<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: November 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-19450
OAKHURST COMPANY, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 25-1655321
----------------------- ---------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
2751 CENTERVILLE ROAD, SUITE 3131, WILMINGTON, DELAWARE 19808
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(Address of principal executive offices)
(Zip Code)
(817) 416-0717
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(Registrant's telephone number, including area code)
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(Former name, former address, and former fiscal year, if changed since last
report)
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
--- ---
As of January 10, 2000, 4,943,018 shares of the Registrant's Common
Stock, $0.01 par value per share, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OAKHURST COMPANY, INC. AND SUBSIDIARIES
<TABLE>
<S> <C>
Condensed Consolidated Balance Sheets at November 30, 1999
and February 28, 1999..................................................... 3
Condensed Consolidated Statements of Operations for the three month
periods ended November 30, 1999 and November 30, 1998..................... 4
Condensed Consolidated Statements of Operations for the nine month
periods ended November 30, 1999 and November 30, 1998..................... 5
Condensed Consolidated Statements of Cash Flows for the nine month
periods ended November 30, 1999 and November 30, 1998..................... 6
Notes to Condensed Consolidated Financial Statements....................... 7
</TABLE>
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<PAGE> 3
OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS November 30, February 28,
1999 1999
------------ -----------
<S> <C> <C>
Current assets:
Cash ........................................................................ $ 65 $ 241
Trade accounts receivable, less allowance of $429 and $388, respectively .... 3,628 3,330
Other receivables ........................................................... 319 158
Inventories ................................................................. 5,386 6,045
Other ....................................................................... 169 159
-------- --------
Total current assets ...................................... 9,567 9,933
-------- --------
Property and equipment, at cost ...................................................... 2,329 2,045
Less accumulated depreciation ............................................... (1,490) (1,344)
-------- --------
839 701
-------- --------
Investments:
Equity ...................................................................... 3,455 1,125
Other ....................................................................... 2,745 1,379
Note receivable ...................................................................... 1,330 1,330
Excess of cost over net assets acquired, net ......................................... 1,935 2,080
Other assets ......................................................................... 296 328
-------- --------
9,761 6,242
-------- --------
$ 20,167 $ 16,876
======== ========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable ............................................................ $ 5,631 $ 5,662
Accrued compensation ........................................................ 477 509
Current maturities of long-term obligations ................................. 1,103 218
Current maturities of long-term obligations, related parties ................ 647 88
Accrued interest ............................................................ 527 78
Other accrued expenses ...................................................... 205 399
-------- --------
Total current liabilities ................................. 8,590 6,954
-------- --------
Long-term obligations:
Long-term debt .............................................................. 4,924 4,669
Long-term debt, related parties ............................................. 7,031 3,408
Other long-term obligations ................................................. 381 177
-------- --------
Total long-term obligations ............................... 12,336 8,254
-------- --------
Commitments and contingencies ........................................................ -- --
Stockholders' (deficit) equity:
Preferred stock, par value $0.01; authorized 1,000,000 shares, non issued ... -- --
Common stock, par value $0.01 per share; authorized 14,000,000
shares, issued 4,943,018 .................................................. 49 49
Additional paid-in capital .................................................. 47,204 47,204
Deficit (Reorganized on August 26, 1989) .................................... (48,011) (45,584)
Treasury stock, at cost, 207 common shares .................................. (1) (1)
-------- --------
Total stockholders' (deficit) equity ...................... (759) 1,668
-------- --------
$ 20,167 $ 16,876
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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<PAGE> 4
OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
<TABLE>
<CAPTION>
Three months Three months
Ended Ended
November 30, 1999 November 30, 1998
----------------- -----------------
<S> <C> <C>
Sales ......................................................... $ 7,324 $ 7,554
Other income .................................................. 47 79
---------- ----------
7,371 7,633
---------- ----------
Cost of goods sold, including occupancy and buying expenses ... 6,035 6,174
Operating, selling and administrative expenses ................ 1,530 1,414
Provision for doubtful accounts ............................... 31 28
Amortization of excess of cost over net assets acquired ....... 49 49
Interest expense .............................................. 400 123
---------- ----------
8,045 7,788
---------- ----------
Loss before loss on equity investment and income taxes ........ (674) (155)
Loss from equity investment ................................... (629) --
Income tax benefit ............................................ -- 3
---------- ----------
Net loss ...................................................... $ (1,303) $ (152)
========== ==========
Basic and diluted net loss per share .......................... $ (0.26) $ (0.05)
========== ==========
Weighted average number of shares outstanding used in computing
basic and diluted per share amounts .................. 4,943,018 3,212,962
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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<PAGE> 5
OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
<TABLE>
<CAPTION>
Nine months Nine months
Ended Ended
November 30, 1999 November 30, 1998
----------------- -----------------
<S> <C> <C>
Sales ......................................................... $ 24,496 $ 24,510
Other income .................................................. 232 236
---------- ----------
24,728 24,746
---------- ----------
Cost of goods sold, including occupancy and buying expenses ... 19,931 20,088
Operating, selling and administrative expenses ................ 4,756 4,693
Provision for doubtful accounts ............................... 103 92
Amortization of excess of cost over net assets acquired ....... 147 146
Interest expense .............................................. 961 397
---------- ----------
25,898 25,416
---------- ----------
Loss before loss on equity investment and income taxes ........ (1,170) (670)
Loss from equity investment ................................... (1,257) --
Income tax expense ............................................ (1) (3)
---------- ----------
Net loss ...................................................... $ (2,428) $ (673)
========== ==========
Basic and diluted net loss per share .......................... $ (0.49) $ (0.21)
========== ==========
Weighted average number of shares outstanding used in computing
basic and diluted per share amounts .................. 4,943,018 3,211,642
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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<PAGE> 6
OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
Nine months Ended Nine months Ended
November 30, 1999 November 30, 1998
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ............................................... $(2,428) $ (673)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ................. 432 391
Loss on retirement of assets .................. -- 4
Employee stock awards ......................... -- 5
Loss from equity investment ................... 1,257 --
Other changes in operating assets and liabilities:
Accounts receivable ........................... (298) 650
Inventories ................................... 659 1,443
Accounts payable .............................. (31) (930)
Other ......................................... 76 (57)
------- -------
Net cash used in operating activities of:
Continuing operations ......................... (333) 833
Discontinued operations ....................... -- (330)
------- -------
Net cash used in operating activities .................. (333) 503
------- -------
Cash flows from investing activities:
Additions to property and equipment ........... (346) (135)
Increase in investment ........................ (4,953) --
Other ......................................... -- --
------- -------
Net cash used in investing activities .................. (5,299) (135)
------- -------
Cash flows from financing activities:
Net borrowings under
revolving credit agreement ................. 329 32
Borrowings under long-term obligations ........ 5,338 132
Principal payments on long-term obligations ... (136) (162)
Deferred loan costs ........................... (75) --
------- -------
Net cash provided by financing activities .............. 5,456 2
------- -------
Net (decrease) increase in cash ........................ (176) 370
Cash at beginning of period ............................ 241 47
------- -------
Cash at end of period .................................. $ 65 $ 417
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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<PAGE> 7
OAKHURST COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED NOVEMBER 30, 1999
1. INTERIM FINANCIAL STATEMENTS
Oakhurst Company, Inc. ("Oakhurst" or the "Company") was formed as a
result of a merger transaction in fiscal 1992, in which Steel City Products,
Inc. ("SCPI") became a majority-owned subsidiary of Oakhurst. In accordance with
the merger agreement, Oakhurst owns 10% of the outstanding common stock of SCPI
and all of SCPI's Series A Preferred Stock, with the result that the aggregate
fair market value of SCPI's common stock and Series A Preferred Stock owned by
Oakhurst is equal to approximately 90% of the aggregate fair market value of all
the issued and outstanding capital stock of SCPI and represents 90% of the
voting stock of SCPI. The accompanying condensed consolidated financial
statements reflect this control and include the accounts of SCPI.
Oakhurst owns all of the outstanding capital stock of Dowling's Fleet
Service Co., Inc. ("Dowling's") and of Oakhurst Management Corporation ("OMC").
In December 1998 Oakhurst formed a wholly-owned subsidiary, Oakhurst
Technology, Inc. ("OTI") in order to take advantage of the restructuring
opportunity at New Heights Recovery & Power LLC ("New Heights") and entered into
an agreement with KTI, Inc. ("KTI") pursuant to which KTI purchased
approximately 1.7 million shares of Oakhurst's common stock at a price of $0.50
per share. Upon New Heights' emerging from bankruptcy in December 1998 OTI
acquired a 50% equity interest in, and became the managing member of, New
Heights which is re-developing an existing waste tire recycling facility in Ford
Heights, Illinois into a fully integrated recycling and waste-to-energy
facility. The evaluation of the impact of adopting fresh-start accounting
following New Heights' emergence from bankruptcy was completed in August, 1999
and summarized financial information has been included in Note 5.
The accompanying condensed consolidated financial statements include
the accounts of subsidiaries in which the Company has a greater than 50%
ownership interest and all intercompany accounts and transactions have been
eliminated in consolidation.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to present
fairly the financial position, results of operations and cash flows for the
interim periods presented. All adjustments made are of a normal, recurring
nature.
While the Company believes that the disclosures presented herein are
adequate to make the information not misleading, it is recommended that these
unaudited condensed consolidated financial statements be read in conjunction
with the audited consolidated financial statements for the fiscal year ended
February 28, 1999 ("fiscal 1999") as filed in the Company's Annual Report on
Form 10-K.
Operating results for the three and nine months ended November 30, 1999
are not necessarily indicative of the results that may be expected for the
fiscal year ending February 29, 2000.
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<PAGE> 8
2. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities" which is
presently required to be adopted in years (as amended by SFAS No. 137) beginning
after June 15, 2000. Oakhurst does not anticipate that the adoption of SFAS No.
133 will have a significant effect on its financial position or results of
operations.
3. SEGMENT INFORMATION
Until December 1998, Oakhurst operated as a wholesale distributor to
the automotive aftermarket. SCPI, operating under the trade name Steel City
Products, principally sells automotive accessories, primarily to discount retail
chains, hardware and supermarket retailers and to automotive specialty stores.
Its customers are based primarily in the Northeastern United States. Dowling's
is a wholesale distributor of automotive radiators and related parts mostly
serving radiator repair shops in the New York, Connecticut, New Jersey, and
Greater Philadelphia, Pennsylvania markets. OTI was formed in December 1998 and
holds investments principally in the recycling and waste-to-energy business.
Each entity is managed by its own decision makers and is comprised of unique
customers, suppliers and employees. The Company's operations are thereby
organized into the three management segments included in the following table (in
thousands):
<TABLE>
<CAPTION>
=================================================================================================================
Three months ended November 30, 1999 CONSOLIDATED
SEGMENTS SCPI DOWLING'S OTI CORPORATE TOTAL
------- --------- ------ --------- ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 4,696 $ 2,628 -- $ 7,324
======= ======= ====== ======= =======
--
Operating profit (loss) $ 193 $ (124) $ (48) $ (295) $ (274)
Segment assets $ 6,245 $ 4,372 $7,612 $ 1,938 $20,167
======= ======= ====== ======= =======
=================================================================================================================
Three months ended November 30, 1998 CONSOLIDATED
SEGMENTS SCPI DOWLING'S OTI CORPORATE TOTAL
------- --------- ------ --------- ------------
Net sales $ 4,188 $ 3,366 -- -- $7,554
======= ======= ====== ======= =======
--
Operating profit (loss) $ 64 $ 202 -- $ (298) $ (32)
Segment assets (a) $ 5,519 $ 4,545 -- $ 2,333 $12,397
======= ======= ====== ======= =======
=================================================================================================================
Nine months ended November 30, 1999 CONSOLIDATED
SEGMENTS SCPI DOWLING'S OTI CORPORATE TOTAL
------- --------- ------ --------- ------------
Net sales $15,649 $ 8,847 -- -- $24,496
======= ======= ====== ======= =======
--
Operating profit (loss) $ 881 $ (109) $(129) $ (852) $ (209)
Segment assets $ 6,245 $ 4,372 $7,612 $ 1,938 $20,167
======= ======= ====== ======= =======
=================================================================================================================
Nine months ended November 30, 1998 CONSOLIDATED
SEGMENTS SCPI DOWLING'S OTI CORPORATE TOTAL
------- --------- ------ --------- ------------
Net sales $13,893 $10,617 -- -- $ 24,510
======= ======= ====== ======= =======
--
Operating profit (loss) $ 412 $ 318 -- $ (1,003) $ (273)
Segment assets (a) $ 5,519 $ 4,545 -- $2,333 $12,397
======= ======= ====== ======= =======
</TABLE>
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<PAGE> 9
(a) In fiscal 1999, SCPI elected to change its method of inventory valuation
from the last-in, first-out method (LIFO) to the first-in, first-out method
(FIFO). Segment assets for the three and nine months ended November 30, 1998
have been restated as if the change had taken place at the beginning of such
period.
4. CHANGE IN ACCOUNTING PRINCIPLE
In the fourth quarter of fiscal 1999, SCPI elected to change its method
of inventory valuation from the last-in, first-out, (LIFO) method to the
first-in, first-out (FIFO) method. As no change in the LIFO reserve was made
during the first three quarters of fiscal 1999, there was no effect on the
November 30, 1998 three and nine month condensed consolidated statement of
operations or cash flows.
5. SUMMARY FINANCIAL INFORMATION
In December 1998, OTI acquired a 50% equity interest in, and became the
managing member of, New Heights. The valuation of the impact of adopting
fresh-start accounting upon New Heights' emergence from bankruptcy in December
1998 was completed in August 1999. Accordingly, summarized financial information
is provided herein for New Heights for the fiscal year to date (in thousands):
<TABLE>
<CAPTION>
November 30, 1999
-----------------
<S> <C>
Current assets ...................... $ 140
Non-current assets .................. 28,121
Current liabilities ................. 1,800
Non-current liabilities ............. 1,943
Net equity .......................... 24,518
</TABLE>
<TABLE>
<CAPTION>
Nine months Ended
November 30, 1999
-----------------
<S> <C>
Total revenues(a) ................... $ 404
Gross profit (b) .................... 404
Net loss ............................ (2,514)
</TABLE>
(a) New Heights began operations in July 1999.
(b) Revenue through November 1999 represents tipping fees received on waste
tires; there have been no costs associated with such fees; thus gross profit is
equal to revenues.
6. BORROWINGS
In October 1999 certain shareholders of Sterling exercised their right
to sell a second tranche of equity to OTI. The second equity purchase of
approximately $1.36 million was financed through the issuance of notes, of which
$559,000 is due to an officer and director of Oakhurst. These notes are payable
by OTI one year after issuance and bear interest at the rate of 14%, payable
quarterly in arrears.
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<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Oakhurst Company, Inc. ("Oakhurst" or "the Company"), a holding
company, was formed as part of a merger transaction in fiscal 1992 in which
Steel City Products, Inc. ("SCPI") became a special, limited purpose,
majority-owned subsidiary of Oakhurst. Management believes that the corporate
structure resulting from the merger transaction will facilitate capital
formation by Oakhurst while permitting Oakhurst and its subsidiaries to file
consolidated tax returns so that both may utilize the tax benefits (including
approximately $154 million of net operating loss carry-forwards) attributable
principally to SCPI. Through Oakhurst's ownership of SCPI, primarily in the form
of preferred stock, Oakhurst retains the value of SCPI, and receives
substantially all of the benefit of SCPI's operations through dividends on such
preferred stock. Oakhurst's ownership of SCPI facilitates the preservation and
utilization of SCPI's net operating loss carry-forwards.
Until the formation of its wholly-owned subsidiary, Oakhurst
Technology, Inc. ("OTI") in December 1998, Oakhurst was involved primarily in
the distribution of products to the automotive after-market. Its largest
business, which is conducted by SCPI under the trade name "Steel City Products",
is the distribution of automotive parts and accessories and of non-food pet
supplies to independent retailers from a facility in McKeesport, Pennsylvania.
Oakhurst's subsidiary, Dowling's Fleet Service Co., Inc. ("Dowling's") is a New
York-headquartered distributor of automotive radiators and related products.
Representing a significant change from its historical operating
business, but reflecting the restructuring expertise of its senior management,
in December 1998 Oakhurst formed a wholly-owned subsidiary, Oakhurst Technology,
Inc. ("OTI") in order to take advantage of a restructuring opportunity, at New
Heights Recovery & Power, LLC ("New Heights"), as discussed below. At the same
time, Oakhurst entered into an agreement with KTI, Inc. ("KTI") that provided
for the purchase by KTI of approximately 1.7 million shares of Oakhurst's common
stock at a price of $0.50 per share. In conjunction with the private placement
of stock, KTI committed to lend Oakhurst up to $11.5 million, and in certain
circumstances up to $17 million, under a loan agreement principally to fund the
New Heights project. KTI is an integrated waste management company with specific
experience in the turnaround of co-generation facilities. In December 1998 OTI
acquired a 50% equity interest in, and became the managing member of New Heights
which is re-developing an existing waste tire recycling facility in Ford
Heights, Illinois into a fully integrated recycling and waste-to-energy
facility. In December 1999, KTI was acquired by Casella Waste Systems, Inc., a
publicly-traded, Vermont based, non-hazardous solid waste services company.
At November 30, 1999 OTI, through its loan agreement with KTI, has
invested approximately $5.0 million in the New Heights project, mostly related
to capital commitments as required by the Business Plan. Phase I of the New
Heights business plan was completed on time in September 1999. The New Heights
facility began limited operations in July 1999 after receiving the appropriate
permitting, and has recently started to produce crumb rubber. Phase II of the
business plan includes the permitting and start-up of waste to energy
operations. New Heights anticipates receiving a permit for energy generation in
January 2000. It is expected that the facility will continue to expand its crumb
rubber operations and begin energy generation during 2000.
In addition to the recycling business, in January 1999 OTI made a
minority investment in Sterling Construction Company, ("Sterling") a profitable,
privately-held Texas-based pipe laying and road building contractor that is
expected to participate in the significant increase in infrastructure spending
in Texas, and may offer synergies with New Heights by using crumb rubber from
recycled tires in "rubberized asphalt".
- 10 -
<PAGE> 11
The equity interest in Sterling of approximately 7% was increased to
approximately 12% in October, 1999 when certain shareholders of Sterling
exercised their right to sell a second tranche of equity to OTI. The second
equity purchase of approximately $1.36 million was financed through the issuance
of notes, of which $559,000 is due to an officer and director of Oakhurst. These
notes are payable by OTI one year after issuance and bear interest at the rate
of 14%, payable quarterly in arrears.
Activities of New Heights are reported on the equity method of
accounting. The investment in Sterling is reported on the cost method of
accounting. OTI also has a $1.35 million note receivable from Sterling, which is
convertible into shares of common stock of Sterling, at any time at the option
of OTI, or upon the closing of a defined public offering of Sterling. Assuming
conversion of the note, OTI would own between approximately 16% and 17% of
Sterling, including the equity which was acquired in October 1999.
For its fiscal year ended September 1999 Sterling reported revenues of
$64 million and Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA") of $8.5 million.
LIQUIDITY AND CAPITAL RESOURCES
In addition to cash derived from the operations of its subsidiaries,
Oakhurst's liquidity and financing requirements are determined principally by
the working capital needed to support each subsidiary's level of business,
together with the need for capital expenditures and the cash required to repay
debt. The automotive distribution subsidiaries' working capital needs vary
primarily with the amount of inventory carried, which can change seasonally, the
size and timeliness of payment of receivables from customers, especially at the
SCPI subsidiary which from time to time grants extended payment terms for
seasonal inventory build-ups, and the amount of credit extended by suppliers.
At November 30, 1999, Oakhurst's debt primarily consisted of (i) a
balance of $7.0 million outstanding under the KTI Loan, (ii) a credit facility
with an institutional lender (the "Credit Facility"), pursuant to which
approximately $4.9 million was borrowed under a revolving credit facility (the
"Revolver"), (iii) notes payable aggregating $1.4 million issued in connection
with the purchase of the second tranche of equity in Sterling, (iv) notes
payable with outstanding principal balances aggregating approximately $144,000
that were issued in connection with the settlement of certain contingent
liabilities related to SCPI's former retail division, (v) notes payable of
$132,000 that were issued in connection with the fiscal 1995 acquisition of
Dowling's (the "DFS Notes"), (vi) notes payable aggregating $97,000 for the
purchase of vehicles at Dowling's, and (vii) a Subordinated Loan of $79,000.
Oakhurst and its subsidiaries, except OTI, have available financing
under the Revolver up to a maximum of $7 million, subject to a borrowing base
that is calculated according to defined levels of the automotive distribution
subsidiaries' accounts receivable and inventories. At November 30, 1999, the
aggregate borrowing base under the Revolver was $5.1 million. In March 1999 the
Revolver was extended to April 2000 and was amended to (i) increase certain
borrowing rate percentages at SCPI, (ii) increase the interest rate to Citibank
N.A. base rate plus 2% and (iii) amend the financial covenants to include a
minimum level of EBITDA. The Revolver provides for subsequent renewal terms of
one year each upon payment of a renewal fee of 0.5% of the entire line, unless
earlier terminated as provided for in the agreement. Management believes that
the Revolver will provide adequate funding for the Company's working capital
requirements for at least the next twelve months, including seasonal
fluctuations, assuming no material deterioration in current sales levels or
gross profit margin. At November 30, 1999, Oakhurst was in compliance with the
financial covenants as defined under the Revolver.
- 11 -
<PAGE> 12
Management believes that the KTI Loan will provide adequate financing
for the capital expenditures and start-up costs committed pursuant to the New
Heights Business Plan.
YEAR 2000
The Year 2000 issue concerns the potential exposures related to the
automated generation of business and financial misinformation resulting from the
use of computer programs which have been written using two digits, rather than
four, to define the applicable year of business transactions.
The Company spent approximately $230,000 on the Year 2000 issue,
including approximately $10,000 for a software upgrade at Dowling's and
approximately $220,000 for the purchase of a new system at SCPI. In addition to
achieving Year 2000 compliance, SCPI's new system provides other important
operating benefits as compared with its former system.
To date, the Company has experienced no interruptions in service
regarding Year 2000 issues.
From time to time the information provided by the Company or statements
made by its employees may contain so-called "forward-looking" information that
involves risks and uncertainties. In particular, statements contained in this
Item 2 - "Management's Discussion and Analysis of Financial Condition and
Results of Operations," which are not historical facts (including, but not
limited to, statements concerning anticipated sales, profit levels, customers
and cash flows) are forward-looking statements. The Company's actual future
results may differ significantly from those stated in any forward-looking
statements. Factors that may cause such differences include, but are not limited
to, the factors discussed above as well as the accuracy of the Company's
internal estimates of revenue and operating expense levels. Each of these
factors and others are discussed from time to time in the Company's Securities
and Exchange Commission filings.
MATERIAL CHANGES IN FINANCIAL CONDITION
At November 30, 1999, there had been no material changes in the
Company's financial condition from February 28, 1999, as discussed in Item 7 of
the Company's Annual Report on Form 10-K for fiscal 1999.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Operations include the consolidated results of SCPI, which through its
operating division, Steel City Products, headquartered in McKeesport,
Pennsylvania, distributes automotive parts and accessories and non-food pet
supplies; Dowling's, a distributor of automotive radiators and related parts
headquartered in Mt. Vernon, New York; together with OTI and the administrative
costs of SCPI and Oakhurst.
THREE MONTHS ENDED NOVEMBER 30, 1999 COMPARED WITH THREE MONTHS ENDED NOVEMBER
30, 1998
Consolidated sales in the current year third quarter were below prior
year by $230,000.
Sales by SCPI increased by approximately $508,000 compared with the
third quarter of the prior year. Sales to existing automotive customers
increased by approximately $267,000, due primarily to the addition of new stores
through an acquisition by one major customer. Sales to new automotive customers
totaled $201,000 for the quarter. Sales of non-food pet products totaled
$547,000, an increase of $40,000 compared with the third quarter of the prior
year, due primarily to increased sales to existing customers.
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<PAGE> 13
Sales at Dowling's decreased by $738,000 compared with the third
quarter of the prior year due in part to increased competition by customers who
are buying product directly from manufacturers, as well as fewer radiator
failures which has contributed to a general slowness in the radiator replacement
industry.
Gross profits were $1.3 million, or 17.6% of sales, in the current year
period compared with $1.4 million, or 18.3% of sales, in the prior year period.
Gross profits increased at SCPI by 2.1%, due to the higher sales volume and
changes in product mix. Offsetting this increase was a decrease in Dowling's
gross profits of 3.2% which was mostly attributable to the decrease in sales
volume.
Operating, selling and administrative expenses increased by $117,000.
At SCPI, expenses increased by $18,000 primarily due to higher commissions paid
this year on the increased sales volume. At Dowling's, expenses increased by
$41,000 due to higher sales and administrative salaries, and higher computer and
telephone expenses. Corporate expenses were below prior year levels by $24,000
due to staffing reductions, lower insurance, travel and office expenses. These
savings were offset by the addition of OTI in the current year, which had
overhead expenses of $73,000, mostly related to salaries.
Interest expense increased by $297,000 when compared to the prior year,
due primarily to interest incurred on the KTI loan, which increased by $1.2
million to fund OTI's capital and start-up expenditure commitments at New
Heights.
There was a loss from affiliates of approximately $629,000 related to
OTI's equity investment in New Heights, which represents OTI's share of start-up
activities at the New Heights facility.
NINE MONTHS ENDED NOVEMBER 30, 1999 COMPARED WITH NINE MONTHS ENDED NOVEMBER 30,
1998
Consolidated sales in the current year period were essentially the same
as the first nine months of the prior year.
Sales by SCPI increased by approximately $1.8 million compared with the
first nine months of the prior year. Sales to existing automotive customers
increased by approximately $888,000, due primarily to the addition of new stores
through an acquisition by one major customer. Sales to new automotive customers
totaled $632,000 for the year to date. Sales of non-food pet products totaled
$1.5 million, an increase of $235,000 compared with the first nine months of the
prior year, due primarily to increased sales to existing customers.
Sales at Dowling's decreased by $1.8 million compared with the first
nine months of the prior year due to increased competition as customers have
begun to buy product directly from manufacturers, combined with general slowness
throughout Dowling's markets caused by a reduction in the overall number of
radiator failures industry-wide.
Gross profits were $4.5 million, or 18.6% of sales in the current year
period compared with $4.4 million, or 18.0% of sales, in the prior year period.
The increase in gross profit resulted from the higher sales volume and better
margins at SCPI.
Operating, selling and administrative expenses increased by $58,000 for
the nine months due to higher commissions of $59,000 at SCPI , offset by
reductions of $30,000 due to staffing changes at Dowling's and lower expenses,
principally salaries ($100,000), insurance and other administrative expenses
($79,000) at the corporate level. These savings were offset in part by $208,000
of expenses incurred by OTI in its first year of operations.
- 13 -
<PAGE> 14
Interest expense increased by $579,000 when compared to the prior year,
due primarily to interest incurred on the KTI loan, draws on which began in
January 1999 to fund OTI's capital and start-up expenditure commitments at New
Heights.
There was a loss from affiliates of approximately $1.2 million related
to OTI's equity investment in New Heights, which represents OTI's share of
start-up activities at the New Heights facility.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
Oakhurst is exposed to certain market risks from transactions that are
entered into during the normal course of business. The Company's policies do not
permit active trading or speculation in derivative financial instruments.
Oakhurst's primary market risk exposure is related to interest rate risk. The
Company manages its interest rate risk by attempting to balance its exposure
between fixed and variable rates while attempting to minimize its interest
costs.
- 14 -
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings outstanding against the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
quarter for which this report is filed.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
X 10.1 Amendment to Stock Purchase and Investment Agreement
dated October 18, 1999
X 10.2 Promissory Note dated October 18, 1999 from Oakhurst
Technology, Inc. to Robert M. Davies
X 10.3 Promissory Note dated October 18, 1999 from Oakhurst
Technology, Inc. to Menai Capital, LLC.
X 10.4 Stock Pledge Agreement dated October 18, 1999
27. Financial Data Schedule (EDGAR transmission only).
</TABLE>
----------------
X Management contract or compensatory plan or arrangement
(b) No reports on Form 8-K were filed during the quarter for which
this report is filed.
- 15 -
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
OAKHURST COMPANY, INC.
Date: January 10, 2000 By: /s/ Robert M. Davies
---------------------------------
Mr. Robert M. Davies
Chief Executive Officer
Date: January 10, 2000 By: /s/ Maarten D. Hemsley
---------------------------------
Mr. Maarten D. Hemsley
Chief Financial Officer
- 16 -
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
X 10.1 Amendment to Stock Purchase and Investment Agreement
dated October 18, 1999
X 10.2 Promissory Note dated October 18, 1999 from Oakhurst
Technology, Inc. to Robert M. Davies
X 10.3 Promissory Note dated October 18, 1999 from Oakhurst
Technology, Inc. to Menai Capital, LLC.
X 10.4 Stock Pledge Agreement dated October 18, 1999
27. Financial Data Schedule (EDGAR transmission only).
--------------
X Management contract or compensatory plan or arrangement
</TABLE>
<PAGE> 1
EXHIBIT 10.1
AMENDMENT TO STOCK PURCHASE AND INVESTMENT AGREEMENT
This Amendment to Stock Purchase and Investment Agreement (this
"Amendment"), effective as of October 18, 1999, amends that certain Stock
Purchase and Investment Agreement made as of January 19, 1999 (the "Purchase
Agreement"), by and among the undersigned. Except as otherwise specified in this
Amendment, capitalized terms are used in this Amendment with the same meanings
as provided in the Purchase Agreement.
RECITALS
A. Pursuant to the Purchase Agreement, certain Selling Stockholders are
under certain circumstances obligated to sell and deliver, and the Purchasers
are under certain circumstances obligated to purchase and acquire, certain
shares of Parent's common stock held by the Selling Stockholders, up to the
Maximum Number of such shares in the aggregate (the "Escrowed Shares").
B. The Selling Stockholders have agreed to redistribute the Second Tranche
Percentages among themselves, and such redistribution has been effected by means
of amending the Escrow Agreement dated as of January 19, 1999, to reflect the
revised number of Escrowed Shares for each Selling Stockholder.
C. The Purchasers of the Second Tranche of Purchased Stock and the Selling
Stockholders desire to alter the method of payment from that outlined in the
Purchase Agreement so as to provide for the deferred sale of $800,000 of the
Second Tranche of Purchased Stock from James D. Manning ("Manning") to Oakhurst
Technology, Inc. ("Oakhurst"), on the terms provided in this Amendment.
A G R E E M E N T
In consideration of the mutual promises and covenants of the parties hereto
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and notwithstanding any provisions to the
contrary in the Purchase Agreement, it is hereby agreed as follows:
1. Section 1.2 of the Purchase Agreement is hereby amended by adding the
following language at the end of that section:
"A portion consisting of $800,000 of the Second Tranche of Purchased Stock,
shall be sold by Manning and purchased by Oakhurst on a deferred basis as
provided in Section 2.2(a) of this Agreement (the "Deferred Portion" of the
Second Tranche of Purchased Stock). Such Deferred Portion shall be subject to
all relevant provisions of this Agreement relating to the Second Tranche of
Purchased Stock, except as otherwise specifically provided in Section 2.2 of
this Agreement."
<PAGE> 2
2. The last two columns of the first three rows of the list of Shareholders on
Exhibit A to the Purchase Agreement is hereby amended to read as follows:
<TABLE>
<CAPTION>
SECOND TRANCHE SHARES TO BE PUT IN ESCROW SECOND TRANCHE PERCENTAGES
----------------------------------------- --------------------------
<S> <C>
42,067 32.3543%
45,885 35.2907%
42,068 32.3550%
</TABLE>
3. Section 2.2(a) of the Purchase Agreement is hereby amended to read as
follows:
"(a) (1) On October 18, 1999 (the "Second Tranche Payment Date") each
Purchaser shall deliver or caused to be delivered to Parent, as agent for the
Selling Stockholders, by wire transfer, an amount equal to the product of FOUR
MILLION DOLLARS ($4,000,000) (the "Second Tranche Payment") multiplied by such
Purchaser's Purchaser Percentage (provided, however, that the amount so required
to be delivered by Oakhurst shall be reduced by $800,000). Parent shall then
immediately (i) cause to be paid by the Purchasers, severally, pro rata in
proportion to their respective Purchaser Percentages (reduced for the Deferred
Portion in the case of Oakhurst), to the Selling Stockholders, severally, pro
rata in proportion to their respective Second Tranche Percentages (reduced for
the Deferred Portion in the case of Manning), the Second Tranche Payment less
the amount of any expenses to be borne by the Selling Stockholders as provided
in Section 8.5 (provided, however, that the amount so required to be delivered
to Manning shall be reduced by $800,000) and (ii) cause to be transferred from
the Selling Stockholders, severally, pro rata in proportion to their respective
Second Tranche Percentages (reduced for the Deferred Portion in the case of
Manning), to the several Purchasers, severally, pro rata in proportion to their
respective Purchaser Percentages (reduced for the Deferred Portion in the case
of Oakhurst), a number of shares of Escrowed Stock equal to the Minimum Number
of the Second Tranche of Purchased Stock, excluding the Deferred Portion.
Effective as of the date of the Second Tranche Payment, the Purchasers shall
become the holders of record of their respective shares of such Minimum Number
of the Second Tranche of Purchased Stock, excluding the Deferred Portion, and
Parent shall promptly issue and deliver, or cause to be issued and delivered, to
the Purchasers certificates representing such shares. The Selling Stockholders
shall remain the holders of record of their respective shares of the remaining
Escrowed Stock until disposition thereof by the Escrow Agent as provided below.
"(2) Oakhurst agrees to purchase from Manning, and Manning agrees to sell
and deliver or cause to be delivered to Oakhurst, on the first anniversary of
the Second Tranche Payment Date (the "Deferred Second Tranche Payment Date"),
the Deferred Portion of the Second Tranche of Purchased Stock. The purchase
price for the Deferred Portion shall be paid by Oakhurst by four (4) wire
transfers to Parent as agent for Manning, as follows: (i) $28,000 on January 18,
2000, (ii) $28,000 on April 18, 2000, (iii) $28,000 on July 18, 2000 and (iv)
$828,000 on October 18, 2000. In lieu of making all of the payments required by
the preceding sentence, Oakhurst may, at its option, pay the purchase price for
the Deferred Portion prior to October 18, 2000 by paying, in addition to any
payments theretofore made or required to have been made pursuant to the
preceding sentence, by wire transfer, an amount equal to the sum of $800,000
plus an amount equal to the product of (x) $800,000 multiplied by (y) 14%
multiplied by (z) a fraction, of which the numerator is the number of days in
the period beginning on the later of the Second Tranche Payment Date or the date
of the most recent $28,000 payment made pursuant to the preceding sentence and
ending on the date immediately prior to the date of the
<PAGE> 3
payment pursuant to this sentence and the denominator is 365. Parent shall
promptly disburse such payments to Manning. When all such payments have been so
received by Parent, Parent shall cause to be transferred from Manning to
Oakhurst a number of shares of Escrowed Stock equal to the Minimum Number of the
Deferred Portion of the Second Tranche of Purchased Stock and Parent shall
promptly issue and deliver, or cause to be issued and delivered, to Oakhurst
certificates representing such shares. Manning shall remain the holder of record
of his remaining shares of Escrowed Stock relating to the Deferred Second
Tranche of Purchased Stock until disposition thereof by the Escrow Agent as
provided below."
4. Section 2.2(e) of the Purchase Agreement is hereby amended by adding the
following language at the end of that section:
"If for any reason the purchase price of the Deferred Portion of
the Second Tranche of Purchased Stock has not been paid at the time
shares are transferred as provided in Section 2.2(c) and Section
2.2(d) above, then: (i) such transfers and deliveries shall be made
exclusive of those shares related to the Deferred Portion, which shall
be retained by Parent pending purchase of the Deferred Portion or
resolution of any breach or dispute related to the purchase of the
Deferred Portion; and (ii) all such transfers and deliveries of shares
shall be made pro rata as adjusted to exclude the Deferred Shares."
5. Richard Lively, having ceased to be a stockholder of Parent, is no longer
considered a Selling Stockholder or a party to the Purchase Agreement or this
Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first above written.
PARENT: STERLING CONSTRUCTION COMPANY
a Delaware corporation
By: /s/ Patrick T. Manning
------------------------------------
Name: Patrick T. Manning
----------------------------------
Title: President
---------------------------------
SUBSIDIARY: STERLING CONSTRUCTION COMPANY
a Michigan corporation
By: /s/ Patrick T. Manning
-----------------------------------
Name: Patrick T. Manning
----------------------------------
Title: President
---------------------------------
3
<PAGE> 4
SELLING STOCKHOLDERS: /s/ James D. Manning
---------------------------------------
JAMES D. MANNING
/s/ Patrick T. Manning
---------------------------------------
PATRICK T. MANNING
/s/ Joseph P. Harper, Sr.
---------------------------------------
JOSEPH P. HARPER, SR.
/s/ Terry D. Williamson
---------------------------------------
TERRY D. WILLIAMSON
/s/ Anthony F. Colombo
---------------------------------------
ANTHONY F. COLOMBO
/s/ Kevin J. Manning
---------------------------------------
KEVIN J. MANNING
PURCHASERS: OAKHURST TECHNOLOGY, INC.
By: /s/ Robert M. Davies
------------------------------------
Name: Robert M. Davies
----------------------------------
Title: Chief Executive Officer
---------------------------------
JO HAMBRO CAPITAL MANAGEMENT
ACCOUNT A
By: /s/ Christopher Mills
------------------------------------
Name: Christopher Mills
----------------------------------
Title:
---------------------------------
4
<PAGE> 5
JO HAMBRO CAPITAL MANAGEMENT
ACCOUNT B
By: /s/ Christopher Mills
------------------------------------
Name: Christopher Mills
-----------------------------------
Title:
---------------------------------
JO HAMBRO CAPITAL MANAGEMENT
ACCOUNT C
By: /s/ Christopher Mills
------------------------------------
Name: Christopher Mills
----------------------------------
Title:
---------------------------------
ORYX INTERNATIONAL GROWTH FUND
By: /s/ Christopher Mills
------------------------------------
Name: Christopher Mills
----------------------------------
Title:
---------------------------------
5
<PAGE> 6
NORTH ATLANTIC SMALLER
COMPANIES INVESTMENT TRUST PLC
By: /s/ Christopher Mills
-----------------------------------
Name: Christopher Mills
-----------------------------------
Title:
---------------------------------
INVESCO ENGLISH & INTERNATIONAL
TRUST PLC
By: /s/ Christopher Mills
------------------------------------
Name: Christopher Mills
----------------------------------
Title:
---------------------------------
6
<PAGE> 1
EXHIBIT 10.2
SECURED
PROMISSORY NOTE
$539,117 October 18, 1999
FOR VALUE RECEIVED, Oakhurst Technology, Inc., a corporation organized
under the laws of the State of Delaware (the "Maker"), hereby promises to pay to
the order of Robert Davies (the "Holder"), having an address at 100 First
Stamford Place, Suite 600, Stamford, Connecticut 06902, or his assigns, the
principal sum of Five Hundred Thirty Nine Thousand and One Hundred and Seventeen
Dollars ($539,117), together with interest on the unpaid principal balance of
this Note payable quarterly at the rate of 14% per year (computed on the basis
of the actual number of days elapsed in a 360-day year). Quarterly interest
payments shall commence on January 18, 2000 and continue until this Note is paid
in full. All principal and accrued but unpaid interest shall be paid to the
Holder on October 18, 2000. All payments shall be made in immediately available
funds.
All payments by the Maker under this Note shall be made without
set-off, defense or counterclaim and be free and clear and without any deduction
or withholding for any taxes or fees of any nature whatever, unless the
obligation to make such deduction or withholding is imposed by law.
The Maker agrees that: (i) upon the failure to pay when due the
principal and accrued interest hereunder; (ii) if the Maker (1) commences any
voluntary proceeding under any provision of Title 11 of the United States Code,
as now or hereafter amended, or commences any other proceeding, under any law,
now or hereafter in force, relating to bankruptcy, insolvency, reorganization,
liquidation, or otherwise to the relief of debtors or the readjustment of
indebtedness, (2) makes any assignment for the benefit of creditors or a
composition or similar arrangement with such creditors, or (3) appoints a
receiver, trustee or similar judicial officer or agent to take charge of or
liquidate any of its property or assets; or (iii) upon the commencement against
the Maker of any involuntary proceeding of the kind described in clause (ii)
above (clauses (i), (ii) and (iii) each, an "Event of Default"), all unpaid
principal and accrued but unpaid interest under this Note shall become
immediately due and payable without presentment, demand, protest or notice of
any kind.
The obligations of the Maker under this Note are secured by the pledge
of 17,524 shares of common stock, par value $0.01 per share, of Sterling
Construction Company to the Holder in accordance with the terms of the Stock
Pledge Agreement, dated as of the date hereof, between the Maker and the Holder
(the "Pledge Agreement"). The Maker shall remain liable for any deficiency if
the proceeds of any sale or other disposition of Collateral (as defined in the
Pledge Agreement) are insufficient to pay the obligations of the Maker
hereunder.
<PAGE> 2
This Note may be prepaid at the option of the Maker, in whole or in
part, upon the refinancing in whole of the multiple advance term loan facility
of Oakhurst Company, Inc. ("OCI") pursuant to the Letter Loan Agreement, dated
December 29, 1998, between OCI and KTI, Inc., at any time after such refinancing
and from time to time thereafter, without penalty or premium. Any voluntary
prepayment of this Note shall be applied first to the payment of interest
accrued and unpaid on this Note and second to the payment of principal.
None of the terms or provisions of this Note may be excluded,
modified or amended except by a written instrument duly executed by the Holder
expressly referring to this Note and setting forth the provision so excluded,
modified or amended.
The Maker hereby forever waives presentment, demand,
presentment for payment, protest, notice of protest, notice of dishonor of this
Note and all other demands and notices in connection with the delivery,
acceptance, performance and enforcement of this Note.
This Note shall be governed and construed in accordance with
the laws of the State of Delaware applicable to agreements made and performed
entirely in such State, without regard to conflict of laws principles thereof,
and shall be binding upon the successors and assigns of the Maker and shall
inure to the benefit of the successors and assigns of the Holder.
OAKHURST TECHNOLOGY, INC.
By: /s/ Maarten D. Hemsley
Name: Maarten D. Hemsley
Title: President
FOR VALUE RECEIVED, the sufficiency of which is hereby
acknowledged, Oakhurst Company, Inc. (the "Guarantor") hereby absolutely,
unconditionally and irrevocably guarantees on a subordinated basis (the
"Guaranty") the full and punctual payment when due, whether at stated maturity,
by required prepayment, declaration, acceleration, demand or otherwise, of all
amounts due under this Note of the Maker, whether for principal, interest, fees,
expenses or otherwise (including all such amounts which would become due but for
the operation of the automatic stay under Section 362(a) of the United States
Bankruptcy Code, 11 U.S.C. ss. 362(a), and the operation of Sections 502(b) and
506(b) of the United States Bankruptcy Code, 11 U.S.C. ss. 502(b) and ss.
506(b)); provided, however, that the Guarantor shall be liable under this
Guaranty only for the maximum amount of such liability that can be hereby
incurred without rendering this Guaranty, as it relates to the Guarantor,
voidable under applicable law relating to fraudulent conveyance or fraudulent
transfer, and not for any greater amount. This Guaranty constitutes
<PAGE> 3
a guaranty of payment when due and not of collection, and the Guarantor
specifically agrees that it shall not be necessary or required that the Holder
exercise any right, assert any claim or demand or enforce any remedy whatsoever
against the Maker before or as a condition to the obligations of the Guarantor
hereunder.
In case the Maker shall fail to punctually pay its obligations under
the Note in full when due, the Guarantor agrees to make such payment punctually
when and as the same shall become due and payable.
The obligations of the Guarantor hereunder are independent of the
obligations of the Maker, and a separate action or actions may be brought and
prosecuted against the Guarantor, regardless of whether action is brought
against the Maker or whether the Maker is joined in any such action or actions.
The Guarantor agrees that its obligations under this Guaranty
are absolute and unconditional, irrespective of the value, genuineness,
validity, regularity or enforceability of this Note, or any substitution,
release or exchange of any other guaranty of or security for the Note, and, to
the fullest extent permitted by applicable law, irrespective of any other
circumstance whatsoever (including, without limitation, personal defenses of the
Maker) which might otherwise constitute a legal or equitable discharge or
defense of a surety, guarantor or co-obligor, it being the intent that the
obligations of the Guarantor hereunder shall be absolute and unconditional under
any and all circumstances.
With respect to its obligations hereunder, the Guarantor
hereby expressly waives diligence, presentment, demand of payment, protest and
all notices whatsoever, and any requirement that the Holder exhaust any right,
power or remedy or proceed against any person under the Note, or against any
other person under any other guaranty of, or security for, or obligation
relating to, the Note.
The obligations of the Guarantor under this Guaranty shall be
automatically reinstated if and to the extent that for any reason any payment or
performance by or on behalf of any person in respect of the Maker's obligations
under this Note is rescinded or must be otherwise restored by any holder of any
of the Maker's obligations under this Note, whether as a result of any
proceedings in bankruptcy or reorganization or otherwise, and the Guarantor
agrees that it will pay to the Holder on demand all reasonable out-of-pocket
costs and expenses (including, without limitation, fees of counsel) incurred by
the Holder in connection with such rescission or restoration, including any such
costs and expenses incurred in defending against any claim alleging that such
payment constituted a preference, fraudulent transfer or similar payment under
any bankruptcy, insolvency or similar law.
The Maker and the Holder agree that the indebtedness evidenced
by this Note is subordinated in right of payment, to the extent and in the
manner provided herein, to the prior payment in full of all Senior Obligations
(whether outstanding on the date hereof or hereafter created, incurred, assumed
or guaranteed), and that the subordination is for the benefit of the holders of
Senior Obligations.
<PAGE> 4
Upon any payment or distribution of assets of the Guarantor of
any kind or character, whether in cash, property or securities, to creditors in
any Insolvency or Liquidation Proceeding with respect to the Guarantor, all
amounts due or to become due under or with respect to all Senior Obligations
shall first be paid indefeasibly in full in cash before any payment is made on
account of this Guaranty. Upon any such Insolvency or Liquidation Proceeding,
any payment or distribution of assets of the Guarantor of any kind or character,
whether in cash, property or securities, to which the Holder would be entitled
shall be paid by the Guarantor or by any receiver, trustee in bankruptcy,
liquidating trustee, agent or other person making such payment or distribution,
or by the Holder if received by it, directly to the holders of Senior
Obligations (pro rata to such holders on the basis of the amounts of Senior
Obligations held by such holders) or their Representative, as their interests
may appear, for application to the payment of the Senior Obligations remaining
unpaid until all such Senior Obligations have been paid indefeasibly in full in
cash, after giving effect to any concurrent payment, distribution or provision
therefor to or for the holders of Senior Obligations.
(a) In the event of and during the continuation of any default
in the payment of principal of, interest or premium, if any, on any Senior
Obligations, or in the event that any event of default (other than a payment
default) with respect to any Senior Obligations shall have occurred and be
continuing and shall have resulted in such Senior Obligation becoming or being
declared due and payable prior to the date on which it would otherwise have
become due and payable, or (b) if any event of default other than as described
in clause (a) above with respect to any Senior Obligations shall have occurred
and be continuing permitting the holders of such Senior Obligations (or their
Representative or Representatives) to declare such Senior Obligations due and
payable prior to the date on which it would otherwise have become due and
payable, then no payment shall be made by or on behalf of the Guarantor on
account of this Guaranty, unless and until such default shall have been cured or
waived in writing in accordance with the instruments governing such Senior
Obligations or such acceleration shall have been rescinded or annulled.
In the event that the Holder receives any payment with respect
to this Guaranty at a time when such payment is prohibited by the provisions
hereof, such payment shall be held by the Holder, in trust for the benefit of,
and shall be paid forthwith over and delivered, upon written request, to, the
holders of Senior Obligations as their interests may appear or their
Representative under the agreements (if any) pursuant to which Senior
Obligations may have been issued, as their respective interests may appear, for
application to the payment of all Obligations with respect to Senior Obligations
remaining unpaid to the extent necessary to pay such Obligations in full in
accordance with their terms, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Obligations.
<PAGE> 5
After all Senior Obligations are paid in full and until this
Guaranty is paid in full, the Holder shall be subrogated (equally and ratably
with all other Pari Passu Debt) to the rights of holders of Senior Obligations
to receive distributions applicable to Senior Obligations to the extent that
distributions otherwise payable to the Holder have been applied to the payment
of Senior Obligations. A distribution made under this Guaranty to holders of
Senior Obligations that otherwise would have been made to the Holder is not, as
between the Guarantor and the Holder, a payment by the Guarantor on this
Guaranty.
The "Subordination" section of this Guaranty defines the
relative rights of the Holder and holders of Senior Obligations. Nothing in this
Guaranty shall impair, as between the Guarantor and the Holder, the obligations
of the Guarantor, which are absolute and unconditional, to pay principal of and
interest on this Guaranty in accordance with its terms or affect the relative
rights of the Holder and creditors of the Guarantor other than their rights in
relation to holders of Senior Obligations.
No right of any holder of Senior Obligations to enforce the
subordination of the indebtedness evidenced by this Guaranty shall be impaired
by any act or failure to act by the Guarantor or the Holder or by the failure of
the Guarantor or the Holder to comply with this Guaranty.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Obligations, or any of them, may, at any time
and from time to time, without the consent of or notice to the Holder, without
incurring any liabilities to the Holder and without impairing or releasing the
subordination and other benefits provided in this Guaranty or the obligations of
the Holder to the holders of the Senior Obligations, even if any right of
reimbursement or subrogation or other right or remedy of the Holder is affected,
impaired or extinguished thereby, take any action with respect to the Senior
Obligations, including, without limitation, any one or more of the following:
(1) change the manner, place or terms of payment or change or
extend the time of payment of, or renew, exchange, amend, increase or
alter, the terms of any Senior Obligations, any security therefor or
guaranty thereof or any liability of any obligor thereon (including any
guarantor) to such holder, or any liability incurred directly or
indirectly in respect thereof or otherwise amend, renew, exchange, extend,
modify, increase or supplement in any manner any Senior Obligations or any
instrument evidencing or guaranteeing or securing the same or any
agreement under which Senior Obligations are outstanding;
(2) sell, exchange, release, surrender, realize upon, enforce
or otherwise deal with in any manner and in any order any property
pledged, mortgaged or otherwise securing Senior Obligations or any
liability of any obligor thereon, to such holder, or any liability
incurred directly or indirectly in respect thereof;
<PAGE> 6
(3) settle or compromise any Senior Obligations or any other
liability of any obligor of the Senior Obligations to such holder or any
security therefor or any liability incurred directly or indirectly in
respect thereof and apply any sums by whomsoever paid and however realized
to any liability (including, without limitation, Senior Obligations) in
any manner or order; and
(4) fail to take or to record or to otherwise perfect, for any
reason or for no reason, any lien or security interest securing Senior
Obligations by whomsoever granted, exercise or delay in or refrain from
exercising any right or remedy against any obligor or any guarantor or any
other person, elect any remedy and otherwise deal freely with any obligor
and any security for the Senior Obligations or any liability of any
obligor to such holder or any liability incurred directly or indirectly in
respect thereof.
Whenever a distribution is to be made or a notice given to
holders of Senior Obligations, the distribution may be made and the notice given
to their Representative. Upon any payment or distribution of assets of the
Guarantor referred to in the "Subordination" section of this Guaranty, the
Holder shall be entitled to rely upon any order or decree made by any court of
competent jurisdiction or upon any certificate of such Representative or of the
liquidating trustee or agent or other person making any distribution to the
Holder for the purpose of ascertaining the persons entitled to participate in
such distribution, the holders of the Senior Obligations and other indebtedness
of the Guarantor, the amount thereof or payable thereon, the amount or amounts
paid or distributed thereon and all other facts pertinent thereto or to the
"Subordination" section of this Guaranty.
"Insolvency or Liquidation Proceedings" means (i) any
voluntary or involuntary insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding,
relative to the Guarantor or to the creditors of the Guarantor, as such, or to
the assets of the Guarantor, or (ii) any liquidation, dissolution,
reorganization or winding up of the Guarantor, whether voluntary or involuntary
and involving insolvency or bankruptcy, or (iii) any assignment for the benefit
of creditors or any other marshaling of assets and liabilities of the Guarantor.
"Obligations" means any principal, interest, penalties,
expenses, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Senior Obligations.
"Pari Passu Debt" means any indebtedness of the Guarantor
which by its terms is pari passu in right of payment to this Guaranty.
"Representative" means the trustee, agent or representative
for any Senior Obligations.
"Senior Obligations" shall mean all obligations (whether now
outstanding or hereafter incurred) for the payment of which the
<PAGE> 7
Guarantor is responsible or liable as obligor, guarantor or otherwise, except
those which by their express terms are Pari Passu Debt.
This Guaranty shall be governed and construed in accordance
with the laws of the State of Delaware applicable to agreements made and
performed entirely in such State, without regard to conflict of laws principles
thereof.
OAKHURST COMPANY, INC.
By: /s/ Maarten D. Hemsley
Name: Maarten D. Hemsley
Title: President
<PAGE> 1
EXHIBIT 10.3
PROMISSORY NOTE
$20,087 October 18, 1999
FOR VALUE RECEIVED, Oakhurst Technology, Inc., a corporation organized
under the laws of the State of Delaware (the "Maker"), hereby promises to pay to
the order of Menai Capital LLC (the "Holder"), having an address at 100 First
Stamford Place, Suite 600, Stamford, Connecticut 06902, or its assigns, the
principal sum of Twenty Thousand and Eighty Seven Dollars ($20,087), together
with interest on the unpaid principal balance of this Note payable quarterly at
the rate of 14% per year (computed on the basis of the actual number of days
elapsed in a 360-day year). Quarterly interest payments shall commence on
January 18, 2000 and continue until this Note is paid in full. All principal and
accrued but unpaid interest shall be paid to the Holder on October 18, 2000. All
payments shall be made in immediately available funds.
All payments by the Maker under this Note shall be made without
set-off, defense or counterclaim and be free and clear and without any deduction
or withholding for any taxes or fees of any nature whatever, unless the
obligation to make such deduction or withholding is imposed by law.
The Maker agrees that: (i) upon the failure to pay when due the
principal and accrued interest hereunder; (ii) if the Maker (1) commences any
voluntary proceeding under any provision of Title 11 of the United States Code,
as now or hereafter amended, or commences any other proceeding, under any law,
now or hereafter in force, relating to bankruptcy, insolvency, reorganization,
liquidation, or otherwise to the relief of debtors or the readjustment of
indebtedness, (2) makes any assignment for the benefit of creditors or a
composition or similar arrangement with such creditors, or (3) appoints a
receiver, trustee or similar judicial officer or agent to take charge of or
liquidate any of its property or assets; or (iii) upon the commencement against
the Maker of any involuntary proceeding of the kind described in clause (ii)
above (clauses (i), (ii) and (iii) each, an "Event of Default"), all unpaid
principal and accrued but unpaid interest under this Note shall become
immediately due and payable without presentment, demand, protest or notice of
any kind.
This Note may be prepaid at the option of the Maker, in whole or in
part, upon the refinancing in whole of the multiple advance term loan facility
of Oakhurst Company, Inc. ("OCI") pursuant to the Letter Loan Agreement, dated
December 29, 1998, between OCI and KTI, Inc., at any time after such refinancing
and from time to time thereafter, without penalty or premium. Any voluntary
prepayment of this Note shall be applied first to the payment of interest
accrued and unpaid on this Note and second to the payment of principal.
<PAGE> 2
None of the terms or provisions of this Note may be excluded, modified
or amended except by a written instrument duly executed by the Holder expressly
referring to this Note and setting forth the provision so excluded, modified or
amended.
The Maker hereby forever waives presentment, demand, presentment for
payment, protest, notice of protest, notice of dishonor of this Note and all
other demands and notices in connection with the delivery, acceptance,
performance and enforcement of this Note.
This Note shall be governed and construed in accordance with the laws
of the State of Delaware applicable to agreements made and performed entirely in
such State, without regard to conflict of laws principles thereof, and shall be
binding upon the successors and assigns of the Maker and shall inure to the
benefit of the successors and assigns of the Holder.
OAKHURST TECHNOLOGY, INC.
By: /s/MAARTEN D. HEMSLEY
---------------------
Name: Maarten D. Hemsley
Title: President
FOR VALUE RECEIVED, the sufficiency of which is hereby acknowledged,
Oakhurst Company, Inc. (the "Guarantor") hereby absolutely, unconditionally and
irrevocably guarantees on a subordinated basis (the "Guaranty") the full and
punctual payment when due, whether at stated maturity, by required prepayment,
declaration, acceleration, demand or otherwise, of all amounts due under this
Note of the Maker, whether for principal, interest, fees, expenses or otherwise
(including all such amounts which would become due but for the operation of the
automatic stay under Section 362(a) of the United States Bankruptcy Code, 11
U.S.C. ss. 362(a), and the operation of Sections 502(b) and 506(b) of the United
States Bankruptcy Code, 11 U.S.C. ss. 502(b) and ss. 506(b)); provided, however,
that the Guarantor shall be liable under this Guaranty only for the maximum
amount of such liability that can be hereby incurred without rendering this
Guaranty, as it relates to the Guarantor, voidable under applicable law relating
to fraudulent conveyance or fraudulent transfer, and not for any greater amount.
This Guaranty constitutes a guaranty of payment when due and not of collection,
and the Guarantor specifically agrees that it shall not be necessary or required
that the Holder exercise any right, assert any claim or demand or enforce any
remedy whatsoever against the Maker before or as a condition to the obligations
of the Guarantor hereunder.
In case the Maker shall fail to punctually pay its obligations under the
Note in full when due, the Guarantor agrees to make such payment punctually when
and as the same shall become due and payable.
The obligations of the Guarantor hereunder are independent of the
obligations of the Maker, and a separate action or actions may be
<PAGE> 3
brought and prosecuted against the Guarantor, regardless of whether action is
brought against the Maker or whether the Maker is joined in any such action or
actions.
The Guarantor agrees that its obligations under this Guaranty are
absolute and unconditional, irrespective of the value, genuineness, validity,
regularity or enforceability of this Note, or any substitution, release or
exchange of any other guaranty of or security for the Note, and, to the fullest
extent permitted by applicable law, irrespective of any other circumstance
whatsoever (including, without limitation, personal defenses of the Maker) which
might otherwise constitute a legal or equitable discharge or defense of a
surety, guarantor or co-obligor, it being the intent that the obligations of the
Guarantor hereunder shall be absolute and unconditional under any and all
circumstances.
With respect to its obligations hereunder, the Guarantor hereby
expressly waives diligence, presentment, demand of payment, protest and all
notices whatsoever, and any requirement that the Holder exhaust any right, power
or remedy or proceed against any person under the Note, or against any other
person under any other guaranty of, or security for, or obligation relating to,
the Note.
The obligations of the Guarantor under this Guaranty shall be
automatically reinstated if and to the extent that for any reason any payment or
performance by or on behalf of any person in respect of the Maker's obligations
under this Note is rescinded or must be otherwise restored by any holder of any
of the Maker's obligations under this Note, whether as a result of any
proceedings in bankruptcy or reorganization or otherwise, and the Guarantor
agrees that it will pay to the Holder on demand all reasonable out-of-pocket
costs and expenses (including, without limitation, fees of counsel) incurred by
the Holder in connection with such rescission or restoration, including any such
costs and expenses incurred in defending against any claim alleging that such
payment constituted a preference, fraudulent transfer or similar payment under
any bankruptcy, insolvency or similar law.
The Maker and the Holder agree that the indebtedness evidenced by this
Note is subordinated in right of payment, to the extent and in the manner
provided herein, to the prior payment in full of all Senior Obligations (whether
outstanding on the date hereof or hereafter created, incurred, assumed or
guaranteed), and that the subordination is for the benefit of the holders of
Senior Obligations.
Upon any payment or distribution of assets of the Guarantor of any
kind or character, whether in cash, property or securities, to creditors in any
Insolvency or Liquidation Proceeding with respect to the Guarantor, all amounts
due or to become due under or with respect to all Senior Obligations shall first
be paid indefeasibly in full in cash before any payment is made on account of
this Guaranty. Upon any such Insolvency or Liquidation Proceeding, any payment
or distribution of assets of the Guarantor of any kind or character, whether in
cash, property or securities, to which the Holder would be entitled shall be
paid by the Guarantor or by any receiver, trustee
<PAGE> 4
in bankruptcy, liquidating trustee, agent or other person making such payment or
distribution, or by the Holder if received by it, directly to the holders of
Senior Obligations (pro rata to such holders on the basis of the amounts of
Senior Obligations held by such holders) or their Representative, as their
interests may appear, for application to the payment of the Senior Obligations
remaining unpaid until all such Senior Obligations have been paid indefeasibly
in full in cash, after giving effect to any concurrent payment, distribution or
provision therefor to or for the holders of Senior Obligations.
(a) In the event of and during the continuation of any default in the
payment of principal of, interest or premium, if any, on any Senior Obligations,
or in the event that any event of default (other than a payment default) with
respect to any Senior Obligations shall have occurred and be continuing and
shall have resulted in such Senior Obligation becoming or being declared due and
payable prior to the date on which it would otherwise have become due and
payable, or (b) if any event of default other than as described in clause (a)
above with respect to any Senior Obligations shall have occurred and be
continuing permitting the holders of such Senior Obligations (or their
Representative or Representatives) to declare such Senior Obligations due and
payable prior to the date on which it would otherwise have become due and
payable, then no payment shall be made by or on behalf of the Guarantor on
account of this Guaranty, unless and until such default shall have been cured or
waived in writing in accordance with the instruments governing such Senior
Obligations or such acceleration shall have been rescinded or annulled.
In the event that the Holder receives any payment with respect to this
Guaranty at a time when such payment is prohibited by the provisions hereof,
such payment shall be held by the Holder, in trust for the benefit of, and shall
be paid forthwith over and delivered, upon written request, to, the holders of
Senior Obligations as their interests may appear or their Representative under
the agreements (if any) pursuant to which Senior Obligations may have been
issued, as their respective interests may appear, for application to the payment
of all Obligations with respect to Senior Obligations remaining unpaid to the
extent necessary to pay such Obligations in full in accordance with their terms,
after giving effect to any concurrent payment or distribution to or for the
holders of Senior Obligations.
After all Senior Obligations are paid in full and until this Guaranty
is paid in full, the Holder shall be subrogated (equally and ratably with all
other Pari Passu Debt) to the rights of holders of Senior Obligations to receive
distributions applicable to Senior Obligations to the extent that distributions
otherwise payable to the Holder have been applied to the payment of Senior
Obligations. A distribution made under this Guaranty to holders of Senior
Obligations that otherwise would have been made to the Holder is not, as between
the Guarantor and the Holder, a payment by the Guarantor on this Guaranty.
The "Subordination" section of this Guaranty defines the relative
rights of the Holder and holders of Senior Obligations. Nothing in this Guaranty
shall impair, as between the Guarantor and
<PAGE> 5
the Holder, the obligations of the Guarantor, which are absolute and
unconditional, to pay principal of and interest on this Guaranty in accordance
with its terms or affect the relative rights of the Holder and creditors of the
Guarantor other than their rights in relation to holders of Senior Obligations.
No right of any holder of Senior Obligations to enforce the
subordination of the indebtedness evidenced by this Guaranty shall be impaired
by any act or failure to act by the Guarantor or the Holder or by the failure of
the Guarantor or the Holder to comply with this Guaranty.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Obligations, or any of them, may, at any time and from
time to time, without the consent of or notice to the Holder, without incurring
any liabilities to the Holder and without impairing or releasing the
subordination and other benefits provided in this Guaranty or the obligations of
the Holder to the holders of the Senior Obligations, even if any right of
reimbursement or subrogation or other right or remedy of the Holder is affected,
impaired or extinguished thereby, take any action with respect to the Senior
Obligations, including, without limitation, any one or more of the following:
(1) change the manner, place or terms of payment or change or extend
the time of payment of, or renew, exchange, amend, increase or alter, the
terms of any Senior Obligations, any security therefor or guaranty thereof
or any liability of any obligor thereon (including any guarantor) to such
holder, or any liability incurred directly or indirectly in respect thereof
or otherwise amend, renew, exchange, extend, modify, increase or supplement
in any manner any Senior Obligations or any instrument evidencing or
guaranteeing or securing the same or any agreement under which Senior
Obligations are outstanding;
(2) sell, exchange, release, surrender, realize upon, enforce or
otherwise deal with in any manner and in any order any property pledged,
mortgaged or otherwise securing Senior Obligations or any liability of any
obligor thereon, to such holder, or any liability incurred directly or
indirectly in respect thereof;
(3) settle or compromise any Senior Obligations or any other liability
of any obligor of the Senior Obligations to such holder or any security
therefor or any liability incurred directly or indirectly in respect
thereof and apply any sums by whomsoever paid and however realized to any
liability (including, without limitation, Senior Obligations) in any manner
or order; and
(4) fail to take or to record or to otherwise perfect, for any reason
or for no reason, any lien or security interest securing Senior Obligations
by whomsoever granted, exercise or delay in or refrain from exercising any
right or remedy against any obligor or any guarantor or any other person,
elect any remedy and otherwise deal freely with any obligor and any
security for the Senior Obligations or any liability of any obligor to such
<PAGE> 6
holder or any liability incurred directly or indirectly in respect thereof.
Whenever a distribution is to be made or a notice given to holders of
Senior Obligations, the distribution may be made and the notice given to their
Representative. Upon any payment or distribution of assets of the Guarantor
referred to in the "Subordination" section of this Guaranty, the Holder shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction or upon any certificate of such Representative or of the
liquidating trustee or agent or other person making any distribution to the
Holder for the purpose of ascertaining the persons entitled to participate in
such distribution, the holders of the Senior Obligations and other indebtedness
of the Guarantor, the amount thereof or payable thereon, the amount or amounts
paid or distributed thereon and all other facts pertinent thereto or to the
"Subordination" section of this Guaranty.
"Insolvency or Liquidation Proceedings" means (i) any voluntary or
involuntary insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization or other similar case or proceeding, relative to the
Guarantor or to the creditors of the Guarantor, as such, or to the assets of the
Guarantor, or (ii) any liquidation, dissolution, reorganization or winding up of
the Guarantor, whether voluntary or involuntary and involving insolvency or
bankruptcy, or (iii) any assignment for the benefit of creditors or any other
marshaling of assets and liabilities of the Guarantor.
"Obligations" means any principal, interest, penalties, expenses,
fees, indemnifications, reimbursements, damages and other liabilities payable
under the documentation governing any Senior Obligations.
"Pari Passu Debt" means any indebtedness of the Guarantor which by its
terms is pari passu in right of payment to this Guaranty.
"Representative" means the trustee, agent or representative for any
Senior Obligations.
"Senior Obligations" shall mean all obligations (whether now
outstanding or hereafter incurred) for the payment of which the Guarantor is
responsible or liable as obligor, guarantor or otherwise, except those which by
their express terms are Pari Passu Debt.
<PAGE> 7
This Guaranty shall be governed and construed in accordance with the
laws of the State of Delaware applicable to agreements made and performed
entirely in such State, without regard to conflict of laws principles thereof.
OAKHURST COMPANY, INC.
By: /s/MAARTEN D. HEMSLEY
---------------------
Name: Maarten D. Hemsley
Title: President
<PAGE> 1
EXHIBIT 10.4
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT (the "Agreement") is made and entered into
as of this 18th day of October 1999 by and between OAKHURST TECHNOLOGY, INC.
(the "Pledgor") and ROBERT DAVIES (the "Secured Party").
W I T N E S S E T H:
WHEREAS, the Pledgor has received loans from the Secured Party in the
aggregate principal amount of $539,117 evidenced by a Promissory Note, dated as
of the date hereof (together with all amendments and other modifications, if
any, from time to time thereafter made thereto, the "Promissory Note"), between
the Pledgor and the Secured Party; and
WHEREAS, the Pledgor has pledged and granted to the Secured Party
effective as of the date hereof a security interest in that certain common
stock, par value $0.01 per share ("Common Stock"), of Sterling Construction
Company (the "Company") as identified on Schedule I hereto (together with all
other shares of capital stock of the Company required to be pledged hereunder,
the "Pledged Stock"); and
WHEREAS, in order to secure the payment of its obligations under the
Promissory Note and to evidence the security interest hereby granted, the
Pledgor is executing and delivering this Agreement; and
WHEREAS, the Pledgor has duly authorized the execution, delivery and
performance of this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto agree as follows:
1. PLEDGE OF STOCK; OTHER COLLATERAL.
(a) As continuing collateral security for the payment and performance
when due of all debts, obligations or liabilities now or hereafter existing,
absolute or contingent, of the Pledgor to the Secured Party under the Promissory
Note and obligations of the Pledgor now or hereafter existing under this
Agreement (collectively, the "Obligations"), and subject to Section 8 hereof,
the Pledgor hereby pledges, mortgages, charges and collaterally assigns to the
Secured Party, and grants to the Secured Party pursuant to the Delaware Uniform
Commercial Code (the "UCC") a first priority security interest in, the Pledged
Stock and all of the following:
(i) all shares of Common Stock when and if released from escrow to
the Pledgor in accordance with the
<PAGE> 2
terms of the Stock Purchase and Investment Agreement dated as of
January 19, 1999 (as amended from time to time, the "Purchase
Agreement") by and between the purchasers listed on Exhibit A thereto,
on the one hand, and the Company, Texas-Sterling Construction, Inc. and
the stockholders listed on Exhibit A thereto, on the other hand, and
any and all amendments thereto;
(ii) all cash, securities, dividends, rights, and other property at
any time and from time to time issued, allotted, declared or
distributed in respect of or in exchange for any or all of the Pledged
Stock; and
(iii) all other property hereafter delivered to the Secured Party
in substitution for or in addition to any of the foregoing, all
certificates and instruments representing or evidencing such property
and all cash, securities, interest, dividends, rights, and other
property at any time and from time to time declared or distributed in
respect of or in exchange for any or all of the Pledged Stock.
All such Pledged Stock, certificates, instruments, cash, securities, interest,
dividends, rights and other property referred to in this Section 1 are herein
collectively referred to as the "Collateral." All of the Pledged Stock is
currently owned by the Pledgor and represented by the stock certificates listed
on Schedule I hereto, which stock certificates are being delivered to the
Secured Party simultaneously herewith.
(b) The Pledgor agrees to deliver all the Collateral to the Secured
Party at such location as the Secured Party shall from time to time designate by
written notice pursuant to Section 16 hereof for its custody at all times until
termination of this Agreement, together with such instruments of assignment and
transfer as requested by the Secured Party.
2. STATUS OF PLEDGED STOCK. The Pledgor hereby represents and warrants
to the Secured Party that (i) all of the shares of Pledged Stock are duly
authorized, validly issued and outstanding, fully paid and nonassessable, (ii)
the Pledgor is the registered and record and beneficial owner of the Pledged
Stock, free and clear of all liens, charges, equities, encumbrances and
restrictions on pledge or transfer (other than the pledge hereunder and
applicable restrictions pursuant to federal and state securities laws), and
(iii) the pledge, assignment and delivery of the Pledged Stock to the Secured
Party pursuant to this Agreement creates a valid and perfected first priority
security interest in the Pledged Stock, securing the payment of the Obligations.
Except as provided in Section 4 or Section 5 hereof, none of the Pledged Stock
(nor any interest therein or thereto) shall be sold, transferred or assigned
without the Secured Party's prior written consent. The Pledgor covenants with
the Secured Party that it shall at all times cause the Pledged Stock to be
represented by the certificates now and hereafter delivered to the Secured Party
in
-2-
<PAGE> 3
accordance with Section 1 hereof or by certificates registered in the name of
the Secured Party, as pledgee, or in the name of the Pledgor.
3. PRESERVATION AND PROTECTION OF COLLATERAL.
(a) The Secured Party shall be under no duty or liability with respect
to the collection, protection or preservation of the Collateral, or otherwise,
beyond accounting for Collateral delivered to it and any proceeds from the sale
thereof and the use of reasonable care in the custody and preservation thereof
while in its possession.
(b) The Pledgor agrees to pay when due all taxes, charges, Liens and
assessments against the Collateral, unless being contested in good faith by
appropriate proceedings diligently conducted and against which adequate reserves
have been established in accordance with generally accepted accounting
principles.
4. DEFAULT. Should the Pledgor fail to pay the Secured Party any
Obligations as of the end of the business day on which such Obligations become
due and payable and after the expiration of all grace or cure periods, if any,
and all extensions or waivers, if any, and should such failure continue, or
should the Pledgor register or permit any registration to be made for the
transfer of any of the Pledged Stock to any Person other than as expressly
permitted by this Agreement, or should any other default set forth in the
Promissory Note occur and be continuing, or should the Pledgor fail otherwise to
comply with the terms hereof (any of the foregoing an "Event of Default"), the
Secured Party is given full power and authority, then or at any time thereafter,
to sell, assign and deliver or collect the whole or any part of the Collateral,
or any substitute therefor or any addition thereto, in one or more sales in such
order as the Secured Party may elect; and any such sale may be made either at
public or private sale at the Secured Party's place of business or elsewhere,
either for cash or upon credit or for future delivery, at such price as the
Secured Party may reasonably deem fair; and, to the extent permitted by law, the
Secured Party may be the purchaser of any or all Collateral so sold and hold the
same thereafter in its own right free from any claim of the Pledgor or right of
redemption. Any sale hereunder may be conducted by an auctioneer or any officer
of the Secured Party. The Pledgor recognizes that the Secured Party may be
unable to effect a public sale of the Collateral by reason of certain
prohibitions contained in the Securities Act of 1933, as amended (the
"Securities Act"), and applicable state law, and may be otherwise delayed or
adversely affected in effecting any sale by reason of present or future
restrictions thereon imposed by governmental authorities, and that as a
consequence of such prohibitions and restrictions the Secured Party may be
compelled (i) to resort to one or more private sales to a restricted group of
purchasers who will be obliged to agree, among other things, to acquire the
stock for their own account, for investment and not with a view to the
distribution or resale thereof, or (ii) to seek
-3-
<PAGE> 4
regulatory approval of any proposed sale or sales, or (iii) to limit the amount
of Collateral sold to any person or group. The Pledgor agrees and acknowledges
that private sales so made may be at prices and upon terms less favorable to the
Pledgor than if such Collateral was sold either at public sales or at private
sales not subject to other regulatory restrictions, and that the Secured Party
has no obligation to delay the sale of any of the Collateral for the period of
time necessary to permit the issuer of such Collateral to register or otherwise
qualify them, even if such issuer would agree to register or otherwise qualify
such Collateral for public sale under the Securities Act or applicable state
law. The Pledgor further agrees, to the extent permitted by applicable law, that
the use of private sales made under the foregoing circumstances to dispose of
the Collateral shall be deemed to be dispositions in a commercially reasonable
manner. In addition to the foregoing, the Secured Party may exercise such other
rights and remedies as may be available under the Promissory Note, at law
(including, without limitation, the UCC) or in equity.
5. PROCEEDS OF SALE. The proceeds of the sale of any of the Collateral
by the Pledgor (which sale must be for fair market value) or the Secured Party
and all sums received or collected from or on account of such Collateral shall
be applied to repay the Obligations and only after such application need the
Secured Party account for the surplus, if any, to the Pledgor.
6. ATTORNEY-IN-FACT. The Pledgor hereby appoints the Secured Party as
the Pledgor's attorney-in-fact for the purposes of carrying out the provisions
of this Agreement and taking any action and executing any instrument which the
Secured Party may deem necessary or advisable to accomplish the purposes hereof,
which appointment is irrevocable and coupled with an interest; provided, that
the Secured Party shall have and may exercise rights under this power of
attorney only upon the occurrence and during the continuance of an Event of
Default. Without limiting the generality of the foregoing, upon the occurrence
and during the continuance of an Event of Default, the Secured Party shall have
the right and power to receive, endorse and collect all checks and other orders
for the payment of money made payable to the Pledgor representing any dividend,
interest payment, principal payment or other distribution payable or
distributable in respect to the Collateral or any part thereof and to give full
discharge for the same.
7. DIVIDENDS AND VOTING RIGHTS.
(a) So long as no Event of Default shall have occurred and be
continuing, (i) all dividends and other distributions with respect to the
Pledged Stock shall be paid directly to the Pledgor and (ii) the registration of
the Collateral in the name of the Pledgor shall not be changed and the Pledgor
shall be entitled to exercise all voting and other rights and powers pertaining
to the Collateral for all purposes not inconsistent with the terms hereof.
-4-
<PAGE> 5
(b) Upon the occurrence and during the continuance of any Event of
Default, at the option of the Secured Party, (i) all dividends and other
distributions with respect to the Pledged Stock shall be paid directly to the
Secured Party and shall be applied to repay the Obligations and (ii) all rights
of the Pledgor to exercise the voting or consensual rights and powers which it
is authorized to exercise pursuant to subsection (a) above shall cease and the
Secured Party may thereupon (but shall not be obligated to), at its request,
cause such Collateral to be registered in the name of the Secured Party or its
nominee and/or exercise such voting or consensual rights and powers as appertain
to ownership of such Collateral, and to that end the Pledgor hereby appoints the
Secured Party as its proxy, with full power of substitution, to vote and
exercise all other rights as a shareholder with respect to the Pledged Stock
hereunder upon the occurrence and during the continuance of any Event of
Default, which proxy is coupled with an interest and is irrevocable prior to
termination of this Agreement, and the Pledgor hereby agrees to provide such
further proxies as the Secured Party may reasonably request.
8. OTHER RIGHTS. The rights, powers and remedies given to the Secured
Party by this Agreement shall be in addition to all rights, powers and remedies
given to the Secured Party by virtue of any statute or rule of law. Any
forbearance or failure or delay by the Secured Party in exercising any right,
power or remedy hereunder shall not be deemed to be a waiver of such right,
power or remedy, and any single or partial exercise of any right, power or
remedy hereunder shall not preclude the further exercise thereof; and every
right, power and remedy of the Secured Party shall continue in full force and
effect until such right, power or remedy is specifically waived by the Secured
Party by an instrument in writing.
9. FURTHER ASSURANCES. The Pledgor agrees to do such further acts and
things, and to execute and deliver such additional conveyances, assignments,
financing statements, agreements and instruments, as the Secured Party may at
any time reasonably request in connection with the administration or enforcement
of this Agreement or related to the Collateral or any part thereof or in order
better to assure and confirm unto the Secured Party its rights, powers and
remedies. The Pledgor hereby consents and agrees that the issuers of or obligors
in respect of the Collateral shall be entitled to accept the provisions hereof
as conclusive evidence of the right of the Secured Party to exercise its rights
hereunder with respect to the Collateral, notwithstanding any other notice or
direction to the contrary heretofore or hereafter given by the Pledgor or any
other Person to any of such issuers or obligors.
10. BINDING AGREEMENT; ASSIGNMENT. This Agreement, and the terms,
covenants and conditions hereof, shall be binding upon and inure to the benefit
of the parties hereto, and to their respective successors and assigns. All
references herein to the Secured Party
-5-
<PAGE> 6
shall include any successor thereof and any other obligees from time to time of
the Obligations.
11. SEVERABILITY. In case any lien, security interest or other right of
the Secured Party or any provision hereof shall be held to be invalid, illegal
or unenforceable, such invalidity, illegality or unenforceability shall not
affect any other lien, security interest or other right granted hereby or
provision hereof.
12. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and all the counterparts taken together shall be deemed to
constitute one and the same instrument.
13. TERMINATION. This Agreement and all obligations of the Pledgor
hereunder shall terminate without delivery of any instrument or performance of
any act by any party on the date when all of the Obligations have been fully
paid and the Promissory Note terminated. Upon such termination of this
Agreement, the Secured Party shall deliver to the Pledgor the certificates
evidencing the Pledged Stock (and any other property received as a dividend or
distribution or otherwise in respect of the Pledged Stock), together with any
cash then constituting the Collateral, not then sold or otherwise disposed of in
accordance with the provisions hereof and take such further actions as may be
necessary to effect the same.
14. NOTICES. Any notice shall be conclusively deemed to have been
received by any party hereto and be effective on the day on which delivered to
such party (against receipt therefor) at the address set forth below or such
other address as such party shall specify to the other parties in writing (or,
in the case of telephonic notice or notice by telecopy (where the receipt of
such message is verified by return) expressly provided for hereunder, when
received at such telephone or telecopy number as may from time to time be
specified in written notice to the other parties hereto or otherwise received),
or if sent prepaid by certified or registered mail return receipt requested on
the third Business Day after the day on which mailed, or if sent prepaid by a
national overnight courier service, on the first Business Day after the day on
which delivered to such service against receipt therefor, addressed to such
party at said address:
(a) if to the Pledgor:
Oakhurst Technology, Inc.
3365 Spruce Lane
Grapevine, Texas 76051
Telephone: (817) 416-0717
Telecopy: (817) 416-0914
-6-
<PAGE> 7
(b) if to the Secured Party:
Robert Davies
100 First Stamford Place
Suite 600
Stamford, Connecticut 06902
Telephone: (203) 325-8935
Telecopy: (203) 325-8948
15. GOVERNING LAW; WAIVERS OF TRIAL BY JURY, ETC.
(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS EXECUTED, AND TO
BE FULLY PERFORMED, IN SUCH STATE.
(b) EACH PARTY HEREBY EXPRESSLY AND IRREVOCABLY AGREES AND CONSENTS
THAT ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED HEREIN MAY BE INSTITUTED IN ANY STATE OR
FEDERAL COURT SITTING IN THE STATE OF DELAWARE, UNITED STATES OF AMERICA AND, BY
THE EXECUTION AND DELIVERY OF THIS AGREEMENT, EXPRESSLY WAIVES ANY OBJECTION
THAT IT MAY HAVE NOW OR HEREAFTER TO THE LAYING OF THE VENUE OR TO THE
JURISDICTION OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND IRREVOCABLY SUBMITS
GENERALLY AND UNCONDITIONALLY TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH
SUIT, ACTION OR PROCEEDING.
(c) IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS OR
REMEDIES UNDER OR RELATED TO THIS AGREEMENT OR ANY AMENDMENT, INSTRUMENT,
DOCUMENT OR AGREEMENT DELIVERED OR THAT MAY IN THE FUTURE BE DELIVERED IN
CONNECTION WITH THE FOREGOING, EACH PARTY HEREBY AGREES, TO THE EXTENT PERMITTED
BY APPLICABLE LAW, THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A
COURT AND NOT BEFORE A JURY AND EACH PARTY HEREBY WAIVES, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY HAVE THAT EACH ACTION OR
PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
[SIGNATURE PAGE FOLLOWS.]
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the day and year first written above.
OAKHURST TECHNOLOGY, INC.
By: /s/ Maarten D. Hemsley
----------------------------------
Name: Maarten D. Hemsley
Title: President
ROBERT DAVIES
/s/ Robert M. Davies
-------------------------------------
-8-
<PAGE> 9
SCHEDULE I
<TABLE>
<CAPTION>
No. of Certificate
Shares No. for
Name of Company Class of Stock Pledged Pledged Shares
- --------------- -------------- ------- ---------------
<S> <C> <C> <C>
Sterling Construction Common Stock 17,524
Company
</TABLE>
-9-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-29-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> NOV-30-1999
<CASH> 65
<SECURITIES> 0
<RECEIVABLES> 4,057
<ALLOWANCES> 429
<INVENTORY> 5,386
<CURRENT-ASSETS> 9,567
<PP&E> 2,329
<DEPRECIATION> 1,490
<TOTAL-ASSETS> 20,167
<CURRENT-LIABILITIES> 8,590
<BONDS> 12,336
0
0
<COMMON> 49
<OTHER-SE> (808)
<TOTAL-LIABILITY-AND-EQUITY> 20,167
<SALES> 24,496
<TOTAL-REVENUES> 24,728
<CGS> 19,931
<TOTAL-COSTS> 19,931
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 103
<INTEREST-EXPENSE> 961
<INCOME-PRETAX> (2,427)
<INCOME-TAX> 1
<INCOME-CONTINUING> (2,428)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,428)
<EPS-BASIC> (.49)
<EPS-DILUTED> (.49)
</TABLE>
