<PAGE> 1
<TABLE>
<S> <C>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended NOVEMBER 30, 1995
-----------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------------- -----------------
Commission File Number 0-10023
-----------------
SUDBURY, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
DELAWARE 34-1546292
- ------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
30100 CHAGRIN BOULEVARD, SUITE 203
CLEVELAND, OHIO 44124
- -------------------------------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (216) 464-7026
--------------
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES X NO
------ ------
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
------ -----
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable
date: COMMON SHARES, $0.01 PAR VALUE, AS OF JANUARY 5, 1996: 10,574,133
</TABLE>
<PAGE> 2
<TABLE>
INDEX
SUDBURY, INC. AND SUBSIDIARIES
PAGE
----
PART I - FINANCIAL INFORMATION
<CAPTION>
Item 1. Financial Statements
<S> <C>
Condensed Consolidated Balance Sheets
as of November 30, 1995 and May 31, 1995 3 - 4
Condensed Consolidated Statements of
Operations for the three-month periods
ended November 30, 1995 and November 30,
1994 5
Condensed Consolidated Statements of
Operations for the six-month periods
ended November 30, 1995 and November 30,
1994 6
Condensed Consolidated Statements of
Cash Flows for the six-month periods
ended November 30, 1995 and November 30,
1994 7
Notes to Condensed Consolidated
Financial Statements 8 - 10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 11 - 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 20
</TABLE>
<PAGE> 3
PART I, ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
SUDBURY, INC. AND SUBSIDIARIES
ASSETS
<TABLE>
<CAPTION>
NOVEMBER 30, MAY 31,
1995 1995
(UNAUDITED) (AUDITED)
----------- ---------
(DOLLARS IN THOUSANDS)
CURRENT ASSETS
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 39 $ 3,548
ACCOUNTS RECEIVABLE, NET OF ALLOWANCE 44,056 41,800
INVENTORIES 20,458 18,124
DEFERRED TAXES AND OTHER 7,727 7,276
-------- --------
TOTAL CURRENT ASSETS 72,280 70,748
PROPERTY, PLANT AND EQUIPMENT
LAND AND LAND IMPROVEMENTS 2,284 2,263
BUILDINGS 17,441 17,334
MACHINERY AND EQUIPMENT 60,403 53,580
-------- --------
80,128 73,177
LESS ACCUMULATED DEPRECIATION 22,673 18,931
-------- --------
NET PROPERTY, PLANT AND EQUIPMENT 57,455 54,246
OTHER ASSETS 5,297 4,643
-------- --------
$135,032 $129,637
======== ========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
- 3 -
<PAGE> 4
PART I, ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS - (CONTINUED)
SUDBURY, INC. AND SUBSIDIARIES
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOVEMBER 30, MAY 31,
1995 1995
(UNAUDITED) (AUDITED)
----------- ---------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
CURRENT LIABILITIES
TRADE ACCOUNTS PAYABLE $ 24,910 $ 25,891
ACCRUED COMPENSATION AND EMPLOYEE BENEFITS 12,360 14,286
OTHER ACCRUED EXPENSES 12,752 14,131
CURRENT MATURITIES OF LONG-TERM DEBT 557 678
-------- --------
TOTAL CURRENT LIABILITIES 50,579 54,986
LONG-TERM DEBT 20,035 17,978
OTHER LONG-TERM LIABILITIES 11,824 12,121
STOCKHOLDERS' EQUITY
COMMON STOCK - PAR VALUE $0.01 PER
SHARE; AUTHORIZED 20,000,000 SHARES;
10,573,782 (10,289,883 AT MAY 31,
1995) SHARES ISSUED AND OUTSTANDING 106 103
ADDITIONAL PAID-IN CAPITAL 23,348 22,076
RETAINED EARNINGS 29,977 23,210
MINIMUM PENSION LIABILITY ADJUSTMENT - NET (837) (837)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 52,594 44,552
-------- --------
$135,032 $129,637
======== ========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
- 4 -
<PAGE> 5
PART I, ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SUDBURY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
NOVEMBER 30, NOVEMBER 30,
1995 1994
(UNAUDITED) (UNAUDITED)
----------- -----------
(In thousands, except per share amounts)
<S> <C> <C>
Net sales $ 76,560 $ 74,355
Costs of products sold 63,345 61,777
-------- --------
GROSS PROFIT 13,215 12,578
Selling and administrative expenses 6,272 6,479
-------- --------
OPERATING INCOME 6,943 6,099
Interest expense - net (508) (759)
Other (expense) income (11) 59
-------- --------
Income before income taxes 6,424 5,399
Income tax expense 2,344 1,974
-------- --------
NET INCOME $ 4,080 $ 3,425
======== ========
Net income per share:
Primary and fully diluted $ .32 $ .27
======== ========
Common shares and common share equivalents:
Primary and fully diluted 12,869 12,722
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
- 5 -
<PAGE> 6
PART I, ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SUDBURY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------
NOVEMBER 30, NOVEMBER 30,
1995 1994
(UNAUDITED) (UNAUDITED)
----------- -----------
(In thousands, except per share amounts)
<S> <C> <C>
Net sales $147,773 $142,075
Costs of products sold 123,537 119,022
-------- --------
GROSS PROFIT 24,236 23,053
Selling and administrative expenses
12,679 12,646
------- --------
OPERATING INCOME 11,557 10,407
Interest expense - net (966) (1,559)
Other income 66 52
-------- --------
Income before income taxes 10,657 8,900
Income tax expense 3,890 3,256
-------- --------
NET INCOME $ 6,767 $ 5,644
======== ========
Net income per share:
Primary and fully diluted $ .53 $ .45
======== ========
Common shares and common share equivalents:
Primary and fully diluted 12,851 12,641
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
- 6 -
<PAGE> 7
PART I, ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SUDBURY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------
NOVEMBER 30, NOVEMBER 30,
1995 1994
(UNAUDITED) (UNAUDITED)
----------- -----------
(Dollars in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 6,767 $ 5,644
Items included not affecting cash:
Depreciation and amortization 4,758 4,239
Deferred taxes (1,136) 2,359
Other 259 835
Changes in operating assets and liabilities (9,649) (1,675)
-------- --------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 999 11,402
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (7,511) (6,713)
Proceeds from sale of property, plant,
equipment and other - net 166 202
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (7,345) (6,511)
FINANCING ACTIVITIES:
Borrowings, refinancings and repayments:
Long-term borrowings 38,000 140,952
Reductions of debt (36,280) (146,677)
Common stock issued 1,073 598
Tax benefit from stock option transactions 44 111
-------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 2,837 (5,016)
-------- --------
DECREASE IN CASH (3,509) (125)
Cash and cash equivalents at beginning of
period 3,548 245
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 39 $ 120
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
- 7 -
<PAGE> 8
PART I, ITEM 1 - FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments of a normal recurring nature considered necessary for a fair
presentation have been included. Operating results for the three and six month
periods ended November 30, 1995 are not necessarily indicative of the results
that may be expected for the fiscal year ending May 31, 1996. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year ended
May 31, 1995.
Certain amounts for the six months ended November 30, 1994 have been
reclassified to conform to the presentation at November 30, 1995.
NOTE B -- INVENTORIES
The components of inventories are summarized as follows (in thousands):
<TABLE>
<CAPTION>
November 30, May 31,
1995 1995
------------ -------
<S> <C> <C>
Raw materials and supplies $ 7,488 $ 7,474
Work in process 8,579 7,217
Finished products 4,797 3,875
------- -------
Total at FIFO 20,864 18,566
Less excess of FIFO cost over LIFO values 406 442
------- -------
$20,458 $18,124
======= =======
</TABLE>
NOTE C -- CONTINGENCIES
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.
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
situations, the Company, with the assistance of environmental engineers and
consultants, has accrued amounts to cover estimated future environmental
expenditures. The Company has initiated corrective action and/or preventative
environmental projects to ensure the safe and lawful operation of its
facilities. It is possible, however, that future environmental expenditures
may be more or less than accrued amounts, or there could exist unknown
environmental situations at existing or previously owned businesses for which
the future cost is not known or accrued at November 30, 1995.
- 8 -
<PAGE> 9
PART I, ITEM 1 - FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE C -- CONTINGENCIES (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, results of
operations, or liquidity 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 due to Mr. Sardas' death,
disability or voluntary resignation before the end of his 1992 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 issued under
his 1992 stock option agreement ("1992 Stock Options"), the appraised value of
the shares underlying the 1992 Stock Options as determined by an investment
banking firm or appraiser mutually acceptable to the Company and Mr. Sardas,
less the exercise price thereof. The appraised value of the shares underlying
the 1992 Stock Options may differ from the trading price of the Company's
Common Stock. The Company is the beneficiary of a key-man life insurance
policy on Mr. Sardas' life in the amount of $14,000,000. The proceeds of this
policy would be used to help fulfill the Company's obligation in the event of
Mr. Sardas' death.
In July 1995, the Company and Mr. Sardas entered into an employment
agreement ("1996 Employment Agreement") which extends Mr. Sardas' employment
subsequent to the expiration of his 1992 employment agreement through January
1998. Under the 1996 Employment Agreement, Mr. Sardas has the right to sell to
the Company the Common Stock underlying the 1992 Stock Options (the "Option
Stock") in five separate approximately semi-annual installments commencing
February 7, 1996, through January 13, 1998. The purchase price for the Option
Stock is the per share fair market value on the purchase date based on quoted
prices on the principal stock exchange on which the Company's Common Stock is
traded ("Fair Market Value"). Mr. Sardas generally may delay his right to sell
any installment of the Option Stock until the next succeeding purchase date.
If at that next succeeding purchase date Mr. Sardas does not tender such shares
of Option Stock, the Company will have no further repurchase obligation for
such shares. Under the terms of the 1996 Employment Agreement, if Mr. Sardas'
employment is terminated other than for cause or due to Mr. Sardas' death or
disability, the Company is obligated to pay to Mr. Sardas, at Mr. Sardas'
election at that time or at the next installment purchase date, the Fair Market
Value of the Option Stock. Alternatively, in such event, if Mr. Sardas does
not exercise such election, he or his estate or representative will maintain
the right to sell the Option Stock in installments as noted above. If the 1996
Employment Agreement is terminated by the Company for cause, then the Company
has the right to purchase the Option Stock for the Fair Market Value thereof
subject to Mr. Sardas' right to decline to tender such shares. In the event he
declines to tender such shares, the Company's obligation to purchase the Option
Stock will terminate.
- 9 -
<PAGE> 10
PART I, ITEM 1 - FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE D -- SUBSEQUENT EVENT
On December 29, 1995, the Company completed the sale of its South Coast
Terminals, Inc. ("South Coast") subsidiary to an affiliate of KMCO, Inc.
Proceeds from the sale of $18,250,000 are subject to certain purchase price
adjustments for final working capital balances. The proceeds were used to
reduce certain indebtedness of South Coast and the Company and may be used to
provide additional funds for the future growth and expansion of the Company's
core businesses. The Company is in the process of finalizing its calculation
of the gain on the sale.
For the year ended May 31, 1995, South Coast had sales of $23,484,000
and total assets at May 31, 1995 of $16,558,000 which accounted for
approximately 8% and 13% of the Company's consolidated revenues and total
assets, respectively.
- 10 -
<PAGE> 11
PART I, ITEM 2, MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SUDBURY, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS - THREE MONTHS ENDED NOVEMBER 30, 1995 COMPARED TO THREE
MONTHS ENDED NOVEMBER 30, 1994
SALES. The Company's net sales for the second quarter of fiscal 1996
increased by 3% to $76.6 million from $74.4 million in the prior year's
quarter. The increase in sales came principally from the Company's Industrial
Powder Coatings ("IPC") subsidiary whose sales increased by $3.1 million or 27%
over the prior year period as a result of the ramp up of production at its
blank coating facility in Louisville, Kentucky. In the second quarter, the
blank coating facility sales were $4.0 million of which $3.1 million
represented the pass through of steel blank material cost. Partially
offsetting this increase were reductions in IPC's sales volume due to
automotive model changeover affecting its coil spring coating business. The
remaining companies' sales as a whole were down by $.9 million when compared to
the prior year period generally reflecting a slowing in the overall economy.
For the quarter, the overall increase in sales of $2.2 million came
from net new business of $8.8 million and price increases of $.8 million less
volume declines of $7.4 million on existing products. The $8.8 million of net
new business came principally from $4.0 million in sales from IPC's new blank
coating line and $2.0 million in sales at the Company's Wagner Castings Company
("Wagner") subsidiary for the Ford World Car program.
GROSS PROFIT. Gross profit as a percentage of net sales was 17.3% in
the second quarter of fiscal 1996 compared to 16.9% in the same quarter of
fiscal 1995. The increase in margin rate resulted from production efficiency
gains achieved by the Company's Wagner and Iowa Mold Tooling ("IMT")
subsidiaries.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses as a percentage of net sales decreased from 8.7% in the prior year
quarter to 8.2% for the current quarter due principally to higher sales. In
terms of dollars, expenses decreased by $.2 million due principally to the
favorable resolution of an environmental issue at the Company's Cast-Matic
subsidiary for which $.2 million had been previously reserved.
INTEREST EXPENSE. Interest expense decreased by $.3 million due to
significantly lower borrowing levels in the current period and a decrease in
the Company's interest rates under its credit facility which was entered into
in May 1995.
- 11 -
<PAGE> 12
PART I, ITEM 2, MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SUDBURY, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS - SIX MONTHS ENDED NOVEMBER 30, 1995 COMPARED TO SIX
MONTHS ENDED NOVEMBER 30, 1994
SALES. The Company's net sales for the current six month period
increased by 4% to $147.8 million from $142.1 million in the prior year period.
The Company experienced sales growth at Wagner due to new automotive related
business and IPC as a result of the ramp up of production at its blank coating
facility. Overall, sales increased by $13.5 million from net new business of
which $4.0 million represented the pass through of steel blank material cost
and by $1.4 million as a result of price increases. These increases more than
offset a decrease in sales of existing products of $9.2 million.
GROSS PROFIT. Gross profit as a percentage of net sales was 16.4% for
the current six month period compared to 16.2% in the prior year period. The
increase in margin rate came from higher sales volumes and improved operating
efficiencies at Wagner and IMT.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses as a percentage of net sales decreased from 8.9% in the prior year
period to 8.6% for the current period due principally to higher sales. In
terms of dollars, such expenses were approximately flat when compared to the
prior year period.
INTEREST EXPENSE. Interest expense decreased by $.6 million due to
significantly lower borrowing levels in the current period and a decrease in
the Company's interest rates under its credit facility which was entered into
in May 1995.
AUTOMOTIVE AND LIGHT TRUCK MARKETS. Approximately 60% of the Company's
sales are dependent on the automotive and light truck markets in the United
States and Europe; therefore, related profits will be dependent on sales of
vehicles in these markets in the next twelve months. For the first six months
of the current year, sales in the automotive industry have been slightly below
those experienced in the prior year.
- 12 -
<PAGE> 13
PART I, ITEM 2, MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SUDBURY, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of fiscal 1996, operating activities provided
cash of $1.0 million compared to $11.4 million in the first six months of
fiscal 1995. The decrease in cash provided resulted principally from increases
in working capital and income tax payments.
Long-term debt (including current maturities) at November 30, 1995 was
$20.6 million, an increase of $1.9 million from May 31, 1995. Long-term debt
increased as a result of borrowings under the Company's revolving credit
agreement to finance capital expenditures and increases in working capital.
Long-term debt represents 28% of long-term debt plus stockholders' equity at
November 30, 1995 compared to 30% at May 31, 1995. At November 30, 1995, the
Company had the ability to borrow an additional $29.9 million under its
revolving credit facility.
In December 1995, the Company sold its South Coast subsidiary for
$18.25 million subject to final adjustments for working capital. The Company
used the proceeds to reduce certain long-term debt of South Coast and the
Company, and to provide a source of funds for future growth and expansion of
the Company's core businesses.
For the six months ended November 30, 1995, capital expenditures were $7.5
million compared with $6.7 million in the prior year period. Capital
expenditures for the remainder of the year are expected to be higher than the
rate experienced in the first six months as the Company expects to incur
capital expenditures of approximately $25 million in fiscal 1996. Major
projects in fiscal 1996 include Wagner's $12 million ductile iron modernization
project and IPC's electrodeposition coatings plant in Mexico.
The Company believes that funds available under its current bank facility
and funds generated from operations will be sufficient to satisfy its
anticipated operating needs and capital improvements for the next twelve
months.
- 13 -
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS
Certain litigation was disclosed in the Company's annual report on Form
10-K for the year ended May 31, 1995. There have been no material developments
in the described cases for the fiscal quarter ended November 30, 1995, other
than as discussed below.
In connection with confirmation of the Company's bankruptcy Plan of
Reorganization, the Company intervened and dismissed a pending derivative
action brought in 1985 by John H. Bennett, a stockholder of the Company. The
plaintiff appealed this dismissal and certain related orders to the United
States Court of Appeals for the Sixth Circuit. By order entered June 27, 1995,
the Sixth Circuit Court of Appeals dismissed the appeals as moot. The time for
further appeals by the plaintiff has expired concluding the litigation.
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 ("District Court") against TransPlastics, Inc., a
non-operating subsidiary of the Company, seeking approximately $3.3 million of
costs allegedly incurred by the United States Environmental Protection Agency
("U.S. EPA"), as well as prejudgment interest and declaratory relief for future
cleanup costs at the Millcreek Dump Superfund Site in Millcreek Township,
Pennsylvania. In fiscal 1995, the federal government and TransPlastics, Inc.
entered into a settlement agreement by which the U.S. EPA agreed to accept
$500,000 in settlement of its pending claims at this site, which was within the
amount previously accrued by the Company. The agreement includes a provision
granting TransPlastics contribution protection for matters addressed in the
settlement. Following a mandatory notice period, the agreement was submitted
to the District Court. On November 20, 1995, the settlement agreement was
approved by the District Court, concluding TransPlastics' involvement in this
litigation. Payment of this claim was made in December 1995.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders of the Company held on September
28, 1995, the stockholders considered and voted on: (1) the election of seven
directors for one-year terms expiring in 1996 or until their successors have
been duly elected and qualified; (2) a resolution proposed by the Board of
Directors that the stockholders approve the Company's 1995 Stock Option Plan
and (3) a resolution ratifying the action of the Board of Directors in
selecting and appointing Ernst & Young LLP as independent auditors for the
Company for the fiscal year ending May 31, 1996.
All of management's nominees for directors as listed in the proxy
statement were elected by the following votes:
- 14 -
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - CONTINUED
<TABLE>
<S> <C> <C> <C>
Cloyd J. Abruzzo For 7,683,649
Withheld 21,079
Jerry A. Cooper For 7,683,649
Withheld 21,079
Preston Heller, Jr. For 7,682,377
Withheld 22,351
James A. Karman For 7,683,449
Withheld 21,279
David A. Preiser For 7,670,635
Withheld 34,093
Jacques R. Sardas For 7,682,534
Withheld 22,194
Thomas F. Slater For 7,683,649
Withheld 21,079
The proposal to approve the Company's 1995 Stock Option Plan was passed by the following vote:
Shares Voted For 6,280,237
Shares Voted Against 1,008,077
Abstentions 141,360
The proposal to ratify the appointment of Ernst & Young LLP as the Company's independent auditors was passed by the
following vote:
Shares Voted For 7,676,431
Shares Voted Against 22,394
Abstentions 5,902
</TABLE>
ITEM 5. - OTHER INFORMATION
Effective December 29, 1995, the Company sold the capital stock of its
wholly-owned subsidiary, South Coast Terminals, Inc. ("South Coast"), a Texas
corporation. The disposition of South Coast was consummated in accordance with
the terms of an Agreement and Plan of Merger ("the Agreement") dated as of
December 22, 1995 by and among the Company, South Coast and an affiliate of
KMCO, Inc., a Texas corporation.
The aggregate consideration paid to the Company in exchange for the
outstanding capital stock of South Coast was $18.25 million which is subject to
certain purchase price adjustments for final working capital balances as
defined in the Agreement. The Company used the proceeds to reduce the certain
indebtedness of South Coast and the Company, and to provide additional funds
for future growth and expansion of the Company's core businesses. The
aggregate consideration received by the Company was determined through arm's
length negotiations between representatives of the purchaser and the Company.
The Company did not, nor to the knowledge of the Company, did any affiliate,
director or officer of the Company have any material relationship with the
purchaser prior to the disposition of South Coast.
- 15 -
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 5. - OTHER INFORMATION - CONTINUED
The following pro forma financial information is included herein:
(i) Pro Forma Condensed Consolidated Balance Sheet (Unaudited) as
of November 30, 1995.
(ii) Pro Forma Condensed Consolidated Statement of Operations
(Unaudited) for the fiscal year ended May 31, 1995.
(iii) Pro Forma Condensed Consolidated Statement of Operations
(Unaudited) for the six months ended November 30, 1995.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
SUDBURY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
HISTORICAL PRO FORMA
NOVEMBER 30, PRO FORMA NOVEMBER 30,
1995 ADJUSTMENT (A) 1995
----------- -------------- -----------
ASSETS
- ------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 39 $ 7,882 $ 7,921
Account receivable, net 44,056 (3,256) 40,800
Inventories 20,458 (1,082) 19,376
Deferred taxes and other 7,727 (140) 7,587
-------- -------- --------
TOTAL CURRENT ASSETS 72,280 3,404 75,684
PROPERTY, PLANT AND EQUIPMENT, NET
Land and land improvements 2,284 (880) 1,404
Buildings 17,441 (12,102) 5,339
Machinery and equipment 60,403 (8,305) 52,098
-------- -------- --------
80,128 (21,287) 58,841
Less accumulated depreciation 22,673 (8,108) 14,565
-------- -------- --------
TOTAL PROPERTY PLANT
AND EQUIPMENT 57,455 (13,179) 44,276
OTHER ASSETS 5,297 5,297
-------- -------- --------
TOTAL ASSETS $135,032 $ (9,775) $125,257
======== ========= ========
<FN>
(A) To reflect: (1) the sale of South Coast Terminals, Inc. for cash
proceeds of $18,250,000 (2) the payment of $10,368,000 of
indebtedness, (3) the accrual of legal, consulting and certain other
costs related to the disposition, and (4) the franchise tax liability
related to the disposition. The availability of capital loss
carryforwards will result in no federal income tax expense from the
disposition.
</TABLE>
- 16 -
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 5. - OTHER INFORMATION - CONTINUED
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
SUDBURY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
HISTORICAL PRO FORMA
NOVEMBER 30, PRO FORMA NOVEMBER 30,
1995 ADJUSTMENT (A) 1995
----------- -------------- ------------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Trade accounts payable $ 24,910 $ (1,147) $ 23,763
Accrued compensation and
employee benefits 12,360 (427) 11,933
Other accrued expenses 12,752 361 13,113
Current maturities of debt 557 (287) 270
-------- -------- --------
TOTAL CURRENT LIABILITIES 50,579 (1,500) 49,079
LONG-TERM DEBT 20,035 (10,092) 9,943
OTHER LONG-TERM LIABILITIES 11,824 300 12,124
STOCKHOLDERS' EQUITY
Common stock - par value
$0.01 per share; authorized
20,000,000 shares; 10,573,782
shares issued and outstanding 106 106
Additional paid-in capital 23,348 23,348
Retained earnings 29,977 1,517 31,494
Minimum pension liability
adjustment - net (837) (837)
-------- -------- --------
TOTAL STOCKHOLDERS' EQUITY 52,594 1,517 54,111
-------- -------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $135,032 $ (9,775) $125,257
======== ======== ========
<FN>
(A) To reflect: (1) the sale of South Coast Terminals, Inc. for cash proceeds
of $18,250,000 (2) the payment of $10,368,000 of indebtedness, (3) the
accrual of legal, consulting and certain other costs related to the
disposition, and (4) the franchise tax liability related to the
disposition. The availability of capital loss carryforwards will result in
no federal income tax expense from the disposition.
</TABLE>
- 17 -
<PAGE> 18
PART II - OTHER INFORMATION
ITEM 5. - OTHER INFORMATION - CONTINUED
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
SUDBURY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
HISTORICAL PRO FORMA
FISCAL YEAR ENDED PRO FORMA FISCAL YEAR ENDED
MAY 31, 1995 ADJUSTMENT ( A) MAY 31, 1995
----------------- --------------- ------------------
<S> <C> <C> <C>
Sales $305,435 $(23,484) $281,951
Cost of sales 254,472 (17,241) 237,231
-------- -------- --------
GROSS PROFIT 50,963 (6,243) 44,720
SG&A 28,333 (2,708) 25,625
-------- -------- --------
OPERATING PROFIT 22,630 (3,535) 19,095
Interest expense - net (2,974) 1,621 (1,353)
Other income 292 (7) 285
-------- -------- --------
Income before income taxes 19,948 (1,921) 18,027
Income taxes (benefit) 6,376 (701) 5,675
-------- -------- --------
NET INCOME $ 13,572 $ (1,220) $ 12,352
======== ======== ========
Net income per share:
Primary $ 1.07 $ (.10) $ .97
======== ======== ========
Fully diluted $ 1.07 $ (.10) $ .97
======== ======== ========
Common shares and equivalents:
Primary 12,651 12,651 12,651
======== ======== ========
Fully diluted 12,670 12,670 12,670
======== ======== ========
<FN>
(A) To reflect: (1) the elimination of the results of operations for the fiscal year ended May 31, 1995 for South Coast Terminals,
Inc. and (2) the reduction of interest expense due to the repayment of indebtedness.
</TABLE>
- 18 -
<PAGE> 19
PART II - OTHER INFORMATION
ITEM 5. - OTHER INFORMATION - CONTINUED
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
SUDBURY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
HISTORICAL PRO FORMA
SIX MONTHS ENDED PRO FORMA SIX MONTHS ENDED
NOVEMBER 30, 1995 ADJUSTMENT ( A) NOVEMBER 30, 1995
----------------- --------------- -----------------
<S> <C> <C> <C>
Sales $147,773 $(11,828) $135,945
Cost of sales 123,537 (8,860) 114,677
-------- -------- --------
GROSS PROFIT 24,236 (2,968) 21,268
SG&A 12,679 (1,289) 11,390
-------- -------- --------
OPERATING PROFIT 11,557 (1,679) 9,878
Interest expense - net (966) 606 (360)
Other income 66 (2) 64
-------- -------- --------
Income before income taxes 10,657 (1,075) 9,582
Income taxes (benefit) 3,890 (392) 3,498
-------- -------- --------
NET INCOME $ 6,767 $ (683) $ 6,084
======== ======== ========
Net income per share:
Primary and fully diluted $ .53 $ (.05) $ .47
======== ======== ========
Common shares and equivalents:
Primary and fully diluted 12,851 12,851 12,851
======== ======== ========
<FN>
(A) To reflect: (1) the elimination of the results of operations for the six months ended November 30, 1995 for South Coast
Terminals, Inc. and (2) the reduction of interest expense due to the repayment of indebtedness and investment of cash proceeds.
</TABLE>
- 19 -
<PAGE> 20
PART II - OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the three months
ended November 30, 1995.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL PAGE NUMBER
- ------- ----------------------
<S> <C> <C>
(2) Agreement and Plan of Merger Among
South Coast Delaware, Inc., Sudbury,
Inc. and South Coast Terminals, Inc.
dated as of December 22, 1995 22
(10) Employment Agreement between
Mark E. Brody and Sudbury, Inc. 63
(11) Statement re: Computation of
Per Share Earnings 73
(27) Financial Data Schedule 75
</TABLE>
- 20 -
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
SUDBURY, INC.
(Registrant)
By: /s/Jacques R. Sardas
----------------------------
Jacques R. Sardas
Chairman of the Board
and Chief Executive Officer
By: /s/Mark E. Brody
----------------------------
Mark E. Brody
Vice President and
Chief Financial Officer
(Chief Accounting Officer)
Date: January 16, 1996
- 21 -
<PAGE> 1
Exhibit 2
AGREEMENT AND PLAN OF MERGER
AMONG SOUTH COAST DELAWARE, INC., SUDBURY, INC.
AND SOUTH COAST TERMINALS, INC.
Dated as of December 22, 1995
22
<PAGE> 2
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") dated as of December 22, 1995
is by and among SOUTH COAST DELAWARE, INC., a Delaware corporation ("Buyer"),
SUDBURY, INC., a Delaware corporation ("Seller"), and SOUTH COAST TERMINALS,
INC., a Texas corporation (the "Company").
WHEREAS, Seller owns all of the outstanding capital stock of the Company,
which is engaged in the business of providing bulk liquid storage, chemical and
lubricant toll processing, packaging, warehousing and distribution to the oil
and chemical industries (the "Business").
WHEREAS, the respective Boards of Directors of Buyer, Seller and the Company
desire that the Company be merged with and into Buyer (the "Merger"), as a
result of which all of the outstanding common stock of the Company will be
converted into rights to receive payments of cash as set forth below.
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows:
1. Merger.
------
1.1 SURVIVING CORPORATION. The Articles of Merger meeting the requirements
of Section 5.04 of the Texas Business Corporation Act effecting the Merger
shall be filed with the Texas Secretary of State and have an effective time of
11:59 p.m. on December 29, 1995 (the "Effective Time"), at which time the
Company will be merged into Buyer, with Buyer being the surviving corporation
(from and after the Effective Time, the "Surviving Corporation"), the name of
which upon effectiveness of the Merger will be "South Coast Delaware, Inc."
23
<PAGE> 3
1.2 EFFECT OF MERGER. The Surviving Corporation, without further action,
will succeed to and possess and enjoy all the property, real, personal and
mixed, tangible and intangible, and all the rights, facilities, privileges,
powers, franchises and immunities of a public as well as of a private
nature, and be subject to all the restrictions, disabilities and duties of
Buyer and the Company; and all the rights, facilities, privileges, powers,
franchises and immunities of Buyer and the Company, and all property, real,
personal and mixed, tangible and intangible, and all debts due to either
Buyer or the Company on whatever account, except as set forth in the
Agreement, and all other things in action or belonging to Buyer and the
Company will be vested in the Surviving Corporation and all property,
rights, privileges, powers, franchises and immunities, and all and every
other interests will be thereafter as effectually the property of the
Surviving Corporation as they were of Buyer or the Company and the title to
any real estate vested by deed or otherwise in either Buyer of the Company
will not revert or be in any way impaired by reason of the Merger; but all
rights of creditors and all liens upon any property of either Buyer or the
Company will be preserved unimpaired, and the respective debts, liabilities
and duties of Buyer and the Company will thenceforth attach to the Surviving
Corporation, and may be enforced against it to the same extent as if said
debts, liabilities and duties had been incurred or contracted by it. Any
action or proceeding, whether civil, criminal or administrative, pending by
or against Buyer or the Company may be prosecuted as if the Merger had not
taken place, and will bind the Surviving Corporation, or the Surviving
Corporation may be proceeded against or substituted in its place.
1.3 PURCHASE PRICE AND SURRENDER OF STOCK CERTIFICATES. At the Effective
Time, Seller, as the former sole shareholder of the Company, upon proper
surrender of its stock
24
<PAGE> 4
certificate(s) representing its shares of all of the capital stock of the
Company (the "Shares") shall receive in exchange for the Shares a cash payment
(the "Purchase Price") of Eighteen Million Two Hundred Fifty Thousand Dollars
($18,250,000.00), subject to adjustment pursuant to Section 1.5 below, by wire
transfer to an account designated by Seller.
1.4 DISCHARGE OF CERTAIN INDEBTEDNESS. At or prior to the Closing, Seller
will cause to be discharged certain indebtedness of the Company to Anthony M.
Wilson, Fay Holt, individually, as Independent Executrix of the Estate of
William Walter Holt, Deceased, and as Trustee of the Trusts Created U/W/O
William Walter Holt, Deceased, and Interfirst Bank Fannin, as Trustee
(collectively referred to herein as the "Wilson Group"), in the approximate
principal amount of Two Million Four Hundred Thousand Dollars ($2,400,000.00)
and shall cause to be released any related mortgage or deed of trust.
1.5 Purchase Price Adjustment.
-------------------------
(a) The Purchase Price is subject to adjustment as set forth in this Section
1.5 (the "Purchase Price Adjustment"). The Purchase Price shall be (i)
increased by the amount by which the Net Adjusted Working Capital (as defined
herein) as of the Closing Date exceeds Two Million Twenty-Six Thousand Five
Hundred Forty-Nine Dollars ($2,026,549.00) (the "Working Capital Base Amount")
or (ii) decreased by the amount by which the Working Capital Base Amount
exceeds the Net Adjusted Working Capital as of the Closing Date. For purposes
of calculating the Purchase Price Adjustment, the term "Net Adjusted Working
Capital" shall mean, as of any date, the Company's current assets (other than
cash and cash equivalents and intercompany receivables), consisting of
25
<PAGE> 5
accounts receivable, inventory, prepaid, other current assets and other assets,
less current liabilities (other than the current portion of any long-term debt,
accrued environmental liability and intercompany payables) as of such date,
consisting of trade accounts payable, accrued taxes, accrued compensation (less
accrued bonuses) and other accruals for current liabilities generated in the
normal course of the Company's business, all calculated in accordance with
generally accepted accounting principles ("GAAP"), on a basis consistent with
the Company's past practices. The parties agree that the Net Adjusted Working
Capital will include as a current liability Seventy-Five Thousand Dollars
($75,000.00) attributable to the matters discussed in Items III and IV of
Schedule 3.6. The calculation of Net Adjusted Working Capital shall be made on
a FIFO basis and will not include the impact of increases or decreases in LIFO
reserves.
(b) As promptly as possible, but in any event within forty-five (45)
days after the Closing, Seller will deliver to Buyer a schedule (the
"Adjustment Schedule") setting forth the calculation of the Purchase Price
Adjustment, together with the written report of Ernst & Young, LLP, Seller's
independent certified public accountants, stating that, in its opinion, the
Adjustment Schedule fairly states the Purchase Price Adjustment in accordance
with the provisions of this Agreement. Buyer shall have the right to observe
and comment upon the preparation of the Adjustment Schedule. Within ten (10)
days after delivery of the Adjustment Schedule, Buyer may notify Seller in
writing that the Adjustment Schedule does not, in the opinion of Buyer, fairly
state the Purchase Price Adjustment in accordance with the provisions of this
Agreement, setting forth in full the respects in which it fails to do so and
the reasons for reaching that conclusion. In the event that Seller and Buyer
are unable to resolve any dispute so raised within thirty (30)
26
<PAGE> 6
days after delivery of the Adjustment Schedule, they shall appoint a "big six"
accounting firm acceptable to both of them, whose expenses will be shared
equally by Seller and Buyer. The accounting firm shall as promptly as possible
determine whether the Adjustment Schedule fairly states, in accordance with the
provisions of this Agreement, the values of the items as to which the Buyer has
taken issue and, if the accounting firm concludes that it does not do so with
respect to any of such items, the value which in such firm's opinion accurately
states the Purchase Price Adjustment (such value being hereinafter referred to
as the "Final Accounting Adjustment"). The Final Accounting Adjustment shall
be conclusive and binding on the parties hereto.
(c) Within five (5) days after delivery of the report by such third
firm or the settlement of any dispute, or within fifteen (15) days following
delivery of the Adjustment Schedule if no dispute exists, payment shall be made
by certified check or wire transfer to an account designated by the recipient
of the amount that equals the necessary adjustment to the Purchase Price as
determined under this Section 1.5 plus interest from the Closing Date on such
adjustment at the prime rate of interest (calculated on the basis of a three
hundred sixty (360) day year) as published in the Wall Street Journal.
1.6 CASH, INTERCOMPANY RECEIVABLES AND PAYABLES. Buyer acknowledges
that transactions contemplated by this Agreement do not include the transfer of
cash and intercompany payables and receivables on the books of the Company as
of the Closing, and therefore, all cash held by the Company through the Closing
shall be transferred to Seller and the intercompany payables and receivables on
the Company's books shall be cancelled.
27
<PAGE> 7
1.7 Allocation of Purchase Price.
----------------------------
(a) Exhibit A to this Agreement sets forth an allocation of the
Purchase Price among the assets of the Company (the "Allocation") as of April
30, 1995. The final Allocation shall be calculated and presented in a manner
consistent with such Exhibit A.
(b) Neither party shall, without the prior written approval of the
other, file any tax returns, or permit any tax returns to be filed, on which
the taxpayer takes any positions which are inconsistent with the Allocation.
Each party will notify the other as soon as reasonably practicable of any audit
adjustment or proposed audit adjustment by any taxing authority which
challenges the Allocation.
1.8 EXECUTIVE INCENTIVE PLAN. Seller will determine what bonuses, if
any, are due to employees of the Company for the period through the Closing
Date under the Company's Executive Incentive Plan (the "Incentive Plan").
Seller will notify Buyer of the amount due thereunder and Buyer will pay such
amount directly, subject to immediate reimbursement from Seller of such amount
plus any payroll taxes thereon. Seller's calculation of the amount due under
the Incentive Plan will be conclusive.
2. Closing.
-------
2.1 TIME AND PLACE OF CLOSING. The closing (the "Closing") of the
Merger shall take place at the offices of the Company at 10:00 A.M. on December
29, 1995, or at such other time and place as the parties shall mutually agree
in writing (the "Closing Date").
2.2 Items to be Delivered at Closing.
--------------------------------
(a) At the Closing, Seller will deliver, or cause to be delivered, to
Buyer certificates representing all of the Shares endorsed in blank, and such
other assignments, endorsements and other good and sufficient instruments and
documents of conveyance and
28
<PAGE> 8
transfer as shall be necessary and effective to exchange the Shares for the
Purchase Price and surrender all of Seller's right, title and interest in and
to the Shares.
(b) At the Closing, Buyer will deliver to Seller payment of the cash
portion of the Purchase Price, as provided in Section 1.3.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLER. Seller represents
and warrants to Buyer as follows:
3.1 TITLE TO SHARES. Seller is the owner of the Shares and at the
Closing will own the Shares free and clear of all liens, security interests,
charges and encumbrances of any kind. Seller has full legal right, power and
authority to exchange the Shares for the Purchase Price.
3.2 AUTHORIZATION. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by the board of directors of Seller in accordance with all
applicable laws and the certificate of incorporation and by-laws of Seller, and
at the Closing Date no further corporate action will be necessary on the part
of Seller to make this Agreement valid and binding on Seller and enforceable
against Seller in accordance with its terms.
3.3 NO CONFLICTS; NO CONSENTS. Except as set forth on Schedule 3.3,
the execution and delivery of this Agreement by Seller and the consummation of
the transactions contemplated hereby (i) are not contrary to the certificate of
incorporation or by-laws of Seller, (ii) do not result in a violation or breach
of, or constitute a default under, any material agreement or instrument to
which Seller is a party or is bound and (iii) do not violate any applicable
law, statute, rule or regulation or require any authorization, consent,
approval or other action by, or any notice to or filing with, any
29
<PAGE> 9
court, administrative or governmental body, or any third party which has not
been obtained, given or done except for filings and approvals pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules and
regulations thereunder (the "H-S-R Act").
3.4 CAPITALIZATION. The authorized capital stock of the Company
consists of five million (5,000,000) shares of common stock, without par value,
of which two hundred nine thousand five hundred (209,500) shares are issued and
outstanding and owned by Seller. All of the Shares are validly issued, fully
paid and nonassessable. There are no outstanding securities convertible into
or exchangeable for the Company's capital stock, or any options, warrants or
other rights to purchase, redeem, repurchase or subscribe to the Company's
capital stock.
3.5 ORGANIZATION OF THE COMPANY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas, has all requisite corporate power and authority to own its properties
and assets and carry on its business as now conducted, and is duly qualified to
do business and is in good standing in every jurisdiction in which the property
owned, leased or operated by it, or the nature of the business conducted by it,
makes such qualification necessary, except where the failure to qualify would
not have a material adverse effect on the financial condition or results of
operation of the Company.
3.6 COMPLIANCE WITH LAW. Except as set forth on SCHEDULE 3.6, Item II
of SCHEDULE 3.11 or SCHEDULE 3.13, the Company's conduct of the Business is and
has been in substantial compliance with all applicable federal, state, local or
other
30
<PAGE> 10
governmental laws or ordinances, and any order, rule or regulation of any
federal, state, local or other governmental agency or body, the non-compliance
with which, or the violation of which, would have a material adverse effect on
the financial condition or results of operations of the Business, and the
Company has received no claim or notice of violation with respect thereto.
3.7 FINANCIAL STATEMENTS. Seller has previously delivered to Buyer
true and complete copies of the following financial statements of the Company:
unaudited balance sheet as of May 31, 1993 and 1994, and the related
statements of operations and cash flows for the periods then ended and the
unaudited balance sheet as of April 30, 1995 and the related statement of
operations for the period then ended. Such financial statements fairly present
the financial condition and results of operations of the Company as of the
respective dates and periods thereof and have been prepared in accordance with
GAAP consistently applied (except that the unaudited statements (i) do not
include footnotes and (ii) at and for the period ended April 30, 1995, are
subject to year-end adjustments).
3.8 NO ADVERSE CHANGE. Since May 31, 1994, the Company has actively
conducted the Business in the ordinary course consistent with past practice.
Since such date, there has been no material adverse change in the financial
condition of the Business except as set forth on SCHEDULE 3.6.
3.9 ASSETS. Except as disclosed on SCHEDULE 3.9, the Company is the
owner of, and has good title to all of the assets used in the Business, free
and clear of all liens or encumbrances, except (i) liens for current taxes not
yet due and payable and (ii) such imperfections of title, easements and
encumbrances, if any, as are inconsequential in character, amount or extent and
do not detract from the value, or interfere with the present use, of the
properties subject thereto.
31
<PAGE> 11
3.10 CONTRACTS. All written contracts, agreements, leases, mortgages
and commitments ("Contracts"), to which the Company is a party or may be bound,
are listed on SCHEDULE 3.10, EXCEPT FOR Contracts relating to purchase or sales
orders in the ordinary course of business or Contracts involving a payment of
less than $250,000 or which can be terminated by the Company within thirty (30)
days after written notice without penalty or premium. Except as set forth on
SCHEDULE 3.10, all Contracts are valid and in full force and effect on the date
hereof and the Company has not violated any provision of, or committed or
failed to perform any act, which with notice, lapse of time or both would
constitute a default under the provisions of any Contract the termination of
which would have a material adverse effect upon the financial condition or
results of operations of the Company. Copies of all written Contracts
disclosed in SCHEDULE 3.10 have been made available to the Buyer.
3.11 LITIGATION. Except as disclosed on SCHEDULE 3.11, (a) no claim,
action, suit, arbitration, investigation or other proceeding is pending or, to
the knowledge of Seller, threatened, against the Company before any court,
governmental agency, authority or commission, arbitrator or "impartial
mediator," (b) there are no judgments, consents, decrees, injunctions, or any
other judicial or administrative mandates outstanding against the Company and
(c) no litigation or claims have been brought or, to the knowledge of Seller,
threatened, or are known to be contemplated, respecting the transactions
contemplated by this Agreement.
3.12 REAL ESTATE. With respect to the Company's real property
identified and more particularly described on SCHEDULE 3.12, together with all
buildings, improvements, appurtenant rights, privileges and easements
(collectively, the "Real Property"), and all
32
<PAGE> 12
leasehold interests in real property described on SCHEDULE 3.12, except as set
forth on SCHEDULE 3.12:
(a) The Company has no written notice that the Real Property is not
properly zoned for the purposes for which it is currently being used by
the Company. The Company has received no written notice of, and there are no,
pending or proposed changes or modifications to the current zoning of the Real
Property. The Company has no written notice of any violation of applicable
zoning regulation or ordinance or other law, order, ordinance, permit, rule,
regulation or requirement, or any covenant, condition or restriction affecting
or relating to the use or occupancy of the Real Property, the violation of
which would have an adverse effect upon the financial condition or results of
operation of the Company;
(b) The Company has no written notice of any pending or contemplated
condemnation of the Real Property or any portion thereof or interest therein;
and
(c) The Company has received no written notice of any pending
improvements or special assessments to be made against the Real Property by any
governmental authority.
3.13 ENVIRONMENTAL PERMITS AND PROCEEDINGS. Except as set forth on
SCHEDULE 3.13, to Seller's knowledge, the Company is and has been in material
compliance with (a) the Resource Conservation and Recovery Act of 1976 (42
U.S.C. Section 6901 et. seq.), (b) the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (42 U.S.C. Section 9601 et. seq.), as
amended, (c) the Clean Air Act (42 U.S.C. Section 7401 et. seq.) and (d) the
Federal Water Pollution Control Act (33 U.S.C. Section 1251 et. seq.) and all
analogous state laws and regulations affecting the Company, its business and
assets (collectively, the "Environmental Laws"). Except as
33
<PAGE> 13
disclosed on SCHEDULE 3.13, (a) all material permits, licenses and other such
authorizations required by Environmental Laws with respect to the Business have
been obtained by the Company or its affiliates and are in full force and effect
and (b) there are no civil, criminal or administrative actions, suits,
hearings, proceedings, written notices of violation, claims or demands pending
or threatened under any Environmental Law against the Company with respect to
the Business.
3.14 EMPLOYEE BENEFIT PLANS AND OTHER PLANS.
(a) Except for the plans, policies or arrangements listed on SCHEDULE
3.14, which Schedule includes all plans, policies and arrangements maintained
by the Company or a member of the Controlled Group (as defined below) under
which the employees of the Company participate (hereinafter referred
collectively to as the "Plans" and individually as a "Plan"), no member of the
Controlled Group, directly or indirectly, maintains, sponsors or has any
obligation or liability with respect to any "employee benefit plan," as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), providing employee benefits for employees of the Company.
For purposes of this Agreement, "Controlled Group" shall mean the Company, and
any person, entity or trade or business, whether or not incorporated, which is
required to be aggregated with the Company under Section 414(b) or (c) of the
Code.
(b) With respect to each Plan identified on SCHEDULE 3.14:
(i) Each Plan is in compliance in all material respects with
all applicable material requirements of law (including, without
limitation, the Code and ERISA) that relate to the Plan; and
34
<PAGE> 14
(ii) Full payment or accrual has been made of all amounts
which are required, under applicable law or under the Plan, to have
been paid as a contribution or a benefit.
3.15 TAXES. The Company (i) has timely filed all material federal,
state, local and foreign tax returns (including but not limited to all
employment tax returns) required to be filed by it for tax years ended prior to
the date of this Agreement or requests for extensions have been timely filed
and any such request shall have been granted and not expired and all such
returns are complete in all material respects, (ii) has paid or accrued all
taxes, including interest and penalties, if any, shown to be due and payable
(and believed by the Company to be owed) on such returns other that such taxes
as are being contested by the Company in good faith and has paid all real
property taxes that are a lien and due and payable, (iii) has properly accrued
all such taxes for such periods subsequent to the periods covered by such
returns, and (iv) is not aware of the existence of any tax liens on any of its
properties or assets.
3.16 PATENTS AND TRADEMARKS. The Company owns all United States
patents, trademarks, service marks, trade names, copyrights and applications
with respect thereto, or has entered into a subsisting license agreement with
respect thereto, which are necessary for the conduct of the Business as now
conducted, with no conflict with, or infringement of, any patent, trademark,
service mark, trade name or copyright owned by any person. SCHEDULE 3.16
contains a listing of all such patents, trademarks, service marks, trade names,
copyrights and applications with respect thereto and license agreements.
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3.17 FRANCHISES, LICENSES, PERMITS, ETC. The Company owns or
possesses all governmental franchises, licenses, permits, and other
authorizations which are necessary for it to conduct the Business other than
permits, licenses and other authorizations required by (i) Environmental Laws
which are referred to in Section 3.13, (ii) the City of Houston Fire Code which
is referred to in Item I on SCHEDULE 3.6 and (iii) the City of Houston Building
Code which is referred to in Item II on SCHEDULE 3.6 ("Licenses"). Except as
set forth on SCHEDULE 3.6 and SCHEDULE 3.13, the Company is not in default and
has not received any written notice of any claim of default, with respect to
any such License, or any written notice of any other claim or proceeding or
threatened proceeding relating to any such License or claimed lack of any
necessary License.
3.18 INSURANCE. SCHEDULE 3.18 is a true and correct list of all the
policies of insurance covering the Business in effect prior to the Closing.
3.19 BROKERS. Other than McDonald & Company Securities, Inc., whose
fees shall be paid by Seller, neither Seller nor any officer, director or agent
of Seller has incurred, on behalf of Seller, any liability to any broker,
finder or agent for any broker's or finder's fee or commission with respect to
any of the transactions contemplated by this Agreement.
3.20 GUARANTEES. Except as set forth on SCHEDULE 3.20, the Company
has not guaranteed any indebtedness or obligation of any party.
3.21 SCHEDULES. Matters disclosed on any Schedule to this Agreement,
to the extent such disclosure represents an omission from any other Schedule to
this Agreement, shall be deemed to have been disclosed on such Schedule.
Seller shall have the right to
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make non-material changes or supplements to the Schedules following the
date of this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF THE BUYER. Buyer represents and
warrants to Seller as follows:
4.1 ORGANIZATION AND POWERS. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite power and authority to own its properties and assets and
carry on its business as now conducted.
4.2 POWER AND AUTHORIZATION. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by the board of directors and, if necessary,
the shareholders of Buyer in accordance with all applicable laws and the
articles of incorporation and by-laws of Buyer, and at the Closing Date no
further corporate action will be necessary on the part of the Buyer to make
this Agreement binding and enforceable upon Buyer in accordance with their
terms.
4.3 CONFLICT WITH OTHER AGREEMENTS, APPROVALS. The execution and
delivery of this Agreement by Buyer and the consummation of the transactions
contemplated hereby and thereby (i) are not contrary to the articles of
incorporation or by-laws of Buyer, (ii) do not now, and will not, with the
passage of time, the giving of notice or otherwise, result in a violation or
breach of, or constitute a default under, any material agreement or instrument
to which Buyer is a party or is bound and (iii) to the knowledge of Buyer, do
not violate any applicable law, statute, rule or regulation or require any
authorization, consent, approval or other action by, or any notice to or filing
with, any
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court or administrative or governmental body which has not been obtained, given
or done, except for filings and approvals pursuant to the H-S-R Act.
4.4 SUFFICIENT FUNDS. Buyer has secured sufficient financing to enable
it to pay the Purchase Price hereunder.
4.5 ACCESS TO INFORMATION. Buyer has had access to all information
requested by Buyer from Seller or its representatives concerning the Business
and has completed its due diligence investigation of the Business prior to
executing this Agreement. Buyer has had the opportunity to have all of its
questions answered by, and obtain additional information from, Seller or its
representatives necessary to verify the accuracy of the information furnished
by or obtained from Seller or its representatives, concerning the Business.
BUYER ACKNOWLEDGES THAT SELLER HAS MADE NO REPRESENTATIONS OR WARRANTIES
CONCERNING THE BUSINESS EXCEPT AS EXPRESSLY SET FORTH HEREIN ON WHICH BUYER IS
RELYING IN ITS DETERMINATION TO ENTER INTO AND CONSUMMATE THIS TRANSACTION.
4.6 BROKERS. Neither Buyer nor any officer, director or agent of Buyer
has incurred, on behalf of Buyer, any liability to any broker, finder or agent
for any broker's or finder's fee or commission with respect to any of the
transactions contemplated by this Agreement.
5. CONDUCT OF THE BUSINESS PRIOR TO CLOSING. Except as may be
approved in writing by Buyer, from and after the date hereof to the Closing
Date:
5.1 BUSINESS. Seller will cause the Company to conduct and operate the
Business in the ordinary course consistent with past practice.
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5.2 MAINTENANCE OF PROPERTIES, PERMITS, FRANCHISES, LICENSES. ETC. Seller
will cause the Company, at its own expense, to maintain all of its assets in
customary repair, order and condition, except for reasonable wear and tear
and damage by unavoidable casualty.
6. H-S-R ACT. Seller and Buyer have made or promptly shall make appropriate
filings with the Federal Trade Commission and the Department of Justice
pursuant to the H-S-R Act and shall comply with any and all reasonable requests
for additional information as soon as possible after receipt of such requests
and shall request early termination thereunder.
7. CONSENTS. Seller and Buyer shall each use their best efforts to obtain
all consents or authorizations of third parties as set forth in SCHEDULE 10.4
which may be necessary or reasonably required in order to effect the
transactions contemplated by this Agreement.
8. ACCESS TO BUSINESS AND RECORDS.
(a) Between the date hereof and the Closing Date and in the absence of
any breach of this Agreement by either party, Seller grants to Buyer and its
officers, employees, attorneys, accountants and agents, the right, during
normal business hours, to inspect the books, records, properties and
inventory of the Company and to consult with designated officers, attorneys
and agents of the Company for the purpose of determining the accuracy of the
representations and warranties made herein; provided that no such visit,
inspection of records or consultation shall be made unless Buyer shall first
inform the President of the Company of the time and place of the proposed
visit and the general purposes thereof and coordinate with such
officer the arrangements therefor.
(b) For a period of five (5) years after Closing, Buyer shall preserve
all files and records relating to the Business and shall allow
representatives of Seller access to
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such files and records and the right to make copies and extracts therefrom
during normal business hours. After such five-year period, Buyer may give
Seller written notice of its intention to dispose of any specified part of
such files and records, in which case Seller may notify Buyer within sixty
(60) days of receipt of the notice of Seller's desire to retain one or more
of the items to be disposed of and Buyer shall thereupon deliver such items
to Seller.
9. CONFIDENTIAL INFORMATION AND NONDISCLOSURE.
(a) If a closing of the transactions contemplated hereby does not take
place, Buyer shall keep confidential, and shall cause any of its
representatives to keep confidential, any information obtained from the
Company, Seller or their representatives concerning the Business and, without
limiting the generality of the foregoing, shall comply with the provisions of
any confidentiality agreement previously signed by Buyer or any of its
affiliates.
(b) Except as may be required in connection with governmental filings,
or as required by law or the rules of any relevant stock exchanges, any
announcements or similar publicity with respect to the transactions
contemplated herein, including announcements to employees and disclosures to
third parties, will be agreed upon by Buyer and Seller as to content, timing
and method of dissemination before issuance.
10. CONDITIONS PRECEDENT TO OBLIGATION OF BUYER. The obligation of Buyer
to consummate the transactions provided for in this Agreement shall be subject
to the following conditions:
10.1 REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER. The
representations and warranties of Seller herein contained shall be true and
correct in all material respects
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at the Closing Date with the same effect as though made at such time except to
the extent waived hereunder or affected by the transactions contemplated
herein; Seller shall have complied in all material respects with all
agreements, undertakings, covenants and conditions required by this Agreement
to be complied with by it at or prior to the Closing Date; and Seller shall
have delivered to Buyer a certificate in form and substance reasonably
satisfactory to Buyer dated the Closing Date and signed by the President or a
Vice President of Seller to such effect.
10.2 PENDING LITIGATION. There shall not be any litigation or proceeding
pending which seeks to restrain or invalidate the transactions contemplated by
this Agreement.
10.3 H-S-R ACT COMPLIANCE. All applicable waiting periods under the H-S-R
Act shall have expired or early termination thereof shall have been granted.
10.4 THIRD PARTY CONSENTS. The consent to or approval of the transactions
contemplated by this Agreement from each person whose consent or approval is
identified on SCHEDULE 10.4 to this Agreement as being required prior to the
consummation of such transactions shall have been obtained.
10.5 OPINION OF COUNSEL FOR SELLER. Buyer shall have received an opinion
dated the Closing Date of Benesch, Friedlander, Coplan & Aronoff, counsel for
Seller, reasonably satisfactory in form and substance to Buyer and its
counsel, to the effect that:
(a) The Company is authorized to issue five million (5,000,000) shares of
common stock, no par value, of which, based on an examination of the
corporate record book of the Company, two hundred nine thousand five
hundred (209,500) shares are duly and validly issued and outstanding, fully
paid and nonassessable.
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(b) Based solely upon a review of the corporate record book of the Company,
Seller owns of record and, to the knowledge of counsel for Seller,
beneficially, all of the issued and outstanding shares of capital stock of the
Company (the "Shares"). On delivery of the Shares to Buyer and payment for
the Shares in accordance with the terms of this Agreement, Buyer will acquire
the Shares free of any adverse claims of which Buyer did not have notice,
except to the extent that Buyer has been a party to any fraud or illegality
affecting the Shares.
(c) All corporate action required to have been taken by Seller to authorize
and effect the execution and delivery of this Agreement by Seller and the
carrying out of the transactions contemplated hereby has been taken; this
Agreement constitutes the legal, valid and binding obligation of Seller and is
enforceable against it in accordance with its terms subject to any bankruptcy,
insolvency, moratorium or other laws affecting the enforcement of creditors'
rights.
(d) Except as set forth in any Schedule to this Agreement, the execution and
delivery of this Agreement by Seller and the consummation of the transactions
contemplated hereby (i) are not in conflict with the certificate of
incorporation or by-laws of Seller and (ii) do not constitute a default under,
and are not in conflict with, any Contract listed on SCHEDULE 3.10 to this
Agreement.
10.6 SECRETARY'S CERTIFICATE. Buyer shall have received a certificate,
dated as of the Closing Date, executed by Seller's Secretary certifying that
the resolutions, as attached to such certificate, were duly adopted by Seller's
Board of Directors, authorizing and approving the execution of this Agreement
and the consummation of the transaction contemplated hereby and that such
resolutions remain in full force and effect.
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10.7 DISCHARGE OF INDEBTEDNESS AND RELEASE. The Company shall have
discharged certain of its indebtedness to the Wilson Group in the approximate
principal amount of Two Millon Four Hundred Thousand Dollars ($2,400,000) and
shall have delivered to Buyer a fully executed release of any mortgage or deed
of trust related to such indebtedness.
10.8 RETIREMENT PLAN. The Company and Seller shall have executed and the
Company shall have delivered a Retirement Plan Agreement in the form of
Exhibit B to this Agreement.
10.9 CERTAIN LIENS AND GUARANTEES. At or prior to the Closing, Seller
shall cause to be discharged the encumbrances referred to on Items A5, B1, B2
and B3 of SCHEDULE 3.9 and any related guarantee of Seller's indebtedness with
respect thereto described on SCHEDULE 3.20.
11. CONDITIONS PRECEDENT TO OBLIGATION OF SELLER. The obligation of
Seller to consummate the transactions provided for in this Agreement shall be
subject to the following conditions:
11.1 REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER. The
representations and warranties of Buyer contained herein shall be true and
correct in all material respects at the Closing Date with the same effect as
though made at such time; Buyer shall have complied in all material respects
with all agreements, undertakings, covenants and conditions required by this
Agreement to be complied with by it at or prior to the Closing Date; and Buyer
shall have delivered to Seller a certificate of Buyer in form and substance
satisfactory to Seller dated the Closing Date and signed by the President of
Buyer to such effect.
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11.2 PENDING LITIGATION. There shall not be any litigation or proceeding
pending which seeks to restrain or invalidate the transactions contemplated by
this Agreement, or which would result in the obtaining of material damages or
other relief in connection with this Agreement or the consummation of the
transactions contemplated by this Agreement.
11.3 H-S-R ACT COMPLIANCE. All applicable waiting periods under the H-S-R
Act shall have expired or early termination thereof shall have been granted.
11.4 CASH, INTERCOMPANY RECEIVABLES AND PAYABLES. The Company shall have
(a) transferred any and all cash on the books of the Company as of the Closing
Date to Seller and (b) the intercompany payables and receivables between
Seller and the Company shall be cancelled effective as of the Closing Date.
11.5 OPINION OF COUNSEL FOR BUYER. Seller shall have received an opinion
dated the Closing Date of Winstead Sechrest & Minick, counsel for Buyer,
satisfactory in form and substance to Seller and its counsel, to the effect
that:
(a) Buyer is a corporation duly formed, validly existing and in good
standing under the laws of the State of Delaware.
(b) All corporate action required to have been taken by Buyer to authorize
and effect the execution and delivery of this Agreement by Buyer and the
carrying out by Buyer of the transactions contemplated hereby and thereby has
been taken; this Agreement constitutes the legal, valid and binding obligations
of Buyer and are enforceable against it in accordance with their terms, subject
to any bankruptcy, insolvency, moratorium or other laws affecting the
enforcement of creditors' rights.
(c) The execution and delivery of this Agreement by Buyer and the
consummation of the transactions contemplated hereby (i) are not in conflict
with the
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articles of incorporation or by-laws of Buyer and (ii) do not now, and will
not, with the passage of time, the giving of notice or otherwise, result in a
violation or breach of, or constitute a default under, any material agreement
or instrument to which Buyer is a party or is bound and which is known to such
counsel.
11.6 INSURANCE POLICIES. The parties acknowledge that the policies of
insurance covering the Business in effect prior to the Closing set forth on
SCHEDULE 3.18 will have been cancelled effective as of the Closing Date and
Buyer shall have procured policies of insurance in replacement thereof.
11.7 SECRETARY'S CERTIFICATE. Seller shall have received a certificate,
dated as of the Closing Date, executed by Buyer's Secretary certifying that
the resolutions, as attached to such certificate, were duly adopted by Buyer's
Board of Directors, authorizing and approving the execution of this Agreement
and the consummation of the transaction contemplated hereby and that such
resolutions remain in full force and effect.
12. TERMINATION OF AGREEMENT; SPECIFIC PERFORMANCE.
(a) Anything herein or elsewhere to the contrary notwithstanding, this
Agreement may be terminated by written notice of termination at any time
before the Closing Date only as follows:
(i) by mutual consent of Buyer and Seller;
(ii) by Seller upon written notice to Buyer on or after December 29, 1995
if the Closing shall not have occurred on or prior to such date;
(iii) by Buyer, if any of the conditions contained in Section 10 have not
been fulfilled in all respects; or (iv) by Seller, if any of the conditions
contained in Section 11 have not been fulfilled in all respects.
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(b) In the event of the termination and abandonment hereof pursuant to the
provisions of this Section 12, this Agreement shall become void and have no
effect, without any liability on the part of any of the parties or their
partners, affiliates, directors, officers or shareholders in respect of this
Agreement except that Buyer's obligations under Section 9 hereof shall survive
such termination and except that any such termination shall be without
prejudice to the terminating party's legal rights and remedies by reason of
any breach of this Agreement occurring prior to such termination.
13. INDEMNIFICATION. From and after the Closing, subject to the limitations set
forth below, Buyer and Seller shall be indemnified as set
forth below regardless of any investigation made by them.
13.1 INDEMNIFICATION BY SELLER.
(a) Subject to the other provisions of this Section 13, Seller will
indemnify, defend and hold Buyer and its employees, representatives, officers,
directors, affiliates, and agents (the "Buyer Group") harmless from and
against any and all costs, expenses, losses, damages and liabilities
(including, without limitation, reasonable legal fees and expenses) ("Losses")
suffered by Buyer or any other member of the Buyer
Group resulting from, arising out of, or incurred with respect to, or (in the
case of claims asserted against Buyer or any other member of the Buyer Group by
a third party) alleged to result from, arise out of or have been incurred with
respect to, (i) any breach of, or inaccuracy in, any representation or warranty
made by Seller or any failure of Seller to perform any covenant made by Seller
pursuant to this Agreement or (ii) any claims, demands, suits, investigations,
proceedings or actions by any third party arising out of allegations that, if
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true, would constitute a breach of, or inaccuracy in, any such representation
or warranty or a failure to perform any such covenant.
(b) With regard to the compliance and reclamation issues at the Port
Terminal Facility which are generally described in Item I.H of SCHEDULE 3.13,
Seller will indemnify, defend and hold harmless the Buyer Group in connection
with any Losses sustained by the Buyer Group within three (3) years after the
Closing with respect to violations of any Environmental Law prior to the
Closing as described in such Item I.H; provided, however, that such indemnity
shall be limited to the Buyer Group's actual cost of any third-party consulting
fees and capital items procured for any remediation relating to such violation
as required by or otherwise agreed to with any governmental authority;
provided, further, that such indemnification by Seller shall be limited to Five
Hundred Thousand Dollars ($500,000) of which third-party consulting fees shall
be limited to Fifty Thousand Dollars ($50,000); provided, further, that Seller
will not be liable to the Buyer Group for such indemnification until the
aggregate amount of all such Losses exceeds Thirty Thousand Dollars ($30,000)
and then only to the extent such Losses exceed Thirty Thousand Dollars
($30,000); provided, further, that Buyer shall use its best efforts to pursue
remedies available under the Texas Risk Reduction Rules criteria.
(c) With regard to the circumstances at the Superfund Sites (as described
in Items I.A, I.B, I.C and I.D of SCHEDULE 3.13), Seller will indemnify,
defend and hold harmless the Buyer Group from and against any and all Losses
sustained by the Buyer Group within three (3) years after the Closing
resulting from any contamination attributed to the Company at any of such
Superfund Sites arising out of such circumstances where such contamination
occurred prior to the Closing Date and where the costs of such
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remediation are required to be paid by the Company pursuant to any
Environmental Law; provided, however, that such indemnification by Seller shall
be limited to Two Hundred Thousand Dollars ($200,000).
(d) With regard to the circumstances at the Middle Street Remediation
Project (as described in Item I.I of SCHEDULE 3.13), Seller will indemnify,
defend and hold harmless the Buyer Group for any and all Losses sustained by
the Buyer Group within three (3) years after the Closing; provided, however,
that such indemnification by Seller shall be limited to One Hundred Fifty
Thousand Dollars ($150,000).
(e) With regard to any Superfund site(s) at which the Company may in the
future be named by the United States Environmental Protection Agency, the Texas
Natural Resource Conservation Commission or any other governmental body as a
potentially responsible party or incur any response costs for activities of the
Company which occurred prior to the Closing Date and which is/are not disclosed
on SCHEDULE 3.13, Seller will indemnify, defend and hold harmless the Buyer
Group for the aggregate Losses resulting therefrom, which indemnification shall
not exceed Five Hundred Thousand Dollars ($500,000) and shall further be
subject to the cap on liability referred to in Section 13.1(g) below.
(f) Seller's obligation to indemnify the Buyer Group under Section 13.1(a)
shall terminate eighteen (18) months after the Closing Date; provided, however,
that (i) Seller's obligation to indemnify the Buyer Group under Section 13.1(a)
for any breach of, or inaccuracy in, any representation or warranty made by
Seller under Section 3.13 shall terminate three (3) years after the Closing
Date and (ii) Seller's obligation to indemnify the Buyer Group under Section
13.1(a) for any breach of, or inaccuracy in, any
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representation or warranty made by Seller under Sections 3.14 and 3.15 shall
terminate four (4) years after the Closing Date, except that any claim for
indemnification made by any member of the Buyer Group for Losses sustained by
the Buyer Group, which claim is made during such limitation periods shall
survive until resolved.
(g) Notwithstanding the foregoing, Seller will not be liable to the Buyer
Group for any Losses resulting from any right to indemnification under Section
13.1(a) of this Agreement until the aggregate amount of such Losses exceeds One
Hundred Thousand Dollars ($100,000) and then only to the extent such Losses
exceed One Hundred Thousand Dollars ($100,000); provided, however, that this
One Hundred Thousand Dollar ($100,000) limitation shall not apply to Section
13.1(b) of this Agreement and provided further that Losses incurred by Buyer
arising out of Item I on SCHEDULE 3.11 shall be applied against such One
Hundred Thousand Dollar ($100,000) limitation. The total liability of Seller
for Losses resulting from any right to indemnification under the Agreement
(including amounts paid directly to third parties rather than to members
of the Buyer Group) shall not exceed Six Million Dollars ($6,000,000).
(h) For purposes of determining whether Seller has an obligation to
indemnify the Buyer Group under Section 13.1(a) for any breach of, or
inaccuracy in, any representation or warranty made by Seller under Section
3.13, SCHEDULE 3.13 shall establish a presumption that the disclosures made on
SCHEDULE 3.13 are the only circumstances requiring disclosure on such
Schedule pursuant to the provisions of Section 3.13.
13.2 INDEMNIFICATION by Buyer. Subject to the other provisions of this
Section 13, Buyer will indemnify, defend and hold Seller and its employees,
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representatives, officers, directors, affiliates and agents (the "Seller
Group") harmless from and against any Losses suffered by Seller or any other
member of the Seller Group resulting from, arising out of, or incurred with
respect to, or (in the case of claims asserted against Seller or any other
member of the Seller Group by a third party) alleged to result from, arise out
of or have been incurred with respect to:
(a) any breach of, or inaccuracy in, any representation of warranty made by
Buyer or any failure of Buyer to perform any covenant made by Buyer under this
Agreement;
(b) any claims, demands, suits, investigations, proceedings or actions by
any third party arising out of allegations that, if true, would constitute a
breach of, or inaccuracy in, any such representation or warranty or a failure
to perform any such covenant; and
(c) Buyer's ownership or operation of the Business after the Closing.
13.3 NOTICE AND RESOLUTION OF CLAIM.
(a) An indemnified party under this Agreement will promptly give written
notice to the indemnifying party after obtaining knowledge of: (i) any claim
the indemnified party has against the indemnifying party not involving a third
party claim or litigation; or (ii) any third party claim or litigation against
the indemnified party as to which recovery may be sought against the
indemnifying party because of the indemnity set forth in Section 13.1 or
Section 13.2, specifying in reasonable detail the claim or litigation and the
basis for indemnification; provided, that the failure of the indemnified party
promptly to notify the indemnifying party of any such matter will not release
the indemnifying party, in whole or in part, from its obligations under this
Section 13 except
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to the extent the indemnified party's failure so to notify actually prejudices
the indemnifying party's ability to defend against such third party claim or
litigation. If such claim for indemnity arises from the claim or litigation of
a third party, the indemnified party will permit the indemnifying party to
assume the defense of any such claim, litigation or any litigation resulting
from such claim. If the claim for indemnity arises from the occurrence of a
cost or expense constituting a Loss, the indemnified party shall furnish a copy
of the invoice or other evidence of the cost or expense together with evidence
of payment thereof to the indemnifying party. The indemnifying party shall
reimburse the indemnified party within thirty (30) days of receipt of such
materials for each such item of Loss as to which it has been finally determined
or agreed to by the parties that the party incurring such Loss is entitled to
indemnification hereunder.
(b) If the indemnifying party assumes the defense of any such third party
claim or litigation, the obligations of the indemnifying party under this
Agreement will include taking all steps necessary in the investigation,
defense or settlement of such claim or litigation (including the retention of
legal counsel) and holding the indemnified party harmless from and against any
and all Losses caused by or arising out of any settlement approved by the
indemnifying party or any judgment in connection with such claim or litigation.
The indemnifying party will not, in the defense of such claim or litigation,
consent to entry of any judgment (except with the written consent of the
indemnified party), or enter into any settlement (except with the written
consent of the indemnified party): (i) which does not include as an
unconditional term thereof the giving by the claimant or the plaintiff to the
indemnified party a complete release from all liability in respect of such
claim or litigation; or (ii) the effect of which is to permit any
injunction,
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declaratory judgment, other order or other nonmonetary relief to be entered,
directly or indirectly, against any indemnified party. The indemnifying party
will permit the indemnified party to participate in such defense or settlement
through counsel chosen by the indemnified party, with the fees and expenses of
such counsel borne by the indemnified party.
(c) Failure by the indemnifying party to notify the indemnified party of its
election to assume the defense of any such claim or litigation by a third party
within thirty (30) days after notice thereof has been given to the indemnifying
party will be deemed a waiver by the indemnifying party of its right to assume
the defense of such claim or litigation. If the indemnifying party does not
assume the defense of such claim or litigation by a third party, the
indemnified party may defend or settle such claim or litigation in such manner
as the indemnified party may deem appropriate and may settle such claim or
litigation on such terms as it may deem appropriate; provided, however, that in
settling any action in respect of which indemnification is payable under this
Section 13, it will act reasonably and in good faith and shall afford the
indemnifying party the opportunity to participate in such defense.
13.4 ASSIGNMENT OF CLAIM. In the event that any of the Losses for which
an indemnifying party is responsible or allegedly responsible are recoverable
or potentially recoverable against any third party, then the indemnified party
will assign any and all rights that it may have to recover such Losses to the
indemnifying party, or, if such rights are not assignable under applicable law
or otherwise, the indemnified party under this Agreement will attempt in good
faith to collect any and all damages and losses on account
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thereof from such third party for the benefit of, and at the expense and
direction of, the indemnifying party.
13.5 COOPERATION BY BUYER. In the event a claim for indemnification
under Section 13.1 arises from claims involving the Real Property purchased by
Buyer and Seller requires access to such property for the purpose of
investigating the claim or undertaking remediation or corrective action, Buyer
agrees that it will grant to Seller and its representatives and agents a right
of reasonable access to such property for such purposes at any and all times
Buyer occupies such facilities.
14. WAIVER OF TERMS. Any of the terms or conditions of this Agreement may be
waived at any time by the party which is entitled to the benefit thereof but
only by a written instrument signed by such party, and any such waiver shall
not be deemed a waiver of any other term or condition of this Agreement.
15. AMENDMENT OF AGREEMENT. This Agreement may be amended, modified or
supplemented only by written instrument duly executed by the parties.
16. PAYMENT OF EXPENSES. Buyer and Seller shall each pay their own expenses,
including, without limitation, the expenses of their own counsel and
accountants and any broker's, finder's or similar agent's fee, if any,
incurred in connection with this Agreement and the transactions contemplated
hereby. Buyer shall pay any sales or other transfer taxes that may be due in
connection with the exchange and surrender of the Shares.
17. GENERAL.
17.1 COOPERATION. Subject to the terms and conditions herein
provided, each of the parties hereto shall use its best efforts to take, or
cause to be taken, such action, to execute and deliver, or cause to be executed
and delivered, such governmental
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notifications and additional documents and instruments and to do, or cause to
be done, all things necessary, proper or advisable under the provisions of this
Agreement and under applicable law to consummate and make effective the
transactions contemplated by this Agreement.
17.2 TAXES. Seller, Buyer and Company will provide each other with such
prompt cooperation and information as any of them reasonably may request of the
others in filing any tax returns of the types described in Section 3.15
("Returns"), amended Returns or claims for refund, determining a liability for
taxes or a right to a refund of taxes, participating in or conducting any audit
or other proceeding in respect of taxes. Such cooperation and information
shall include providing copies of relevant Returns or portions thereof,
together with accompanying schedules, related work papers and documents
relating to rules or other determinations by tax authorities. Seller, Buyer and
Company shall retain all Returns, schedules and work papers, records and other
documents in its possession relating to tax matters of the Company for each
taxable period until the later of (i) the expiration of the statute of
limitations of the taxable periods to which such Returns and other documents
relate, or (ii) six (6) years following the due date for such Returns. Any
information obtained under this Section 17.2 shall be kept confidential except
as may be otherwise necessary in connection with the filing of Returns or
claims for refund or in conducting an audit or other proceeding.
18. COUNTERPARTS. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original, but all of such counterparts
together shall be deemed to be one and the same instrument.
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<PAGE> 34
19. CONTENTS OF AGREEMENT, PARTIES IN INTEREST, ASSIGNMENT, ETC. This
Agreement sets forth the entire understanding of the parties with respect to
the subject matter hereof. Any previous agreements or understandings between
the parties regarding the subject matter hereof are merged into and superseded
by this Agreement. This Agreement may not be assigned by either party except
with the prior written consent of the other party. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
successors and permitted assigns of the parties hereto. Nothing herein express
or implied is intended or shall be construed to confer upon or to give any
person, other than the parties and their respective successors or assigns, any
rights or remedies under or by reason of this Agreement.
20. SECTION HEADINGS, GENDER AND "PERSON". The section headings herein have
been inserted for convenience of reference only and shall in no way modify or
restrict any of the terms or provisions hereof. The use of the masculine or
any other pronoun herein when referring to any party has been for convenience
only and shall be deemed to refer to the particular party intended regardless
of the actual gender of such party or whether such party is a corporate or
other entity. Any reference to a "person" herein shall include an individual,
firm, corporation, partnership, trust, government or political subdivision or
agency or instrumentality thereof, association, unincorporated organization or
any other entity.
21. NOTICE. All notices, consents, waivers or other communications which are
required or permitted hereunder shall be sufficient if given in writing and
delivered personally, by Federal Express or similar overnight delivery, by
telecopy or facsimile transmission, or by registered or certified mail, return
receipt requested, postage prepaid, as follows (or to such other addressee or
address as shall be set forth in a notice given in the same manner):
55
<PAGE> 35
If to Buyer:
South Coast Delaware, Inc.
c/o KMCO, Inc.
16503 Ramsey Road
Crosby, Texas 77532
Attention: Artie R. McFerrin
With a required copy to:
Robert C. Finley
210 West Sixth Street, Suite 605
Fort Worth, TX 76102
Facsimile: (817) 335-8434
and
Winstead Sechrest & Minick
910 Travis Building, Suite 1700
Houston, TX 77002-5895
Attention: Douglas S. Craig, Jr.
Facsimile: (713) 951-3800
If to Seller or to the Company:
Sudbury, Inc.
30100 Chagrin Blvd., Suite 203
Pepper Pike, Ohio 44124
Attention: Chief Financial Officer
Facsimile: (216) 464-4429
With a required copy to:
Benesch, Friedlander, Coplan & Aronoff
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114
Attention: Ira C. Kaplan
Facsimile: (216) 363-4588
All such notices shall be deemed to have been given on the date delivered or
telecopied in the manner provided above.
56
<PAGE> 36
22. PRESS RELEASES. Prior to the Closing, neither party will issue or cause
the publication of any press release or other public announcement with respect
to this Agreement or the transactions contemplated hereby without the prior
written consent of the other party.
23. GOVERNING LAW. This Agreement shall be construed and interpreted in
accordance with the laws of the State of Texas.
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<PAGE> 37
IN WITNESS WHEREOF, this Agreement has been executed as of the day and year
first above written.
BUYER:
------
SOUTH COAST DELAWARE, INC.
By:______________________________________________________
Its:_____________________________________________________
SELLER:
-------
SUDBURY, INC.
By:_____________________________________________________
Its:___________________________________________________
THE COMPANY:
------------
SOUTH COAST TERMINALS, INC.
By:____________________________________________________
Its:__________________________________________________
58
<PAGE> 38
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Effect of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Purchase Price and Surrender of Stock Certificates . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Discharge of Certain Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.5 Purchase Price Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.6 Cash and Intercompany Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.7 Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Time and Place of Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Items to be Delivered at Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. Representations and Warranties of the Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.1 Title to Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.2 Powers and Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.3 No Conflicts; No Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.4 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.5 Organization of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.6 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.7 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.8 No Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.9 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.10 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.11 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.12 Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.13 Environmental Permits and Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.14 Employee Benefit Plans and Other Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.15 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.16 Patents and Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.17 Franchises, Licenses, Permits, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.18 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.19 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.20 Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.21 Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
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<PAGE> 39
<TABLE>
<CAPTION>
<S> <C> <C>
4. Representations and Warranties of the Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.1 Organization and Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.2 Power and Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.3 Conflict with Other Agreements, Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.4 Sufficient Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.5 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.6 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5. Conduct of the Business Prior to Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.1 Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.2 Maintenance of Properties, Permits, Franchises, Licenses etc . . . . . . . . . . . . . . . . . . 17
6. H-S-R Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7. Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8. Access to Business and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9. Confidential Information and Nondisclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
10. Conditions Precedent to Obligation of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
10.1 Representations, Warranties and Covenants of Seller . . . . . . . . . . . . . . . . . . . . . . . 19
10.2 Pending Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
10.3 H-S-R Act Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
10.4 Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
10.5 Opinion of Counsel for Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
10.6 Secretary's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
10.7 Discharge of Indebtedness and Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
10.8 Retirement Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
10.9 Certain Liens and Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11. Conditions Precedent to Obligation of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.1 Representations, Warranties and Covenants of Buyer . . . . . . . . . . . . . . . . . . . . . . . 21
11.2 Pending Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
11.3 H-S-R Act Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
11.4 Cash and Intercompany Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
11.5 Opinion of Counsel for Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
11.6 Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
11.7 Secretary's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
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<PAGE> 40
<TABLE>
<S> <C> <C>
12. Termination of Agreement; Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
13. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
13.1 Indemnification by Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
13.2 Indemnification by Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
13.3 Notice and Resolution of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
13.4 Assignment of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
13.5 Cooperation by Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
14. Waiver of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
15. Amendment of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
16. Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
17. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
17.1 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
17.2 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
18. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
19. Contents of Agreement, Parties in Interest, Assignment, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
20. Section Headings, Gender and "Person" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
21. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
22. Press Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
23. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
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<PAGE> 41
AGREEMENT AND PLAN OF MERGER
AMONG SOUTH COAST DELAWARE, INC., SUDBURY, & SOUTH COAST
TERMINALS, INC.
Exhibit List:
Exhibit A - Purchase Price Allocation
Exhibit B - Retirement Plan Agreement
Exhibit C - Schedule 3.3 through Schedule 10.4
The Company agrees to furnish a copy of any omitted schedule to the Securities
& Exchange Commission upon request.
62
<PAGE> 1
EXHIBIT 10
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT is made and entered into this 12th day of
October, 1995, between Sudbury, Inc., a Delaware corporation, with its
principal office located at 30100 Chagrin Blvd., Cleveland, Ohio, 44124,
(together with its successors and assigns permitted under this Agreement, the
"Company"), and Mark E. Brody, who resides at 8985 Oakstone Trail, Chardon,
Ohio 44024, (the "Executive").
W I T N E S S E T H:
WHEREAS, the Executive is Vice President and Chief Financial Officer of
the Company and an integral part of its management; and
WHEREAS, the Company has determined that it is in the best interest of
the Company and its stockholders to enter into an employment agreement setting
forth the obligations and duties of both the Company and the Executive (this
"Agreement");
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and for other good and valuable consideration, the receipt of which is
mutually acknowledged, the Company and the Executive agree as follows:
1. DEFINITIONS.
- ----------------
a. "BASE SALARY" shall mean the Executive's annual salary, as adjusted
from time to time.
b. "BOARD" shall mean the Board of Directors of the Company.
c. "CAUSE" shall mean:
i. the Executive's fraud, dishonesty, willful misconduct or
deliberate injury to the Company or its subsidiaries in the performance
of his duties hereunder;
63
<PAGE> 2
ii. the Executive's intentional and repeated refusal or failure
to perform his duties consistent with his position with the Company; or
iii. the Executive's material breach of any provision of this
Agreement.
d. "CHANGE IN CONTROL" shall mean a change in control of the Company of
a nature that would be required to be reported in response to Item 6(e) of
Schedule 14A promulgated under the Exchange Act, whether or not the Company is
then subject to such reporting requirement; provided that, without limitation,
a Change in Control shall be deemed to have occurred:
i. if any "person" (as defined in subsection 3(a)(9)
of the Exchange Act and as used in subsections 13(d) and 14(d) of the
Exchange Act), other than a person with which the Executive is
affiliated or of which he is a part and other than any employee benefit
plan sponsored by the Company (including any trustee of such plan),
becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing 45% or more of the combined voting power of the
Company's then outstanding securities; or
ii. in the event of a plan of complete liquidation of
the Company or the sale or disposition by the Company of all or
substantially all of the Company's assets. An event or occurrence (or
series of events or occurrences) that would not otherwise constitute a
Change in Control under the foregoing shall be deemed to constitute a
Change in Control for purposes of this Agreement if the Board, by
majority vote, determines that a Change in Control does result
therefrom. A determination by directors under this subsection
1(d) shall be made solely for
64
<PAGE> 3
purposes of this Agreement and shall not directly or indirectly affect
any determination or analysis of whether a Change in Control results
for any other purpose. Any determination made with respect to whether
a change in control results for purposes of any other agreement or
plan of the Company shall have no effect for purposes of this
Agreement.
e. "CONSTRUCTIVE TERMINATION WITHOUT CAUSE" shall mean a termination of
the Executive's employment at his initiative following the occurrence, without
his prior written consent, of one or more of the following events (except in
connection with a termination of the Executive's employment for one of the
other reasons specified in Section 7 below):
i. a reduction in the Executive's Base Salary or the failure
of the Company to satisfy in all material respects its obligations to
protect the benefits provided for in Section 5 below, unless, in the
case of termination or reduction of such a benefit, (A) there is
substituted a comparable benefit that is economically equivalent to
such benefit prior to its termination or reduction, (B) the termination
or reduction of the benefit affects members of the senior management of
the Company generally or (C) the termination or reduction of the
benefit occurs pursuant to the Executive's direction or consent;
ii. the loss of any of the Executive's titles or positions;
iii. a significant diminution in the Executive's duties and
responsibilities or the assignment to the Executive of duties and
responsibilities inconsistent with his positions;
iv. the relocation of the Executive's principal place of
employment to a location that is more than thirty (30) miles from its
present location; or
65
<PAGE> 4
v. the failure of the Company to obtain the unconditional
assumption, in writing or by operation of law, of the Company's
obligation to the Executive under this Agreement by any successor prior
to or at the time of a reorganization, merger, consolidation,
disposition of all or substantially all of the assets of the Company
or similar transaction.
A Constructive Termination Without Cause shall not take effect
unless:
vi. the Executive has delivered written notice to the
Board within ninety days after he acquires knowledge of one of the
events providing a basis for Constructive Termination Without Cause,
stating which one of those events has occurred;
vii. within 30 days after the receipt of such notice the
Company has not remedied such event and provided him with a written
notice of such remedy; and
viii. if the Company has not remedied such event, the
Executive has notified the Company in writing that he is terminating
his employment.
The failure of the Executive to effect a Constructive Termination
Without Cause as to any one event shall not affect his entitlement to effect
a Constructive Termination Without Cause as to any other such event.
f. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and reference to any specific provisions of the
Exchange Act shall refer to the corresponding provisions of the Act as it may
hereafter be amended or replaced.
g. "TERMINATION WITHOUT CAUSE" shall mean a termination of the
Executive's employment by the Company other than due to Death, Disability or
for Cause.
66
<PAGE> 5
2. TERM OF EMPLOYMENT, POSITIONS AND DUTIES.
----------------------------------------
Subject to the terms and provisions of this Agreement, the Executive's
employment by the Company may be terminated by either party at any time, with
or without cause, upon notice to the other party. While employed by the
Company, the Executive shall devote his entire business time and all reasonable
efforts to his employment and shall perform such duties as are consistent with
the Executive's position with the Company and as are from time to time assigned
or delegated by the Board and as are set forth in the Company's By-laws.
3. BASE SALARY.
-----------
During his employment with the Company, the Executive shall receive a
Base Salary as shall be determined by the Board from time to time.
The Executive shall be entitled to participate in bonus plans that are
generally made available to senior executives of the Company.
4. ANNUAL BONUSES.
--------------
The Executive shall be eligible to receive such bonuses during his
employment as may be determined by the Board from time to time.
5. EXPENSE REIMBURSEMENT.
---------------------
During his employment with the Company, the Executive shall be entitled
to prompt reimbursement by the Company for all reasonable out-of- pocket
expenses incurred by him in performing services under this Agreement, upon his
submission of such accounts and records as may be required under Company
policy.
6. EMPLOYEE BENEFIT PLANS.
----------------------
While employed by the Company, the Executive shall be entitled to
participate in all employee benefit plans and programs made available to the
Company's senior executives or to its employees generally, as such plans or
programs may be in effect from time to time.
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<PAGE> 6
7. TERMINATION OF EMPLOYMENT.
-------------------------
a. TERMINATION BY THE COMPANY FOR CAUSE. In the event that the
Executive's employment is terminated for Cause, he shall be entitled to:
i. his Base Salary through the date of his termination for
Cause;
ii. any annual bonuses earned for prior years but not yet
paid;
iii. reimbursement in accordance with this Agreement of any
business expenses incurred by the Executive but not yet paid to him on
the date of his termination of employment; and
iv. other benefits accrued and earned by the Executive
through the date of termination in accordance with applicable plans
and programs of the Company.
b. TERMINATION WITHOUT CAUSE. In the event of a Termination Without
Cause, the Executive shall be entitled to:
i. his Base Salary, at the rate in effect on the date of his
termination of employment, for a period of twelve months from such
termination, payable in installments in accordance with past
practices;
ii. any annual bonuses earned for prior periods but not yet
paid;
iii. any annual bonus to which the Executive would have been
entitled, had he not been terminated, for the fiscal year during which
he is terminated, which bonus payment shall be made on a pro rata
basis, determined by reference to the number of days from the beginning
of the then current fiscal year to the date of such termination, as
compared to the total number of days in such fiscal year. Such bonus
shall be payable when bonuses pursuant to the bonus plan under which it
is earned are paid;
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<PAGE> 7
iv. reimbursement in accordance with this Agreement of any
business expenses incurred by the Executive but not yet paid to him on
the date of his termination of employment; and
v. other benefits accrued and earned by the Executive
through the date of termination in accordance with applicable plans
and programs of the Company.
c. TERMINATION WITHOUT CAUSE OR CONSTRUCTIVE TERMINATION WITHOUT CAUSE
FOLLOWING A CHANGE IN CONTROL. In the event of a Termination Without Cause or
a Constructive Termination Without Cause, in each case, within one year
following a Change in Control, the Executive shall be entitled to:
i. a lump-sum payment equal to two times his Base Salary, at
the rate in effect on the date of his termination of employment;
ii. any annual bonuses earned for prior periods but not yet
paid;
iii. any annual bonus to which the Executive would have been
entitled, had he not been terminated, for the fiscal year during which
he is terminated, which bonus payment shall be made on a pro rata
basis, determined by reference to the number of days from the beginning
of the then current fiscal year to the date of such termination, as
compared to the total number of days in such fiscal year. Such bonus
shall be payable when bonuses pursuant to the bonus plan under which it
is earned are paid;
iv. reimbursement in accordance with this Agreement of any
business expenses incurred by the Executive but not yet paid to him on
the date of his termination of employment; and
69
<PAGE> 8
v. other benefits accrued and earned by the Executive
through the date of termination in accordance with applicable plans
and programs of the Company.
d. TIMING OF PAYMENT. Except as otherwise expressly provided in this
Section 7, all payments required to be made to the Executive under this Section
7 shall be made no later than 30 days following the date of termination of
employment.
8. WITHHOLDING TAXES.
-----------------
All payments to the Executive or his estate or beneficiaries, as the
case may be, shall be subject to withholding on account of federal, state and
local taxes as required by law. If any payment hereunder is insufficient to
provide the amount of such taxes required to be withheld, the Company may
withhold such taxes from any other payment due hereunder.
9. ASSIGNABILITY; BINDING NATURE.
-----------------------------
This Agreement shall be binding upon and inure to the benefit of the
Company and the Executive and their respective successors, heirs (in the case
of the Executive) and assigns. No rights or obligations of the Company under
this Agreement may be assigned or transferred by the Company except that such
rights or obligations may be assigned or transferred pursuant to (i) a merger
or consolidation in which the Company is not the continuing entity or (ii) sale
or liquidation of all or substantially all of the assets of the Company,
provided that the assignee or transferee is the successor to all or
substantially all of the assets of the Company and such assignee or transferee
assumes the liabilities, obligations and duties of the Company, as contained in
this Agreement, either contractually or as a matter of law. The Company
further agrees that, in the event of a sale of assets or liquidation as
described in the preceding sentence, it will use its best efforts to cause such
assignee or transferee expressly to assume the liabilities, obligations
70
<PAGE> 9
and duties of the Company hereunder. No obligations of the Executive under
this Agreement may be assigned or transferred by the Executive.
10. ENTIRE AGREEMENT.
----------------
Except to the extent otherwise provided herein, this Agreement contains
the entire understanding and agreement between the parties concerning the
subject matter hereof and supersedes any prior agreements, whether written or
oral, between the parties concerning the subject matter hereof.
11. AMENDMENT OR WAIVER.
-------------------
No provision in this Agreement may be amended unless such amendment is
agreed to in writing and signed by both the Executive and an authorized officer
of the Company. No waiver by either party of any breach by the other party of
any condition or provision contained in this Agreement to be performed by such
other party shall be deemed a waiver of a similar or dissimilar condition or
provision at the same or any prior or subsequent time. Any waiver must be in
writing and signed by the Executive or an authorized officer of the Company, as
the case may be.
12. SEVERABILITY.
------------
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, in whole or in part,
the remaining provisions of this Agreement shall be unaffected thereby and
shall remain in full force and effect to the fullest extent permitted by law.
71
<PAGE> 10
13. SURVIVORSHIP.
------------
The respective rights and obligations of the parties hereunder shall
survive any termination of the Executive's employment with the Company to the
extent necessary to the intended preservation of such rights and obligations as
described in this Agreement.
14. BENEFICIARIES/REFERENCES.
------------------------
The Executive shall be entitled to select (and change, to the extent
permitted under any applicable law) a beneficiary or beneficiaries to receive
any compensation or benefit payable hereunder following the Executive's Death
by giving the Company written notice thereof. In the event of the Executive's
Death or of a judicial determination of his incompetence, reference in this
Agreement to the Executive shall be deemed, as appropriate, to refer to his
beneficiary, estate or other legal representative.
15. GOVERNING LAW/JURISDICTION.
--------------------------
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of Ohio, without reference to principles of conflict
of laws.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the date first above written.
/s/ Mark E. Brody
------------------------------
Mark E. Brody
SUDBURY, INC.
By: /s/ Jacques R. Sardas
----------------------------
Jacques R. Sardas
Chairman, Chief Executive
Officer and President
72
<PAGE> 1
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
SUDBURY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
NOVEMBER 30, NOVEMBER 30,
1995 1994
----------- -----------
(In thousands, except per share data)
<S> <C> <C>
PRIMARY
Average shares outstanding 10,547 10,377
Net effect of dilutive stock
options and other common
stock equivalents - based
on the treasury stock
method using average
market price 2,322 2,345
------- -------
TOTAL 12,869 12,722
======= =======
Net income $ 4,080 $ 3,425
======= =======
Per share amount $ .32 $ .27
======= =======
FULLY DILUTED
Average shares outstanding 10,547 10,377
Net effect of dilutive stock
options and other common
stock equivalents - based
on the treasury stock
method using the quarter end
market price if higher than
average market price 2,322 2,345
------- -------
TOTAL 12,869 12,722
======= =======
Net income $ 4,080 $ 3,425
======= =======
Per share amount $ .32 $ .27
======= ========
</TABLE>
73
<PAGE> 2
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
SUDBURY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------------------
NOVEMBER 30, NOVEMBER 30,
1995 1994
----------- -----------
(In thousands, except per share data)
<S> <C> <C>
PRIMARY
Average shares outstanding 10,447 10,326
Net effect of dilutive stock
options and other common
stock equivalents - based
on the treasury stock
method using average
market price 2,404 2,315
------- -------
TOTAL 12,851 12,641
======= =======
Net income $ 6,767 $ 5,644
======= =======
Per share amount $ .53 $ .45
======= =======
FULLY DILUTED
Average shares outstanding 10,447 10,326
Net effect of dilutive stock
options and other common
stock equivalents - based
on the treasury stock
method using the quarter end
market price if higher than
average market price 2,404 2,315
------- -------
TOTAL 12,851 12,641
======= =======
Net income $ 6,767 $ 5,644
======= =======
Per share amount $ .53 $ .45
======= =======
</TABLE>
74
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> NOV-30-1995
<CASH> 39
<SECURITIES> 0
<RECEIVABLES> 44,056
<ALLOWANCES> 0
<INVENTORY> 20,458
<CURRENT-ASSETS> 72,280
<PP&E> 80,128
<DEPRECIATION> 22,673
<TOTAL-ASSETS> 135,032
<CURRENT-LIABILITIES> 50,579
<BONDS> 20,035
<COMMON> 106
0
0
<OTHER-SE> 52,488
<TOTAL-LIABILITY-AND-EQUITY> 135,032
<SALES> 147,773
<TOTAL-REVENUES> 147,773
<CGS> 123,537
<TOTAL-COSTS> 12,679
<OTHER-EXPENSES> (66)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 966
<INCOME-PRETAX> 10,657
<INCOME-TAX> 3,890
<INCOME-CONTINUING> 6,767
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,767
<EPS-PRIMARY> .53
<EPS-DILUTED> .53
</TABLE>
