<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission file number 1-7399
TCC INDUSTRIES, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 74-1366626
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
816 Congress Avenue, Suite 1250, Austin, TX 78701
-----------------------------------------------------
(Address of principal executive offices) (Zip code)
(512) 320-0976
-----------------------------------------------------
(Registrant's telephone number, including area code)
-----------------------------------------------------
(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
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 2,762,115 shares as
of August 11, 1997.
<PAGE> 2
Part I. Contents of Consolidated Financial Information:
<TABLE>
<CAPTION>
Page Number(s)
--------------
<S> <C>
Consolidated Balance Sheet 1 - 2
Consolidated Statement of Operations 3 - 4
Consolidated Statement of Shareholders' Equity 5
Condensed Consolidated Statement of Cash Flows 6
Notes to Consolidated Financial Statements 7 - 8
Management's Discussion and Analysis 9 - 11
Part II. Other Information 12 - 13
Signatures 14
</TABLE>
<PAGE> 3
TCC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1997 1996
Current assets: --------------- ---------------
<S> <C> <C>
Cash and cash equivalents $ 1,810 $ 2,723
Receivables:
Trade receivables, net
of allowance of
$177 and $104, respectively 4,359 2,518
Other, including
interest 91 48
--------------- ---------------
4,450 2,566
--------------- ---------------
Inventories:
Raw materials 914 877
Work in progress 277 90
Finished goods, net of
valuation allowance of
$571 and $182,
respectively 5,129 5,664
--------------- ---------------
6,320 6,631
--------------- ---------------
Other 542 185
--------------- ---------------
Total current assets 13,122 12,105
--------------- ---------------
Property, plant and
equipment 9,987 9,879
Accumulated depreciation (5,879) (5,652)
--------------- ---------------
4,108 4,227
--------------- ---------------
Intangible assets:
Goodwill 1,174 1,181
Patents and trademarks 79 57
--------------- ---------------
1,253 1,238
Accumulated amortization (469) (443)
--------------- ---------------
784 795
--------------- ---------------
Other assets 741 602
--------------- ---------------
Total assets $18,755 $17,729
=============== ===============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
-1-
<PAGE> 4
TCC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET - continued
(Unaudited)
(In Thousands, except share amounts)
<TABLE>
<CAPTION>
LIABILITIES AND June 30, December 31,
SHAREHOLDERS' EQUITY 1997 1996
--------------- ---------------
<S> <C> <C>
Current liabilities:
Notes payable $ 3,807 $ 2,033
Current maturities of
long-term debt 208 225
Accounts payable 1,029 565
Accrued expenses 1,087 971
Customer deposits 395 432
--------------- ---------------
Total current
liabilities 6,526 4,226
Long-term debt, less
current maturities 1,635 1,755
Deferred liabilities 212 224
--------------- ---------------
Total liabilities 8,373 6,205
--------------- ---------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, authorized
2,000,000 shares, no par
value, no shares issued -- --
Common stock, authorized
10,000,000 shares, par
value $1 per share,
2,841,601 shares issued 2,842 2,842
Additional paid-in capital 8,744 8,746
Cumulative foreign currency
translation adjustment 32 54
Retained earnings (accumulated
deficit) (977) 144
--------------- ---------------
10,641 11,786
Less treasury stock,
79,486 and 80,486 shares,
respectively, at cost (259) (262)
--------------- ---------------
Total shareholders'
equity 10,382 11,524
--------------- ---------------
Total liabilities
and shareholders'
equity $18,755 $17,729
=============== ===============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
-2-
<PAGE> 5
TCC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In Thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Three Months Ended
June 30,
1997 1996
--------------- ---------------
<S> <C> <C>
Revenue $ 5,472 $ 5,845
Cost of goods sold 3,894 4,040
--------------- ---------------
Gross profit 1,578 1,805
Selling, general and administrative
expenses 1,908 1,857
--------------- ---------------
Operating loss (330) (52)
--------------- ---------------
Other income (expense):
Interest income 25 24
Interest expense (171) (142)
Other, net (393) 11
--------------- ---------------
(539) (107)
--------------- ---------------
Loss before provision
for income taxes (869) (159)
Provision for state income taxes 19 --
--------------- ---------------
Net loss $(888) $(159)
=============== ===============
Weighted average number of common and
common equivalent shares outstanding 2,762 2,759
=============== ===============
Loss per common and common
equivalent share: $(0.32) $(0.06)
=============== ===============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
-3-
<PAGE> 6
TCC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In Thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
1997 1996
--------------- ---------------
<S> <C> <C>
Revenue $10,009 $11,157
Cost of goods sold 6,801 7,719
--------------- ---------------
Gross profit 3,208 3,438
Selling, general and administrative
expenses 3,588 3,628
--------------- ---------------
Operating loss (380) (190)
--------------- ---------------
Other income (expense):
Interest income 45 53
Interest expense (326) (273)
Other, net (434) 56
--------------- ---------------
(715) (164)
--------------- ---------------
Loss before provision (benefit)
for income taxes (1,095) (354)
Provision (benefit) for state income taxes 26 (2)
--------------- ---------------
Net loss $(1,121) $(352)
=============== ===============
Weighted average number of common and
common equivalent shares outstanding 2,762 2,759
=============== ===============
Loss per common and common
equivalent share: ($0.41) $(0.13)
=============== ===============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
-4-
<PAGE> 7
TCC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
1997 1996
--------------- ---------------
<S> <C> <C>
Net cash used by operating activities $(2,236) $(1,825)
-------------- --------------
Cash flows of investing activities:
Additions to property, plant and equipment (159) (114)
Proceeds from sale of assets 10 111
Increase in notes receivable (140) --
Other, net (22) 2
-------------- --------------
Net cash used by investing activities (311) (1)
-------------- --------------
Cash flows of financing activities:
Net borrowings of notes payable debt 1,774 2,008
Long-term debt paid (125) (301)
Other, net 1 11
-------------- --------------
Net cash provided by financing activities 1,650 1,718
-------------- --------------
Effect of foreign exchange rate changes on cash (16) --
Net decrease in cash and cash equivalents (913) (108)
Cash and cash equivalents at beginning
of period 2,723 2,224
-------------- --------------
Cash and cash equivalents at end
of period $1,810 $2,116
============== ==============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
-6-
<PAGE> 8
TCC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Cumulative
Foreign Retained
Par Value Addt'l Currency Earnings
Number of of Common Paid-in Translation (Accumulated Treasury
Shares Shares Capital Adjustment Deficit) Stock Total
--------- ---------- ------- ----------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances,
January 1, 1997 2,842 $ 2,842 $ 8,746 $ 54 $ 144 $ (262) $ 11,524
Net loss (1,121) (1,121)
Exercise of stock
option (2) 3 1
Foreign currency
translation
adjustment (22) (22)
----- ------- ------- --------- -------- ---------- --------
Balances,
June 30, 1997 2,842 $ 2,842 $ 8,744 $ 32 $ (977) $ (259) $ 10,382
===== ======= ======= ========= ======== ========== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
-5-
<PAGE> 9
TCC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
1997 1996
--------------- ---------------
<S> <C> <C>
Net cash used by operating activities $(2,236) $(1,825)
-------------- --------------
Cash flows of investing activities:
Additions to property, plant and equipment (159) (114)
Proceeds from sale of assets 10 111
Increase in notes receivable (140) --
Other, net (22) 2
-------------- --------------
Net cash used by investing activities (311) (1)
-------------- --------------
Cash flows of financing activities:
Net borrowings of notes payable debt 1,774 2,008
Long-term debt paid (125) (301)
Other, net 1 11
-------------- --------------
Net cash provided by financing activities 1,650 1,718
-------------- --------------
Effect of foreign exchange rate changes on cash (16) --
Net decrease in cash and cash equivalents (913) (108)
Cash and cash equivalents at beginning
of period 2,723 2,224
-------------- --------------
Cash and cash equivalents at end
of period $1,810 $2,116
============== ==============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
-6-
<PAGE> 10
TCC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 Summary of Significant Accounting Policies
The consolidated financial statements include the accounts of TCC
Industries, Inc. and Subsidiaries ("the Company"), and have been presented in
accordance with the reporting requirements for interim financial statements.
Such requirements do not include all of the disclosures normally required by
generally accepted accounting principles or those normally made in an Annual
Report on Form 10-K. Certain amounts have been reclassified for consistency in
presentation. In connection therewith readers are referred to the Company's
most recent Annual Report on Form 10-K filed for the year ended December 31,
1996. The information furnished herein reflects all adjustments which, in the
opinion of management, are of a normal recurring nature and necessary for a
fair statement of the results of interim periods. Such results for interim
periods are not necessarily indicative of the results to be expected for a full
year, principally due to seasonal fluctuations in wholesale distribution
revenue.
Income Taxes
The Company and its wholly owned domestic subsidiaries join in filing
a consolidated federal income tax return. The provision (benefit) for income
taxes for interim financial reporting is determined utilizing the estimated
annual effective tax rate method of allocation. Separate state and foreign
income tax returns are filed by subsidiaries where required.
Statement of Cash Flows
For purposes of the condensed consolidated statement of cash flows,
the Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Foreign Currency Translation
The consolidated financial statements of Meyer Europe, Ltd. are
translated into U.S. dollars in accordance with SFAS 52, "Foreign Currency
Translation". SFAS 52 requires the foreign operations to be translated using
current exchange rates for balance sheet items, historical rates for capital
accounts, and average exchange rates for income statement items. The resulting
translation adjustments are recorded directly into a separate component of
shareholders' equity.
Note 2 Restrictions on Net Assets:
Certain of the Company's subsidiaries have bank loan agreements which
contain provisions that can limit or restrict the transfer of funds to the
parent company in the form of cash dividends, loans or advances. Such
restrictions are based on each subsidiaries' income and other formulas
contained in the respective loan agreements. Substantially all of the Company's
net assets are restricted by the loan agreements, except as to the
aforementioned transfers of funds allowed under the loan agreements.
-7-
<PAGE> 11
TCC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
Note 3 Commitments and Contingencies
There are sundry claims pending against certain of the
Company's subsidiaries, all of which are incidental to the ordinary course of
business and, in the opinion of Company management, should not result in any
significant liability.
Note 4 Shareholders' Equity
The loss per share for the three and six months ended June 30, 1997 is
calculated using the weighted average number of common shares outstanding for
the three and six months ended June 30, 1997. Common share equivalents would
have diluted the loss per share and were therefore excluded from the
computation.
Note 5 Pending Matters
On February 26, 1997, the Board of Directors of the Company decided to
expand the scope of the engagement of Rauscher Pierce Refsnes, the Company's
investment banking firm, for the purpose of evaluating all strategic
alternatives for enhancing shareholder value, including having the firm assist
with such alternatives as a material acquisition of or merger with another
company, the sale of all or part of the Company, or a leveraged buyout by
management and/or new investors.
Note 6 Inventories
During the three month period ended June 30, 1997, the Company
recorded a $429,000 provision at the wholesale distribution segment related to
the decision to more rapidly reduce inventory levels and the estimated
inventive discounts that are expected to be incurred to reduce the levels of
certain items.
Note 7 Other Expenses
During the six month period ended June 30, 1997, the Company incurred
the following unusual and nonrecurring charges, both of which were reported as
"Other income (expense) - other, net", on the Consolidated Statement of
Operations:
o $235,000 charge for the cost of the proxy election contest that was
concluded in May, 1997 (of such expense, $80,000 was incurred in the
three month period ending March 31, 1997).
o $282,000 charge for the cost of the severance provisions pursuant
to the employment agreement with the Company's former Chief
Executive Officer.
Note 8 Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
SFAS No. 131 is effective for financial statements for periods beginning after
December 15, 1997.
Management believes that the Company currently substantially complies
with the requirements of these new standards and that the implementation of the
standards will not have a material impact on the Company's financial results.
-8-
<PAGE> 12
TCC INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following is management's discussion and analysis of the results of
operations and financial condition of TCC Industries, Inc. and subsidiaries
("the Company") during the periods included in the accompanying consolidated
financial statements. The discussion below relates to material changes in the
results of operations for the three and six months ended June 30, 1997 as
compared to the same periods ended June 30, 1996 and to material changes in the
financial condition of the Company occurring since the prior year end of
December 31, 1996. The reader is invited to review Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996 for
further details regarding the significant factors affecting the results of
operations and financial condition of the company.
COMPARISONS OF THE RESULTS OF OPERATIONS FOR THE THREE
MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
The Company reported a net loss for the three months ended June 30,
1997 of $888,000 on revenue of $5.5 million as compared to a loss of $159,000
on revenue of $5.8 million for the same period in 1996.
During the three month period ended June 30, 1997, the Company recorded
the following unusual and nonrecurring charges to expense:
o $429,000 provision at the wholesale distribution segment related to the
decision to more rapidly reduce inventory levels and the estimated
incentive discounts that are expected to be incurred to reduce the
levels of certain items.
o $155,000 charge for the cost of the proxy election contest that was
concluded in May, 1997.
o $282,000 charge for the cost of the severance provisions pursuant to
the employment agreement with the Company's former Chief Executive
Officer.
Excluding the above mentioned charges, the Company realized a loss
before taxes of $3,000 for the second quarter of 1997 as compared to a loss
before taxes of $159,000 for the second quarter of 1996.
REVENUE
Consolidated revenue decreased $373,000 (6.4%) to $5.5 million for the
second quarter of 1997 as compared to revenue of $5.8 million for the second
quarter of 1996. The decreased revenue is primarily the result of a decline in
revenue at the wholesale distribution segment.
Wholesale distribution revenue decreased 11.8% during the second
quarter of 1997 to $2.5 million when compared to revenue of $2.9 million for
the same quarter in 1996. The decline in revenue is a reflection of the earlier
noted declines in bookings which have resulted in a 33% decline in backlog at
June 30, 1997 as compared to June 30, 1996.
GROSS PROFIT
Consolidated gross profit decreased $227,000 to $1,578,000 in the
second quarter of 1997 when compared to $1,805,000 for the same period in 1996.
The decline in gross profit is the result of a decline in gross profit at the
wholesale distribution segment, partially offset by an increase at the
manufacturing segment.
o At the wholesale distribution segment, gross profit declined $471,000 to
$477,000 (18.9% of sales) for the second quarter in 1997 when compared
to $948,000 (33.0% of sales) for the same quarter of 1996, primarily due
to (1) a $429,000 provision associated with the segment's decision to
rapidly reduce inventory levels and the estimated incentive discounts
that are expected to be incurred to reduce the levels of certain items
and (2) the decline in revenue, discussed above. The impact of the two
above mentioned items was partially offset by improved gross profit
margins. Excluding the $429,000 provision mentioned above, gross profit
margins improved to 35.8% in the second quarter of 1997 as compared to
33.0% in the second quarter of 1996 due to an improved sales mix
towards a lower percentage of sales qualifying for quantity discounts.
o Gross profit at the manufacturing segment increased $243,000 during the
second quarter of 1997 to $1,086,000 (37.1% of sales) when compared to
$843,000 (28.5% of sales) for the same period in 1996. The improved
gross profit margins primarily resulted from a 5.3 percentage point
reduction in direct and indirect materials, as a percentage of sales, in
the second quarter of 1997 when compared to the same period in 1996. The
lower material costs, as a percentage of sales, primarily resulted
from an improved product sales mix (the second quarter of 1996
contained a higher percentage of customized equipment which are more
difficult to estimate than more standard equipment) and steps taken
during the second half of 1996 to reduce the costs of certain
components used in the manufacture of products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Consolidated selling, general and administrative expenses increased
$51,000 during the second quarter of 1997 when compared to the second quarter
of 1996. The increase in selling, general and administrative expense is
primarily the result of a $71,000 decrease at the parent company level,
primarily due a $29,000 reduction in salary expense due to lower staffing
levels, a $32,000 decrease in insurance expense due to lower premiums and
better experience in the group health insurance program, and the absence of
$33,000 of expense related to assets held for sale. The effect of these
decreases was partially offset by an $18,000 increase in costs associated with
the engagement of Rauscher Pierce Refsnes, the Company's investment banking
firm. The lower selling, general and administrative expenses at the parent
level were more than offset by a $93,000 increase at the manufacturing segment
and a $29,000 increase at the wholesale distribution segment. The increase at
the manufacturing segment primarily resulted from a $76,000 provision for
allowance for doubtful accounts.
OTHER INCOME (EXPENSE)
Other expense, net of other income, increased $432,000 to $539,000
during the second quarter of 1997 when compared to the same period in 1996,
primarily due to (1) $155,000 attributable to the cost of the proxy election
contest and (2) a $282,000 charge for funding the severance provisions pursuant
to the employment agreement with the company's former Chief Executive Officer.
-9-
<PAGE> 13
TCC INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS -- (Continued)
COMPARISONS OF THE RESULTS OF OPERATIONS FOR THE SIX
MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
The Company reported a net loss for the six month period ended June 30,
1997 of $1,121,000 on revenue of $10.0 million as compared to a loss of
$352,000 on revenue of $11.2 million for the same period in 1996.
During the six month period ended June 30, 1997, the company recorded
the following unusual and nonrecurring charges to expense:
o $429,000 provision at the wholesale distribution segment related to
the decision to more rapidly reduce inventory levels and the
estimated incentive discounts that are expected to be incurred to
reduce the levels of certain items.
o $235,000 charge for the cost of the proxy election contest that was
concluded in May, 1997.
o $282,000 charge for the cost of funding severance provisions
pursuant to the employment agreement with the Company's former Chief
Executive Officer.
Excluding the above mentioned charges, the Company realized a loss
before taxes of $149,000 for the six month period ended June 30, 1997 as
compared to a loss before taxes of $354,000 for the same period of 1996.
REVENUE
Consolidated revenue decreased $1,148,000 (10.3%) to $10.0 million for
the six month period ended June 30, 1997 as compared to revenue of $11.2
million for the same period in 1996.
Manufacturing revenue decreased 2.9% to $5.3 million for the six month
period ended June 30, 1997 down from $5.5 million for the same period in 1996.
This decrease resulted from a $416,000 (9.3%) increase at Meyer Machine and a
$575,000 (55.8%) decrease at Meyer Vi-Tech. The increase at Meyer Machine is
primarily the result of a 15.6% increase in sales of equipment partially offset
by a 1.2% decrease in parts and service sales. The increase in equipment sales
primarily resulted from its higher backlog at December 31, 1996 compared to
December 31, 1995. The decrease at Meyer Vi-Tech is primarily the result of its
lower backlog at December 31, 1996, when compared to December 31, 1995.
Wholesale distribution segment revenue decreased 17.6% to $4.6 million
during the six month period ended June 30, 1997 when compared to $5.6 million
for the same period in 1996. The decline in revenue is primarily a reflection
of the earlier noted declines in bookings which have resulted in a 33% decline
in backlog at June 30, 1997 as compared to June 30, 1996.
GROSS PROFIT
Consolidated gross profit decreased $230,000 to $3.2 million for the
six month period ended June 30, 1997 when compared to $3.4 million for the
same period in 1996. The decline in gross profit is primarily the result of the
following factors:
o At the wholesale distribution segment, gross profit declined
$610,000 to $1,232,000 (26.6% of sales) for the first six months of
1997 when compared to $1,843,000 (32.8% of sales) for the same
period in 1996, primarily due to (1) a $429,000 provision associated
with the segment's decision to rapidly reduce inventory levels and
the estimated incentive discounts that are expected to be incurred
to reduce the levels of certain items and (2) the decline in
revenue, discussed above. The impact of the two above mentioned
items was partially offset by improved gross profit margins.
Excluding the $429,000 provision mentioned above, gross profit
margins improved to 35.9% during the first six months of 1997 as
compared to 32.8% during the same period of 1996.
o Gross profit at the manufacturing segment increased $379,000
during the six month period ended June 30, 1997 to $1,947,000 (36.4%
of sales) when compared to $1,568,000 (28.5% of sales) for the same
period in 1996. The improved gross profit margins primarily resulted
from a 5.6 percentage point reduction in direct and indirect
materials, as a percentage of sales, in the first six months of 1997
when compared to the same period in 1996. The lower material cost,
as a percentage of sales, primarily resulted from an improved
product sales mix (the first half of 1996 contained a higher
percentage of customized equipment which are more difficult to
estimate than more standard equipment) and steps taken during the
second half of 1996 to reduce the costs of certain components used
in the manufacture of products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Consolidated selling, general and administrative expenses decreased
$40,000 (1.1%) during the six month period ended June 30, 1997 when compared to
the same period in 1996. Selling and administrative expenses at the
manufacturing segment increased $166,000 during the first six months of 1997
when compared to the same period in 1996 due primarily to a $67,000 increase in
labor and labor related expenses from a general increase in the pay levels,
increased use of outside labor and a provision for possible incentive
compensation; and a $76,000 provision for allowance for doubtful accounts.
Selling and administrative expenses at the wholesale distribution segment
decreased $75,000 during the first six months of 1997 when compared to the same
period in 1996, primarily due to a $43,000 reduction in labor and labor related
expenses resulting from changes in certain management positions and the
reduction of staff positions during the last half of 1996. General and
administrative expenses at the parent company level decreased $131,000 during
the first six months of 1997 when compared to the same period in 1996, primarily
due to a $65,000 reduction in salary expense due to lower staffing levels, and a
$59,000 reduction in insurance expense due to lower premiums and better
experience in the group medical plan.
OTHER INCOME (EXPENSE)
Other expense, net of other income, increased $551,000 to $715,000 for
the six month period ended June 30, 1997 when compared to the same period in
1996, primarily due to (1) $235,000 attributable to the cost of the proxy
election contest and (2) a $282,000 charge for funding the severance provisions
pursuant to the employment agreement with the Company's former Chief Executive
Officer.
-10-
<PAGE> 14
TCC INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS -- (Continued)
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had working capital of $6.6 million and a
current ratio of 2.0 to 1. This compares to working capital of $7.9 million and
a current ratio of 2.9 to 1 at December 31, 1996. The decrease in the current
ratio is a result of a greater percentage increase in current liabilities
versus current assets. Current liabilities increased primarily as a result of
an increase in the line of credit balance at the wholesale distribution segment
to support the increase in accounts receivable which was the primary cause for
the increase in current assets at the end of the second quarter of 1997 when
compared to December 31, 1996. The increase in accounts receivable and the line
of credit can be attributed to the seasonality of the wholesale distribution
segment of the Company as shipments are increased to customers in preparation
of the summer selling season. Cash for the six months ended June 30, 1997
decreased a net $913,000. In addition to the effect on cash from the changes in
current assets and liabilities discussed above, the Company made scheduled
payments on long term debt of $125,000 and had capital expenditures of $159,000.
At June 30, 1997, Meyer Machine maintained a $1,200,000 bank line of
credit, of which all was available to be borrowed. Meyer Machine has a
commitment from its primary bank lender to provide a line of credit for up to
$500,000, if needed, for equipment purchases. This commitment expires in June
1998.
At June 30, 1997, Allen-Lewis maintained a line of credit with a bank
that provided maximum borrowing capabilities of $4.0 million, subject to a
borrowing base calculation, for working capital purposes and letters of credit.
At June 30, 1997, Allen-Lewis had approximately $1,000 available for borrowing
under this line of credit. On July 30, 1997, this line of credit was converted
to a demand note subject to the borrowing base calculation.
TCC Industries has an $85,000 and a $500,000 line of credit, neither of
which had outstanding balances at June 30, 1997. These lines of credit are
used to supplement the short-term cash needs of the parent company.
Each of the subsidiaries bank lines of credit agreements contain
provisions that limit or restrict the transfer of funds to the parent company in
the form of cash dividends, loans, or advances. Management does not believe the
restrictions will have a significant effect on the parent company's ability to
meet ordinary cash obligations.
For information on the impact of future changes in accounting
principles see Note 8 to the Consolidated Financial Statements appearing
elsewhere herein.
PENDING MATTERS
On February 26, 1997, the Board of Directors of the Company decided to
expand the scope of the engagement of Rauscher Pierce Refsnes, the Company's
investment banking firm, for the purpose of evaluating all strategic
alternatives for enhancing shareholder value, including having the firm assist
with such alternatives as a material acquisition of or merger with another
company, the sale of all or part of the Company, or a leveraged buyout by
management and/or new investors.
-11-
<PAGE> 15
TCC INDUSTRIES, INC. AND SUBSIDIARIES
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Note 3 to the financial statements included elsewhere
herein for a discussion of legal proceedings.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of TCC Industries, Inc. was
held on May 7, 1997, for the purpose of electing two directors
to the board of Directors and approving the appointment by the
Board of Directors of Coopers & Lybrand L.L.P. as the firm of
independent accountants to audit the accounts of the Company
for the fiscal year ended December 31, 1997. Proxies for the
meeting were solicited by the Company pursuant to Section
14(a) of the Securities Exchange Act of 1934. A solicitation
in opposition to management's solicitation was made and the
opposition's nominees for director, as listed in their proxy
statement, were elected.
The vote on the election of the nominees for director was:
William E. Callahan Ed R. L. Wroe, Jr.
For 828,870 828,720
Withheld 9,063 9,013
Walter A. DeRoeck Robert Thomajan
For 1,024,190 1,025,275
Withheld 6,242 4,957
The following directors, who were not up for election,
continued in office: W. Grogan Lord, Frank W. Denius, J.
Patrick Kaine and Lawrence W. Schumann. On July 2, 1997 Mr.
Schumann resigned his position with the Company. See Part II,
Item 6(b).
The vote on approving the appointment of Coopers & Lybrand
L.L.P. as the firm of independent accountants to audit the
accounts of the Company for the fiscal year ended December 31,
1997 was:
For 1,453,089
Against 15,544
Abstain 399,533
12
<PAGE> 16
TCC INDUSTRIES, INC. AND SUBSIDIARIES
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997
PART II - OTHER INFORMATION (CONTINUED)
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
6(a) Exhibits:
10.23 Service agreement by and among Meyer Vi-Tech Limited
and John Basketfield dated May 21, 1997.
11 The computation of fully diluted earnings per share
would be the same as primary earnings per share,
which is easily discernable on the face of the
statements of operations included elsewhere herein.
27 Financial Data Schedules:
(i) For the quarterly period ended June 30, 1997.
6(b) Reports on Form 8-K:
The following is the date and description of the events
reported on Form 8-K filed during the second quarter of 1997
and the Forms 8-K filed subsequently:
Date of Earliest Event
Reported on Form 8-K Description
May 23, 1997 Announcement of Election of two
new members to Board of Directors
(see Part II, Item 4)
July 7, 1997 Walter A. DeRoeck was elected
Chairman and Interim Chief
Executive Officer of the Company,
replacing Lawrence W. Schumann who
resigned those positions. Mr.
Schumann also agreed to resign as
President and director of the
Company. In addition, Robert
Thomajan was elected to replace
Frank Denius who resigned his
position as Secretary of the
Company. The Board also approved a
resolution to expand the size of
the Board by two seats and to add
an advisory director to the Board.
Mr. Schumann also agreed to sell
the shares of the Company's common
stock that he beneficially owns to
Mr. DeRoeck and Mr. Thomajan for a
price equal to the average closing
price for the Company's shares for
the past fifteen trading day
period. The Board agreed to waive
the provisions of the Company's
Shareholders' Rights Plan to allow
for Mr. DeRoeck and Mr. Thomajan to
acquire up to twenty percent of the
Company's outstanding shares in
view of their agreement to acquire
Mr. Schumann's shares.
July 11, 1997 Three new directors elected to the
Board of Directors: Lawrence E.
Tilton, Richard B. Curran and Alan
M. Sager. Additionally, Robert D.
Starnes was named as an advisory
director.
-13-
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TCC INDUSTRIES,INC.
----------------------------------------
(Registrant)
/s/ WALTER A. DeROECK
----------------------------------------
WALTER A. DeROECK
Chairman of the Board of Directors,
Chief Executive Officer and
Principal Financial Officer
Date: August 13, 1997
-14-
<PAGE> 18
EXHIBIT INDEX
EXHIBIT
NO.
- -------
10.23 Service Agreement by and among Meyer Vi-Tech Limited and John
Basketfield dated May 21, 1997.
11 The computation of fully diluted earnings per shares would be the same
as primary earnings per share, which is easily discernable on the face
of the statements of operations included elsewhere herein.
27 Financial Data Schedules:
(i) For the quarterly period ended June 30, 1997.
<PAGE> 1
EXHIBIT 10.23
SERVICE AGREEMENT
-----------------
THIS AGREEMENT is made the 21st day of May 1997
BETWEEN:-
(1) MEYER VI-TECH LIMITED whose registered office is at Willenhall Lane,
Bloxwich, West Midlands, WS3 2XN ("the Company")
(2) JOHN BASKETFIELD of 118 Heathcroft Road, Four Oaks, Sutton Coldfield,
B65 6NJ ("the Employee")
IT IS AGREED as follows:-
1. Duration
1.1 With effect from 15th May 1997 the Company shall employ the Employee
as Managing Director and the Employee shall serve the Company on -the
terms of this Agreement.
1.2 Subject to the terms of this Agreement the employment of the Employee
by the Company shall continue until terminated at any time by either
(i) the Company whether or not pursuant to clause 12 or
(ii) the Employee in accordance with clause 12.1 or otherwise on
giving to the Company not less than six months' written
notice of termination.
1.3 The Employee's continuous period of employment with the Company began
on 1st July 1989.
2
<PAGE> 2
2. Duties
2.1 During normal business hours and at such other times as the board of
directors of the Company ("the Board") may reasonably require, the
Employee shall devote the whole of his time, attention and abilities
to the duties of his employment and to the benefit of the Company.
No additional benefit will be paid to the Employee in respect of
work undertaken outside normal business hours.
2.2 The duties of his employment shall be such, if any, as the Board
shall from time to time assign to the Employee to be carried out at
Willenhall Lane, Bloxwich, West Midlands, WS3 2XN or at such other
place or places whether within or outside of the United Kingdom as
the Company shall reasonably require.
2.3 During the course of his employment, the Employee shall not (except
as the owner of shares or other securities quoted or dealt with on a
recognised stock exchange) without the written consent of the Board
(such consent not to be unreasonably withheld) directly or indirectly
be engaged or interested in any other business or occupation than
that of the Company and his employment with the Company.
3. Restrictions
3.1 Subject to clause 3.3. below the Employee shall not for a period of
one year from the termination of his employment:-
3.1.1 directly or indirectly engage or be concerned or employed in
the business of designing, developing, selling, and/or
manufacturing, conveyor equipment anywhere in England and Wales
in competition with the products and services of the Company;
3
<PAGE> 3
3.1.2 directly or indirectly deal with (in connection with any
business of a type carried on by the Company at the date of
termination of the Employee's employment) any person, firm or
company who was during the 12 months immediately before the
termination of the Employee's employment a customer or supplier
of the Company or accustomed to deal with the Company and with
whom the Employee personally had dealings on any occasion
during the same period.
3.1.3 directly or indirectly solicit or endeavor to solicit or help
another person to solicit (in connection with any business of a
type carried on by the Company at the date of termination of the
Employee's employment and in which the Employee was actively
concerned in the 12 months immediately before termination of
the Employee's employment) orders or custom from any person,
firm or company who at any time during the last 12 months of his
employment was:-
(a) a customer of the Company;
(b) a supplier of the Company;
(c) an agent of the Company;
(d) a distributor for the Company; or
(e) otherwise in the habit of dealing with the Company
The restrictions imposed by this clause in relation to
sub-paragraphs (a) to (e) inclusive shall be severable so as to
have effect as separate and distinct restrictions.
4
<PAGE> 4
3.1.4 directly or indirectly solicit or entice away or endeavor to
solicit or entice away from the Company or Meyer Machine
Company or Meyer Europe Limited or TCC Industries Inc
(collectively "the Companies") any person employed by the
Companies in an executive, technical or sales capacity.
3.2 Each clause and sub-clause of clause 3.1 above shall be
3.2.1 separate and distinct and severable from each other clause and
sub-clause;
3.2.2 subject to the written consent of the Company to the carrying
on of the restrained activity in each case, which is not to be
unreasonably withheld.
3.3 The provisions of clause 3.1 shall not apply if the Employee's
employment terminates pursuant to clauses 12.1(i), 12.1(iii) or
12.1(iv) below. For the avoidance of doubt, the provisions of clause
3.1 shall apply if the Employee's employment terminates pursuant to
clause 12.1(ii) below, provided that the Employee's salary after the
Change of Circumstances (as defined in clause 12.6 below) leading to
such termination is not less than his salary before the said Change
of Circumstances.
4. Confidentiality
4.1 Both during the course of his employment and after its termination
for whatever reason the Employee shall not:-
5
<PAGE> 5
4.1.1 Except as authorised or required by the Company or except as
required by law, reveal to any person, firm, company or
organisation any of the trade secrets or confidential
information of the Companies (as defined in clause 3.1.4) or of
any customer or supplier of the Companies including but not
limited to:-
(a) lists or details of customers;
(b) (other than such information as is in the public domain
through no fault of the Employee) information concerning
the organisation, business or financial transactions or
affairs of the Companies, their customers or suppliers;
(c) (other than such information as is in the public domain
through no fault of the Employee) any such matter relating
to any invention, discovery, design, improvement or
copyright work belonging to the Companies, their customers
or suppliers, including those referred to in clause 5
below;
4.1.2 Use or attempt to use (whether directly or indirectly) any such
information in any manner which may injure or cause loss (whether
directly or indirectly) to the Companies, their customers or
suppliers.
5. Inventions
5.1 If in the course of his employment with the Company the Employee,
whether alone or jointly, makes an invention, discovery, design or
topography (such as a drawing or computer program) or an improvement
to any of those or originates a copyright work ("the invention"),
6
<PAGE> 6
5.1.1 subject to Section 39 of the Patents Act 1977, all
intellectual property rights in the invention will belong
to the Company;
5.1.2 the Employee shall promptly disclose to the Company full
details of the invention;
5.1.3 the Employee shall, at the request and expense of the
Company, do everything necessary to enable the Company or
its nominee to obtain the benefit of the invention
including, without limitation, securing patent or other
protection;
5.1.4 the Employee waives any rights he may have in respect of
the invention under Sections 77-86 of the Copyright,
Designs and Patents Act 1988, including the right to object
to derogatory treatment.
5.2 The provisions of this clause are subject to Section 42 of the
Patents Act 1977.
6. Termination
6.1 In the event of gross misconduct by the Employee, (as defined in
clause 10.5) the Company may dismiss him without notice.
6.2. The Company may also dismiss the Employee without notice if he:
6.2.1 commits any serious or persistent breach of this Agreement; or
6.2.2 is convicted of any criminal offence other than an offence
which in the opinion of the Board does not affect his position
as an employee of the Company; or
7
<PAGE> 7
6.2.3 conducts himself in a manner which, in the sole opinion of the
Company is fraudulent or dishonest; or
6.2.4 becomes bankrupt or makes any arrangement with his creditors
generally; or
6.2.5 is unable to perform his duties due to alcoholism, or improper
and illegal use of drugs; or
6.2.6 is absent because of illness for an aggregate period of 3
months in any 12 months; or
6.2.7 becomes of unsound mind; or
6.2.8 becomes disqualified from acting as a director of the Company
or resigns from office as a director; or
6.2.9 has in a period of 3 months following a written warning of the
possibility of dismissal for poor performance shown no
improvement to the reasonable satisfaction of the Board.
6.3 The Company reserves the right to suspend the Employee on full pay
for any period if, by reason of a need to investigate the Employee's
conduct, the Company considers it necessary to do so.
6.4 The Company shall have the right during the period of a notice of
termination (whether such notice is given by the Company or by. the
Employee) not to allocate any duties to the Employee and to require
him not to report to the Company's premises but to remain at home
during that period, when he will continue to receive his salary and
all other benefits under this Agreement.
8
<PAGE> 8
6.5. Upon notice by either party being given to terminate this Agreement
the Company shall be entitled to pay salary at the rate specified in
clause 8.1.1 in lieu of notice and at any time after the start of a
notice period to terminate the Employee's employment upon payment of
such salary in lieu of the notice then unexpired.
6.6 On the termination of his employment the Employee shall hand over to
the Company the car provided by the Company pursuant to clause 11
below, all books, documents, papers, materials and other property of
the Company relating to the business of the Company which may then be
in his possession or under his control and shall not retain any
copies.
6.7 On the termination of his employment the Employee shall forthwith
resign his position as a director of the Company.
7. Absence from work
In the event of the Employee's absence from work due to sickness or injury
or his being incapacitated in any way from carrying out his duties then he
must:-
7.1 Notify the existence of sickness or injury to a Director on the third
day of absence.
7.2 Complete a Form SC1 within three days of being sick and send it to
the Company with written reasons for his absence and his expected
date of return to work.
7.3 On the eighth day of his sickness the Employee should see his doctor
and obtain a doctor's certificate which should be forwarded to the
Company. Apart from the requirement to supply a medical certificate
in connection with sick pay the Employee is required to keep the
Company fully
9
<PAGE> 9
informed as to the progress of his illness and his expected date of
return to work.
7.4 In the event of his absence from work through illness or injury
Statutory Sick Pay will be paid in accordance with the State Scheme.
Any additional payment will be wholly at the discretion of the
Company.
8. Remuneration
8.1 During his employment the Company shall pay to the Employee:
8.1.1 an annual salary of L50,000 paid monthly in arrears;
8.1.2 a bonus in accordance with the TCC Industries Annual Incentive
Plan.
8.2 The Company will pay the premiums necessary for the Employee to
maintain private health insurance under the BUPA scheme of which the
Employee is a member at the date of this Agreement.
8.3
8.3.1 There are no pension rights conferred by this Agreement and the
Company has no pension scheme for its employees;
8.3.2 A contracting out certificate under the Social Security
Pensions Act 1975 is not in force in respect of the Employee's
employment.
10
<PAGE> 10
9. Holidays
9.1 The Company's holiday year runs from January lst to December 3lst. If
the Employee has completed 12 months' continuous service as at
December 31st he will be entitled to paid holiday as set out
hereunder.
9.2 The Employee is entitled to a total of 25 working days' holiday each
year plus such public and fixed holidays as the Company observes.
Holidays should not in any way exceed a two week period at any one
time.
9.3 In respect of the remainder of the holiday entitlement the Company
will issue notices detailing the dates of all fixed holidays which
the Company will observe in that year and which have been approved by
the board of directors.
9.4 In the event of the Employee leaving the Company during the course of
the holiday year, then the Employee's holiday entitlement will be 2
days' paid holiday for each completed month of service in the
relevant holiday year. On termination of the Employee's employment
the Employee will be entitled to payment in lieu of any accrued but
untaken holiday and the Company will be entitled to recover from the
Employee a sum in respect of any holiday taken in excess of accrued
holiday entitlement.
9.5 Holiday entitlement accrued in any holiday year must be taken by the
end of that year.
10. Discipline and Grievances
The Company will observe the following procedure in respect of
disciplinary matters:-
11
<PAGE> 11
10.1 Minor Offences
The Employee will be given an oral warning. The Employee will be told
that the warning constitutes the first formal stage of the
disciplinary procedure.
10.2 Repetition of Offence or New Offence
l0.2.1 If a further offence, or a new offence is committed, the
Employee will be asked to explain the circumstances in which
the offence took place and be given an opportunity to state his
case.
10.2.2 If after the Employee's explanation the board or the director
concerned is satisfied that the Employee should receive a
written warning, a first written warning will be given which
will set out the nature of the offence and the likely
consequences of further Offences.
10.3 Persistent Offences
10.3.1 If the Employee persists in a course of misconduct he will be
asked to give an explanation.
10.3.2 If after hearing that explanation the board or the director
concerned is satisfied that the Employee should be disciplined
further, a final written warning will be given to the Employee
stating that any further misconduct will result in the
Employee's dismissal.
12
<PAGE> 12
10.4 The Board has the authority to take any action detailed above. If a
first offence is sufficiently serious, the board may issue a written
warning immediately rather than an oral warning.
10.5 Gross Misconduct
(a) Gross misconduct is misconduct of such a nature that the Company
is justified in no longer tolerating the Employee's continued
presence at work.
(b) The term "gross misconduct" includes but is not limited to
offences of the following kind:-
unauthorised removal of Company property; contravention of
Company rules; intentional damage to Company property;
dishonesty; sexual misconduct at work; fighting; assault;
theft.
(c) If the Employee is suspected of gross misconduct he will be
suspended for a period of not less than forty eight hours
pending a thorough examination into all the circumstances of the
case. The Employee will be provided with an opportunity to offer
an explanation to the appropriate level of management before a
decision is made as to whether or not to dismiss the Employee.
11. Motor Car
11.1 The Company shall provide a car to the Employee as from time to time
agreed for the performance of the Employee's duties.
13
<PAGE> 13
11.2 It is the Employee's responsibility when required to drive on the
Company's business to ensure that he holds a valid driving licence.
The Employee may be required to produce his licence for inspection
by the Company.
11.3 The Company will ensure that any vehicle provided by the Company to
the Employee is kept in a roadworthy and serviceable state, but it is
the Employee's responsibility to notify the Company at once if he
becomes aware of any defect in a vehicle which could render it
unroadworthy.
11.4 The Employee will be held responsible for any fines relating to the
driving of such vehicle arising through any fault on his part.
11.5 In the event of the Employee being involved in an accident while
driving a Company vehicle all details of the damage and a report of
the incident must be presented to the Company within 24 hours.
12. Special Severance Provisions
12.1 In the event that the Employee terminates his employment with the
Company as a result of one or more of the following:-
(i) a Change in Control of the Company as defined in clause 12.5
below;
(ii) a Change of Circumstances related to either the Employee or the
Company as defined in clause 12.6 below;
(iii) the Company ceases to do business;
14
<PAGE> 14
(iv) in the event (an "Insolvency Event") of the Company becoming
insolvent within the meaning of sl23 Insolvency Act 1986, or if
a receiver, administrative receiver, manager or administrator
is appointed over all or substantially all of the Company's
assets, or if the Company shall enter into liquidation (other
than pursuant to a voluntary scheme for the purpose of a bona
fide scheme of solvent amalgamation or reconstruction) or if the
Company shall make any arrangement or composition with creditors
or take any other step to take advantage of any law providing
for relief to debtors
provided that the Employee terminates his employment with the Company
by giving six months' notice in writing within twelve months of the
occurrence of one or more of the foregoing events, the Employee will
be entitled to a lump sum payment (the "Special Severance Payment")
equal to the sum of:-
(a) the highest one month's gross salary during the three year
period immediately preceding such termination multiplied by
the number of full years the Employee has been employed by
the Company or any affiliate of the Company (as defined
below and including without limitation TCC Industries Inc);
and
(b) any bonuses accrued but unpaid as at the effective date of
termination, including an amount equal to the amount that
would have been earned by the Employee under the TCC
Industries Inc Annual Incentive Plan, as amended from time
to time (the "AIP"), for the fiscal year in which such
termination occurs had the Incentive Award (as defined in
the AIP) for that year not been subject to being forfeited
15
<PAGE> 15
due to termination (for the avoidance of doubt the Employee
will be considered to have been employed for the entire
such year), multiplied by a fraction the numerator of which
is the number of days elapsed in such calendar year as at
the effective date of termination, and the denominator of
which is 365
and, in addition to the Special Severance Payment, further benefits
(the "Fringe Benefits") for a period of one month for each year of
continuous service completed by the Employee at the effective date of
termination (subject to a maximum of twelve months) beginning with
the effective date of termination, namely health insurance, car
allowance in lieu of provisions of a motor car pursuant to clause 11
above, any premiums becoming due during such period with respect to
any life insurance policy on the Employee's life for which the
Company, TCC Industries Inc ("TCC") or an affiliate of TCC has
previously made the premium payments, and payment for any unpaid
vacation not taken and accrued as of such termination.
Upon such termination the Company shall take such action and otherwise
cooperate with the Employee in promptly causing the beneficiary of such
life insurance policy to be changed from the Company to someone designated
by the Employee, and ownership of any such life insurance policy to be
transferred to the Employee including the right to designate the
beneficiary. In addition, any portion of any stock options granted by TCC
to the Employee which have not then vested shall become exercisable in
full for a period of six months following the effective date of
termination, or such lesser period as the option would have been
exercisable had the Employee's employment with the Company not been
terminated.
Provided that if the only event specified in sub-clauses (i) to (iv)
inclusive above that occurs is an Insolvency Event, then upon the
voluntary termination by the
16
<PAGE> 16
Employee of his employment he shall be entitled to only one half of the Special
Severance Payment, and the Fringe Benefits shall be maintained for six months
only. For the avoidance of doubt and to the extent necessary, this clause 12.1
shall constitute an amendment to any stock options granted to the Employee by
TCC such that the vesting and exercise provisions thereof shall be consistent
with the first sentence of this clause 12.1.
12.2 In the event that the Company terminates the Employee's employment
for any reason (other than for gross misconduct as defined in clause
10.5 above or for a reason set out in clause 6.2 above) the Company
will give to the Employee the statutory minimum notice in writing
and the Employee will be entitled to the Special Severance Payment
and the Fringe Benefits as set out in this clause 12.
12.3 Subject to clause 12.8 the Company shall pay the Special Severance
Payment to the Employee in three equal instalments, the first such
instalment to be paid within one month of the effective date of
termination of the employee's employment, the second instalment
within three months of the same date and the final instalment within
six months of the same date.
12.4 If the Employee terminates his employment with the Company pursuant
to clause 12.1, as a condition to the Company's obligation to pay the
first instalment of the Special Severance Payment, the Employee shall
provide written notice to the Company specifying the effective date
of termination and the reason for termination.
12.5 In this clause 12, "Change in Control" means:-
(i) the sale or other disposition of the Company or TCC (whether
directly or indirectly, and whether by way of merger,
consolidation,
17
<PAGE> 17
sale of assets or sale of stock of the Company or TCC), or the
sale by the Company or TCC of all or substantially all of the
assets of the Company or TCC to any person (as such term is
defined in the Securities Exchange Act of 1934), the
consolidation of the Company or TCC with any person, or the
merger of the Company or TCC with any person, as a result of
which consolidation or merger the Company, TCC or an affiliate
of TCC as of the date of this Agreement, is not the surviving
entity;
(ii) the sale or transfer by (A) the Company and/or TCC, and/or any
subsidiary of or affiliate of TCC then in control, directly or
indirectly, of the Company (whether one or more, a "Control
Affiliate), or (B) TCC and/or one or more of its shareholders,
in one or more related or unrelated transactions, to one or more
persons under circumstances whereby any person and its
"affiliates" (as hereinafter defined) shall own, after such sale
or transfer, in excess of one-half of the issued and outstanding
shares of the Company or TCC, as the case may be;
(iii) the issuance by the Company, TCC and/or any Control Affiliate,
in a single transaction or a series of related transactions
including a merger or consolidation in which the Company, TCC
and/or any Control Affiliate, as the case may be, is the
surviving entity, of shares which constitute more than one-half
of the shares of the Company, TCC or such Control Affiliate, as
the case may be issued and outstanding immediately prior to the
first such transaction;
(iv) the liquidation of the Company, TCC or any Control Affiliate, as
the case may be; or
18
<PAGE> 18
(v) the election of one or more individuals to the Board of
Directors of TCC which results in a majority of the Directors of
TCC being persons who are not Directors of TCC on January 9th,
1997.
In this Agreement, an "affiliate" shall mean any person that,
directly or indirectly, through one or more intermediaries,
controls, or is controlled by, or is under common control with,
any other person or who, by agreement (whether written or oral),
is acting in concert with any such person.
12.6 In this clause 12, a "Change of Circumstances" shall be deemed to
have occurred if, in the sole judgment of the Employee, there has
been:-
(i) a material reduction or change in the Employee's duties or
reporting responsibilities or a removal from or failure to be
elected to a previously held position, including without
limitation a removal from an officer position in the department
in which the Employee is employed at the date of this Agreement
or a relocation of his employment outside of the West Midlands
county;
(ii) a material breach by the Company of any provision of this
Agreement which breach is not remedied to the Employee's
reasonable satisfaction within 14 days of the Company receiving
notice of such breach from the Employee;
(iii) a material reduction in the Employee's salary or the fringe
benefits of the employment made available to the Employee by the
Company, which reduction is not also applicable to all Company
Employees;
(iv) a material diminution in the Employee's status, working
conditions
19
<PAGE> 19
or economic benefits; or
(v) any action which substantially impairs the Employee's prestige
in relation to any other Employee of the Company,
provided that there shall not be deemed to be a Change of
Circumstances solely by reason of the Company terminating the
Employee's employment pursuant to clauses 6.1 or 6.2 above.
12.7 For the avoidance of doubt the Special Severance Payment includes any
sum payable to the Employee on termination of his employment by way
of a statutory redundancy payment.
12.8 The Company shall be entitled to deduct from the Special Severance
Payment or any instalment thereof a sum equal to any sum paid by the
Company to the Employee by way of compensation for breach of
contract, unfair dismissal or for any form of discrimination
including but not limited to sex, race and disability discrimination.
Notwithstanding the provisions clause 15 of this Agreement, the
Employee shall not be required to submit to arbitration any claim for
unfair dismissal or for any form of discrimination in connection with
the termination of his employment. The Company reserves the right to
withhold payment of any instalment of the Special Severance Payment
until the final determination of any claim made by the Employee in
connection with the termination of his employment including but not
limited to those referred to in this clause 12.8.
13. Entire Agreement
This Agreement constitutes the entire agreement between the Employee and
the Company regarding the subject matter hereof and supersedes all prior
and contemporaneous agreements and understandings in connection herewith.
20
<PAGE> 20
14. Set Off
The obligations of the Company to the Employee under this Agreement shall
be independent of, and shall not be subject to, any condition, obligation
or set off except as expressly set forth in this Agreement. Any obligation
of the Company to pay any amount of money to the Employee shall not be set
off against any amount owed by the Employee to the Company except to the
extent that either the Employee consents to the set off in writing at the
time such sum first becomes due, or the amount so set off has been
reduced to a final, non-appealable judgment in favour of the Company
against the Employee in a Court having jurisdiction.
15. Disputes
15.1 If any legal action or other proceeding, including an arbitration
proceeding instituted pursuant to the next succeeding sentence, is
brought for the enforcement of this Agreement, or because of an
alleged dispute, breach, default or misrepresentation in connection
with any of the provisions of this Agreement, the successful or
prevailing party will be entitled to recover reasonable legal fees
and other costs incurred in that action or proceeding, in addition to
any other relief to which it or he may be entitled. Except in
connection with seeking injunctive relief to which either party may
reasonably believe it or he is entitled hereunder, or as otherwise
expressly provided for by this Agreement, any dispute, controversy,
or claim arising out of or relating to this Agreement, or the breach,
termination or invalidity thereof, shall be settled by an arbitrator
to be appointed by the President for the time being of the Law
Society provided that the place of the arbitration shall be
Birmingham, England.
21
<PAGE> 21
15.2 Any award or determination entered in any arbitration initiated
pursuant to this Agreement shall be conclusive and binding on the
parties, and shall be enforceable in any Court having jurisdiction
with respect to the matter. If it is ultimately determined in any
such proceeding that the Company wrongfully withheld payment of any
portion of the Special Severance Payment prior to such determination,
then the Employee shall be entitled to recover from the Company an
amount equal to 18% per cent per annum on such portion of the Special
Severance Payment that has been wrongfully withheld, from the date
such portion should have been paid until it is paid, and such
recovery shall be in addition to such other sums to which the
Employee is entitled hereunder. Unless otherwise provided above, each
party shall pay its or his own expenses incurred in connection with a
proceeding pursuant to this clause 15.
16. Governing Law
16.1 This Agreement shall be construed in accordance with and shall be
governed by the laws of England and Wales.
16.2 References in this Agreement to any enactment shall be deemed to
include a reference to any amendment or replacement thereof.
17. Notices
Any notice to be given under this Agreement shall be sent by first class
post or (if the notice is to go overseas) by next day delivery courier, in
the case of notice to the Employee to his address and in the case of
notice to the Company to the Company's registered office and to the
President of Meyer Machine Company of 3528 Fredericksburg Road, San
Antonio, Texas 78201, USA and such notice shall be deemed to be served two
days after the date of its being so posted or left with a courier as the
case may be.
22
<PAGE> 22
AS WITNESS the signatures of the parties or their duly authorised
representatives on the 21st day of May 1997
SIGNED BY )
for and on behalf of the Company )
E. Teeter /s/ EUGENE W. TEETER
SIGNED BY )
J. Basketfield ) /s/ J. BASKETFIELD
23
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
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0
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