<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 1-7399
TCC INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 74-1366626
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.
504 LAVACA STREET
SUITE 1004
AUSTIN, TEXAS 78701
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's phone number, including area code: 512/708-5000
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
Common Stock, $1.00 par value New York Stock Exchange
Rights to Purchase Series A Preferred Stock New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K.
As of March 23, 1998, 2,813,815 common shares were outstanding and the
aggregate market value of the common shares held by non-affiliates (based upon
the closing price of these shares on the New York Stock Exchange) was
approximately $21,103,613.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the following documents are incorporated by reference into the
indicated part or parts of this report:
Proxy Statement for the 1998 Annual Meeting of Shareholders Part III.
================================================================================
<PAGE> 2
PART I
ITEM 1. BUSINESS
(a) General Development of Business
TCC Industries, Inc. ("TCC Industries" or "Company") was incorporated under
the laws of the State of Texas in October 1958. Its principal offices are
located at 504 Lavaca Street, Suite 1004 Austin, Texas 78701. Its telephone
number is (512) 708-5000. Unless the context otherwise requires, the terms
"Company", "Registrant", and "TCC Industries" refer to TCC Industries, Inc. and
its Subsidiaries.
TCC Industries, Inc. through a subsidiary (Allen-Lewis Manufacturing
Company) designs and distributes an extensive line of souvenir, novelty and gift
items to theme, national and state parks, souvenir, novelty, gift and airport
shops, military bases, truck stops, zoos, discount and variety stores, and other
distributors.
In October 1997, the Company, through its newly-formed subsidiaries,
Paladin Financial, Inc. ("Paladin"), Barton Creek Capital Corporation ("Barton
Creek") and Texas Capital Markets, Inc. ("Texas Capital"), commenced operations
in the financial services industry. Paladin is primarily engaged in the
origination, purchase and disposition of loans and the related real estate
mortgages. Barton Creek was formed for the purpose of developing an external
client base for which it will provide a broad range of merchant and investment
banking services, including private placements, mergers and acquisitions, and
other financial advisory services. Barton Creek will assist Paladin with the
disposition of securities that will result from the securitization of Paladin's
loan pools. Texas Capital was formed for the purpose of assisting Paladin with
the development and implementation of loan products and programs, the
negotiation and closing of bulk loan purchases, the development and
implementation of various loan disposition strategies and the procurement of the
various financing facilities necessary for the implementation of the loan
programs to be undertaken by Paladin.
In addition, until September 19, 1997, the Company also designed and
manufactured, through its wholly-owned subsidiary, Meyer Machine Company ("Meyer
Machine"), a proprietary line of specialized bulk material conveying and
processing equipment and systems for the food, pharmaceutical and chemical
industries. On September 19, 1997, the Company sold all of the assets of Meyer
Machine to Meyer Acquisition Corporation, Inc. ("Meyer Acquisition"), in
consideration of the payment of $6 million in cash and the assumption by the
purchaser of substantially all of the liabilities of Meyer Machine. Meyer
Acquisition, the principal shareholder of which is Eugene Teeter, was formed in
June 1997 for the purpose of acquiring the assets of Meyer Machine. Prior to the
closing of the sale of assets, Mr. Teeter had served as the President of Meyer
Machine. As a result of the foregoing sale, on September 19, 1997, Mr. Teeter
resigned as President of Meyer Machine and the Company discontinued operations
as a designer and manufacturer of conveying and processing equipment and
systems.
(b) Financial Information About Industry Segments
TCC Industries' identifiable industry segments are financial services and
wholesale distribution. Through these segments, TCC Industries employs
approximately 70 people. The revenue, operating income and identifiable assets
of each of the Company's industry segments for the years ended December 31,
1997, 1996, and 1995, are set forth in Note 11 to the Consolidated Financial
Statements, appearing elsewhere herein.
(c) Narrative Description of Business
WHOLESALE DISTRIBUTION
A.L. Investors, Inc., doing business as Allen-Lewis Manufacturing Company
("Allen-Lewis")
Allen-Lewis designs and distributes an extensive line of souvenir, novelty
and gift items. In addition, Allen-Lewis designs and sells silk-screened soft
goods such as T-shirts, sweatshirts and caps. Allen-Lewis's product line is sold
in most of the continental United States and Alaska, on a wholesale basis, to
theme parks, national and state parks, souvenir shops, novelty shops, gift
shops, airport shops, military bases, truck stops,
2
<PAGE> 3
zoos and discount and variety stores. The Company also sells to distributors who
service retail outlets that are generally not served by the company's sales
force.
Allen-Lewis sells its product offerings through company direct field sales
personnel and independent commissioned sales representatives who have assigned
sales territories, directly through its in-house sales force and by attendance
at trade shows. Allen-Lewis's in-house sales personnel service and cultivate
relationships with large customers and also serve the needs of customers reached
by a catalog. Allen-Lewis's revenue accounted for 93%, 100% and 100% of the
Company's total consolidated revenue for the years ended December 31, 1997,
1996, and 1995, respectively, after adjustment for the discontinued operation.
The Allen-Lewis product line consists of approximately 6,000 different
items. Product mix and product design change constantly according to market
trends. Allen-Lewis's products are geared toward the travel and leisure
(tourism) and entertainment industries. Allen-Lewis's major merchandise
categories are:
Souvenirs -- Typically low cost/low priced items which are imprinted
or shielded with a design that has been tailored to denote a state, city,
and/or attraction. Examples include: collectible spoons, plates, shot
glasses, playing cards, key chains and mugs.
Gifts -- Low cost/low priced impulse items sold in conjunction with
souvenirs. Examples include: small toys, beaded belts and jewelry, pens,
pencils, jewelry, plastic and flocked animals, and money banks.
Novelty Items -- Low cost "gag" or joke items. Examples include:
masks, jumbo cigars and whoopee cushions.
Silk-screened Soft Goods -- Products such as T-shirts, sweatshirts,
hats and caps that are imprinted with an artistic or souvenir design.
Most of the souvenir, gift and novelty inventory (other than soft goods) is
purchased from suppliers in the Far East and is manufactured by companies with
which Allen-Lewis has long-standing relationships. However, these suppliers
could be negatively affected by changes in the economic and political climate of
the countries in which they are located. Management of the Company believes that
if a disruption of supply of products from these sources were to occur, the
Company would be able to source similar products from suppliers located in other
countries. If this were to occur, there could be a delay in receipt of
merchandise and possible loss of sales, which could affect operating results
adversely. Due to minimum order quantity requirements of suppliers and the
length of time required to receive inventory shipped from the Far East,
Allen-Lewis maintains significant levels of certain stock inventory items. The
minimum order quantity requirements and long lead times result in low inventory
turns. Allen-Lewis has added products to its line which are manufactured in the
United States and has begun using suppliers located in the United States for
certain products which heretofore were strictly imported. Most of Allen-Lewis's
soft goods inventory is purchased from domestic textile mills and distributors
of soft goods inventory. These items are available from several suppliers.
Since Allen-Lewis serves a very seasonal industry, inventory levels are
higher during January through June. Normally, inventory levels start to decrease
during the summer, and the lowest inventory point occurs during the months of
September through November. Maintaining adequate stock merchandise levels is key
to Allen-Lewis's ability to service customers during the busy tourist season.
Due to the seasonality of the business, certain customers may receive extended
payment terms so inventory can be shipped prior to the tourist season but
payment to the company is not due until after the season begins.
During the months of August through December, theme, national and state
parks, chain stores, large retailers and wholesalers are contacted to book
orders to be shipped during the following January through June for the summer
tourist season. During the months of January through July, other customers are
contacted for orders for current shipment. Replacement orders are filled and
shipped for all customers during the months of May through August. As a result,
during 1997 approximately 80% of Allen-Lewis's sales occurred from January
through August.
Allen-Lewis has no patents, trademarks, concessions or substantial
licenses. The company claims copyright protection for all of its original
designs and has registered a copyright for one design. The loss of
3
<PAGE> 4
copyright protection on any one design would not have a material adverse effect
on the operations of the company.
Allen-Lewis experiences substantial competition in its markets. Allen-Lewis
competes based on price, availability of inventory, product development (which
includes development of new artwork), reliability of service, and extended
payment terms offered to certain customers. Management believes that no one
company or group of companies is dominant in the industry.
During the years ended December 31, 1997 and 1996, no one customer
accounted for more than 10% of Allen-Lewis's sales. It is the opinion of
management that the loss of any one customer would not have a material adverse
impact on the wholesale distribution operations over an extended period of time
due to the ability to replace this business with business from other customers.
The backlog of orders as of December 31, 1997 was approximately $1,722,000 as
compared to approximately $2,067,000 as of December 31, 1996. It is anticipated
that substantially all of the backlog at December 31, 1997 will be shipped
during 1998.
Allen-Lewis has approximately 45 employees.
FINANCIAL SERVICES
PALADIN FINANCIAL, INC.
General
Paladin Financial, Inc. ("Paladin"), a Texas corporation, was formed in
1997 to originate, purchase, sell and securitize loans and the related real
estate mortgages. Paladin concentrates its operations in the "non-prime" lending
market and plans to expand its operations to build a national consumer finance
company.
The non-prime lending business concentrates on borrowers who, typically,
are not lending candidates for traditional "A" credit lenders such as banks.
Paladin finances Title I home improvement and manufactured home loans (Title 1
Home Improvement Loans and Title 1 Manufactured Homes, respectively, and
collectively, "Title I Loans") and conventional consumer and home equity loans
that may fund a variety of borrower needs ("Conventional Loans"). Cash used by
Paladin to generate or purchase loans is provided by lending institutions such
as banks through warehouse lines of credit, and through the securitization and
sale of loans previously made or acquired by Paladin. Title I Loans are sold to,
or securitized through, the Federal National Mortgage Association ("FNMA"),
secondary mortgage investors and other financial institutions. Paladin plans
initially to sell Conventional Loans for cash on a servicing-released basis to
secondary mortgage investors and other financial institutions. Paladin currently
originates loans primarily through a national network of pre-qualified mortgage
company correspondents ("Correspondents") and through pre-qualified home
improvement and manufactured home dealers principally located in the
Southwestern and Western regions of the United States ("Dealers").
Business Strategy
Paladin seeks to become a leading consumer finance company with particular
emphasis on the home equity and home remodeling financing markets. Paladin's
primary goal is to increase loan volume while maintaining credit quality. The
company's strategies include: (i) offering new Conventional Loan products; (ii)
expanding its network of Correspondents and Dealers; (iii) realizing operational
efficiencies through economies of scale and utilization of current technology;
and (iv) using sales to FNMA, conversion of loans by FNMA into mortgage backed
securities ("FNMA MBS") and securitization of loans and FNMA MBS in order to
sell higher volumes of loans on more favorable terms. A significant volume of
Paladin's business is from the purchase of FNMA MBS in the secondary market.
Paladin will utilize the various FNMA loan purchase programs as a substantial
part of its loan disposition strategy. Subject to the availability of additional
capital resources, Paladin may begin selling Title I Loans, primarily
manufactured home loans, through securitization by means of a company-sponsored
Real Estate Mortgage Investment Conduit. However, there is no assurance that
these objectives will be achieved.
4
<PAGE> 5
Loan Products
Paladin originates and purchases Title I Loans and Conventional Loans which
are typically secured by a second mortgage lien on a one-to-four family
residence. Paladin will occasionally originate and purchase unsecured Title I
Loans and Conventional Loans for its most creditworthy customers. Loans under
Title I of the National Housing Act of 1934, administered by the U.S. Department
of Housing and Urban Development ("HUD"), are eligible to be insured by the
Federal Housing Administration ("FHA") for 90% of the loan principal and certain
other costs. Among other things, Title I provides a credit insurance program
enabling homeowners to borrow 100% of home improvement costs and 95% of the
costs of purchase of manufactured homes. Title I Home Improvement Loans may be
originated for up to $25,000 for a maximum term of 20 years on a single family
unit. Typically, Title I Manufactured Home Loans may be originated for up to
$64,800 for a maximum term of 20 years. In the case of Title I Home Improvement
Loans the holder of a Title I Loan has the risk of potential loss of up to ten
percent of the principal balance plus certain expenses. In the case of a Title I
Manufactured Home Loan the holder has the risk of potential loss of up to ten
percent of the total loss on the loan. The FHA insures the remaining principal
balance of each Title I Loan and certain other costs, provided the loan was
originated within HUD guidelines and the holder of the loans has maintained a
loss reserve account required to be established with HUD. Paladin's borrowers
will typically be classified as "A" through "C" credits, many of whom typically
have less access to alternative forms of financing due to unfavorable credit
experience, insufficient home equity, limited credit history or high levels of
debt service. Because of the perceived additional credit risk, these loans
typically bear a higher interest rate than rates charged by financial
institutions to consumers with better credit ratings, but may have lower monthly
payments due to a longer term.
Loan Production
It is anticipated that Paladin will originate loans principally through:
(i) a network of Correspondents; (ii) wholesale purchase transactions with large
regional Correspondents; (iii) a network of Dealers; and (iv) direct mail or
telephone solicitation of individual homeowners ("Direct Loans"). The process
for loan originations through Correspondents and Dealers will follow agreed upon
procedures which are common in the industry and comply with applicable
regulatory guidelines.
In addition to origination of loans, Paladin anticipates it will continue
to purchase a significant volume of FNMA MBS in the secondary market. Paladin
has a short-term bank repurchase line of credit in place to finance these
purchases.
It is anticipated that an integral part of Paladin's loan production
strategy will be based on the proposed application of new computer capability
and software technology to improve response time and service for loan customers.
Paladin intends to phase out the traditional loan application and approval
process in favor of a proprietary computerized method through utilization of the
LendTech 2000(TM) loan approval and processing system. This method relies on
sophisticated modeling software including artificial intelligence to provide
real time credit evaluations and loan approvals through computer interfaces
which can be accessed via the Internet by Correspondents and Dealers. The
LendTech 2000(TM) system will provide, among other things, automated credit
report inquiries, automated credit scoring, on-line underwriting and approval
and real time access by Paladin's loan customers to the status of their loan
applications and loans in process. Paladin expects that this technology will
increase loan production efficiencies by minimizing manual processing of loan
documentation, enhancing the quality of loan processing by reducing human error
and facilitating loan administration and collections by providing easier access
to loan information. The implementation of the LendTech 2000(TM) system has
commenced and the system will be gradually integrated into Paladin's operations
during 1998.
Paladin has commenced the establishment of networks of Correspondents and
Dealers through which to originate loans. The initial response to Paladin's
program has been positive; however, there can be no assurance that this response
will continue or the duration it will continue.
5
<PAGE> 6
Loan and FNMA MBS Sales.
Paladin anticipates that it will sell the majority of its Title I home
improvement Loans either directly to FNMA or indirectly by converting the loans
to FNMA MBS and then selling or securitizing the FNMA MBS. Under the FNMA MBS
program, Title I Home Improvement Loans are delivered to FNMA and utilized as
collateral when FNMA converts them into mortgage backed securities. In return
for payment of a guarantee fee, FNMA guarantees all principal and interest
payments to the holder of the FNMA MBS. As a part of the transaction in which
Title I Home Improvement Loans are converted to FNMA MBS, the risk of loss on
the 10% portion of loans not insured by FHA is assumed by FNMA, thereby greatly
reducing Paladin's exposure to credit risk. Although there is an established
secondary cash market for the resale of FNMA MBS, Paladin anticipates utilizing
the FNMA MBS it acquires as collateral for a re-securitization where it would
sell to institutional investors asset backed bonds in a trust at par and retain
a residual certificate (Interest-Only Strip) in the future cash flows during the
term of the underlying FNMA MBS. In this regard, Paladin created a wholly owned
Delaware business trust that issued asset backed bonds collateralized by the
FNMA MBS. The asset backed bonds were sold by Barton Creek in a private
placement and the Interest-Only Strip is owned 100 percent by Paladin. Paladin
anticipates that it will initially sell its Conventional Loans and Title I
Manufactured Home Loans on a pre-committed, "servicing-released" basis (as
defined below) to institutional investors for cash, thereby passing future
credit risk to the purchasers of the loans.
Loan Servicing
As an approved FNMA seller/servicer of Title I Home Improvement Loans,
Paladin is required to act as servicer of record for all such Loans sold to and
MBS created by FNMA. Paladin will utilize a third-party subservicer, as allowed
by FNMA, to perform the actual servicing and collection function on loans for
which it is the record servicer. As to all other types of loans purchased or
originated, Paladin anticipates that for the foreseeable future it will sell
such loans to third parties on a "servicing released" basis where the obligation
for loan servicing will be transferred to the purchaser of the loans.
Markets
The principal market for Paladin is the large and highly fragmented home
remodeling and home equity lending markets. According to the National
Association of Home Builders, the home remodeling industry in the United States
is expected to grow from an estimated $121 billion is 1994 to approximately $181
billion in the year 2000. Total loans financed under Title I aggregated
approximately $1.5 billion in the last HUD fiscal year. The number of people
choosing to purchase existing rather than new homes directly affects the home
improvement market. Currently, in excess of 80% of home purchases nationally are
of existing homes. This trend, together with the overall aging of the national
housing stock, among other factors, has contributed to substantial growth in the
home improvement lending market in recent years.
Competition
Paladin competes with numerous well-known and established companies in the
consumer finance markets with significantly greater resources, more established
loan production and marketing staffs and better access to capital markets.
However, by focusing primarily on home improvement and home equity loans to
individuals who cannot qualify for traditional financing, Paladin believes it
will be able to gain a competitive position in the market place. Competition for
Correspondents is primarily a function of price, available products and service.
Paladin believes it will be able to expand its Correspondent loan business by
increasing the number of correspondent lenders through the automated loan
processing, documentation and on-line access provided by the LendTech 2000(TM)
system.
Regulation
All aspects of the operation of Paladin are subject to government
regulation, supervision and licensing, including without limitation, loan
origination, credit activity, interest rates and finance charges, disclosure to
customers, the terms of secured transactions and the collection and handling of
defaulted loans. Paladin has
6
<PAGE> 7
obtained a contract of insurance for property improvement and manufactured home
loans issued by HUD which qualifies it for the origination and purchase of Title
I Loans. Each Correspondent and Dealer established by Paladin must be sponsored
by Paladin and approved by HUD in connection with Title I Loans. Paladin is
required to be qualified and licensed to conduct its loan activities in each
state in which its activities are conducted. Legislation affecting Paladin's
operations includes, but is not limited to, the Truth in Lending Act, the Real
Estate Settlement Procedures Act, the Equal Credit Opportunity Act, the Home
Mortgage Disclosure Act, the Fair Credit Reporting Act and the Fair Debt
Collection Act.
All of the laws and regulations applicable to Paladin are subject to
frequent amendment and change. There can be no assurance that these laws, rules
and regulations will not be amended and changed, or other laws, rules and
regulations will not be adopted in the future in a form that could make
compliance much more difficult or expensive, restrict Paladin's ability to
originate, broker, purchase or sell loans, further limit or restrict the amount
of commissions, interest or other charges earned on loans originated, brokered,
purchased or sold by Paladin, or otherwise affect the business or prospects of
Paladin. In particular, the ability of Paladin to participate in Title I Loans
is dependent on the continuation of the Title I program in substantially its
present form. Should the Title I program be suspended, discontinued or
substantially altered as a result of cost cutting or other efforts by the
Congress of the United States, the ability of Paladin to participate in Title I
Loans could be substantially and adversely affected.
At December 31, 1997 Paladin had 18 employees.
BARTON CREEK CAPITAL CORPORATION
Barton Creek Capital Corporation ("Barton Creek"), a Texas corporation, and
a member of the National Association Of Securities Dealers "NASD", was formed
for the purpose of developing an external client base for which it will provide
a broad range of merchant and investment banking services, including private
placements, mergers and acquisitions, and other financial services. Barton Creek
will specialize in providing public, private, bridge and mezzanine financing for
emerging small-cap, growth-oriented public and private companies in Texas and
the Southwest. Such companies typically may not have sufficient bank borrowing
capacity to support attractive acquisitions and growth opportunities, may not
desire to issue common stock, and may be frequently undervalued due to a lack of
broad stock ownership, (i.e. a developed base of retail and institutional
stockholders) because of little or no research sponsorship.
Barton Creek will act as placement agent on behalf of Paladin for the sale
of the asset backed securities which result from re-securitization of Paladin's
FNMA MBS. In this regard, Barton Creek acted as a placement agent in the sale of
Asset Backed Bonds, Series 1997-1, created through Paladin's FNMA MBS, to
qualified institutional buyers and accredited investors.
As a registered Broker/Dealer Barton Creek will provide a critical resource
to Paladin by way of its registration with and authorization by regulatory
bodies which control the registration and/or sale of securities. In addition,
Barton Creek contributes essential and broad knowledge of securities
transactions through an experienced group of former investment bankers, former
bank executives and certified public accountants. The company has strong ties to
an established network of financial institutions, hedge funds and high net worth
individuals, and these relationships should greatly enhance Paladin's ability to
place profitably securities created through its operations.
Prior to joining in the formation of Barton Creek, Barton Creek's
management has established a proven record of helping both existing and emerging
public and private companies, and has worked to develop, structure and place a
variety of asset-backed securitizations and other innovative products. The
company's management has expertise in the following areas: (i) government and
agency bonds, (ii) mortgage backed securities, (iii) collateralized mortgage
operations, (iv) municipal bonds, (v) corporate bonds, (vi) high yield corporate
bonds, (vii) distressed securities/special situations, (viii) asset-backed
securities, and (ix) bank debt.
As of December 31, 1997 Barton Creek had 5 employees.
7
<PAGE> 8
TEXAS CAPITAL MARKETS, INC.
Texas Capital Markets, Inc. ("Texas Capital"), a Texas corporation, was
formed for the purpose of assisting Paladin with the development and
implementation of loan products and programs, the negotiation and closing of
bulk loan purchases, the development and implementation of various loan
disposition strategies and the procurement of various financing facilities
necessary for the implementation of the loan programs to be undertaken by
Paladin. In this respect, during the fourth quarter of 1997 Texas Capital and
Barton Creek negotiated the initial bulk purchase of FNMA MBSs on behalf of
Paladin. Moreover, it is anticipated that Texas Capital along with Barton Creek
will continue to be primarily responsible for the negotiation and closing of
most secondary market FNMA MBSs and bulk loan purchases. Texas Capital has
developed the re-securitization model to be utilized in the disposition of FNMA
MBS, and on an ongoing basis Texas Capital will, as necessary, modify and adapt
this securitization model as market conditions change. It is anticipated that
Texas Capital will develop and assist Paladin in the implementation of all
future loan disposition structures, including: (i) locating and negotiating
agreements with third party purchasers of whole loans; (ii) developing the
economic models and financial structures for future loan securitizations; and
(iii) negotiating with rating agencies, insurers, investment bankers and third
party investors in future loan securitizations. Texas Capital will also provide
ongoing consultation relative to development of new loan products and long-term
capital market strategy.
It is also anticipated that Texas Capital and Barton Creek will be
integrally involved in the process of locating, negotiating and closing the
various financing facilities required to implement origination and sale of
Paladin's current and future loan products. The employees of Texas Capital have
experience in the financial markets, the Title I and home equity debt
consolidation markets in particular in arranging financing for loan warehouse
financing, FNMA MBS repurchase financing, and financing of derivative financial
instruments such as interest-only strips.
Texas Capital anticipates the near-term development, on behalf of Paladin,
of a conduit facility similar to a real estate mortgage investment conduit, to
facilitate the securitization of Title I Home Improvement Loans on behalf of
third party loan originators. Under this arrangement, Paladin would purchase
Title I Loans at below current market cash prices in return for allowing the
loan originators to participate in the interest-only strip ultimately created
from the securitization process. Paladin would then convert the Title I Loans to
FNMA MBSs, and Texas Capital would then structure and close the resecuritization
of the FNMA MBSs. The interest-only strip created from this transaction would
then be allocated between Paladin and the loan originator on a contractual basis
negotiated between Paladin and the originator. Based on the desire of many third
party originators to increase their profit through participation in the "back
side" of loan sales, Texas Capital anticipates that this program will provide
substantial, incremental Title I Loan volume, at significantly lower cash
premiums.
As of December 31, 1997 Texas Capital had one employee.
ITEM 2. PROPERTIES
The Registrant maintains its principal executive offices in approximately
14,000 square feet of leased office space, in order to support the combined
business operations of the Company, Paladin, Barton Creek and Texas Capital at
504 Lavaca Street, Suite 1004 Austin, Texas 78701
Allen-Lewis owns two buildings in Denver, Colorado, aggregating 61,000
square feet. These facilities are for general office, showroom, warehousing and
the silk-screening operations. The properties are fully utilized by Allen-Lewis
and maintained in good condition. Both of Allen-Lewis's buildings are pledged as
collateral for notes payable. From time-to-time, Allen-Lewis also leases
temporary warehouse space in Denver, Colorado, to accommodate inventory levels
in excess of what can be stored in the company's warehouse.
ITEM 3. LEGAL PROCEEDINGS
See Note 7 to the Consolidated Financial Statements, appearing elsewhere
herein, for a discussion of legal proceedings.
8
<PAGE> 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of shareholders of TCC Industries was held on December
19, 1997 to consider and vote on a proposal to approve and adopt the TCC
Industries, Inc. 1997 Incentive and Performance Stock Option Plan and the
options awarded by the Compensating Committee of the Board of Directors
thereunder. The results of the vote were as follows:
<TABLE>
<CAPTION>
SHARES % OF VOTING
------ -----------
<S> <C> <C>
For......................................................... 1,522,967 91.00
Against..................................................... 124,902 7.46
Abstentions................................................. 25,689 1.54
Broker Non-votes............................................ -- --
</TABLE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
There were 2,813,815 shares of the Company's common stock, par value $1,
outstanding as of March 23, 1998, owned of record by approximately 2,700
shareholders, as reported by the Company's transfer agent, excluding individual
participants in security position listings such as Cede & Co. At March 23, 1998,
officers and directors owned 18.4% of the stock as calculated in accordance with
Rule 13d-3 under the Securities Exchange Act of 1934. The common stock is listed
on the New York Stock Exchange (trading symbol: TEL). The following table sets
forth the high and low sales prices for the common stock as reported by the New
York Stock Exchange for each quarterly period during the last two years.
<TABLE>
<S> <C> <C>
1996
First Quarter............................................. $2 3/4 $2
Second Quarter............................................ $2 5/8 $2
Third Quarter............................................. $2 1/2 $1 5/8
Fourth Quarter............................................ $2 $1 1/2
1997
First Quarter............................................. $2 1/8 $1 1/2
Second Quarter............................................ $2 1/2 $1 1/2
Third Quarter............................................. 5$ 13/16 $2 1/16
Fourth Quarter............................................ 6$ 11/16 $4 3/16
</TABLE>
The closing price of the Company's common stock on March 23, 1998, as
reported by the New York Stock Exchange, was $7.50 per share.
The Company has not paid dividends during the past two fiscal years. See
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations" -- "Liquidity and Capital Resources," appearing elsewhere in this
Annual Report on Form 10-K, for a description of restrictions in bank loan
agreements of the Company that could negatively impact the Company's ability to
pay cash dividends in the future.
9
<PAGE> 10
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenue.................................. $ 7,116 $ 8,420 $ 9,152 $10,642 $11,902
Income (loss) from continuing
operations............................. (4,613) (1,961) (643) (580) 528
Earnings (loss) per share from continuing
operations............................. (1.67) (.71) (.23) (.21) .16
Shareholders' equity per share........... 2.52 4.17 4.69 4.73 4.74
Total assets............................. 13,261 17,729 19,306 19,864 19,975
Long-term debt........................... 2,731 1,119 1,885 1,393 1,287
Cash dividends per common share.......... -- -- -- -- --
</TABLE>
The foregoing should be read in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations, and the
Consolidated Financial Statements and Notes thereto included elsewhere herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
When used in this discussion, the words "believes, anticipated" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties which could cause actual results
to differ materially from those projected. Readers are cautioned not to place
undue reliance on these forward-looking statements which speak only as of the
date hereof. The Company undertakes no obligation to publicly release the
results of any revisions to these forward-looking statements which may be made
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
RESULTS OF OPERATIONS:
1997 vs. 1996
Until September 19, 1997, the Company designed and manufactured, through
its wholly-owned subsidiary, Meyer Machine Company ("Meyer Machine"), a
proprietary line of specialized bulk material conveying and processing equipment
and systems for the food, pharmaceutical and chemical industries. On September
19, 1997, the Company sold all of the assets of Meyer Machine to Meyer
Acquisition Corporation, Inc. ("Meyer Acquisition"), in consideration of the
payment of $6 million in cash and the assumption by the purchaser of
substantially all of the liabilities of Meyer Machine. The Company reported a
loss on the sale of $457,000.
As a result of the above sale, consolidated operations as reported herein,
consists solely of the wholesale distribution segment (Allen-Lewis
Manufacturing) and the financial services segment (Paladin, Barton Creek and
Texas Capital) which initiated operations during the fourth quarter of 1997.
Revenue at the wholesale distribution segment decreased $1,304,000 (15.5%)
to $7.1 million for the year ended December 31, 1997, as compared to revenue of
$8.4 million in 1996. The decline in revenue was primarily the result of a
decline in bookings during the 1996 selling season.
During the fourth quarter of 1997 the financial services segment
consummated its first securitization, a $25 million transaction on which it
reported a gain on sale of $504,000.
For 1997, the wholesale distribution segment recorded consolidated gross
profit of $1.4 million (20.3% of sales), as compared to $2.7 million (32.0% of
sales) for 1996. The decline in gross profit is primarily the result of the
decrease in revenues discussed above, an increase of sales of slow moving and
discontinued items at discounted prices and the provision of a $729,000
valuation reserve on slow-moving inventory where the estimated incentive
discounts on such items reduced the net realizable value below their carrying
amounts.
10
<PAGE> 11
The Company reported selling, general and administrative expenses of $5.3
million during 1997, as compared to $4.5 million for 1996. The increase of
$835,000 is primarily the result of $910,000 of expenditures by the new
financial services segment, a $226,000 write-off of the remaining unamortized
portion of goodwill at the wholesale distribution segment and partially offset
by a reduction of $168,000 in officers salary expense at TCC Industries (the
parent company).
The Company reported an operating loss of $3,339,000 for 1997, as compared
to an operating loss of $1,755,000 for 1996. The increased operating loss is the
result of the decline in gross profit, discussed above, which included the
$729,000 provision for inventory valuation reserve, plus a $226,000 write-off of
the remaining unamortized portion of the goodwill of the wholesale distribution
segment.
Other expense, net of other income, increased $1,071,000 to a net expense
of $1,271,000 for the year ended December 31, 1997, as compared to a net expense
of $200,000 in 1996. The primary reasons for the variance is a $477,000 charge
for the cost of funding severance provisions pursuant to employment agreements
with former officers of the Company, approximately $500,000 in costs of special
proxy elections and an increase in interest expense at the wholesale
distribution segment of $108,000 due to both higher debt utilization and higher
interest rates.
1996 vs. 1995
As a result of the sale of Meyer Machine discussed above (1997 vs. 1996
Results) consolidated operations, as reported herein, consists only of the
wholesale distribution segment (Allen-Lewis Manufacturing) and the financial
services segment (Paladin, Barton Creek and Texas Capital) which did not
initiate operations until the fourth quarter of 1997.
Revenue at the wholesale distribution segment decreased $732,000 (8.0%) to
$8.4 million for the year ended December 31, 1996, as compared to revenue of
$9.2 million in 1995. The decline in revenue was primarily the result of an
overall decline in demand for merchandise due to weak market conditions, a
condition the company has experienced for the past two years, a decline in
bookings during the 1995 selling season and increased competition in the markets
served by the wholesale distribution segment.
For 1996, the wholesale distribution segment recorded consolidated gross
profit of $2.7 million (32.0% of sales), as compared to $3.1 million (33.3% of
sales) for 1995. The decline was primarily the result of the change in the
product mix with more sales qualifying for quantity discounts and with increased
sales of slow moving and discontinued items at discounted prices.
The Company reported an operating loss of $1,755,000 for 1996, as compared
to an operating loss of $1,030,000 for 1995. The increased operating loss is the
result of the decline in gross profit, discussed above, a $334,000 (6.8%)
increase in selling, general and administrative expenses in 1996 at the
wholesale distribution segment, when compared to 1995, due primarily to higher
selling and marketing expenses ($117,000) and higher wages and consulting fees
($143,000). The increase in selling, general and administrative expenses in 1996
primarily resulted from an increase in catalog, travel and trade show expenses.
Other expense, net of other income, increased $583,000 to a net expense of
$200,000 for the year ended December 31, 1996, as compared to other income, net
of other expense, of $383,000 in 1995. The primary reason for the variance is a
$397,000 decrease in the gains on sale of fixed assets and assets held for sale
in 1996, when compared to 1995.
OUTLOOK
In October 1997, the Company, through its newly-formed subsidiaries,
Paladin, Barton Creek and Texas Capital, commenced operations in the financial
services industry. Paladin is primarily engaged in the origination, purchase and
disposition of loans and the related real estate mortgages. Barton Creek was
formed for the purpose of developing an external client base for which it will
provide a broad range of merchant and investment banking services, including
private placements, mergers and acquisitions, and other financial advisory
services. Barton Creek will also assist Paladin with the disposition of
securities that will result from the securitization of Paladin's loan pools.
Texas Capital was formed for the purpose of assisting Paladin with
11
<PAGE> 12
the development and implementation of loan products and programs, the
negotiation and closing of bulk loan purchases, the development and
implementation of various loan disposition strategies and the procurement of the
various financing facilities necessary for the implementation of the loan
programs to be undertaken by Paladin. The Company believes that the unique
synergy among these subsidiaries will help provide a competitive advantage as
the Company enters a new era of operations.
Since the Company's new management was installed in mid-1997 the entire
management of Allen-Lewis has been replaced, the sales force has been organized
and relocated, significant amounts of slow-moving inventory have been sold and a
valuation reserve of approximately one million dollars has been established for
the remaining inventory. The first new sales catalog since 1995 has been printed
and distributed. Overall staffing and operating overhead expenses have been
reduced by approximately one-third. The downtrend of the last three years in
bookings and sales has been reversed and for the first time since 1994
Allen-Lewis is expected to begin achieving improved results.
During 1997 parent company overhead expenses totaled approximately $1.5
million which included $783,000 in unusual items related to special proxy work
and severance pay to a former executive. The elimination of these unusual
expenses in 1998 combined with the fact that the two principal executives of the
Company are serving without compensation until the Company achieves
profitability will significantly reduce parent company overhead expenses in
1998. Comparable officers salaries were $186,000 in 1996 and 92,000 in 1997
(only paid for one-half of year).
The Company's computer software programs utilize four digits to define the
applicable calendar year and therefore the Company has no internal risk
concerning the Year 2000 issue. Any problems the Company's suppliers and
customers may have related to this issue are not expected to affect the Company.
The Company has not incurred any costs related to this issue and is not expected
to incur any such costs in the future.
Liquidity and Capital Resources
At December 31, 1997, the Company had a working capital of $5.2 million and
a current ratio of 2.6 to 1, as compared to working capital of $7.9 million and
a current ratio of $2.9 to 1 at December 31, 1996. The decline in working
capital primarily resulted from the sale of Meyer Machine.
At December 31, 1996, the Company had working capital of $7.9 million and a
current ratio of 2.9 to 1 as compared to working capital of $9.5 million with a
current ratio of 3.6 to 1 at December 31, 1995. The decrease in the level of
working capital and decline in the current ratio at December 31, 1996, compared
to December 31, 1995, is primarily due to a conversion of approximately $700,000
of long-term debt at Allen-Lewis to notes payable as part of the refinancing of
Allen-Lewis's line of credit in 1996, and a reduction in the level of
receivables and inventory by approximately $1.0 million. The decline in
receivables and inventory, despite an increase in sales in 1996 of approximately
four percent, resulted primarily from a targeted effort to reduce balances in
these accounts in order to improve cash flow by increasing inventory turns and
reducing days sales outstanding.
Allen-Lewis maintains a demand revolving line of credit with a financial
institution that provides maximum borrowing capabilities of $4,000,000, subject
to a borrowing base calculation, for working capital purposes and support for
letters of credit (maximum limit of $150,000). The daily cash receipts of Allen-
Lewis are used to reduce the outstanding borrowings under the line, and as a
revolving line of credit, the availability fluctuates on a daily basis. At
December 31, 1997 and 1996, $1,925,000 and $2,033,000, respectively of this line
were outstanding. Under the borrowing base calculation, Allen-Lewis had
overdrawn this line by approximately $29,000 at December 31, 1997 and had
available under the line approximately $276,000 at December 31, 1996. The demand
line of credit is collateralized by all of the assets of Allen-Lewis. The
interest rate for the demand line of credit is adjusted quarterly and can range
from prime plus one percentage point to prime plus three and one-half percentage
points, depending on an interest coverage ratio. At December 31, 1997 and 1996,
the demand line of credit had an interest rate of 12% and 10.75%, respectively.
The demand line of credit contains provisions that limits Allen-Lewis's ability
to pay dividends and fees to TCC Industries (the parent company).
12
<PAGE> 13
Certain of Allen-Lewis's customers are offered extended payment terms
whereby shipments of inventory made early in the year do not have to be paid for
until later in the summer of that year.
TCC Industries, Inc. (parent company) has an $5,000,000 line of credit
bearing interest at prime minus 0.5% and is personally guaranteed by the
Chairman of the Board and the President of the Company. This line of credit is
used to supplement the short-term cash needs of the parent company. No amounts
were drawn on the lines of credit during 1997 and at December 31, 1997, the
entire balance was available.
During 1997, the Company incurred approximately $626,000 in capital
expenditures, as compared to $59,000 in 1996 and $59,000 in 1995 that were
financed through cash flow from operations. The Company expects 1998 capital
expenditures to approximate $200,000, with such expenditures to be financed from
cash flow from operations and borrowings.
INFLATION AND CHANGING PRICES
The Company believes that the effect of inflation and changing prices has
not had, and for the foreseeable future will not have, a material impact on
revenue and/or the operating results of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements and supplementary data are as listed in the attached
Index To Consolidated Financial Statements and Financial Statement Schedules
appearing on page F-1 in this Annual Report on Form 10-K.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Information with regard to directors and executive officers and their
business experience is set forth under "ELECTION OF DIRECTORS", and information
with regard to reports filed by directors, executive officers and beneficial
owners of more than 10% of the Company's common stock is set forth under
"SECTION 16 (a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE", each in the
Registrant's Definitive Proxy Statement for the 1998 Annual Meeting of
Shareholders, and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with regard to executive compensation and pension or similar
plans is set forth under "COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS" and
"COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" in the
Registrant's Definitive Proxy Statement for the 1998 Annual Meeting of
Shareholders, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with regard to security ownership of certain beneficial owners
and management is set forth under "PRINCIPAL SHAREHOLDERS" and "ELECTION OF
DIRECTORS" and "INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS" in the
Registrant's Definitive Proxy Statement for the 1998 Annual Meeting of
Shareholders, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with regard to certain relationships and related transactions
is set forth under "COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS" in the
Registrant's Definitive Proxy Statement for the 1998 Annual Meeting of
Shareholders, and is incorporated herein by reference.
13
<PAGE> 14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2) Financial Statements and Financial Statement Schedules.
See Index to Consolidated Financial Statements and Financial Statement
Schedules appearing on Page F-1 in this Annual Report on Form 10-K.
(3) Exhibits
(Asterisk (*) indicates exhibits previously filed with the Securities
and Exchange Commission which are incorporated herein by reference to this
Annual Report on Form 10-K for the fiscal year ended December 31, 1997.)
(3) Articles of Incorporation and Bylaws:
(i) Articles of Incorporation:
<TABLE>
<CAPTION>
<C> <S>
*3.11 -- Amendment to the Company's Articles of Incorporation
dated May 9, 1988.
*3.17 -- Articles of Amendment dated June 1, 1994.
</TABLE>
(ii) By-laws:
<TABLE>
<C> <S>
*3.1 -- Second Amended and Restated Bylaws of the Company.
*3.12 -- Amendment to Bylaws of the Company.
*3.13 -- Amendment to Bylaws of the Company, dated April 23, 1991.
*3.14 -- Amendment to Bylaws of the Company, dated January 9,
1992.
*3.15 -- Amendment to Bylaws of the Company, dated March 16, 1993.
*3.16 -- Third Amended and Restated Bylaws of the Company, dated
March 14, 1994.
*3.18 -- Amendment No. 1 to Third Amended and Restated Bylaws of
the Company.
*3.19 -- 1995 Amendment No. 1 to the Third Amended and Restated
Bylaws of the Company.
*3.20 -- 1997 Amendment No. 1 to the Third Amended and Restated
Bylaws of the Company.
*3.21 -- 1997 Amendment No. 2 to the Third Amended and Restated
Bylaws of the Company.
3.22 -- 1997 Amendment No. 3 to the Third Amended and Restated
Bylaws of the Company.
</TABLE>
(4) Instruments Defining the Rights of Security Holders Including
Indentures:
<TABLE>
<C> <S>
*4.2 -- Rights Agreement dated as of May 1, 1991, between the
Company and Ameritrust Company National Association,
which includes the form of Statement of Resolution
Establishing Series of Shares setting forth the terms of
the Series A Preferred Stock, no par value, as Exhibit A,
the form of Rights Certificate as Exhibit B and the
Summary of Rights to Purchase Series A Preferred Stock as
Exhibit C.
*4.3 -- Form of Rights Certificate (included as Exhibit B to
Rights Agreement incorporated herein by reference
pursuant to 4.2 above.) Pursuant to the Rights Agreement,
printed Right Certificates will not be mailed until as
soon as practicable after the date the Rights become
detachable from shares of the Company's Common Stock (the
"Distribution Date").
</TABLE>
14
<PAGE> 15
<TABLE>
<C> <S>
*4.4 -- Form of Summary of Rights to Purchase Series A Preferred
Stock (included as Exhibit C to Rights Agreement
incorporated herein by reference pursuant to 4.2 above)
which, together with certificates representing the
outstanding Common Shares of the Company, shall represent
the Rights until the Distribution Date.
*4.5 -- Specimen of legend to be placed, pursuant to Section 3(c)
of the Rights Agreement, on all new Common Share
certificates issued after May 6, 1991 and prior to the
Distribution Date upon transfer, exchange or new
issuance.
*4.6 -- Amendment No. 2 to Amended and Restated Rights Agreement
of the Company.
</TABLE>
(10) Material Contracts:
<TABLE>
<C> <S>
*10.2 -- 1985 Non-Employee Directors Stock Option Plan.
*10.2.1 -- First Amendment to 1985 Non-Employee Directors Stock
Option Plan adopted May 9, 1988.
*10.2.2 -- TCC Industries, Inc. 1995 Non-Employee Directors Stock
Option Plan (Which Amends and Restates the 1985
Non-Employee Directors Stock Option Plan)
*10.3 -- 1985 Incentive Stock Option Plan as amended.
*10.3.1 -- Second Amendment to the 1985 Incentive Stock Option Plan
of the Company.
*10.5 -- Agreement of Purchase and Sale of Stock by and between
Delwin W. Morton, Morton Realty Associates, Inc. and
TeleCom Industrial Group, Inc., dated September 30, 1986.
*10.6 -- Agreement of Purchase and Sale of Stock by and between
David B. McCall, III and J. Bryan McCall and TeleCom
Industrial Group, Inc., dated September 30, 1986.
*10.7 -- Agreement of Purchase and Sale of Warrants by and between
A.L. Investors, Inc., MVenture Corp and TeleCom
Industrial Group, Inc., dated September 30, 1986.
*10.9 -- Stock Purchase Agreement for the sale of Meyer Conveyair,
Inc., dated October 11, 1991, by and among Jetstream
Systems, Inc., Barry-Wehmiller Company, Meyer Machine
Company and the Company.
*10.10 -- Employment Agreement by and among the Company and
Lawrence W. Schumann, dated March 24, 1993.
*10.10.1 -- Amendment to Employment Agreement by and among the
Company and Lawrence W. Schumann.
*10.10.2 -- Amendment to Employment Agreement by and among the
company dated January 9, 1997.
*10.11 -- Employment Agreement by and among the Company and Larry
T. Marek, dated March 24, 1993.
*10.11.1 -- Amendment to Employment Agreement by and among the
Company and Larry T. Marek.
*10.11.2 -- Amendments to Employment Agreement Amendment by and Among
A.L. Investors, Inc. and Larry T. Marek through January
9, 1997.
*10.12 -- Non-transferable Stock Option for the Purchase of Common
Stock of the Company granted to W. Grogan Lord on
February 27, 1991.
*10.13 -- Stock Purchase Agreement dated May 25, 1993 among TeleCom
Industrial Group, Inc., Registrant, Watsco, Inc., and CSI
Acquisition Corp.
</TABLE>
15
<PAGE> 16
<TABLE>
<C> <S>
*10.14 -- Consulting and Noncompetition Agreement between Lawrence
W. Schumann and the Company dated May 10, 1994.
*10.15 -- Consulting and Noncompetition Agreement between W. Grogan
Lord and the Company dated May 10, 1994.
*10.16 -- Consulting and Noncompetition Agreement between William
E. Callahan and the Company dated May 10, 1994.
*10.17 -- Consulting and Noncompetition Agreement between Frank W.
Denius and the Company dated May 10, 1994.
*10.18 -- Consulting and Noncompetition Agreement between Ed R. L.
Wroe, Jr. and the Company dated May 10, 1994.
*10.19 -- Consulting Agreement between J. Patrick Kaine and the
Company dated August 2, 1994.
*10.20 -- Consulting and Noncompetition Agreement between J.
Patrick Kaine and the Company dated August 2, 1995.
*10.21 -- TCC Industries, Inc. Annual Incentive Plan Text and
Operating Rules As Amended January 9, 1992, January 12,
1995, and January 11, 1996.
*10.21.1 -- 1996 Supplement to TCC Industries, Inc. Annual Incentive
Plan Basic Plan Text and Operating Rules.
*10.22 -- Employment Agreement by and among Eugene W. Teeter and
Meyer Machine Company dated as of January 9, 1997.
*10.23 -- Service Agreement by and among Meyer Vi-Tech Limited and
John Basketfield dated May 21, 1997.
10.24 -- Termination Agreement of Consulting and Noncompetition
Agreement between TCC Industries, Inc. and W. Grogan Lord
dated July 2, 1997.
10.25 -- Termination Agreement of Consulting and Noncompetition
Agreement between TCC Industries, Inc. and Frank W.
Denius dated July 2, 1997.
10.26 -- Termination Agreement of Consulting and Noncompetition
Agreement between TCC Industries, Inc. and J. Patrick
Kaine dated July 2, 1997.
*10.27 -- Lawrence W. Schumann Termination and Severance Agreement.
*10.28 -- Asset Purchase and Sale Agreement dated September 18,
1997 between Meyer Acquisition Corporation, Inc. and
Meyer Machine Company, a wholly owned indirect subsidiary
of Registrant.
*10.29 -- 1997 Incentive and Performance Stock Option Plan
10.30 -- Employment Agreement by and among the Company and Robert
Thomajan, dated October 1, 1997.
10.31 -- Employment Agreement by and among the Company and Richard
F. Watkins, dated October 1, 1997.
10.32 -- Employment Agreement by and among the Company and Robert
L. Riviere, dated October 1, 1997.
10.33 -- Employment Agreement by and among the Company and Walter
A. DeRoeck, dated October 1, 1997.
</TABLE>
(21) Subsidiaries of Registrant.
(23) Consents of Experts and Counsel:
23.1 Consent of Independent Accountants.
(27) Financial Data Schedule
16
<PAGE> 17
(99) Additional Exhibits (Previously filed as Exhibits 28X):
<TABLE>
<C> <S>
*99.2 -- The TeleCom Corporation Legal Defense Indemnification
Trust Agreement, dated July 22, 1986.
*99.3 -- Form of Indemnification Agreement Between Officers and
Directors Executed Pursuant to the TeleCom Corporation
Legal Defense Indemnification Trust Agreement.
*99.3.1 -- Form of Amendment No. 1 to Indemnification Agreement.
*99.4 -- Item 1 to Registration Statement on Form 8-A filed by the
Company with the Securities and Exchange Commission on
May 6, 1991.
</TABLE>
(b) Reports on Form 8-Ks.
The following is the date and description of the events reported on Form
8-K covering events in the fourth quarter of 1997.
<TABLE>
<CAPTION>
DATE FILED DATE OF EARLIEST EVENT
WITH SEC REPORTED ON FORM 8-K DESCRIPTION
---------- ---------------------- -----------
<S> <C> <C>
October 1, 1997 September 19, 1997 Sale Of Meyer Machine
December 31, 1997 December 19, 1997 1997 Stock Option Plan
</TABLE>
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934 the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TCC INDUSTRIES, INC.
By: /s/ WALTER A. DEROECK
----------------------------------
(Walter A. DeRoeck)
Chairman of the Board of Directors
And Chief Executive Officer
March 27, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ WALTER A. DEROECK Chairman of the Board of March 27, 1998
- ----------------------------------------------------- Directors, Chief Executive
(Walter A. DeRoeck) Officer, Principal Financial
and Accounting Officer
/s/ ROBERT THOMAJAN Director and President March 27, 1998
- -----------------------------------------------------
(Robert Thomajan)
/s/ RICHARD B. CURRAN Director March 27, 1998
- -----------------------------------------------------
(Richard B. Curran)
/s/ ALAN M. SAGER Director March 27, 1998
- -----------------------------------------------------
(Alan M. Sager)
/s/ ROBERT D. STARNES Director March 27, 1998
- -----------------------------------------------------
(Robert D. Starnes)
/s/ LAWRENCE E. TILTON Director March 27, 1998
- -----------------------------------------------------
(Lawrence E. Tilton)
</TABLE>
18
<PAGE> 19
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-3
Financial Statements:
Consolidated Balance Sheets as of December 31, 1997 and
1996................................................... F-4
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996,
and 1995............................................... F-6
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1997,
1996 and 1995.......................................... F-7
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996,
and 1995............................................... F-8
Notes to Consolidated Financial Statements................ F-9
Financial Statement Schedules:
I -- Condensed Financial Information of Registrant
(Parent Company)....................................... F-23
</TABLE>
All other financial statements and schedules not listed have been omitted
since the required information is either included in the Consolidated Financial
Statements and the Notes thereto as included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997 or is not applicable or required.
F-1
<PAGE> 20
(This page intentionally left blank)
F-2
<PAGE> 21
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS,
TCC INDUSTRIES, INC.
We have audited the consolidated financial statements and the financial
statement schedule of TCC Industries, Inc. and Subsidiaries (the "Company")
listed in the index on page F-1 of this Form 10-K. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
TCC Industries, Inc. and Subsidiaries as of December 31, 1997 and 1996 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Austin, Texas
February 24, 1998.
F-3
<PAGE> 22
TCC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 2,869 $ 779
Receivables:
Trade receivables, net of allowance of $50 and $90,
respectively.......................................... 737 1,027
Other, including interest.............................. 50 21
------- -------
787 1,048
------- -------
Current portion of interest-only strip receivable......... 552 --
Wholesale inventories..................................... 4,193 5,295
Other..................................................... 208 98
Current assets of discontinued operation.................. -- 4,885
------- -------
Total current assets.............................. 8,609 12,105
------- -------
Property, plant and equipment:
Land...................................................... 233 233
Buildings and improvements................................ 1,723 1,675
Machinery and equipment................................... 1,459 935
------- -------
3,415 2,843
Less accumulated depreciation.......................... (1,554) (1,436)
------- -------
1,861 1,407
------- -------
Long-term portion of interest-only strip receivable......... 2,362 --
Other assets................................................ 429 702
Other assets of discontinued operation...................... -- 3,515
------- -------
Total assets...................................... $13,261 $17,729
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 23
TCC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
(IN THOUSANDS)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Current liabilities:
Notes payable............................................. $ 1,925 $ 2,033
Current maturities of long-term debt...................... 762 120
Accounts payable.......................................... 350 137
Accrued expenses.......................................... 327 359
Current liabilities of discontinued operation............. -- 1,577
------- -------
Total current liabilities......................... 3,364 4,226
Long-term debt, less current maturities..................... 2,813 1,119
Deferred liabilities........................................ 110 74
Other liabilities of discontinued operation................. -- 786
------- -------
Total liabilities................................. 6,287 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 and 2,841,601 shares issued,
respectively........................................... 2,842 2,842
Additional paid-in capital................................ 8,733 8,746
Cumulative foreign currency translation adjustment........ -- 54
Retained earnings (accumulated deficit)................... (4,401) 144
------- -------
7,174 11,786
Less treasury stock, 61,386 and 80,486 shares,
respectively, at cost.................................. (200) (262)
------- -------
Total shareholders' equity........................... 6,974 11,524
------- -------
Total liabilities and shareholders' equity........ $13,261 $17,729
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 24
TCC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Wholesale distribution:
Revenue................................................... $ 7,116 $ 8,420 $ 9,152
Cost of goods sold........................................ 5,673 5,724 6,102
------- ------- -------
Gross profit........................................... 1,443 2,696 3,050
Gain on sale of securities.................................. 504 -- --
Selling, general and administrative expenses................ 5,286 4,451 4,080
------- ------- -------
Operating loss......................................... (3,339) (1,755) (1,030)
------- ------- -------
Other income (expense):
Interest income........................................... 89 67 78
Interest expense.......................................... (510) (397) (384)
Other, net................................................ (850) 130 689
------- ------- -------
(1,271) (200) 383
------- ------- -------
Loss before provision (benefit) for income taxes............ (4,610) (1,955) (647)
Provision (benefit) for state income taxes.................. 3 6 (4)
------- ------- -------
Loss from continuing operations........................... (4,613) (1,961) (643)
Income from discontinued operation, net of state income
taxes of $23, $77 and $2, respectively.................... 525 425 553
Loss from disposal of discontinued operation................ (457) -- --
------- ------- -------
Net loss.......................................... $(4,545) $(1,536) $ (90)
======= ======= =======
Weighted average number of common shares outstanding........ 2,766 2,760 2,760
======= ======= =======
Basic and diluted earnings (loss) per common share:
From continuing operations................................ $ (1.67) $ (0.71) $ (0.23)
From discontinued operation............................... 0.19 0.15 (0.20)
From disposal of discontinued operation................... (0.16) -- --
------- ------- -------
Net loss.......................................... $ (1.64) $ (0.56) $ (0.03)
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 25
TCC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
PAR VALUE FOREIGN RETAINED
OF ADDITIONAL CURRENCY EARNINGS
NUMBER COMMON PAID-IN TRANSLATION (ACCUMULATED TREASURY
OF SHARES SHARES CAPITAL ADJUSTMENT DEFICIT) STOCK
--------- --------- ---------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1995....... 2,841 $2,841 $8,748 $(22) $ 1,770 $(241)
Net loss...................... (90)
Purchase of common stock for
treasury................... (25)
Foreign currency translation
adjustment................. (31)
----- ------ ------ ---- ------- -----
Balances, December 31, 1995..... 2,841 2,841 8,748 (53) 1,680 (266)
Net loss...................... (1,536)
Exercise of stock options..... 1 1 (2) 4
Foreign currency translation
adjustment................. 107
----- ------ ------ ---- ------- -----
Balances, December 31, 1996..... 2,842 2,842 8,746 54 144 (262)
Net loss...................... (4,545)
Exercise of stock options..... (13) 62
Foreign currency translation
adjustment................. (54)
----- ------ ------ ---- ------- -----
Balances, December 31, 1997..... 2,842 $2,842 $8,733 $ -- $(4,401) $(200)
===== ====== ====== ==== ======= =====
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE> 26
TCC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (4,545) $(1,536) $ (90)
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Depreciation........................................... 164 196 204
Amortization........................................... 14 18 18
Write-off unamortized balance of goodwill.............. 226 -- --
Provision for losses on receivables.................... 49 40 25
Provision for inventory reserve........................ 729 -- --
Gain on sale of assets, net............................ (3) (43) (436)
Gain on sale of mortgage backed securities............. (504) -- --
Proceeds from sale of mortgage backed securities....... 25,120 -- --
Purchase of mortgage backed securities................. (24,616) -- --
Other.................................................. 54 5 (18)
Change in current assets and liabilities:
Receivables.......................................... 211 361 247
Inventories.......................................... 373 591 361
Other current assets................................. (110) 81 (148)
Accounts payable..................................... 213 (183) 104
Accrued expenses..................................... (177) 100 (225)
-------- ------- -------
Net cash provided by operating activities................... (2,802) (370) 42
-------- ------- -------
Cash flows from investing activities:
Additions to property, plant and equipment................ (626) (59) (59)
Purchase of Interest-only strip receivable................ (2,914) -- --
Proceeds from sale of assets.............................. 12 249 547
Other, net................................................ 3 4 38
-------- ------- -------
Net cash provided (used) by continuing operations........... (3,525) 194 526
Net cash from sale of discontinued operation................ 5,922 -- --
-------- ------- -------
Net cash provided (used) by investing activities............ 2,397 194 526
-------- ------- -------
Cash flows from financing activities:
Net borrowings (repayments) of notes payable.............. (109) 1,151 (1,318)
Proceeds from long-term debt.............................. 2,457 -- 1,200
Long-term debt paid....................................... (120) (1,146) (318)
Purchase of common stock for treasury..................... -- -- (25)
Proceeds from exercise of stock options................... 50 2 --
-------- ------- -------
Net cash provided (used) by financing activities............ 2,278 7 (461)
-------- ------- -------
Net cash provided (used) by continuing operations........... 1,873 (169) 107
Net cash provided (used) by discontinued operation.......... 217 (55) (112)
-------- ------- -------
Net increase (decrease) in cash and cash equivalents........ 2,090 (224) (5)
Cash and cash equivalents at beginning of year.............. 779 1,003 1,008
-------- ------- -------
Cash and cash equivalents at end of year.................... $ 2,869 $ 779 $ 1,003
======== ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
<PAGE> 27
TCC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of TCC
Industries, Inc. and Subsidiaries (the "Company"), the business of which is more
fully described in Note 11. The operating subsidiaries include A.L. Investors,
Inc., doing business as Allen-Lewis Manufacturing Company ("Allen-Lewis"),
Barton Creek Capital Corporation ("Barton Creek"), Paladin Financial, Inc.
("Paladin") and Texas Capital Markets, Inc. ("Texas Capital"). Certain prior
year amounts have been reclassified for consistency in presentation. Earnings
and losses of all wholly owned and majority owned subsidiaries since their
respective date of acquisition have been included in the results of operations.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
Inventories
Wholesale inventories are valued at the lower of first-in, first-out (FIFO)
cost or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Major renewals and
betterments are capitalized, and maintenance and repairs which do not improve or
extend the life of the respective assets are charged to operations as incurred.
Gains and losses on sales and retirements of property, plant and equipment are
reflected in operations.
The Company provides for depreciation based on the straight line method
over the estimated useful lives of the assets. The ranges of the estimated lives
used in computing financial depreciation are: buildings and improvements 2 to 33
years; and machinery and equipment 2 to 25 years.
Mortgage-Backed Securities
Mortgage-backed securities consist entirely of Federal National Mortgage
Association ("Fannie Mae") mortgage-backed securities that have been created and
issued by Fannie Mae. These mortgage-backed securities represent
interest-bearing, marketable obligations of Fannie Mae, which are carried at
market value and accounted for as trading securities pursuant to Financial
Accounting Standards Board ("FASB") Statement of Financial Accounting Standards
("SFAS") No. 65, "Accounting for Certain Mortgage Banking Activities." There
were no mortgage-backed securities outstanding at December 31, 1997.
Revenue Recognition
Gain on sale of securities includes sale of loans and mortgage-backed
securities that are recognized upon the sale of loans or mortgage-backed
securities to investors. The gain on sale of such loans and mortgage-backed
securities is calculated based upon the difference between the net proceeds from
the sale, including the value of an interest-only strip receivable derived from
the excess interest spread on the loans, and the allocated carrying values of
mortgage-backed securities sold. The allocated carrying values are based upon
the relative fair value of mortgage-backed securities sold and the interest-only
receivables.
The fair value of the interest-only strip receivables is calculated based
upon the present value of the estimated future excess interest spread after
considering the effects of estimated prepayments, defaults and future expenses.
The discount rate utilized is based upon assumptions that market participants
would use for similar financial instruments subject to prepayments, defaults,
collateral value and interest rate risks.
Wholesale distribution recognizes revenue at the time products are shipped.
F-9
<PAGE> 28
TCC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest-Only Strip Receivables
The Company follows SFAS No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities". SFAS No. 125 provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. This statement also provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings and requires that liabilities
and derivatives incurred or obtained by transferors as part of a transfer of
financial assets be initially measured at fair value.
Interest-only strip receivables resulting from the securitization of
mortgage-backed securities are classified as available for sale securities. The
Company periodically reviews the fair value of the interest-only strip
receivables. The difference between the fair value and allocated carrying values
for securities classified as available for sale is included as a component of
stockholders' equity.
The Company carries its interest-only strip receivable based upon estimates
of future cash flow which considers assumptions as to the rates of prepayments
and defaults of the Title I Mortgage Loans underlying the mortgage backed
securities. There is a reasonable possibility that changes in the value of the
interest-only strip receivable could occur in the short term and that the
changes could be material to the Company's financial statements.
For the interest-only strip receivable from mortgage-backed securities sold
during 1997, the estimated cash flow was discounted at 11%. Estimated cash flows
include the effect of variable prepayment rates, which includes defaults,
generally ranging from 20% to 12% depending on the seasoning of loans underlying
the securities. Such prepayment and default assumptions are based on available
market data and information from regulatory agencies.
Impairment of Long-Lived Assets
Effective October 1, 1997 the Company adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of".
SFAS No. 121 prescribes that an impairment loss is recognized in the event that
facts and circumstances indicated that the carrying amount of an asset may not
be recoverable, and an estimate of future undiscounted cash flows is less than
the carrying amount of the asset. Impairment is recorded based on an estimate of
future discounted cash flows as identified at the lowest level for which there
are identifiable cash flows for a particular group of assets. No impairment of
long-lived assets was recorded on the financial statements for the year ended
December 31, 1997.
Advertising
Advertising costs are expensed as incurred.
Income Taxes
The Company and its wholly owned domestic subsidiaries join in filing a
consolidated federal income tax return. Separate state and foreign income tax
returns are filed by subsidiaries where required. The Company accounts for its
income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes,"
under which deferred tax assets and liabilities are computed based on the
difference between the financial statement and income tax bases of assets and
liabilities using the enacted marginal tax rate. Deferred income tax expenses or
benefits are based on the changes in the net deferred asset or liability from
period to period Valuation allowances are established when considered necessary
to reduce deferred tax assets by amounts which are more likely than not to be
realized.
F-10
<PAGE> 29
TCC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers all
highly liquid instruments purchased with an original maturity of three months or
less to be cash equivalents.
The Company paid interest of approximately $507,000, $383,000 and $410,000
for the years ended December 31, 1997, 1996 and 1995, respectively.
Earnings (Loss) Per Share
In 1997, the Company adopted SFAS No. 128 "Earnings Per Share" which
requires the Company to present its basic loss per share and diluted loss per
share, and certain other loss per share disclosures for each year presented.
Basic loss per share is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding during
the year. The computation of diluted loss per share is similar to the
computation of basic loss per share except that the denominator is increased to
include the number of additional shares that would have been outstanding if the
dilutive potential common shares had been issued. In addition, the numerator is
adjusted for any changes in income or loss that would result from the assumed
conversions of those potential shares.
In 1997, 1996 and 1995, the Company had various amounts of common stock
options outstanding during the years which were not included in the diluted loss
per share calculation because the options would have been anti-dilutive. As of
December 31, 1997, 1996 and 1995, the Company had 6,072,400, 267,400 and 305,900
options outstanding, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company's financial instruments as defined by SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments," include cash and cash
equivalents, trade receivables, interest-only strip receivable, accounts
payable, accrued expenses, customer deposits and debt. All financial instruments
except the Interest-only strip receivable are accounted for on a historical cost
basis which approximates fair value at December 31, 1997 and 1996. At December
31, 1997 the historical cost of the interest-only strip receivable approximated
fair value.
(2) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued 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.
Management does not think that SFAS No. 130 will have any impact on it's
financial statement disclosures.
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
F-11
<PAGE> 30
TCC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
customers. SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. Management has not yet determined the impact,
if any, that SFAS No. 131 will have on its financial statement disclosures.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures
about Pensions and Other Postretirement Benefits", which significantly changes
current financial statement disclosure requirements from those that were
required under SFAS No. 87, "Employers' Accounting for Pensions", SFAS No. 88,
"Employers' Accounting for Settlements" and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits", and SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions". SFAS No. 132 does
not change the existing measurement or recognition provisions of SFAS Nos. 87,
88, or 106. SFAS No. 132 is effective for fiscal years beginning after December
15, 1997. Management has not yet determined the impact, if any, that SFAS No.
132 will have on its financial statement disclosures.
(3) DISCONTINUED OPERATION
Up until September 19, 1997, the Company designed and manufactured, through
its wholly-owned subsidiary, Meyer Machine Company ("Meyer Machine"), a
proprietary line of specialized bulk material conveying and processing equipment
and systems for the food, pharmaceutical and chemical industries. On September
19, 1997, the Company sold all of the assets of Meyer Machine to Meyer
Acquisition Corporation, Inc. ("Meyer Acquisition"), in consideration of the
payment of six million dollars in cash and the assumption by the purchaser of
substantially all of the liabilities of Meyer Machine. Meyer Acquisition, the
principal shareholder of which is Eugene Teeter, was formed in June 1997 for the
purpose of acquiring the assets of Meyer Machine. Prior to the closing of the
sale of assets, Mr. Teeter had served as the President of Meyer Machine. As a
result of the foregoing sale, on September 19, 1997, Mr. Teeter resigned as
President of Meyer Machine and the Company discontinued operations as a designer
and manufacturer of conveying and processing equipment and systems.
(4) RESTRICTIONS ON NET ASSETS:
Allen-Lewis has a bank loan agreement which contains 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 it's income
and other formulas contained in the loan agreement.
(5) NOTES PAYABLE:
Allen-Lewis maintains a demand line of credit with a financial institution
that provides maximum borrowing capabilities of $4,000,000, subject to a
borrowing base calculation, for working capital purposes and support for letters
of credit (maximum limit of $150,000). The daily cash receipts of Allen-Lewis
are used to reduce the outstanding borrowings under the line. At December 31,
1997 and 1996, $1,925,000 and $2,033,000, respectively of this line were
outstanding. Under the borrowing base calculation, Allen-Lewis had overdrawn
this line by approximately $29,000 at December 31, 1997 and had available under
the line approximately $276,000 at December 31, 1996. The demand line of credit
is collateralized by all of the assets of Allen-Lewis. The interest rate for the
demand line of credit is adjusted quarterly and can range from prime plus one
percentage point to prime plus three and one-half percentage points, depending
on an interest coverage ratio. At December 31, 1997 and 1996, the demand line of
credit had an interest rate of 12% and 10.75%, respectively
TCC Industries, Inc. (parent company) has a $5,000,000 line of credit
bearing interest at prime minus 0.5% and is personally guaranteed by the
Chairman of the Board and the President of the Company. This line of credit is
used to supplement the short-term cash needs of the parent company. No amounts
were drawn on the lines of credit during 1997, and at December 31, 1997 the
entire balance was available.
F-12
<PAGE> 31
TCC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of borrowings under the credit agreements
(dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Month-end maximum loan balance during the year........... $3,756 $2,740 $3,775
Average loan balance during the year..................... $2,846 $1,962 $1,968
Balance at year-end...................................... $1,925 $2,033 $ 882
Weighted average interest rate during the year........... 11.7% 10.0% 9.1%
Weighted average interest rate at year-end............... 12.0% 10.8% 9.0%
</TABLE>
The average loan balance during the year was calculated by using a twelve
month average of the month-end balances of short-term debt. The weighted average
interest rate during the year was calculated by dividing the annual interest
cost by the average loan balance during the year.
(6) LONG-TERM DEBT:
Long-term debt consisted of the following at December 31 (dollars in
thousands):
<TABLE>
<CAPTION>
TYPE OF INDEBTEDNESS INTEREST RATE 1997 1996
-------------------- ------------- ------ ------
<S> <C> <C> <C>
Notes payable to the former owner of
Allen-Lewis, due through June 2001,
collateralized by land and buildings of
Allen-Lewis................................. 10.0% $1,059 $1,117
Notes payable to a bank, due through December
1999, collateralized by the computer system
of Allen-Lewis.............................. 10.9% 59 105
Notes payable to a bank, due through December
2001, collateralized by an interest-only
strip receivable(a)......................... LIBOR(b) + 3.5% 2,457 --
Capitalized lease obligations................. -- 17
------ ------
3,575 1,239
Less current maturities....................... 762 120
------ ------
$2,813 $1,119
====== ======
</TABLE>
- ---------------
(a) Paladin has a $5.0 million commitment from a bank for the purpose of
financing interest-only strip receivables. The interest-only strip
receivables are pledged as collateral and TCC Industries (Parent) fully
guarantees the related promissory note(s).
(b) The LIBOR rate at December 31, 1997 was 5.97%.
The notes payable to a bank by Allen-Lewis contain restrictive covenants
requiring, among other things, the maintenance of a designated current ratio,
debt to equity ratio and tangible net worth.
The scheduled maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
1998........................................................ $ 762
1999........................................................ 634
2000........................................................ 559
2001........................................................ 860
2002........................................................ 95
Thereafter.................................................. 665
------
Total............................................. $3,575
======
</TABLE>
F-13
<PAGE> 32
TCC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) COMMITMENTS AND CONTINGENCIES:
Commitments
The Company occupies a facility under a noncancelable operating lease
expiring in 2002. The lease agreement contains provisions for adjustments in the
annual rental amount for variances in operating expenses of the building. Future
minimum rentals under the noncancelable operating lease are as follows (in
thousands):
<TABLE>
<S> <C>
1998........................................................ $ 208
1999........................................................ 227
2000........................................................ 256
2001........................................................ 256
2002........................................................ 270
Thereafter.................................................. --
------
Total............................................. $1,217
======
</TABLE>
Total lease and rent expense for the years ended December 31, 1997, 1996
and 1995 were approximately $116,000, $128,000 and $112,000, respectively.
Contingencies
There are sundry claims pending against a subsidiary of the company all of
which are incidental to the ordinary course of business and, in the opinion of
management, should not result in any significant liability.
Effective December 19, 1997, Paladin, TCC Industries, Inc. ("Parent") and
Riverway Bank ("Riverway") entered into a Master Purchase and Sale Agreement
(the "Agreement") whereby Riverway agreed to purchase up to $50,000,000 of FHA
Title 1 Home Improvement mortgage backed securities selected by Paladin and
Paladin has the right to purchase those securities from Riverway at any time
prior to January 31, 1999, upon five (5) days notice from Riverway. In the event
Paladin elects not to purchase said securities, Riverway is authorized to sell
the securities to third parties and Paladin is obligated to cover any loss
incurred by Riverway on the sale. The Parent guaranteed Paladin's obligation in
the Agreement. As of December 31, 1997, Riverway was holding approximately
$13,000,000 (market value) of such securities pursuant to the Agreement, which
market value was approximately equivalent to the original cost of such
securities.
The Company's computer software programs utilize four digits to define the
applicable year and therefore the Company believes it has no internal risk
concerning the Year 2000 issue. Any problems the Company's suppliers and
customers may have related to this issue are not expected to affect the Company.
The Company has not incurred any costs related to this issue and is not
expecting to incur any such costs in the future.
The two principal executives of the Company are serving without
compensation until the Company achieves profitability.
(8) SHAREHOLDERS' EQUITY:
The Company has authorized 2,000,000 shares of cumulative preferred stock,
no par value, none of which have been issued. Of such 2,000,000 authorized
shares, the Company has designated up to 10,000 shares of a new Series A
Preferred Stock in connection with the Shareholder Rights Plan adopted by the
Board of Directors in 1991, as described below.
On April 23, 1991, the Board of Directors of the Company adopted a
Shareholder Rights Plan consisting of Rights to purchase a unit consisting of
one one-thousandth (1/1000th) of a share of a new Series A
F-14
<PAGE> 33
TCC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Preferred Stock, no par value. The Rights were distributed as a dividend at the
rate of one Right for each share of TCC Industries' common stock held of record
on May 6, 1991, and the rights have also attached to all shares of TCC
Industries, Inc. common stock that have become outstanding subsequent to May 6,
1991. (2,761.12 shares of Series A Preferred Stock would have become issuable if
the Rights had become exercisable on December 31, 1997).
Initially, the Rights are not exercisable and are not detachable from the
Company's common stock. Ten days after any person or group acquires 17% or more
of the Company's outstanding common stock or announces a tender offer for 22% or
more of the Company's common stock, the Rights will become exercisable.
Thereafter, the Rights will trade separately from the Company's common stock. If
the Rights become exercisable, a holder will be entitled to purchase from the
Company one one-thousandth of a share of preferred stock for $8, or under
certain circumstances, the Rights would be modified so that each Right not owned
by the acquiror or acquiring group would be exercisable so as to entitle the
holder to buy the number of common shares having a market value of two times the
$8 exercisable price of each Right.
The Rights will expire on May 6, 2001, and may be redeemed by the Company
for one cent per Right under certain circumstances.
(9) STOCK-BASED COMPENSATION PLANS
The Company sponsors the "TCC Industries, Inc. 1985 Incentive Stock Option
Plan", the "TCC Industries, Inc. 1995 Non-employee Directors Stock Option Plan"
(collectively the "Pre-1997 Stock Option Plans") and the "TCC Industries, Inc.
1997 Incentive and Performance Stock Option Plan" (the "1997 Stock Option
Plan"), which are stock-based incentive compensation plans as described below.
The Company applies Accounting Principles Board ("APB") Opinion No. 25 and
related Interpretations in accounting for the Plans. The Company did not elect
the cost recognition provisions of SFAS 123. However, pro forma disclosures as
if the Company adopted the cost recognition provisions of SFAS No. 123 are
required.
PRE-1997 STOCK OPTIONS PLANS
Under the TCC Industries, Inc. 1985 Incentive Stock Option Plan, which
expired in 1995, the Company was authorized to issue 320,000 shares of common
stock pursuant to incentive stock options (qualified under Section 422 of the
Internal Revenue Code of 1986, as amended) to selected employees. Under the TCC
Industries, Inc. 1995 Non-Employee Directors Stock Option Plan, the Company is
authorized to issue up to 75,000 shares of common stock pursuant to
non-qualified stock options to non-employee directors. Each Plan contains
provisions that the price at which the Company's stock can be purchased,
pursuant to the options granted under the Plan, should not be less than 100
percent of the fair market value at the date of grant. The options issued under
both Plans vest 20 percent each year and terminate 10 years after the date of
grant.
An 8,000 share stock option was granted in 1991 by the Company to a
Director who was not eligible to participate in either of the Company's stock
option plans. The Director resigned during 1997 and his option expired.
F-15
<PAGE> 34
TCC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the status of the Company's Pre-1997 Stock Option Plans as of
December 31, 1995, 1996 and 1997, and the changes during the years ended on
those dates is presented below:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
SHARES AVAILABLE ----------------------------
FOR GRANT WEIGHTED AVERAGE
UNDER STOCK EXERCISE PRICES
OPTION PLANS SHARES PER SHARE
---------------- -------- ----------------
<S> <C> <C> <C>
Balance, January 1, 1995.................. 67,000 302,400 $2.78
Granted................................. (68,500) 68,500 $2.07
Forfeited and expired................... 65,000 (65,000) $2.75
Expiration of plan...................... (43,000)
Amendment of plan....................... 28,500
------- -------- -----
Balance, December 31, 1995................ 49,000 305,900 $2.63
Granted Exercised....................... (2,000) $1.00
Forfeited and expired................... (36,500) $2.89
------- -------- -----
Balance, December 31, 1996................ 49,000 267,400 $2.60
Granted................................. (24,000) 24,000 $2.20
Exercised............................... (19,100) $2.62
Forfeited and expired................... 14,500 (199,900) $2.68
------- -------- -----
Balance, December 31, 1997................ 39,500 72,400 $2.68
======= ======== =====
Exercisable at December 31, 1995........ 147,500 $2.44
Exercisable at December 31, 1996........ 170,400 $2.51
Exercisable at December 31, 1997........ 39,900 $3.00
</TABLE>
The weighted-average fair values of the options granted under the Pre-1997
Stock Option Plan in 1997 and 1995 were $1.38 and $1.19, respectively.
The fair value of each stock option granted in 1997 and 1995 is estimated
on the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions: no dividend yield in 1997 and 1995;
risk-free interest rates ranging from 6.15% to 6.62% in 1997 and from 5.73% to
6.45% during 1995; the expected lives of options are 6 years for 1997 and 1995;
and volitility of 61% in 1997 and 53% in 1995.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- --------------------------
NUMBER WEIGHTED WEIGHTED NUMBER WEIGHTED
OUTSTANDING AT AVERAGE AVERAGE EXERCISABLE AT AVERAGE
RANGE OF DECEMBER 31, REMAINING EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 1996 CONTRACT LIFE PRICE 1996 PRICE
- ----------------------------- -------------- ------------- -------- --------------- --------
<S> <C> <C> <C> <C> <C>
$0.75 to $2.00............... 134,900 3.46 $1.84 96,500 $1.78
$2.01 to $3.50............... 132,500 6.99 $3.38 73,900 $3.46
- ----------------------------- ------- ---- ----- ------- -----
$0.75 to $3.50............... 267,400 5.21 $2.60 170,400 $2.51
- ----------------------------- ------- ---- ----- ------- -----
</TABLE>
The following table summarizes information about stock options outstanding
and exercisable under the Pre-1997 Stock Option Plans at December 31, 1997.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------------ --------------------------
NUMBER WEIGHTED WEIGHTED NUMBER WEIGHTED
OUTSTANDING AT AVERAGE AVERAGE EXERCISABLE AT AVERAGE
RANGE OF DECEMBER 31, REMAINING EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 1997 CONTRACT LIFE PRICE 1997 PRICE
--------------- -------------- ------------- -------- --------------- --------
<S> <C> <C> <C> <C> <C>
$0.75 to $2.00............... 14,000 7.79 $1.97 11,900 $1.97
$2.01 to $3.50............... 58,400 7.86 2.86 28,000 3.44
------ ---- ----- ------ -----
$0.75 to $3.50............... 72,400 7.85 $2.68 39,900 $3.00
====== ==== ===== ====== =====
</TABLE>
F-16
<PAGE> 35
TCC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1997 STOCK OPTION PLAN
In 1997, the Company granted options under the 1997 Stock Option Plan for
6,000,000 shares of common stock to the employees of the Company and its
Subsidiaries (the "Optionees"). These grants were made under separate agreements
between the Company and each Optionee ("Option Grants"). The 1997 Stock Option
Plan will continue in effect for a term of ten years unless the term is amended
by the Board of Directors in accordance with the provisions of the 1997 Stock
Option Plan. The Company has issued two types of stock options, Incentive Stock
Options and Non-statutory Stock Options (collectively, the "Options"), under the
terms of the 1997 Stock Option Plan, and the exercise price of each such Option
will be no less than the fair market value of the common stock on the date of
the Option Grant (the 1997 Stock Option Plan was approved by the shareholders on
December 19, 1997). The 1997 Stock Option Plan provides that during the term of
the plan no Optionee may receive Options to acquire more than 1,800,000 shares
of common stock. In addition to cliff vesting (discussed below) the Option
Grants allow accelerated vesting if the Company achieves certain aggregate
cumulative earnings, net of losses, if any, determined under Generally Accepted
Accounting Principles as reported at the end of each calendar quarter during the
four-year period ending September 30, 2001. Notwithstanding the performance
standards, all Options will vest and become exercisable in full nine years after
the grant of the Options, or September 30, 2006.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
SHARES AVAILABLE -----------------------------
FOR GRANT WEIGHTED AVERAGE
UNDER STOCK EXERCISE PRICES
OPTION PLANS SHARES PER SHARE
---------------- --------- ----------------
<S> <C> <C> <C>
Balance, January 1, 1997
Granted................................. 6,000,000 6,000,000 $6.18
--------- --------- -----
Balance, December 31, 1997................ -- 6,000,000 $6.18
========= ========= =====
Exercisable at December 31, 1997........ -- --
========= =====
</TABLE>
The weighted-average fair value of options granted under the 1997 Stock
Option Plan in 1997 was $2.25.
The fair value of the stock option granted in 1997 is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions: no dividend yield; risk-free interest rate ranging
from 5.80% to 6.11%; the expected lives of options are 5 years; and volitility
of 61%.
The weighted average remaining contract life for the options granted in
1997 Option Plan is approximately 9.75 years.
During 1997, 1996 and 1995, the Company did not incur any compensation cost
for any of the plans (both the Pre-1997 Stock Option Plans and the 1997 Stock
Option Plan) under APB No. 25 as shown below. Had the compensation cost for all
the company's compensation plans been determined consistent with SFAS No. 123,
the Company's net loss and net loss per common share for 1997, 1996, and 1995
would approximate the proforma amounts as shown below:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------------- ----------------------- -----------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
SFAS No. 123 Charge............. -- $ 681 -- $ 14 -- $ 7
APB No. 25 Charge............... -- -- -- -- -- --
Net loss........................ $(4,545) (5,226) $(1,536) (1,550) $ (90) (97)
Net loss per common share....... $ (1.64) $ (1.89) $ (0.56) $ (0.56) $(0.03) $(0.04)
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
1995 and the Company anticipates making awards in the future under its
compensation plans.
F-17
<PAGE> 36
TCC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) INCOME TAXES:
The components of the provision (benefit) for income taxes are (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal..................................................... $-- $-- $--
State....................................................... 3 6 (4)
--- --- ---
Total provision (benefit)......................... $ 3 $ 6 $(4)
=== === ===
</TABLE>
Reconciliations of the differences between income taxes computed at the
statutory federal tax rate and consolidated provisions (benefit) for income
taxes are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ----- -----
<S> <C> <C> <C>
Expected income tax benefit at statutory rate............ $(1,549) $(613) $(245)
State taxes, net of federal tax benefit.................. (136) 3 3
Amortization of intangible assets not deducted for tax
purposes............................................... 6 6 10
Increase in valuation allowance.......................... 1,714 574 257
Other.................................................... (32) 36 (29)
------- ----- -----
Total provision (benefit)...................... $ 3 $ 6 $ (4)
======= ===== =====
</TABLE>
Due to the Company's net operating loss carryforward position, for federal
income tax purposes, future provisions for federal income taxes will be an
"in-lieu of tax" provision pursuant to the accounting principles applicable to
quasi-reorganizations and accordingly will not require a significant cash
payment and will not reduce shareholders' equity since the tax benefits
resulting from the utilization of these carryforwards will be credited directly
to additional paid-in capital.
As of December 31, 1997, the Company had available for federal income tax
purposes net operating loss carryforwards which expire as follows (in
thousands):
<TABLE>
<S> <C>
1999........................................................ $18,087
2001........................................................ 2,704
2002........................................................ 385
2003........................................................ 1,232
2004........................................................ 810
2005........................................................ 1,208
2006 and thereafter......................................... 8,608
-------
$33,034
=======
</TABLE>
Primarily due to the net operating loss carryforwards, the Company recorded
a deferred tax asset with the adoption of SFAS No. 109. The fact that the
Company has incurred losses the last three years provides objective "negative"
evidence supporting a need for a valuation allowance on the Company's net
deferred tax asset. Accordingly, the Company has recorded a valuation allowance
equal to the net deferred tax asset generated principally by the net operating
loss carryforwards due to the possibility that the net deferred tax asset may
not be realized.
F-18
<PAGE> 37
TCC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the December 31, 1997 and 1996 deferred tax amounts are
as follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
ASSET ASSET
(LIABILITY) (LIABILITY)
------------ ------------
<S> <C> <C>
Net domestic operating loss carryforwards.................. $11,232 $9,317
Inventory.................................................. 157 341
Capitalized leases......................................... -- 79
Other...................................................... 181 90
Depreciation............................................... (370) (341)
------- ------
Net deferred tax asset before valuation allowance........ 11,200 9,486
Less valuation allowance................................... 11,200 9,486
------- ------
Net deferred tax asset recognized in the balance sheet... $ -- $ --
======= ======
</TABLE>
(11) SEGMENT INFORMATION:
The Company has two industry segments, the financial services and wholesale
distribution.
The financial services segment is comprised of Paladin, Barton Creek and
Texas Capital. Paladin is primarily engaged in the origination, purchase and
disposition of loans and the related real estate mortgages. Barton Creek works
with an external client base for which it provides a broad range of merchant and
investment banking services, including private placements, mergers and
acquisitions, and other financial advisory services as well as assisting Paladin
with the disposition of securities that will result from the securitization of
Paladin's loan pools. Texas Capital assists Paladin with the development and
implementation of loan products and programs, the negotiation and closing of
bulk loan purchases, the development and implementation of various loan
disposition strategies and the procurement of various financing facilities
necessary for the implementation of the loan programs to be undertaken by
Paladin.
The wholesale distribution segment, which is comprised of Allen-Lewis, is
primarily involved in the design and distribution of souvenir, gift and novelty
items throughout the continental United States and Alaska. Its products are sold
primarily to theme, national and state parks; souvenir, novelty, gift and
airport shops, military bases, truck stops, zoos, discount and variety stores;
and other distributors. A significant amount of the products sold by the
wholesale distribution segment are sourced from suppliers in the Far East who
could be negatively affected by changes in the economic and political climate of
the countries in which they are located. Management of the Company believes that
if a disruption of supply of products from these sources were to occur, the
Company. would be able to source similar products from suppliers located in
other countries. If this were to occur, however, there could be a delay in
receipt of merchandise and possible loss of sales, which would affect operating
results adversely.
F-19
<PAGE> 38
TCC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information relating to the Company's continuing operations for each of the
three years in the period ended December 31, 1997 for these segments is as
follows (in thousands):
<TABLE>
<CAPTION>
GENERAL
FINANCIAL WHOLESALE CORPORATE AND
SERVICES DISTRIBUTION OTHER TOTAL
--------- ------------ ------------- -------
<S> <C> <C> <C> <C>
1997:
Identifiable assets..................... $ 4,712 $ 6,655 $ 1,894 $13,261
Depreciation and amortization expense... -- 174 4 178
Additions to property, plant and
equipment............................ 439 103 84 626
Revenue................................. 504 7,116 -- 7,620
Operating loss from continuing
operations........................... (406) (2,073) (860) (3,339)
1996:
Identifiable assets..................... -- $ 8,172 $ 1,157 $ 9,329
Depreciation and amortization expense... -- 210 4 214
Additions to property, plant and
equipment............................ -- 56 3 59
Revenue................................. -- 8,420 -- 8,420
Operating loss from continuing
operations........................... -- (653) (1,102) (1,755)
1995:
Identifiable assets..................... -- $ 9,346 $ 1,660 $11,006
Depreciation and amortization expense... -- 213 9 222
Additions to property, plant and
equipment............................ -- 56 3 59
Revenue................................. -- 9,152 -- 9,152
Operating income (loss) from continuing
operations........................... -- 34 (1,064) (1,030)
</TABLE>
During the years ended December 31, 1997, 1996 and 1995, the Company
realized gains of $3,000, $41,000 and $436,000, respectively, on the sale of
assets held for sale which were included in other non-current assets. Such
realized gains are included in "other income, net" in the accompanying
consolidated statement of operations.
(12) CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash, trade receivables and
interest-only strip receivables. Concentration of mitigating factors regarding
mortgage-backed securities and interest-only strip receivables are described
above.
The Company is party to financial instruments with off-balance sheet credit
risk in the normal course of business. These financial instruments include
commitments to extend credit to borrowers and commitments to purchase loans from
others. As of December 31, 1997, the Company had no outstanding commitments to
extend credit or purchase loans.
Effective December 19, 1997, Paladin, TCC Industries, Inc. ("Parent") and
Riverway Bank ("Riverway") entered into a Master Purchase and Sale Agreement
(the "Agreement") whereby Riverway agreed to purchase up to $50,000,000 of FHA
Title 1 Home Improvement mortgage backed securities selected by Paladin and
Paladin has the right to purchase those securities from Riverway at any time
prior to January 31, 1999, upon five (5) days notice from Riverway. In the event
Paladin elects not to purchase said securities, Riverway is authorized to sell
the securities to third parties and Paladin is obligated to compensate Riverway
for any loss incurred by Riverway on the sale. The Parent guaranteed Paladin's
obligation in the Agreement. As of December 31, 1997, Riverway was holding
approximately $13,000,000 (market value) of such securities pursuant to the
Agreement, which market value was approximately equivalent to the original cost
of such securities.
F-20
<PAGE> 39
TCC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Generally, the Company does not require collateral on its trade accounts
receivables. Each customer's financial condition and the aging of the accounts
receivables has been considered in determining the allowance for doubtful
accounts.
Company's cash and cash equivalents are maintained in demand deposit
accounts with financial institutions located in the Company's area of operations
in amounts that may exceed federally insured limits and in uninsured money
market mutual funds that invest primarily in securities of the United States
government. Management does not believe there is undue risk of loss inasmuch as,
in management's opinion, the financial institutions in which cash is deposited
are high credit quality institutions and the money market funds in which it
invests primarily invest in obligations of the United States government.
However, management estimates that the majority of its cash and cash equivalent
balances at December 31, 1997 and 1996, respectively, were not covered by
federal insurance programs, and therefore, were subject to potential loss.
F-21
<PAGE> 40
(This page intentionally left blank)
F-22
<PAGE> 41
TCC INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF
REGISTRANT (PARENT COMPANY)
CONDENSED BALANCE SHEETS
AS OF DECEMBER 31,
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 1,350 $ 196
Other..................................................... 6 25
------- -------
Total current assets.............................. 1,356 221
------- -------
Investments in and advances from subsidiaries:
Investments, at equity.................................... 12,394 15,686
------- -------
Advances from subsidiaries, net........................... (7,204) (4,570)
------- -------
Property, plant and equipment............................... 478 107
Less accumulated depreciation............................. (87) (99)
------- -------
391 8
------- -------
Other assets................................................ 364 375
------- -------
Total assets...................................... $ 7,301 $11,720
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued expenses and other................................ $ 327 $ 196
------- -------
Commitments and contingencies (Note A)
Shareholders' equity:
Preferred stock, authorized 2,000,000 shares, no par
value, no shares issued................................
Common stock, authorized 10,000,000 shares, par value and
2,841,601 shares issued, respectively $1 per share,
2,841,601 and 2,841,601 shares issued, respectively....... 2,842 2,842
Additional paid-in capital................................ 8,733 8,746
Cumulative foreign currency translation adjustment........ -- 54
Retained earnings (accumulated deficit)................... (4,401) 144
------- -------
7,174 11,786
Less treasury stock, 61,386 and 80,486 shares,
respectively, at cost.................................. (200) (262)
------- -------
Total shareholders' equity........................... 6,974 11,524
------- -------
Total liabilities and shareholders' equity........ $ 7,301 $11,720
======= =======
</TABLE>
(Note A) -- The parent has guaranteed a $5,000,000 loan for Paladin.
The condensed financial information should be read in conjunction with the
accompanying Notes to the Consolidated Financial Statements in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997, which
information is included elsewhere herein.
F-23
<PAGE> 42
TCC INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF
REGISTRANT (PARENT COMPANY) -- (CONTINUED)
CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
Income:
Interest.................................................. $ 54 $ 18 $ 26
Other..................................................... 17 -- 58
------- ------- ------
71 18 84
------- ------- ------
Expenses:
General and administrative, net of management fee
income................................................. 1,581 1,063 1,027
Interest.................................................. 10 3 2
------- ------- ------
1,591 1,066 1,029
------- ------- ------
Loss before equity in income (loss) of consolidated
subsidiaries.............................................. (1,520) (1,048) (945)
Equity in income (loss) from continuing operations of
consolidated subsidiaries................................. (3,093) (913) 302
Equity in income from discontinued operation of consolidated
subsidiary................................................ 525 425 553
Loss from disposal of discontinued operation................ (457) -- --
------- ------- ------
Net loss.......................................... $(4,545) $(1,536) $ (90)
======= ======= ======
Weighted average number of common shares outstanding........ 2,766 2,760 2,760
======= ======= ======
Net loss per share.......................................... $ (1.64) $ (.56) $ (.03)
======= ======= ======
</TABLE>
The condensed financial information should be read in conjunction with the
accompanying Notes to the Consolidated Financial Statements in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997, which
information is included elsewhere herein.
F-24
<PAGE> 43
TCC INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF
REGISTRANT (PARENT COMPANY) -- (CONTINUED)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
------- ----- -----
<S> <C> <C> <C>
Net cash flows used by operating activities................. $(1,174) $(718) $(712)
------- ----- -----
Cash flows from investing activities:
Additions to property, plant and equipment................ (384) (3) (1)
Additions to assets held for sale......................... -- -- (1)
Collection of notes receivable............................ 34
Increase (decrease) in net advances from subsidiaries..... (2,682) (997) 204
Dividends from subsidiaries............................... 5,343 1,714 395
Proceeds from sale of assets.............................. 1 -- 20
------- ----- -----
Net cash flows provided by investing activities............. 2,278 714 651
------- ----- -----
Cash flows from financing activities:
Purchase of common stock for treasury..................... -- -- (25)
Proceeds from exercise of stock options................... 50 2 --
------- ----- -----
Net cash flows provided used by financing activities........ 50 2 (25)
------- ----- -----
Net decrease in cash and cash equivalents................... 1,154 (2) (86)
Cash and cash equivalents at beginning of year.............. 196 198 284
------- ----- -----
Cash and cash equivalents at end of year.................... $ 1,350 $ 196 $ 198
------- ----- -----
</TABLE>
The condensed financial information should be read in conjunction with the
accompanying Notes to the Consolidated Financial Statements in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997, which
information is included elsewhere herein.
F-25
<PAGE> 44
TCC INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF
REGISTRANT (PARENT COMPANY) -- (CONTINUED)
SCHEDULE OF CASH DIVIDENDS PAID TO REGISTRANT
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ----
<S> <C> <C> <C>
TeleCom Industrial Group, Inc., a wholly-owned subsidiary of
TCC Industries, Inc....................................... $ 143 $ 214 $395
TeleCom Properties, Inc., a wholly-owned subsidiary TCC of
TCC Industries, Inc....................................... 5,200 1,500 --
------ ------ ----
Total............................................. $5,343 $1,714 $395
====== ====== ====
</TABLE>
The condensed financial information should be read in conjunction with the
accompanying Notes to the Consolidated Financial Statements in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997, which
information is included elsewhere herein.
F-26
<PAGE> 45
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
3.22 -- 1997 Amendment No. 3 to the Third Amended and Restated
Bylaws of the Company.
10.24 -- Termination Agreement of Consulting and Noncompetition
Agreement between TCC Industries, Inc. and W. Grogan Lord
dated July 2, 1997.
10.25 -- Termination Agreement of Consulting and Noncompetition
Agreement between TCC Industries, Inc. and Frank W.
Denius dated July 2, 1997.
10.26 -- Termination Agreement of Consulting and Noncompetition
Agreement between TCC Industries, Inc. and J. Patrick
Kaine dated July 2, 1997.
10.30 -- Employment Agreement by and among the Company and Robert
Thomajan, dated October 1, 1997.
10.31 -- Employment Agreement by and among the Company and Richard
F. Watkins, dated October 1, 1997.
10.32 -- Employment Agreement by and among the Company and Robert
L. Riviere, dated October 1, 1997.
10.33 -- Employment Agreement by and among the Company and Walter
A. DeRoeck, dated October 1, 1997.
21 -- Subsidiaries of the Registrant
23.1 -- Consent of Independent Accountants
27 -- Financial Data Schedule
</TABLE>
<PAGE> 1
TCC INDUSTRIES, INC.
504 LAVACA, SUITE 1004, AUSTIN, TEXAS 78701
Exhibit 3.22
1997 AMENDMENT NO. 3 TO
THIRD AMENDED AND RESTATED BYLAWS OF
TCC INDUSTRIES, INC.
Section 3.02 of the Third Amended and Restated Bylaws, as amended, of
TCC Industries, Inc., a Texas corporation (the "Corporation"), was amended by
action of the Board of Directors of the Corporation duly taken at a meeting of
said Board held on July 2, 1997, by deleting the first sentence thereof (as
amended by 1997 Amendment No. 1 to Third Amended and Restated Bylaws of TCC
Industries, Inc.) and inserting in lieu of such sentence, the following:
"The Board of Directors shall consist of eight (8) members, each to
hold office until the next annual meeting of shareholders or until his or her
successor shall be elected and shall have qualified."
The undersigned Secretary of the Corporation hereby certifies that the
foregoing is true and correct.
DATED as of July 2, 1997.
/s/ ROBERT THOMAJAN
---------------------------
Robert Thomajan, Secretary
49
<PAGE> 1
Exhibit 10.24
TERMINATION AGREEMENT
THIS TERMINATION AGREEMENT dated as of July 2, 1997 is entered into by
and between TCC Industries, Inc., a Texas corporation, formerly named TeleCom
Corporation, (the "Company") and W. Grogan Lord ("Lord").
W I T N E S S E T H:
WHEREAS, the Company and Lord have agreed that the Consulting and
Noncompetition Agreement (the "Consulting Agreement") dated as of May 10, 1994
entered into between them, should be terminated on the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements herein contained, and other good and valuable consideration, the
receipt and adequacy of which are expressly acknowledged by the parties by their
execution and delivery hereof, the undersigned hereby agree as follows:
1. The Consulting Agreement is hereby terminated in its entirety,
including without limitation the obligations of the Company to make
payments to Lord as therein provided upon his ceasing to be a member of
the Board of Directors of the Company and the obligation of Lord to
render consulting services and not to compete with the Company upon his
ceasing to be such a member.
2. The Company agrees that it will exercise, to the extent that it is
entitled to do so, its option to elect the "discovery clause" under its
Officer's and Director's Liability Insurance policy, so as to extend
coverage for an additional twelve month period at a cost of 75% of the
annual premium on such policy, such option to be exercised as provided
in such policy in the event the Company elects not to renew such policy
or replace such policy with similar coverage, or such policy is
terminated or not renewed by the insurer.
3. This Termination Agreement may be executed in counterparts, all of
which taken together shall constitute one and the same instrument. In
making proof hereof, it shall not be necessary to produce or account
for any counterpart other than one signed by the party against which
enforcement is sought.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have duly executed this Amendment as of the date first above written.
THE COMPANY:
TCC Industries, Inc.
/s/ ROBERT THOMAJAN
By:
Name: Robert Thomajan
Title: President
LORD:
/s/ W. GROGAN LORD
W. Grogan Lord
50
<PAGE> 1
Exhibit 10.25
TERMINATION AGREEMENT
THIS TERMINATION AGREEMENT dated as of July 2, 1997 is entered into by
and between TCC Industries, Inc., a Texas corporation, formerly named TeleCom
Corporation, (the "Company") and Frank W.
Denius ("Denius").
W I T N E S S E T H:
WHEREAS, the Company and Denius have agreed that the Consulting and
Noncompetition Agreement (the "Consulting Agreement") dated as of May 10, 1994
entered into between them, should be terminated on the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements herein contained, and other good and valuable consideration, the
receipt and adequacy of which are expressly acknowledged by the parties by their
execution and delivery hereof, the undersigned hereby agree as follows:
1. The Consulting Agreement is hereby terminated in its entirety, including
without limitation the obligations of the Company to make payments to
Denius as therein provided upon his ceasing to be a member of the Board
of Directors of the Company and the obligation of Denius to render
consulting services and not to compete with the Company upon his ceasing
to be such a member.
2. The Company agrees that it will exercise, to the extent that it is
entitled to do so, its option to elect the "discovery clause" under its
Officer's and Director's Liability Insurance policy, so as to extend
coverage for an additional twelve month period at a cost of 75% of the
annual premium on such policy, such option to be exercised as provided
in such policy in the event the Company elects not to renew such policy
or replace such policy with similar coverage, or such policy is
terminated or not renewed by the insurer.
3. This Termination Agreement may be executed in counterparts, all of which
taken together shall constitute one and the same instrument. In making
proof hereof, it shall not be necessary to produce or account for any
counterpart other than one signed by the party against which enforcement
is sought.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have duly executed this Amendment as of the date first above written.
THE COMPANY:
TCC Industries, Inc.
/s/ ROBERT THOMAJAN
By:
Name: Robert Thomajan
Title: President
DENIUS:
/s/ FRANK W. DENIUS
Frank W. Denius
51
<PAGE> 1
Exhibit 10.26
TERMINATION AGREEMENT
THIS TERMINATION AGREEMENT dated as of July 2, 1997 is entered into by
and between TCC Industries, Inc., a Texas corporation, formerly named TeleCom
Corporation, (the "Company") and J. Patrick Kaine ("Kaine").
W I T N E S S E T H:
WHEREAS, the Company and Kaine have agreed that the Consulting and
Noncompetition Agreement (the "Consulting Agreement") dated as of August 2,
1995, entered into between them, should be terminated on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements herein contained, and other good and valuable consideration, the
receipt and adequacy of which are expressly acknowledged by the parties by their
execution and delivery hereof, the undersigned hereby agree as follows:
1. The Consulting Agreement is hereby terminated in its entirety, including
without limitation the obligations of the Company to make payments to
Kaine as therein provided upon his ceasing to be a member of the Board
of Directors of the Company and the obligation of Kaine to render
consulting services and not to compete with the Company upon his ceasing
to be such a member.
2. The Company agrees that it will exercise, to the extent that it is
entitled to do so, its option to elect the "discovery clause" under its
Officer's and Director's Liability Insurance policy, so as to extend
coverage for an additional twelve month period at a cost of 75% of the
annual premium on such policy, such option to be exercised as provided
in such policy in the event the Company elects not to renew such policy
or replace such policy with similar coverage, or such policy is
terminated or not renewed by the insurer.
3. This Termination Agreement may be executed in counterparts, all of which
taken together shall constitute one and the same instrument. In making
proof hereof, it shall not be necessary to produce or account for any
counterpart other than one signed by the party against which enforcement
is sought.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have duly executed this Amendment as of the date first above written.
THE COMPANY:
TCC Industries, Inc.
/s/ ROBERT THOMAJAN
By:
Name: Robert Thomajan
Title: President
KAINE:
/s/ J. PATRICK KAINE
J. Patrick Kaine
52
<PAGE> 1
Exhibit 10.30
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into
effective October 1, 1997 by TCC Industries, Inc., a Texas corporation (the
"Employer"), and Robert Thomajan , an individual resident in Travis County,
Texas (the "Executive").
RECITALS
The Employer and the Executive desire the Executive's employment with
the Employer, and the Executive wishes to accept such employment, upon the terms
and conditions set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. Definitions. For the purposes of this Agreement, the following terms
have the meanings specified or referred to in this Section 1.
"AGREEMENT"--this Employment Agreement, as amended from time to time.
"BASIC COMPENSATION"--Salary and Benefits.
"BENEFITS"--as defined in Section 3.2.
"BOARD OF DIRECTORS"--the Board of Directors of the Employer.
"CONFIDENTIAL INFORMATION"--any and all:
(a) trade secrets concerning the business and affairs of the
Employer, planned research and development, customer lists,
confidential information of customers, Proprietary Items (as
defined herein), market studies, business plans, computer
software and programs (including object code and source code),
computer software and database technologies and systems; and
(b) notes, analysis, compilations, studies, summaries, and other
material prepared by or for the Employer containing or based, in
whole or in part, on any information included in the foregoing,
provided, however, that Confidential Information shall not
include any information which: (i) was known by Executive prior
to its disclosure to him by the Employer, (ii) was generally
known or generally available to the public prior to its
disclosure to Executive by the Employer or (iii) becomes
generally known or generally available to the public subsequent
to disclosure to Executive by the Employer through no wrongful
act of the Executive.
"DISABILITY"--as defined in Section 6.2.
"EFFECTIVE DATE"--the date stated in the first paragraph of the
Agreement.
"EMPLOYEE INVENTION"--any idea, technique, modification, business
process, or improvement (whether patentable or not), created, conceived,
or developed by the Executive, either solely or in conjunction with
others, during the Employment Period, or a period that includes a
portion of the Employment Period, that relates in any way to, or is
useful in any manner in, the business then being conducted or proposed
to be conducted by the Employer.
"EMPLOYMENT PERIOD"--the term of the Executive's employment under this
Agreement.
"FISCAL YEAR"--the Employer's fiscal year, as it exists on the Effective
Date or as changed from time to time.
"FOR CAUSE"--as defined in Section 6.3.
"FOR GOOD REASON"--as defined in Section 6.4.
53
<PAGE> 2
"PERSON"--any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company,
joint venture, estate, trust, association, organization, or governmental
body.
"POST-EMPLOYMENT PERIOD"--as defined in Section 8.2.
"PROPRIETARY ITEMS"--as defined in Section 7.2(a)(iv).
"SALARY"--as defined in Section 3.1.
2. Employment Terms and Duties.
2.1 Employment. The Employer hereby employs the Executive, and the
Executive hereby accepts employment by the Employer, upon the terms and
conditions set forth in this Agreement.
2.2 Term. Subject to the provisions of Section 6, the term of the
Executive's employment under this Agreement will be four (4) years
("Initial Term"), beginning on the Effective Date and ending on the
fourth anniversary of the Effective Date; provided, however, that, upon
the expiration of the Initial Term, the term of the Executive's
employment under this Agreement shall be extended for an additional
one-year period, unless either the Executive or the Employee shall give
the other party hereto at least 90 days written notice prior to the
expiration of the Initial Term that the term of the Executive's
employment under this agreement shall not be so extended.
2.3 Duties. The Executive will have such duties as are assigned or
delegated to the Executive by the Board of Directors or Chief Executive
Officer, and will initially serve as President and Secretary of the
Employer. As such, Executive shall have such duties, responsibilities
and authority as may from time to time be reasonably assigned to him by
the Board of Directors and which are appropriate to his office and
title. Except as approved by the Board of Directors or the Chief
Executive Officer of the Company, the Executive will devote his time,
attention, skill, and energy exclusively to the business of the
Employer, will use his best efforts to promote the success of the
Employer's business, and will cooperate fully with the Board of
Directors in the advancement of the best interests of the Employer.
Nothing in this Section 2.3, however, will prevent the Executive from
engaging in additional activities in connection with personal
investments and community affairs that are not inconsistent with the
Executive's duties under this Agreement. If the Executive is elected as
a director of the Employer or as a director or officer of any of its
affiliates, the Executive will fulfill his duties as such director or
officer without additional compensation. In satisfying his obligations
hereunder, Executive will not be required or requested to violate any
applicable law, rule or regulation.
3. Compensation
3.1 Salary. The Executive will be paid an annual salary of $0, subject
to adjustment as provided below (the "Salary"), which will be payable in
equal periodic installments according to the Employer's customary
payroll practices, but no less frequently than monthly. The Salary will
be reviewed by the Board of Directors not less frequently than annually,
and may be adjusted upward or downward in the sole discretion of the
Board of Directors.
3.2 Benefits. The Executive will, during the Employment Period, be
permitted to participate in such pension, profit sharing, bonus, life
insurance, hospitalization, major medical, disability and other employee
benefit plans of the Employer that may be in effect from time to time,
to the extent the Executive is eligible under the terms of those plans
(collectively, the "Benefits").
3.3 Option Plan. The Executive shall participate in that certain TCC
Industries, Inc. 1997 Incentive and Performance Stock Option Plan
adopted by the Employer (the "Option Plan"). The Executive's
participation under the Option Plan shall be in accordance with the plan
and the stock grants to the Executive made thereunder.
4. Facilities and Expenses. The Employer will furnish the Executive office
space, equipment, supplies, and such other facilities and personnel as
the Employer deems necessary or appropriate for the performance of the
Executive's duties under this Agreement. The Employer will pay the
Executive's dues in such professional societies and organizations as the
Chairman of the Board deems appropriate, and will pay on behalf of the
Executive (or reimburse the Executive for) reasonable and necessary
expenses incurred by the Executive at the request of, or on behalf of,
the Employer in the performance of the Executive's duties pursuant to
this Agreement, and in accordance with the Employer's employment
policies, including reasonable expenses incurred by the Executive in
attending conventions, seminars, and other business meetings, in
appropriate business entertainment
54
<PAGE> 3
activities, travel expenses and for promotional expenses. All such
expenses are subject to prior authorization and amount limits as may be
required under the Employer's policies. The Executive will file expense
reports with respect to such expenses in accordance with the Employer's
policies.
5. Vacations and Holidays. The Executive will be entitled to paid vacation
each Fiscal Year in accordance with the vacation policies of the
Employer in effect for its executive officers from time to time, which
shall not be less than 10 business days a year. Vacation will be taken
by the Executive at such time or times as approved by the Chairman of
the Board. The Executive will also be entitled to the paid holidays and
other paid leave set forth in the Employer's policies. Vacation days and
holidays during any Fiscal Year that are not used by the Executive
during such Fiscal Year may not be used in any subsequent Fiscal Year.
Upon written notice to Executive, all such vacation and paid leave
policies may be changed at any time by the Employer, as long as such
policies are not applicable solely to Executive. Executive shall be
allowed ten business days a year for sick leave.
6. Termination.
6.1 Events of Termination. The Employment Period, the Executive's Basic
Compensation and any and all other rights of the Executive under this
Agreement or otherwise as an employee of the Employer (except for rights
under the Option Plan that are not subject to divestiture or forfeiture)
will terminate (except as otherwise provided in this Section 6):
(a) upon the death of the Executive;
(b) upon the disability of the Executive (as defined in Section
6.2) immediately upon notice from either party to the other;
(c) For Cause (as defined in Section 6.3), upon the notice from
the Employer to the Executive, or at such later time as such
notice may specify; or
(d) For Good Reason (as defined in Section 6.4) upon not less
than thirty days' prior notice from the Executive to the
Employer.
In the event of the occurrence of any cause (as defined in Section 6.3),
at the request of the Board of Directors, the Executive shall
immediately tender his resignation to the Employer offering to resign
all positions with the Company and its subsidiaries, including positions
as an officer, director and any other capacity, and the Employer shall
have the option but not the obligation of accepting such resignation.
If, for any reason, the Executive does not tender such resignation the
Employer may, by notice, terminate the Executive immediately or at such
later time as such notice may specify.
6.2 Definition of Disability. For purposes of Section 6.1, the Executive
will be deemed to have a "disability" if, for physical or mental
reasons, the Executive is unable to perform the essential functions of
the Executive's duties under this Agreement for 120 consecutive days, or
180 days during any twelve-month period, as determined in accordance
with this Section 6.2, it being understood that Executive shall be
entitled to compensation hereunder until he is determined to have a
"disability." The disability of the Executive will be determined by a
medical doctor selected by written agreement of the Employer and the
Executive upon the request of either party by notice to the other. If
the Employer and the Executive cannot agree on the selection of a
medical doctor, each of them will select a medical doctor and the two
medical doctors will select a third medical doctor who will determine
whether the Executive has a disability. The determination of the medical
doctor selected under this Section 6.2 will be binding on both parties.
The Executive will submit to a reasonable number of examinations by the
medical doctor making the determination of disability under this Section
6.2, and the Executive hereby authorizes the disclosure and release to
the Employer of such determination and all supporting medical records,
provided that Employer agrees to keep such medical information
confidential. If the Executive is not legally competent, the Executive's
legal guardian or duly authorized attorney-in-fact will act in the
Executive's stead, under this Section 6.2, for the purposes of
submitting the Executive to the examinations, and providing the
authorization of disclosure, required under this Section 6.2.
6.3 Definition of "For Cause". For purposes of Section 6.1, the phrase
"For Cause" means:
(a) the Executive's material breach of this Agreement, if such
breach is not cured within ten days after written notice thereof
to Executive by the Employer;
(b) the Executive's failure to adhere to any material written
Employer policy if the Executive has been given a reasonable
opportunity to comply with such policy or cure his failure to
comply (which
55
<PAGE> 4
reasonable opportunity must be granted during the ten-day period
preceding termination of this Agreement);
(c) the conviction of, or the entering of a guilty plea or plea
of no contest with respect to, a felony involving moral
turpitude, fraud or dishonesty, or the equivalent thereof, or
any other crime with respect to which imprisonment is a possible
punishment;
(d) the appropriation (or attempted appropriation) of a material
business opportunity of the Employer, including securing any
personal profit in connection with any transaction entered into
on behalf of the Employer;
(e) the misappropriation (or attempted misappropriation) of any
of the Employer's funds or property; or
(f) the conviction of, or the entering of a guilty plea or plea
of no contest with respect to, a felony involving moral
turpitude, fraud or dishonesty, or the equivalent thereof, or
any other crime with respect to which imprisonment is a possible
punishment, as the same relates to his employment with the
Employer.
6.4 Definition of "For Good Reason". For purposes of Section 6.1, the
phrase "For Good Reason" means any of the following:
(a) The Employer's material breach of this Agreement, if such
breach is not cured with ten days after written notice thereof
to Employer by the Executive;
(b) the assignment of the Executive without his consent to a
position, responsibilities, or duties of a materially lesser
status or degree of responsibility than his position,
responsibilities, or duties at the Effective Date;
(c) the relocation of the Employer's principal executive offices
outside the metropolitan Austin, Texas, area;
(d) the requirement by the Employer that the Executive be based
anywhere other than the Employer's principal executive offices,
in either case without the Executive's consent; or
(e) the shareholders of the Employer do not approve and adopt
the Option Plan on or before March 31, 1998.
6.5 Termination Pay.
(a) Effective upon the termination of this Agreement, the
Employer will be obligated to pay the Executive (or, in the
event of his death, his designated beneficiary as defined below)
only such compensation as is provided in this Section 6.5, and
in lieu of all other amounts and in settlement and complete
release of all claims the Executive may have against the
Employer under this Agreement. The Employer may condition the
payment of any compensation provided in this Section 6.5 or
otherwise upon the receipt of a full release of any liabilities
which the Employer may owe to the Executive under this Agreement
or otherwise. Such release shall be in form and substance
acceptable to the Employer. For purposes of this Section 6.5,
the Executive's designated beneficiary will be such individual
beneficiary or trust, located at such address, as the Executive
may designate by notice to the Employer from time to time or, if
the Executive fails to give notice to the Employer of such a
beneficiary, the Executive's estate. Notwithstanding the
preceding sentence, the Employer will have no duty, in any
circumstances, to attempt to open an estate on behalf of the
Executive, to determine whether any beneficiary designated by
the Executive is alive or to ascertain the address of any such
beneficiary, to determine the existence of any trust, to
determine whether any person or entity purporting to act as the
Executive's personal representative (or the trustee of a trust
established by the Executive) is duly authorized to act in that
capacity, or to locate or attempt to locate any beneficiary,
personal representative, or trustee.
(b) If the Executive terminates this Agreement For Good Reason
(except for the reason or as a result of the circumstances
described in Section 6.4(e), above), the Employer will pay to
the
56
<PAGE> 5
Executive his Salary through the remainder of the calendar month
during which such termination is effective, and for three
consecutive calendar months thereafter. If the Executive
terminates this Agreement for the reason or as a result of the
circumstances described in Section 6.4(e), above, the Employer
will pay to the Executive his Salary throughout the remainder of
the calendar month during which such termination is effective.
If the Employer terminates this Agreement For Cause, the
Executive will be entitled to receive his Salary only through
the date such termination is effective. If this Agreement is
terminated by either party as a result of the Executive's
disability as determined under Section 6.2, the Employer will
pay the Executive his Salary through the remainder of the
calendar month during which such termination is effective, and
for the lesser of (i) six consecutive months thereafter, or (ii)
the period until disability insurance benefits commence under
the disability insurance coverage, if any, furnished by the
Employer to the Executive. If this Agreement is terminated
because of the Executive's death, the Executive will be entitled
to receive his Salary through the end of the calendar month in
which his death occurs.
(c) The Executive's accrual of, or participation in plans
providing for, the Benefits will cease at the effective date of
the termination of this Agreement, and the Executive will be
entitled to accrued Benefits pursuant to such plans only as
provided in such plans. The Executive will not receive, as part
of his termination pay pursuant to this Section 6, any payment
or other compensation for any vacation, holiday, sick leave, or
other leave unused on the date the notice of termination is
given under this Agreement.
7. Non-disclosure Covenant.
7.1 Acknowledgments by the Executive. The Executive acknowledges that:
(a) during the Employment Period and as a part of his
employment, the Executive will be afforded access to
Confidential Information;
(b) public disclosure of such Confidential Information could
have an adverse effect on the Employer and its business; and
(c) the provisions of this Section 7 are reasonable and
necessary to prevent the improper use or disclosure of
Confidential Information and to provide the Employer with
exclusive ownership of all Employee Inventions.
7.2 Agreements of the Executive. In consideration of the compensation
and benefits to be paid or provided to the Executive by the Employer
under this Agreement, the Executive covenants as follows:
(a) Confidentiality.
(i) During and following the Employment Period, the
Executive will hold in confidence the Confidential
Information and will not disclose it to any person
except with the specific prior written consent of the
Employer or except as otherwise expressly permitted by
the terms of this Agreement.
(ii) Any trade secrets or Confidential Information (as
defined herein) of the Employer will be entitled to all
of the protections and benefits under applicable law. If
any information that the Employer deems to be a trade
secret is found by a court of competent jurisdiction not
to be a trade secret for purposes of this Agreement,
such information will, nevertheless, be considered
Confidential Information for purposes of this Agreement.
The Executive hereby waives any requirement that the
Employer submit proof of the economic value of any trade
secret or post a bond or other security.
(iii) None of the foregoing obligations and restrictions
applies to any part of the Confidential Information that
the Executive demonstrates was or became generally
available to the public other than as a result of a
disclosure by the Executive.
(iv) The Executive will not remove from the Employer's
premises (except to the extent such removal is for
purposes of the performance of the Executive's duties at
home or while traveling, or except as otherwise
specifically authorized by the Employer) any document,
record, notebook, plan, model, component, device, or
computer software or code related to the Business (as
defined herein) of the Employer, whether embodied in a
disk or in any other form (collectively, the
"Proprietary Items"). The Executive recognizes that, as
between the Employer and the Executive, all of the
Proprietary Items, whether or not developed by the
Executive, are the exclusive property of the Employer.
Upon termination of this Agreement by either party, or
upon the request of the Employer during the Employment
Period, the Executive will return to the Employer all of
the Proprietary Items in the Executive's possession or
subject to the
57
<PAGE> 6
Executive's control, and the Executive shall not retain any
copies, abstracts, sketches, or other physical embodiment of
any of the Proprietary Items.
(b) Employee Inventions. Each Employee Invention (as defined
herein) will belong exclusively to the Employer. The Executive
acknowledges that all of the Executive's writing, works of
authorship, and other Employee Inventions are works made for
hire and the property of the Employer, including any copyrights
or other intellectual property rights pertaining thereto. If it
is determined that any such works are not works made for hire,
the Executive hereby assigns to the Employer all of the
Executive's right, title, and interest, including all rights of
copyright and other intellectual property rights, to or in such
Employee Inventions. The Executive covenants that he will
promptly:
(i) disclose to the Employer in writing any Employee
Invention;
(ii) assign to the Employer or to a party designated by the
Employer, at the Employer's request and without additional
compensation, all of the Executive's right to the Employee
Invention for the United States and all foreign
jurisdictions;
(iii) execute and deliver to the Employer such applications,
assignments, and other documents as the Employer may request
in order to apply for and obtain patents or other
registrations with respect to any Employee Invention in the
United States and any foreign jurisdictions;
(iv) sign all other papers necessary to carry out the above
obligations; and
(v) give testimony and render any other assistance but
without expense to the Executive in support of the
Employer's rights to any Employee Invention.
7.3 Disputes or Controversies. The Executive recognizes that should a
dispute or controversy arising from or relating to this Agreement be
submitted for adjudication to any court, arbitration panel, or other
third party, the preservation of the secrecy of Confidential Information
may be jeopardized. All pleadings, documents, testimony, and records
relating to any such adjudication will be maintained in secrecy and will
be available for inspection by the Employer, the Executive, and their
respective attorneys and experts, who will agree, in advance and in
writing, to receive and maintain all such information in secrecy, except
as may be limited by them in writing.
8. Non-interference.
8.1 Acknowledgments by the Executive. The Executive acknowledges that:
(a) the services to be performed by him under this Agreement are of
a special, unique, unusual and extraordinary character;
(b) the Employer's business ("Business") is to provide merchant
banking, investment banking and wholesale consumer lending services
to institutional entities and is national in scope and its products
are marketed throughout the United States;
(c) the Employer competes with other businesses that are or could be
located in any part of the United States; and
(d) the provisions of this Section 8 are reasonable and necessary to
protect the Employer's business.
8.2 Covenants of the Executive. In consideration of the acknowledgments
by the Executive, and in consideration of the compensation and benefits
to be paid or provided to the Executive by the Employer, the Executive
covenants that he will not, directly or indirectly:
(a) during the Employment Period, except in the course of his
employment hereunder, engage or invest in, own, manage, operate,
finance, control, or participate in the ownership, management,
operation, financing, or control of, be employed by, associated
with, or in any manner connected with, lend the Executive's name or
any similar name to, lend Executive's credit to or render services
or advice to, any business whose products or activities compete in
whole or in part with the Business of the Employer anywhere within
the United States;
58
<PAGE> 7
(b) whether for the Executive's own account or for the account of
any other person, at any time during the Employment Period and the
Post-Employment Period, solicit business of the same or similar type
as the Business being carried on by the Employer, from any person
known by the Executive to be a customer of the Employer, whether or
not the Executive had personal contact with such person during and
by reason of the Executive's employment with the Employer;
(c) whether for the Executive's own account or the account of any
other person
(i) at any time during the Employment Period and the
Post-Employment Period, solicit, employ, or otherwise engage as
an employee, independent contractor, or otherwise, any person
who is or was an employee of the Employer at any time during the
Employment Period or in any manner induce or attempt to induce
any employee of the Employer to terminate his employment with
the Employer; or
(ii) at any time during the Employment Period and the
Post-Employment Period, interfere with the Employer's
relationship with any person, including any person who at any
time during the Employment Period was an employee, contractor,
supplier, or customer of the Employer; or
(d) at any time during or after the Employment Period, disparage the
Employer or any of its shareholders, directors, officers, employees,
or agents.
For purposes of this Section 8.2, the term "Post-Employment Period"
means the one-year period beginning on the date of termination of the
Executive's employment with the Employer.
If any covenant in this Section 8.2 is held to be unreasonable,
arbitrary, or against public policy, such covenant will be considered to
be divisible with respect to scope, time, and geographic area, and such
lesser scope, time, or geographic area, or all of them, as a court of
competent jurisdiction may determine to be reasonable, not arbitrary,
and not against public policy, will be effective, binding, and
enforceable against the Executive.
The period of time applicable to any covenant in this Section 8.2 will
be extended by the duration of any violation by the Executive of such
covenant.
The Executive will, while the covenant under this Section 8.2 is in
effect, give notice to the Employer, within ten days after accepting any
other employment, of the identity of the Executive's employer. The
Employer may notify such employer that the Executive is bound by this
Agreement and, at the Employer's election, furnish such employer with a
copy of this Agreement or relevant portions thereof.
Employer covenants that at any time during or after the Employment
Period it will not disparage the Executive.
9. General Provisions.
9.1 Injunctive Relief and Additional Remedy. The Executive acknowledges
that the injury that would be suffered by the Employer as a result of a
breach of the provisions of this Agreement (including any provision of
Sections 7 and 8) would be irreparable and that an award of monetary
damages to the Employer for such a breach would be an inadequate remedy.
Consequently, the Employer will have the right, after the Executive has
been given 10 days to comply with Section 7 and 8 so as to cure his
failure to comply, in addition to any other rights it may have, to
obtain injunctive relief to restrain any breach or threatened breach or
otherwise to specifically enforce any provision of this Agreement, and
the Employer will not be obligated to post bond or other security in
seeking such relief.
9.2 Covenants of Sections 7 and 8 Are Essential and Independent
Covenants. The covenants by the Executive in Sections 7 and 8 are
essential elements of this Agreement, and without the Executive's
agreement to comply with such covenants, the Employer would not have
entered into this Agreement or employed or continued the employment of
the Executive. The Employer and the Executive have independently
consulted their respective counsel regarding such covenants.
The Executive's covenants in Sections 7 and 8 are independent covenants
and the existence of any claim by the Executive against the Employer
under this Agreement or otherwise, or against the Buyer, will not excuse
the Executive's breach of any covenant in Section 7 or 8; provided,
however, that Executive's covenants in Section 7 and 8 shall terminate
if there is a termination for good reason as set forth in Section 6.4
hereof.
59
<PAGE> 8
If the Executive's employment hereunder expires or is terminated, this
Agreement will continue in full force and effect as is necessary or
appropriate to enforce the covenants and agreements of the Executive in
Sections 7 and 8, except as noted above.
9.3 Offset. The Employer will be entitled to offset against any and all
amounts owing to the Executive under this Agreement the amount of any
and all claims that the Employer may have against the Executive under
the terms of this Agreement.
9.4 Liability Insurance. The Employer shall use reasonable efforts to
secure and maintain a director's and officer's liability policy in an
amount of at least $5,000,000 with Executive being named as an assured
thereunder and Executive being covered thereby in respect of certain
claims arising from duties carried out by Executive.
9.5 Representations and Warranties by the Executive. The Executive
represents and warrants to the Employer that the execution and delivery
by the Executive of this Agreement do not, and the performance by the
Executive of the Executive's obligations hereunder will not, with or
without the giving of notice or the passage of time, or both: (a)
violate any judgment, writ, injunction, or order of any court,
arbitrator, or governmental agency applicable to the Executive; or (b)
conflict with, result in the breach of any provisions of or the
termination of, or constitute a default under, any agreement to which
the Executive is a party or by which the Executive is or may be bound.
9.6 Obligations Contingent on Performance. The obligations of the
Employer hereunder, including its obligation to pay the compensation
provided for herein, are contingent upon the Executive's performance of
the Executive's obligations hereunder.
9.7 Waiver. The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by
either party in exercising any right, power, or privilege under this
Agreement will operate as a waiver of such right, power, or privilege,
and no single or partial exercise of any such right, power, or privilege
will preclude any other or further exercise of such right, power, or
privilege or the exercise of any other right, power, or privilege.
To the maximum extent permitted by applicable law,
(a) no claim or right arising out of this Agreement can be
discharged by one party, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing signed by
the other party;
(b) no waiver that may be given by a party will be applicable
except in the specific instance for which it is given; and
(c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the
party giving such notice or demand to take further action
without notice or demand as provided in this Agreement.
9.8 Binding Effect; Delegation of Duties Prohibited. This Agreement
shall inure to the benefit of, and shall be binding upon, the parties
hereto and their respective successors, assigns, heirs, and legal
representatives, including any entity with which the Employer may merge
or consolidate or to which all or substantially all of its assets may be
transferred. The duties and covenants of the Executive under this
Agreement, being personal, may not be delegated.
9.9 Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been
duly given when
(a) delivered by hand (with written confirmation of receipt),
(b) sent by facsimile (with written confirmation of receipt),
provided that a copy is mailed by registered mail, return
receipt requested, or
(c) when received by the addressee, if sent by a nationally
recognized overnight delivery service (receipt requested), in
each case to the appropriate addresses and facsimile numbers set
forth below (or to such other addresses and facsimile numbers as
a party may designate by notice to the other parties):
60
<PAGE> 9
If to Employer: TCC Industries, Inc.
816 Congress Avenue, Suite 1250
Austin, Texas 78701
Attention: Chief Executive Officer
Facsimile No.: (512) 320-0063
If to the Executive: Robert Thomajan
2900 West Lake Cove
Austin, TX 78746
9.10 Entire Agreement; Amendments. This Agreement contains the entire
agreement between the parties with respect to the subject matter hereof
(except the Option Plan) and supersedes all prior agreements and
understandings, oral or written, between the parties hereto with respect
to the subject matter hereof. This Agreement may not be amended orally,
but only by an agreement in writing signed by the parties hereto.
9.11 Governing Law. This Agreement will be governed by the laws of the
State of Texas without regard to conflicts of laws principles.
9.12 Arbitration. In the event that any dispute, disagreement or
controversy (collectively, a "Dispute") arises with respect to the
interpretation, performance, non-performance or termination of this
Agreement, the parties shall first attempt to settle such Dispute by
good faith negotiations between the parties. If the Dispute is not
resolved within 30 days of the date one party sends a notice to the
other party describing the Dispute and requesting good faith
negotiations to resolve the Dispute under this Section, the Dispute
shall be resolved by binding arbitration carried out in Austin, Texas in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association as then in effect. The party which intends to
initiate an arbitration proceeding hereunder shall notify the other
party of such intention in writing, describing the Dispute.
Notwithstanding the above, in any Dispute arbitrated hereunder, the fees
and expenses of the arbitrator(s) and attorneys' fees and costs of the
party ultimately prevailing in such Dispute shall be borne by the other
party.
9.13 Jurisdiction. Any action or proceeding seeking to enforce any
provision of, or based on any right arising out of, this Agreement may
be brought against either of the parties in the courts of the State of
Texas, County of Travis, or, if it has or can acquire jurisdiction, in
the United States District Court for the Western District of Texas, and
each of the parties consents to the jurisdiction of such courts (and of
the appropriate appellate courts) in any such action or proceeding and
waives any objection to venue laid therein. Process in any action or
proceeding referred to in the preceding sentence may be served on either
party anywhere in the world.
9.14 Section Headings, Construction. The headings of Sections in this
Agreement are provided for convenience only and will not affect its
construction or interpretation. All references to "Section" or
"Sections" refer to the corresponding Section or Sections of this
Agreement unless otherwise specified. All words used in this Agreement
will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does
not limit the preceding words or terms.
9.15 Severability. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any
provision of this Agreement held invalid or unenforceable only in part
or degree will remain in full force and effect to the extent not held
invalid or unenforceable.
9.16 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of
this Agreement and all of which, when taken together, will be deemed to
constitute one and the same agreement.
9.17 Waiver of Jury Trial. THE PARTIES HERETO HEREBY WAIVE A JURY TRIAL
IN ANY LITIGATION WITH RESPECT TO ENFORCING THE PROVISIONS OF SECTION
9.12 ABOVE OR OTHERWISE WITH RESPECT TO THIS AGREEMENT.
9.18 Release of Executive on Failure of Option Plan. In the event the
Executive terminates the Agreement for the reason or as a result of the
circumstances described in Section 6.4(e), above, Employer hereby
releases, acquits and discharges Executive (together with his heirs,
executors, administrators, assigns, legal representatives and attorneys)
from all matters, causes of action, accounts, suits, controversies,
agreements, damages, claims and demands, whether heretofore or hereafter
accruing, whether now known or not known to the parties prior to and
including the date hereof, in any way directly or indirectly arising out
of or in connection with the business or operations of the Employer,
this Agreement, the Option Plan and any related documents and any
transactions or
61
<PAGE> 10
dealings between the parties hereto, it being the intent of the Employer
to fully and completely discharge Executive (together with his heirs,
executors, administrators, assigns, legal representatives and attorneys)
from any and all liabilities related to or arising from all prior
relationships, instruments and courses of dealing, except that the
parties shall continue to be bound by the obligations described in this
Agreement that are to survive its termination.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date above first written above.
EMPLOYER: TCC INDUSTRIES, INC.
By: /s/ WALTER A. DEROECK
----------------------------
Walter A. DeRoeck, Chairman
EXECUTIVE:
/s/ ROBERT THOMAJAN
----------------------------
Robert Thomajan, President
62
<PAGE> 1
Exhibit 10.31
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into
effective October 1, 1997 by TCC Industries, Inc., a Texas corporation (the
"Employer"), and Richard F. Watkins, an individual resident in Travis County,
Texas (the "Executive").
RECITALS
The Employer and the Executive desire the Executive's employment with the
Employer, and the Executive wishes to accept such employment, upon the terms and
conditions set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. Definitions. For the purposes of this Agreement, the following terms have
the meanings specified or referred to in this Section 1.
"AGREEMENT"--this Employment Agreement, as amended from time to time.
"BASIC COMPENSATION"--Salary and Benefits.
"BENEFITS"--as defined in Section 3.2.
"BOARD OF DIRECTORS"--the Board of Directors of the Employer.
"CONFIDENTIAL INFORMATION"--any and all:
(a) trade secrets concerning the business and affairs of the
Employer, planned research and development, customer lists,
confidential information of customers, Proprietary Items (as defined
herein), market studies, business plans, computer software and
programs (including object code and source code), computer software
and database technologies and systems; and
(b) notes, analysis, compilations, studies, summaries, and other
material prepared by or for the Employer containing or based, in
whole or in part, on any information included in the foregoing,
provided, however, that Confidential Information shall not include
any information which: (i) was known by Executive prior to its
disclosure to him by the Employer, (ii) was generally known or
generally available to the public prior to its disclosure to
Executive by the Employer or (iii) becomes generally known or
generally available to the public subsequent to disclosure to
Executive by the Employer through no wrongful act of the Executive.
"DISABILITY"--as defined in Section 6.2.
"EFFECTIVE DATE"--the date stated in the first paragraph of the Agreement.
"EMPLOYEE INVENTION"--any idea, technique, modification, business process,
or improvement (whether patentable or not), created, conceived, or
developed by the Executive, either solely or in conjunction with others,
during the Employment Period, or a period that includes a portion of the
Employment Period, that relates in any way to, or is useful in any manner
in, the business then being conducted or proposed to be conducted by the
Employer.
"EMPLOYMENT PERIOD"--the term of the Executive's employment under this
Agreement.
"FISCAL YEAR"--the Employer's fiscal year, as it exists on the Effective
Date or as changed from time to time.
"FOR CAUSE"--as defined in Section 6.3.
"FOR GOOD REASON"--as defined in Section 6.4.
63
<PAGE> 2
"PERSON"--any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company,
joint venture, estate, trust, association, organization, or governmental
body.
"POST-EMPLOYMENT PERIOD"--as defined in Section 8.2.
"PROPRIETARY ITEMS"--as defined in Section 7.2(a)(iv).
"SALARY"--as defined in Section 3.1.
2. Employment Terms and Duties.
2.1 Employment. The Employer hereby employs the Executive, and the
Executive hereby accepts employment by the Employer, upon the terms and
conditions set forth in this Agreement.
2.2 Term. Subject to the provisions of Section 6, the term of the
Executive's employment under this Agreement will be four (4) years
("Initial Term"), beginning on the Effective Date and ending on the fourth
anniversary of the Effective Date; provided, however, that, upon the
expiration of the Initial Term, the term of the Executive's employment
under this Agreement shall be extended for an additional one-year period,
unless either the Executive or the Employee shall give the other party
hereto at least 90 days written notice prior to the expiration of the
Initial Term that the term of the Executive's employment under this
agreement shall not be so extended.
2.3 Duties. The Executive will have such duties as are assigned or
delegated to the Executive by the Board of Directors or Chief Executive
Officer, and will initially serve as President and Chief Executive Officer
of Texas Capital Markets, Inc., a wholly-owned subsidiary of Employer. As
such, Executive shall have such duties, responsibilities and authority as
may from time to time be reasonably assigned to him by the Board of
Directors and which are appropriate to his office and title. Except as
approved by the Board of Directors or the Chief Executive Officer of the
Company, the Executive will devote his time, attention, skill, and energy
exclusively to the business of the Employer, will use his best efforts to
promote the success of the Employer's business, and will cooperate fully
with the Board of Directors in the advancement of the best interests of
the Employer. Nothing in this Section 2.3, however, will prevent the
Executive from engaging in additional activities in connection with
personal investments and community affairs that are not inconsistent with
the Executive's duties under this Agreement. If the Executive is elected
as a director of the Employer or as a director or officer of any of its
affiliates, the Executive will fulfill his duties as such director or
officer without additional compensation. In satisfying his obligations
hereunder, Executive will not be required or requested to violate any
applicable law, rule or regulation.
3. Compensation
3.1 Salary. The Executive will be paid an annual salary of $0, subject to
adjustment as provided below (the "Salary"), which will be payable in
equal periodic installments according to the Employer's customary payroll
practices, but no less frequently than monthly. The Salary will be
reviewed by the Board of Directors not less frequently than annually, and
may be adjusted upward or downward in the sole discretion of the Board of
Directors.
3.2 Benefits. The Executive will, during the Employment Period, be
permitted to participate in such pension, profit sharing, bonus, life
insurance, hospitalization, major medical, disability and other employee
benefit plans of the Employer that may be in effect from time to time, to
the extent the Executive is eligible under the terms of those plans
(collectively, the "Benefits").
3.3 Option Plan. The Executive shall participate in that certain TCC
Industries, Inc. 1997 Incentive and Performance Stock Option Plan adopted
by the Employer (the "Option Plan"). The Executive's participation under
the Option Plan shall be in accordance with the plan and the stock grants
to the Executive made thereunder.
4. Facilities and Expenses. The Employer will furnish the Executive office
space, equipment, supplies, and such other facilities and personnel as the
Employer deems necessary or appropriate for the performance of the Executive's
duties under this Agreement. The Employer will pay the Executive's dues in such
professional societies and organizations as the Chairman of the Board deems
appropriate, and will pay on behalf of the Executive (or reimburse the Executive
for) reasonable and necessary expenses incurred by the Executive at the request
of, or on behalf of, the Employer in the performance of the Executive's duties
pursuant to this Agreement, and in accordance with the Employer's employment
policies, including reasonable expenses incurred by the Executive in attending
conventions, seminars, and other business
64
<PAGE> 3
meetings, in appropriate business entertainment activities, travel expenses and
for promotional expenses. All such expenses are subject to prior authorization
and amount limits as may be required under the Employer's policies. The
Executive will file expense reports with respect to such expenses in accordance
with the Employer's policies.
5. Vacations and Holidays. The Executive will be entitled to paid vacation
each Fiscal Year in accordance with the vacation policies of the Employer in
effect for its executive officers from time to time, which shall not be less
than 10 business days a year. Vacation will be taken by the Executive at such
time or times as approved by the Chairman of the Board. The Executive will also
be entitled to the paid holidays and other paid leave set forth in the
Employer's policies. Vacation days and holidays during any Fiscal Year that are
not used by the Executive during such Fiscal Year may not be used in any
subsequent Fiscal Year. Upon written notice to Executive, all such vacation and
paid leave policies may be changed at any time by the Employer, as long as such
policies are not applicable solely to Executive. Executive shall be allowed ten
business days a year for sick leave.
6. Termination.
6.1 Events of Termination. The Employment Period, the Executive's Basic
Compensation and any and all other rights of the Executive under this
Agreement or otherwise as an employee of the Employer (except for rights
under the Option Plan that are not subject to divestiture or forfeiture)
will terminate (except as otherwise provided in this Section 6):
(a) upon the death of the Executive;
(b) upon the disability of the Executive (as defined in Section 6.2)
immediately upon notice from either party to the other;
(c) For Cause (as defined in Section 6.3), upon the notice from the
Employer to the Executive, or at such later time as such notice may
specify; or
(d) For Good Reason (as defined in Section 6.4) upon not less than
thirty days' prior notice from the Executive to the Employer.
In the event of the occurrence of any cause (as defined in Section 6.3),
at the request of the Board of Directors, the Executive shall immediately
tender his resignation to the Employer offering to resign all positions
with the Company and its subsidiaries, including positions as an officer,
director and any other capacity, and the Employer shall have the option
but not the obligation of accepting such resignation. If, for any reason,
the Executive does not tender such resignation the Employer may, by
notice, terminate the Executive immediately or at such later time as such
notice may specify.
6.2 Definition of Disability. For purposes of Section 6.1, the Executive
will be deemed to have a "disability" if, for physical or mental reasons,
the Executive is unable to perform the essential functions of the
Executive's duties under this Agreement for 120 consecutive days, or 180
days during any twelve-month period, as determined in accordance with this
Section 6.2, it being understood that Executive shall be entitled to
compensation hereunder until he is determined to have a "disability." The
disability of the Executive will be determined by a medical doctor
selected by written agreement of the Employer and the Executive upon the
request of either party by notice to the other. If the Employer and the
Executive cannot agree on the selection of a medical doctor, each of them
will select a medical doctor and the two medical doctors will select a
third medical doctor who will determine whether the Executive has a
disability. The determination of the medical doctor selected under this
Section 6.2 will be binding on both parties. The Executive will submit to
a reasonable number of examinations by the medical doctor making the
determination of disability under this Section 6.2, and the Executive
hereby authorizes the disclosure and release to the Employer of such
determination and all supporting medical records, provided that Employer
agrees to keep such medical information confidential. If the Executive is
not legally competent, the Executive's legal guardian or duly authorized
attorney-in-fact will act in the Executive's stead, under this Section
6.2, for the purposes of submitting the Executive to the examinations, and
providing the authorization of disclosure, required under this Section
6.2.
6.3 Definition of "For Cause". For purposes of Section 6.1, the phrase
"For Cause" means:
(a) the Executive's material breach of this Agreement, if such
breach is not cured within ten days after written notice thereof to
Executive by the Employer;
(b) the Executive's failure to adhere to any material written
Employer policy if the Executive has been given a reasonable
opportunity to comply with such policy or cure his failure to comply
(which
65
<PAGE> 4
reasonable opportunity must be granted during the ten-day period
preceding termination of this Agreement);
(c) the conviction of, or the entering of a guilty plea or plea of
no contest with respect to, a felony involving moral turpitude,
fraud or dishonesty, or the equivalent thereof, or any other crime
with respect to which imprisonment is a possible punishment;
(d) the appropriation (or attempted appropriation) of a material
business opportunity of the Employer, including securing any
personal profit in connection with any transaction entered into on
behalf of the Employer;
(e) the misappropriation (or attempted misappropriation) of any of
the Employer's funds or property; or
(f) the conviction of, or the entering of a guilty plea or plea of
no contest with respect to, a felony involving moral turpitude,
fraud or dishonesty, or the equivalent thereof, or any other crime
with respect to which imprisonment is a possible punishment, as the
same relates to his employment with the Employer.
6.4 Definition of "For Good Reason". For purposes of Section 6.1, the
phrase "For Good Reason" means any of the following:
(a) The Employer's material breach of this Agreement, if such breach
is not cured with ten days after written notice thereof to Employer
by the Executive;
(b) the assignment of the Executive without his consent to a
position, responsibilities, or duties of a materially lesser status
or degree of responsibility than his position, responsibilities, or
duties at the Effective Date;
(c) the relocation of the Employer's principal executive offices
outside the metropolitan Austin, Texas, area;
(d) the requirement by the Employer that the Executive be based
anywhere other than the Employer's principal executive offices, in
either case without the Executive's consent; or
(e) the shareholders of the Employer do not approve and adopt the
Option Plan on or before March 31, 1998.
6.5 Termination Pay.
(a) Effective upon the termination of this Agreement, the Employer
will be obligated to pay the Executive (or, in the event of his
death, his designated beneficiary as defined below) only such
compensation as is provided in this Section 6.5, and in lieu of all
other amounts and in settlement and complete release of all claims
the Executive may have against the Employer under this Agreement.
The Employer may condition the payment of any compensation provided
in this Section 6.5 or otherwise upon the receipt of a full release
of any liabilities which the Employer may owe to the Executive under
this Agreement or otherwise. Such release shall be in form and
substance acceptable to the Employer. For purposes of this Section
6.5, the Executive's designated beneficiary will be such individual
beneficiary or trust, located at such address, as the Executive may
designate by notice to the Employer from time to time or, if the
Executive fails to give notice to the Employer of such a
beneficiary, the Executive's estate. Notwithstanding the preceding
sentence, the Employer will have no duty, in any circumstances, to
attempt to open an estate on behalf of the Executive, to determine
whether any beneficiary designated by the Executive is alive or to
ascertain the address of any such beneficiary, to determine the
existence of any trust, to determine whether any person or entity
purporting to act as the Executive's personal representative (or the
trustee of a trust established by the Executive) is duly authorized
to act in that capacity, or to locate or attempt to locate any
beneficiary, personal representative, or trustee.
(b) If the Executive terminates this Agreement For Good Reason
(except for the reason or as a result of the circumstances described
in Section 6.4(e), above), the Employer will pay to the Executive
his Salary through the remainder of the calendar month during which
such termination is effective, and for three consecutive calendar
months thereafter. If the Executive terminates this Agreement for
the reason or as a result of the circumstances described in Section
6.4(e), above, the Employer will pay to the
66
<PAGE> 5
Executive his Salary throughout the remainder of the calendar month
during which such termination is effective. If the Employer
terminates this Agreement For Cause, the Executive will be entitled
to receive his Salary only through the date such termination is
effective. If this Agreement is terminated by either party as a
result of the Executive's disability as determined under Section
6.2, the Employer will pay the Executive his Salary through the
remainder of the calendar month during which such termination is
effective, and for the lesser of (i) six consecutive months
thereafter, or (ii) the period until disability insurance benefits
commence under the disability insurance coverage, if any, furnished
by the Employer to the Executive. If this Agreement is terminated
because of the Executive's death, the Executive will be entitled to
receive his Salary through the end of the calendar month in which
his death occurs.
(c) The Executive's accrual of, or participation in plans providing
for, the Benefits will cease at the effective date of the
termination of this Agreement, and the Executive will be entitled to
accrued Benefits pursuant to such plans only as provided in such
plans. The Executive will not receive, as part of his termination
pay pursuant to this Section 6, any payment or other compensation
for any vacation, holiday, sick leave, or other leave unused on the
date the notice of termination is given under this Agreement.
7. Non-disclosure Covenant.
7.1 Acknowledgments by the Executive. The Executive acknowledges that:
(a) during the Employment Period and as a part of his employment,
the Executive will be afforded access to Confidential Information;
(b) public disclosure of such Confidential Information could have an
adverse effect on the Employer and its business; and
(c) the provisions of this Section 7 are reasonable and necessary to
prevent the improper use or disclosure of Confidential Information
and to provide the Employer with exclusive ownership of all Employee
Inventions.
7.2 Agreements of the Executive. In consideration of the compensation
and benefits to be paid or provided to the Executive by the Employer under
this Agreement, the Executive covenants as follows:
(a) Confidentiality.
(i) During and following the Employment Period, the Executive
will hold in confidence the Confidential Information and will
not disclose it to any person except with the specific prior
written consent of the Employer or except as otherwise
expressly permitted by the terms of this Agreement.
(ii) Any trade secrets or Confidential Information (as defined
herein) of the Employer will be entitled to all of the
protections and benefits under applicable law. If any
information that the Employer deems to be a trade secret is
found by a court of competent jurisdiction not to be a trade
secret for purposes of this Agreement, such information will,
nevertheless, be considered Confidential Information for
purposes of this Agreement. The Executive hereby waives any
requirement that the Employer submit proof of the economic
value of any trade secret or post a bond or other security.
(iii) None of the foregoing obligations and restrictions
applies to any part of the Confidential Information that the
Executive demonstrates was or became generally available to
the public other than as a result of a disclosure by the
Executive.
(iv) The Executive will not remove from the Employer's
premises (except to the extent such removal is for purposes of
the performance of the Executive's duties at home or while
traveling, or except as otherwise specifically authorized by
the Employer) any document, record, notebook, plan, model,
component, device, or computer software or code related to the
Business (as defined herein) of the Employer, whether embodied
in a disk or in any other form (collectively, the "Proprietary
Items"). The Executive recognizes that, as between the
Employer and the Executive, all of the Proprietary Items,
whether or not developed by the Executive, are the exclusive
property of the Employer. Upon termination of this Agreement
by either party, or upon the request of the Employer during
the Employment Period, the Executive will return to the
Employer all of the Proprietary Items in the Executive's
possession or subject to the
67
<PAGE> 6
Executive's control, and the Executive shall not retain any
copies, abstracts, sketches, or other physical embodiment of
any of the Proprietary Items.
(b) Employee Inventions. Each Employee Invention (as defined
herein) will belong exclusively to the Employer. The Executive
acknowledges that all of the Executive's writing, works of
authorship, and other Employee Inventions are works made for hire
and the property of the Employer, including any copyrights or other
intellectual property rights pertaining thereto. If it is determined
that any such works are not works made for hire, the Executive
hereby assigns to the Employer all of the Executive's right, title,
and interest, including all rights of copyright and other
intellectual property rights, to or in such Employee Inventions. The
Executive covenants that he will promptly:
(i) disclose to the Employer in writing any Employee
Invention;
(ii) assign to the Employer or to a party designated by the
Employer, at the Employer's request and without additional
compensation, all of the Executive's right to the Employee
Invention for the United States and all foreign jurisdictions;
(iii) execute and deliver to the Employer such applications,
assignments, and other documents as the Employer may request
in order to apply for and obtain patents or other
registrations with respect to any Employee Invention in the
United States and any foreign jurisdictions;
(iv) sign all other papers necessary to carry out the above
obligations; and
(v) give testimony and render any other assistance but without
expense to the Executive in support of the Employer's rights
to any Employee Invention.
7.3 Disputes or Controversies. The Executive recognizes that should a
dispute or controversy arising from or relating to this Agreement be
submitted for adjudication to any court, arbitration panel, or other third
party, the preservation of the secrecy of Confidential Information may be
jeopardized. All pleadings, documents, testimony, and records relating to
any such adjudication will be maintained in secrecy and will be available
for inspection by the Employer, the Executive, and their respective
attorneys and experts, who will agree, in advance and in writing, to
receive and maintain all such information in secrecy, except as may be
limited by them in writing.
8. Non-interference.
8.1 Acknowledgments by the Executive. The Executive acknowledges that:
(a) the services to be performed by him under this Agreement are of
a special, unique, unusual and extraordinary character;
(b) the Employer's business ("Business") is to provide merchant
banking, investment banking and wholesale consumer lending services
to institutional entities and is national in scope and its products
are marketed throughout the United States;
(c) the Employer competes with other businesses that are or could be
located in any part of the United States; and
(d) the provisions of this Section 8 are reasonable and necessary to
protect the Employer's business.
8.2 Covenants of the Executive. In consideration of the acknowledgments
by the Executive, and in consideration of the compensation and benefits to
be paid or provided to the Executive by the Employer, the Executive
covenants that he will not, directly or indirectly:
(a) during the Employment Period, except in the course of his
employment hereunder, engage or invest in, own, manage, operate,
finance, control, or participate in the ownership, management,
operation, financing, or control of, be employed by, associated
with, or in any manner connected with, lend the Executive's name or
any similar name to, lend Executive's credit to or render services
or advice to, any business whose products or activities compete in
whole or in part with the Business of the Employer anywhere within
the United States;
68
<PAGE> 7
(b) whether for the Executive's own account or for the account of
any other person, at any time during the Employment Period and the
Post-Employment Period, solicit business of the same or similar type
as the Business being carried on by the Employer, from any person
known by the Executive to be a customer of the Employer, whether or
not the Executive had personal contact with such person during and
by reason of the Executive's employment with the Employer;
(c) whether for the Executive's own account or the account of any
other person
(i) at any time during the Employment Period and the
Post-Employment Period, solicit, employ, or otherwise engage
as an employee, independent contractor, or otherwise, any
person who is or was an employee of the Employer at any time
during the Employment Period or in any manner induce or
attempt to induce any employee of the Employer to terminate
his employment with the Employer; or
(ii) at any time during the Employment Period and the
Post-Employment Period, interfere with the Employer's
relationship with any person, including any person who at any
time during the Employment Period was an employee, contractor,
supplier, or customer of the Employer; or
(d) at any time during or after the Employment Period, disparage
the Employer or any of its shareholders, directors, officers,
employees, or agents.
For purposes of this Section 8.2, the term "Post-Employment Period" means
the one-year period beginning on the date of termination of the
Executive's employment with the Employer.
If any covenant in this Section 8.2 is held to be unreasonable, arbitrary,
or against public policy, such covenant will be considered to be divisible
with respect to scope, time, and geographic area, and such lesser scope,
time, or geographic area, or all of them, as a court of competent
jurisdiction may determine to be reasonable, not arbitrary, and not
against public policy, will be effective, binding, and enforceable against
the Executive.
The period of time applicable to any covenant in this Section 8.2 will be
extended by the duration of any violation by the Executive of such
covenant.
The Executive will, while the covenant under this Section 8.2 is in
effect, give notice to the Employer, within ten days after accepting any
other employment, of the identity of the Executive's employer. The
Employer may notify such employer that the Executive is bound by this
Agreement and, at the Employer's election, furnish such employer with a
copy of this Agreement or relevant portions thereof.
Employer covenants that at any time during or after the Employment Period
it will not disparage the Executive.
9. General Provisions.
9.1 Injunctive Relief and Additional Remedy. The Executive acknowledges
that the injury that would be suffered by the Employer as a result of a
breach of the provisions of this Agreement (including any provision of
Sections 7 and 8) would be irreparable and that an award of monetary
damages to the Employer for such a breach would be an inadequate remedy.
Consequently, the Employer will have the right, after the Executive has
been given 10 days to comply with Section 7 and 8 so as to cure his
failure to comply, in addition to any other rights it may have, to obtain
injunctive relief to restrain any breach or threatened breach or otherwise
to specifically enforce any provision of this Agreement, and the Employer
will not be obligated to post bond or other security in seeking such
relief.
9.2 Covenants of Sections 7 and 8 Are Essential and Independent Covenants.
The covenants by the Executive in Sections 7 and 8 are essential elements
of this Agreement, and without the Executive's agreement to comply with
such covenants, the Employer would not have entered into this Agreement or
employed or continued the employment of the Executive. The Employer and
the Executive have independently consulted their respective counsel
regarding such covenants.
The Executive's covenants in Sections 7 and 8 are independent covenants
and the existence of any claim by the Executive against the Employer under
this Agreement or otherwise, or against the Buyer, will not excuse the
Executive's breach of any covenant in Section 7 or 8; provided, however,
that Executive's covenants in Section 7 and 8 shall terminate if there is
a termination for good reason as set forth in Section 6.4 hereof.
69
<PAGE> 8
If the Executive's employment hereunder expires or is terminated, this
Agreement will continue in full force and effect as is necessary or
appropriate to enforce the covenants and agreements of the Executive in
Sections 7 and 8, except as noted above.
9.3 Offset. The Employer will be entitled to offset against any and all
amounts owing to the Executive under this Agreement the amount of any and
all claims that the Employer may have against the Executive under the
terms of this Agreement.
9.4 Liability Insurance. The Employer shall use reasonable efforts to
secure and maintain a director's and officer's liability policy in an
amount of at least $5,000,000 with Executive being named as an assured
thereunder and Executive being covered thereby in respect of certain
claims arising from duties carried out by Executive.
9.5 Representations and Warranties by the Executive. The Executive
represents and warrants to the Employer that the execution and delivery by
the Executive of this Agreement do not, and the performance by the
Executive of the Executive's obligations hereunder will not, with or
without the giving of notice or the passage of time, or both: (a) violate
any judgment, writ, injunction, or order of any court, arbitrator, or
governmental agency applicable to the Executive; or (b) conflict with,
result in the breach of any provisions of or the termination of, or
constitute a default under, any agreement to which the Executive is a
party or by which the Executive is or may be bound.
9.6 Obligations Contingent on Performance. The obligations of the
Employer hereunder, including its obligation to pay the compensation
provided for herein, are contingent upon the Executive's performance of
the Executive's obligations hereunder.
9.7 Waiver. The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by
either party in exercising any right, power, or privilege under this
Agreement will operate as a waiver of such right, power, or privilege, and
no single or partial exercise of any such right, power, or privilege will
preclude any other or further exercise of such right, power, or privilege
or the exercise of any other right, power, or privilege. To the maximum
extent permitted by applicable law,
(a) no claim or right arising out of this Agreement can be
discharged by one party, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing signed by the
other party;
(b) no waiver that may be given by a party will be applicable except
in the specific instance for which it is given; and
(c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party
giving such notice or demand to take further action without notice
or demand as provided in this Agreement.
9.8 Binding Effect; Delegation of Duties Prohibited. This Agreement
shall inure to the benefit of, and shall be binding upon, the parties
hereto and their respective successors, assigns, heirs, and legal
representatives, including any entity with which the Employer may merge or
consolidate or to which all or substantially all of its assets may be
transferred. The duties and covenants of the Executive under this
Agreement, being personal, may not be delegated.
9.9 Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been
duly given when
(a) delivered by hand (with written confirmation of receipt),
(b) sent by facsimile (with written confirmation of receipt),
provided that a copy is mailed by registered mail, return receipt
requested, or
(c) when received by the addressee, if sent by a nationally
recognized overnight delivery service (receipt requested), in each
case to the appropriate addresses and facsimile numbers set forth
below (or to such other addresses and facsimile numbers as a party
may designate by notice to the other parties):
70
<PAGE> 9
If to Employer: TCC Industries, Inc.
816 Congress Avenue, Suite 1250
Austin, Texas 78701
Attention: Chief Executive Officer
Facsimile No.: (512) 320-0063
If to the Executive: Richard F. Watkins
2414 Jarratt
Austin, TX 78703
9.10 Entire Agreement; Amendments. This Agreement contains the entire
agreement between the parties with respect to the subject matter hereof
(except the Option Plan) and supersedes all prior agreements and
understandings, oral or written, between the parties hereto with respect
to the subject matter hereof. This Agreement may not be amended orally,
but only by an agreement in writing signed by the parties hereto.
9.11 Governing Law. This Agreement will be governed by the laws of the
State of Texas without regard to conflicts of laws principles.
9.12 Arbitration. In the event that any dispute, disagreement or
controversy (collectively, a "Dispute") arises with respect to the
interpretation, performance, non-performance or termination of this
Agreement, the parties shall first attempt to settle such Dispute by good
faith negotiations between the parties. If the Dispute is not resolved
within 30 days of the date one party sends a notice to the other party
describing the Dispute and requesting good faith negotiations to resolve
the Dispute under this Section, the Dispute shall be resolved by binding
arbitration carried out in Austin, Texas in accordance with the Commercial
Arbitration Rules of the American Arbitration Association as then in
effect. The party which intends to initiate an arbitration proceeding
hereunder shall notify the other party of such intention in writing,
describing the Dispute. Notwithstanding the above, in any Dispute
arbitrated hereunder, the fees and expenses of the arbitrator(s) and
attorneys' fees and costs of the party ultimately prevailing in such
Dispute shall be borne by the other party.
9.13 Jurisdiction. Any action or proceeding seeking to enforce any
provision of, or based on any right arising out of, this Agreement may be
brought against either of the parties in the courts of the State of Texas,
County of Travis, or, if it has or can acquire jurisdiction, in the United
States District Court for the Western District of Texas, and each of the
parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives
any objection to venue laid therein. Process in any action or proceeding
referred to in the preceding sentence may be served on either party
anywhere in the world.
9.14 Section Headings, Construction. The headings of Sections in this
Agreement are provided for convenience only and will not affect its
construction or interpretation. All references to "Section" or "Sections"
refer to the corresponding Section or Sections of this Agreement unless
otherwise specified. All words used in this Agreement will be construed to
be of such gender or number as the circumstances require. Unless otherwise
expressly provided, the word "including" does not limit the preceding
words or terms.
9.15 Severability. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions
of this Agreement will remain in full force and effect. Any provision of
this Agreement held invalid or unenforceable only in part or degree will
remain in full force and effect to the extent not held invalid or
unenforceable.
9.16 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to
constitute one and the same agreement.
9.17 Waiver of Jury Trial. THE PARTIES HERETO HEREBY WAIVE A JURY TRIAL IN
ANY LITIGATION WITH RESPECT TO ENFORCING THE PROVISIONS OF SECTION 9.12
ABOVE OR OTHERWISE WITH RESPECT TO THIS AGREEMENT.
9.18 Release of Executive on Failure of Option Plan. In the event the
Executive terminates the Agreement for the reason or as a result of the
circumstances described in Section 6.4(e), above, Employer hereby
releases, acquits and discharges Executive (together with his heirs,
executors, administrators, assigns, legal representatives and attorneys)
from all matters, causes of action, accounts, suits, controversies,
agreements, damages, claims and demands, whether heretofore or hereafter
accruing, whether now known or not known to the parties prior to and
including the date hereof, in any way directly or indirectly arising out
of or in connection with the business or operations of the Employer, this
Agreement, the Option Plan and any related documents and any transactions
or
71
<PAGE> 10
dealings between the parties hereto, it being the intent of the Employer
to fully and completely discharge Executive (together with his heirs,
executors, administrators, assigns, legal representatives and attorneys)
from any and all liabilities related to or arising from all prior
relationships, instruments and courses of dealing, except that the parties
shall continue to be bound by the obligations described in this Agreement
that are to survive its termination.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date above first written above.
EMPLOYER: TCC INDUSTRIES, INC.
By: /s/ ROBERT THOMAJAN
--------------------------------------
Robert Thomajan, President
EXECUTIVE:
/s/ RICHARD F. WATKINS
--------------------------------------
Richard F. Watkins
72
<PAGE> 1
Exhibit 10.32
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into
effective October 1, 1997 by TCC Industries, Inc., a Texas corporation (the
"Employer"), and Robert L. Riviere , an individual resident in Travis County,
Texas (the "Executive").
RECITALS
The Employer and the Executive desire the Executive's employment with the
Employer, and the Executive wishes to accept such employment, upon the terms and
conditions set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. Definitions. For the purposes of this Agreement, the following terms have
the meanings specified or referred to in this Section 1.
"AGREEMENT"--this Employment Agreement, as amended from time to time.
"BASIC COMPENSATION"--Salary and Benefits.
"BENEFITS"--as defined in Section 3.2.
"BOARD OF DIRECTORS"--the Board of Directors of the Employer.
"CONFIDENTIAL INFORMATION"--any and all:
(a) trade secrets concerning the business and affairs of the
Employer, planned research and development, customer lists,
confidential information of customers, Proprietary Items (as defined
herein), market studies, business plans, computer software and
programs (including object code and source code), computer software
and database technologies and systems; and
(b) notes, analysis, compilations, studies, summaries, and other
material prepared by or for the Employer containing or based, in
whole or in part, on any information included in the foregoing,
provided, however, that Confidential Information shall not include
any information which: (i) was known by Executive prior to its
disclosure to him by the Employer, (ii) was generally known or
generally available to the public prior to its disclosure to
Executive by the Employer or (iii) becomes generally known or
generally available to the public subsequent to disclosure to
Executive by the Employer through no wrongful act of the Executive.
"DISABILITY"--as defined in Section 6.2.
"EFFECTIVE DATE"--the date stated in the first paragraph of the Agreement.
"EMPLOYEE INVENTION"--any idea, technique, modification, business process,
or improvement (whether patentable or not), created, conceived, or
developed by the Executive, either solely or in conjunction with others,
during the Employment Period, or a period that includes a portion of the
Employment Period, that relates in any way to, or is useful in any manner
in, the business then being conducted or proposed to be conducted by the
Employer.
"EMPLOYMENT PERIOD"--the term of the Executive's employment under this
Agreement.
"FISCAL YEAR"--the Employer's fiscal year, as it exists on the Effective
Date or as changed from time to time.
"FOR CAUSE"--as defined in Section 6.3.
"FOR GOOD REASON"--as defined in Section 6.4.
73
<PAGE> 2
"PERSON"--any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company,
joint venture, estate, trust, association, organization, or governmental
body.
"POST-EMPLOYMENT PERIOD"--as defined in Section 8.2.
"PROPRIETARY ITEMS"--as defined in Section 7.2(a)(iv).
"SALARY"--as defined in Section 3.1.
2. Employment Terms and Duties.
2.1 Employment. The Employer hereby employs the Executive, and the
Executive hereby accepts employment by the Employer, upon the terms and
conditions set forth in this Agreement.
2.2 Term. Subject to the provisions of Section 6, the term of the
Executive's employment under this Agreement will be four (4) years
("Initial Term"), beginning on the Effective Date and ending on the fourth
anniversary of the Effective Date; provided, however, that, upon the
expiration of the Initial Term, the term of the Executive's employment
under this Agreement shall be extended for an additional one-year period,
unless either the Executive or the Employee shall give the other party
hereto at least 90 days written notice prior to the expiration of the
Initial Term that the term of the Executive's employment under this
agreement shall not be so extended.
2.3 Duties. The Executive will have such duties as are assigned or
delegated to the Executive by the Board of Directors or Chief Executive
Officer, and will initially serve as Chairman and Chief Executive Officer
of Barton Creek Capital Corporation, a wholly-owned subsidiary of the
Employer. As such, Executive shall have such duties, responsibilities and
authority as may from time to time be reasonably assigned to him by the
Board of Directors and which are appropriate to his office and title.
Except as approved by the Board of Directors or the Chief Executive
Officer of the Company, the Executive will devote his time, attention,
skill, and energy exclusively to the business of the Employer, will use
his best efforts to promote the success of the Employer's business, and
will cooperate fully with the Board of Directors in the advancement of the
best interests of the Employer. Nothing in this Section 2.3, however, will
prevent the Executive from engaging in additional activities in connection
with personal investments and community affairs that are not inconsistent
with the Executive's duties under this Agreement. If the Executive is
elected as a director of the Employer or as a director or officer of any
of its affiliates, the Executive will fulfill his duties as such director
or officer without additional compensation. In satisfying his obligations
hereunder, Executive will not be required or requested to violate any
applicable law, rule or regulation.
3. Compensation
3.1 Salary. The Executive will be paid an annual salary of $250,000,
subject to adjustment as provided below (the "Salary"), which will be
payable in equal periodic installments according to the Employer's
customary payroll practices, but no less frequently than monthly. The
Salary will be reviewed by the Board of Directors not less frequently than
annually, and may be adjusted upward or downward in the sole discretion of
the Board of Directors.
3.2 Benefits. The Executive will, during the Employment Period, be
permitted to participate in such pension, profit sharing, bonus, life
insurance, hospitalization, major medical, disability and other employee
benefit plans of the Employer that may be in effect from time to time, to
the extent the Executive is eligible under the terms of those plans
(collectively, the "Benefits").
3.3 Option Plan. The Executive shall participate in that certain TCC
Industries, Inc. 1997 Incentive and Performance Stock Option Plan adopted
by the Employer (the "Option Plan"). The Executive's participation under
the Option Plan shall be in accordance with the plan and the stock grants
to the Executive made thereunder.
4. Facilities and Expenses. The Employer will furnish the Executive office
space, equipment, supplies, and such other facilities and personnel as the
Employer deems necessary or appropriate for the performance of the Executive's
duties under this Agreement. The Employer will pay the Executive's dues in such
professional societies and organizations as the Chairman of the Board deems
appropriate, and will pay on behalf of the Executive (or reimburse the Executive
for) reasonable and necessary expenses incurred by the Executive at the request
of, or on behalf of, the Employer in the performance of the Executive's duties
pursuant to this Agreement, and in accordance with the Employer's employment
policies, including reasonable expenses incurred by the Executive in attending
conventions, seminars, and other business
74
<PAGE> 3
meetings, in appropriate business entertainment activities, travel expenses and
for promotional expenses. All such expenses are subject to prior authorization
and amount limits as may be required under the Employer's policies. The
Executive will file expense reports with respect to such expenses in accordance
with the Employer's policies.
5. Vacations and Holidays. The Executive will be entitled to paid vacation
each Fiscal Year in accordance with the vacation policies of the Employer in
effect for its executive officers from time to time, which shall not be less
than 10 business days a year. Vacation will be taken by the Executive at such
time or times as approved by the Chairman of the Board. The Executive will also
be entitled to the paid holidays and other paid leave set forth in the
Employer's policies. Vacation days and holidays during any Fiscal Year that are
not used by the Executive during such Fiscal Year may not be used in any
subsequent Fiscal Year. Upon written notice to Executive, all such vacation and
paid leave policies may be changed at any time by the Employer, as long as such
policies are not applicable solely to Executive. Executive shall be allowed ten
business days a year for sick leave.
6. Termination.
6.1 Events of Termination. The Employment Period, the Executive's Basic
Compensation and any and all other rights of the Executive under this
Agreement or otherwise as an employee of the Employer (except for rights
under the Option Plan that are not subject to divestiture or forfeiture)
will terminate (except as otherwise provided in this Section 6):
(a) upon the death of the Executive;
(b) upon the disability of the Executive (as defined in Section 6.2)
immediately upon notice from either party to the other;
(c) For Cause (as defined in Section 6.3), upon the notice from the
Employer to the Executive, or at such later time as such notice may
specify; or
(d) For Good Reason (as defined in Section 6.4) upon not less than
thirty days' prior notice from the Executive to the Employer.
In the event of the occurrence of any cause (as defined in Section 6.3),
at the request of the Board of Directors, the Executive shall immediately
tender his resignation to the Employer offering to resign all positions
with the Company and its subsidiaries, including positions as an officer,
director and any other capacity, and the Employer shall have the option
but not the obligation of accepting such resignation. If, for any reason,
the Executive does not tender such resignation the Employer may, by
notice, terminate the Executive immediately or at such later time as such
notice may specify.
6.2 Definition of Disability. For purposes of Section 6.1, the Executive
will be deemed to have a "disability" if, for physical or mental reasons,
the Executive is unable to perform the essential functions of the
Executive's duties under this Agreement for 120 consecutive days, or 180
days during any twelve-month period, as determined in accordance with this
Section 6.2, it being understood that Executive shall be entitled to
compensation hereunder until he is determined to have a "disability." The
disability of the Executive will be determined by a medical doctor
selected by written agreement of the Employer and the Executive upon the
request of either party by notice to the other. If the Employer and the
Executive cannot agree on the selection of a medical doctor, each of them
will select a medical doctor and the two medical doctors will select a
third medical doctor who will determine whether the Executive has a
disability. The determination of the medical doctor selected under this
Section 6.2 will be binding on both parties. The Executive will submit to
a reasonable number of examinations by the medical doctor making the
determination of disability under this Section 6.2, and the Executive
hereby authorizes the disclosure and release to the Employer of such
determination and all supporting medical records, provided that Employer
agrees to keep such medical information confidential. If the Executive is
not legally competent, the Executive's legal guardian or duly authorized
attorney-in-fact will act in the Executive's stead, under this Section
6.2, for the purposes of submitting the Executive to the examinations, and
providing the authorization of disclosure, required under this Section
6.2.
6.3 Definition of "For Cause". For purposes of Section 6.1, the phrase
"For Cause" means:
(a) the Executive's material breach of this Agreement, if such
breach is not cured within ten days after written notice thereof to
Executive by the Employer;
(b) the Executive's failure to adhere to any material written
Employer policy if the Executive has been given a reasonable
opportunity to comply with such policy or cure his failure to comply
(which
75
<PAGE> 4
reasonable opportunity must be granted during the ten-day period
preceding termination of this Agreement);
(c) the conviction of, or the entering of a guilty plea or plea of
no contest with respect to, a felony involving moral turpitude,
fraud or dishonesty, or the equivalent thereof, or any other crime
with respect to which imprisonment is a possible punishment;
(d) the appropriation (or attempted appropriation) of a material
business opportunity of the Employer, including securing any
personal profit in connection with any transaction entered into on
behalf of the Employer;
(e) the misappropriation (or attempted misappropriation) of any of
the Employer's funds or property; or
(f) the conviction of, or the entering of a guilty plea or plea of
no contest with respect to, a felony involving moral turpitude,
fraud or dishonesty, or the equivalent thereof, or any other crime
with respect to which imprisonment is a possible punishment, as the
same relates to his employment with the Employer.
6.4 Definition of "For Good Reason". For purposes of Section 6.1, the
phrase "For Good Reason" means any of the following:
(a) The Employer's material breach of this Agreement, if such breach
is not cured with ten days after written notice thereof to Employer
by the Executive;
(b) the assignment of the Executive without his consent to a
position, responsibilities, or duties of a materially lesser status
or degree of responsibility than his position, responsibilities, or
duties at the Effective Date;
(c) the relocation of the Employer's principal executive offices
outside the metropolitan Austin, Texas, area;
(d) the requirement by the Employer that the Executive be based
anywhere other than the Employer's principal executive offices, in
either case without the Executive's consent; or
(e) the shareholders of the Employer do not approve and adopt the
Option Plan on or before March 31, 1998.
6.5 Termination Pay.
(a) Effective upon the termination of this Agreement, the Employer
will be obligated to pay the Executive (or, in the event of his
death, his designated beneficiary as defined below) only such
compensation as is provided in this Section 6.5, and in lieu of all
other amounts and in settlement and complete release of all claims
the Executive may have against the Employer under this Agreement.
The Employer may condition the payment of any compensation provided
in this Section 6.5 or otherwise upon the receipt of a full release
of any liabilities which the Employer may owe to the Executive under
this Agreement or otherwise. Such release shall be in form and
substance acceptable to the Employer. For purposes of this Section
6.5, the Executive's designated beneficiary will be such individual
beneficiary or trust, located at such address, as the Executive may
designate by notice to the Employer from time to time or, if the
Executive fails to give notice to the Employer of such a
beneficiary, the Executive's estate. Notwithstanding the preceding
sentence, the Employer will have no duty, in any circumstances, to
attempt to open an estate on behalf of the Executive, to determine
whether any beneficiary designated by the Executive is alive or to
ascertain the address of any such beneficiary, to determine the
existence of any trust, to determine whether any person or entity
purporting to act as the Executive's personal representative (or the
trustee of a trust established by the Executive) is duly authorized
to act in that capacity, or to locate or attempt to locate any
beneficiary, personal representative, or trustee.
(b) If the Executive terminates this Agreement For Good Reason
(except for the reason or as a result of the circumstances described
in Section 6.4(e), above), the Employer will pay to the Executive
his Salary through the remainder of the calendar month during which
such termination is effective, and for three consecutive calendar
months thereafter. If the Executive terminates this Agreement for
the reason or as a result of the circumstances described in Section
6.4(e), above, the Employer will pay to the
76
<PAGE> 5
Executive his Salary throughout the remainder of the calendar month
during which such termination is effective. If the Employer
terminates this Agreement For Cause, the Executive will be entitled
to receive his Salary only through the date such termination is
effective. If this Agreement is terminated by either party as a
result of the Executive's disability as determined under Section
6.2, the Employer will pay the Executive his Salary through the
remainder of the calendar month during which such termination is
effective, and for the lesser of (i) six consecutive months
thereafter, or (ii) the period until disability insurance benefits
commence under the disability insurance coverage, if any, furnished
by the Employer to the Executive. If this Agreement is terminated
because of the Executive's death, the Executive will be entitled to
receive his Salary through the end of the calendar month in which
his death occurs.
(c) The Executive's accrual of, or participation in plans providing
for, the Benefits will cease at the effective date of the
termination of this Agreement, and the Executive will be entitled to
accrued Benefits pursuant to such plans only as provided in such
plans. The Executive will not receive, as part of his termination
pay pursuant to this Section 6, any payment or other compensation
for any vacation, holiday, sick leave, or other leave unused on the
date the notice of termination is given under this Agreement.
7. Non-disclosure Covenant.
7.1 Acknowledgments by the Executive. The Executive acknowledges that:
(a) during the Employment Period and as a part of his employment,
the Executive will be afforded access to Confidential Information;
(b) public disclosure of such Confidential Information could have an
adverse effect on the Employer and its business; and
(c) the provisions of this Section 7 are reasonable and necessary to
prevent the improper use or disclosure of Confidential Information
and to provide the Employer with exclusive ownership of all Employee
Inventions.
7.2 Agreements of the Executive. In consideration of the compensation
and benefits to be paid or provided to the Executive by the Employer under
this Agreement, the Executive covenants as follows:
(a) Confidentiality.
(i) During and following the Employment Period, the Executive
will hold in confidence the Confidential Information and will
not disclose it to any person except with the specific prior
written consent of the Employer or except as otherwise
expressly permitted by the terms of this Agreement.
(ii) Any trade secrets or Confidential Information (as defined
herein) of the Employer will be entitled to all of the
protections and benefits under applicable law. If any
information that the Employer deems to be a trade secret is
found by a court of competent jurisdiction not to be a trade
secret for purposes of this Agreement, such information will,
nevertheless, be considered Confidential Information for
purposes of this Agreement. The Executive hereby waives any
requirement that the Employer submit proof of the economic
value of any trade secret or post a bond or other security.
(iii) None of the foregoing obligations and restrictions
applies to any part of the Confidential Information that the
Executive demonstrates was or became generally available to
the public other than as a result of a disclosure by the
Executive.
(iv) The Executive will not remove from the Employer's
premises (except to the extent such removal is for purposes of
the performance of the Executive's duties at home or while
traveling, or except as otherwise specifically authorized by
the Employer) any document, record, notebook, plan, model,
component, device, or computer software or code related to the
Business (as defined herein) of the Employer, whether embodied
in a disk or in any other form (collectively, the "Proprietary
Items"). The Executive recognizes that, as between the
Employer and the Executive, all of the Proprietary Items,
whether or not developed by the Executive, are the exclusive
property of the Employer. Upon termination of this Agreement
by either party, or upon the request of the Employer during
the Employment Period, the Executive will return to the
Employer all of the Proprietary Items in the Executive's
possession or subject to the
77
<PAGE> 6
Executive's control, and the Executive shall not retain any
copies, abstracts, sketches, or other physical embodiment of
any of the Proprietary Items.
(b) Employee Inventions. Each Employee Invention (as defined
herein) will belong exclusively to the Employer. The Executive
acknowledges that all of the Executive's writing, works of
authorship, and other Employee Inventions are works made for hire
and the property of the Employer, including any copyrights or other
intellectual property rights pertaining thereto. If it is determined
that any such works are not works made for hire, the Executive
hereby assigns to the Employer all of the Executive's right, title,
and interest, including all rights of copyright and other
intellectual property rights, to or in such Employee Inventions. The
Executive covenants that he will promptly:
(i) disclose to the Employer in writing any Employee
Invention;
(ii) assign to the Employer or to a party designated by the
Employer, at the Employer's request and without additional
compensation, all of the Executive's right to the Employee
Invention for the United States and all foreign jurisdictions;
(iii) execute and deliver to the Employer such applications,
assignments, and other documents as the Employer may request
in order to apply for and obtain patents or other
registrations with respect to any Employee Invention in the
United States and any foreign jurisdictions;
(iv) sign all other papers necessary to carry out the above
obligations; and
(v) give testimony and render any other assistance but without
expense to the Executive in support of the Employer's rights
to any Employee Invention.
7.3 Disputes or Controversies. The Executive recognizes that should a
dispute or controversy arising from or relating to this Agreement be
submitted for adjudication to any court, arbitration panel, or other third
party, the preservation of the secrecy of Confidential Information may be
jeopardized. All pleadings, documents, testimony, and records relating to
any such adjudication will be maintained in secrecy and will be available
for inspection by the Employer, the Executive, and their respective
attorneys and experts, who will agree, in advance and in writing, to
receive and maintain all such information in secrecy, except as may be
limited by them in writing.
8. Non-interference.
8.1 Acknowledgments by the Executive. The Executive acknowledges that:
(a) the services to be performed by him under this Agreement are of
a special, unique, unusual and extraordinary character;
(b) the Employer's business ("Business") is to provide merchant
banking, investment banking and wholesale consumer lending services
to institutional entities and is national in scope and its products
are marketed throughout the United States;
(c) the Employer competes with other businesses that are or could be
located in any part of the United States; and
(d) the provisions of this Section 8 are reasonable and necessary to
protect the Employer's business.
8.2 Covenants of the Executive. In consideration of the acknowledgments
by the Executive, and in consideration of the compensation and benefits to
be paid or provided to the Executive by the Employer, the Executive
covenants that he will not, directly or indirectly:
(a) during the Employment Period, except in the course of his
employment hereunder, engage or invest in, own, manage, operate,
finance, control, or participate in the ownership, management,
operation, financing, or control of, be employed by, associated
with, or in any manner connected with, lend the Executive's name or
any similar name to, lend Executive's credit to or render services
or advice to, any business whose products or activities compete in
whole or in part with the Business of the Employer anywhere within
the United States;
78
<PAGE> 7
(b) whether for the Executive's own account or for the account of
any other person, at any time during the Employment Period and the
Post-Employment Period, solicit business of the same or similar type
as the Business being carried on by the Employer, from any person
known by the Executive to be a customer of the Employer, whether or
not the Executive had personal contact with such person during and
by reason of the Executive's employment with the Employer;
(c) whether for the Executive's own account or the account of any
other person
(i) at any time during the Employment Period and the
Post-Employment Period, solicit, employ, or otherwise engage
as an employee, independent contractor, or otherwise, any
person who is or was an employee of the Employer at any time
during the Employment Period or in any manner induce or
attempt to induce any employee of the Employer to terminate
his employment with the Employer; or
(ii) at any time during the Employment Period and the
Post-Employment Period, interfere with the Employer's
relationship with any person, including any person who at any
time during the Employment Period was an employee, contractor,
supplier, or customer of the Employer; or
(d) at any time during or after the Employment Period, disparage
the Employer or any of its shareholders, directors, officers,
employees, or agents.
For purposes of this Section 8.2, the term "Post-Employment Period" means
the one-year period beginning on the date of termination of the
Executive's employment with the Employer.
If any covenant in this Section 8.2 is held to be unreasonable, arbitrary,
or against public policy, such covenant will be considered to be divisible
with respect to scope, time, and geographic area, and such lesser scope,
time, or geographic area, or all of them, as a court of competent
jurisdiction may determine to be reasonable, not arbitrary, and not
against public policy, will be effective, binding, and enforceable against
the Executive.
The period of time applicable to any covenant in this Section 8.2 will be
extended by the duration of any violation by the Executive of such
covenant.
The Executive will, while the covenant under this Section 8.2 is in
effect, give notice to the Employer, within ten days after accepting any
other employment, of the identity of the Executive's employer. The
Employer may notify such employer that the Executive is bound by this
Agreement and, at the Employer's election, furnish such employer with a
copy of this Agreement or relevant portions thereof.
Employer covenants that at any time during or after the Employment Period
it will not disparage the Executive.
9. General Provisions.
9.1 Injunctive Relief and Additional Remedy. The Executive acknowledges
that the injury that would be suffered by the Employer as a result of a
breach of the provisions of this Agreement (including any provision of
Sections 7 and 8) would be irreparable and that an award of monetary
damages to the Employer for such a breach would be an inadequate remedy.
Consequently, the Employer will have the right, after the Executive has
been given 10 days to comply with Section 7 and 8 so as to cure his
failure to comply, in addition to any other rights it may have, to obtain
injunctive relief to restrain any breach or threatened breach or otherwise
to specifically enforce any provision of this Agreement, and the Employer
will not be obligated to post bond or other security in seeking such
relief.
9.2 Covenants of Sections 7 and 8 Are Essential and Independent Covenants.
The covenants by the Executive in Sections 7 and 8 are essential elements
of this Agreement, and without the Executive's agreement to comply with
such covenants, the Employer would not have entered into this Agreement or
employed or continued the employment of the Executive. The Employer and
the Executive have independently consulted their respective counsel
regarding such covenants.
The Executive's covenants in Sections 7 and 8 are independent covenants
and the existence of any claim by the Executive against the Employer under
this Agreement or otherwise, or against the Buyer, will not excuse the
Executive's breach of any covenant in Section 7 or 8; provided, however,
that Executive's covenants in Section 7 and 8 shall terminate if there is
a termination for good reason as set forth in Section 6.4 hereof.
79
<PAGE> 8
If the Executive's employment hereunder expires or is terminated, this
Agreement will continue in full force and effect as is necessary or
appropriate to enforce the covenants and agreements of the Executive in
Sections 7 and 8, except as noted above.
9.3 Offset. The Employer will be entitled to offset against any and all
amounts owing to the Executive under this Agreement the amount of any and
all claims that the Employer may have against the Executive under the
terms of this Agreement.
9.4 Liability Insurance. The Employer shall use reasonable efforts to
secure and maintain a director's and officer's liability policy in an
amount of at least $5,000,000 with Executive being named as an assured
thereunder and Executive being covered thereby in respect of certain
claims arising from duties carried out by Executive.
9.5 Representations and Warranties by the Executive. The Executive
represents and warrants to the Employer that the execution and delivery by
the Executive of this Agreement do not, and the performance by the
Executive of the Executive's obligations hereunder will not, with or
without the giving of notice or the passage of time, or both: (a) violate
any judgment, writ, injunction, or order of any court, arbitrator, or
governmental agency applicable to the Executive; or (b) conflict with,
result in the breach of any provisions of or the termination of, or
constitute a default under, any agreement to which the Executive is a
party or by which the Executive is or may be bound.
9.6 Obligations Contingent on Performance. The obligations of the
Employer hereunder, including its obligation to pay the compensation
provided for herein, are contingent upon the Executive's performance of
the Executive's obligations hereunder.
9.7 Waiver. The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by
either party in exercising any right, power, or privilege under this
Agreement will operate as a waiver of such right, power, or privilege, and
no single or partial exercise of any such right, power, or privilege will
preclude any other or further exercise of such right, power, or privilege
or the exercise of any other right, power, or privilege. To the maximum
extent permitted by applicable law,
(a) no claim or right arising out of this Agreement can be
discharged by one party, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing signed by the
other party;
(b) no waiver that may be given by a party will be applicable except
in the specific instance for which it is given; and
(c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party
giving such notice or demand to take further action without notice
or demand as provided in this Agreement.
9.8 Binding Effect; Delegation of Duties Prohibited. This Agreement
shall inure to the benefit of, and shall be binding upon, the parties
hereto and their respective successors, assigns, heirs, and legal
representatives, including any entity with which the Employer may merge or
consolidate or to which all or substantially all of its assets may be
transferred. The duties and covenants of the Executive under this
Agreement, being personal, may not be delegated.
9.9 Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been
duly given when
(a) delivered by hand (with written confirmation of receipt),
(b) sent by facsimile (with written confirmation of receipt),
provided that a copy is mailed by registered mail, return receipt
requested, or
(c) when received by the addressee, if sent by a nationally
recognized overnight delivery service (receipt requested), in each
case to the appropriate addresses and facsimile numbers set forth
below (or to such other addresses and facsimile numbers as a party
may designate by notice to the other parties):
80
<PAGE> 9
If to Employer: TCC Industries, Inc.
816 Congress Avenue, Suite 1250
Austin, Texas 78701
Attention: Chief Executive Officer
Facsimile No.: (512) 320-0063
If to the Executive: Robert L. Riviere
2304 Islandwood
Austin, TX 78733
9.10 Entire Agreement; Amendments. This Agreement contains the entire
agreement between the parties with respect to the subject matter hereof
(except the Option Plan) and supersedes all prior agreements and
understandings, oral or written, between the parties hereto with respect
to the subject matter hereof. This Agreement may not be amended orally,
but only by an agreement in writing signed by the parties hereto.
9.11 Governing Law. This Agreement will be governed by the laws of the
State of Texas without regard to conflicts of laws principles.
9.12 Arbitration. In the event that any dispute, disagreement or
controversy (collectively, a "Dispute") arises with respect to the
interpretation, performance, non-performance or termination of this
Agreement, the parties shall first attempt to settle such Dispute by good
faith negotiations between the parties. If the Dispute is not resolved
within 30 days of the date one party sends a notice to the other party
describing the Dispute and requesting good faith negotiations to resolve
the Dispute under this Section, the Dispute shall be resolved by binding
arbitration carried out in Austin, Texas in accordance with the Commercial
Arbitration Rules of the American Arbitration Association as then in
effect. The party which intends to initiate an arbitration proceeding
hereunder shall notify the other party of such intention in writing,
describing the Dispute. Notwithstanding the above, in any Dispute
arbitrated hereunder, the fees and expenses of the arbitrator(s) and
attorneys' fees and costs of the party ultimately prevailing in such
Dispute shall be borne by the other party.
9.13 Jurisdiction. Any action or proceeding seeking to enforce any
provision of, or based on any right arising out of, this Agreement may be
brought against either of the parties in the courts of the State of Texas,
County of Travis, or, if it has or can acquire jurisdiction, in the United
States District Court for the Western District of Texas, and each of the
parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives
any objection to venue laid therein. Process in any action or proceeding
referred to in the preceding sentence may be served on either party
anywhere in the world.
9.14 Section Headings, Construction. The headings of Sections in this
Agreement are provided for convenience only and will not affect its
construction or interpretation. All references to "Section" or "Sections"
refer to the corresponding Section or Sections of this Agreement unless
otherwise specified. All words used in this Agreement will be construed to
be of such gender or number as the circumstances require. Unless otherwise
expressly provided, the word "including" does not limit the preceding
words or terms.
9.15 Severability. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions
of this Agreement will remain in full force and effect. Any provision of
this Agreement held invalid or unenforceable only in part or degree will
remain in full force and effect to the extent not held invalid or
unenforceable.
9.16 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to
constitute one and the same agreement.
9.17 Waiver of Jury Trial. THE PARTIES HERETO HEREBY WAIVE A JURY TRIAL
IN ANY LITIGATION WITH RESPECT TO ENFORCING THE PROVISIONS OF SECTION 9.12
ABOVE OR OTHERWISE WITH RESPECT TO THIS AGREEMENT.
9.18 Release of Executive on Failure of Option Plan. In the event the
Executive terminates the Agreement for the reason or as a result of the
circumstances described in Section 6.4(e), above, Employer hereby
releases, acquits and discharges Executive (together with his heirs,
executors, administrators, assigns, legal representatives and attorneys)
from all matters, causes of action, accounts, suits, controversies,
agreements, damages, claims and demands, whether heretofore or hereafter
accruing, whether now known or not known to the parties prior to and
including the date hereof, in any way directly or indirectly arising out
of or in connection with the business or operations of the Employer, this
Agreement, the Option Plan and any related documents and any transactions
or
81
<PAGE> 10
dealings between the parties hereto, it being the intent of the Employer
to fully and completely discharge Executive (together with his heirs,
executors, administrators, assigns, legal representatives and attorneys)
from any and all liabilities related to or arising from all prior
relationships, instruments and courses of dealing, except that the parties
shall continue to be bound by the obligations described in this Agreement
that are to survive its termination.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date above first written above.
EMPLOYER: TCC INDUSTRIES, INC.
By: /s/ ROBERT THOMAJAN
--------------------------------------
Robert Thomajan, President
EXECUTIVE:
/s/ ROBERT L. RIVIERE
--------------------------------------
Robert L. Riviere
82
<PAGE> 1
Exhibit 10.33
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into
effective October 1, 1997 by TCC Industries, Inc., a Texas corporation (the
"Employer"), and Walter A. DeRoeck, an individual resident in Travis County,
Texas (the "Executive").
RECITALS
The Employer and the Executive desire the Executive's employment with the
Employer, and the Executive wishes to accept such employment, upon the terms and
conditions set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. Definitions. For the purposes of this Agreement, the following terms have
the meanings specified or referred to in this Section 1.
"AGREEMENT"--this Employment Agreement, as amended from time to time.
"BASIC COMPENSATION"--Salary and Benefits.
"BENEFITS"--as defined in Section 3.2.
"BOARD OF DIRECTORS"--the Board of Directors of the Employer.
"CONFIDENTIAL INFORMATION"--any and all:
(a) trade secrets concerning the business and affairs of the
Employer, planned research and development, customer lists,
confidential information of customers, Proprietary Items (as defined
herein), market studies, business plans, computer software and
programs (including object code and source code), computer software
and database technologies and systems; and
(b) notes, analysis, compilations, studies, summaries, and other
material prepared by or for the Employer containing or based, in
whole or in part, on any information included in the foregoing,
provided, however, that Confidential Information shall not include
any information which: (i) was known by Executive prior to its
disclosure to him by the Employer, (ii) was generally known or
generally available to the public prior to its disclosure to
Executive by the Employer or (iii) becomes generally known or
generally available to the public subsequent to disclosure to
Executive by the Employer through no wrongful act of the Executive.
"DISABILITY"--as defined in Section 6.2.
"EFFECTIVE DATE"--the date stated in the first paragraph of the Agreement.
"EMPLOYEE INVENTION"--any idea, technique, modification, business process,
or improvement (whether patentable or not), created, conceived, or
developed by the Executive, either solely or in conjunction with others,
during the Employment Period, or a period that includes a portion of the
Employment Period, that relates in any way to, or is useful in any manner
in, the business then being conducted or proposed to be conducted by the
Employer.
"EMPLOYMENT PERIOD"--the term of the Executive's employment under this
Agreement.
"FISCAL YEAR"--the Employer's fiscal year, as it exists on the Effective
Date or as changed from time to time.
"FOR CAUSE"--as defined in Section 6.3.
"FOR GOOD REASON"--as defined in Section 6.4.
83
<PAGE> 2
"PERSON"--any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company,
joint venture, estate, trust, association, organization, or governmental
body.
"POST-EMPLOYMENT PERIOD"--as defined in Section 8.2.
"PROPRIETARY ITEMS"--as defined in Section 7.2(a)(iv).
"SALARY"--as defined in Section 3.1.
2. Employment Terms and Duties.
2.1 Employment. The Employer hereby employs the Executive, and the
Executive hereby accepts employment by the Employer, upon the terms and
conditions set forth in this Agreement.
2.2 Term. Subject to the provisions of Section 6, the term of the
Executive's employment under this Agreement will be four (4) years
("Initial Term"), beginning on the Effective Date and ending on the fourth
anniversary of the Effective Date; provided, however, that, upon the
expiration of the Initial Term, the term of the Executive's employment
under this Agreement shall be extended for an additional one-year period,
unless either the Executive or the Employee shall give the other party
hereto at least 90 days written notice prior to the expiration of the
Initial Term that the term of the Executive's employment under this
agreement shall not be so extended.
2.3 Duties. The Executive will have such duties as are assigned or
delegated to the Executive by the Board of Directors or Chief Executive
Officer, and will initially serve as Chairman and Chief Executive Officer
of the Employer. As such, Executive shall have such duties,
responsibilities and authority as may from time to time be reasonably
assigned to him by the Board of Directors and which are appropriate to his
office and title. Except as approved by the Board of Directors or the
Chief Executive Officer of the Company, the Executive will devote his
time, attention, skill, and energy exclusively to the business of the
Employer, will use his best efforts to promote the success of the
Employer's business, and will cooperate fully with the Board of Directors
in the advancement of the best interests of the Employer. Nothing in this
Section 2.3, however, will prevent the Executive from engaging in
additional activities in connection with personal investments and
community affairs that are not inconsistent with the Executive's duties
under this Agreement. If the Executive is elected as a director of the
Employer or as a director or officer of any of its affiliates, the
Executive will fulfill his duties as such director or officer without
additional compensation. In satisfying his obligations hereunder,
Executive will not be required or requested to violate any applicable law,
rule or regulation.
3. Compensation
3.1 Salary. The Executive will be paid an annual salary of $0, subject to
adjustment as provided below (the "Salary"), which will be payable in
equal periodic installments according to the Employer's customary payroll
practices, but no less frequently than monthly. The Salary will be
reviewed by the Board of Directors not less frequently than annually, and
may be adjusted upward or downward in the sole discretion of the Board of
Directors.
3.2 Benefits. The Executive will, during the Employment Period, be
permitted to participate in such pension, profit sharing, bonus, life
insurance, hospitalization, major medical, disability and other employee
benefit plans of the Employer that may be in effect from time to time, to
the extent the Executive is eligible under the terms of those plans
(collectively, the "Benefits").
3.3 Option Plan. The Executive shall participate in that certain TCC
Industries, Inc. 1997 Incentive and Performance Stock Option Plan adopted
by the Employer (the "Option Plan"). The Executive's participation under
the Option Plan shall be in accordance with the plan and the stock grants
to the Executive made thereunder.
4. Facilities and Expenses. The Employer will furnish the Executive office
space, equipment, supplies, and such other facilities and personnel as the
Employer deems necessary or appropriate for the performance of the Executive's
duties under this Agreement. The Employer will pay the Executive's dues in such
professional societies and organizations as the Chairman of the Board deems
appropriate, and will pay on behalf of the Executive (or reimburse the Executive
for) reasonable and necessary expenses incurred by the Executive at the request
of, or on behalf of, the Employer in the performance of the Executive's duties
pursuant to this Agreement, and in accordance with the Employer's employment
policies, including reasonable expenses incurred by the Executive in attending
conventions, seminars, and other business meetings, in appropriate business
entertainment activities, travel expenses and for promotional expenses. All such
expenses
84
<PAGE> 3
are subject to prior authorization and amount limits as may be required under
the Employer's policies. The Executive will file expense reports with respect to
such expenses in accordance with the Employer's policies.
5. Vacations and Holidays. The Executive will be entitled to paid vacation
each Fiscal Year in accordance with the vacation policies of the Employer in
effect for its executive officers from time to time, which shall not be less
than 10 business days a year. Vacation will be taken by the Executive at such
time or times as approved by the Chairman of the Board. The Executive will also
be entitled to the paid holidays and other paid leave set forth in the
Employer's policies. Vacation days and holidays during any Fiscal Year that are
not used by the Executive during such Fiscal Year may not be used in any
subsequent Fiscal Year. Upon written notice to Executive, all such vacation and
paid leave policies may be changed at any time by the Employer, as long as such
policies are not applicable solely to Executive. Executive shall be allowed ten
business days a year for sick leave.
6. Termination.
6.1 Events of Termination. The Employment Period, the Executive's Basic
Compensation and any and all other rights of the Executive under this
Agreement or otherwise as an employee of the Employer (except for rights
under the Option Plan that are not subject to divestiture or forfeiture)
will terminate (except as otherwise provided in this Section 6):
(a) upon the death of the Executive;
(b) upon the disability of the Executive (as defined in Section 6.2)
immediately upon notice from either party to the other;
(c) For Cause (as defined in Section 6.3), upon the notice from the
Employer to the Executive, or at such later time as such notice may
specify; or
(d) For Good Reason (as defined in Section 6.4) upon not less than
thirty days' prior notice from the Executive to the Employer.
In the event of the occurrence of any cause (as defined in Section 6.3),
at the request of the Board of Directors, the Executive shall immediately
tender his resignation to the Employer offering to resign all positions
with the Company and its subsidiaries, including positions as an officer,
director and any other capacity, and the Employer shall have the option
but not the obligation of accepting such resignation. If, for any reason,
the Executive does not tender such resignation the Employer may, by
notice, terminate the Executive immediately or at such later time as such
notice may specify.
6.2 Definition of Disability. For purposes of Section 6.1, the Executive
will be deemed to have a "disability" if, for physical or mental reasons,
the Executive is unable to perform the essential functions of the
Executive's duties under this Agreement for 120 consecutive days, or 180
days during any twelve-month period, as determined in accordance with this
Section 6.2, it being understood that Executive shall be entitled to
compensation hereunder until he is determined to have a "disability." The
disability of the Executive will be determined by a medical doctor
selected by written agreement of the Employer and the Executive upon the
request of either party by notice to the other. If the Employer and the
Executive cannot agree on the selection of a medical doctor, each of them
will select a medical doctor and the two medical doctors will select a
third medical doctor who will determine whether the Executive has a
disability. The determination of the medical doctor selected under this
Section 6.2 will be binding on both parties. The Executive will submit to
a reasonable number of examinations by the medical doctor making the
determination of disability under this Section 6.2, and the Executive
hereby authorizes the disclosure and release to the Employer of such
determination and all supporting medical records, provided that Employer
agrees to keep such medical information confidential. If the Executive is
not legally competent, the Executive's legal guardian or duly authorized
attorney-in-fact will act in the Executive's stead, under this Section
6.2, for the purposes of submitting the Executive to the examinations, and
providing the authorization of disclosure, required under this Section
6.2.
6.3 Definition of "For Cause". For purposes of Section 6.1, the phrase
"For Cause" means:
(a) the Executive's material breach of this Agreement, if such
breach is not cured within ten days after written notice thereof to
Executive by the Employer;
(b) the Executive's failure to adhere to any material written
Employer policy if the Executive has been given a reasonable
opportunity to comply with such policy or cure his failure to comply
(which
85
<PAGE> 4
reasonable opportunity must be granted during the ten-day period
preceding termination of this Agreement);
(c) the conviction of, or the entering of a guilty plea or plea of
no contest with respect to, a felony involving moral turpitude,
fraud or dishonesty, or the equivalent thereof, or any other crime
with respect to which imprisonment is a possible punishment;
(d) the appropriation (or attempted appropriation) of a material
business opportunity of the Employer, including securing any
personal profit in connection with any transaction entered into on
behalf of the Employer;
(e) the misappropriation (or attempted misappropriation) of any of
the Employer's funds or property; or
(f) the conviction of, or the entering of a guilty plea or plea of
no contest with respect to, a felony involving moral turpitude,
fraud or dishonesty, or the equivalent thereof, or any other crime
with respect to which imprisonment is a possible punishment, as the
same relates to his employment with the Employer.
6.4 Definition of "For Good Reason". For purposes of Section 6.1, the
phrase "For Good Reason" means any of the following:
(a) The Employer's material breach of this Agreement, if such breach
is not cured with ten days after written notice thereof to Employer
by the Executive;
(b) the assignment of the Executive without his consent to a
position, responsibilities, or duties of a materially lesser status
or degree of responsibility than his position, responsibilities, or
duties at the Effective Date;
(c) the relocation of the Employer's principal executive offices
outside the metropolitan Austin, Texas, area;
(d) the requirement by the Employer that the Executive be based
anywhere other than the Employer's principal executive offices, in
either case without the Executive's consent; or
(e) the shareholders of the Employer do not approve and adopt the
Option Plan on or before March 31, 1998.
6.5 Termination Pay.
(a) Effective upon the termination of this Agreement, the Employer
will be obligated to pay the Executive (or, in the event of his
death, his designated beneficiary as defined below) only such
compensation as is provided in this Section 6.5, and in lieu of all
other amounts and in settlement and complete release of all claims
the Executive may have against the Employer under this Agreement.
The Employer may condition the payment of any compensation provided
in this Section 6.5 or otherwise upon the receipt of a full release
of any liabilities which the Employer may owe to the Executive under
this Agreement or otherwise. Such release shall be in form and
substance acceptable to the Employer. For purposes of this Section
6.5, the Executive's designated beneficiary will be such individual
beneficiary or trust, located at such address, as the Executive may
designate by notice to the Employer from time to time or, if the
Executive fails to give notice to the Employer of such a
beneficiary, the Executive's estate. Notwithstanding the preceding
sentence, the Employer will have no duty, in any circumstances, to
attempt to open an estate on behalf of the Executive, to determine
whether any beneficiary designated by the Executive is alive or to
ascertain the address of any such beneficiary, to determine the
existence of any trust, to determine whether any person or entity
purporting to act as the Executive's personal representative (or the
trustee of a trust established by the Executive) is duly authorized
to act in that capacity, or to locate or attempt to locate any
beneficiary, personal representative, or trustee.
(b) If the Executive terminates this Agreement For Good Reason
(except for the reason or as a result of the circumstances described
in Section 6.4(e), above), the Employer will pay to the Executive
his Salary through the remainder of the calendar month during which
such termination is effective, and for three consecutive calendar
months thereafter. If the Executive terminates this Agreement for
the reason or as a result of the circumstances described in Section
6.4(e), above, the Employer will pay to the
86
<PAGE> 5
Executive his Salary throughout the remainder of the calendar month
during which such termination is effective. If the Employer
terminates this Agreement For Cause, the Executive will be entitled
to receive his Salary only through the date such termination is
effective. If this Agreement is terminated by either party as a
result of the Executive's disability as determined under Section
6.2, the Employer will pay the Executive his Salary through the
remainder of the calendar month during which such termination is
effective, and for the lesser of (i) six consecutive months
thereafter, or (ii) the period until disability insurance benefits
commence under the disability insurance coverage, if any, furnished
by the Employer to the Executive. If this Agreement is terminated
because of the Executive's death, the Executive will be entitled to
receive his Salary through the end of the calendar month in which
his death occurs.
(c) The Executive's accrual of, or participation in plans providing
for, the Benefits will cease at the effective date of the
termination of this Agreement, and the Executive will be entitled to
accrued Benefits pursuant to such plans only as provided in such
plans. The Executive will not receive, as part of his termination
pay pursuant to this Section 6, any payment or other compensation
for any vacation, holiday, sick leave, or other leave unused on the
date the notice of termination is given under this Agreement.
7. Non-disclosure Covenant.
7.1 Acknowledgments by the Executive. The Executive acknowledges that:
(a) during the Employment Period and as a part of his employment,
the Executive will be afforded access to Confidential Information;
(b) public disclosure of such Confidential Information could have an
adverse effect on the Employer and its business; and
(c) the provisions of this Section 7 are reasonable and necessary to
prevent the improper use or disclosure of Confidential Information
and to provide the Employer with exclusive ownership of all Employee
Inventions.
7.2 Agreements of the Executive. In consideration of the compensation and
benefits to be paid or provided to the Executive by the Employer under
this Agreement, the Executive covenants as follows:
(a) Confidentiality.
(i) During and following the Employment Period, the Executive
will hold in confidence the Confidential Information and will
not disclose it to any person except with the specific prior
written consent of the Employer or except as otherwise
expressly permitted by the terms of this Agreement.
(ii) Any trade secrets or Confidential Information (as defined
herein) of the Employer will be entitled to all of the
protections and benefits under applicable law. If any
information that the Employer deems to be a trade secret is
found by a court of competent jurisdiction not to be a trade
secret for purposes of this Agreement, such information will,
nevertheless, be considered Confidential Information for
purposes of this Agreement. The Executive hereby waives any
requirement that the Employer submit proof of the economic
value of any trade secret or post a bond or other security.
(iii) None of the foregoing obligations and restrictions
applies to any part of the Confidential Information that the
Executive demonstrates was or became generally available to
the public other than as a result of a disclosure by the
Executive.
(iv) The Executive will not remove from the Employer's
premises (except to the extent such removal is for purposes of
the performance of the Executive's duties at home or while
traveling, or except as otherwise specifically authorized by
the Employer) any document, record, notebook, plan, model,
component, device, or computer software or code related to the
Business (as defined herein) of the Employer, whether embodied
in a disk or in any other form (collectively, the "Proprietary
Items"). The Executive recognizes that, as between the
Employer and the Executive, all of the Proprietary Items,
whether or not developed by the Executive, are the exclusive
property of the Employer. Upon termination of this Agreement
by either party, or upon the request of the Employer during
the Employment Period, the Executive will return to the
Employer all of the Proprietary Items in the Executive's
possession or subject to the
87
<PAGE> 6
Executive's control, and the Executive shall not retain any
copies, abstracts, sketches, or other physical embodiment of
any of the Proprietary Items.
(b) Employee Inventions. Each Employee Invention (as defined
herein) will belong exclusively to the Employer. The Executive
acknowledges that all of the Executive's writing, works of
authorship, and other Employee Inventions are works made for hire
and the property of the Employer, including any copyrights or other
intellectual property rights pertaining thereto. If it is determined
that any such works are not works made for hire, the Executive
hereby assigns to the Employer all of the Executive's right, title,
and interest, including all rights of copyright and other
intellectual property rights, to or in such Employee Inventions. The
Executive covenants that he will promptly:
(i) disclose to the Employer in writing any Employee
Invention;
(ii) assign to the Employer or to a party designated by the
Employer, at the Employer's request and without additional
compensation, all of the Executive's right to the Employee
Invention for the United States and all foreign jurisdictions;
(iii)execute and deliver to the Employer such applications,
assignments, and other documents as the Employer may request
in order to apply for and obtain patents or other
registrations with respect to any Employee Invention in the
United States and any foreign jurisdictions;
(iv) sign all other papers necessary to carry out the above
obligations; and
(v) give testimony and render any other assistance but without
expense to the Executive in support of the Employer's rights
to any Employee Invention.
7.3 Disputes or Controversies. The Executive recognizes that should a
dispute or controversy arising from or relating to this Agreement be
submitted for adjudication to any court, arbitration panel, or other third
party, the preservation of the secrecy of Confidential Information may be
jeopardized. All pleadings, documents, testimony, and records relating to
any such adjudication will be maintained in secrecy and will be available
for inspection by the Employer, the Executive, and their respective
attorneys and experts, who will agree, in advance and in writing, to
receive and maintain all such information in secrecy, except as may be
limited by them in writing.
8. Non-interference.
8.1 Acknowledgments by the Executive. The Executive acknowledges that:
(a) the services to be performed by him under this Agreement are of
a special, unique, unusual and extraordinary character;
(b) the Employer's business ("Business") is to provide merchant
banking, investment banking and wholesale consumer lending services
to institutional entities and is national in scope and its products
are marketed throughout the United States;
(c) the Employer competes with other businesses that are or could be
located in any part of the United States; and
(d) the provisions of this Section 8 are reasonable and necessary to
protect the Employer's business.
8.2 Covenants of the Executive. In consideration of the acknowledgments
by the Executive, and in consideration of the compensation and benefits to
be paid or provided to the Executive by the Employer, the Executive
covenants that he will not, directly or indirectly:
(a) during the Employment Period, except in the course of his
employment hereunder, engage or invest in, own, manage, operate,
finance, control, or participate in the ownership, management,
operation, financing, or control of, be employed by, associated
with, or in any manner connected with, lend the Executive's name or
any similar name to, lend Executive's credit to or render services
or advice to, any business whose products or activities compete in
whole or in part with the Business of the Employer anywhere within
the United States;
88
<PAGE> 7
(b) whether for the Executive's own account or for the account of
any other person, at any time during the Employment Period and the
Post-Employment Period, solicit business of the same or similar type
as the Business being carried on by the Employer, from any person
known by the Executive to be a customer of the Employer, whether or
not the Executive had personal contact with such person during and
by reason of the Executive's employment with the Employer;
(c) whether for the Executive's own account or the account of any
other person
(i) at any time during the Employment Period and the
Post-Employment Period, solicit, employ, or otherwise engage
as an employee, independent contractor, or otherwise, any
person who is or was an employee of the Employer at any time
during the Employment Period or in any manner induce or
attempt to induce any employee of the Employer to terminate
his employment with the Employer; or
(ii) at any time during the Employment Period and the
Post-Employment Period, interfere with the Employer's
relationship with any person, including any person who at any
time during the Employment Period was an employee, contractor,
supplier, or customer of the Employer; or
(d) at any time during or after the Employment Period, disparage
the Employer or any of its shareholders, directors, officers,
employees, or agents.
For purposes of this Section 8.2, the term "Post-Employment Period" means
the one-year period beginning on the date of termination of the
Executive's employment with the Employer.
If any covenant in this Section 8.2 is held to be unreasonable, arbitrary,
or against public policy, such covenant will be considered to be divisible
with respect to scope, time, and geographic area, and such lesser scope,
time, or geographic area, or all of them, as a court of competent
jurisdiction may determine to be reasonable, not arbitrary, and not
against public policy, will be effective, binding, and enforceable against
the Executive.
The period of time applicable to any covenant in this Section 8.2 will be
extended by the duration of any violation by the Executive of such
covenant.
The Executive will, while the covenant under this Section 8.2 is in
effect, give notice to the Employer, within ten days after accepting any
other employment, of the identity of the Executive's employer. The
Employer may notify such employer that the Executive is bound by this
Agreement and, at the Employer's election, furnish such employer with a
copy of this Agreement or relevant portions thereof.
Employer covenants that at any time during or after the Employment Period
it will not disparage the Executive.
9. General Provisions.
9.1 Injunctive Relief and Additional Remedy. The Executive acknowledges
that the injury that would be suffered by the Employer as a result of a
breach of the provisions of this Agreement (including any provision of
Sections 7 and 8) would be irreparable and that an award of monetary
damages to the Employer for such a breach would be an inadequate remedy.
Consequently, the Employer will have the right, after the Executive has
been given 10 days to comply with Section 7 and 8 so as to cure his
failure to comply, in addition to any other rights it may have, to obtain
injunctive relief to restrain any breach or threatened breach or otherwise
to specifically enforce any provision of this Agreement, and the Employer
will not be obligated to post bond or other security in seeking such
relief.
9.2 Covenants of Sections 7 and 8 Are Essential and Independent Covenants.
The covenants by the Executive in Sections 7 and 8 are essential elements
of this Agreement, and without the Executive's agreement to comply with
such covenants, the Employer would not have entered into this Agreement or
employed or continued the employment of the Executive. The Employer and
the Executive have independently consulted their respective counsel
regarding such covenants.
The Executive's covenants in Sections 7 and 8 are independent covenants
and the existence of any claim by the Executive against the Employer under
this Agreement or otherwise, or against the Buyer, will not excuse the
Executive's breach of any covenant in Section 7 or 8; provided, however,
that Executive's covenants in Section 7 and 8 shall terminate if there is
a termination for good reason as set forth in Section 6.4 hereof.
89
<PAGE> 8
If the Executive's employment hereunder expires or is terminated, this
Agreement will continue in full force and effect as is necessary or
appropriate to enforce the covenants and agreements of the Executive in
Sections 7 and 8, except as noted above.
9.3 Offset. The Employer will be entitled to offset against any and all
amounts owing to the Executive under this Agreement the amount of any and
all claims that the Employer may have against the Executive under the
terms of this Agreement.
9.4 Liability Insurance. The Employer shall use reasonable efforts to
secure and maintain a director's and officer's liability policy in an
amount of at least $5,000,000 with Executive being named as an assured
thereunder and Executive being covered thereby in respect of certain
claims arising from duties carried out by Executive.
9.5 Representations and Warranties by the Executive. The Executive
represents and warrants to the Employer that the execution and delivery by
the Executive of this Agreement do not, and the performance by the
Executive of the Executive's obligations hereunder will not, with or
without the giving of notice or the passage of time, or both: (a) violate
any judgment, writ, injunction, or order of any court, arbitrator, or
governmental agency applicable to the Executive; or (b) conflict with,
result in the breach of any provisions of or the termination of, or
constitute a default under, any agreement to which the Executive is a
party or by which the Executive is or may be bound.
9.6 Obligations Contingent on Performance. The obligations of the
Employer hereunder, including its obligation to pay the compensation
provided for herein, are contingent upon the Executive's performance of
the Executive's obligations hereunder.
9.7 Waiver. The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by
either party in exercising any right, power, or privilege under this
Agreement will operate as a waiver of such right, power, or privilege, and
no single or partial exercise of any such right, power, or privilege will
preclude any other or further exercise of such right, power, or privilege
or the exercise of any other right, power, or privilege. To the maximum
extent permitted by applicable law,
(a) no claim or right arising out of this Agreement can be
discharged by one party, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing signed by the
other party;
(b) no waiver that may be given by a party will be applicable except
in the specific instance for which it is given; and
(c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party
giving such notice or demand to take further action without notice
or demand as provided in this Agreement.
9.8 Binding Effect; Delegation of Duties Prohibited. This Agreement
shall inure to the benefit of, and shall be binding upon, the parties
hereto and their respective successors, assigns, heirs, and legal
representatives, including any entity with which the Employer may merge or
consolidate or to which all or substantially all of its assets may be
transferred. The duties and covenants of the Executive under this
Agreement, being personal, may not be delegated.
9.9 Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been
duly given when
(a) delivered by hand (with written confirmation of receipt),
(b) sent by facsimile (with written confirmation of receipt),
provided that a copy is mailed by registered mail, return receipt
requested, or
(c) when received by the addressee, if sent by a nationally
recognized overnight delivery service (receipt requested), in each
case to the appropriate addresses and facsimile numbers set forth
below (or to such other addresses and facsimile numbers as a party
may designate by notice to the other parties):
90
<PAGE> 9
If to Employer: TCC Industries, Inc.
816 Congress Avenue, Suite 1250
Austin, Texas 78701
Attention: Chief Executive Officer
Facsimile No.: (512) 320-0063
If to the Executive: Walter A. DeRoeck
3106 Above Stratford Place
Austin, TX 78746
FAX: (512) 306-0924
9.10 Entire Agreement; Amendments. This Agreement contains the entire
agreement between the parties with respect to the subject matter hereof
(except the Option Plan) and supersedes all prior agreements and
understandings, oral or written, between the parties hereto with respect
to the subject matter hereof. This Agreement may not be amended orally,
but only by an agreement in writing signed by the parties hereto.
9.11 Governing Law. This Agreement will be governed by the laws of the
State of Texas without regard to conflicts of laws principles.
9.12 Arbitration. In the event that any dispute, disagreement or
controversy (collectively, a "Dispute") arises with respect to the
interpretation, performance, non-performance or termination of this
Agreement, the parties shall first attempt to settle such Dispute by good
faith negotiations between the parties. If the Dispute is not resolved
within 30 days of the date one party sends a notice to the other party
describing the Dispute and requesting good faith negotiations to resolve
the Dispute under this Section, the Dispute shall be resolved by binding
arbitration carried out in Austin, Texas in accordance with the Commercial
Arbitration Rules of the American Arbitration Association as then in
effect. The party which intends to initiate an arbitration proceeding
hereunder shall notify the other party of such intention in writing,
describing the Dispute. Notwithstanding the above, in any Dispute
arbitrated hereunder, the fees and expenses of the arbitrator(s) and
attorneys' fees and costs of the party ultimately prevailing in such
Dispute shall be borne by the other party.
9.13 Jurisdiction. Any action or proceeding seeking to enforce any
provision of, or based on any right arising out of, this Agreement may be
brought against either of the parties in the courts of the State of Texas,
County of Travis, or, if it has or can acquire jurisdiction, in the United
States District Court for the Western District of Texas, and each of the
parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives
any objection to venue laid therein. Process in any action or proceeding
referred to in the preceding sentence may be served on either party
anywhere in the world.
9.14 Section Headings, Construction. The headings of Sections in this
Agreement are provided for convenience only and will not affect its
construction or interpretation. All references to "Section" or "Sections"
refer to the corresponding Section or Sections of this Agreement unless
otherwise specified. All words used in this Agreement will be construed to
be of such gender or number as the circumstances require. Unless otherwise
expressly provided, the word "including" does not limit the preceding
words or terms.
9.15 Severability. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions
of this Agreement will remain in full force and effect. Any provision of
this Agreement held invalid or unenforceable only in part or degree will
remain in full force and effect to the extent not held invalid or
unenforceable.
9.16 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to
constitute one and the same agreement.
9.17 Waiver of Jury Trial. THE PARTIES HERETO HEREBY WAIVE A JURY TRIAL
IN ANY LITIGATION WITH RESPECT TO ENFORCING THE PROVISIONS OF SECTION 9.12
ABOVE OR OTHERWISE WITH RESPECT TO THIS AGREEMENT.
9.18 Release of Executive on Failure of Option Plan. In the event the
Executive terminates the Agreement for the reason or as a result of the
circumstances described in Section 6.4(e), above, Employer hereby
releases, acquits and discharges Executive (together with his heirs,
executors, administrators, assigns, legal representatives and attorneys)
from all matters, causes of action, accounts, suits, controversies,
agreements, damages, claims and demands, whether heretofore or hereafter
accruing, whether now known or not known to the parties prior to and
including the date hereof, in any way directly or indirectly arising out
of or in connection with the business or
91
<PAGE> 10
operations of the Employer, this Agreement, the Option Plan and any
related documents and any transactions or dealings between the parties
hereto, it being the intent of the Employer to fully and completely
discharge Executive (together with his heirs, executors, administrators,
assigns, legal representatives and attorneys) from any and all liabilities
related to or arising from all prior relationships, instruments and
courses of dealing, except that the parties shall continue to be bound by
the obligations described in this Agreement that are to survive its
termination.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date above first written above.
EMPLOYER: TCC INDUSTRIES, INC.
By: /s/ ROBERT THOMAJAN
--------------------------------------
Robert Thomajan, President
EXECUTIVE:
/s/ WALTER A. DeROECK
--------------------------------------
Walter A DeRoeck
92
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES OF REGISTRANT
The following is a list of the significant subsidiaries of the Registrant,
showing the percentage of voting securities owned by the Registrant or one or
more of its other subsidiaries at December 31, 1997.
Percentage
State/County of Voting
of Security
Name of Corporation Incorporation Owned
------------------- ------------- ----------
1. TeleCom Industrial Group, Delaware 100
Inc.
2. A.L. Investors, Inc. doing
business as Allen-Lewis
Manufacturing Company Texas 100
3. Paladin Financial, Inc. Texas 100
4. Barton Creek Capital
Corporation Texas 100
5. Texas Capital Markets, Inc. Texas 100
6. TeleCom Properties, Inc. Delaware 100
93
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
TCC Industries, Inc.:
We consent to the incorporation by reference in the registration statement
of TCC Industries, Inc. and Subsidiaries on Form S-8 (File No. 33-67730) of our
report dated February 24, 1998, on our audits of the consolidated financial
statements and financial statement schedules of TCC Industries, Inc. and
Subsidiaries as of December 31, 1997 and 1996, and for the years ended December
31, 1997, 1996 and 1995, which report is included in this Annual Report on Form
10-K.
COOPERS & LYBRAND L.L.P.
Austin, Texas
February 24, 1998
94
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 2,869
<SECURITIES> 0
<RECEIVABLES> 787
<ALLOWANCES> 50
<INVENTORY> 4,193
<CURRENT-ASSETS> 8,609
<PP&E> 3,415
<DEPRECIATION> 1,554
<TOTAL-ASSETS> 13,261
<CURRENT-LIABILITIES> 3,364
<BONDS> 2,813
0
0
<COMMON> 2,842
<OTHER-SE> 8,733
<TOTAL-LIABILITY-AND-EQUITY> 13,261
<SALES> 7,116
<TOTAL-REVENUES> 7,620
<CGS> 5,673
<TOTAL-COSTS> 5,673
<OTHER-EXPENSES> 850
<LOSS-PROVISION> 49
<INTEREST-EXPENSE> 510
<INCOME-PRETAX> (4,610)
<INCOME-TAX> 3
<INCOME-CONTINUING> (4,613)
<DISCONTINUED> 68
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,545)
<EPS-PRIMARY> (1.64)
<EPS-DILUTED> (1.64)
</TABLE>
