FORM 8-K
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CURRENT REPORT
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Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date of Report (Date of earliest event reported) November 11,1996
SEL-DRUM INTERNATIONAL, INC
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(Exact name of registrant as specified in its charter)
COLORADO 84-1236134
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(State or other jurisdiction (Commission -(IRS Employer
Of incorporation) File No.)Identification No.)
601 AMHERST STREET, BUFFALO, N.Y. 14207-2925
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 800-263-6394
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_________________________________________________________________
(Former name or former address, if changed since last report)
ITEM 5 OTHER EVENTS
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On November 11, 1996, Sel-Drum International, Inc.(The
"Registrant") along with Brian Turnbull and Robert Asseltine
(with their affiliates and associated shareholders specified in
the Letter, the "Principal Shareholders") signed an acquisition
letter of intent (the "Letter") from JRCS Corp., a non-public
entity (the proposed "Buyer"). The provisions of the Letter are
attached as an exhibit to this Form 8-K. Under the terms of the
Letter, if the acquisition is consummated the Buyer would acquire
100% of the outstanding preferred shares of Sel-Drum Imaging
Corp. (a wholly-owned subsidiary of the Registrant) and 90.1% of
the outstanding common shares of the Registrant. The preferred
and common shares would be acquired from the Principal
Shareholders.
<PAGE>
The Letter sets a closing date for the proposed transaction of no
later than March 7, 1997. However, there is no assurance that
the transaction will occur. Further, if the transaction does
occur, there is no assurance that offers would be made by the
proposed Buyer for any of the outstanding common shares of the
Registrant other than those common shares which would be acquired
from the Principal Shareholders. The Letter has certain binding
provisions pertaining to negotiation exclusivity, conduct of
business in the ordinary course, escrow of shares of Principal
Shareholders and due diligence (see Section 11 of the Letter).
Should the transaction occur under the terms set forth in the
Letter, JRCS Corp. or its designees will have acquired control
of the Registrant from the Principal Shareholders.
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
SEL-DRUM INTERNATIONAL, INC.
Date November 11, 1996 /s/ Robert E. Asseltine
----------------- ____________________________
Robert E. Asseltine, Chairman
Of the Board and Director
Date November 11, 1996 /s/ Brian Turnbull
----------------- ____________________________
Brian Turnbull, President, Chief
Executive Officer and Director
November 11, 1996
Mr. Brian Turnbull
Mr. Robert E. Asseltine
Mr. Gerald Maunder
Sel-Drum International, Inc.
601 Amherst Street
Buffalo, NY 14207-2925
Re: Acquisition Letter of Intent
----------------------------
Dear Gentlemen:
This letter expresses the intent of the undersigned to enter
into transactions and agreements as described in this letter (the
"Acquisition") whereby JRCS Corp. or its designee(s) (the
"Buyer") will acquire all of the outstanding preferred stock and
90.1% of the outstanding common stock of Sel-Drum International,
Inc. (the "Company") from its principals Brian Turnbull and
Robert Asseltine and other shareholders as shall be listed on
Exhibit A (collectively "Selling Shareholders"), and whereby
related employment, non-competition and other agreements as
described herein will be consummated. Closing on the Acquisition
is subject to completion of due diligence to the satisfaction of
Buyer in its sole discretion and to entry into definitive legal
agreements containing provisions as described in this letter and
appropriate representations and warranties and other terms and
provisions (the "Acquisition Agreements"), pursuant to which the
closing shall occur. The Acquisition closing would occur on a
date, to be specified by Buyer, not later than March 7, 1997. If
the Acquisition is not completed on or before such date, this
letter, unless extended by written agreement of the undersigned,
shall terminate and be of no further force and effect. The
principal terms of the Acquisition will be as described below.
1. Stock Purchase and Price. At the Closing, Buyer will
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purchase from the Selling Shareholders, and the Selling
Shareholders will sell to Buyer, 100% of the outstanding
preferred stock and 90.1% of the outstanding common stock of the
Company. Buyer will: (a) at Closing pay the Selling Shareholders
U.S.$4.2 million in cash or immediately available funds and (b)
agree to pay U.S.$1.4 million on or before November 1, 1997
pursuant to an irrevocable promissory note executed and delivered
at Closing. The promissory note shall be secured by a bank
letter of credit, or alternatively by other
<PAGE>
collateral, security or guarantees satisfactory to the Selling
Shareholders.
Assuming that 7,642,500 shares of common stock are
outstanding (including any and all rights and options for
issuance or potential issuance of common shares) at date of
Closing, 6,885,893 shares shall be transferred to Buyer. The
Selling Shareholders shall be Brian Turnbull and Robert
Asseltine, and their affiliates who agree to become Selling
Shareholders, such that the total of the common shares
transferred is the required number of shares.
2. Associated Shareholders' and Outside Shareholders' Shares.
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After Closing, an aggregate of 756,607 shares of common stock of
the Company (representing 9.9% of the total outstanding stock of
the Company [756,607/7,642,500]) will be held by owners other
than the Buyer. Of this amount, 514,787 shares will be held by
"Associated Shareholders" as listed on Exhibit B and 241,820
shares will be held by other shareholders ("Outside
Shareholders"). In the event that Buyer or the Company merge the
Company into a private entity or otherwise elect to convert the
Company into a non-reporting private company whose stock is not
publicly traded under applicable SEC rules (a "Going Private
Transaction"), the Company or its designee(s) shall be required
to purchase from the Associated Shareholders, and the Associated
Shareholders shall be required to sell to the Company or its
designee(s), the Associated Shareholders' shares of common stock
for a price of $1.00 per share. The obligation and right of the
Company to so purchase the common stock of the Associated
Shareholders upon a Going Private Transaction shall survive the
Closing in perpetuity as to the common stock that continues to be
owned by the Associated Shareholders. The Associated
Shareholders, until July 31, 1998, shall not be permitted to sell
their shares other than to Buyer, the Company or its designees;
thereafter, the Buyer, Company and its designees shall have a
right of first refusal as to common stock that continues to be
owned by the Associated Shareholders. An appropriate put/call
and first refusal agreement shall be entered into at Closing
between the Company, Buyer and the Associated Shareholders to
implement the foregoing. Brian Turnbull and Robert Asseltine
will, to the extent necessary, acquire shares of the Associated
Shareholders such that following Closing the total block of
Associated Shareholders' 514,787 shares is subject to the
put/call and first refusal agreement. If there is a Going
Private Transaction in which the 241,820 shares of the Outside
Shareholders are acquired or retired, the Outside Shareholders
shall be paid fair value for their shares; if such Going Private
Transaction occurs within one year of the Closing the amount
offered for their shares shall not in any event be less than
$1.00 per share.
<PAGE>
3. Responsibility for Litigation or Claims. In connection
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with any purchase or retirement of the Outside Shareholders'
shares, the Company shall be responsible for any litigation or
claims of Outside Shareholders and shall hold harmless present
and future directors, officers, Selling Shareholders, Buyer and
their respective affiliates from any such claims. In connection
with the Acquisition or any purchase or retirement of Associated
Shareholders' shares, the Selling Shareholders shall be
responsible for any litigation or claims by the Associated
Shareholders and shall hold harmless the Company, and all present
and future directors, officers, Buyer and their affiliates (other
than the Selling Shareholders) from any such claims.
4. Brien Murtagh Employment Agreement. Buyer will negotiate
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an employment agreement to be entered into between the Company
and Brien Murtagh upon the Closing.
5. Brian Turnbull Employment Agreement. Buyer will negotiate
-----------------------------------
an employment agreement to be entered into between the Company
and Brian Turnbull upon the Closing. The agreement will include
the following terms:
- U.S.$125,000 annual salary;
- bonus related to the achievement of
specified targets related to
the export market;
- U.S.$16,000 a year for payment of car lease,
car insurance and operating costs;
- U.S.$5,700 for payment of annual dues and
monthly expenses for golf club;
- U.S.$2,300 for miscellaneous expenses for
sales promotions etc.;
- Reimbursement of out-of-pocket expenses for
overseas export sales trips which are
expected to be in the U.S.$15,000-20,000
range annually provided documented expense
reports are submitted to the Company.
(The foregoing is subject to Buyer's confirmation that these
compensation and benefit provisions, other than the agreed
salary, are consistent with current arrangements between the
Company and Mr. Turnbull.)
6. Bonus for Fiscal Year 1997. Upon the Closing, the Company
--------------------------
will enter into a bonus agreement providing for payment to the
Principals (Brian Turnbull and Robert Asseltine) of a combined
bonus, not to exceed U.S.$225,000, if the Company achieves an
EBIT of U.S.$1.8 million or greater for the fiscal year ending
July 31, 1997 (the "Principals' 1997 Bonus"). Such bonus would
be due and payable in cash on November 1, 1997 provided that the
audited financial statements for the fiscal year ended July 31,
1997 have been made
<PAGE>
available. The bonus would be based on the consolidated
earnings of the Company (including the earnings of any acquired
company if an acquisition by the Company is completed before July
31, 1997 for the part of the fiscal year during which the
acquired entity was owned by the Company). The amount of the
bonus would be based on the following schedule:
<TABLE>
<CAPTION>
EBIT for
F.Y. 1997 Bonus
<S> <C>
U.S.$1,800,000 U.S.$50,000
Between
U.S.$1,800,001 to $1,900,000 U.S.$50,000 plus 75% of
EBIT over $1,800,000
Between
U.S.$1,900,001 to $2,100,000 U.S.$125,000 plus 50% of
EBIT over $1,900,000
Above U.S.$2,100,000 Always U.S.$225,000
</TABLE>
The Principals' 1997 Bonus will be divided among the Principals
as specified in the bonus agreement to be entered into at Closing
by the Company and the Principals.
7. Non-Competition Agreements. The Principals will sign
--------------------------
covenants and non-competition agreements with the Company and
Buyer effective for a period of five years from the Closing.
Brian Turnbull, Brien Murtagh and any other Principals who will
continue to be employees of the Company after the Closing will
sign covenants and non-competition agreements that will be
effective during their employment and for five years following
the completion of their employment with the Company. The
covenants and non-competition agreements will include provisions
to protect confidential or proprietary information of the
Company, to prohibit the Principals from competing with the
Company or becoming affiliated with a competitor of the Company,
from pursuing business opportunities of the Company under
consideration during their affiliation with the Company and from
soliciting employees or customers of the Company.
Based upon its due diligence review, the Buyer may require
as a Closing condition that designated employees or agents of the
Company other than the Principals enter into appropriate
covenants and non-competition agreements if such agreements are
not in place.
8. Building Lease. At the Closing, the Company will enter
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into a five year lease from the date of Closing, at the present
rental
<PAGE>
rate, on the existing Burlington offices of the Company, subject
to Buyer determining through due diligence that the lease rent
and other provisions are at market.
9. Auditors. Until payment of the Principals' 1997 Bonus, if
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Buyer elects to change the Company's auditors, Buyer will select
one of the "big six" accounting firms or Grant Thornton.
Following payment of such bonus, Buyer and the Company shall be
under no restriction with respect to selection of auditors.
10. Form 8K Filing. The parties recognize that the Company
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will file a Form 8K with the Securities and Exchange Commission
no later than 15 days after the date hereof.
11. Agreements as to Exclusivity; No Violation; Due
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Diligence.
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While the foregoing expresses the parties' intent regarding
the Acquisition and principal terms of the Acquisition Agreements
but is subject to Buyer's due diligence and entry into the
definitive Acquisition Agreements, the provisions of this Section
11 are binding upon the Selling Shareholders and the Company as
an agreement with Buyer. Selling Shareholders and the Company
recognize that in reliance on this agreement, Buyer will
undertake due diligence analysis and incur significant efforts
and costs pertaining to the potential Acquisition.
a. The Company and each of its Selling Shareholders who
execute this letter hereby agree that none of them, directly or
indirectly, nor any of their representatives, directors,
officers, employees, agents or affiliates with their knowledge,
encouragement or authorization, shall, until March 7, 1997: (i)
discuss, enter into negotiations for, solicit offers for, or
otherwise pursue a possible sale or other disposition of the
Company, control of the Company, or any interest therein, with
any other party, whether by sale of stock, assets, merger or
otherwise, or provide any information to any other party for
discussion, evaluation or consummation of any such possible
transaction; (ii) discuss, enter into negotiations for, solicit
offers for, or otherwise pursue sale of all or substantial assets
of the Company, merger with or acquisition of another company or
assets thereof, or, without consent of Buyer, engage in other
transactions outside of the ordinary course of business of the
Company; or (iii) disclose to or discuss with any other party the
contents of this letter (other than as required in filings to be
made with the Securities and Exchange Commission or other
regulatory agencies or to shareholders in response to inquiries
from shareholders; no press release or similar release shall be
issued without consent and approval of Buyer). The Company shall
inform those of its directors, officers, employees or agents who
hold positions of significant
<PAGE>
responsibility within the Company of the foregoing agreement so
that it is complied with by the Company. In furtherance of the
foregoing, in the event of breach of the foregoing (i) or (ii),
if Selling Shareholders or the Company thereafter enter into a
transaction providing for sale or transfer of control of the
Company or sale of substantially all assets thereof to a party
other than the Buyer, the Company shall be obligated to pay Buyer
a fee ("Break-Up Fee") of U.S.$1.1 million due and payable in
cash upon consummation of such transaction. The provision for
this Break-Up Fee is in addition to, and shall not be in lieu of,
the right of Buyer to enjoin violation of and specifically
enforce this Section 11, or to bring suit against any person or
entity that interferes with compliance with this Section 11 by
the Company and Selling Shareholders. The Company and the
Selling Shareholders shall immediately disclose to Buyer the
receipt or existence of any proposal or expression of interest
which they may hereafter receive during the exclusivity period in
respect of any competing transaction, which disclosure shall
include the identity of the person or entity that is tendering
any proposal or expression of interest and the terms and
substance thereof.
b. The Company and the Selling Shareholders represent that
neither they nor any of their affiliates will, by pursuing or
concluding the transactions contemplated hereby, violate the
terms of any other agreement or obligation to which any of them
is subject.
c. Within ten business days following the execution of this
letter, Brian Turnbull and Robert Asseltine will cause at least
6,885,893 shares of common stock, together with executed stock
powers and other documents required for the transfer thereof (such
executed stock powers and other documents to be added to the
escrow on or before December 20, 1996), to be placed in escrow
with Ross & McBride, pursuant to the form of escrow letter
attached as Exhibit C, [not included in this filing] such shares to
be held in escrow and
available for transfer in the Acquisition. To the extent that
Brian Turnbull and Robert Asseltine acquire other shares of
common stock prior to Closing, such shares and applicable
documents for transfer shall be added to the shares and documents
in escrow.
d. Promptly upon execution of this letter of intent, Buyer
will provide an initial list of due diligence information and an
initial schedule for visits to the Company's facilities and
meetings with management. During the period from the date of
this letter until Closing, the Company and the Selling
Shareholders agree to promptly and efficiently make disclosures
and provide all information to Buyer (including representatives
of Buyer) which Buyer describes or requests including but not
limited to the business, affairs, operations, personnel,
procedures, competitors, properties, assets, liabilities,
financial condition and ownership
<PAGE>
of the Company, and all such other information which the Company
or Selling Shareholders deem may be relevant or material to Buyer
in consummating the Acquisition and/or in preparing for oversight
and management of the Company after Closing. Buyer shall be
given access to the premises and files of the Company on
reasonable notice and under conditions and arrangements that do
not interfere with the day to day operations of the business of
the Company.
We look forward to working with you with the goal of
successfully entering into final Acquisition Agreements and
consummating the Acquisition. Please signify your agreement with
this letter by signing below.
Very truly yours,
JRCS CORP.
By: /s/ John F. Rand
--------------------------
John F. Rand
Agreed and accepted as of
the date first written above:
THE COMPANY:
SEL-DRUM INTERNATIONAL, INC.
By: /s/ Brian Turnbull
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Its: CEO
PRINCIPAL SELLING SHAREHOLDERS:
/s/ Robert E. Asseltine
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Robert E. Asseltine
/s/ Brian Turnbull
------------------
Brian Turnbull
<PAGE>
EXHIBIT A
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List of selling Shareholders
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The Selling Shareholders shall be Brian Turnbull and Robert
Asseltine, their affiliates and such other shareholders as they
shall designate before Closing, such that the total common stock
transferred to Buyer at the Closing represents 90.1% of the
outstanding common stock including all rights and options for
issuance of common stock. The final listing of Selling
Shareholders and the number of shares to be sold by each will be
specified before or at Closing by Brian Turnbull and Robert
Asseltine.
Brian Turnbull affiliated shareholders include the following:
- ------------------------------------------------------------
Brian Turnbull
Brett Turnbull
Shane Turnbull
Steve Turnbull
Tracy Turnbull
Wayne Turnbull
Debbie Whitfield
Robert Asseltine affiliated shareholders include the following:
- --------------------------------------------------------------
Robert Asseltine
Geraldine Asseltine
<PAGE>
EXHIBIT B
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Associated Shareholders
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Shareholders who shall be deemed to be Associated Shareholders
shall include the following:
<TABLE>
<CAPTION>
Name of Shareholder Shares Currently Owned
<S> <C>
Brian Turnbull 4,514,000
Brett Turnbull 13,500
Shane Turnbull 13,500
Steve Turnbull 100,000
Tracy Turnbull 100,000
Wayne Turnbull 100,000
Debbie Whitfield 100,000
Robert Asseltine 1,199,000
Geraldine Asseltine 237,000
Gerald Maunder 125,000
Brien Murtagh 385,000
Stephen Dadson 83,680
Kensington Int., 220,000 (est.)
a Barbados Holding Company
Alex Green 100,000
Bon Green 85,000
Dennis Hack 25,000
</TABLE>
(Should Robert Frost receive shares from any of the above, he
shall be deemed an Associated Shareholder with regard to those
shares.)
<PAGE>
