,219 $44,000
====== ====== ======
Net income (loss) per share:
Continuing operations $1.57 $1.37 $1.03
Discontinued operations -- -- (1.00)
---- ---- ----
Net income $1.57 $1.37 $ .03
==== ==== ====
Total assets $39,804 $34,995 $30,649
Shareholders' equity $26,429 $23,904 $21,640
Book value per share $16.31 $14.89 $13.49
Cash dividend per share $.10 -- --
</TABLE>
FORM 10-K--ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 - For the fiscal year ended December 31, 1994.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-14227
THE SOMERSET GROUP, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-1647888
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
135 N. Pennsylvania Street, #2800, Indianapolis, IN 46204
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 317/634-1400
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange on which registered
Common stock with par value None - Traded Over-The-Counter (NASDAQ)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes x No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was $22,532,758 as of February 24, 1995.
As of February 24, 1995, there were 1,638,746 outstanding shares of the
Capital Stock of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the year ended December 31, 1994 are
incorporated by reference into Part III.
Portions of the Form 10-K of First Indiana Corporation for the year ended
December 31, 1994 are incorporated by reference into Part I.
THE SOMERSET GROUP, INC.
INDEX
PART I
Item 1. Business . . . . . . . . . .. . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 3. Legal Proceedings ... . . . . . . . . . . . . . . . . . . . . . 5
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . . . . . 5
PART II
Item 5. Market for the Registrant's Common Equity
and Related Security Holder Matters . . . . . . . . . . . . . 5
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . 6
Item 7. Management's Discussion and Analysis of Results of Operations
and Financial Condition and Liquidity . . . . . . . . . . . . . 6
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . 6
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . . 6
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . .6
Item 11. Executive Compensation .. . . . . . . . . . . . . . . . . . . 7
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . . . . 7
Item 13. Certain Relationships and Related Transactions . . . . . . . . 7
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . 8
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . 9
-2-
PART I
ITEM 1 - BUSINESS
General Description of Business - The Somerset Group, Inc. ("the Registrant"
or "the Company"), is an Indiana Corporation, with its principal executive
offices located at 135 North Pennsylvania Street, Suite 2800, Indianapolis,
Indiana 46204.
The Registrant conducts business in two industry segments: construction
products and services and banking. The construction products and services
segment consists of operations conducted by the Registrant under the names
of American Precast Concrete and Span-Deck of Indiana, and through two
subsidiaries, Precast Concrete Systems Inc. and Concrete Carriers, Inc. The
banking segment is conducted through ownership by the Registrant of 1,509,983
shares (as of February 24, 1995) of the common stock of First Indiana
Corporation ("First Indiana"), a holding company which owns 100% of First
Indiana Bank. The 1,509,983 shares represent 21.0% of the issued and
outstanding First Indiana common shares.
Financial Information About Business Segments
Described below are the operations of the Company's segments. Financial
information about the segments is incorporated by reference to Note 8 of the
Company's consolidated financial statements on page 28 of this report.
Narrative Description of Business
I. Construction Products and Services Segment
Business - The Registrant manufactures and installs precast/prestressed
concrete products primarily in the seven-state area of Illinois, Indiana,
Kentucky, Michigan, Ohio, Pennsylvania, and West Virginia. Products are
distributed from the Indianapolis, Indiana; Westfield, Indiana; and Columbus,
Ohio manufacturing sites via commercial carrier, broker drivers or company-
operated trucks to the job site. The customers for these products are real
estate developers, general contractors and businesses which own and occupy
their own structures.
Competition - The products are sold on a contract basis. The contracts
are received either by competitive bids or through negotiation. The products
can be shipped on a competitive basis over a contiguous seven-state region
including Indiana and Ohio, with competition provided by firms located in
these states. Competition for precast/prestressed concrete is also provided
by other building products such as steel, wood, brick, concrete block, stone,
aluminum, and other materials.
Major Customers - 1994 net sales included net sales to an Indianapolis
based developer that amounted to 12% of total sales, including a shopping
center parking garage that amounted to 10% of net sales. Sales to another
Indianapolis based developer amounted to 10% of total sales.
<PAGE>
1993 net sales included net sales to an Indianapolis developer that
amounted to 26% of the total sales, including a single project (a shopping
mall parking garage) that amounted to 15% of net sales.
1992 net sales included net sales for construction of a sports stadium
at the University of Illinois that amounted to 25% of total sales during
1992. Products and services provided for construction of a parking structure
at an Indianapolis hospital amounted to 14% of total sales.
-3-
Backlog of Orders - The dollar amount of backlog is important to the
performance of the precast/ prestressed operations because all work is
performed under contract, and the dollar value of such backlog represents
sales for the immediate future. The sales backlogs at December 31, 1994,
1993, and 1992 were $8.8 million, $8.2 million, and $4.2 million,
respectively. The fluctuation in sales backlog is simply a function of the
amount of work obtained. The sales backlog is a good indication of the
following quarter's results, but not of results for the entire year. All
receivables and contracts in progress, unbilled, as of December 31, 1994, are
expected to be collected within one year.
Raw materials - Cement, aggregates, steel strand, steel reinforcing bars
and wire mesh are essential raw materials and are in adequate supply with
several available sources.
Franchise Agreements - The Registrant has an agreement for the
production and marketing of products under patents and/or trademarks owned
by another company. The agreement is with FABCON, Inc. for production of
precast products known as "Span-Deck".
Environmental Laws and Regulations - The construction operations are
subject to federal, state and local laws governing air, soil and water
pollution. However, the capital expenditures necessary to comply with these
requirements are not expected to have a material effect on the earnings or
competitive position of the Registrant.
Employees - Certain production and delivery employees of the
construction operations are represented by labor unions. During the year
ended December 31, 1994, various employees engaged in the concrete operations
were represented by two local unions. One labor contract expires in 1995 and
the other in 1996.
Seasonality of Business - Somerset's construction operations are
seasonal due to weather conditions. These operations are adversely affected
by periods of low temperatures, snow and rain, and are dependent on whether
the work available during such periods may be produced with weather-protected
facilities. The need of the concrete segment for working capital increases
in the spring, summer and fall months because of increases in trade accounts
receivable and inventories, and generally declines in the winter months.
II. Banking Segment
Information on the Registrant's bank affiliate, First Indiana
Corporation, is incorporated into this Report by reference to Item 1 of the
1994 Report on Form 10-K for First Indiana Corporation for the year ended
December 31, 1994, filed separately under commission file number 0-14354.
-4-
ITEM 2 - PROPERTIES
The following chart explains the general character of the Registrant's and
subsidiaries' principal properties, total acreage of each property and, where
applicable, the square footage of enclosed area.
Total
Location Acreage Use and Enclosed Area
Suite 2800 N/A Corporate office facility containing
First Indiana Plaza 950 sq. ft.
Indianapolis, IN
Precast/Prestressed Concrete:
1030 S. Kitley Ave. 38 Administration, accounting and
Indianapolis, IN engineering functions as well
as manufacturing, storage and
maintenance facility for precast
and prestressed concrete products.
Enclosed area totals 41,000 sq. ft.
17701 Springmill 27 Manufacturing,storage and maintenance
Westfield, IN facility for prestressed concrete
products. Enclosed area totals
totals 33,000 sq. ft.
3400 Jackson Pike 16.5 Manufacturing,storage and maintenance
Grove City, OH facility for prestressed concrete
products. Enclosed area totals
34,000 sq. ft.
ITEM 3 - LEGAL PROCEEDINGS
Information relative to this item is incorporated into this Report by
reference to Note 14 of the Notes to Consolidated Financial Statements, on
page 33 of this report.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the final
quarter of the fiscal period covered by this report.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY
HOLDER MATTERS
This information is set forth under the caption "Market for the Registrant's
Common Stock" on page 11 of this Report.
-5-
ITEM 6 - SELECTED FINANCIAL DATA
This information is set forth under the caption "Selected Financial Data" on
page 11 of this Report.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION AND LIQUIDITY
This information is set forth under the caption "Management's Discussion and
Analysis of Results of Operations and Financial Condition and Liquidity" on
Pages 12 through 17 of this Report.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This information is contained in the Consolidated Financial Statements, Notes
to Consolidated Financial Statements and Independent Auditors' Report on
Pages 18 through 33 of this Report. Information on the Registrant's bank
affiliate, First Indiana Corporation, is incorporated by reference to Item
8 of the 1994 Report on Form 10-K for First Indiana Corporation, filed
separately under commission file number 0-14354.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Registrant had no changes in and no disagreements with its accountants
regarding accounting and financial disclosure.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
Information regarding Directors of the Registrant is incorporated into this
Report by reference to the definitive proxy statement of the Registrant for
the Annual Meeting of Shareholders to be held April 27, 1995, under the
caption "Proposal No. 1: Election of Directors", filed separately under
commission file number 0-14227.
Executive Officers
Name Office Held Relationship Age
Robert H. McKinney Chairman, CEO Father of President 69
and Director and Vice President
Marni McKinney President, COO Daughter of 38
Jakubovie and Director Chairman
Kevin K. McKinney Vice President Son of 37
and Director Chairman
Joseph M. Richter Exec. V. P., CFO, None 52
and Treasurer
Gary E. Oakes President of None 47
Precast Division
-6-
Terms of all officers of the Registrant continue until the first meeting of
the Board of Directors following the Annual Meeting of Shareholders on April
27, 1995.
A brief account of the business experience of each Executive Officer during
the past five years is as follows:
Robert H. McKinney - Chairman and Chief Executive Officer of the Registrant;
Chairman and Chief Executive Officer of First Indiana Corporation, a savings
bank holding company; Chairman of First Indiana Bank; Chief Executive Officer
until May 1992; retired Partner of Bose McKinney & Evans, attorneys; a
Director of First Indiana Corporation and Lilly Industries, Inc.; Chairman,
Federal Home Loan Bank Board (1977-1979).
Marni McKinney Jakubovie - President, Chief Operating Officer, and a Director
of the Registrant; Vice Chairman and a Director of First Indiana Corporation
and First Indiana Bank; formerly Executive Vice President of the Registrant
(1987-1992); formerly Vice President and Director of Strategic Planning of
First Indiana Bank.
Kevin K. McKinney - Vice President and a Director of the Registrant;
Publisher of NUVO Newsweekly and Chairman and President of NUVO, Inc.;
formerly President Mid America Media; formerly Chairman, Indianapolis Extra,
Ltd.
Joseph M. Richter - Executive Vice President, Chief Financial Officer and
Treasurer of the Registrant.
Gary E. Oakes - President of American Precast Concrete, division of the
Registrant, since February 1990; formerly Vice President of American Precast
Concrete.
ITEM 11 - EXECUTIVE COMPENSATION
Information relative to this item is incorporated into this Report by
reference to the definitive proxy statement of the Registrant for the Annual
Meeting of Shareholders to be held April 27, 1995, under the caption
"Compensation of Directors and Executive Compensation".
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relative to this item is incorporated into this Report by
reference to the definitive proxy statement of the Registrant for the Annual
Meeting of Shareholders to be held April 27, 1995, under the caption "Voting
Securities and Principal Holders Thereof".
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relative to this item is incorporated into this Report by
reference to the definitive proxy statement of the Registrant for the Annual
Meeting of Shareholders to be held April 27, 1995, under the caption "Certain
Transactions".
-7-
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. The financial statements listed in the accompanying Index to
Selected Financial Data, Management's Discussion and Analysis
of Results of Operations and Financial Condition and
Liquidity, Financial Statements and Financial Statement
Schedules are filed as part of this report.
2. The financial statement schedules listed in the accompanying
Index to Selected Financial Data, Management's Discussion and
Analysis of Results of Operations and Financial Condition and
Liquidity, Financial Statements and Financial Statement
Schedules are filed as part of this report.
Exhibit
Number Exhibit
3 Amended Articles of Incorporation and Amended and Restated By-
Laws thereto.
10 Material Contracts of the Registrant.
22 Subsidiaries of the Registrant.
23 Definitive Proxy Statement for Annual Meeting of Shareholders
to be held April 27, 1995.
24 Consent of Independent Certified Public Accountants, of report
dated March 21, 1995, for incorporation into Form S-8
registration statement.
99 First Indiana Corporation's form 10-K for the year ended
December 31, 1994.
All other exhibits are not attached since they are not
applicable to the Registrant.
(b) Reports on Form 8-K. No information need be disclosed.
(c) Financial Statement Schedules
-8-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
THE SOMERSET GROUP, INC.
By s/ Robert H. McKinney 03/22/95
Robert H. McKinney, Chairman and
Principal Executive Officer
By s/ Marni McKinney Jakubovie 03/22/95
Marni McKinney Jakubovie, President and
Principal Operating Officer
By s/ Joseph M. Richter 03/22/95
Joseph M. Richter, Executive Vice President
and Principal Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant
in the capacities indicated and on the date indicated.
Signatures Title Date
s/ Robert H. McKinney Director, Chairman 03/22/95
Robert H. McKinney Principal Executive Officer
s/ Marni McKinney Jakubovie Director, President 03/22/95
Marni McKinney Jakubovie and Principal Operating Officer
s/ Kevin K. McKinney Director and Vice President 03/22/95
Kevin K. McKinney
s/ H. J. Baker Director 03/22/95
H. J. Baker
s/ William L. Elder Director 03/22/95
William L. Elder
s/ Douglas W. Huemme Director 03/22/95
Douglas W. Huemme
s/ Michael L. Smith Director 03/22/95
Michael L. Smith
-9-
THE SOMERSET GROUP, INC.
Form 10-K for the Year Ended December 31, 1994
Items 5, 6, 7, 8, 14(a) (1) and (2), and 14(c)
Index to Selected Financial Data,
Management's Discussion and Analysis of Results of
Operations and Financial Condition and Liquidity,
Financial Statements and Financial Statement Schedules
Selected Financial Data, Management's Discussion and Analysis of Results
of Operations and Financial Condition and Liquidity, Financial Statements and
Schedules of the Registrant and its subsidiaries, required to be included in
Items 5, 6, 7, 8, 14(a) (1) and (2), and 14(c) are listed below:
MARKET FOR THE REGISTRANT'S COMMON STOCK 11
SELECTED FINANCIAL DATA 11
MANAGEMENT'S DISCUSSION AND ANALYSIS 12
FINANCIAL STATEMENTS:
Independent Auditors' Report 19
Consolidated Statements of Income for the years ended December
31, 1994, 1993, and 1992 19
Consolidated Balance Sheets as of December 31, 1994 and 1993 20
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1994, and 1993, and 1992 22
Consolidated Statements of Cash Flows for the years ended
December 31, 1994 1993, and 1992 23
Notes to Consolidated Financial Statements 24
Summarized Consolidated Statements of Subsidiary,
Not Consolidated with Registrant 34
FINANCIAL STATEMENT SCHEDULES:
Financial statement schedules have been omitted because the required
information is contained in the notes to the financial statements or because
such schedules are not required or are not applicable.
The individual financial statements of the Registrant have been omitted
since the Registrant is primarily an operating company and all subsidiaries
included in the consolidated statements being filed, in the aggregate, do not
have minority equity interest and/or indebtedness to any person other than
the Registrant or its consolidated subsidiaries in amounts which together
exceed 25% of consolidated net assets as shown by the most recent
consolidated balance sheet. All other schedules are omitted because they are
not applicable or the required information is shown in the financial
statements or the notes thereto.
-10-
THE SOMERSET GROUP, INC.
MARKET FOR THE REGISTRANT'S COMMON STOCK
The Company's common stock trades on The NASDAQ Stock Market under the symbol
SOMR. The quarterly range of prices for the Company's common stock for the
years ended December 31, 1994 and 1993 is presented below:
1994 1993
Quarter High Low High Low
First - ended March 31, $14.25 $9.75 $9.50 $6.75
Second - ended June 30, $12.50 $11.63 $9.75 $7.75
Third -ended September 30, $13.25 $11.13 $11.50 $9.50
Fourth -ended December 31, $13.50 $12.50 $11.00 $10.13
The Company paid a cash dividend of $.10 per share in the third quarter of
1994.
As of February 24, 1995, there were 234 shareholders of record and
approximately 707 beneficial owners.
SELECTED FINANCIAL DATA
(In thousands except per share amounts)
<TABLE>
Years Ended December 31,
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Net sales from continuing operation $23,467 $14,555 $15,875 $13,935 $19,685
Income from continuing operations 2,617 2,219 1,657 1,692 2,286
Net income 2,617 2,219 44 120 2,796
Income from continuing operations
per share 1.57 1.37 1.03 1.00 1.28
Net income per share 1.57 1.37 .03 .07 1.57
</TABLE>
<TABLE>
As of December 31,
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Working capital $6,852 $4,885 $4,897 $5,806 $6,415
Total assets 39,804 34,995 30,649 32,618 33,499
Long-term debt 5,500 5,500 5,587 7,013 5,929
Total liabilities 13,375 11,091 9,009 10,618 10,845
Shareholders' equity 26,429 23,904 21,640 22,000 22,654
Book value per share 16.13 14.89 13.49 13.75 13.17
</TABLE>
-11-
THE SOMERSET GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
The Company earned $2,617,000 in 1994, compared to net income from the same
businesses of $2,219,000 in 1993 and $1,657,000 in 1992, an 18% increase over
1993 and a 58% increase over 1992. Operating income of the construction
products and services group improved during 1994, but was partially offset by
lower equity earnings from First Indiana Corporation.
Income from continuing operations, after allocation of income taxes, during
the three years ended December 31, 1994 was as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Operating income from construction
products and services $1,752,000 $ 716,000 $521,000
Equity in earnings of First
Indiana Corporation 1,583,000 2,186,000 1,863,000
General corporate expenses
and other income (450,000) (374,000) (444,000)
Interest expense (268,000) (309,000) (283,000)
-------- -------- ---------
(718,000) (683,000) (727,000)
Net income from continuing
operations 2,617,000 2,219,000 1,657,000
Return on beginning equity 10.9% 10.3% 7.5%
</TABLE>
Operating income from construction products and services of $1,752,000
represented an increase of 145% over the $716,000 earned in 1993 and a 236%
increase over the $521,000 reported in 1992. However, the Company's net
income from equity earnings of First Indiana Corporation for 1994, of
$1,583,000, was 28% below 1993 results of $2,186,000, and 15% lower than the
$1,863,000 earned in 1992, and offset much of the gain made by the
construction operations.
Corporate expenses for 1994 were higher than both 1993 and 1992, and were
caused by the increase in sales and earnings of the construction operations
which necessitated increased personnel costs and variable expenses in
managing the operations. Interest expense decreased as a result of the
relatively strong cash position of the Company during 1994, compared to the
prior years, which reduced borrowing for working capital needs.
During 1994, the Company sold its 51% interest in a subsidiary that commenced
operations in the fall of 1993. The subsidiary manufactured prestressed
concrete girders and beams for use by the highway bridge construction
industry. The results of operations for this subsidiary are included in the
consolidated financial statements for 1993 and for the period owned in 1994.
The Company paid its first cash dividend since its inception during the third
quarter of 1994, of $.10 per share, under a policy of paying semi-annual
dividends. A dividend of $.10 per share has also been declared for payment
on March 17, 1995. Since its inception as a public company, The Somerset
Group, Inc. has retained its earnings to fund growth of operations and to
reduce long-term debt. The payment of cash dividends will not hinder the
Company's ability to pursue these objectives because of the increase in
earnings for 1994 and 1993.
-12-
Sales
Sales, gross profit, and the percentage of gross profit on sales of the
construction products and services group for the three years ended December
31, 1994 were as follows:
1994 1993 1992
Net Sales $23,467,000 $14,555,000 $15,875,000
Gross Profit 4,303,000 2,544,000 2,235,000
Percentage 18.3% 17.5% 14.1%
Net sales increased 61%, or $8.9 million during 1994, compared to 1993. When
compared to 1992, sales during 1994 represented a 48% increase, or $7.6
million. The increase in sales was a result of higher volume and increased
unit selling prices for products manufactured and an increase in the volume
of job site installation services. The decrease in 1993 sales compared to
1992 was a result of lower sales of installation services, partially offset
by an increase in average unit prices for manufactured products. Volume
increases of products sold in 1994 occurred in prestressed concrete
components used in the construction of the structural framing systems of
parking garages, sports stadiums, and prestressed concrete wall panels used
as internal and external wall units on new industrial, commercial, and retail
buildings. 1994 sales also include prestressed concrete bridge components
manufactured by the 51% owned subsidiary founded in late 1993 and sold in
1994. There were no sales of these products during 1993 and 1992. Sales of
these products in 1994 amounted to $2.5 million, and accounted for 17% of the
61% increase of 1994 over 1993, and 16% of the 48% increase of 1994 over
1992.
Average unit selling price increases resulted from the sale of higher priced
decorative wall panels and the sale of products designed and engineered
specifically for a particular project compared to standard products.
Increases in prices of standard products implemented during the year were
modest and reflected raw material and labor cost increases. Sales of
installation services accounted for 8.3% of the 1994 sales increase over 1993
and none of the 1994 increase over 1992. The increase primarily resulted
from volume with no significant price increases.
The higher percentage of gross profit on sales during 1994 compared to 1993
was caused by several factors. The primary factor was the increased volume
of product sales which allowed the fixed unit cost to manufacture the
products to be lower. Contributing to a lesser degree was the higher average
unit selling prices of products and higher volume of installation services
that allowed the fixed costs of these services to be a lower percentage of
the sales price.
The higher percentage of gross profit on sales during 1993 compared to 1992
was caused by lower sales of job site services, which are relatively low
margin, higher unit selling prices of manufactured products, and reduced
operating expenses from cost reduction and efficiency improvement programs
initiated in 1992.
As shown above, 1992 profit margins were low and are not representative of
historical margins. During 1992 the country was beginning to recover from
the nationwide recession that was at its peak in the construction industry
during 1991. During 1992 and the first half of 1993 the demand for
construction products and services, while improved over 1991, remained
depressed. Competition for available projects caused downward price
competition among alternative building methods and products that lowered
profit margins as our manufacturing facilities operated at lower efficiency
levels. Beginning in the last half of 1993, demand for our products and
services began a dramatic increase, as the construction economy
-13-
began to grow spurred by lower interest rates and a pent-up demand that had
built during the recession. The results for 1994 are indicative of the
increase in demand for new structures, particularly those for manufacturing,
warehousing, and distribution. As the midwest economy gained strength, we
experienced record setting sales volume for products and installation
services for these structures.
While the recent increases in interest rates will have some effect on demand,
indicators remain positive that demand during 1995 will remain at relatively
high levels. The Company's contracted backlog at December 31, 1994 stood at
$8.8 million, compared to $8.2 million at the end of 1993 and $4.2 million at
the end of 1992.
Equity in Earnings of First Indiana Corporation
The Company's equity in earnings of First Indiana Corporation, before income
taxes, amounted to $2,616,000 for the year ended December 31, 1994, compared
to $3,614,000 for the year ended December 31, 1993, and $3,080,000 in 1992.
The 1994 amount represented a decrease of 28% from 1993 earnings and were 15%
below earnings of 1992.
First Indiana's earnings for 1994 represented the second strongest year from
operations in the Bank's history. The decrease in earnings resulted
primarily from higher interest rates, which reduced loan originations and
gains from the sale of loans in the Bank's core mortgage business, and higher
operating expenses. Offsetting these decreases were increases in
originations of home equity and construction loans.
Net interest income rose to $49.2 million in 1994, compared to $45.9 million
in 1993 and $36.9 million in 1992. The increase in 1994 stems from First
Indiana's portfolio of adjustable-rate consumer and construction loans tied
to the Bank's prime lending rate, which rose throughout the year. First
Indiana's asset-sensitive balance sheet caused interest income to increase
faster than interest expense in the rising-rate environment.
First Indiana's net interest margin rose to a record 3.96% for 1994, compared
with 3.64% in 1993 and 3.28% in 1992. Net interest margin consists of two
components: interest-rate spread and the contribution of interest-free funds
(primarily shareholders' equity and other non-interest-bearing liabilities).
Interest-rate spread is the difference between the yield on total-earning
assets and the cost of total interest-bearing liabilities.
First Indiana's average interest-rate spread on average interest-earning
assets for the year ended December 31, 1994 was 3.71%, compared with 3.43% in
1993 and 3.05% in 1992. The increased spread arose when the Bank's interest-
earnings assets repriced faster than the liabilities funding them in the
rising rate environment of 1994.
The decrease in non-interest income in 1994 arose primarily from losses in
the Bank's trading account and upon the sale of residential mortgage loans in
the secondary market as part of the Bank's normal mortgage banking activity.
A sudden, unexpected increase in interest rates in the first quarter of 1994
led to losses in the Bank's trading account, which consisted primarily of
Treasurys and other government securities. (First Indiana has no investment
in derivative securities). That account was immediately closed and the
Bank's trading desk disbanded.
As with most mortgage bankers, losses from the sale of loans occurred during
the first quarter of 1994, when rates rose quickly and First Indiana was
committed to deliver loans to the secondary market which
-14-
had fallen in value between the time of their origination and the promised
date of delivery. First Indiana has since reduced the maximum amount
permitted to be held in its "pipeline" for sale to the secondary market, and
losses of the magnitude incurred in 1994 are not expected to recur.
First Indiana has managed its loan portfolio to reduce concentration of loan
types and to diversify assets geographically. Non-performing assets, which
consist of non-accrual and restructured loans, real estate owned, and other
repossessed assets, fell 20% during 1994 to $29.1 million at December 31 from
$36.5 million one year earlier.
First Indiana's assets grew in 1994 to almost $1.4 billion at year end,
compared to $1.3 billion at December 31, 1993. The tangible and core capital
of the Bank was almost $114 million, or 8.16% of assets, which exceeded
regulatory minimums at December 31, 1994.
Management of First Indiana has identified several strategies for improving
earnings in 1995 and beyond. These include further enhancements to its core
real estate lending business, including construction, home equity, and
residential mortgage lending; enhanced efficiencies and streamlined
processes, particularly in the mortgage banking unit; and the development and
acquisition of companies that will provide additional sources of non-interest
income. The Bank further intends to expand its business lending portfolio,
specializing in loans to smaller, independently owned companies with a
demonstrated history of strong performance.
Selling and General and Administrative Expenses
Selling expenses amounted to $568,000 during 1994, an increase of $80,000
from the $488,000 in 1993 and an increase of $94,000 from $474,000 in 1992.
As a percentage of sales, selling expenses were lower at 2.4% of 1994 sales,
compared to 3.4% in 1993, and 3.0% in 1992. The 1994 increase was a result
of the increase in sales of construction products and services that caused an
increase in commission compensation and increased costs for the promotion of
the highway bridge products subsidiary that was formed late in 1993.
General and administrative expenses amounted to $1,927,000 during 1994 and
represented an increase of $304,000 from the $1,623,000 incurred in 1993, and
an increase of $204,000 from the $1,723,000 spent in 1992. The 1994 increase
was caused by an increase in variable expenses directly related to the
increased sales and manufacturing volume of construction products, incentive
compensation of management personnel based on improved operating income from
the construction group, and additional expenses incurred for the start-up of
operations of the highway bridge products subsidiary. The $100,000 of lower
expenses for 1993 compared to 1992 was a result of the restructuring of
operations, consolidation of facilities and workforce reductions initiated in
1992 to reduce overhead costs.
Interest Expense
Interest expense decreased $73,000 in 1994 and occurred because of fewer
funds borrowed for operating needs that resulted from the strong cash
position of the Company throughout 1994. In spite of the rapid increase in
sales, and the increased need for cash to support the increase in accounts
receivable and contracts-in-progress, borrowing under the working capital
line-of-credit was minimal during the year. In addition, 1994 was the first
year to recognize the full effect of the lower interest rates on the
Company's long-term debt renegotiated in 1993. The increase of interest
expense of $44,000 recorded in 1993 compared to 1992 was caused by debt
origination fees and pay-off penalties associated with the renegotiation of
the long-term debt of the Company.
-15-
Current Accounting Issues
Implementation of pronouncements issued by the Financial Accounting Standards
Board during 1994 and to the date of this report are either not applicable or
will not have any material impact on the Company's Consolidated Financial
Statements when implemented.
FINANCIAL CONDITION AND LIQUIDITY
The financial condition of the Company was improved at December 31, 1994,
from a relatively sound position at the end of 1993. While the rapid
increase in sales during 1994 caused a heavy demand for working capital, the
Company was able to fund these requirements primarily from internal sources
with no increase in outside debt. Total assets grew $4.8 million or 13.7% to
$39.8 million at the end of 1994, from $35 million at the end of 1993.
The ratio of long-term debt to shareholders' equity improved to slightly less
than .21 to one at December 31, 1994, compared to .23 to one at December 31,
1993. Long-term debt was unchanged and stood at $5.5 million at both
December 31, 1994 and 1993.
The Company continued to have a strong ratio of current assets to current
liabilities. The current ratio stood at 3.0 to one at December 31, 1994,
compared to 3.6 to one at December 31, 1993. The decrease was due to the
timing of payment of certain current liabilities, that were higher at the end
of 1994 compared to 1993. More importantly, the amount of actual net working
capital increased almost $2.0 million, or 40%, and amounted to $6.9 million
compared to $4.9 million at the end of 1993.
Shareholders' equity increased to $26.4 million at December 31, 1994 from
$23.9 million at the end of 1993, or $16.13 per share compared to $14.89 per
share. The percentage of total assets represented by shareholders' equity
was 66% at December 31, 1994 compared to 68% at December 31, 1993. The
amounts represent "tangible book value" as there are no intangible assets at
either year end.
Operating activities used $155,000 of cash in 1994, compared to cash provided
of $2.4 million in 1993. The primary cause of this change was the increase
in working capital needed to support operations. Accounts receivable and
contracts-in-progress unbilled were $4.9 million higher at December 31, 1994
than at the beginning of the year. The net increase in operating assets and
liabilities (cash used) was $2.7 million, compared to a net decrease (cash
provided) during 1993 of $1.4 million, resulting in a total change in annual
cash flow of $4.1 million between 1994 and 1993.
Significant changes in cash flows are not unusual in the construction
industry. Several variables influence cash flows when compared on a year-to-
year basis, including the timing of individual project payments and changes
in the status and completion of projects from one year-end to another. As a
precaution against these fluctuations in cash flows, the Company maintains an
additional unused bank loan commitment of $3.0 million.
As of October 31, 1994 the Company sold its 51% interest in a subsidiary that
had been activated in 1993 to expand into a new product line of prestressed
concrete highway bridge girders and beams. During 1993 the Company had sold
a 49% interest in the subsidiary to an unrelated third party. The subsidiary
is included in the Company's consolidated financial statements since
inception of activity in the third quarter of 1993 to the sale of the 51%
ownership on October 31, 1994. Cash proceeds from the sale of this
subsidiary of $1,057,000, combined with a $525,000 additional capital
investment from the Company's minority owner, were used to fund $1,250,000 of
purchases of property, plant and equipment, that included
-16-
$564,000 of assets purchased by the subsidiary. The remainder of the asset
additions were for replacement and improvement of existing equipment and
facilities that did not significantly increase the capacity of the Company's
operations.
The Company also sold land and buildings to the subsidiary for $380,000 and
expended $595,000 for the open market purchase of 34,999 shares of First
Indiana Corporation's common stock.
At December 31, 1993 the Company had net operating loss carryforwards for
federal income tax purposes of $2,544,000. These operating loss
carryforwards were used to offset federal income tax payments during 1994 and
were a positive contribution to the cash flow of the Company during the year.
At December 31, 1994 the Company has $593,000 of such net operating loss
carryforwards remaining which can be used to offset future taxable income,
and will add to cash flow by reducing the amount of future income taxes to be
paid.
On October 1, 1993, the Company retired $2,446,000 of long-term subordinated
debentures under the terms of an optional early redemption clause of the
debenture agreement. The redemption was funded by additional long-term debt
due July 1, 1996.
Liquidity of the Company is considered more than adequate to fund future
operations. It is expected that future capital expenditures will be funded
through internally generated cash. Major expansions and any acquisitions may
be funded through additional long-term financing, or a combination of long-
term financing and shares of the Company's common stock. No material
increases in debt levels are anticipated in the near term.
-17-
KPMG PEAT MARWICK LLP
2400 First Indiana Plaza
135 N. Pennsylvania Street
Indianapolis, IN 46204-2452
The Board of Directors and Shareholders
The Somerset Group, Inc.:
We have audited the accompanying consolidated balance sheets
of The Somerset Group, Inc. and the subsidiaries as of
December 31, 1994 and 1993 and the related consolidated
statements of income, shareholders' equity, and cash flows
for each of the years in the three-year period ended
December 31, 1994. These consolidated financial statements
are the responsibility of The Somerset Group, Inc.'s
management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the financial position of The Somerset Group, Inc. and
subsidiaries at December 31, 1994 and 1993, and the results
of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1994 in
conformity with generally accepted accounting principles.
As discussed in note 1 to the consolidated financial
statements, the Company adopted the provisions of the
Financial Accounting Standards Board's Statement of the
Financial Accounting Standards No. 109, Accounting for
Income Taxes, in 1992.
February 3, 1995
s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
-18-
THE SOMERSET GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
<TABLE>
1994 1993 1992
<S> <C> <C> <C>
-------- -------- --------
Income:
Net sales $23,467,000 $14,555,000 $15,875,000
Cost of sales 19,164,000 12,011,000 13,640,000
----------- ----------- -----------
Gross profit 4,303,000 2,544,000 2,235,000
Equity in earnings of First Indiana 2,616,000 3,614,000 3,080,000
Other 146,000 95,000 93,000
----------- ----------- -----------
Total income 7,065,000 6,253,000 5,408,000
Expenses:
Selling expenses 568,000 488,000 474,000
General and administrative expenses 1,927,000 1,623,000 1,723,000
Interest expense 438,000 511,000 467,000
----------- ----------- -----------
Total expenses 2,933,000 2,622,000 2,664,000
Operating income before income taxes
and minority interest 4,132,000 3,631,000 2,744,000
Income tax expense 1,608,000 1,437,000 1,087,000
----------- ----------- -----------
2,524,000 2,194,000 1,657,000
Minority interest in loss of subs 93,000 25,000 --
----------- ----------- -----------
Income from continuing operations $2,617,000 $2,219,000 1,657,000
----------- ----------- -----------
Discontinued operations (net of income tax)
Loss from operations (169,000)
Loss from sale of assets (1,444,000)
----------- ----------- -----------
Loss from discontinued operations (1,613,000)
----------- ----------- -----------
Net income $2,617,000 $2,219,000 $44,000
========== ========== ==========
Income (loss) per share
Continuing operations $1.57 $1.37 $1.03
Discontinued operations --- --- ($1.00)
------ ------ ------
Net income $1.57 $1.37 $0.03
====== ====== ======
</TABLE>
Average shares outstanding 1,662,255 1,620,190 1,601,868
See accompanying Notes to Consolidated Financial Statements
19
THE SOMERSET GROUP, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS As of December 31,
<TABLE>
1994 1993
<S> <C> <C>
Current assets
Cash and cash equivalents $2,006,000 $2,459,000
Trade accounts, notes receivables
less allowance for doubtful acct 6,070,000 2,730,000
Contracts in progress, unbilled 1,769,000 1,127,000
Inventories 390,000 365,000
Prepaid expenses 109,000 95,000
Deferred income taxes --- 23,000
---------- ----------
Total current assets 10,344,000 6,799,000
Investments
First Indiana Corp.(market values
of $23,782,000 and $24,890,000 24,265,000 21,873,000
Property, plant and equipment, at cost
Land 393,000 685,000
Buildings 2,738,000 2,773,000
Production and delivery equipment 6,593,000 6,145,000
Office furniture and equipment 556,000 506,000
Construction in progress --- 848,000
---------- ----------
10,280,000 10,957,000
Less accumulated depreciation 6,126,000 5,678,000
---------- ----------
4,154,000 5,279,000
Other assets 1,041,000 1,044,000
Total Assets $39,804,000 $34,995,000
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-20-
LIABILITIES AND SHAREHOLDERS' EQUITY December 31, 1994
1994 1993
<TABLE>
<S> <C> <C>
Current liabilities
Trade accounts payable $808,000 $805,000
Accrued compensation 837,000 432,000
Taxes, other than income taxes 194,000 184,000
Billings in excess of costs 451,000 147,000
Deferred income taxes 22,000 ---
Income taxes 437,000 ---
Other accrued expenses 743,000 346,000
---------- ----------
Total current liabilities 3,492,000 1,914,000
Long-term debt
Notes payable - banks 5,500,000 5,500,000
Deferred income taxes 4,383,000 3,163,000
Minority interest in subsidiary --- 514,000
Shareholders' equity
Common stock without par value,
4,000,000 shares, issued 1,829,408 1,829,000 1,829,000
Capital in excess of stated value 4,979,000 4,887,000
Retained earnings 20,999,000 18,751,000
---------- ----------
27,807,000 25,467,000
Less 190,662 and 224,510 treasury
Shares respectively, at cost 1,378,000 1,563,000
---------- ----------
Total shareholders' equity 26,429,000 23,904,000
Total Liabilities and Shareholders' Eq $39,804,000 $34,995,000
=========== ===========
</TABLE>
-21-
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Capital in
Common Excess of Retained Treasury
Stock Stated Value Earnings Shares Total
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1992 $1,829,000 $4,887,000 $16,878,000 ($1,594,000) $22,000,000
Net income --- --- 44,000 --- 44,000
Shares of common stock issued in
connection with 401(k) plan --- --- (1,000) 24,000 23,000
Equity in other capital changes of
First Indiana Corporation, net of --- --- (427,000) --- (427,000)
deferred income taxes
---------- ---------- ---------- ---------- ----------
Balance December 31, 1992 1,829,000 4,887,000 16,494,000 (1,570,000) 21,640,000
Net income --- --- 2,219,000 --- 2,219,000
Shares of common stock issued in
connection with 401(k) plan --- --- 3,000 7,000 10,000
Equity in other capital changes of
First Indiana Corporation, net of --- --- 35,000 --- 35,000
deferred income taxes
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1993 1,829,000 4,887,000 18,751,000 (1,563,000) 23,904,000
Net Income --- --- 2,617,000 --- 2,617,000
Shares of common stock issued in
connection with restricted stock
grants, 401(k) plan, and exercise
of stock option grants --- 92,000 (176,000) 311,000 227,000
Purchase of Treasury shares --- --- --- (126,000) (126,000)
Cash dividends paid --- --- (164,000) --- (164,000)
Equity in other capital changes of
First Indiana Corporation, net of
deferred income taxes --- --- (29,000) --- (29,000)
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1994 $1,829,000 $4,979,000 $20,999,000 ($1,378,000) $26,429,000
========== ========== ========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-22-
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
<S> <C> <C> <C> <C>
Cash flows from operating activities: 1994 1993 1992
Income from continuing operations $2,617,000 $2,219,000 $1,657,000
Add (deduct) items not affecting cash
Depreciation and amortization 685,000 541,000 537,000
Deferred income taxes 1,265,000 1,363,000 287,000
Equity in earnings of First Indiana (2,616,000) (3,614,000) (3,080,000)
Dividends received from First Indian 782,000 531,000 413,000
Gain on sale of subsidiary (124,000)
Other, net (22,000) (39,000) 23,000
Changes in operating assets and liabilities:
Trade accounts, notes, and other (3,955,000) 544,000 1,610,000
Contracts in progress, unbilled (953,000) 303,000 (296,000)
Prepaid expenses (18,000) (50,000) 122,000
Accounts payable and accrued expen 2,184,000 497,000 (352,000)
Accrued and refundable income taxe --- 125,000 507,000
---------- ---------- ----------
Cash provided (used) by continuing opera (155,000) 2,420,000 1,428,000
Income (loss) from discontinued operatio (1,613,000)
Add (deduct) items not affecting cash
Net loss on sale of assets 1,444,000
Change in net assets of discontinued --- --- 609,000
---------- ---------- ----------
Cash provided by discontinued operations --- --- 440,000
---------- ---------- ----------
Net cash provided (used) by operating ac (155,000) 2,420,000 1,868,000
Cash flows from investing activities:
Increase in investment in First Indiana (595,000) (523,000)
Purchase of property, plant and equipment, including
discontinued operations in 1992 (1,250,000) (1,222,000) (313,000)
Proceeds from sale of assets, including
discontinued operations in 1992 380,000 7,000 1,403,000
Proceeds from sale of subsidiary 1,057,000
Increase in other assets (352,000) (45,000) (476,000)
---------- ---------- ----------
Net cash provided (used) by investing ac (760,000) (1,260,000) 91,000
Cash flows from financing activities:
Proceeds from long-term borrowings 2,500,000 1,300,000
Principal payments on long-term borrow (2,614,000) (2,726,000)
Purchase of treasury shares (126,000)
Issuance of treasury shares 227,000
Proceeds from minority investment in su 525,000 539,000
Dividends paid (164,000) --- ---
---------- ---------- ----------
Net cash provided (used) by financing ac 462,000 425,000 (1,426,000)
---------- ---------- ----------
Increase (decrease) in cash and cash equ (453,000) 1,585,000 533,000
Cash and cash equivalents at beginning 2,459,000 874,000 341,000
Cash and cash equivalents at end of year $2,006,000 $2,459,000 $874,000
========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-23-
THE SOMERSET GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies
(a) Principles of Consolidation: The consolidated financial
state- ments include the accounts of The Somerset Group, Inc.
("the Company") and its 100% owned subsidiaries for all periods
and a 51% owned sub- sidiary through its sale on October 31,
1994. The consolidated financial statements for 1992 included an
80% owned subsidiary that was dissolved and its assets sold
during 1992.
(b) Cash and Cash Equivalents: For purposes of reporting cash
flows, cash and cash equivalents include: cash on hand, cash in
banks and debt securities purchased with maturities of three
months or less.
(c) Investment in First Indiana Corporation: First Indiana
Corporation is a bank holding company whose primary subsidiary is
a bank which operates primarily in Indiana. The Company's
investment in First Indiana Corporation is stated at cost,
adjusted for the Company's share of undistributed earnings, and
includes adjustments under the purchase method of accounting.
Capital changes of First Indiana Corporation are reflected as a
separate component of consolidated retained earnings.
(d) Construction Contracts: The Company uses the
percentage-of-completion method for reporting profits from
construction contracts for financial statement purposes. The
units-of-production method is utilized in the computation.
Contracts in progress, unbilled, consists of costs incurred under
contracts plus gross profit for the units completed that, in
accordance with progress billing terms of the individual
contracts, are not yet billable to the customer.
At December 31, 1994 and 1993, the total value of work completed
to date for such contracts in progress was $8,820,000 and
$5,993,000, of which $7,502,000 and $5,013,000, respectively, had
been billed.
(e) Inventories: Inventories are stated at the lower of cost or
replacement market. Cost is determined principally by the
first-in, first-out method. Inventory consists of raw materials
and supplies.
f) Property, Plant and Equipment: Property, plant and
equipment are stated at historical cost for financial reporting
purposes, depreciation is deter- mined using the
straight-line method based upon the estimated useful lives of the
individual assets. Both straight-line and accelerated methods
are used for income tax purposes.
(g) Employee Benefit Plans: The Company maintains a
non-contributory, trusteed, defined benefit pension plan covering
substantially all non-bargaining unit employees. Benefits are
based on years of service and the employee's compensation. The
Company makes contributions to the plan which equal or exceed the
minimum amounts required by the Employee Retirement Income
Security Act of 1974.
The Company also sponsors an Employee Savings and Investment
Plan, which is qualified for tax deferred employee contributions
under section 401(k) of the Internal Revenue Code. The plan is a
trusteed, defined contribution plan with the Company matching a
portion of the employees' contributions in the form of shares of
the Company's common stock.
(h) Income Taxes: The Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes in
1992. The adoption did not have a material effect on the
consolidated financial statements. The principal temporary
differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities which results in
deferred taxes are the investment in First Indiana Corporation,
accounted for under the equity method of accounting, and
Property, Plant and Equipment.
<PAGE>
(i) Income (Loss) Per Share: Income (loss) per share is based on
the average number of common shares and common share equivalents
(stock options) outstanding during the year. The effect of
outstanding stock options on income per share on a fully diluted
basis is not material.
(j) Treasury Shares: Treasury shares issued to fund employee
benefit plans are valued at average cost of all treasury shares
at the date of issuance.
-24-
Note 2. Discontinued Operations
The discontinued operations included in the financial statements
for the year ended December 31, 1992 represent the Company's
withdrawal from the environmental analytical laboratory industry.
All of the operating assets of TMS Analytical Services, Inc., and
80% owned subsidiary, were sold for cash on July 31, 1992.
Note 3. Minority Interest - Sale of Subsidiary
During 1993, the Company sold a 49% interest in an inactive
subsidiary. Following the sale, the subsidiary commenced
building a new facility for the manufacture of an additional
product line for the Company, that of prestressed concrete
products intended for use in the construction of highway bridges.
Manufacturing commenced in January 1994. As of October 31, 1994,
the Company sold its remaining 51% ownership in the subsidiary.
The results of operations for this subsidiary from its inception
in 1993 to October 31, 1994 and the accompanying minority
interest are included in the consolidated financial
statements.
The net assets and the gain on sale of this subsidiary were as
follows:
<TABLE>
<S> <C>
Selling price 1,057,000
----------
Net current assets 277,000
Property, plant and
equipment 1,310,000
Other assets 35,000
Long-term debt (589,000)
Minority interest (420,000)
--------
Net assets sold 933,000
Gain on sale before expenses
of sale and taxes 124,000
========
</TABLE>
Note 4. Trade Accounts, Notes and Other Receivables
Trade accounts, notes and other receivables are net of allowances
for doubtful accounts of $8,000 and $25,000 at December 31, 1994
and 1993. Activity concerning the allowances for doubtful
accounts for the three years ended December 31, 1994 was as
follows:
<TABLE>
1994 1993 1992
<S> <C> <C> <C>
Balance at beginning of period 25,000 51,000 9,000
Additions to costs and expenses 0 0 8,000
Additions charged to operating
loss of discontinued operations 0 0 40,000
Uncollected accounts written off,
net of recoveries (17,000) (6,000) (6,000)
Amount credited to costs and expenses 0 (20,000) 0
-------- -------- --------
Balance at end of period 8,000 25,000 51,000
</TABLE>
-25-
Note 5. Investment in First Indiana Corporation
The Company's percentage ownership in First Indiana Corporation
was as follows:
<TABLE>
First Indiana
Shares Shares Percentage
Owned Outstanding Ownership
<C> <C> <C> <C> <C> <C>
December 31, 1994 1,509,983 7,193,522 21.0%
December 31, 1993 1,474,984 7,150,408 20.6%
December 31, 1992 1,474,984 7,147,927 20.6%
</TABLE>
The Company's equity in earnings of First Indiana was as follows:
<TABLE>
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C> <C>
Equity in earnings of First
Indioana based on percentage
of ownership 2,169,000 3,115,000 2,545,000
Purchase price adjustments:
the Company's equity ownership
of First indiana's net assets
exceed the actual cost of its
shares. Under the purchase
price accounting method,
these purchase price adjustments
are being amortized to income
using both the declining-
balance method and straight
line methods and amortization
periods of 3 to 10 years 447,000 499,000 535,000
-------- -------- --------
2,616,000 3,614,000 3,080,000
========= ========= =========
</TABLE>
At December 31, 1994, the unamortized balance of the purchase
price adjustments was $1,081,000.
The charges to retained earnings for equity in other capital
changes of First Indiana Corporation primarily represents
dilution of the Company's percentage share of First Indiana's net
worth that resulted from shares of common stock issued by First
Indiana at less than book value.
<PAGE>
Equity in undistributed earnings and capital changes of First
Indiana of $11,569,000 and $10,796,000 are included in
consolidated retained earnings at December 31, 1994 and 1993,
respectively. First Indiana Corporation is not subject to any
regulatory restrictions on the payment of dividends to its
stockholders. However, the Office of Thrift Supervision has
promulgated regulations governing dividend payments, stock
redemptions, and other capital distributions, including
upstreaming of dividends by a savings institution to a hold-
ing company. Under these regulations, the Bank may make
distributions to First Indiana Corporation of up to 100 percent
of the Bank's net earnings over the most recent four-quarter
period, less distributions made during such four-quarter period.
The Bank is required to give the Office of Thrift Supervision 30
days advance notice before declaring a dividend.
-26-
Note 6. Other Assets
Other assets were as follows:
<TABLE>
December 31
1994 1993
<S> <C> <C>
Long-trm note receivable in connectioin
with the sale of discontinued radio
broadcosting properties 487,000 461,000
Investment in split-dollar life insurance
contract for a key officer of the company
secured by cash value and contractual
guarantee of yield 460,000 460,000
Long-term note receivable in connection
with the sale of investment in Mid-
America Media, Inc. 24,000 36,000
Other 70,000 87,000
------- -------
1,041,000 1,044,000
========= =========
</TABLE>
Note 7. Long-Term Debt
Outstanding long-term debt is summarized below:
<TABLE>
December 31,1944 December 31,1993
Current Long-Term Current Long-Term
Portion Portion Portion Portion
<S> <C> <C> <C> <C> <C>
Notes Payable
Note payable to bank at 8.23%
due in full July 1, 1996 0 3,000,000 0 3,000,000
Note payable to bank at 6.85%
due in full July 1, 1996 0 2,500,000 0 2,500,000
--- --------- --- ---------
0 5,500,000 0 5,500,000
=== ========= === =========
</TABLE>
In addition to the above, the Company at December 31, 1994, has
available a $3,000,000 line of credit that expires July 1, 1995,
at the prime rate of interest. The prime rate of interest in
effect at December 31, 1994 and 1993 was 8.5% and 6%
respectively.
The Company paid interest of $436,000, $637,000, and $601,000
during the years ended December 31, 1994, 1993, and 1992
respectively.
-27-
<TABLE>
Note 8. Business Segment
(in thousands)
1994 1993 1992
<S> <C> <C> <C> <C>
Construction products and services
Net sale $23,467 $14,555 $15,875
Operating profit 2,715 1,144 863
Add (deduct)
Equity in First Indiana 2,616 3,614 3,080
Other income 146 95 93
Interest expense (438) (511) (467)
General corporate expenses (907) (711) (825)
---------- --------- --------
Income from continuing operations
before income tax 4,132 3,631 2,744
========= ========= =========
Identifiable assets
Construction products $11,834 $11,351 $10,315
Investment in First Indiana . 24,265 21,873 18,731
Discontinued operations --- --- ---
Corporate assets 3,705 1,771 1,603
---------- ----------- -------
Total assets $39,804 $34,995 $30,649
=========== =========== =========
Depreciation and amortization
Construction products $ 670 $ 526 $ 521
Corporate assets 15 15 16
--------- ------- --------
Continuing operations 685 541 537
Discontinued operations --- --- 182
--------- --------- -------
Total depreciation/amortiz. $ 685 $ 541 $ 719
========= ========== ====
Capital expenditures:
Construction products $ 1,250 $ 1,222 $ 302
Discontinued operations --- --- 11
---------- ---------- ---------
$ 1,250 $ 1,222 $ 313
========== ========== =========
</TABLE>
There were no intersegment sales.
-28-
<PAGE>
Note 9. Income Taxes
Total income tax expense (benefit) for the three years ended
December 31, 1994 was allocated as follows:
<TABLE>
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Income from operations $1,608,000 $ 1,437,000 $1,087,000
Discontinued operations --- --- (674,000)
Retained earnings for equity in other
in other capital changes of First
Indiana Corporation (9,000) 18,000 (285,000)
--------- ---------- ---------
$1,599,000 $ 1,455,000 $ 128,000
========== ========== ==========
</TABLE>
Income tax expense attributable to income from continuing
operations consists of:
<TABLE>
Current Deferred Total
<S> <C> <C> <C>
Year ended Dec 31, 1994:
Federal $ 273,000 $ 997,000 $1,270,000
State and local 70,000 268,000 338,000
--------- --------- ---------
$ 343,000 $1,265,000 $1,608,000
========= ========= ==========
Year ended December 31, 1993:
Federal $ --- $1,135,000 $1,135,000
State and local --- 302,000 302,000
-------- ---------- ----------
$ $1,437,000 $1,437,000
======== ========== ==========
Year ended December 31, 1992:
Federal $ (99,000) $ 953,000 $ 854,000
State and local (26,000) 259,000 233,000
--------- ---------- ----------
$(125,000) $1,212,000 $1,087,000
======== ========== ==========
</TABLE>
Income tax expense attributable to income from continuing
operations was$1,608,000, $1,437,000, and $1,087,000 for the
years ended December 31, 1994, 1993, and 1992, respectively, and
differed from the amounts computed by applying the federal income
tax rate of 34% to pretax income from continuing operations as a
result of the following:
<TABLE>
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Federal income tax at $1,405,000 $1,235,000 $ 933,000
statutory rate of 34%
Add (deduct) tax effect of:
State and local income taxes,
net of federal income tax 204,000 199,000 154,000
Other (1,000) 3,000 ---
---------- ---------- ----------
$1,608,000 $1,437,000 $1,087,000
========== ========== ==========
</TABLE>
The Company made income tax payments to state and local
governments of $24,000 during 1994 and received income tax
refunds (net of payments made) of $33,000 and $592,000 for the
years ended December 31, 1993 and 1992, respectively. See Note 5
for discussion of income taxes related to First Indiana
Corporation.
-29-
The tax effects of temporary differences that give rise to
significant portions of the net deferred tax liability at
December 31, 1994 and 1993 are presented below:
<TABLE>
December 31,
Deferred tax assets: 1994 1993
<S> <C> <C>
Compensated absences (principally vacation earned)
accrued for financial reporting purposes $ 72,000 $ 65,000
Pension benefits accrued for financial
repoprting purposes 104,000 57,000
Net operating loss carryforwards 234,000 1,005,000
Other 105,000 33,000
Less valuation reserve (234,000) (593,000)
--------- ---------
Total deferred assets $ 281,000 $ 567,000
========== =========
Deferred tax liabilities:
Investment in First Indiana Corporation $3,949,000 $2,972,000
Plant and equipment 640,000 678,000
Contracts in progress - unbilled 97,000 57,000
---------- ----------
Total deferred liabilities 4,686,000 3,707,000
--------- ----------
Net deferred tax liability $4,405,000 $3,140,000
========== ==========
At December 31, 1994 and 1993, the Company had net operating loss
carryforwards for federal income tax purposes of $593,000 and
$2,544,000, respectively, which are available to offset future
federal taxable income through 2008.
Note 10. Stock Incentive Plans
Stock Options
The Company's 1986 and 1991 Stock Incentive Plans provide for
granting of stock options to officers and other key employees at
the quoted market value of the Company's common stock on the date
of the grant. The terms and conditions of both the 1986 and 1991
Plans are identical. Options are exercisable during a period of
two to five years after the date of grant, and expire five years
from the date of grant. The 1986 Plan authorized 93,750 shares
for granting options, and the 1991 Plan authorized 100,000 shares
for granting options, with or without stock appreciation rights.
The Company also maintains a 1991 Director Stock Option Plan,
which uthorized 50,000 shares. The plan provides for the
granting of stock options to non-employee directors of the
Company. Grants issued are non-qualified stock options, which do
not afford favorable tax treatment to recipients and which
normally result in tax deductions to the Company. Options are
granted annually at the time of the annual meeting of the
shareholders, at the quoted market price on that date. The plan
allows no more than the grant of 10,000 shares annually.
Director options have a term of five years and are exercisable at
any time during that term. The following summary reflects
changes in the options outstanding during the three years ended
December 31, 1994.
-30-
</TABLE>
<TABLE>
Officers & Key
Employees Directors Price Range
Plans Plan Per Share
<S> <C> <C> <C> <C> <S><C>
Balance at January 1, 1992 74,850 6,000 $6.25 - $17.00
Options granted 25,000 6,000 $6.625 - $7.50
Options expired (25,000) --- $6.25 - $17.00
Balance at Dec 31, 1992 74,850 12,000 $6.25 - $17.00
Options granted 22,600 5,000 $9.125 - $9.25
Options expired (3,400) (2,000) $6.50 - $9.375
Balance at Dec 31, 1993 94,050 15,000 $6.25 - $17.00
Options granted 23,600 4,000 $11.875 - $13.00
Options expired --- (3,000) $6.50 - $9.25
Options exercised (22,900) --- $6.25 - $6.625
Balance at Dec 31, 1994 94,750 16,000 $6.25 - $17.00
</TABLE>
Outstanding option shares at December 31, 1994, by exercise price
per share, were as follows:
<TABLE>
Officers & Key
Price Per Employees Directors
Share Plans Plan
<C> <C> <C>
$ 6.25 9,450 ---
6.50 17,100 4,000
6.625 9,700 ---
7.2875 6,500 ---
7.50 --- 4,000
9.125 22,600 ---
9.25 --- 4,000
9.375 2,800 ---
11.875 --- 4,000
13.00 23,600 ---
17.00 3,000 ---
------- --------
94,750 16,000
======= ========
</TABLE>
Stock Grants
The Company's 1986 and 1991 Stock Incentive Plans also provide
for the issuance of stock grants to key individuals for
achievement of specific results over a three-year period. On
April 1, 1994, the Company awarded 10,000 shares of stock to each
of two executive officers. These shares are subject to recall by
the Company in the event that certain specific employment and
performance objectives are not met by March 31, 1997. The
Company has charged expense for $62,000 during 1994 in connection
with these grants.
Reserved for future stock options and stock grants at December
31, 1994 are 56,000 shares under the Officers and Key Employees
Plans and 34,000 shares under the Directors Stock Option Plan.
-31-
Note 11. Retirement Plans
The Company maintains a non-contributory, defined benefit pension
plan covering non-bargaining unit employees and also made
contributions during the last three fiscal years to collectively
bargained, multi-employer pension plans in accordance with the
provisions of negotiated labor contracts.
Net periodic pension expense for the plan covering non-bargaining
unit employees consists of the following:
<TABLE>
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Service cost benefits earned
during the year 153,000 143,000 157,000
Interest cost on projected
benefit obligations 303,000 298,000 263,000
Return on plan asssets 40,000 (95,000) (326,000)
Net amortization and deferral (375,000) (254,000) (26,000)
-------- -------- --------
Net pension costs 121,000 92,000 68,000
======== ======== ========
</TABLE>
The funded status of the plan and the amounts reflected in the
accompanying consolidated balance sheets are as follows:
<TABLE>
December 31,
1994 1993
<S> <C> <C> <C>
Vested benefit obligation $ 2,913,000 $ 2,872,000
Non-vested benefit obligation 155,000 231,000
Accumulated benefit obligation 3,068,000 3,103,000
Effect of future salary increases 1,085,000 1,206,000
Projected benefit obligation 4,153,000 4,309,000
Fair value of plan assets 3,800,000 4,027,000
Projected benefit obligations 353,000 282,000
Unrecognized net experience (gain) loss (328,000) (37,000)
Unrecognized net transition asset* 241,000 (100,000)
--------- ---------
Accrued pension cost $ 266,000 $ 145,000
========= =========
</TABLE>
* Amortized over 18 years
The projected benefit obligations were determined using an
assumed discount rate of 8.0% for the year ended December 31,
1994 and 7.5% for the year ended December 31, 1993. The effect
of this change in discount rate was to decrease the projected
benefit obligation $272,000 at December 31, 1994. The 7.5% rate
used during 1993 was a decrease from 8.0% in 1992, and the effect
of this change was to increase the projected benefit obligations
$303,000. Both years assumed a long-term salary increase of 6%
compounded annually, and a long-term rate of return on plan
assets of 8%. Plan assets consist primarily of U. S. government
agency obligations and exchange listed stocks and bonds.
The Company has contracts with certain employees represented by
labor unions, that require contributions to multi-employer
pension plans. Contributions made to these multi-employer pension
plans are based on them number of hours/weeks worked. Information
from the plans' administrators is not available to permit the
Company to determine its share of unfunded vested benefits. The
amounts contributed for the years ended December 31, 1994, 1993,
and 1992 for continuing operations were $156,000, $129,000,
and $139,000, respectively.
-32-
The Company also sponsors a 401(k) Savings Plan, which is
qualified for tax-deferred employee contributions under the
Internal Revenue Code. The plan was initiated in 1988, and is a
defined contribution plan, administered by an independent
trustee. All non-bargaining unit employees are eligible for
participation in the plan after meeting minimal time-in- service
requirements. From 1988 through June 30, 1992, the Company
matched employee contributions to the plan at the rate of 50%, to
a maximum of 3% of the employee's base salary or wages. Beginning
July 1, 1992, the Company matches employee contributions at the
rate of 25%, to a maximum of 3% of the employee's base salary or
wages. The Company's matching contribution is made in the form
of shares of the Company's common stock, valued at fair market
price at the time of the contribution, which is charged to
operating expenses. The cost of matching contributions charged
to operating expenses and the number of shares used were $16,000
and 1,311 shares, $10,000 and 994 shares, and $23,000 and 4,002
shares for the years ended December 31, 1994, 1993, and 1992,
respectively.
Note 12. Major Customers
1994 net sales included net sales to an Indianapolis based
developer that amounted to 12% of total sales, including a
shopping center parking garage project that amounted to 10% of
net sales. Sales to another Indianapolis based developer
amounted to 10% of total sales.
1993 net sales included net sales to an Indianapolis developer
that amounted to 26% of total sales, including a shopping mall
parking garage project that amounted to 15% of net sales.
1992 net sales included net sales for construction of a sports
stadium at the University of Illinois that amounted to 25% of
total sales during 1992. Products and services provided for
construction of a parking structure at an Indianapolis hospital
amounted to 14% of total sales.
Note 13. Subsequent Event
On February 20, 1995, the Company entered into an agreement with
Fabcon, Incorporated for the sale of two of its three prestressed
concrete manufacturing facilities and the business associated
with the product lines manufactured by those facilities. The
agreement calls for a selling price of $5,000,000 for the
property, plant and equipment plus a yet to be determined amount
for the carrying value of inventories and contracts in
progress - unbilled, accounts receivable, and other related
current assets. The Company estimates that it will report a
before income taxes gain from the sale of assets in the second
quarter of 1995 of approximately $2,000,000 as a result of this
sale. The sale is subject to approval of the shareholders of The
Somerset Group, Inc.
Note 14. Commitments and Contingencies
The Company, in the normal course of business, is involved in
various claims and contingencies. After taking into
consideration legal counsel's evaluation and the extent of
insurance coverage, management is of the opinion that the outcome
of claims and contingencies will not result in any ultimate
liability material to the consolidated financial statements.
-33-
FIRST INDIANA CORPORATION
SUMMARIZED CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
(Dollars in Thousands) Year Ended December 31,
1994 1993 1992
Interest Income
<S> <C> <C> <C>
Loans $ 81,553 $ 78,660 $ 79,344
Mortgage-Backed Securities 5,473 10,178 10,779
Investments 9,784 7,568 5,098
Federal Funds Sold & Int Deposit 762 678 490
-------- -------- --------
Total Interest Income 97,572 97,084 95,711
Interest Expense
Deposits 39,342 43,431 51,043
Federal Home Loan Bank Advances 6,952 2,039 1,724
Short-Term Borrowings 330 421 140
Mortgage-Backed Bonds 1,719 2,287 2,509
Floating Rate Notes --- 3,001 3,437
-------- -------- --------
Total Interest Expense 48,343 51,179 58,853
Net Interest Income 49,229 45,905 36,858
Provision for Loan Losses 3,900 4,396 2,250
-------- -------- --------
Net Income After Prov. for Loan Losses 45,329 41,509 34,608
Non-Interest Income
Sale of Loans (706) 2,803 3,159
Loan Servicing Income 2,861 1,427 1,701
Loan Fees 2,378 2,408 1,688
Dividends on FHLB Stock 602 871 1,097
Other 5,190 6,328 4,511
-------- -------- --------
Total Non-Interest Income 10,325 13,837 12,156
Non-Interest Expense
Salaries and Benefits 19,465 17,370 13,791
Net Occupancy 2,989 2,771 2,364
Deposit Insurance 2,318 1,864 2,007
Real Estate Owned Operations - Net (26) (5) 800
Other 13,756 11,504 9,875
-------- -------- --------
Total Non-Interest Expense 38,502 33,504 28,837
Earnings Before Income Taxes and
Effect of Change in Accounting Principle 17,152 21,842 17,927
Income Taxes 6,516 6,741 8,443
Earnings Before Cumulative Effect of Change
in Accounting Principle 10,636 15,101 9,484
Effect of Change in Acct. --- --- 1,518
-------- -------- --------
Net Earnings $ 10,636 $ 15,101 $ 11,002
======== ======== ========
</TABLE>
-34-
FIRST INDIANA CORPORATION
SUMMARIZED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
Assets 1994 1993
<S> <C> <C> <C>
Cash and Cash Equivalents 39,684 50,438
Investments 149,529 113,165
Mortgage-Backed Securities 69,597 101,293
Loans Receivable - Net 1,078,494 978,053
Premises and Equipment 13,333 13,660
Accrued Interest Receivable 9,812 9,888
Real Estate Owned 5,796 12,478
Prepaid Expenses and Other 28,636 28,364
--------- --------
Total Assets 1,394,881 1,307,339
Liability and Shareholders' Equity
Liabilities
Deposits 1,018,163 1,015,308
Federal Home Loan Bank Advances 201,155 106,877
Short-Term Borrowings 35,922 ---
Mortgage-Backed Bonds --- 50,000
Accrued Interest Payable 1,696 3,107
Advances by Borrowers for Taxes & Ins. 2,356 2,079
Other Liabilities 7,296 7,857
--------- ---------
Total Liabilities 1,266,588 1,185,228
Negative Goodwill 7,581 8,528
Shareholders' Equity 120,712 113,583
Total Liabilities and Shareholders' Equity 1,394,881 1,307,339
========= =========
</TABLE>
-35-
FIRST INDIANA CORPORATION
SUMMARIZED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
Cash Flows from Operating Activities 1994 1993 1992
<S> <C> <C> <C>
Net Earnings $10,636 $15,101 $11,002
Adjustments to Reconcile Net Earnings to Net
Cash Provided (Used) by Operating Activities
(Gain) Loss on Sales of Loans, Mortgage-Backed
Securities, Investments and Assets 1,050 (3,155) (3,609)
Amortization 1,609 28 1,874
Depreciation 1,922 1,437 1,345
Proceeds From Sale of Mortgage-Backed
Securities Held For Sale --- 18,762 ---
Provision for Loan Losses 3,900 4,396 2,250
Net Proceeds Trading of Investments (335) 13,228 216
Net Sale of Loans Held for Resale 62,766 5,125 8,859
Net Change in all Other
Assets and Liabilities 1,223 (4,505) 10,849
------- ------- -------
Net Cash Provided by Operations 82,771 50,417 32,786
Cash Flows from Investing Activities
Proceeds from Sales of Securities --- 1,777 12,238
Proceeds from Maturities of Invest. 28,525 88,832 7,000
Purchase of Investment Securities (66,381) (122,796) (21,993)
Origination of Loans and Mortgage-Backed
Securities -- Net of Collections (135,640) (1,065) 18,296
Purchase of Mortgage-Backed Securities --- (20,092) (52,923)
Proceeds from Sale of Loans and Mortgage-Backed
Securities 1,819 11,148 19,048
Purchase of Premises and Equipment (1,615) (7,712) (1,152)
Other -- Net 10 265 13,808
--------- --------- ---------
Net Cash Used by Investing (173,282) (49,643) (5,678)
Cash Flows from Financing Activities
Net Change in Deposits 2,855 (26,731) 11,870
Net Change in Short-Term Borrowings 35,922 (2,469) 481
Net Change in FHLB Advances 94,278 85,718 (1,021)
Proceeds from Issuance of Common Stock -- 63 10,077
Maturity of Floating Rate Note (50,000) (70,000) ---
Other -- Net (3,298) (8,032) (3,578)
--------- --------- ---------
Net Cash Provided (Used) by Financing
Activities 79,757 (21,451) 17,829
--------- --------- ---------
Increase(Decrease)in Cash (10,754) (20,677) 44,937
========== ========= =========
</TABLE>
-36-
Exhibit 24
KPMG Peat Marwick, LLP
2400 First Indiana Plaza
135 N. Pennsylvania St.
Indianapolis, IN 46204-2452
Board of Directors and Shareholders
The Somerset Group, Inc.
We consent to incorporation by reference in the registration
statement on form S-8 of the Somerset Group, Inc. of our
report dated February 3, 1995 relating to the consolidated
balance sheets of The Somerset Group, Inc. and subsidiaries
as of December 31, 1994 and 1993, and the related
consolidated statements of income, shareholders equity, and
cash flows and related schedules for each of the years in
the three-year period ended December 31, 1994, which report
appears in the December 31, 1994 annual report on Form 10-K
of The Somerset Group, Inc.
Our report refers to a change in accounting for income taxes
as The Somerset Group, Inc. adopted the provisions of
Statement of Financial Accounting Standards No. 109 in 1992.
s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
March 21, 1995
-42-
OPERATING COMPANIES AND MANAGEMENT
CORPORATE OFFICERS:
Robert H. McKinney Chairman and Chief Executive Officer
Marni McKinney President and Chief Operating Officer
Joseph M. Richter Executive Vice President, Chief Financial
Officer and Treasurer
Kevin McKinney Vice President
Sharon J.Sanford Secretary
Ruth E. O'Neil Director of Human Resources and Assistant
Secretary
Peter J. Chermansky Assistant Vice President and MIS Manager
Construction Products and Services
American Precast Concrete Indiana Division
Indianapolis, Indiana 317/353-2118
Gary E. Oakes President
Joseph W. Retzner P.E. Vice President, Engineering
Michael W. Crowley Sales Manager
Jerry Wolfe Field Manager
American Precast Concrete Ohio Division
Grove City, Ohio 614/875-8601
Larry D. Beair Operations Manager
Bill Hunt Plant Manager
Concrete Carriers, Inc.
Indianapolis, Indiana 317/353-2118
Span-Deck of Indiana Division
Westfield, Indiana 317/353-9131
James W. Sexton Plant Manager
Douglas E. Sears Project Manager
Precast Concrete Systems, Inc.
Indianapolis, Indiana 317/353-1833
Banking
First Indiana Corporation / First Indiana Bank
Indianapolis, Indiana 317/269-1200
Robert H. McKinney Chairman and Chief Executive Officer of the
Corporation and Chairman of the Bank
Marni McKinney Vice Chairman of the Corporation and Vice
Chairman of the Bank
Owen B. Melton, Jr. President and Chief Operating Officer of the
Corporation and President and Chief Executive
Officer of the Bank
David L. Gray Vice President and Treasurer of the Corporation
and Senior Vice President, Financial Manage-
ment Division, and Chief Financial Officer
of the Bank
David A. Lindsey Senior Vice President Consumer Banking Division
Merrill E. Matlock Senior Vice President Commercial Banking
Division
Timothy J. O'Neill Senior Vice President Mortgage Banking Division
Kenneth L. Turchi Senior Vice President Marketing and Strategic
Planning Division
Subsidiaries:
One Insurance Agency, Inc.
One Investment Corporation
One Property Corporation
One Mortgage Corporation
BOARD OF DIRECTORS AND SHAREHOLDER INFORMATION
BOARD OF DIRECTORS
Robert H. McKinney Chairman and Chief Executive Officer, The
Somerset Group, Inc.; Chairman and Chief
Executive Officer, First Indiana Corporation
Marni McKinney Jakubovie President and Chief Operating Officer, The
Somerset Group Inc.; Vice Chairman, First
Indiana Corporation
H. J. Baker Chairman, (emeritus) BMW Constructors, Inc.
Douglas W. Huemme Chairman, President and Chief Executive
Officer, Lilly Industries, Inc.
Kevin K. McKinney Vice President, The Somerset Group, Inc.;
Publisher of NUVO Newsweekly and Chairman and
President of NUVO, Inc.
Michael L. Smith President and Chief Executive Officer,
Mayflower Group, Inc.
William L Elder Chairman (emeritus) Southern Indiana Commerce
Corporation
SHAREHOLDER INFORMATION:
Annual Meeting The Annual Meeting of Shareholders will be held
Friday, April 21, 1995 at 9:00 a.m., EST at
First Indiana Plaza, Seventh Floor Conference
Center, 135 N. Pennsylvania Street,
Indianapolis, Indiana
Corporate Offices 2800 First Indiana Plaza, 135 N. Pennsylvania
Street, Indianapolis, Indiana 46204
(317) 634-1400
Administrative Offices 1030 S. Kitley Avenue, Indianapolis, Indiana
46203 (317) 351-7077
Capital Stock The Somerset Group, Inc. stock is traded on
the NASDAQ Stock Market under the symbol of
SOMR
Independent Auditors KPMG Peat Marwick LLP, Indianapolis, Indiana
Registrar and Transfer
Agent Bank One, Indianapolis, NA, Bank One Center/
Tower, 111 Monument Circle, Suite 1611
Indianapolis, Indiana 46204 (317) 321-8110
