<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
_________________________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File
May 31, 1994 No. 1-10023
SUDBURY, INC.
A Delaware Corporation IRS Employer Identification
No. 34-1546292
30100 CHAGRIN BOULEVARD - SUITE 203
CLEVELAND, OHIO 44124
TELEPHONE (216) 464-7026
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, par value $.01
$10,000,000 8 3/5% Senior Subordinated Pay-In-Kind Notes due 1997
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, 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]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES X NO
----- -----
As of August 9, 1994, 9,953,738 shares were outstanding. The aggregate
market value of the voting stock held by non-affiliates of the registrant at
August 9, 1994 was $64,759,910.
DOCUMENTS INCORPORATED BY REFERENCE
- - -----------------------------------
Portions of the Registrant's Annual Report to Stockholders for the
fiscal year ended May 31, 1994 are deemed incorporated by reference in Parts II
and IV of this Form 10-K. Portions of the Registrant's Proxy Statement for the
Annual Meeting of Stockholders to be held October 13, 1994 are deemed to be
incorporated by reference in Part III of this Form 10-K.
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PART I
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ITEM 1. BUSINESS
--------
GENERAL INFORMATION
- - -------------------
Sudbury, Inc. (the "Company") operates through its subsidiaries, which
are engaged in the manufacture and sale of a broad range of industrial
products, including metal products, coating applications, cranes and truck
bodies, lubricant and chemical storage and processing and precision machined
components.
The Company was formed in 1987 in the corporate reorganization of
Sudbury Holdings, Inc. and its then 80% owned subsidiary, Western Capital
Corporation ("Western"), to be the common parent of those companies (the "1987
Reorganization"). Sudbury Holdings, Inc. was created in August 1983 as a
result of a corporate reorganization in bankruptcy of American Beef Packers,
Inc., a publicly held company and its then wholly-owned subsidiary, Western.
Through fiscal 1988, the Company pursued a strategy, on its own and
through Western, of acquiring privately held companies. From 1983 through
January 1988, Sudbury Holdings (or a subsidiary) purchased 30 companies at an
aggregate cost of approximately $193 million. The acquisitions were financed
through a combination of secured bank borrowings, subordinated borrowings,
seller financing in the form of subordinated seller notes and the issuance of
common stock and preferred stock.
In late 1990, as a result of the Company's highly leveraged condition
arising from the aforementioned acquisitions and recessionary economic
conditions which began to effect the Company's performance, the Company was
unable to meet its debt repayment obligations. To remedy its poor financial
condition, on January 10, 1992 the Company filed a petition (relating to the
Company only and not to its operating subsidiaries) under Chapter 11 of the
United States Bankruptcy Code.
The Company was able to exit bankruptcy in less than eight months as
its amended Plan of Reorganization (the "Plan") was confirmed by the Bankruptcy
Court by Order dated August 18, 1992 and became effective on September 1, 1992
(the "Effective Date"). Distributions under the Plan commenced on October 15,
1992.
The Plan implemented a restructuring of the Company by providing for a
new amortization schedule for the repayment of the indebtedness owed to its
secured lender banks and a significant reduction of the Company's indebtedness
to subordinated debtholders and certain other unsecured creditors through the
conversion of debt into equity of the restructured Company.
In order to repay the indebtedness owed to the secured lender banks as
provided by the Plan, the Company implemented a business plan with an asset
disposition program involving the sale of a substantial number of its
subsidiaries which sales generated aggregate net cash proceeds of approximately
$37.6 million during fiscal years 1993 and 1994.
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In May 1993, the Company successfully completed the refinancing of its
existing bank debt by obtaining a three-year asset based $48,000,000 Credit
Facility ("Credit Facility") with a new secured lender group. This new Credit
Facility allowed the Company to retain six core businesses and cease the
previous asset sale process except for the Company's 35% investment in General
Products Delaware Corporation which is included in net assets of businesses
held for sale.
PRODUCTS, MARKETS AND SALES
- - ---------------------------
The Company has one business segment--the manufacture of industrial
products. Ongoing operations in this segment include six businesses which are
described below.
The Company's largest group of products consists of products and
services sold to the automotive industry which are principally produced by the
Company's Wagner Castings Company ("Wagner") and Industrial Powder Coatings,
Inc. ("IPC") subsidiaries. Sales to the automotive industry represented 59%,
56% and 49% of the Company's total sales from ongoing operations for the fiscal
years ended 1994, 1993 and 1992, respectively.
Wagner is the Company's largest automotive supplier and produces
ductile and malleable iron castings. Wagner sells its products both
domestically and in Europe, and is known as a producer of engineered critical
safety castings in the automotive industry. Wagner's product line includes
items such as steering knuckles, suspension parts and transmission components.
Wagner's castings range in size from small pieces weighing less than one pound
to castings weighing up to 40 pounds.
Ductile iron castings represent approximately 80% of Wagner's product
line, with the balance being malleable iron castings. Ductile iron has similar
properties to that of malleable iron, however, ductile is less costly as all
malleable iron requires the additional process of heat treatment. As a result
of this cost differential, malleable iron is not viewed as an area of growth
opportunity in the future, but continues to be preferred by some customers on
certain products due to its machinability.
IPC serves the automotive industry through the application of coatings
to metal parts, components and finished products. With nine powder coating
lines, the Company believes that IPC is one of the largest independent powder
coating job shops in the United States. IPC also has the capability of
cathodic electro-coating of parts with two lines dedicated to that process.
Powder coatings are utilized to enhance appearance and improve corrosion
protection to parts. As powder coating utilizes a dry paint process, it has
advantages over liquid painting processes which have certain environmental
issues surrounding the use of solvents and the generation of air emissions.
IPC has recently undertaken to expand its powder coating technology and
customer base through the construction of a new leased facility which will be
equipped with approximately $4 million in equipment to powder coat steel blanks
under a seven year contract (subject to certain conditions) with a home
appliance manufacturer. This blank coating line will be one of the first of
its kind in the United States and will be dedicated to coating flat appliance
blanks before, rather than after, the forming process and will be capable of
running at much higher line speeds than a typical monorail powder coating line.
This line is expected to be in production by early fiscal 1996.
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The Company's Iowa Mold Tooling Co., Inc. ("IMT") subsidiary designs
and manufactures hydraulic articulating and telescoping truck-mounted cranes,
tire handling equipment, air compressors, and service bodies including
lubrication, field service, utility and tire service bodies. IMT services,
both domestically and internationally, the following industries: construction,
utilities, tire service, railroad, forestry and municipalities.
The Company's remaining products come from its three smallest
businesses: Frisby P.M.C. Incorporated ("Frisby"), South Coast Terminals, Inc.
("South Coast") and Cast-Matic Corporation ("Cast-Matic"). Frisby is a
high-volume precision machining operation which principally produces small
diameter shafts, spindles and spindle assemblies for the electric motor,
electric hand tool and automotive fuel injection markets. South Coast provides
value-added product related services (bulk liquid storage, chemical and
lubricant toll processing, packaging, warehousing and distribution) to the oil
and chemical industries. South Coast's products and services are sold to
selected niche markets where major oil companies are not the dominant
competitors. Cast-Matic manufactures aluminum and zinc die castings which are
utilized in a variety of different industries including gas regulation,
appliance, hardware and automotive.
CYCLICALITY AND SEASONALITY
- - ---------------------------
As a result of the Company's heavy dependence on the automotive
industry, there is cyclicality and seasonality in the Company's sales and
profits. The cyclicality of this industry affects the Company's sales and
profits during periods of slow economic growth or recession. The seasonality
results in the Company typically having higher sales and operating profits in
its second and fourth fiscal quarters.
RAW MATERIALS
- - -------------
Raw materials are purchased from a number of different sources and the
loss of any particular supplier would not have a material effect on any of the
Company's businesses. Scrap steel is the principal raw material utilized at
Wagner in the production of ductile and malleable iron castings and is subject
to price fluctuations. Commitments with most of Wagner's major customers allow
Wagner to pass on the majority of increases or decreases in the cost of scrap
steel to these customers, however, these adjustments are generally passed along
three to six months subsequent to the time the change occurs.
WORKING CAPITAL
- - ---------------
As a result of the seasonality of certain of the Company's businesses
serving the automotive market, fluctuations in working capital can be
significant. Terms for sales to automotive customers are typically 30-45 days.
In addition, IMT maintains large inventories due to the variety of its products
and customer demands regarding lead times.
MARKETING AND COMPETITION
- - -------------------------
The Company's sales to the automotive industry, which are principally
through Wagner and IPC, are primarily made through their respective in-house
sales forces. In addition, Wagner's sales are often the result of its sales
engineers who are capable of providing design and engineering work in the early
stages of production. Companies competing in the automotive industry compete
on the basis of pricing, quality, engineering and design capabilities and
delivery. Due to the competitiveness of this market, it is very difficult for
Wagner and IPC to improve margins through increases in the selling prices of
their products.
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Wagner competes with many other foundries in the castings market and
also competes with other metal castings and steel forgings. As a result of an
industry consolidation which has occurred over the past several years, there
has been a reduction in the number of smaller foundries and an increase in the
market share held by larger foundries. Some of the foundries that compete with
Wagner are larger and have greater financial resources than the Company.
The competition for IPC is very fragmented with IPC being one of the
larger companies in its industry. IPC competes with many smaller facilities
which are located close to the ultimate customer. Due to high transportation
costs relative to the cost of the powder coating, location of a coating
facility close to a customer has become increasingly important. As discussed
previously, IPC recently reached an agreement with a major appliance
manufacturer to powder coat steel blanks. IPC's new production facility will
be located in proximity to that particular customer. The Company anticipates
future growth at IPC that will entail substantial capital expenditures to equip
additional facilities located near strategic customers. The Company intends to
fund these capital investments through cash generated from operations and funds
available under its Credit Facility. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources."
IMT's products are marketed through its (i) in-house sales force, (ii)
an organization of sales representatives and (iii) a worldwide distributor
network. IMT competes against numerous competitors, both domestically and
internationally, for its different products. The Company believes that IMT is
one of the leading producers of articulating cranes in North America, however,
it is a much smaller manufacturer in the market of truck service bodies. IMT
competes in its markets on the basis of product capabilities, quality and
price.
Both Frisby and Cast-Matic market their own products to a variety of
customers through a combination of in-house sales forces and outside sales
representatives. Competition in both their markets is based on a company's
engineering and design capabilities, quality and price. In addition,
competition in these markets is highly fragmented. Due to the precise nature
of the products that Frisby sells, as well as the competitive pressures from
newer technologies, during the next several years Frisby will be required to
make capital expenditures to remain competitive. The Company intends to fund
these expected capital investments from cash generated from operations and
funds available under its Credit Facility. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
South Coast principally markets its products and services through its
in-house sales force. South Coast serves a variety of niche markets and
frequently competes against its large petro-chemical customers on in-house vs.
outsource purchase decisions. Companies compete in South Coast's market based
on quality, price, service and facilities.
SALES TO CERTAIN CUSTOMERS
- - --------------------------
For the fiscal years ended 1994, 1993 and 1992, sales to Ford Motor
Company were approximately $34.6 million, $26.0 million and $24.0 million,
respectively; and sales to Chrysler Corporation were approximately $31.5
million, $24.0 million and $22.7 million, respectively. No other customers
accounted for more than 6% of sales from ongoing operations for any such
period.
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BACKLOG
- - -------
As of May 31, 1994, the Company had an order backlog of $52.9 million,
compared to $38.1 million at the end of fiscal 1993. The increase in backlog
occurred primarily at Wagner and IMT due principally to economic improvements
in their respective industries. Of such backlog, orders of approximately $39.8
million associated with the automotive and truck industries are subject to
cancellation without compensation, as is customary in the industry.
ENVIRONMENTAL MATTERS
- - ---------------------
The Company's manufacturing facilities and production processes, like
those of industrial manufacturers generally, are subject to numerous laws and
regulations designed to protect the environment. Environmental requirements
have become more stringent, not only with respect to emissions and wastes from
ongoing operations, but also with respect to historic conditions and
discontinued operations. Several of the Company's subsidiaries' current and
historic business activities may give rise to cleanup requirements in the
future, both with respect to on-site and off-site activities or conditions.
See "Item 3 - Legal Proceedings" for a discussion of off-site environmental
proceedings involving the Company's operating units. The ultimate costs of
environmental compliance cannot be predicted with precision due to many
uncertainties, such as whether cleanup action will be required and, if
required, what cleanup measures, techniques or standards will be imposed.
EMPLOYEES
- - ---------
As of May 31, 1994, the Company employed 2,492 employees, of whom 1,350
were represented by unions.
ITEM 2. PROPERTIES
----------
The Company's corporate offices are located in a leased facility in
Cleveland, Ohio. The Company's operating units use a total of 15 facilities
containing a total of approximately 1.50 million square feet of owned space and
approximately .49 million square feet of leased space. The facilities
generally include manufacturing and office space and are located in Illinois,
Iowa, Kansas, Kentucky, Michigan, Ohio, Texas and Ontario, Canada. All owned
properties are encumbered by mortgages.
The Company believes that all of its facilities are reasonably maintained
and are generally adequate for their present purposes. Facilities are believed
to be sufficient to accommodate reasonable increases in business.
ITEM 3. LEGAL PROCEEDINGS
-----------------
GENERAL
- - -------
As a result of the Company's Chapter 11 bankruptcy filing and
subsequent Plan confirmation and discharge, much of the litigation described
below has been significantly affected.
Other than ordinary routine litigation incident to its business and
except as noted below, the Company is not a party to any legal proceedings
material to its business or financial condition.
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As a general matter, confirmation of the Company's Plan by the
Bankruptcy Court precludes plaintiffs in pre-bankruptcy litigation from
continuing to prosecute their claims against the Company. To the extent any
such plaintiffs filed claims in the Company's bankruptcy proceeding, such
claims will be determined in such bankruptcy proceeding. Under the terms of
the Company's Plan, distributions on account of such claims generally will be
made in the form of securities of the Company rather than in cash.
BENNETT LITIGATION
- - ------------------
On September 16, 1985, a derivative action was filed in the United
States District Court for the Northern District of Ohio by John H. Bennett, a
stockholder of the Company. The complaint named directors and executive
officers of the Company at the time the suit was filed as defendants and
alleged that the Company was damaged in the amount of $20 million as a result
of the private placement of the Company's Common Stock and sought punitive
damages of $20 million from the defendants. On August 13, 1986, the plaintiff
filed a motion for leave to file an amended complaint. The second amended
complaint contained all of the allegations of the original complaint and also
asked the Court to enjoin (a) the defendant directors and officers from
exercising their options to obtain additional stock of Western and (b)
defendant Western from issuing or transferring shares of its Common Stock which
would "dilute the equity stock in Western held by the Company." In
addition, the second amended complaint sought rescission of the purchases of
the Company's Common Stock by the defendants in the private placement referred
to above. On April 9, 1987, the plaintiff filed a motion seeking leave to file
a third amended complaint naming certain stockholders as additional defendants
and realleging the allegations of the second amended complaint and also asking
the Court to enjoin the individual defendants from transferring shares of the
Company's Common Stock purchased in the private placement referred to above.
The Court has not ruled on this motion.
On April 24, 1987, the same stockholder who filed the foregoing action
filed another lawsuit in the United States District Court for the Northern
District of Ohio, which was purportedly a class action on behalf of holders of
record of the Company's capital stock on the record date for the Company's
Special Meeting of Stockholders at which the 1987 Reorganization was approved.
The complaint named the directors and executive officers of the Company at the
time the complaint was filed, the Company, Western and certain other persons as
defendants. The suit sought to enjoin the consummation of the 1987
Reorganization, or, in the alternative, an award of damages if the 1987
Reorganization was consummated. The plaintiff's Motion for Preliminary
Injunction, which sought to enjoin the 1987 Reorganization, was denied by the
Court on May 22, 1987.
Plaintiff took no further action with respect to either lawsuit until
March 1991, at which time he filed a motion to certify the 1987 case as a class
action. On October 7, 1991, the Court denied the class certification motion,
and no additional activity took place regarding this action prior to the filing
of the Company's bankruptcy case, which filing automatically stayed the
proceeding in connection with these lawsuits. On July 15, 1992, plaintiff
filed a petition which sought authority from the Bankruptcy Court to pursue the
derivative suit on behalf of and for the benefit of the Company. On July 29,
1992, the Bankruptcy Court denied plaintiff's petition. The Company's Plan
contains provisions reserving to the Company the sole right to assert or waive
any cause
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<PAGE> 8
of action possessed by the Company. In connection with confirmation of the
Plan, the Bankruptcy Court approved the Company's request for permission to
intervene and dismiss the pending derivative action described above. The
Company moved to dismiss this derivative action with prejudice and, by order
entered December 2, 1992, such motion was granted by the District Court. The
plaintiff has appealed this dismissal to the United States Court of Appeals for
the Sixth Circuit. On August 11, 1994, oral arguments were heard in this case.
No decision has yet been rendered by the Court.
ENVIRONMENTAL MATTERS
- - ---------------------
Several of the Company's operating units have been identified as
potentially responsible parties ("PRPs") in legal proceedings or otherwise
notified that they may be liable for the cleanup of hazardous substances under
federal "Superfund" and other environmental protection legislation. The
Company intends to utilize all available legal defenses and remedies, including
insurance owned by the Company or its predecessors in interest, with respect to
these sites and any other site in which it may be involved in legal
proceedings, to minimize the Company's financial exposure to environmental
liability.
TransPlastics, Inc., a non-operating subsidiary of the Company is among
53 identified PRPs at the Millcreek Dump Superfund Site in Millcreek Township,
Pennsylvania. In October 1989, the United States filed a Complaint, UNITED
STATES V RALPH RIEHL, JR., ET AL, in the United States District Court for the
Western District of Pennsylvania seeking approximately $3.3 million of costs
allegedly incurred by the United States Environmental Protection Agency ("EPA")
at the aforementioned site. In April 1992, the United States EPA issued a
unilateral administrative order pursuant to Section 106 of the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"). The
CERCLA Section 106 Order requires completion of specified remedial action for
the Millcreek Dump Site estimated by the United States EPA to cost $12 million.
During fiscal 1994, the United States EPA agreed in principle to accept
$500,000 in settlement of its pending claims at this site, which was within the
amount previously accrued by the Company.
Additionally, on April 19, 1993, the Minnesota Pollution Control Agency
(MPCA) issued Metalcote Grease and Oil Company, a division of Western Capital
Corporation, a non-operating subsidiary of the Company, an order to investigate
and take other corrective action at property Metalcote owned in St. Paul,
Minnesota. Although Western Capital is currently contesting its responsibility
for environmental conditions that allegedly exist at the property, Western
Capital is cooperating with the MPCA and has retained legal counsel and
environmental consultants to respond to the MPCA's order. Although additional
investigation is necessary and ongoing, Western currently estimates that the
cost to respond to the order will be $300,000.
To date, Management believes no other pending or anticipated
environmental proceeding is material to the Company taken as a whole (or where
material, adequate reserves have been established - see Note F -- Contingencies
and Commitments of the financial statements) and all claims in the aggregate
(after applicable reserves) are immaterial to the Company taken as a whole.
Although the Company continues to assess the potential liability of its
operating units for pending and anticipated legal proceedings, the ultimate
liability for such environmental matters cannot be predicted with certainty.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
The following sets forth the name, age and recent business experience of
each person who is an executive officer of the Company. All executive officers
are elected by and serve at the pleasure of the Board of Directors.
Principal occupation or
employment for the past
Name five years Age
- - ---- ----------------------- ---
Jacques R. Sardas Director, President and Chief 63
Executive Officer since
January 13, 1992; Chairman of
the Board of Directors and
Treasurer since January 1993;
Director and Executive Vice
President of Goodyear Tire and
Rubber Co., which develops and
sells tires domestically and
abroad (1980-1991); President
of Goodyear International
(September 1984-August 1988);
President and Chief Operation
Officer-Tires (August 1988-
April 1991).
Mark E. Brody Vice President of Finance since 32
October 1992; Controller since
September 1991; Assistant
Controller (April 1989-
September 1991); Director of
Taxes (December 1987-April 1989).
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<PAGE> 10
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
-------------------------------------------------------------
MATTERS
-------
The Company's common shares are listed on the NASDAQ National Market
System. The information required by this item appears under the caption
"Market For Registrant's Common Equity and Related Stockholder Matters" on
page 24 of the 1994 Annual Report and is incorporated herein by reference
thereto.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The information required by this item appears under the caption
"Selected Financial Data" on the inside cover page of the 1994 Annual Report
and is incorporated herein by reference thereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The information required by this item appears under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 22 through 24 of the 1994 Annual Report and is incorporated
herein by reference thereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The information required by this item appears on pages 9 through 21 of
the 1994 Annual Report and is incorporated herein by reference thereto.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
----------------------------------------------------
Not Applicable
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PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
-----------------------------------------------
The information required by this item appears under the caption
"Election of Directors" on pages 4 through 5 of the Company's definitive Proxy
Statement to be filed with the Securities and Exchange Commission within 120
days of the close of the Company's fiscal year ended May 31, 1994 and is
incorporated herein by reference thereto.
Information concerning executive officers of the Company is contained
in Part I of this report under the caption "Executive Officers of the
Registrant."
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The information required by this item appears under the caption
"Director Compensation" located on page 6 and information pertaining to
compensation of officers located on pages 6 through 14 of the Company's
definitive Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days of the close of the Company's fiscal year ended May
31, 1994 and is incorporated herein by reference thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The information required by this item appears under the caption
"Beneficial Ownership of Securities" on page 3 of the Company's definitive
Proxy Statement to be filed with the Securities and Exchange Commission within
120 days of the close of the Company's fiscal year ended May 31, 1994 and is
incorporated herein by reference thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information required by this item appears under the caption
"Certain Relationships and Related Transactions" on page 14 of the Company's
definitive Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days of the close of the Company's fiscal year ended May
31, 1994 and is incorporated herein by reference thereto.
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<PAGE> 12
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a)(1), (a)(2) and (d) Financial Statements and Financial Schedules.
--------------------------------------------
The financial statements and financial statement schedules listed
in accompanying index to financial statements and financial
schedules are filed as part of this Annual Report on Form 10-K.
(a)(3) and (c) Exhibits.
--------
The exhibits listed on the accompanying index to exhibits are
filed as part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K.
None.
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<PAGE> 13
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 August 25, 1994 on its behalf by the undersigned, thereunto duly authorized.
SUDBURY, INC.
By:/S/Mark E. Brody
-------------------------------
Mark E. Brody
Vice President of Finance and
Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, and
the rules and regulations promulgated thereunder, this report has been signed
on behalf of the Registrant by the following persons, in their indicated
capacities, on August 25, 1994.
/S/Jacques R. Sardas
- - ------------------------------
Jacques R. Sardas Director, Chairman, President and Chief
Executive Officer (Principal Executive
Officer)
/S/Mark E. Brody
- - ------------------------------
Mark E. Brody Vice President of Finance and Controller
(Principal Financial and Accounting
Officer)
/S/Cloyd J. Abruzzo
- - ------------------------------
Cloyd J. Abruzzo Director
/S/Jerry A. Cooper
- - ------------------------------
Jerry A. Cooper Director
/S/Preston Heller, Jr.
- - ------------------------------
Preston Heller, Jr. Director
/S/James A. Karman
- - ------------------------------
James A. Karman Director
/S/David A. Preiser
- - ------------------------------
David A. Preiser Director
/S/Thomas F. Slater
- - ------------------------------
Thomas F. Slater Director
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<PAGE> 14
SUDBURY, INC.
ANNUAL REPORT ON FORM 10-K
ITEMS 14 (A) (1), (2) (D) AND (3) (C)
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENT SCHEDULES
INDEX TO EXHIBITS
CERTAIN EXHIBITS
FISCAL YEAR ENDED MAY 31, 1994
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<TABLE>
SUDBURY, INC.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(ITEM 14(A)(1) AND (2)(D))
<CAPTION>
PAGE REFERENCE
-------------------------
FORM 10-K ANNUAL REPORT
--------- -------------
<S> <C> <C>
Data incorporated by reference from the
1994 Annual Report:
Consolidated Statements of Operations -
Fiscal Year Ended May 31, 1994, Nine Months
Ended May 31, 1993, the Three Months Ended
August 31, 1992, and the Fiscal Year Ended
May 31, 1992 9
Consolidated Balance Sheets - May 31, 1994
and May 31, 1993 10
Consolidated Statements of Stockholders'
Equity (Deficit) - Fiscal Year Ended
May 31, 1994, Nine Months Ended May 31, 1993,
the Three Months Ended August 31, 1992, and
the Fiscal Year Ended May 31, 1992 11
Consolidated Statements of Cash Flows -
Fiscal Year Ended May 31, 1994, Nine Months
Ended May 31, 1993, the Three Months Ended
August 31, 1992, and the Fiscal Year Ended
May 31, 1992 12
Notes to Consolidated Financial Statements 13-21
Report of Independent Auditors 21
Consolidated Financial Statement Schedules:
Schedule II - Amounts Receivable from Related
Parties and Underwriters,
Promoters, and Employees other
than Related Parties 16
Schedule III - Condensed Financial Information
of Registrant 17-19
Schedule V - Property, Plant and Equipment 20
Schedule VI - Accumulated Depreciation, Depletion
and Amortization of Property, Plant
and Equipment 21
Schedule VIII - Valuation and Qualifying Accounts 22
Schedule X - Supplementary Income Statement
Information 23
Report of Independendent Auditors 24
</TABLE>
All other schedules for the Company have been omitted since the required
information is not present or not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the financial statements, including the notes thereto.
The consolidated financial statements of the Company listed in the preceding
index, which are included in the 1994 Annual Report, are incorporated herein by
reference. With the exception of the pages listed in the above index and
information incorporated by reference elsewhere herein, the 1994 Annual Report
is not to be deemed filed as part of this report.
- 15 -
<PAGE> 16
<TABLE>
SCHEDULE II--AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
SUDBURY, INC. AND SUBSIDIARIES
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- - ----------------------------------------------------------------------------------------------------------------------------
DEDUCTIONS BALANCE AT END OF PERIOD
BALANCE ---------------------------- ------------------------
AT BEGINNING (1) AMOUNTS (2) AMOUNTS (1) (2)
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED WRITTEN OFF CURRENT NOT CURRENT
- - ----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Fiscal year ended May 31, 1994: $ -0- $ -0- $ -0-
Fiscal year ended May 31, 1993: $ -0- $ -0- $ -0-
Fiscal year ended May 31, 1992:
Notes Receivable:
Herman Dlott (A) $ 285 $(285) (B) $ -0- $ -0-
<FN>
(A) Note receivable bearing interest at 7.10% and due July 15, 1989.
(B) Amount written-off in connection with the sale of assets at the related subsidiary.
</TABLE>
- 16 -
<PAGE> 17
<TABLE>
SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SUDBURY, INC.
CONDENSED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<CAPTION>
May 31, May 31,
1994 1993
-------- --------
<S> <C> <C>
ASSETS
- - ------
CURRENT ASSETS
Cash $ 180 $ 1,597
Prepaid expenses 64 1,406
-------- --------
TOTAL CURRENT ASSETS 244 3,003
PROPERTY, PLANT AND EQUIPMENT, NET 52 162
OTHER ASSETS
Investment in subsidiaries 42,571 30,057
Other assets 6,170 2,664
-------- --------
TOTAL OTHER ASSETS 48,741 32,721
-------- --------
$ 49,037 $ 35,886
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ------------------------------------
CURRENT LIABILITIES
Trade accounts payable $ 268 $ 643
Other current liabilities 6,675 6,919
-------- --------
TOTAL CURRENT LIABILITIES 6,943 7,562
LONG-TERM DEBT 9,038 8,683
OTHER LONG-TERM LIABILITIES 3,646 2,833
STOCKHOLDERS' EQUITY
Common Stock - par value $0.01 per
share; authorized 20,000,000 shares;
10,233,932 shares (10,000,000 shares
at May 31, 1993) issuable and deemed
outstanding 102 100
Other stockholders' equity 29,308 16,708
-------- --------
TOTAL STOCKHOLDERS' EQUITY 29,410 16,808
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 49,037 $ 35,886
======== ========
</TABLE>
- 17 -
<PAGE> 18
<TABLE>
SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SUDBURY, INC.
CONDENSED STATEMENTS OF INCOME AND CASH FLOW
(DOLLARS IN THOUSANDS)
<CAPTION>
Nine Months
Year Ended Ended
May 31, 1994 May 31, 1993
------------ ------------
<S> <C> <C>
Management fees from wholly-owned subsidiaries $ 2,367 $ 4,667
Interest income on advances to wholly-owned
subsidiaries 404
-------- --------
Total revenues 2,771 4,667
Costs and expenses:
Administrative expenses 2,099 2,193
Special charges 5,956 586
Interest expense - net 1,347 2,748
-------- --------
Loss before income taxes and equity in
earnings of subsidiaries (6,631) (860)
Settlement of preconfirmation liabilities 846
State income tax benefit (expense) 249 (290)
Equity in net income of subsidiaries 12,366 3,958
-------- --------
NET INCOME $ 6,830 $ 2,808
======== ========
NET CASH USED BY OPERATING ACTIVITIES $ (1,075) $ (3,712)
INVESTING ACTIVITIES:
Proceeds from sale of businesses 666 23,889
Proceeds from collection of notes receivable 2,362
Other 96
-------- --------
NET CASH PROVIDED BY INVESTING ACTIVITIES 3,124 23,889
FINANCING ACTIVITIES:
Reductions of debt (183) (41,909)
Dividends received from subsidiaries 28,920
Capital contributions to subsidiaries (1,136) (14,799)
Advances to subsidiaries - net (2,829)
Common Stock issued 682
Other 545
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (3,466) (27,243)
-------- --------
DECREASE IN CASH (1,417) (7,066)
Cash at beginning of period 1,597 8,663
-------- --------
CASH AT END OF PERIOD $ 180 $ 1,597
======== ========
<FN>
As a result of the changes in ownership and capital structure from the
Plan, condensed financial information of the registrant is not relevant for
the three months ended August 31, 1992 and for the fiscal year ended May 31,
1992.
</TABLE>
- 18 -
<PAGE> 19
SCHEDULE III--CONDENSED FINANCIAL INFORMATION REGISTRANT
SUDBURY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
In the parent-company-only financial statements, the Company's
investment in subsidiaries is stated at cost, net of any amounts
due to or from the subsidiaries, plus equity in undistributed net
income of subsidiaries since date of acquisition. The Company's
share of earnings of its unconsolidated subsidiaries is included
in net income using the equity method. Parent-company-only
financial statements should be read in conjunction with the
Company's consolidated financial statements.
NOTE B - CASH
As of May 31, 1993, $711,000 of the cash balance consisted of
funds restricted as to their use. This amount was used to reduce
bank debt in fiscal year 1994.
NOTE C - LONG TERM DEBT
Long-term debt consisted of the following at May 31 (in thousands):
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Subordinated Notes $8,149 $7,738
PIK Notes 665 665
Other 254 509
------ ------
9,068 8,912
Less current maturities 30 229
------ ------
$9,038 $8,683
====== ======
</TABLE>
The future maturities of long-term debt outstanding at May 31,
1994 for the four fiscal years ending May 1999 and thereafter are
as follows: $44,000 in 1996, $44,000 in 1997, $10,709,000 in
1998, $44,000 in 1999 and $48,000 thereafter.
- 19 -
<PAGE> 20
<TABLE>
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT
SUDBURY, INC. AND SUBSIDIARIES
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- - ------------------------------------------------------------------------------------------------------------------------
BALANCE AT OTHER CHANGES BALANCE
BEGINNING ADDITIONS ADD (DEDUCT) AT END
CLASSIFICATION OF PERIOD AT COST RETIREMENTS DESCRIBE * OF PERIOD
- - ------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Fiscal year ended May 31, 1994:
Land and land improvements $ 2,222 $ 22 $ 53 $ $ 2,191
Buildings 15,421 1,664 78 17,163
Machinery and equipment 33,830 5,404 690 (10) 38,534
-------- ------- -------- --------- --------
$ 51,473 $ 7,090 $ 743 $ 68 $ 57,888
======== ======= ======== ========= =========
Nine months ended May 31, 1993:
Land and land improvements $ 2,343 $ 0 $ 121 $ 0 $ 2,222
Buildings 15,032 568 179 0 15,421
Machinery and equipment 31,369 2,789 328 0 33,830
-------- ------- -------- --------- --------
$ 48,744 $ 3,357 $ 628 $ 0 $ 51,473
======== ======= ======== ========= ========
Three months ended August 31, 1992:
Land and land improvements $ 2,802 $ 1 $ 21 $ (439) $ 2,343
Buildings 21,646 116 0 (6,730) 15,032
Machinery and equipment 58,959 664 14 (28,240) 31,369
-------- ------- -------- --------- --------
$ 83,407 $ 781 $ 35 $ (35,409) $ 48,744
======== ======= ======== ========= ========
Fiscal year ended May 31, 1992:
Land and land improvements $ 3,782 $ 5 $ 0 $ (985) $ 2,802
Buildings 37,188 206 81 (15,667) 21,646
Machinery and equipment 100,006 2,234 552 (42,729) 58,959
-------- ------- -------- --------- --------
$140,976 $ 2,445 $ 633 $ (59,381) $ 83,407
======== ======= ======== ========= ========
<FN>
Note--The annual provisions for depreciation have been computed principally in
accordance with the following range of rates:
Buildings 3% to 10%
Machinery and equipment 10% to 33%
* Principally represents businesses disposed of or reclassified as a business held for sale and the impact of
adjustments under Fresh Start reporting.
</TABLE>
- 20 -
<PAGE> 21
<TABLE>
SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
SUDBURY, INC. AND SUBSIDIARIES
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- - ---------------------------------------------------------------------------------------------------------------------------
BALANCE ADDITIONS CHARGED OTHER CHANGES BALANCE
AT BEGINNING TO COSTS ADD (DEDUCT) AT END
DESCRIPTION OF PERIOD AND EXPENSES RETIREMENTS DESCRIBE * OF PERIOD
- - ---------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Fiscal year ended May 31, 1994:
Buildings $ 656 $ 979 $ $ (24) $ 1,611
Machinery and equipment 4,335 6,011 500 (7) 9,839
------- ------- ------- -------- -------
$ 4,991 $ 6,990 $ 500 $ (31) $11,450
======= ======= ======= ======== =======
Nine months ended May 31, 1993:
Buildings $ 0 $ 794 $ 138 $ 0 $ 656
Machinery and equipment 0 4,426 91 0 4,335
------- ------- ------- -------- -------
$ 0 $ 5,220 $ 229 $ 0 $ 4,991
======= ======= ======= ======== =======
Three months ended August 31, 1992:
Buildings $ 5,829 $ 290 $ 0 $ (6,119) $ 0
Machinery and equipment 28,073 1,417 15 (29,475) 0
------- ------- ------- -------- -------
$33,902 $ 1,707 $ 15 $(35,594) $ 0
======= ======= ======= ======== =======
Fiscal year ended May 31, 1992:
Buildings $ 7,860 $ 1,106 $ 16 $ (3,121) $ 5,829
Machinery and equipment 37,160 5,767 441 (14,413) 28,073
------- ------- ------- -------- -------
$45,020 $ 6,873 $ 457 $(17,534) $33,902
======= ======= ======= ======== =======
<FN>
* Principally represents businesses disposed of or reclassified as a business
held for sale and the impact of adjustments under Fresh Start reporting.
</TABLE>
- 21 -
<PAGE> 22
<TABLE>
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
SUDBURY, INC. AND SUBSIDIARIES
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- - -------------------------------------------------------------------------------------------------------------------------
ADDITIONS
BALANCE AT CHARGED TO CHARGED BALANCE AT
BEGINNING COSTS AND TO OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- - -------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Fiscal year ended May 31, 1994:
Deferred tax asset valuation
allowance $9,208 - $ 6 (1) $9,214
Nine months ended May 31, 1993:
Deferred tax asset valuation
allowance $5,688 - $3,520 (1) $9,208
Three months ended August 31, 1992:
Deferred tax asset valuation
allowance $5,688 (2) $5,688
<FN>
(1) Increases in valuation allowance resulted primarily from net operating and capital losses which could not be realized.
(2) Valuation allowance was recorded in conjunction with the adoption by the Company of SFAS No. 109 under the Fresh Start
accounting adjustment discussed in Footnote B to the financial statements.
</TABLE>
- 22 -
<PAGE> 23
<TABLE>
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
SUDBURY, INC. AND SUBSIDIARIES
- - -------------------------------------------------------------------------------------------------------
COL. A COL. B
- - -------------------------------------------------------------------------------------------------------
ITEM CHARGED TO COSTS AND EXPENSES
- - -------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<CAPTION>
Fiscal Nine Months Three Months Fiscal
Year Ended Ended Ended Year Ended
May 31, May 31, August 31, May 31,
1994 1993 1992 1992
---------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Maintenance and repairs:
Ongoing operations $ 7,199 $ 5,089 $ 1,696 $ 7,708
Businesses held for sale - 51 17 2,184
------- ------- ------- -------
Total $ 7,199 $ 5,140 $ 1,713 $ 9,895
======= ======= ======= =======
<FN>
Amounts for amortization of intangibles; taxes, other than payroll and income taxes; royalties and advertising
costs are not presented as such amounts are less than one percent of total sales and revenues.
</TABLE>
- 23 -
<PAGE> 24
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of Sudbury, Inc. as of
May 31, 1994 and 1993, and for the year ended May 31, 1994, the nine months
ended May 31, 1993, the three months ended August 31, 1992, and the year ended
May 31, 1992, and have issued our report thereon dated July 18, 1994
[incorporated by reference elsewhere in this Annual Report (Form 10-K)]. Our
audits also included the related consolidated financial statement schedules of
Sudbury, Inc. listed in item 14(a) of this Annual Report (Form 10-K). These
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the consolidated financial statement schedules referred to
above, when considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
Cleveland, Ohio
July 18, 1994
- 24 -
<PAGE> 25
SUDBURY, INC.
FORM 10-K
EXHIBIT INDEX
-------------
Item 14(a)(3) EXHIBITS: Exhibits identified in parenthesis below, on
file with the SEC, are incorporated herein by reference as
exhibits hereto.
EXHIBIT NO.
- - -----------
(2) Third Amended Plan of Reorganization as confirmed by the United
States Bankruptcy Court, Northern District of Ohio. (Exhibit (2)
to Form 10-K for the fiscal year ended May 31, 1992.)
(3)(a) By-Laws of Sudbury, Inc., as amended November 19, 1992. (Exhibit
(3)(a) to Form 10-K for the fiscal year ended May 31, 1993.)
(3)(b) Second Restated Certificate of Incorporation of Sudbury, Inc.
(Exhibit (3)(b) to Form 10-K for the fiscal year ended May 31,
1993.)
(4)(a) Indenture, dated as of April 15, 1986, from Sudbury to FirsTier
Bank, National Association, Omaha, Nebraska, as Trustee, for
Sudbury's 7-1/2% Convertible Subordinated Debentures due 2011.
(Exhibit (4)(a) to Amendment No. 1 to Registration Statement No.
33-4699 filed April 10, 1986.)
(4)(b) Supplemental Indenture, dated as of May 27, 1987, from Sudbury to
FirsTier Bank, National Association, as Trustee. (Exhibit (4)(b)
to Form 10-K for the fiscal year ended May 30, 1987.)
(4)(c) Loan and Security Agreement dated as of May 28, 1993 among the
financial institutions named therein and BA Business Credit, Inc.,
as Agent, and Sudbury, as the Parent, and Cast-Matic Corporation,
Frisby Mfg. Co., Industrial Powder Coatings, Inc., Iowa Mold
Tooling Co., Inc., South Coast Terminals, Inc. and Wagner Castings
Company. (Exhibit (4)(c) to Form 10-K for the fiscal year ended
May 31, 1993.)
(4)(d) First Amendment to Loan and Security Agreement dated August 20,
1993 among the financial institutions named therein and BA Business
Credit, Inc., as Agent, and Sudbury, as the Parent, and Cast-Matic
Corporation, Frisby Mfg. Co., Industrial Powder Coatings, Inc.,
Iowa Mold Tooling Co., Inc., South Coast Terminals, Inc. and Wagner
Castings Company.
(4)(e) Second Amendment to Loan and Security Agreement dated April 19,
1994 among the financial institutions named therein and BA Business
Credit, Inc., as Agent, and Sudbury, as the Parent, and Cast-Matic
Corporation, Frisby Mfg. Co., Industrial Powder Coatings, Inc.,
Iowa Mold Tooling Co., Inc., South Coast Terminals, Inc. and Wagner
Castings Company.
- 25 -
<PAGE> 26
SUDBURY, INC.
FORM 10-K
EXHIBIT INDEX (CONTINUED)
-------------
EXHIBIT NO.
- - -----------
(4)(f) Third Amendment to Loan and Security Agreement dated June 6, 1994
among the financial institutions named therein and BA Business
Credit, Inc., as Agent, and Sudbury, as the Parent, and Cast-Matic
Corporation, Frisby Mfg. Co., Industrial Powder Coatings, Inc.,
Iowa Mold Tooling Co., Inc., South Coast Terminals, Inc. and Wagner
Castings Company.
(4)(g) Fourth Amendment to Loan and Security Agreement dated August 11,
1994 among the financial institutions named therein and BA Business
Credit, Inc., as Agent, and Sudbury, as the Parent, and Cast-Matic
Corporation, Frisby Mfg. Co., Industrial Powder Coatings, Inc.,
Iowa Mold Tooling Co., Inc., South Coast Terminals, Inc. and Wagner
Castings Company.
(4)(h) Form of Participation Certificate Agreement entered into in
connection with Sudbury's Third Amended Plan of Reorganization.
(Exhibit (4)(r) to Form 10-K for the fiscal year ended May 31,
1992.)
(4)(i) Form of Indenture between Sudbury and IBJ Schroder Bank and Trust
Company, as Trustee for Sudbury's 8.6% $10 million Senior
Subordinated Pay-In-Kind Notes due 1997, distributed pursuant to
Sudbury's Third Amended Plan of Reorganization. (Exhibit T3C to
the Form T-3 filed on August 17, 1992.)
(10)(a) 1990 Stock Option Plan. (Exhibit (10)(l) to Form 10-K for the
fiscal year ended May 31, 1990.)
(10)(b) Amended Employment Agreement dated January 13, 1992 between Sudbury
and Jacques R. Sardas. (Exhibit (10)(h) to Form 10-K for the
fiscal year ended May 31, 1992.)
(10)(c) Agreement and Plan of Merger dated November 7, 1989 among Sudbury,
Western, General Products Delaware Corporation, General Products
Angola Corporation and General Products Corporation. (Exhibit
(10)(b) to Current Report on Form 8-K for event occurring on
November 7, 1989.)
(10)(d) Asset Purchase Agreement dated November 7, 1989 among Sudbury,
Western and General Products Delaware Corporation. (Exhibit 10(a)
to the Current Report on Form 8-K filed for event occurring on
November 7, 1989.)
(10)(e) Settlement Agreement and Mutual Release dated July 29, 1994 between
Jacques R. Sardas and Sudbury, Inc.
(10)(f) Stock Option Agreement dated July 29, 1994 between Jacques R.
Sardas and Sudbury, Inc.
- 26 -
<PAGE> 27
SUDBURY, INC.
FORM 10-K
EXHIBIT INDEX (CONTINUED)
-------------
EXHIBIT NO.
- - -----------
(10)(g) Summary Description of the Sudbury, Inc. Incentive Bonus Plan.
(11) Statement re: Computation of Per Share Earnings
(13) Selected portions of the 1994 Annual Report
(21) Subsidiaries of the Company
(23) Consent of Independent Auditors
The above exhibits are available to shareholders upon written request to:
Corporate Secretary
Sudbury, Inc.
30100 Chagrin Boulevard
Suite 203
Cleveland, Ohio 44124
-27-
<PAGE> 1
EXHIBIT (4)(d)
First Amendment to Loan and
Security Agreement
LOGO
BankAmerica
Business Credit, Inc.
August 20, 1993
Mr. Mark Brody
Sudbury, Inc.
25800 Science Park Drive
Suite 250
Cleveland, Ohio 44122
RE: AMENDMENT NO. 1 AND WAIVER NO. 1 TO LOAN AND SECURITY AGREEMENT
Dear Mr. Brody:
Reference is hereby made to that certain Loan and Security Agreement (the
"Agreement") dated as of May 28, 1993 and executed by and among Sudbury, Inc.
(the "Parent"), Cast-Matic Corporation, Frisby Mfg. Co., Industrial Powder
Coatings, Inc., Iowa Mold Tooling Co., Inc., South Coast Terminals, Inc., and
Wagner Castings Company (collectively, the "Borrowers") and BA Business Credit,
Inc. (the "Agent" and a "Lender"), National City Bank, and Star Bank, National
Association (collectively, the "Lenders"). Certain capitalized terms used herein
shall have the same meanings as attributed to them in the Agreement.
The Borrowers and the Parent have requested adjustments to two financial
covenants contained in the Agreement. The Agent, the Lenders, the Borrowers, and
the Parent have agreed to certain waivers and modifications to the Agreement as
hereinafter set forth below:
1. In Section 9.24 ("OPERATING LEASE OBLIGATIONS") of the Agreement, the Agent
and the Lenders hereby waive any violation existing with respect thereto
for the Fiscal Year ended May 31, 1993. Section 9.24 is hereby amended by
deleting the amounts set forth opposite their corresponding Fiscal Year
and replaced to read as follows:
"Fiscal Year Amount
------------ -------------
1994 $2,915,000.00
1995 $3,196,000.00
1996 $3,505,000.00"
2. In Section 9.27 ("DEBT RATIO") of the Agreement, with respect to Sections
9.27(b), 9.27(c), and 9.27(d) relating respectively
<PAGE> 2
Amendment No. 1 and Waiver No. 1
August 20, 1993
Page 2
to Cast-Matic, Frisby, and Wagner, the Agent and the Lenders hereby waive any
violation existing with respect thereto for the period ending May 31, 1993.
3. Sections 9.27(b), 9.27(d), and 9.27(g) of the Agreement relating
respectively to Cast-Matic, Wagner, and South Coast are hereby deleted in
their entirety and replaced to read as follows:
"(b) CAST-MATIC LIMITATIONS. The Borrowers will not permit the ratio of
(i) the total Debt of Cast-Matic and its Subsidiaries to (ii) the
Adjusted Tangible Net Worth of Cast-Matic and its Subsidiaries to exceed
the following amounts during the following respective periods:
<TABLE>
<CAPTION>
Maximum
Period Debt Ratio
-------- ----------
<S> <C>
08/31/93 4.23 to 1
11/30/93 4.05 to 1
02/28/94 3.48 to 1
05/31/94 2.70 to 1
08/31/94 2.51 to 1
11/30/94 2.23 to 1
02/28/95 1.99 to 1
05/31/95 1.59 to 1
08/31/95 1.47 to 1
11/30/95 1.33 to 1
02/28/96 1.21 to 1
05/31/96 1.06 to 1"
</TABLE>
"(d) WAGNER LIMITATIONS. The Borrowers will not permit the ratio of (i)
the total Debt of Wagner and its Subsidiaries to (ii) the Adjusted
Tangible Net Worth of Wagner and its Subsidiaries to exceed the
following amounts during the following respective periods:
<TABLE>
<CAPTION>
Maximum
Period Debt Ratio
-------- ----------
<S> <C>
08/31/93 29.95 to 1
11/30/93 20.60 to 1
02/28/94 22.79 to 1
05/31/94 17.94 to 1
08/31/94 17.23 to 1
11/30/94 14.99 to 1
02/28/95 14.88 to 1
05/31/95 12.80 to 1
</TABLE>
<PAGE> 3
Amendment No. 1 and Waiver No. 1
August 20, 1993
Page 3
<TABLE>
<S> <C>
08/31/95 12.96 to 1
11/30/95 12.18 to 1
02/28/96 12.36 to 1
05/31/96 11.70 to 1"
</TABLE>
"(g) SOUTH COAST LIMITATIONS. The Borrowers will not permit the ratio
of (i) the total Debt of South Coast to (ii) the Adjusted Tangible Net
Worth of South Coast to exceed the following amount during the
following respective periods:
<TABLE>
<CAPTION>
Maximum
Period Debt Ratio
-------- ----------
<S> <C>
08/31/93 0.91 to 1
11/30/93 0.88 to 1
02/28/94 0.83 to 1
05/31/94 0.76 to 1
08/31/94 0.73 to 1
11/30/94 0.70 to 1
02/28/95 0.66 to 1
05/31/95 0.60 to 1
08/31/95 0.57 to 1
11/30/95 0.54 to 1
02/28/96 0.51 to 1
05/31/96 0.47 to 1"
</TABLE>
Except as modified herein, the Agreement remains in full force and effect and
is hereby ratified and affirmed. Please indicate your acceptance of this
Amendment No. 1 and Waiver No. 1 to the Agreement, by executing in the places
provided below and this Amendment No. 1 and Waiver No. 1 shall be deemed
effective as of the date first written above.
Respectfully yours,
<TABLE>
<S> <C>
BA BUSINESS CREDIT, INC., as Agent NATIONAL CITY BANK, as Lender
and Lender
By: /s/ Gregory R. Eck By: /s/ James R Myers
---------------------------- ------------------------
Its: Vice President Its: Account Officer
</TABLE>
<PAGE> 4
Amendment No. 1 and Waiver No. 1
August 20, 1993
Page 4
<TABLE>
<S> <C>
STAR BANK, NATIONAL ASSOCIATION,
as Lender
By: /s/ Suzanne E. Geiger
----------------------------
Its: Vice President
ACCEPTED AND AGREED:
SUDBURY, INC.
By: /s/ Mark E. Brody
----------------------------
Its: Vice President
CAST-MATIC CORPORATION
By: /s/ Mark E. Brody
----------------------------
Its: Vice President
FRISBY MFG. CO.
By: /s/ Mark E. Brody
----------------------------
Its: Vice President
INDUSTRIAL POWDER COATINGS, INC.
By: /s/ Mark E. Brody
----------------------------
Its: Vice President
IOWA MOLD TOOLING CO., INC.
By: /s/ Mark E. Brody
----------------------------
Its: Vice President
SOUTH COAST TERMINALS, INC.
By: /s/ Mark E. Brody
----------------------------
Its: Vice President
WAGNER CASTINGS COMPANY
By: /s/ Mark E. Brody
----------------------------
Its: Vice President
</TABLE>
<PAGE> 1
EXHIBIT (4)(e) Second Amendment to Loan and
Security Agreement
[LOGO]
BankAmerica
Business Credit, Inc.
April 19, 1994
Mr. Mark Brody
Sudbury, Inc.
30100 Chagrin Blvd.
Suite 203
Cleveland, Ohio 44124
Re: Amendment No. 2 to Loan and Security Agreement
Dear Mr. Brody:
Reference is hereby made to that certain Loan and Security Agreement (the
"Agreement") dated as of May 28, 1993, as amended from time to time, and
executed by and among Sudbury, Inc. (the "Parent"), Cast-Matic Corporation,
Frisby Mfg. Co., Industrial Powder Coatings, Inc., Iowa Mold Tooling Co., Inc.,
South Coast Terminals, Inc., and Wagner Castings Company (collectively, the
"Borrower") and BankAmerica Business Credit, Inc., formerly known as BA
Business Credit, Inc. (the "Agent" and a "Lender"), National City Bank, and
Star Bank, National Association (collectively, the "Lenders"). Certain
capitalized terms used herein shall have the same meanings attributed to them
in the Agreement.
Since the Closing Date, the Agent, on behalf of the Lenders, has made advances
under the Individual Borrower Revolving Loan Facility of Wagner based upon the
combined Eligible Accounts and Eligible Inventory of Wagner and
Havana. Although this has been the practice, Accounts and Inventory of Havana
are not considered as eligible Collateral under the Agreement. It is the
intention of the parties hereto to modify the Agreement to include Accounts and
Inventory of Havana as eligible Collateral and to effectuate a program whereby
the Eligible Accounts and Eligible Inventory of Havana can be made available
under Wagner's Individual Borrower Revolving Facility in order to permit a
Borrowing by Wagner for the benefit of Havana. In addition, the Borrower has
requested modification to the covenants with respect to Capital Expenditure and
Parent Reimbursable Expenditures. As a result thereof, the Agreement is hereby
amended and modified as follows:
<PAGE> 2
Mr. Mark Brody
Amendment No. 2 to Loan and Security Agreement
April 19, 1994
Page 2
1. In Section 1.1 of the Agreement the definition "ACCOUNTS" is hereby
deleted in its entirety and replaced to read as follows:
" 'ACCOUNTS' means all of the Borrowers' and Havana's now owned or
hereafter acquired or arising accounts, contract rights, and any
other rights to payment for the sale or lease of goods or rendition
of services, whether or not they have been earned by performance."
2. In Section 1.1 of the Agreement a new definition is hereby added to read
as follows:
" 'HAVANA AVAILABILITY' means under the Wagner Individual Borrower
Revolving Loan Facility the Net Amount of Eligible Accounts and
Eligible Inventory of Havana available for the purpose of Borrowing
subject to the advance rates set forth herein."
3. In Section 1.1 of the Agreement the definition "INDIVIDUAL BORROWER
REVOLVING LOAN FACILITY" is hereby deleted in its entirety and replaced
to read as follows:
" 'INDIVIDUAL BORROWER REVOLVING LOAN FACILITY' means, at any point
in time, the lesser of:
(a) the following respective individual Revolving Loan facility
limitations for each Borrower and, in the case of Wagner,
inclusive of Wagner and Havana:
<TABLE>
<CAPTION>
Individual Revolving Loan
Borrower Facility Limitation
-------- -------------------------
<S> <C>
Cast-Matic $ 2,500,000.00
Frisby $ 3,000,000.00
IPC $ 5,500,000.00
IMT $ 7,500,000.00
</TABLE>
<PAGE> 3
Mr. Mark Brody
Amendment No. 2 to Loan and Security Agreement
April 19, 1994
Page 3
<TABLE>
<S> <C>
South Coast $ 2,500,000.00
Wagner $14,000,000.00
</TABLE>
or,
(b) the sum of (i) eighty-five percent (85%) of the Net Amount
of Eligible Accounts applicable to such Borrower and Havana,
and (ii) the lesser of (A) fifty percent (50%) of the value
of Eligible Inventory (determined on a first-in-first-out basis)
calculated at the lesser of cost or market in the aggregate
applicable to such Borrower and Havana or (B) the Individual
Borrower Revolving Loans Inventory Advance Sublimits applicable
to such Borrower and Havana."
4. In Section 1.1 of the Agreement the definition of "INDIVIDUAL BORROWER
REVOLVING LOANS INVENTORY ADVANCE SUBLIMITS", is hereby deleted in its
entirety and replaced to read as follows:
" 'INDIVIDUAL BORROWER REVOLVING LOANS INVENTORY ADVANCE SUBLIMITS'
means, at any point in time, the following respective Inventory
Advance Sublimits for each Borrower and, in the case of Wagner,
inclusive of Wagner and Havana:
<TABLE>
<CAPTION>
Individual Borrower
Revolving Loans Inventory
Borrower Advance Sublimits
-------- -----------------
<S> <C>
Cast-Matic $ 500,000.00
Frisby $1,100,000.00
IPC $1,100,000.00
IMT $3,400,000.00
</TABLE>
<PAGE> 4
Mr. Mark Brody
Amendment No. 2 to Loan and Security Agreement
April 19, 1994
Page 4
<TABLE>
<S> <C>
South Coast $1,100,000.00
Wagner $1,500,000.00"
</TABLE>
5. In Section 1.1 of the Agreement the definition "INVENTORY" is hereby
deleted in its entirety and replaced to read as follows:
" 'INVENTORY' means, as to any one or more of the Borrowers and
Havana, all of the Borrowers' and Havana's now owned and hereafter
acquired inventory, goods, merchandise and other personal property
wherever located, to be furnished under any contract of service or
held for sale or lease, all raw materials, work-in-progress, finished
goods, returned and repossessed goods, and materials and supplies
of any kind, nature or description which are or might be consumed in
the Borrower(s)'s and Havana's business(es) or used in connection with
the manufacture, packing, shipping, advertising, selling or finishing
of such inventory, goods, merchandise and such other personal
property, and all documents of title or other documents representing
them."
6. In Section 1.1 of the Agreement a new definition is bereby added to read
as follows:
" 'NET AVAILABILITY' means, at any time, the Havana Availability LESS
the Havana Advances LESS Reserves applicable to Havana."
7. In Section 1.1 of the Agreement in the definition of "OBLIGATIONS" in the
third and fourth lines thereof, the following language is hereby added
between the words "Agent" and "under":
"...or by Havana to Wagner...".
8. In Section 1.1 of the Agreement the definition "REIMBURSABLE PARENT
EXPENDITURES" is hereby deleted in its entirety and replaced to read as
follows:
<PAGE> 5
Mr. Mark Brody
Amendment No. 2 to Loan and Security Agreement
April 19, 1994
Page 5
" 'REIMBURSABLE PARENT EXPENDITURES' means expenditures by the Parent
for the direct benefit of the Borrowers that the Parent netotiates for
the purpose of cost savings in arm's length transactions with third
parties and the amount passed through to the Borrower which the Parent
has paid on its behalf is either the actual cost or, if such amount is
not readily determinable and relates to more than one Borrower, an
amount which does not exceed the ratio in which the Borrower's
Individual Borrower Revolving Loan Facility Limitation relates to the
Revolving Loan Facility."
9. In Section 1.1 of the Agreement the definition "RESERVES" is hereby deleted
in its entirety and replaced to read as follows:
" 'RESERVES' means, at any time, the sum of the existing (a) reserves
for accrued interest on the Term Loans, the Cap Ex Loans and the
Revolving Loans, (b) reserves for assessments, taxes and/or payments
for insurance on the Collateral which are past due (c) Environmental
Compliance Reserve, (d) L/C Reserve and (e) all other reserves which
the Agent in its reasonable discretion deems necessary or desirable to
maintain with respect to any Borrower's account, or Havana, including,
without limitation, any amounts which the Agent may be obligated to
pay in the future for the account of any Borrower or Havana, or
reserves for any other claims asserted (or of which assertion is
probable) which have resulted or would result in (i) Liens senior or
equal in priority to the Security Interest of the Agent for the benefit
of the Lenders or (ii) security interests senior or equal in
priority to or security interests of Wagner in the assets of Havana.
The Reserves shall be reduced from time to time by amounts borrowed
under the Revolving Loan Facility to pay charges for which the
Reserves have been established."
<PAGE> 6
Mr. Mark Brody
Amendment No. 2 to Loan and Security Agreement
April 19, 1994
Page 6
10. In Section 2.2 of the Agreement a new subsection "(g)" HAVANA REVOLVING
NOTE. is hereby added to read as follows:
"(g) Upon receipt of a Revolving Loan, Wagner will immediately fund the
amount of such Revolving Loan to Havana ("Havana Advance") which exceeds
Wagner's Individual Borrower Revolving Loan Availability calculated
without giving effect to (i) Wagner's loans outstanding to Havana and
(ii) Havana Availability. Wagner shall denote in accordance with the
Notice of Borrowing what portion of its advance request is a Havana
Advance. Any advance requested by Wagner for use in the business and
operations of Wagner shall not be attributable to Havana Availability.
Havana shall execute a master revolving credit note ("Revolving Note")
in favor of Wagner and each advance by Wagner to Havana and each
principal repayment from Havana to Wagner shall be duly recorded on the
grid attached to the Revolving Note. A copy of the grid shall be
furnished by Wagner to the Agent on the first day of each month
hereafter. The Revolving Note shall be payable on demand and be in form
and substance acceptable to the Agent and the Lenders. None of the
Lenders shall be deemed to have made Revolving Loans directly to
Havana."
11. In Section 6.1 of the Agreement a new Subsection "(d)" is hereby added to
read as follows:
"(d) In addition; as security for the Obligations represented by the
indebtedness of Havana to Wagner pursuant to Revolving Loans made under
Section 2.2(g), Wagner pledges all of its right, title, and interest in
and to the Revolving Note to the Agent, for the ratable benefit of the
Lenders."
12. On Exhibit 6.3 to the Agreement the location "810 East Garfield, Decatur, IL
62526" is hereby deleted wherever it may appear and replaced with the
location "800 East Garfield, Decatur, IL 62526".
<PAGE> 7
Mr. Mark Brody
Amendment No. 2 to Loan and Security Agreement
April 19, 1994
Page 7
13. In Section 9.23 of the Agreement with respect to Capital Expenditures,
the consolidated limitations and individual Borrower limitations for Fiscal
Year 1994 are modified by (a) deleting in 9.23(a) the amount "$6,820,000"
and replacing it with the amount "$8,000,000" and (b) deleting in 9.23(b)
under FY1994 the following amounts: "$2,035,000", $1,100,000", and
"$1,437,000" respectively for Wagner, IPC, and South Coast and replacing
said amounts respectively with "$3,000,000", "$1,250,000", and
"$1,700,000".
14. Section 9.25(a)(ii)(B) of the Agreement is hereby deleted in its entirety
and replaced to read as follows:
"...(B) Reimbursable Parent Expenditures up to but not in excess of
$2,425,000 for Fiscal Year 1994 and $2,000,000 for each Fiscal Year
thereafter in the aggregate in any Fiscal Year of the Parent..."
15. Section 9.25(b)(ii)(C) of the Agreement is hereby deleted in its entirety
and replaced to read as follows:
"...(C) Reimbursable Parent Expenditures up to but not in excess of
$2,425,000 for Fiscal Year 1994 and $2,000,000 for each Fiscal Year
thereafter in the aggregate in any Fiscal Year of the Parent..."
16. The Notice of Borrowing which is Exhibit 2-2(c) in the Agreement is hereby
modified to reflect the Havana Advances and a copy of this revised form is
attached hereto as Exhibit "A".
<PAGE> 8
Mr. Mark Brody
Amendment No. 2 to Loan and Security Agreement
April 19, 1994
Page 8
Except as modified herein, the Agreement remains in full force and effect and
is hereby ratified and affirmed. Please indicate your acceptance of this
Amendment No. 2 to the Agreement by executing in the places provided below and
this Amendment No. 2 shall be deemed effective as of the date first written
above.
Respectfully yours,
BANKAMERICA BUSINESS CREDIT, INC.,
as Agent and Lender
By: /s/ Gregory R. Eck
-------------------------
Its: Vice President
NATIONAL CITY BANK,
as Lender
By: /s/ James R. Myers
-------------------------
Its: Assistant Vice President
STAR BANK, NATIONAL ASSOCIATION,
as Lender
By: /s/ Suzanne E. Geiger
-------------------------
Its: Vice President
ACCEPTED AND AGREED:
SUDBURY, INC.
By: /s/ Mark E. Brody
-------------------------
Its: Vice President
<PAGE> 9
Mr. Mark Brody
Amendment No. 2 to Loan and Security Agreement
April 19, 1994
Page 9
CAST-MATIC CORPORATION
By: /s/ MARK E. BRODY
-------------------------
Its: Vice President
FRISBY MFG. CO.
By: /s/ MARK E. BRODY
-------------------------
Its: Vice President
INDUSTRIAL POWDER COATINGS, INC.
By: /s/ MARK E. BRODY
-------------------------
Its: Vice President
IOWA MOLD TOOLING CO., INC.
By: /s/ MARK E. BRODY
-------------------------
Its: Vice President
SOUTH COAST TERMINALS, INC.
By: /s/ MARK E. BRODY
-------------------------
Its: Vice President
<PAGE> 10
Mr. Mark Brody
Amendment No. 2 to Loan and Security Agreement
April 19, 1994
Page 10
WAGNER CASTINGS COMPANY
By: /s/ MARK E. BRODY
-------------------------
Its: Vice President
ACKNOWLEDGED AND CONSENTED TO:
WAGNER HAVANA, INC.
By: /s/ MARK E. BRODY
-------------------------
Its: Vice President
<PAGE> 11
Second Amendment to Loan and Security Agreement
Exhibit List:
Exhibit A - Amendment No. 1 to Note Pledge Agreement
Exhibit B - Wagner Havana, Inc. Revolving Credit Note
Exhibit C - Amendment No. 1 to Havana Security Agreement
<PAGE> 1
EXHIBIT (4)(f) Third Amendment to the
Loan and Security Agreement
[LOGO]
BankAmerica
Business Credit, Inc.
June 6, 1994
Mr. Mark Brody
Sudbury, Inc.
30100 Chagrin Blvd.
Suite 203
Cleveland, Ohio 44124
Re: Amendment No. 3 to Loan and Security Agreement
Dear Mr. Brody:
Reference is hereby made to that certain Loan and Security Agreement (the
"Agreement") dated as of May 28, 1993, as amended from time to time, and
executed by and among Sudbury, Inc. (the "Parent"), Cast-Matic Corporation,
Frisby Mfg. Co., Industrial Powder Coatings, Inc. ("IPC"), Iowa Mold Tooling
Co., Inc., South Coast Terminals, Inc., and Wagner Castings Company
(collectively, the "Borrower") and BankAmerica Business Credit, Inc., formerly
known as BA Business Credit, Inc. (the "Agent" and a "Lender"), National City
Bank, and Star Bank, National Association (collectively, the "Lenders").
Certain capitalized terms used herein shall have the same meanings attributed
to them in the Agreement.
The Borrower has requested certain modifications to the Agreement relating to
IPC's recent agreement with General Electric Company ("GE") to be IPC's sole
supplier of GE's 1995 washer program. The Agent and the Lenders have considered
the requests and the Agreement is hereby amended and modified as follows:
1. In Section 1.1 of the Agreement the definition "CAP EX AVAILABILITY" is
hereby deleted and replaced to read as follows:
" 'CAP EX AVAILABILITY' means as of any date, the lesser of (i)
seventy-five percent (75%) of the out of pocket, non-financed
acquisition costs paid by Borrower subsequent to the Closing
Date for Capital Expenditures, net of any delivery and installation
charges; or (ii)
55 West Monroe, Xerox Centre, Suite 3600, Chicago, IL 60603
(312) 553-7300, FAX (312) 704-1255
A Subsidiary of BankAmerica Corporation
<PAGE> 2
Mr. Mark Brody
Amendment No. 3 to Loan and Security Agreement
June 6, 1994
Page 2
$3,000,000 minus (a) the aggregate principal balance of all Cap
Ex Loan(s) and (b) Cap Ex Reserve(s) made prior to such date."
2. In Section 1.1 of the Agreement the definition "CAP EX RESERVE" is hereby
added to the Agreement to read as follows:
" 'CAP EX RESERVE' means at any time a reserve established by Agent
against Cap Ex Availability which represents seventy-five percent
(75%) of the out of pocket, nonfinanced acquisition costs paid by IPC
subsequent to Fiscal Year 1994 for Capital Expenditures, net of any
delivery and installation charges which have met each of the criteria
of the Agreement to fund a Cap Ex Loan except for the condition set
forth under Section 2.5(f)(viii) and for which IPC and the Parent have
designated, in writing, as amounts to reduce Capital Expenditures for
purposes of calculating the Consolidated and IPC Fixed Charge Ratio.
This reserve will be a permanent reserve unless IPC subsequently
requests that a Cap Ex Loan be funded under the Cap Ex Loan Facility
for Capital Expenditures which have been previously reserved from Cap
Ex Availability ("Requested Cap Ex Loan") and provided this Requested
Cap Ex Loan is in compliance with the terms of the Agreement and
specifically Section 2.5(f)(viii), then the Cap Ex Reserve will be
reduced by the same amount as the Requested Cap Ex Loan to accommodate
the funding of the Requested Cap Ex Loan."
3. In Section 1.1 of the Agreement the definition "FIXED CHARGE RATIO" is
hereby deleted and replaced to read as follows:
" 'FIXED CHARGE RATIO' means, as applied to any one or more Persons
at any date, the number that is equal to (i) EBITDA of such Person(s)
less Capital Expenditure of such Person(s) (excluding Capital
Expenditures of IPC which have been (a) financed under the Cap Ex Loan
Facility or (b) could be financed under the
<PAGE> 3
Mr. Mark Brody
Amendment No. 3 to Loan and Security Agreement
June 6, 1994
Page 3
Cap Ex Loan Facility for which Cap Ex Availability has been reduced by
a Cap Ex Reserve for this same amount) divided by (ii) the number that
is equal to the Fixed Charges paid by such Person(s), all as of the
date of such calculation on a cumulative basis from June 1, 1993
through the next twelve (12) months and thereafter on a rolling twelve
(12) month cumulative basis."
4. In Section 2.5(f)(iv) of the Agreement the amount "...$1,000,000..."
is hereby deleted therefrom and replaced with the amount "...$500,000...".
5. In Section 3.1(c) of the Agreement the language "...one and three-quarters
percent (1.75%) plus the Reference Rate..." is hereby deleted and replaced
with the language "...one and one-half percent (1.50%) plus the Reference
Rate...".
6. In Section 9.23(a) of the Agreement the Maximum Capital Expenditures for
the Borrower for Fiscal Year 1995 in the amount of "$7,505,000" is hereby
deleted and replaced with the amount "9,705,000".
7. In Section 9.23(b) of the Agreement the Maximum Capital Expenditures for
IPC for Fiscal Year 1995 in the amount of "$3,200,000" is hereby deleted
and replaced with the amount "$5,400,000".
8. In Section 9.29(a) and (e) of the Agreement for purposes of calculating
Consolidated and IPC's Fixed Charge Ratio, the minimum draw requirements
under Section 2.5(f)(iv) will not apply for IPC's Capital Expenditures
which could be funded under the Cap Ex Loan Facility for which Cap Ex
Availability has been blocked for this same amount.
9. IPC shall make mandatory prepayments of its Cap Ex Loan with any monies
received by IPC from GE which reimburse IPC for costs under Paragraph 8
of the Powder Blank Coating Program Agreement dated as of March 31, 1994
by and between IPC and GE and subsequently executed May 4, 1994, a copy
of which is attached hereto as Exhibit "A". The prepayments will be
applied first to the IPC Cap Ex Loan in inverse order of maturity until
paid in full, then to the IPC Revolving Loan until paid in full, then
as mandatory prepayments of the Term
<PAGE> 4
Mr. Mark Brody
Amendment No. 3 to Loan and Security Agreement
June 6, 1994
Page 4
Loans as described in Section 4.5, then as mandatory prepayments of the
Cap Ex Loans as described in Section 4.10, and then as mandatory
prepayments of the Borrower Revolving Loans on a pro rata basis based on
the ratio of each Borrower Individual Borrower Loan Facility to the
Revolving Loan Facility.
Except as modified herein, the Agreement remains in full force and effect and
is hereby ratified and affirmed. Please indicate your acceptance of this
Amendment No. 3 to the Agreement by executing in the places provided below and
this Amendment No. 3 shall be deemed effective as of the date first written
above.
Respectfully yours,
BANKAMERICA BUSINESS CREDIT, INC.,
as Agent and Lender
By: /s/ Gregory R. Eck
-------------------------
Its: Vice President
NATIONAL CITY BANK,
as Lender
By: /s/ James R Myers
-------------------------
Its: Assistant Vice President
STAR BANK, NATIONAL ASSOCIATION,
as Lender
By: /s/ Suzanne E. Geiger
-------------------------
Its: Vice President
<PAGE> 5
Mr. Mark Brody
Amendment No. 3 to Loan and Security Agreement
June 6, 1994
Page 5
ACCEPTED AND AGREED:
SUDBURY, INC.
By: Mark E. Brody
----------------------------
Its: Vice President
----------------------------
CAST-MATIC CORPORATION
By: Mark E. Brody
----------------------------
Its: Vice President
----------------------------
FRISBY MFG. CO.
By: Mark E. Brody
----------------------------
Its: Vice President
----------------------------
INDUSTRIAL POWDER COATINGS, INC.
By: Mark E. Brody
----------------------------
Its: Vice President
----------------------------
IOWA MOLD TOOLING CO., INC.
By: Mark E. Brody
----------------------------
Its: Vice President
----------------------------
<PAGE> 6
Mr. Mark Brody
Amendment No. 3 to Loan and Security Agreement
June 6, 1994
Page 6
SOUTH COAST TERMINALS, INC.
By: Mark E. Brody
--------------------------------
Its: Vice President
--------------------------------
WAGNER CASTINGS COMPANY
By: Mark E. Brody
--------------------------------
Its: Vice President
--------------------------------
<PAGE> 7
Third Amendment to the Loan and Security Agreement
Exhibit List:
Exhibit A - Powder Blank Coating Program Agreement dated March 31, 1994
<PAGE> 1
EXHIBIT (4)(g)
BankAmerica
Business Credit, Inc.
August 11, 1994
Mr. Mark Brody
Sudbury, Inc.
30100 Chagrin Blvd.
Suite 203
Cleveland, Ohio 44124
Re: Amendment No. 4 to Loan and Security Agreement
Dear Mr. Brody:
Reference is hereby made to that certain Loan and Security Agreement (the
"Agreement") dated as of May 28, 1993, as amended from time to time, and
executed by and among Sudbury, Inc. (the "Parent"), Cast-Matic Corporation,
Frisby Mfg. Co., Industrial Powder Coatings, Inc., Iowa Mold Tooling Co., Inc.,
South Coast Terminals, Inc., and Wagner Castings Company (collectively, either
the "Borrower" or "Borrowers") and BankAmerica Business Credit, Inc., formerly
known as BA Business Credit, Inc. (the "Agent" and a "Lender"), National City
Bank, and Star Bank, National Association (collectively, the "Lenders").
Certain capitalized terms used herein shall have the same meanings attributed
to them in the Agreement.
The Borrowers have requested that the Agent consider an increase in the Capital
Expenditure limitations set forth in Section 9.23 of the Agreement. The Agent,
on behalf of the Lenders, does hereby consent to such increases in the Capital
Expenditure limitations and the Agreement is hereby amended as follows:
1. In Section 9.23(a) of the Agreement the maximum consolidated
Capital Expenditures for Fiscal Year 1995 in the amount of
$9,705,000 is hereby deleted and replaced with the amount
of $15,250,000.
2. In Section 9.23(b) of the Agreement the Individual Borrower
limitation amounts for Capital Expenditures for Fiscal Year
1995 for Cast-Matic, Frisby, Wagner, and South Coast
<PAGE> 2
Mr. Mark Brody
Amendment No. 4 to Loan and Security Agreement
August 11, 1994
Page 2
being $300,000, $1,155,000, $1,650,000, and $825,000,
respectively, are hereby deleted and replaced respectively
with the amounts $525,000, $1,700,000, $5,750,000, and
$1,500,000.
Except as modified herein, the Agreement remains in full force and effect and
is hereby ratified and affirmed. Please indicate your acceptance of this
Amendment No. 4 to the Agreement by executing in the places provided below and
this Amendment No. 4 shall be deemed effective as of the date first written
above.
Respectfully yours,
BANKAMERICA BUSINESS CREDIT, INC.,
as Agent and Lender
By: Gregory R. Eck
---------------------------------
Its: Vice President
---------------------------------
NATIONAL CITY BANK,
as Lender
By: James R. Myers
---------------------------------
Its: AVP
---------------------------------
<PAGE> 3
Mr. Mark Brody
Amendment No. 4 to Loan and Security Agreement
August 11, 1994
Page 3
STAR BANK, NATIONAL ASSOCIATION,
as Lender
By: Susanne E. Geiger
---------------------------------
Its: Vice President
---------------------------------
ACCPETED AND AGREED:
SUDBURY, INC.
By: Mark E. Brody
---------------------------------
Its: Vice President
---------------------------------
By: Jaques R. Sardas
---------------------------------
Its: Chairman and C.E.O.
---------------------------------
CAST-MATIC CORPORATION
By: Mark E. Brody
---------------------------------
Its: Vice President
---------------------------------
By: Jacques R. Sardes
---------------------------------
Its: Chairman
---------------------------------
<PAGE> 4
Mr. Mark Brody
Amendment No. 4 to Loan and Security Agreement
August 11, 1994
Page 4
FRISBY MFG. CO.
By: Mark E. Brody
---------------------------------
Its: Vice President
---------------------------------
By: Jacques R. Sardas
---------------------------------
Its: Chairman
---------------------------------
INDUSTRIAL POWDER COATINGS, INC.
By: Mark E. Brody
---------------------------------
Its: Vice President
---------------------------------
By: Jacques R. Sardas
---------------------------------
Its: Chairman
---------------------------------
IOWA MOLD TOOLING CO., INC.
By: Mark E. Brody
---------------------------------
Its: Vice President
---------------------------------
By: Jacques R. Sardas
---------------------------------
Its: Chairman
---------------------------------
<PAGE> 5
Mr. Mark Brody
Amendment No. 4 to Loan and Security Agreement
August 11, 1994
Page 5
SOUTH COAST TERMINALS, INC.
By: Mark E. Brody
---------------------------------
Its: Vice President
---------------------------------
By: Jacques R. Sardas
---------------------------------
Its: Chairman
---------------------------------
WAGNER CASTINGS COMPANY
By: Mark E. Brody
---------------------------------
Its: Vice President
---------------------------------
By: Jacques R. Sardas
---------------------------------
Its: Chairman
---------------------------------
ACKNOWLEDGED:
WAGNER HAVANA, INC.
By: Mark E. Brody
---------------------------------
Its: Vice President
---------------------------------
By: Jacques R. Sardas
---------------------------------
Its: Chairman
---------------------------------
<PAGE> 1
EXHIBIT (10)(e)
---------------
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
THIS SETTLEMENT AGREEMENT AND MUTUAL RELEASE
("Settlement Agreement") is made this 29th day of July, 1994, by and between
Sudbury, Inc. (the "Company"), a Delaware corporation with its principal place
of business located at 30100 Chagrin Boulevard, Suite 203, Cleveland, Ohio
44124, and Jacques R. Sardas ("Sardas").
R E C I T A L S
WHEREAS, in late 1990, the Company determined that it
was necessary to seek bankruptcy protection and therefore proceeded to commence
negotiations with representatives of its major creditor groups (the
"Committee") in an attempt to agree upon a mutually suitable plan of
reorganization (the "Plan");
WHEREAS, in late 1991, the Company and the Committee
agreed that it was in the best interest of the Company to appoint a new
President and Chief Executive Officer of the Company as part of the Plan;
WHEREAS, in pursuit of such agreement, the board of
directors of the Company (the "Board") authorized the Committee to identify a
candidate to be the Company's new President and Chief Executive Officer and
negotiate an employment agreement (the "Employment Agreement") with such
candidate, subject to the Board's approval;
WHEREAS, members of the Committee (the
"Representatives") conducted such search on behalf of the Company;
WHEREAS, as a result of such search, the
Representatives identified Sardas to be the new President and Chief Executive
Officer of the Company;
WHEREAS, the Representatives proceeded to negotiate
the Employment Agreement with Sardas;
WHEREAS, the Corporation has learned that the
Representatives, with authority of the Company through its officers,
represented to Sardas (the "Representation") during the negotiation of the
Employment Agreement that Sardas would receive options to purchase a fifteen
percent (15%) equity interest in the Company (the "Equity Interest") on a
fully-diluted basis, subject to the Board's approval;
WHEREAS, the Company has learned that on or about the
time they made the Representation, the Representatives were aware of the
Company's intention to issue certain
<PAGE> 2
participation certificates (the "Participation Certificates") as part of the
Plan and that the exercise of the Participation Certificates would dilute
Sardas' Equity Interest;
WHEREAS, on January 10, 1992, the Board elected
Sardas President and Chief Executive Officer of the Company and adopted and
ratified the Employment Agreement;
WHEREAS, on January 13, 1992, Sardas entered into the
Employment Agreement with the Company;
WHEREAS, the Company learned that only subsequent to
his election as President and Chief Executive Officer of the Company, Sardas
was informed that the Participation Certificates would be issued pursuant to
the Plan;
WHEREAS, Sardas objected to the dilution of his
Equity Interest caused by the issuance of the Participation Certificates as
being inconsistent with the terms of the Employment Agreement and related stock
option agreement;
WHEREAS, on February 18, 1993 the Board ratified the
Representation and resolved that Sardas was to be made whole with respect to
any dilution to his Equity Interest in connection with the Participation
Certificates;
WHEREAS, such resolution was an attempt to settle all
claims Sardas had against the Company with respect to the potential dilution of
his Equity Interest by the exercise of the Participation Certificates;
WHEREAS, the settlement proposed by such resolution
was rejected by Sardas due to its vagueness and inadequacy, whereupon the
parties continued to negotiate the terms by which a settlement could be reached
and implemented;
WHEREAS, Sardas has continued, both orally and in
writing, to object to the dilution of his Equity Interest caused by the
issuance of the Participation Certificates and has maintained that he is
entitled under proper construction of the Employment Agreement and related
stock option agreement to anti-dilution protection in connection with the
issuance of the Participation Certificates and has indicated an intent to seek
confirmation and approval of such construction in the Bankruptcy Court;
WHEREAS, in order to reach a settlement with Sardas,
the Company engaged the law firm of Benesch, Friedlander, Coplan & Aronoff
("BFC&A") to conduct a comprehensive factual and legal investigation into the
circumstances surrounding the negotiation of the Employment Agreement and
evaluate any potential legal claims Sardas had against the Company, and to
report on same to the Company;
WHEREAS, BFC&A's report to the Company verified that
the foregoing facts are accurate and indicated that Sardas has standing to seek
such Court determination of the
- 2 -
<PAGE> 3
proper construction of provisions of the Employment Agreement and stock option
agreement and that the Company has exposure with regard thereto;
WHEREAS, the parties desire to resolve Sardas' claims
under the Employment Agreement and stock option agreement and to afford him the
benefit of terms negotiated under the Employment Agreement, thereby reforming
such Agreement;
WHEREAS, on May 16, 1994, the Compensation Committee
of the Board of Directors of the Company met and acknowledged the extent of the
obligation for the dilution created as a result of the existence of the
Participation Certificates;
WHEREAS, the Board of Directors of the Company
approved the settlement of this dispute at a Board of Directors' meeting on
June 28, 1994;
WHEREAS, as a result of the adverse effect on the
Company of the financial accounting treatment under generally accepted
accounting principles of such settlement, the Company has requested that Sardas
agree to modifications thereof; and
WHEREAS, this Settlement Agreement is the product of
extensive negotiations between the Company and Sardas, and represents a
compromise of each of their positions prior to the date of this Settlement
Agreement, including as a result of such accounting issues.
NOW, THEREFORE, the Company and Sardas enter into
this Settlement Agreement, setting forth the terms and conditions of the
settlement of their dispute, as follows:
1. SETTLEMENT AMOUNT AND PAYMENT. In settlement
of Sardas' claims under the Employment Agreement relating to the dilution of
his Equity Interest, the Company will issue to Sardas options to purchase
Common Stock of the Company in the amounts and denominations and subject to the
provisions set forth in the Stock Option Agreement, a copy of which is attached
hereto as Exhibit "A" and is incorporated herein by reference (the "Options").
Such settlement is intended to and does hereby reform the Employment Agreement
so as to provide to Sardas the benefit of the bargain to which he was and
continues to be entitled thereunder.
2. RELEASE OF CLAIMS. Upon the performance of
this Settlement Agreement and the issuance to Sardas of the Options, Sardas
HEREBY RELEASES AND FOREVER DISCHARGES the Company, its affiliated companies,
and present and former directors, officers, shareholders, employees, agents,
attorneys, and any of their heirs, personal representatives, next of kin,
successors and assigns, of and from any and all liability, claims, demands,
damages, costs, attorney fees, interest, actions or causes of action, from the
beginning of time, whether asserted or unasserted, or known or unknown, with
regard to the Representation made to Sardas during the negotiation of the
Employment Agreement; provided, however, that in the event the Options are
later determined to be void for any
- 3 -
<PAGE> 4
reason, or Sardas is otherwise determined not to be entitled, in all material
respects, to the benefit of this Agreement, then the foregoing release and
discharge shall be void and all matters and claims released thereunder shall be
revived for the benefit of Sardas.
Upon the performance of this Settlement Agreement,
the Company HEREBY RELEASES AND FOREVER DISCHARGES Sardas and his heirs,
representatives and assigns, and any of his agents or attorneys, and any of
their successors and assigns, of and from any and all liability, claims,
demands, damages, costs, attorney fees, interest, actions or causes of action,
from the beginning of time, whether asserted or unasserted, or known or
unknown, with regard to any claims arising from the dispute with regard to the
Representation made to Sardas during the negotiation of the Employment
Agreement.
IT IS AGREED that this Settlement Agreement is a FULL
AND FINAL SETTLEMENT OF ALL CLAIMS of every nature and kind whatsoever with
regard to the Representation made to Sardas during the negotiation of the
Employment Agreement, from the beginning of time, between the Company and
Sardas.
3. REGISTRATION.
(a) The Company will use its best
efforts to register the Options and underlying Common
Stock on a Registration Statement on Form S-8,
subject to its satisfaction that it is qualified to
use the Form S-8 for such purpose.
(b) Subject to the subparagraph (a)
above, Sardas represents and warrants to the Company
that he understands the Options and underlying Common
Stock have not been registered with the Securities
and Exchange Commission or any state securities
agency and must be held unless so registered or
unless any proposed sale is exempt from such
registration. Sardas further represents, subject to
subparagraph (a) above, that he is acquiring the
Options and, upon exercise, the underlying Common
Stock for investment purposes and not with a view to
the resale thereof.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to Sardas
as follows:
(a) The Company has all requisite
corporate power and authority, and has taken
all necessary corporate action, to authorize,
execute and deliver this Agreement, which
Agreement constitutes the valid and binding
obligation of the Company, enforceable
against the Company in accordance with its
terms; and
(b) Neither the execution or
delivery of this Agreement nor the
consummation of the transactions herein
contemplated does or will result in
- 4 -
<PAGE> 5
a breach or violation of, or constitute a
default or in event permitting acceleration
under, any statute, the Certificate of
Incorporation or the By-laws of the Company
(as either may then be in effect) or any
mortgage, lease, indenture or any other
agreement, instrument, decree, order,
judgment, rule or regulation to which the
Company is subject or a party.
5. MISCELLANEOUS.
(a) SEVERABILITY - The provisions of
this Settlement Agreement are severable and if any
one or more provisions are determined to be illegal
or otherwise unenforceable, in whole or in part, the
remaining provisions will be binding and enforceable.
(b) SUCCESSORS AND ASSIGNS - The
provisions of this Settlement Agreement will be
binding upon any heirs, personal representatives,
next of kin, successors and assigns of either the
Company or Sardas.
(c) REMEDIES AND CONSTRUCTION - In the
event of breach of this Settlement Agreement, the
Company and Sardas will have the right to exercise
any and all remedies at law. The terms of this
Settlement Agreement are to be construed and
interpreted in accordance with the laws of the State
of Ohio.
(d) RECITALS - The recitals to this
Agreement are integral to this Agreement and are
deemed a part of this Agreement.
(e) ENTIRE AGREEMENT, ETC. - This
Settlement Agreement sets forth the entire agreement
between the Company and Sardas, with no other
promises or representations having been made by any
of them. This document may not be changed or
modified orally. This document may be executed in
counterparts, which together will be considered as if
one document.
IN WITNESS WHEREOF, the undersigned have executed
this Settlement Agreement on the date.
SUDBURY, INC.
By: /s/ Mark E. Brody
--------------------------
Its: Vice President--Finance
--------------------------
JACQUES R. SARDAS
/S/ Jacques R. Sardas
-------------------------------
- 5 -
<PAGE> 1
EXHIBIT (10)(f)
---------------
SUDBURY, INC.
STOCK OPTION AGREEMENT
----------------------
July 29, 1994
To: Jacques R. Sardas
Sudbury, Inc.
30100 Chagrin Boulevard, Suite 203
Cleveland, Ohio 44124
Sudbury, Inc., a Delaware corporation (the "Company")
hereby grants to Jacques R. Sardas ("Sardas"), effective as of the date of this
Agreement, non-qualified options (the "Options") to purchase in the aggregate
479,893 shares of the Company's Common Stock, par value $.01 per share (the
"Shares"). Sardas, by his execution of this Agreement hereby agrees to its
terms and conditions.
This Agreement is entered into in connection with
Sardas' Employment Agreement with the Company dated January 13, 1992, as
amended, (the "Employment Agreement") and the anti-dilution provisions of the
related stock option agreement, dated September 1, 1992 (the "Option
Agreement"), as well as under that certain Settlement Agreement between the
Company and Sardas, dated July 29, 1994, (the "Settlement Agreement").
1. DEFINITIONS.
-----------
As used herein, the following terms shall have the
following meanings:
(a) "CLOSING PRICE" means on any day,
when used with respect to the Common Stock, the last
reported sale price or, in the case no such reported
sale takes place on such day, the average of the
reported closing bid and asked prices, in either case
as reported on the principal national securities
exchange on which the Common Stock is listed or
admitted to trading, or if the Common Stock is not
listed or admitted to trading on any national
securities exchange, on the National Association of
Securities Dealers Automated Quotations National
Market System, or, if the Common Stock is not listed
or admitted to trading on any national securities
exchange or quoted on such National Market System,
the average of the closing bid and asked prices in
the over-the-counter market as furnished by any New
York Stock Exchange member firm selected from time to
time by the Board of Directors of the Company for
such purposes.
(b) "COMMON STOCK" means the Common
Stock of the Company or any other stock of any class
or classes (however designated) of the Company, now
or hereafter authorized, the holders of which shall
have the right, without limitation as
<PAGE> 2
to amount, either to all or to a part of the balance
of current dividends and liquidating dividends after
the payment of dividends and distributions on any
shares entitled to preference.
(c) "EXERCISE PRICE" means the exercise
price of the Shares upon exercise of Options, as is
set forth in Section 3(a) below.
(d) "HOLDER" means Sardas or any subsequent permitted
transferee of the Options issued to Sardas pursuant to this Agreement
as is set forth in Section 7 below.
(e) "OUTSTANDING COMMON STOCK" means the Common Stock
outstanding at any given time plus (1) all shares reserved for
issuance in connection with the exercise of options previously granted
under the Employment Agreement, as amended, and (2) all shares
reserved for issuance in connection with Series A and Series B
Participation Certificates.
Outstanding Common Stock shall not include shares held in the treasury
of the Company but shall include shares issuable in respect of scrip
certificates issued in lieu of fractions of shares of Common Stock.
2. REPRESENTATIONS AND WARRANTIES.
------------------------------
The Company represents and warrants to Sardas as follows:
(a) CORPORATE ACTION. The Company has all requisite
corporate power and authority, and has taken all necessary corporate
action, to authorize, execute and deliver this Agreement, to issue and
deliver the Options, to authorize and reserve for issuance, and upon
payment from time to time of the Exercise Price to issue and deliver,
the Shares. The Shares, when issued in accordance with the terms of
this Agreement, will be duly authorized, validly issued, fully paid
and nonassessable.
(b) NO VIOLATION. Neither the execution or delivery of
this Agreement nor the consummation of the transactions herein
contemplated does or will result in a breach or violation of, or
constitute a default or an event permitting acceleration under, any
statute, the Certificate of Incorporation or the By-Laws of the
Company (as either may then be in effect) or any mortgage, lease,
indenture or any other agreement, instrument, decree, order, judgment,
rule or regulation to which the Company is subject or a party.
2
<PAGE> 3
3. FORM AND EXERCISE OF OPTIONS.
----------------------------
(a) TERM. Options to purchase 109,270 Shares are
exercisable at any time and from time to time on and after the date
hereof and prior to their expiration at 5:00 p.m., Cleveland time, on
September 1, 1996, at an Exercise Price per Share of $3.17. Options
to purchase 115,021 Shares are exercisable at any time and from time
to time on and after the date hereof and prior to their expiration at
5:00 p.m., Cleveland time, on September 1, 1999, at an Exercise Price
per Share of $5.67. Options to purchase 255,602 Shares are
exercisable at any time and from time to time on and after January 13,
1996, and prior to their expiration on September 1, 2002, at an
Exercise Price per Share of $5.015.
(b) MERGER, CONSOLIDATION, ETC.
(i) In the event that at any time prior to the
expiration of this Option each of the outstanding shares of
Common Stock of the Company (except shares held by dissenting
shareholders) shall be changed to or exchanged for a different
number or kind of shares of stock or other securities of the
Company or of another corporation, whether through merger,
consolidation or other business combination, then for all
purposes of this Option there shall be substituted for each
Share purchasable hereunder the number and kind of shares of
stock or other securities into which each such Share shall be
so changed, or for which each such Share shall be so
exchanged, and the shares or securities so substituted for
each such Share shall be subject to purchase at the Exercise
Price, as above provided.
(ii) If the Company shall liquidate or dissolve,
or shall be a party to a merger or consolidation with respect
to which the Company shall not be the surviving corporation,
the Company shall give prior written notice thereof to the
Holder at least thirty (30) days prior thereto. To the extent
that this Option shall not have been exercised on or prior to
the effective date of such liquidation, dissolution, merger or
consolidation, it shall terminate on said date, unless it is
assumed by another corporation.
(c) METHOD OF EXERCISE. Each Option may be exercised in
full or in part by the person or persons entitled to exercise the
Option by written notice of the number of full Shares with respect to
which the Option is to be exercised. Such notice shall be delivered
to the Company at its principal office at 30100 Chagrin Boulevard,
Suite 203, Cleveland, Ohio 44124, accompanied by payment, in cash, by
certified or official bank check payable to the order of the Company,
or by bank wire transfer, in the respective amount obtained by
multiplying the number of Shares (after giving effect to any
adjustment therein as provided below) designated in such notice by the
Exercise Price per share (after giving effect to any adjustment
therein as provided below).
3
<PAGE> 4
(d) DELIVERY OF STOCK CERTIFICATES ON EXERCISE. As soon
as practicable after the exercise of any Option in full or in part,
and in any event within ten (10) days thereafter, the Company at its
expense (including the payment by it of any applicable issue taxes)
will cause to be issued in the name of and delivered to the person or
persons having so exercised the Option, a certificate or certificates
for the number of fully paid and nonassessable Shares to which such
person or persons shall be entitled upon such exercise, plus in lieu
of any fractional share to which such person or persons would
otherwise be entitled, cash equal to such fraction multiplied by the
Closing Price on the date of the exercise of one full share of Common
Stock.
(e) MERGER WITH AFFILIATE. In case of any merger of the
Company into, or sale of substantially all of its assets to, an
affiliate, or a merger of an affiliate into the Company resulting in a
reclassification or exchange of shares of the Company's Common Stock
(the "Transaction"), the Options shall thereafter be exercisable, on
such terms and subject to such conditions as shall be as nearly
equivalent as may be practicable to the provisions set forth in this
Agreement, only into the kind and amount of securities, cash and other
property ("Substituted Property") that would have been issued to a
Holder if the Options had been exercised in full immediately prior to
the Transaction. Further, in such event, the rights and obligations
of the Company (or, in case the Company is not the survivor, the
acquiror) and of the Holders in respect of the Substituted Property
shall be as nearly equivalent as may be practicable to the rights and
obligations of the Company and Holders in respect of the Shares as set
forth in this Agreement.
4. STOCK DIVIDENDS; SPLITS; COMBINATIONS.
-------------------------------------
The Options are subject to the following terms and conditions during
the term hereof.
(a) DIVIDENDS AND OTHER DISTRIBUTIONS. In case the
Company shall pay or make a dividend or other distribution on any
class of capital stock of the Company in Common Stock, (1) the
Exercise Price in effect at the opening of business on the day
following the date fixed for the determination of stockholders
entitled to receive such dividend or other distribution shall be
reduced by multiplying such Exercise Price by a fraction of which the
numerator shall be the number of shares of Outstanding Common Stock at
the close of business on the date fixed for such determination and the
denominator shall be the sum of such number of shares and the total
number of shares constituting such dividend or other distribution, and
(2) the number of Shares purchasable hereunder shall be increased
proportionately to that number which when multiplied by the Exercise
Price as adjusted herein is equal to the number of Shares initially
purchasable hereunder multiplied by the initial Exercise Price. All
such adjustments shall become effective immediately after the opening
of business on the day following the date fixed for such
determination.
4
<PAGE> 5
(b) STOCK SPLITS; COMBINATIONS; ETC. In case outstanding
shares of Common Stock shall be subdivided (by reclassification or
otherwise) into a greater number of shares of Common Stock, (1) the
Exercise Price in effect at the opening of business on the day
following the day upon which such subdivision becomes effective shall
be proportionately reduced, and (2) the number of Shares purchasable
hereunder shall be increased proportionately to that number which when
multiplied by the Exercise Price as adjusted herein is equal to the
number of Shares initially purchasable hereunder multiplied by the
initial Exercise Price. In case outstanding shares of Common Stock
shall be combined into a lesser number of shares of Common Stock, (3)
the Exercise Price in effect at the opening of business on the day
following the day upon which such combination becomes effective shall
be proportionately increased, and (4) the number of Shares purchasable
hereunder shall be decreased proportionately to that number which when
multiplied by the Exercise Price as adjusted herein is equal to the
number of Shares initially purchasable hereunder multiplied by the
initial Exercise Price. All such adjustments shall become effective
immediately after the opening of business on the day following the day
upon which such subdivision or combination becomes effective. In the
event that there shall be any other change in the number or kind of
outstanding Common Stock or other securities of the Company, or of any
shares of stock or other securities into which Shares shall have been
changed or for which they shall have been exchanged, then the Board of
Directors may make such adjustment in the number or kind of shares of
stock or other securities subject to purchase and the Exercise Price
as the Board of Directors, in its sole discretion, may determine.
(c) ADJUSTMENT FOR TAX PURPOSES. The Company may make
such changes in the Exercise Price and number of Shares purchasable
hereunder, in addition to those required by paragraphs (a) and (b) of
this Section, as it considers to be advisable in order that any event
treated for Federal income tax purposes as a dividend of stock or
stock rights shall not be taxable to the recipient.
(d) COMPUTATION OF ADJUSTMENT. Whenever the Exercise
Price is adjusted as provided in this Section:
(i) the Company shall compute the adjusted
Exercise Price and number of Shares purchasable hereunder and
shall prepare a certificate signed by the Treasurer of the
Company setting forth the adjusted Exercise Price and showing
in reasonable detail the facts upon which such adjustment is
based, and such certificate shall forthwith be filed with and
maintained as a part of the Company's records; and
(ii) a notice stating that the Exercise Price and
number of Shares purchasable hereunder has been adjusted and
setting forth the adjusted Exercise Price and number of Shares
purchasable hereunder shall be mailed by the Company to any
Holder at his last address as it shall appear on the records
of the Company.
5
<PAGE> 6
5. COMPLIANCE WITH THE SECURITIES ACT OF 1933.
------------------------------------------
(a) REGISTRATION UNDER SECURITIES ACT. Neither the
Options nor the Shares have been registered under the Securities Act
of 1933, as amended, (the "Securities Act"). The Shares shall bear
any legend which, in the Company's judgment is required by law. The
Company will use its best efforts to register the Shares on a
Registration Statement on Form S-8, subject to its satisfaction that
it is qualified to use such Form S-8 for such purpose.
(b) REGISTRATION OF UNDERLYING COMMON STOCK. If at any
time prior to September 1, 2002, the Company shall determine to file a
registration statement under the Securities Act (on a form that can be
used for a secondary distribution other than on Forms S-4 and S-8) in
connection with a proposed underwritten public offering of shares of
Common Stock solely for cash and for its own account, the Company
shall give each Holder written notice of such determination. Within
30 days after the giving of such notice by the Company, any such
Holder may request in writing that the Company include in such
registration all or any portion of the Shares underlying such Options
as are owned by such Holder. The Company will cause all shares of
Common Stock that are the subject of such a request from such a Holder
and that have been purchased by a valid exercise of Options prior to
the date of the initial filing of a registration statement with the
Securities and Exchange Commission to be included in such
registration, subject to the provisions of this Section 5(b). All
shares of Common Stock owned by a requesting Holder and included in
such registration shall be included in the underwriting on the same
terms and conditions as the securities otherwise being sold through
the underwriters. If, however, in the good faith judgment of the
managing underwriter of such public offering, the inclusion of all
shares of Common Stock requested for inclusion by such Holders would
interfere with the successful public offering and sale of a lesser
number of shares of Common Stock being offered by the Company and by
others having registration rights superior to these, the number of
shares of Common Stock requested to be included by such Holders and
the holders of any shares of Common Stock having registration rights
pari passu to these shall be reduced pro rata or, if necessary in such
managing underwriter's good faith judgment, shall not be included in
the registration. All of the reasonable fees, costs and expenses of a
registration pursuant to this Section 5(b), including (without
limitation) all federal and state registration, filing and
qualification fees, printing expenses, and fees and expenses of
counsel and accountants for the Company, shall be borne by the
Company, except that each Holder having shares of Common Stock
included in any such registration, shall bear its own underwriting
discounts and commissions and any fees and disbursements of separate
legal counsel and accountants hired by it in connection with such
registration.
6
<PAGE> 7
(c) INDEMNIFICATION.
(i) In the event that a Holder has shares of
Common Stock included in a registration pursuant to Section
5(b) hereof, the Company shall indemnify such Holder and hold
such Holder harmless from and against all claims, losses,
damages, costs and expenses to which such Holder may become
subject under the Securities Act, state securities laws or
otherwise, arising out of or based upon any untrue statement
or alleged untrue statement of a material fact contained in
any registration statement, any prospectus or any other
related document, or arising out of or based upon any omission
or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they
were made, not misleading, except that the Company shall not
be liable in any such case to the extent that any such claim,
loss, damage, cost or expense arises out of or is based upon
any untrue statement or alleged untrue statement or omission
or alleged omission based upon information furnished in
writing to the Company by such Holder specifically for use in
such registration.
(ii) Each Holder shall, if shares of Common Stock
owned by such Holder are included in a registration which is
the subject of Section 5(b) hereof, indemnify and hold
harmless the Company and each of its officers and directors
and each person controlling the Company, and each Holder with
shares of Common Stock included in any such registration,
together with the officers, partners, and directors of and
each person controlling such Holder, from and against all
claims, losses, damages, costs and expenses to which any of
them may become subject under the Securities Act, state
securities laws or otherwise, arising out of or based upon any
untrue statement or alleged untrue statement of a material
fact contained in any registration statement, any prospectus
or any other related document, or arising out of or based upon
any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under
which they were made, only to the extent that the untrue
statement or alleged untrue statement or omission or alleged
omission is based upon information furnished in writing to the
Company by the Holder specifically for use in such
registration.
(iii) Promptly after receipt by an indemnified
party under subsections (i) or (ii) above of notice of the
commencement of any action involving the subject matter of the
foregoing indemnity provisions, such indemnified party shall,
if a claim is to be made against the indemnifying party
pursuant to the provisions of said subsection (i) or (ii),
notify the indemnifying party of the commencement thereof, but
the omission so to notify shall not relieve the indemnifying
party from any liability which it may have to an indemnified
party, except to the extent such indemnifying party is
7
<PAGE> 8
prejudiced by such omission. The indemnifying party shall
have the right to participate in and, to the extent that it
may wish, singly or jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified
party pursuant to the provisions of said subsections (i) or
(ii) for any legal or other expense subsequently incurred by
such indemnified party in connection with the defense thereof.
No indemnifying party shall be liable to an indemnified party
for any settlement of any action or claim without the consent
of the indemnifying party, which consent may not be
unreasonably withheld.
6. FURTHER COVENANTS OF THE COMPANY.
--------------------------------
(a) RESERVATION OF STOCK. The Company shall at all times
reserve and keep available, solely for issuance and delivery upon the
exercise of the Options, the maximum number of Shares from time to
time issuable upon the exercise of the Options and shall take all
necessary actions to ensure that the par value per share, if any, of
Shares is at all times equal to or less than the then effective
Exercise Price per share.
(b) TITLE TO STOCK. All the Shares delivered upon the
exercise of the Options shall be duly authorized, validly issued,
fully paid and nonassessable; each Holder of an Option shall receive
good title to the Shares, free and clear of all voting and other trust
arrangements, liens, encumbrances, equities, and claims whatsoever;
and the Company shall have paid all taxes and expenses, if any, in
respect of the issuance thereof.
(c) LISTING ON SECURITIES EXCHANGE. If the Company at
any time shall list any Common Stock on any national securities
exchange, the Company will, at its expense, simultaneously list on
such exchange, upon official notice of issuance upon the exercise of
the Options, and maintain such listing of, all of the Shares from time
to time issuable upon the exercise of the Options.
(d) REPORTS BY THE COMPANY. The Company agrees that
during the term of the Options, it will provide each Holder of Options
a copy of its audited financial statements with respect to such fiscal
year at the time such financial statements are provided to all holders
of Common Stock and provide such Holder of Options a copy of
communications sent to all holders of Common Stock.
(e) TREASURY SHARES. The Company will not pay any
dividend or make any distribution (including issuance of rights,
warrants or options) on shares of Common Stock held in the treasury of
the Company.
8
<PAGE> 9
7. NONTRANSFERABILITY. The Options shall not be transferable, other than
to the following permitted transferees: by will or the laws of descent and
distribution, and the Options may be exercised, during the lifetime of the
holder of the Option, only by him, or in the event of death, by the legal
representative of his estate who shall acquire the right to exercise or receive
the Option, by bequest or inheritance, or by reason of Sardas' death.
8. OPTION HOLDERS NOT DEEMED SHAREHOLDERS.
--------------------------------------
No Holder, as such, of any Option shall be entitled to vote, receive
dividends or be deemed for any purposes the holder of the Shares nor shall
anything else contained herein be construed to confer upon the Holders any
other rights of shareholders of the Company.
9
<PAGE> 10
9. MISCELLANEOUS.
-------------
All notices, certificates and other communications from or at the
request of the Company to the Holder of any Option shall be mailed by first
class, regular mail, postage prepaid, to such address as may have been
furnished to the Company in writing by such Holder, or, until an address is so
furnished, to the address of the last Holder, or, until an address is so
furnished, to the address of the last Holder of such Options who has so
furnished an address to the Company, except as otherwise provided herein. This
Agreement and any of the terms hereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against whom
enforcement of such change, waiver, discharge or termination is sought. This
Agreement shall be construed and enforced in accordance with and governed by
the laws of the State of Ohio. The headings in this Agreement are for purposes
of reference only and shall not limit or otherwise affect any of the terms
hereof. This Agreement, together with the Employment Agreement, the Option
Agreement and the Settlement Agreement, constitutes the full and complete
agreement of the parties hereto with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed as of the date first above written, in Cleveland, Ohio, by its proper
corporate officers thereunto duly authorized.
SUDBURY, INC.
By: /s/ Mark E. Brody
---------------------
Attest:
/s/ Mary C. Farrar
- - -----------------------
The terms of the foregoing Agreement are
hereby agreed to as of the date thereof.
/s/ Jacques R. Sardas
- - -----------------------
Jacques R. Sardas
10
<PAGE> 1
EXHIBIT (10)(g)
SUMMARY DESCRIPTION OF THE SUDBURY, INC. INCENTIVE BONUS PLAN
Officers of Sudbury, Inc., including executive officers, are eligible to earn
an annual cash incentive bonus under the Sudbury, Inc. Incentive Bonus Plan
("Bonus Plan"). The amount of such bonus is determined as a percentage of base
salary ranging from a minimum of 10% to a maximum of 50% as determined by
the category to which an individual participant is assigned for a plan year.
The assignment of category is based upon the subjective determination of each
individual's level of responsibility and accountability by the Compensation
Committee of Sudbury, Inc.'s Board of Directors ("Committee").
The annual incentive bonus is tied directly to the achievement of specific
financial objectives for Sudbury, Inc. and its subsidiaries (the "Company").
Each year, usually at its August meeting, the Committee sets minimum and maximum
target levels relating to the Company's net income (before bonuses) and cash
flow. No awards are paid if the specified minimum target is not met. All awards
require Committee approval and are submitted by the Committee to the Company's
Board of Directors for the Board's final approval.
<PAGE> 1
<TABLE>
EXHIBIT (11) - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
SUDBURY, INC. AND SUBSIDIARIES
<CAPTION>
Successor Predecessor
------------------ -----------------
Nine Three
Year Months Months Year
Ended Ended Ended Ended Ended
May 31, May 31 Aug 31, May 31,
1994 1993 1992 1992
-------- ------- ------- -------
(Amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
PRIMARY
||
Average Shares outstanding 10,071 10,000 ||
Net effect of dilutive stock ||
options and other common ||
stock equivalents - based ||
on the treasury stock ||
method using average ||
market price 2,259 1,763 ||
------- ------- ||
TOTAL 12,330 11,763 ||
======= ======= ||
||
Net income $ 6,830 $ 2,808 ||
======= ======= ||
Per share amount .55 .24 || (A) (A)
======= ======= ||
||
FULLY DILUTED ||
Average shares outstanding 10,071 10,000 ||
Net effect of dilutive stock ||
options and other common ||
stock equivalents - based ||
on the treasury stock ||
method using the year-end ||
market price if higher than ||
average market price 2,411 2,008 ||
------- ------- ||
TOTAL 12,482 12,008 ||
======= ======= ||
Net income $ 6,830 $ 2,808 ||
======= ======= ||
Per share amount $ .55 $ .23 || (A) (A)
======= ======= ||
<FN>
(A) As a result of the changes in ownership and capital structure from the
Plan, primary and fully dilluted net income per share calculations are not
relevant for three months ended August 31, 1992 and for the fiscal year
1992.
</TABLE>
<PAGE> 1
<TABLE>
EXHIBIT (13)
- - -----------
SELECTED FINANCIAL DATA
<CAPTION>
1994 (A) 1993 (A) 1992 (A) 1991 1990
-------- -------- -------- -------- --------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net Sales:
Ongoing operations $250,329 $222,410 $198,197 $206,872 $221,222
Businesses held for sale 315 50,221 156,678 174,678 234,907
-------- -------- -------- -------- --------
TOTAL 250,644 272,631 354,875 381,550 456,129
Special charges (B) (5,956) (1,681) (46,315) (51,851)
Gain on formation of joint
venture (C) 16,298
Income (loss) from continu-
ing operations before
extraordinary gain 6,830 3,108 (56,410) (64,088) 1,044
Extraordinary gain (D) 78,805
Income (loss) from
continuing operations 6,830 81,913 (56,410) (64,088) 1,044
Income (loss) from continu-
ing operations per share:
Primary and fully diluted .55 (E) (E) (E) (E)
Cash dividends per common
share
Assets 114,200 116,456 162,233 237,071 315,465
Working capital (deficiency) 19,667 19,148 (27,583) (119,123) 44,350
Short-term obligations 2,300 3,088 60,874 155,014 16,038
Long-term debt 29,961 45,984 23,931 8,405 74,759
Liabilities deferred pursuant
to Chapter 11 86,279
Convertible subordinated
debentures 46,000
Subordinated notes with warrants 25,000
Serial preferred stock 7,563 7,563 9,225
Stockholders' equity (deficit) 29,410 16,808 (56,833) (423) 63,359
- - ------------------------
<FN>
(A) As discussed more fully in Note B -- Proceedings Under Chapter 11 and
Restructuring of the financial statements, the income statement amounts
presented for 1994 and 1993 and the balance sheet amounts for 1993 and
1992 are not comparable to those of the prior periods as a result of the
Company's reorganization.
(B) Refer to Note D -- Special Charges of the financial statements for a
further discussion of these charges.
(C) In December 1989 the Company recognized a gain as a result of the sale of
65% of its interest in its General Products business.
(D) Refer to Note B -- Proceedings Under Chapter 11 and Restructuring of the
financial statements for further discussion of this gain.
(E) Calculations of net income (loss) per share are not meaningful as a
result of the Company's reorganization described in Note B -- Proceedings Under
Chapter 11 and Restructuring of the financial statements.
</TABLE>
- 1 -
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS - FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993:
SALES. The Company's net sales from ongoing operations for fiscal 1994
increased by 13% to $250.3 million from $222.4 million in the prior year. This
sales improvement came from a $14.1 million increase in sales of existing
products, $9.5 million of net new business and $4.3 million of price increases.
During the year the Company's sales to the automotive industry improved to $148
million which is a 19% increase over the prior year level of $124 million. The
Company's Wagner Castings Company ("Wagner") and Industrial Powder Coatings,
Inc. ("IPC") subsidiaries accounted for most of this increase as their volumes
improved in line with the overall rise in demand which occurred over the past
year in the domestic automotive industry. In addition, sales at Wagner
increased by $6.8 million due to a full year's production of a new program
which was started in fiscal year 1993 with Ford Motor Company of Europe and
other indirect suppliers to Ford for Ford's "World Car" program.
Sales at the Company's Iowa Mold Tooling Company ("IMT") subsidiary increased
by $4.6 million over the prior year as a result of increases in several of its
construction related markets.
Sales of businesses held for sale decreased to $.3 million in fiscal 1994 from
$50.2 million in the prior fiscal year due to the sale of 15 of the Company's
businesses during fiscal 1993.
NET INCOME. The net income for the year of $6.8 million compares to income
before extraordinary gain in the prior year of $3.1 million. Principal
variations between the current period net income compared to the prior year are
discussed below.
Operating income from ongoing operations before special charges increased by
$4.7 million (45%), principally as a result of the $27.9 million increase in
sales described above. Operating margins were negatively impacted by $1.1
million in fiscal 1994 due to significant price increases in scrap steel which
is the principal raw material used by Wagner. Commitments with most of
Wagner's major customers allow Wagner to pass on the majority of increases or
decreases in the cost of scrap steel to those customers, however, these
adjustments are generally passed along three to six months subsequent to the
time the change occurs. During the latter part of fiscal 1994 and the early
part of fiscal 1995, the cost of scrap steel stabilized, and as such, Wagner is
not currently incurring significant additional costs, but there can be no
assurance that this will continue. Also negatively impacting fiscal 1994's
results was a charge of $.9 million recorded in selling and administrative
expenses as a result of the Company's agreement to issue Jacques R. Sardas,
Chairman, President and Chief Executive Officer of the Company, 479,893 stock
options with exercise prices ranging from $3.17 to $5.69 per share, as
described in Note K -- Stockholders'
- 2 -
<PAGE> 3
Equity of the financial statements. These options were issued in settlement of
Mr. Sardas' claim that under his employment agreement and related stock option
agreement the Company was obligated to protect his 15% effective ownership
position in the Company's Common Stock from the dilution created as a result of
the issuance of the Series A, B and C Participation Certificates.
Operating income of businesses held for sale before special charges decreased
by $1.1 million to a level of zero reflecting the impact of their sale in the
prior fiscal year.
Special charges increased by $4.3 million during the current fiscal year to a
level of $6.0 million as a result of expenses recognized in connection with the
January 1992 employment agreement with Mr. Sardas. This agreement was
confirmed as part of the Company's Plan of Reorganization. These charges
include expenses of $4.7 million associated with stock options and a $1.3
million cash bonus accrual which are both subject to the achievement of certain
performance targets described in Note D -- Special Charges of the financial
statements. The charge relating to the stock options was noncash and because
these options are currently exercisable, no future charges will be required to
account for these options. Expense for Mr. Sardas' cash bonus, which is
payable in January 1996, is being accrued over the period of the employment
agreement and may vary with changes in the market value of the Company's Common
Stock. Special charges of $1.7 million in the prior fiscal year related to
consulting and other expenses incurred under the Company's restructuring
program.
Interest expense decreased by $1.8 million due to reductions in debt (a) caused
by the Company's asset sale program, (b) due to cash flow from increased
profitability, and (c) in connection with the Company's existing credit
facility which provides the Company with a revolving line of credit. The
Company's previous credit facility did not include a revolving line of credit
and cash balances could not be applied against debt.
The Company favorably settled two lawsuits and resolved a preconfirmation
liability resulting in income of $.8 million in the current fiscal year as
described in Note E -- Settlement of Preconfirmation Liabilities of the
financial statements. Other income of $.5 million in the current fiscal year
principally related to the receipt of miscellaneous contingent proceeds and
escrows relating to previous asset sales.
An income tax benefit of $.2 million resulted from refunds received by the
Company due to the favorable resolution of certain state tax disputes. The
Company recorded a deferred tax asset of $1.4 million in fiscal 1994 which
principally related to the Company's $7.1 million net operating loss
carryforward generated after emergence from bankruptcy described in Note L --
Income Taxes of the financial statements which the Company believes will be
utilized through the generation of taxable income in future years.
As approximately 60% of the Company's sales are dependent on the automotive
markets in the United States and Europe, related profits will be dependent on
sales of vehicles in these markets during fiscal year 1995. The Company
experienced strong sales from the automotive market during the current fiscal
year.
- 3 -
<PAGE> 4
RESULTS OF OPERATIONS - FISCAL YEAR 1993 COMPARED TO FISCAL YEAR 1992:
SALES. The Company's net sales from ongoing operations for fiscal 1993
increased to $222.4 million from $198.2 million in the prior year. This 12%
increase was principally caused by increased sales at the Company's automotive
and truck related businesses.
During fiscal 1993, the Company's net sales to the automotive industry
increased by $26.9 million over the prior year. This increase was principally
due to increased volume on existing parts as a result of the general
improvement in the automotive industry over the past year and from a new
program started by Wagner with Ford Motor Company in Europe and other indirect
suppliers to Ford for Ford's "World Car" program which accounted for $8.0
million of new business. As a result of the large increase in sales during the
year, Wagner's Decatur, Illinois facility experienced continued orders in
excess of capacity. To better meet its production requirements, Wagner
re-opened its Havana, Illinois facility in March 1993, which facility had been
closed for approximately two years.
Sales of businesses held for sale decreased to $50.2 million in fiscal 1993
from $156.7 million in the prior fiscal year which reflected the impact of the
sale of most of these businesses during the 1993 fiscal year.
NET INCOME. The net income for the 1993 fiscal year before extraordinary gain
was $3.1 million compared to a net loss of $56.4 million in the prior fiscal
year. This improvement was primarily due to (a) increases in operating profits
of $7.5 million and $1.7 million for ongoing operations and businesses held for
sale, respectively; (b) a decrease in interest expense of $5.9 million and (c)
decreases in special charges of $44.6 million.
During fiscal 1993, all six of the Company's businesses operated profitably.
Several of the Company's businesses had improved operating results due to (a)
increases in sales discussed previously, (b) gross margin improvements arising
from manufacturing efficiency improvements and cost reductions which were
achieved in the 1993 fiscal year, and (c) changes in product mix. Fiscal 1993
results were negatively impacted by a $.9 million charge relating to
postretirement benefits under Financial Accounting Standards No. 106. IMT was
also impacted negatively in fiscal 1992 as a result of a labor strike which
lasted approximately one month. Fiscal 1992's results also reflect a $.5
million benefit from the settlement and termination of one of the Company's
defined benefit pension plans.
Also contributing to the improvement in operating profits from ongoing
operations was a reduction in the Corporate office expenses of $2.7 million
which was due principally to administrative expense reductions in line with the
down-sizing of the Company and the impact in the prior year of operational and
other related consulting expenses which were incurred as a result of the
Company's financial difficulties.
The interest expense decrease of $5.9 million was principally due to the
reduction of unsecured debt as a result of the Plan and reductions in debt
caused by the Company's asset sale program.
- 4 -
<PAGE> 5
Special charges in fiscal 1993 of $1.7 million represented expenses incurred in
connection with the Company's restructuring process while the prior year's
special charges of $46.3 million included (a) $36.5 million for reserves for
loss on sales of businesses, (b) $4.2 million for the write-off of certain
deferred costs and (c) $5.6 million in restructuring expenses.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
The Company's financial position improved significantly during fiscal 1994 as
its operating activities provided cash of $17.1 million compared to $6.8
million in the prior fiscal year. This improvement came principally from
higher profitability before the current year's noncash special charges.
Operating cash flows were applied primarily to reduce outstanding indebtedness
and to fund capital expenditures.
Long-term debt at May 31, 1994 was $32.3 million, a decrease of $16.8 million
from May 31, 1993. Long-term debt represents 52% of long-term debt plus
stockholders' equity at May 31, 1994, compared to 74% at the end of fiscal
1993.
The Company has an asset-based $48,000,000 credit facility ("Credit Facility")
which expires in May 1996. The Credit Facility provides the Company with a
$33.8 million revolving line of credit, an $11.2 million term loan and a $3.0
million capital expenditure facility. As of May 31, 1994, the Company had
borrowed $9.7 million under its revolving line of credit and had $21.6 million
of additional borrowing capacity based on the asset-based advance rate formulas
contained in the Credit Facility agreement. The Company had not borrowed under
the capital expenditure facility as of May 31, 1994. This facility provides
the Company funds for 75% of the cost of eligible capital expenditures.
The Credit Facility is structured in a form whereby each of the Company's six
operating subsidiaries is a borrower and the Company is the guarantor. The
Credit Facility limits the amounts that each of the six operating subsidiaries
can distribute to the parent or loan to each other. Under an amendment to the
Credit Facility the limit on capital expenditures was increased to $15.3
million for fiscal 1995. The Credit Facility does not allow the Company to pay
dividends to its stockholders.
Capital expenditures for ongoing operations were $7.0 million in fiscal 1994
compared with $3.0 million in fiscal 1993. The increase in capital
expenditures was mainly attributable to facility improvements and expansions in
an effort to improve capacity and quality at the Company's businesses and to
comply with certain environmental regulatory requirements. The Company
currently has capital expenditure commitments for fiscal 1995 of $4.8 million.
Most of these commitments relate to equipment which will be purchased to
facilitate a new plant which the Company's IPC subsidiary will start up in
fiscal 1995. This facility will powder coat steel blanks under a seven year
agreement (subject to certain conditions) with a major appliance manufacturer
and is expected to begin full production in early fiscal 1996.
As a result of IPC's new facility and major capital expenditure programs at the
Company's Wagner Castings Company subsidiary which are mainly targeted to
improving capacity, quality and cost, the Company expects to substantially
increase capital expenditure levels in fiscal 1995.
- 5 -
<PAGE> 6
As a result of the Company's profitability, it expects to start paying federal
income taxes in fiscal 1995 as it will have utilized all of its net operating
loss carryforwards which were generated subsequent to emergence from Chapter
11.
The Company received $2.4 million during fiscal year 1994 from the collection
of notes receivable related to subsidiaries which were sold in fiscal 1993.
These funds were used by the Company to reduce bank debt under its Credit
Facility.
The Company believes that funds available under the Credit Facility and funds
generated from operations will be sufficient to satisfy its anticipated
operating needs and capital improvements for fiscal 1995.
OTHER MATTERS. The Company's current and previous businesses operate in a
variety of locations and industries where environmental situations could exist
based on current or past operations. Certain operating and non-operating
subsidiaries of the Company have been named as potentially responsible parties
("PRPs") liable for cleanup costs by the United States Environmental Protection
Agency ("EPA"), state regulatory authorities and private parties with respect
to several sites in various states, including Minnesota, Ohio, Pennsylvania and
Texas. The Company continues to evaluate the environmental conditions and its
potential liability at these sites.
The Company has initiated corrective action and/or preventive environmental
projects to ensure the safe and lawful operation of its facilities. In fiscal
year 1994, capital expenditures of $1.6 million were made for projects to limit
hazardous substances and pollution at the Company's South Coast Terminals, Inc.
and Wagner Castings Company subsidiaries. For known environmental conditions,
the Company, with the assistance of environmental engineers and consultants,
has accrued $5,263,000 to cover estimated future environmental expenditures.
While the ultimate result of both known and unknown environmental conditions
cannot be predicted with certainty, the Company does not expect these matters
to have a material adverse effect on its financial condition or results of
operations.
At May 31, 1994, the Company reduced the discount rate used to measure the
obligations for pension and postretirement welfare plans at one subsidiary from
8.25% to 8.0% in recognition of lower prevailing long-term interest rates. The
combined effect of this discount rate and other assumption changes on fiscal
year 1995 pension and other postretirement benefit expenses is not expected to
be material.
At May 31, 1994, the pension liability of one of the Company's subsidiaries was
remeasured as described in Note M -- Retirement Plans of the financial
statements. As a result, the minimum pension liability was adjusted from $.8
million at May 31, 1993 to $2.2 million at May 31, 1994; the related intangible
asset was adjusted from $.8 million to $1.4 million; and stockholders' equity
was reduced by $.6 million. The adjustment in the minimum pension liability at
May 31, 1994 resulted mainly from an increase in pension fund liabilities due
to the previously discussed decrease in the discount rate and a lower than
expected rate of return on plan assets during the current period.
- 6 -
<PAGE> 7
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
From October, 1984 to January, 1992, the Company's Common Stock was listed on
the NASDAQ National Market System of the National Association of Securities
Dealers, Inc. ("NASDAQ") under the symbol "SUDS." Subsequent to January, 1992,
the Common Stock had been traded in the over-the-counter market in the
National Daily Quotation Bureau Pink Sheets ("Pink Sheets") and in April, 1993
began trading via the OTC Bulletin Board ("Bulletin Board") under the symbol
"SUBY." On September 28, 1993, the Company's Common Stock was re-listed on
NASDAQ under the symbol "SUDS."
Notwithstanding the eligibility for trading in the Pink Sheets or the Bulletin
Board, during the first quarter of the 1994 fiscal year there was limited
trading activity and thus, there was no established public trading market for
the Company's Common Stock until its listing on NASDAQ on September 28, 1993.
During the 1993 fiscal year, the high and low closing bid quotations as
reported in the Pink Sheets or the Bulletin Board ranged from a high bid of
$4.75 to a low bid of $.06*. During the 1994 fiscal year, the high and low
closing bid quotations as reported on NASDAQ or the Bulletin Board ranged from
a high bid of $8.00 to a low bid of $4.375. The following table sets forth the
high and low closing bid quotations as reported either on NASDAQ, the Pink
Sheets or the Bulletin Board. The prices represent quotations between dealers
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
- - ------ ------ ------
<S> <C> <C>
YEAR ENDED MAY 31, 1994
- - -----------------------
First quarter $4.75 $4.375
Second quarter 7.25 5.375
Third quarter 8.00 5.50
Fourth quarter 7.50 6.875
YEAR ENDED MAY 31, 1993
- - -----------------------
First quarter* $ .06 $ .06
Second quarter 1.50 .94
Third quarter 2.00 1.50
Fourth quarter 4.75 2.13
- - ------------------------
<FN>
* The prices quoted for this period makes no adjustment to reflect the 46-for-1
reverse split effective September 1, 1992, which took place in connection with
the Company's emergence from Chapter 11 of the United States Bankruptcy Code.
See Note B -- Proceedings Under Chapter 11 and Restructuring of the financial
statements.
On August 9, 1994, there were approximately 1,225 record holders of the
Company's Common Stock.
The Company has never paid dividends on shares of Common Stock and does not
expect to pay dividends in the foreseeable future. Pursuant to the provisions
of the Company's Credit Facility, the Company is not permitted to pay cash
dividends to its stockholders.
</TABLE>
- 7 -
<PAGE> 8
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
SUDBURY, INC. AND SUBSIDIARIES
------------------------------
For the Fiscal Year Ended May 31, 1994, the Nine Months Ended May 31, 1993
(Successor), the Three Months Ended August 31, 1992 (Predecessor), and the
Fiscal Year Ended May 31, 1992 (See Note B)
<CAPTION>
(Dollars in thousands, except per share amounts)
Successor Predecessor
--------------------------- --------------------------
Nine || Three
Year Months || Months Year
Ended Ended || Ended Ended
May 31, May 31, || Aug.31, May 31,
1994 1993 || 1992 1992
-------- -------- || -------- --------
<S> <C> <C> || <C> <C>
Net sales: ||
Ongoing operations $250,329 $170,310 || $ 52,100 $198,197
Businesses held for sale 315 19,328 || 30,893 156,678
-------- -------- || -------- --------
Total 250,644 189,638 || 82,993 354,875
||
Costs and expenses: ||
Costs of products sold: ||
Ongoing operations 211,254 145,770 || 44,394 171,272
Businesses held for sale 151 16,646 || 26,679 137,705
-------- -------- || -------- --------
Total 211,405 162,416 || 71,073 308,977
||
Selling and administrative ||
expenses: ||
Ongoing operations 23,945 16,365 || 5,426 23,975
Businesses held for sale 164 2,039 || 3,755 19,610
-------- -------- || -------- --------
Total 24,109 18,404 || 9,181 43,585
||
Special charges 5,956 586 || 1,095 46,315
-------- -------- || -------- --------
||
OPERATING INCOME (LOSS) 9,174 8,232 || 1,644 (44,002)
||
Interest expense - net (3,848) (4,111) || (1,520) (11,550)
Settlement of preconfirmation ||
liabilities 846 ||
Other income (expense) 484 (1,023) || 226 (640)
-------- -------- || -------- --------
||
Income (loss) before ||
income taxes 6,656 3,098 || 350 (56,192)
Income tax expense (benefit) (174) 290 || 50 218
-------- -------- || -------- --------
||
INCOME (LOSS) BEFORE ||
EXTRAORDINARY GAIN 6,830 2,808 || 300 (56,410)
||
Extraordinary gain - ||
forgiveness of ||
prepetition liabilities || 78,805
-------- -------- || -------- --------
||
NET INCOME (LOSS) $ 6,830 $ 2,808 || $ 79,105 $(56,410)
======== ======== || ======== ========
||
Net income per share: ||
Primary $ .55 $ .24 || N/A N/A
======== ======== || ======== ========
Fully diluted $ .55 $ .23 || N/A N/A
======== ======== || ======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
- 8 -
<PAGE> 9
<TABLE>
CONSOLIDATED BALANCE SHEETS
---------------------------
SUDBURY, INC. AND SUBSIDIARIES
------------------------------
MAY 31, 1994 AND 1993
(Dollars in thousands)
<CAPTION>
ASSETS
- - ------
1994 1993
-------- --------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,885 $ 5,284
Accounts receivable, less allowance
for doubtful accounts (in 1994: $412,
in 1993: $705) 39,272 32,902
Inventories 18,592 19,853
Net assets of businesses held for sale 500
Prepaid expenses and other 2,380 4,183
-------- --------
TOTAL CURRENT ASSETS 62,129 62,722
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements 2,191 2,222
Buildings 17,163 15,421
Machinery and equipment 38,534 33,830
-------- --------
57,888 51,473
Less accumulated depreciation 11,450 4,991
-------- --------
NET PROPERTY, PLANT AND EQUIPMENT 46,438 46,482
OTHER ASSETS
Notes receivable 408 2,770
Net assets of businesses held for sale 2,000 2,000
Intangible pension asset 1,359 758
Other assets 1,866 1,724
-------- --------
TOTAL OTHER ASSETS 5,633 7,252
-------- --------
$114,200 $116,456
======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
- 9 -
<PAGE> 10
<TABLE>
CONSOLIDATED BALANCE SHEETS--CONTINUED
--------------------------------------
SUDBURY, INC. AND SUBSIDIARIES
------------------------------
MAY 31, 1994 AND 1993
(Dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ------------------------------------
<CAPTION>
1994 1993
--------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Trade accounts payable $ 18,504 $ 19,665
Accrued compensation and employee benefits 10,000 8,845
Other accrued expenses 11,658 11,976
Current maturities of long-term debt 2,300 3,088
-------- --------
TOTAL CURRENT LIABILITIES 42,462 43,574
LONG-TERM DEBT 29,961 45,984
OTHER LONG-TERM LIABILITIES 12,367 9,540
DEFERRED INCOME TAXES 550
STOCKHOLDERS' EQUITY
Common Stock--par value $0.01 per share;
authorized 20,000,000 shares; 10,233,932
(10,000,000 at May 31, 1993) shares
issuable and deemed outstanding 102 100
Additional paid-in capital 20,224 13,900
Retained earnings 9,638 2,808
Minimum pension liability adjustment - net (554)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 29,410 16,808
-------- --------
$114,200 $116,456
======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
- 10 -
<PAGE> 11
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
SUDBURY, INC. AND SUBSIDIARIES
------------------------------
For the Fiscal Year Ended May 31, 1994, the Nine Months Ended May 31, 1993
(Successor), the Three Months Ended August 31, 1992 (Predecessor),
and the Fiscal Year Ended May 31, 1992
(Dollars and shares in thousands)
<CAPTION>
PREDECESSOR SUCCESSOR PREDECESSOR MINIMUM
SERIAL COMMON STOCK COMMON STOCK ADDITIONAL RETAINED PENSION
PREFERRED -------------- -------------- PAID-IN (DEFICIT) LIABILITY
STOCK AMOUNT SHARES AMOUNT SHARES CAPITAL EARNINGS ADJUSTMENT
----------- ------ ------ ------ ------ --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT MAY 31, 1991 $ 7,563 $-0- -0- $131 13,107 $57,509 $ (65,626) $ -0-
Net loss for 1992 (56,410)
------- ---- ------- ---- ------- ------- --------- ------
BALANCE AT MAY 31, 1992 7,563 -0- -0- 131 13,107 57,509 (122,036) -0-
Net income for three
months ended August 31,
1992 (Predecessor) 79,105
Effects of reorganiza-
tion (Note B):
Fresh Start adjustments (8,272)
Elimination of accumu-
lated deficit (42,931) 42,931
Cancellation of predeces-
sor shares and issu-
ance of new shares (7,563) 100 10,000 (131) (13,107) 7,594
------- ---- ------- ---- ------- ------- --------- ------
BALANCE AT AUGUST 31, 1992 -0- 100 10,000 -0- -0- 13,900 -0- -0-
Net income for nine
months ended May 31,
1993 (Successor) 2,808
------- ---- ------- ---- ------- ------- --------- ------
BALANCE AT MAY 31, 1993 -0- 100 10,000 -0- -0- 13,900 2,808 -0-
Net income for 1994 6,830
Stock options to Chief
Executive Officer
(Note K) 5,547
Exercise of participation
certificates and stock
options 2 234 680
Tax benefits from exercise
of stock options 97
Adjustment for minimum
pension liability - net (554)
------- ---- ------- ---- ------- ------- --------- ------
BALANCE AT MAY 31, 1994 $ -0- $102 10,234 $-0- -0- $20,224 $ 9,638 $ (554)
======= ==== ======= ==== ======= ======= ========= ======
<FN>
See notes to consolidated financial statements.
</TABLE>
- 11 -
<PAGE> 12
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
SUDBURY, INC. AND SUBSIDIARIES
------------------------------
For the Fiscal Year Ended May 31, 1994, the Nine Months Ended May 31, 1993
(Successor), the Three Months Ended August 31, 1992 (Predecessor), and the
Fiscal Year Ended May 31, 1992 (See Note B)
<CAPTION>
Successor Predecessor
------------------------ || -------------------------
Nine || Three
Year Months || Months Year
(Dollars in thousands) Ended Ended || Ended Ended
May 31, May 31, || Aug.31, May 31,
1994 1993 || 1992 1992
------- -------- || -------- --------
<S> <C> <C> || <C> <C>
OPERATING ACTIVITIES: ||
Income (loss) before extra- ||
ordinary gain $ 6,830 $ 2,808 || $ 300 $(56,410)
Items included not affecting cash: ||
Depreciation and amortization: ||
Ongoing operations 8,314 5,220 || 1,829 7,346
Businesses held for sale 47 1,079 || 1,137 6,521
Deferred taxes and other (351) 26 || (53) (29)
Special charges 5,956 || 40,740
Changes in operating assets and liabilities: ||
Ongoing operations (3,630) (4,176) || (327) 2,056
Businesses held for sale (28) (713) || (366) 4,623
------- -------- || -------- --------
NET CASH PROVIDED BY ||
OPERATING ACTIVITIES 17,138 4,244 || 2,520 4,847
||
INVESTING ACTIVITIES: ||
Purchases of property, plant and equipment: ||
Ongoing operations (6,951) (2,225) || (781) (2,445)
Businesses held for sale (38) || (162) (2,078)
Proceeds from sale of businesses 666 23,889 || 10,687 2,303
Proceeds from collection of notes ||
receivable 2,362 545 ||
Contingent payments to former ||
owners of acquired businesses (188) || (678) (1,052)
Proceeds from sale of property, ||
plant, equipment and other - net 171 65 || 15 429
-------- -------- || ------- --------
NET CASH (USED IN) PROVIDED BY ||
INVESTING ACTIVITIES (3,940) 22,236 || 9,081 (2,843)
||
FINANCING ACTIVITIES: ||
Borrowings, refinancings and repayments: ||
Short and long-term borrowings 238,788 35,045 || 21 782
Reductions of debt (256,067) (67,055) || (13,194) (3,511)
Common stock issued 682 ||
-------- -------- || ------- --------
NET CASH USED IN FINANCING ||
ACTIVITIES (16,597) (32,010) || (13,173) (2,729)
-------- -------- || ------- --------
||
DECREASE IN CASH AND ||
CASH EQUIVALENTS (3,399) (5,530) || (1,572) (725)
||
Cash and cash equivalents at ||
beginning of period 5,284 10,814 || 12,386 13,111
-------- -------- || ------- --------
||
CASH AND CASH EQUIVALENTS ||
AT END OF PERIOD $ 1,885 $ 5,284 || $10,814 $ 12,386
======== ======== || ======= ========
<FN>
See notes to consolidated financial statements.
</TABLE>
- 12 -
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE A -- SUMMARY OF ACCOUNTING POLICIES
CONSOLIDATION: The consolidated financial statements include the accounts of
Sudbury, Inc. and its subsidiaries (the "Company"). Significant intercompany
balances and transactions have been eliminated.
CASH: The Company considers liquid instruments with a maturity of 90 days or
less at date of purchase to be cash equivalents. As of May 31, 1994 and May
31, 1993, $1,640,000 and $1,503,000 of cash balances, respectively, reflected
restricted funds set aside to pay prospective property and casualty insurance
claims at the Company's captive insurance company. At May 31, 1993, $4,836,000
of the cash balance was restricted and was used to reduce bank debt subsequent
to the end of the fiscal year.
INVENTORIES: Inventories are stated at the lower of cost or market. Cost is
determined by the last-in, first-out method (LIFO) for approximately 85% and
82% of the Company's inventories at May 31, 1994 and 1993, respectively, and by
the first-in, first-out (FIFO) method for all other inventories. The FIFO
method would approximate the current cost.
PROPERTIES AND DEPRECIATION: Property, plant and equipment are stated at cost.
As discussed in Note B, in conjunction with the emergence from Chapter 11
bankruptcy proceedings, the Company implemented Fresh Start reporting and,
accordingly, all property, plant and equipment was restated to reflect
reorganization value, which approximates fair value in continued use.
Depreciation and amortization are provided using the straight-line method over
the estimated useful lives of the related assets. With minor exceptions
straight-line composite rates for depreciation of plant assets are as follows:
buildings 20 to 40 years; machinery, equipment and fixtures 10 years.
ENVIRONMENTAL EXPENDITURES: Environmental expenditures that pertain to current
operations or relate to future revenues are expensed or capitalized consistent
with the Company's capitalization policy. Expenditures that result from the
remediation of an existing condition caused by past operations, that do not
contribute to current or future revenues, are expensed. Liabilities are
recognized for remedial activities when the cleanup is probable and the cost
can be reasonably estimated.
NET INCOME PER SHARE: For the fiscal year ended May 31, 1994 and nine months
ended May 31, 1993, primary and fully diluted net income per share were
calculated by dividing net income applicable to common stock by the average
common stock outstanding and common stock equivalents. As a result of the
changes in ownership and capital structure from the Company's amended Plan of
Reorganization, primary and fully diluted net income per share calculations are
not relevant for the three months ended August 31, 1992 and for fiscal year
1992.
- 13 -
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE A -- SUMMARY OF ACCOUNTING POLICIES - CONTINUED
INCOME TAXES: The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" ("SFAS No. 109"). Under SFAS No. 109, the deferred income tax
liability is determined based on the difference between the financial
statement and tax basis of assets and liabilities measured by the enacted tax
rates which will be in effect when these differences reverse. Prior to
September 1, 1992, the Company accounted for income taxes under the provisions
of Statement of Financial Accounting Standards No. 96 "Accounting for Income
Taxes" ("SFAS No.96").
RECLASSIFICATIONS: Certain prior years' amounts have been reclassified to
conform to the 1994 presentation.
NOTE B - PROCEEDINGS UNDER CHAPTER 11 AND RESTRUCTURING
On January 10, 1992, the Company filed a petition (relative only to Sudbury,
Inc. and not to its subsidiaries) under Chapter 11 of the United States
Bankruptcy Code. The Chapter 11 filing was made to implement an agreement in
principle which had been reached with the Company's major creditor groups
regarding a restructuring plan and the related sales of a substantial number of
its business units.
The Company's amended Plan of Reorganization (the "Plan") was confirmed by the
Bankruptcy Court by Order dated August 18, 1992 and became effective on
September 1, 1992 (the "Effective Date"). Distributions under the Plan
commenced on October 15, 1992.
The Plan implemented a restructuring of the Company by providing for a new
amortization schedule for the repayment of the indebtedness owed to its secured
lender banks and a significant reduction of the Company's indebtedness to
subordinated debtholders and certain other unsecured creditors through the
conversion of debt into equity of the restructured Company.
In order to repay the indebtedness owed to the secured lender banks as provided
by the Plan, the Company implemented a business plan with an asset disposition
program involving the sale of a substantial number of its subsidiaries which
sales generated aggregate net cash proceeds of approximately $37.6 million.
In May 1993, the Company successfully completed the refinancing of its existing
bank debt by obtaining a three-year asset-based $48,000,000 Credit Facility
("Credit Facility") with a new secured lender group. This new Credit Facility
allowed the Company to retain six core businesses and cease the previous asset
sale process except for the Company's 35% investment in General Products
Delaware Corporation which is included in net assets of businesses held for
sale.
- 14 -
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE B -- PROCEEDINGS UNDER CHAPTER 11 AND RESTRUCTURING - CONTINUED
As a result of the Company's emergence from Chapter 11, certain amounts
presented on the statements of operations for the year ended May 31, 1994 and
the nine month period ended May 31, 1993, principally for interest expense, and
on the statements of cash flows for the year ended May 31, 1994 and the nine
months ended May 31, 1993 are not comparable to the prior periods and therefore
a solid double line has been placed between the amounts. Also, net income per
share amounts for the Company prior to its emergence from Chapter 11 are not
presented as a result of the reorganization.
In implementing the Plan, the Company adopted "Fresh Start" reporting on
September 1, 1992 pursuant to the Statement of Position 90-7 of the American
Institute of Certified Public Accountants, entitled "Financial Reporting By
Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7") which caused
material changes in the amounts and classifications reported in the
consolidated historical financial statements.
The following financial information represents the effects of implementing the
Plan and applying Fresh Start reporting under SOP 90-7 on the Company's
historical consolidated balance sheet at August 31, 1992 (in thousands):
<TABLE>
<CAPTION>
Adjustments
-------------------------------- As
ASSETS Historical Plan (A) Fresh Start (B) Adjusted
- - ------ ---------- -------- --------------- --------
<S> <C> <C> <C> <C>
Current assets $ 64,517 $ $ 1,249 $ 65,766
Property, plant and
equipment, net 48,568 176 48,744
Intangibles, net 7,636 (7,636) 0
Net assets of businesses
held for sale 22,439 22,439
Other assets 3,757 3,757
-------- -------- -------- --------
$146,917 $ -0- $ (6,211) $140,706
======== ======== ======== ========
LIABILITIES AND
- - ---------------
STOCKHOLDERS' EQUITY (DEFICIT)
------------------------------
Current liabilities $ 85,844 $ $ 1,607 (C) $ 87,451
Deferred income taxes 1,394 (844)(D) 550
Other long-term liabilities 6,659 1,000 (C) 7,659
Long-term debt 23,274 298 (C) 23,572
New notes, net of original
issue discount 7,474 7,474
Liabilities deferred pursuant
to proceedings under
Chapter 11 86,279 (86,279) 0
Stockholders'(deficit) equity (56,533) 78,805 (8,272) 14,000
-------- --------- -------- --------
$146,917 $ -0- $ (6,211) $140,706
======== ========= ======== ========
</TABLE>
- 15 -
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE B -- PROCEEDINGS UNDER CHAPTER 11 AND RESTRUCTURING - CONTINUED
NOTES:
(A) Reflects the conversion of certain unsecured obligations to equity in
accordance with the Plan and the issuance of $10 million face amount of
new subordinated debt which has been discounted to fair market value.
(B) Reflects the impact of recording assets and liabilities at fair value
under SOP 90-7 assuming a reorganization value of the Company of $14
million at the Effective Date. In determining the reorganization value
of the Company, the value for the retained subsidiaries was calculated
by considering a number of factors customarily utilized in such
valuation methodologies, which was then reduced by actual and estimated
liabilities of the Company. For the companies held for sale, the value
was derived from the anticipated net realizable value of those
companies based primarily on offers which have been received for those
assets, which proceeds would be used to reduce a like amount of secured
bank debt.
(C) Represents a $2,000,000 reserve established for limited indemnification
obligations to certain of the Company's present and former officers and
directors which were provided for under the Plan. The remainder of
this accrual of $905,000 principally represents other contractual
liabilities which arose under the Plan.
(D) To record the impact of SFAS No. 109 which the Company was required to
adopt under Fresh Start reporting on the Effective Date.
The impact of the Plan resulted in an extraordinary gain from forgiveness of
prepetition liabilities in the amount of $78,805,000 which is reflected in the
Company's statement of operations for the three month period ended August 31,
1992. The gain from forgiveness of prepetition liabilities qualifies for
exemption from federal income tax under Section 108(a)(1) of the Internal
Revenue Code relating to the discharge of indebtedness in Chapter 11 cases.
Consequently, the Company has not recognized taxable income related to debt
forgiveness.
- 16 -
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE C -- INVENTORIES
The components of inventories are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Raw materials and supplies $ 8,315 $ 7,619
Work in process 6,995 8,275
Finished products 3,664 4,202
------- -------
Total at FIFO 18,974 20,096
Less excess of FIFO cost over LIFO values 382 243
------- -------
$18,592 $19,853
======= =======
</TABLE>
NOTE D -- SPECIAL CHARGES
Special charges of $5,956,000 in fiscal 1994 relate to accruals recorded in
connection with the achievement of certain performance targets established in
the January 1992 employment agreement ("Agreement") with Jacques R. Sardas,
Chairman, President and Chief Executive Officer of the Company. The Agreement
was confirmed as part of the Plan. The special charges include a noncash
charge of $4,650,000 which represents the estimated value of 653,595 stock
options granted to Mr. Sardas on September 1, 1992, which are exercisable in
increments after the fair value of the Company exceeds value targets ranging
from $15,000,000 to $35,000,000. The Company determined, and an appraisal by
an investment banking firm confirmed in accordance with procedures specified in
the Agreement, that performance targets established in the Agreement had been
met as of February 28, 1994 and therefore the options became exercisable. The
remaining $1,306,000 of the special charges represents expense associated with
the estimated cash bonus payable to Mr. Sardas at the end of the Agreement in
January 1996. The charge is based on the cash bonus to which Mr. Sardas is
entitled under the Agreement. The bonus amount equals 5% of the net fair value
of the Company in excess of $35,000,000 at the expiration of the Agreement and
is being amortized over the term of the Agreement. Amortization of the bonus
expense subsequent to the initial charge made on February 28, 1994 has been
included as part of the Company's selling and administrative expenses.
Special charges of $586,000 recorded for the nine months ended May 31, 1993 and
$1,095,000 for the three months ended August 31, 1992 represent consulting and
other expenses incurred under the Company's restructuring program.
Included in the Company's operations for fiscal 1992 were special charges of
$46,315,000 which included (a) $36,500,000 for reserves for potential losses on
sales of businesses which were anticipated to be sold, (b) $2,444,000 for the
write-off of costs capitalized previously under SFAS No. 96 as they related
principally to assets anticipated to be sold, (c) $1,796,000 for the write-off
of deferred financing costs on the Company's bank and subordinated debt which
were deemed to have no ongoing value given the Company's Chapter 11 filing, and
(d) $5,575,000 for consulting and other expenses incurred under the Company's
restructuring program.
- 17 -
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE E -- SETTLEMENT OF PRECONFIRMATION LIABILITIES
Two lawsuits which had been pending in United States Bankruptcy Court against
the Company and several of its former officers and directors were settled in
February 1994. The lawsuits related to events which occurred prior to the
Company's entry into and emergence from bankruptcy. Under the Plan, the
Company had retained certain indemnification obligations with respect to the
defendants who were former officers or former directors of the Company. These
obligations were limited to $2 million. The lawsuits were settled using
$765,000 of funds which had been previously held in escrow, $616,000 of the
Company's funds, and funds contributed by co-defendants. The Company also
resolved an insurance-related bankruptcy claim in February 1994. As a result
of these aforementioned settlements, the Company recognized an $846,000 benefit
as such settlements were for less than the amounts reserved for such claims.
NOTE F -- CONTINGENCIES AND COMMITMENTS
The Company is party to a number of lawsuits and claims arising out of the
conduct of its business, including those relating to commercial transactions,
product liability and environmental, safety and health matters.
The Company, using historical trends, actuarially calculates the estimated
amount of its current exposure for product liability. The Company is insured
for amounts in excess of established deductibles and accrues for the estimated
liability described above up to the limits of the deductibles. Other claims
and lawsuits are handled on a case-by-case basis. The Company is also
self-insured for health care and workers' compensation up to predetermined
amounts, above which third party insurance applies.
All operating locations acquired by the Company since 1984 operate in a variety
of locations and industries where environmental situations could exist based on
current or past operations. Certain operating and non-operating subsidiaries
of the Company have been named as potentially responsible parties ("PRPs")
liable for cleanup of known environmental conditions. For known environmental
situations, the Company, with the assistance of environmental engineers and
consultants, has accrued $5,263,000 to cover estimated future environmental
expenditures. During fiscal 1994, the EPA agreed in principle to accept
$500,000 in settlement of its pending claims at one such site, which was within
the amount previously accrued by the Company. The Company has initiated
corrective action and/or preventative environmental projects to ensure the safe
and lawful operation of its facilities. There could exist, however, more
extensive or unknown environmental situations at existing or previously owned
businesses for which the future cost is not known or accrued at May 31, 1994.
- 18 -
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE F -- CONTINGENCIES AND COMMITMENTS - CONTINUED
While the ultimate result of the above contingencies cannot be predicted with
certainty, management does not expect these matters to have a material adverse
effect on the consolidated financial position or results of operations of the
Company.
Under the terms of the January 1992 employment agreement with Jacques R.
Sardas, Chairman, President and Chief Executive Officer of the Company, if Mr.
Sardas' employment is terminated for cause, or from Mr. Sardas' death,
disability or voluntary resignation before the end of his employment
agreement in January 1996, the Company is obligated to pay to Mr. Sardas in
cancellation of his currently exercisable 1,764,706 stock options the appraised
value of the shares underlying the options, less the exercise price thereof.
In addition, the Company would also be obligated to pay to Mr. Sardas the cash
bonus described in Note D, which is based on 5% of the net fair value of the
Company in excess of $35,000,000. Based on the closing price of the Company's
Common Stock on May 31, 1994, the obligation for the options and bonus would
total $14,489,000 in the aggregate. The Company is the beneficiary of a
key-man life insurance policy in the amount of $14,000,000. The proceeds of
this policy would be used to fulfill the Company's obligation in the event of
Mr. Sardas' death.
At May 31, 1994, the Company has commitments to purchase $4,833,000 in
machinery and equipment.
NOTE G -- DISPOSITIONS
During fiscal 1994 the Company sold one business for net cash proceeds of
$666,000. During fiscal 1993 the Company sold 14 of its businesses for
aggregate net cash proceeds of $34,576,000 and promissory notes for $2,770,000
which were subject to offsets for contingent liabilities. The Company sold
certain businesses during fiscal 1992 for aggregate net cash proceeds of
$2,303,000.
- 19 -
<PAGE> 20
<TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE H -- STATEMENTS OF CASH FLOWS INFORMATION
<CAPTION>
Successor Predecessor
------------------------- -------------------------
Nine Three
Year Months Months Year
Ended Ended Ended Ended
May 31, May 31, Aug.31, May 31,
1994 1993 1992 1992
--------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Funds (used) provided by changes
in operating assets and
liabilities of ongoing
operations are as follows:
Accounts receivable $(6,370) $(5,663) || $ 1,953 $ (3,859)
Inventories 1,261 (1,666) || (1,374) 5,062
Prepaid expenses and other 1,803 (1,115) || 984 758
Trade accounts payable (1,161) 5,035 || 1,491 589
Accrued expenses 837 (767) || (3,381) (494)
------- ------- || ------- --------
$(3,630) $(4,176) || $ (327) $ 2,056
======= ======= || ======= ========
||
Cash payments (refunds): ||
Interest 3,635 3,708 || 2,090 7,264
Taxes (154) 200 || 19 173
||
Non-cash transactions ||
excluded from the statements ||
of cash flows: ||
Capital leases 139 1,132 ||
Notes receivable 2,770 ||
||
</TABLE>
<TABLE>
NOTE I -- LONG-TERM DEBT
<CAPTION>
Long-term debt consisted of the following at May 31 (in thousands):
1994 1993
---------- ---------
<S> <C> <C>
Revolving Line of Credit $ 9,689 $22,629
Bank Term Loans 9,053 11,200
Subordinated Notes 8,149 7,738
PIK Notes 665 665
Industrial Revenue Bonds 550 1,780
Real estate mortgage notes 2,649 2,885
Capitalized leases 1,079 1,276
Assumed debt and other 427 899
------- -------
32,261 49,072
Less current maturities 2,300 3,088
------- -------
$29,961 $45,984
======= =======
</TABLE>
- 20 -
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE I -- LONG-TERM DEBT - CONTINUED
The Credit Facility, which expires in May 1996, provides a $33,800,000
Revolving Line of Credit, an $11,200,000 Bank Term Loan and a $3,000,000
capital expenditure facility. The Credit Facility is secured by substantially
all of the assets of the Company. The Company's Credit Facility is set up in
the form whereby each of the six operating subsidiaries is a borrower and the
Company is a guarantor. Covenants require the Company, and each of its six
subsidiaries to maintain certain fixed charge, working capital, debt and net
worth ratios. The Credit Facility also places limits on the amounts that each
of the six operating subsidiaries can distribute or loan to the parent. At May
31, 1994, restricted net assets of the six operating subsidiaries were
$43,900,000. The Company is not permitted to pay dividends to its stockholders
pursuant to the terms of the Credit Facility.
As of May 31, 1994, $2,479,000 of the Revolving Line of Credit was utilized to
secure the Company's irrevocable letters of credit. These letters of credit
were issued primarily for insurance purposes. As of May 31, 1994 the Company
had the ability to borrow an additional $21,632,000 under the Revolving Line of
Credit. The Revolving Line of Credit bears interest at the prime rate plus 1
1/2% and has unused line fees of .25% and letter of credit fees of 1 1/2% all
payable on a monthly basis. As a result of the Company's financial performance
in fiscal 1994, effective September 1, 1994, the Revolving Line of Credit
interest rate will be reduced by .25% to the prime rate plus 1 1/4%. In
addition, if certain financial targets are achieved by the Company, the
interest rate has the potential to be reduced by another .25% in fiscal 1996.
The Bank Term Loan is payable on a monthly basis based on a seven year
amortization and bears interest at the rate of prime plus 1 3/4%.
As of May 31, 1994, the Company did not have any borrowings under the
$3,000,000 capital expenditure facility portion of the Credit Facility. Under
this portion of the Credit Facility, borrowings are permitted in $500,000
increments of an amount representing 75% of the cost of qualifying capital
expenditures. The capital expenditure facility bears interest at rates ranging
from prime plus 1 1/2% to prime plus 1 3/4%.
The Subordinated Notes represent $10,000,000 principal amount of five year,
8 3/5% Senior Subordinated Pay-In-Kind Notes issued in accordance with the
Plan. Due to the below market interest rate for this type of debt instrument
at issuance, a discount of $2,526,000 was recorded against this debt, making
the effective rate 16%, and is being amortized over the five year term of the
indebtedness. At May 31, 1994 the unamortized debt discount was $1,851,000.
Interest is payable semi-annually, however, prior to the refinancing of the
bank debt in May of 1993, the Subordinated Notes provided that interest
payments would be made through the issuance of additional promissory notes in
the aggregate principal of the amount of interest owed (the "PIK Notes"). The
terms and conditions of the PIK Notes are identical to the Subordinated Notes.
- 21 -
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE I -- LONG-TERM DEBT - CONTINUED
The Industrial Revenue Bonds as of May 31, 1994 represent debt used for
construction and expansion and are payable quarterly through December 1999 with
an interest rate of 7.45%.
Real estate mortgage notes are payable to a former owner of a subsidiary. The
notes bear interest at 8.5% and are payable monthly through June 2002.
Capitalized leases represent capital equipment acquired with monthly payments
through June 1998.
The future maturities of long-term debt outstanding at May 31, 1994 for the
four fiscal years ending May 1999 and thereafter are as follows: $17,818,000
in 1996, $713,000 in 1997, $11,497,000 in 1998, $524,000 in 1999 and $1,260,000
thereafter.
In 1993, contractual interest expense amounted to $7,422,000 which is
$1,689,000 in excess of reported interest expense. Contractual interest
expense for 1992 amounted to $13,783,000 which is $2,138,000 in excess of the
reported interest expense.
NOTE J -- OTHER LONG-TERM LIABILITIES
Amounts classified under the caption "Other Long-Term Liabilities" as of May 31
consist of the following (in thousands):
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Environmental reserves $ 3,984 $4,478
Accrued pension costs 3,674 1,915
Post-retirement benefit obligations 1,679 937
Reserves for self-insurance and other 1,645 2,210
Accrued compensation 1,385
------- ------
$12,367 $9,540
======= ======
</TABLE>
- 22 -
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE K -- STOCKHOLDERS' EQUITY
PREDECESSOR SERIAL PREFERRED STOCK: Pursuant to the terms of the Plan
described in Note B, effective September 1, 1992, holders of 94,535 shares of
the then outstanding Serial Preferred Stock of the Company exchanged these
shares for 294,118 shares of Common Stock of the Company and 1,359,694
Participation Certificates (described below).
COMMON STOCK: The Plan provided for the issuance of 10,000,000 shares (all of
which are deemed outstanding) of Common Stock of the Company to former
creditors, common and preferred stockholders and employees in the Sudbury
Savings and Profit Sharing Plan. As of May 31, 1994, 9,632,000 shares had been
issued to these constituents. The amount, if any, of the distribution of the
remaining Common Stock will be dependent upon the final resolution of pending
or disputed claims against the Company.
PREDECESSOR COMMON STOCK: Pursuant to the terms of the Plan, effective
September 1, 1992, holders of the 13,106,796 shares of then outstanding common
stock of the Company exchanged these shares for 294,118 shares of Common Stock
of the Company and 1,359,694 Participation Certificates (described below).
PARTICIPATION CERTIFICATES: Under the provisions of the Plan, as of September
1, 1992, holders of the Company's Predecessor Common Stock and Predecessor
Serial Preferred Stock were granted Series A, Series B and Series C
Participation Certificates. The Series A Participation Certificates are rights
to purchase 619,194 shares of Common Stock and expire on September 1, 1996.
The Series B Participation Certificates are rights to purchase 651,784 shares
of Common Stock and expire on September 1, 1999. The Series C Participation
Certificates are rights to purchase 1,448,410 shares of Common Stock and expire
on September 1, 2002. The Participation Certificates are subject to adjustment
for changes in the Company's capitalization.
The Series A and B Participation Certificates have increasing exercise prices
and are as follows:
<TABLE>
<CAPTION>
Exercise Price
-----------------------------
Series A Series B
-------- --------
<S> <C> <C>
September 1, 1992 - August 31, 1993 $2.99 $5.37
September 1, 1993 - August 31, 1994 3.08 5.53
September 1, 1994 - August 31, 1995 3.17 5.69
September 1, 1995 - August 31, 1996 3.27 5.86
September 1, 1996 - August 31, 1997 N/A 6.04
September 1, 1997 - August 31, 1998 N/A 6.34
September 1, 1998 - August 31, 1999 N/A 6.66
</TABLE>
- 23 -
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE K -- STOCKHOLDERS' EQUITY - CONTINUED
The Series C Participation Certificates are not exercisable by their holders
until the closing price or the average of the reported closing bid and asked
prices of the Common Stock has averaged over the specified price per share (the
"Trigger Price") for 20 consecutive days. Thereafter, the Series C
Participation Certificates may be exercised at the option of the holder at any
time. The Trigger Price and related exercise price increase each year and are
as follows:
<TABLE>
<CAPTION>
Trigger Exercise
Price Price
------- --------
<S> <C> <C>
September 1, 1992 - August 31, 1993 $ 9.18 $4.590
September 1, 1993 - August 31, 1994 9.46 4.730
September 1, 1994 - August 31, 1995 9.74 4.870
September 1, 1995 - August 31, 1996 10.03 5.015
September 1, 1996 - August 31, 1997 10.33 5.165
September 1, 1997 - August 31, 1998 10.85 5.425
September 1, 1998 - August 31, 1999 11.39 5.695
September 1, 1999 - August 31, 2000 11.96 5.980
September 1, 2000 - August 31, 2001 12.55 6.275
September 1, 2001 - August 31, 2002 13.18 6.590
</TABLE>
<TABLE>
Participation Certificate activity was as follows:
<CAPTION>
Series A Series B Series C
-------- -------- --------
<S> <C> <C> <C>
Outstanding at May 31, 1993 619,194 651,784 1,448,410
Exercised (172,300) (11,632)
-------- ------- ---------
Outstanding at May 31, 1994 446,894 640,152 1,448,410
======= ======= =========
</TABLE>
EMPLOYEE STOCK OPTIONS: Under the terms of the Company's January 1992
employment agreement ("Agreement") with Jacques R. Sardas, the Chairman,
President and Chief Executive Officer of the Company, effective September 1,
1992, Mr. Sardas was granted options for 1,764,706 shares of Common Stock. All
such options have an exercise price of $.01 per share and a term of five years.
Of these options, 1,111,111 were exercisable as of March 1, 1993 and the
remaining 653,595 options were to be exercisable in 130,718 share increments
after the fair value of the Company exceeded value targets ranging from
$15,000,000 to $35,000,000. The Company had determined, and an appraisal by an
investment banking firm confirmed in accordance with procedures specified in
the Agreement, that the performance targets had been met and, therefore, all
remaining options were exercisable. As a result, in fiscal 1994 the Company
recorded a $4,650,000 special charge for the value of the 653,595 options. As
of May 31, 1994, none of the 1,764,706 options had been exercised.
- 24 -
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE K -- STOCKHOLDERS' EQUITY - CONTINUED
In May 1994, the Company reached an agreement in principle with Mr. Sardas
regarding settlement of his claim that under his employment agreement and
related stock option agreement the Company was obligated to protect his 15%
effective ownership position in the Company's Common Stock from the dilution
created as a result of the issuance of the Series A, B and C Participation
Certificates under the Plan. Under this agreement, 479,893 stock options were
issued to Mr. Sardas to give him the equivalent of 15% of the total common
shares reserved for issuance under the Participation Certificates and these
options. The option prices range from $3.17 to $5.69 per share. Of these
options, 224,291 are exercisable upon issuance and the remaining 255,602
options are exercisable in January 1996. The Company recorded a charge of
$897,000 in selling and administrative expense for fiscal 1994 which represents
the difference between the option price and the fair value of the Common Stock.
The Plan provided for the continuation of the 1990 Stock Option Plan (under
which no options had previously been issued) and allows for the granting of up
to 619,195 options for shares of the Company's Common Stock subject to
adjustment for changes in the Company's capitalization. These options are
intended to qualify as incentive or non-statutory stock options under the
Internal Revenue Code. The option price is the fair market value of the shares
on the date of the grant and the options are exercisable over periods ranging
from one to five years after grant date. Options may be granted through April
2000.
Stock option activity under the 1990 Stock Option Plan was as follows:
<TABLE>
<CAPTION>
Shares Option Prices
------- --------------
<S> <C> <C>
Outstanding at September 1, 1992 -0-
Granted 420,000 $1.75 to $3.75
-------
Outstanding at May 31, 1993 420,000 $1.75 to $3.75
Granted 110,000 $6.875
Exercised (50,000) $1.75
Cancelled (50,000) $3.75
-------
Outstanding at May 31, 1994 430,000 $1.75 to $6.875
=======
</TABLE>
At May 31, 1994, there were a total of 2,034,706 options exercisable by
employees under the 1990 Stock Option Plan and by Jacques R. Sardas at prices
ranging from $.01 to $3.75.
- 25 -
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE L -- INCOME TAXES
Components of income tax (benefit) expense are as follows (in thousands):
<TABLE>
<CAPTION>
Successor Predecessor
-------------------- --------------------------
Nine || Three
Year Months || Months Year
Ended Ended || Ended Ended
May 31, May 31, || Aug.31, May 31,
1994 1993 || 1992 1992
-------- -------- || -------- --------
<S> <C> <C> || <C> <C>
Federal - current $ 1,511 ||
- deferred (1,511) ||
State and local (174) $ 290 || $ 50 $ 218
-------- -------- || -------- --------
||
Total income tax ||
(benefit) expense $ (174) $ 290 || $ 50 $ 218
========= ======== || ======== ========
</TABLE>
Reconciliations of the total income tax (benefit) expense from amounts computed
by applying the U.S. Federal income tax rate of 34% to income (loss) before
income tax expense are as follows (in thousands):
<TABLE>
<CAPTION>
Successor Predecessor
-------------------- --------------------------
Nine || Three
Year Months || Months Year
Ended Ended || Ended Ended
May 31, May 31, || Aug.31, May 31,
1994 1993 || 1992 1992
-------- -------- || -------- --------
<S> <C> <C> || <C> <C>
Computed tax provision at ||
statutory Federal rate $ 2,263 $ 1,053 || $ 119 $(19,105)
Increase (decrease) in ||
taxes resulting from: ||
State taxes, net of ||
federal income taxes (113) 191 || 33 144
Effect of Fresh Start ||
reporting and ||
business combinations 473 || 176 236
Effect of temporary ||
differences (1,241) (1,427) || (570) 15,082
Unrecognized net ||
operating loss || 286 3,985
Utilization of net ||
operating loss (1,373) ||
Other items 290 || 6 (124)
------- ------- || -------- --------
$ (174) $ 290 || $ 50 $ 218
======= ======= || ======== ========
</TABLE>
- 26 -
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE L -- INCOME TAXES - CONTINUED
Significant components of the Company's deferred income tax assets and
liabilities at May 31, 1994 are as follows (in thousands):
Deferred income tax liabilities:
Book basis of fixed assets in
excess of tax basis $(6,259)
Other (2,505)
-------
Total deferred tax liabilities $(8,764)
Deferred income tax assets:
Net operating loss carryforwards $ 7,011
Capital loss carryforwards 2,784
Other accruals and reserves 9,538
-------
Total deferred tax assets 19,333
Valuation allowance (9,214)
-------
Net deferred tax asset $ 1,355
=======
SFAS No. 109 requires the establishment of a valuation allowance when it is
more likely than not that deferred tax assets will not be realized. During the
year ended May 31, 1994, the valuation allowance increased by $6,000.
As discussed in Note B, the Company filed a Plan of Reorganization with the
United States Bankruptcy Court. Upon confirmation of the Plan on September 1,
1992, the Company experienced a change in ownership for purposes of Section 382
of the Internal Revenue Code. Under Section 382 an annual limitation of
approximately $900,000 is placed upon the Company's existing net operating loss
and capital loss carryforwards as of September 1, 1992. At August 31, 1992 the
Company has a net operating loss carryforward of approximately $24,300,000 and
an alternative minimum tax loss carryforward of $8,969,000, both of which
expire in the years 2006 through 2008. In addition, the Company has a capital
loss carryforward of $5,045,000 which expires in the years 1996 through 1998.
In addition to the above items the Company has available as of May 31, 1994 for
federal income tax purposes, a net operating loss carryforward of approximately
$7,430,000 and an alternative minimum tax loss carryforward of approximately
$11,854,000, both of which will expire in the year 2008. The Company also has
a capital loss carryforward of approximately $7,953,000 which will expire in
1998. These loss carryforwards relate to the period subsequent to emerging
from bankruptcy and are not subject to limitation under Section 382.
- 27 -
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE M -- RETIREMENT PLANS
The Company maintains a defined benefit pension plan that covers the union
employees of a subsidiary. Benefits are determined by years of service. The
Company's funding policy is consistent with the requirements of federal laws
and regulations. Pension plan assets consist primarily of common stocks, bonds
and government obligations.
The following sets forth the funded status and amounts recognized in the
consolidated balance sheets (in thousands):
<TABLE>
<CAPTION>
1994 1993
------------ ------------
ACCUMULATED ACCUMULATED
BENEFITS BENEFITS
EXCEED PLAN EXCEED PLAN
ASSETS ASSETS
----------- -----------
<S> <C> <C>
Actuarial present value of benefit
obligations:
Vested $21,600 $20,602
Accumulated 799 770
------- -------
Projected 22,399 21,372
Plan assets at fair value 18,640 19,457
------- -------
Plan assets less than projected
benefits (3,759) (1,915)
Items not yet recognized:
Net loss (gain) 937 (764)
Net obligations existing at transition 1,319 1,477
Prior service cost 40 45
Adjustment required to recognize
minimum liability (2,211) (758)
------- -------
Net pension liability $(3,674) $(1,915)
======= =======
</TABLE>
- 28 -
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE M -- RETIREMENT PLANS - CONTINUED
The provisions of Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions" ("SFAS No. 87") require the Company to
record a minimum pension liability relating to unfunded pension obligations
and, to the extent possible, establish an offsetting intangible asset. Because
the intangible asset recognized may not exceed the amount of unrecognized prior
service cost, the balance of the liability at the end of the period is reported
as a separate reduction to stockholders' equity, net of tax benefits. At May
31, 1994, this minimum pension liability was remeasured, as required by SFAS
No. 87. As a result, the minimum pension liability was adjusted from $758,000
at May 31, 1993 to $2,211,000 at May 31, 1994; the related intangible asset was
adjusted from $758,000 to $1,359,000; and stockholders' equity was reduced by
$554,000 (net of applicable deferred income taxes of $298,000). The adjustment
in the minimum pension liability at May 31, 1994 resulted mainly from an
increase in pension fund liabilities due to a decrease in the discount rate and
a lower than expected rate of return on plan assets during the current period.
The components of net periodic pension cost for the defined benefit plan are as
follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Service cost $ 360 $ 325 $ 415
Interest cost on projected
benefit obligation 1,728 1,726 1,648
Actual return on plan assets (451) (1,888) (1,923)
Net amortization and deferral (1,002) 529 717
------- ------- -------
Net periodic pension cost $ 635 $ 692 $ 857
======= ======= =======
Assumptions for the plan were:
Discount rate - pension expense 8.25% 8.75% 9%
Expected long-term rate of return
on assets 9% 9% 9%
Discount rate - projected benefit
obligation 8% 8.25% 9%
</TABLE>
The cost for defined contribution plans was $633,000 in fiscal year 1994. The
majority of such plans provide for matching of employee contributions and for
discretionary contributions. The defined contribution plans cover hourly and
salaried employees.
- 29 -
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE N -- POSTRETIREMENT MEDICAL PLAN
One of the Company's subsidiaries maintains an unfunded postretirement welfare
plan which provides certain contributory and non-contributory health care and
life insurance benefits for employees who retired on or before December 31,
1991 and their dependents. Future hourly retirees are eligible for life
insurance coverage upon retirement at age 55 or later with at least five years
of service.
In fiscal 1993 the Company adopted Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions" ("SFAS No. 106"). The Company elected delayed recognition of the
transition obligation, which will be amortized over a 20 year period. SFAS No.
106 requires companies to recognize the estimated future costs of providing
health and other post-retirement benefits on an accrual basis. These benefits
have previously been recognized as incurred.
The following sets forth the plan's funded status (in thousands):
Accumulated postretirement benefit obligation (APBO):
<TABLE>
<CAPTION>
May 31, May 31,
1994 1993
------- -------
<S> <C> <C>
Retirees $12,762 $12,407
Fully eligible active plan participants 313 304
Other active plan participants 324 315
------- -------
Total APBO 13,399 13,026
Unrecognized transition obligation (11,720) (12,089)
------- -------
Accrued balance sheet liability $ 1,679 $ 937
======= =======
Net periodic postretirement benefit cost included
the following components:
1994 1993
------- -------
Service cost $ 16 $ 19
Interest cost 1,031 1,222
Amortization of transition obligation 654 779
------- -------
Total expense $ 1,701 $ 2,020
======= =======
</TABLE>
- 30 -
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE N -- POSTRETIREMENT MEDICAL PLAN - CONTINUED
The assumed annual rate of increase in the per capita cost of covered health
care benefits was 11.75% in 1994 (13% in 1993) and the rate is assumed to
decrease by 1% annually to 5.75% in the year 2000. The assumed annual rate of
increase in the per capita cost of covered dental care benefits was 9.75% in
1994 (11% in 1993) and the rate is assumed to decrease by 1% annually to 5.75%
in the year 1998. A one percentage point increase in the assumed annual cost
trend rates would have increased the APBO as of May 31, 1994 by $1,603,000 and
the aggregate service and interest cost components of the net periodic
postretirement benefit cost for 1994 by $137,000.
The weighted average annual discount rate used in determining the APBO was 8.0%
in 1994 and 8.25% in 1993.
NOTE O -- OPERATING LEASES
Rental expense under operating leases was $3,406,000 in 1994 ($3,069,000 in
1993 and $2,867,000 in 1992) for ongoing operations and $1,104,000 in 1993 and
$2,852,000 in 1992 for businesses held for sale. Leases are principally for
rental of facilities and contain renewal rights to extend the terms from five
to fifteen years. At May 31, 1994, future minimum payments under
non-cancelable operating leases with initial or remaining terms of more than
one year were as follows: 1995 - $1,764,000; 1996 - $1,436,000; 1997 -
$1,014,000; 1998 - $858,000; 1999 - $466,000 and $1,397,000 thereafter.
NOTE P -- BUSINESS SEGMENT INFORMATION
The Company operates in one business segment - the manufacture of industrial
products.
Net sales to two customers with which the Company has long-standing customer
relationships amounted to $35 million and $31 million, respectively, in 1994
($26 million and $24 million in 1993 and $24 million and $23 million in 1992).
At May 31, 1994 and 1993, accounts receivable from companies in the automotive
and truck industries were approximately 56% and 52%, respectively, of total
accounts receivable. Credit is extended based on an evaluation of the
customer's financial condition, and generally collateral is not required.
Credit losses are provided for in the financial statements and consistently
have been within management's expectation.
- 31 -
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
<TABLE>
NOTE Q -- QUARTERLY FINANCIAL DATA (UNAUDITED)
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
1994: (In thousands, except share data)
- - ----
<S> <C> <C> <C> <C>
Net sales:
Ongoing operations $54,444 $60,584 $60,765 $74,536
Businesses held for sale 315
------- ------- ------- -------
Total net sales $54,759 $60,584 $60,765 $74,536
======= ======= ======= =======
Gross profit:
Ongoing operations $ 7,243 $ 9,076 $ 9,038 $13,718
Businesses held for sale 164
------- ------- ------- -------
Total gross profit $ 7,407 $ 9,076 $ 9,038 $13,718
======= ======= ======= =======
Special charges - Note D 5,956
Settlement of precon-
firmation liabilities 846
Net income (loss) $ 1,082 $ 3,232 $(2,653) $ 5,169
Net income (loss) per share:
Primary $ .09 $ .26 $ (.21) $ .41
======= ======= ======== =======
Fully diluted $ .09 $ .26 $ (.21) $ .41
======= ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
Predecessor Successor
----------- -----------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
1993: (In thousands, except share data)
- - ---- ||
<S> <C> || <C> <C> <C>
Net sales: ||
Ongoing operations $52,100 || $55,255 $52,242 $62,813
Businesses held for sale 30,893 || 16,667 2,046 615
------- || ------- ------- -------
Total net sales $82,993 || $71,922 $54,288 $63,428
======= || ======= ======= =======
Gross profit: ||
Ongoing operations $ 7,706 || $ 8,519 $ 6,776 $ 9,245
Businesses held for sale 4,214 || 2,468 359 (145)
------- || ------- ------- -------
Total gross profit $11,920 || $10,987 $ 7,135 $ 9,100
======= || ======= ======= =======
||
Special charges - Note D 1,095 || 494 146 (54)
Extraordinary gain - ||
forgiveness of ||
prepetition liabilities 78,805 ||
Net income (loss) $79,105 || $ 1,164 $ (205) $ 1,849
Net income (loss) per ||
share: ||
Primary $ (A) || $ .10 $ (.02) $ .16
======= || ======= ======== =======
Fully diluted $ (A) || $ .10 $ (.02) $ .15
======= || ======= ======== =======
<FN>
(A) Per share amounts are irrelevant due to reorganization.
</TABLE>
- 32 -
<PAGE> 33
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Sudbury, Inc.
We have audited the accompanying consolidated balance sheets of Sudbury, Inc.
and subsidiaries (the "Company") as of May 31, 1994 and 1993, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the year ended May 31, 1994, the nine-months ended May 31, 1993, the
three-months ended August 31, 1992 and the year ended May 31, 1992. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 consolidated financial position of
Sudbury, Inc. and subsidiaries at May 31, 1994 and 1993, and the consolidated
results of their operations and their cash flows for the year ended May 31,
1994, the nine months ended May 31, 1993, the three months ended August 31,
1992 and the year ended May 31, 1992, in conformity with generally accepted
accounting principles.
As discussed in the notes to the consolidated financial statements, effective
September 1, 1992, the Company changed its method of accounting for income
taxes and post-retirement benefits other than pensions.
Ernst & Young LLP
Cleveland, Ohio
July 18, 1994
- 33 -
<PAGE> 1
EXHIBIT (21)
- - ------------
SUBSIDIARY STATE OF COUNTRY OF INCORPORATION
- - ---------- ---------------------------------
Western Capital Corporation Nebraska
Iowa Mold Tooling Co., Inc. Iowa
IMT Cranes Canada, Ltd. Canada
Industrial Powder Coatings, Inc. Ohio
Cast-Matic Corporation Michigan
South Coast Terminals, Inc. Texas
Transnational Indemnity Company Vermont
Wagner Castings Company Delaware
Wagner Havana, Inc. Delaware
Wagner Laser Corporation Delaware
Zap Investment Co. Illinois
Frisby P.M.C., Inc. Illinois
-34-
<PAGE> 1
EXHIBIT (23)
- - ------------
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Sudbury, Inc. of our report dated July 18, 1994 included in the Annual
Report to Shareholders of Sudbury, Inc. for the year ended May 31, 1994.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-52727) pertaining to the Sudbury Savings and Profit Sharing
Plan and in the related Prospectus and in the Registration Statement (Form S-8
No. 33-72234) pertaining to the Sudbury, Inc. 1990 Stock Option Plan and in the
related Prospectus of our reports dated July 18, 1994 with respect to the
consolidated financial statements and schedules of Sudbury, Inc. incorporated
by reference and included in this Annual Report (Form 10-K) for the year ended
May 31, 1994.
ERNST & YOUNG LLP
Cleveland, Ohio
August 25, 1994
- 35 -
