0000950152-95-001856.txt : 19950821
0000950152-95-001856.hdr.sgml : 19950821
ACCESSION NUMBER: 0000950152-95-001856
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 11
CONFORMED PERIOD OF REPORT: 19950531
FILED AS OF DATE: 19950818
SROS: NASD
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: SUDBURY INC
CENTRAL INDEX KEY: 0000811801
STANDARD INDUSTRIAL CLASSIFICATION: NONFERROUS FOUNDRIES (CASTINGS) [3360]
IRS NUMBER: 341546292
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0531
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-10023
FILM NUMBER: 95565278
BUSINESS ADDRESS:
STREET 1: 30100 CHAGRIN BLVD
STREET 2: STE 203
CITY: CLEVELAND
STATE: OH
ZIP: 44124
BUSINESS PHONE: 2164647026
MAIL ADDRESS:
STREET 1: 30100 CHAGRIN BLVD
STREET 2: SUITE 203
CITY: CLEVLAND
STATE: OH
ZIP: 44124
FORMER COMPANY:
FORMER CONFORMED NAME: NEW HOLDING CO /DE/
DATE OF NAME CHANGE: 19870615
10-K
1
SUDBURY, INC. 10-K
1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
_________________________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File
May 31, 1995 No. 1-10023
SUDBURY, INC.
A Delaware Corporation IRS Employer Identification
No. 34-1546292
30100 CHAGRIN BOULEVARD - SUITE 203
CLEVELAND, OHIO 44124
TELEPHONE (216) 464-7026
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, par value $.01
$10,000,000 8 3/5% Senior Subordinated Pay-In-Kind Notes due 1997
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, 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 or any
amendment to this Form 10-K. [x]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES X NO
--- ---
As of August 4, 1995, 10,238,551 shares were outstanding. The aggregate
market value of the voting stock held by non-affiliates of the registrant at
August 4, 1995 was $83,188,227.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of the Registrant's Annual Report to Stockholders for the
fiscal year ended May 31, 1995 are deemed incorporated by reference in Parts II
and IV of this Form 10-K. Portions of the Registrant's Proxy Statement for the
Annual Meeting of Stockholders to be held September 28, 1995 are deemed to be
incorporated by reference in Part III of this Form 10-K.
2
PART I
------
ITEM 1. BUSINESS
--------
GENERAL INFORMATION
-------------------
Sudbury, Inc. (the "Company") operates through its subsidiaries, which
are engaged in the manufacture and sale of a broad range of industrial
products, including iron, aluminum and zinc castings, coating applications,
cranes and truck bodies, lubricant and chemical storage and processing and
precision machined components.
From 1983 through January 1988, the Company purchased 30 companies at
an aggregate cost of approximately $193 million. The acquisitions were
financed through a combination of secured bank borrowings, subordinated
borrowings, seller financing in the form of subordinated seller notes and the
issuance of common stock and preferred stock.
In late 1990, as a result of the Company's highly leveraged condition
arising from the aforementioned acquisitions and recessionary economic
conditions which began to effect the Company's performance, the Company was
unable to meet its debt repayment obligations. To remedy its poor financial
condition, on January 10, 1992 the Company filed a petition (relating to the
Company only and not to its operating subsidiaries) under Chapter 11 of the
United States Bankruptcy Code. At that time, the Company hired Jacques R.
Sardas as its new president and chief executive officer, effective
January 13, 1992.
The Company was able to exit bankruptcy in less than eight months. Its
amended Plan of Reorganization (the "Plan") was confirmed by the United States
Bankruptcy Court, Northern District of Ohio ("Bankruptcy Court") by Order dated
August 18, 1992 and became effective on September 1, 1992 (the "Effective
Date"). Distributions under the Plan commenced on October 15, 1992.
The Plan implemented a restructuring of the Company by providing for a
new amortization schedule for the repayment of the indebtedness owed to its
secured lender banks, mainly through the sale of a substantial number of its
subsidiaries and a significant reduction of the Company's indebtedness to
subordinated debtholders and certain other unsecured creditors through the
conversion of debt into equity of the restructured Company.
In order to repay the indebtedness owed to the secured lender banks as
provided by the Plan, the Company implemented a business plan with an asset
disposition program involving the sale of a substantial number of its
subsidiaries which sales generated aggregate net cash proceeds of approximately
$37.6 million during fiscal years 1993 and 1994.
In May 1993, the Company successfully completed the refinancing of its
then existing bank debt which allowed the Company to retain six core businesses
and cease the previous asset sale process except for the Company's 35%
investment in General Products Delaware Corporation.
- 2 -
3
PRODUCTS, MARKETS AND SALES
---------------------------
The Company has one business segment--the manufacture of industrial
products. Ongoing operations in this segment include six businesses which are
described below.
The Company's largest group of products consists of products and
services sold to the automotive industry which are principally produced by the
Company's Wagner Castings Company ("Wagner") and Industrial Powder Coatings,
Inc. ("IPC") subsidiaries. Sales to the automotive industry represented 61%,
59%, and 56% of the Company's total sales from ongoing operations for the
fiscal years ended 1995, 1994 and 1993, respectively.
Wagner is the Company's largest automotive supplier and produces
ductile and malleable iron castings. Wagner sells its products both
domestically and in Europe, and is known as a producer of engineered critical
safety castings in the automotive industry. Wagner's product line includes
steering knuckles, suspension parts and transmission components. Wagner's
castings range in size from small pieces weighing less than one pound to
castings weighing up to 40 pounds.
Ductile iron castings represent approximately 81% of Wagner's product
line, with the balance being malleable iron castings. Ductile iron has similar
properties to that of malleable iron, however, ductile is less costly to
produce because it does not require the additional process of heat treatment
that malleable iron does. As a result of this cost differential, the market
for malleable iron has been decreasing. To offset the decline in malleable
castings, the Company made a decision in fiscal 1995 to expand the capacity at
its ductile iron foundry and phase out the malleable process by fiscal 1997.
Wagner's current annual ductile iron capacity before expansion is approximately
70,000 tons. The ductile iron expansion and modernization plan will increase
Wagner's annual ductile capacity by 14,000 tons, or 20%, and will cost
approximately $12 million. The new equipment is expected to be in operation in
early fiscal 1997. The Company intends to fund these capital investments
through cash generated from operations and funds available under its Credit
Facility. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
IPC serves the automotive and appliance industries through the
application of coatings to metal parts, components and finished products. With
ten powder coating lines, the Company believes that IPC is one of the largest
independent powder coating job shops in the United States. IPC also has the
capability of cathodic electro-coating of parts. Powder coatings are used to
enhance appearance and improve corrosion protection to parts. Powder coating's
use of a dry paint process gives it advantages over liquid painting processes
which give rise to certain environmental concerns surrounding the use of
solvents and the generation of air emissions. In fiscal 1995, IPC expanded its
powder coating technology and customer base through the construction of a new
leased building equipped with approximately $5 million in equipment to powder
coat steel blanks under a long-term contract (subject to certain conditions)
with General Electric Company for their new washing machine program. This
blank coating line is one of the first of its kind in the United States and is
designed to coat flat steel blanks before, rather than after, the forming
process and is capable of running at much higher line speeds with less labor
than a typical monorail powder coating line. The line began production in May
1995.
- 3 -
4
The Company's Iowa Mold Tooling Co., Inc. ("IMT") subsidiary designs
and manufactures hydraulic articulating and telescoping truck- mounted cranes,
tire handling equipment, air compressors, and service bodies including
lubrication, field service, utility and tire service bodies. IMT services,
both domestically and internationally, the following industries: construction,
utilities, tire service, railroad, forestry and municipalities.
The Company's remaining products come from its three smallest
businesses: Frisby P.M.C., Incorporated ("Frisby"), South Coast Terminals,
Inc. ("South Coast") and Cast-Matic Corporation ("Cast-Matic"). Frisby is a
high-volume precision machining operation which principally produces small
diameter shafts, spindles and spindle assemblies for the electric motor,
electric hand tool and automotive fuel injection markets. South Coast provides
value-added product related services (bulk liquid storage, chemical and
lubricant toll processing, packaging, warehousing and distribution) to the oil
and chemical industries. South Coast's products and services are sold to
selected niche markets where major oil companies are not the dominant
competitors. Cast-Matic manufactures aluminum and zinc die castings which are
used in a variety of different industries including gas regulation, appliance,
hardware and automotive.
CYCLICALITY AND SEASONALITY
---------------------------
As a result of the Company's heavy dependence on the automotive
industry, there is cyclicality and seasonality in the Company's sales and
profits. The cyclicality of the automotive industry affects the Company's
sales and profits during periods of slow economic growth or recession. The
seasonality results in the Company typically having higher sales and operating
profits in its second and fourth fiscal quarters.
RAW MATERIALS
-------------
Raw materials are purchased from a number of different sources and the
loss of any particular supplier would not have a material effect on any of the
Company's businesses. Scrap steel is the principal raw material utilized at
Wagner in the production of ductile and malleable iron castings and is subject
to price fluctuations. Commitments with most of Wagner's major customers allow
Wagner to pass on the majority of increases or decreases in the cost of scrap
steel to these customers, however, these adjustments are generally passed along
three to six months subsequent to the time the change occurs.
WORKING CAPITAL
---------------
The seasonality of certain of the Company's businesses serving the
automotive market may result in significant fluctuations in working capital.
Terms for sales to automotive customers are typically 30-45 days.
Additionally, IMT maintains large inventories due to the variety of its
products and customer demands regarding lead times.
MARKETING AND COMPETITION
-------------------------
The Company's sales to the automotive industry, which are principally
through Wagner and IPC, are primarily made through their respective in-house
sales forces. A portion of Wagner's sales may also come through its sales
engineers who are capable of providing design and engineering work in the early
stages of production. Companies competing in the automotive industry compete
on the basis of pricing, quality, engineering and design capabilities and
delivery. The highly competitive nature of this market makes it very difficult
for Wagner and IPC to improve margins through increases in the selling prices
of their products.
- 4 -
5
Wagner competes with many other foundries in the castings market and
also competes with manufacturers of metal castings and steel forgings. As a
result of industry consolidation occurring over the past several years, there
has been a reduction in the number of smaller foundries and an increase in the
market share held by larger foundries. Some of the foundries that compete with
Wagner are larger and have greater financial resources than the Company.
The competition for IPC, one of the larger companies in the powder
coatings industry, is very fragmented. IPC competes with many smaller
facilities which are located close to the ultimate customer. Locating a
coating facility close to a customer has become increasingly important because
of high transportation costs relative to the cost of the powder coating. As
discussed previously, IPC expanded its powder coating technology and customer
base through a new production facility located in close proximity to a
particular customer. The Company anticipates future growth at IPC will require
substantial capital expenditures to equip additional facilities located near
strategic customers. The Company intends to fund these capital investments
through cash generated from operations and funds available under its Credit
Facility. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
IMT's products are marketed through its (i) in-house sales force, (ii)
an organization of sales representatives and (iii) a worldwide distributor
network. IMT competes against numerous competitors, both domestically and
internationally, for its different products. The Company believes that IMT is
one of the leading producers of articulating cranes in North America; however,
it is a much smaller manufacturer in the market of truck service bodies. IMT
competes in its markets on the basis of product capabilities, quality and
price.
Both Frisby and Cast-Matic market their own products to a variety of
customers through a combination of in-house sales forces and outside sales
representatives. Competition in both of their respective markets is based on a
company's engineering and design capabilities, quality and price. In addition,
competition in these markets is highly fragmented. The precise nature of the
products that Frisby sells and the competitive pressures from newer
technologies will require Frisby to make capital expenditures to remain
competitive during the next several years. The Company intends to fund these
expected capital investments from cash generated from operations and funds
available under its Credit Facility. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources."
South Coast markets its products and services principally through its
in-house sales force. South Coast serves a variety of niche markets and
frequently competes against its large petro-chemical customers on in-house vs.
outsource purchase decisions. Companies compete in South Coast's market based
on quality, price, service and facilities.
On July 17, 1995, the Company's Board of Directors authorized the
Company's management to proceed with the sale of its South Coast Terminals,
Inc. subsidiary. The Company is in the process of negotiating a definitive
agreement with a prospective purchaser, and the ultimate consummation of the
sale will be contingent on the occurrence of certain events. For the year
ended May 31, 1995,
- 5 -
6
South Coast Terminals had sales of $23,484,000 and total assets at May 31, 1995
of $16,558,000. The Company expects that the proceeds of the sale, as
currently contemplated, would be in excess of the Company's investment in
South Coast Terminals.
SALES TO CERTAIN CUSTOMERS
--------------------------
For the fiscal years ended 1995, 1994 and 1993, sales to Ford Motor
Company were approximately $46.6 million, $34.6 million and $26.0 million,
respectively; and sales to Chrysler Corporation were approximately $36.3, $31.5
million and $24.0 million, respectively. No other customers accounted for more
than 6% of sales from ongoing operations for any such period.
BACKLOG
-------
As of May 31, 1995, the Company had an order backlog of $55.2 million,
compared to $52.9 million at the end of fiscal 1994. The increase in backlog
occurred primarily at IMT due principally to economic improvements in its
construction markets. Of such backlog, orders of approximately $40.5 million
associated with the automotive and truck industries are subject to cancellation
without compensation, as is customary in the industry.
ENVIRONMENTAL MATTERS
---------------------
The Company's manufacturing facilities and production processes, like
those of industrial manufacturers generally, are subject to numerous laws and
regulations designed to protect the environment. Environmental requirements
have become more stringent, not only with respect to emissions and wastes from
ongoing operations, but also with respect to historic conditions and
discontinued operations. Several of the Company's subsidiaries' current and
historic business activities may give rise to cleanup requirements in the
future, both with respect to on-site and off-site activities or conditions.
See "Item 3 - Legal Proceedings" for a discussion of off-site environmental
proceedings involving the Company's operating units. The ultimate costs of
environmental compliance cannot be predicted with precision due to many
uncertainties, such as whether cleanup action will be required and, if
required, what cleanup measures, techniques or standards will be imposed.
EMPLOYEES
---------
As of May 31, 1995, the Company employed 2,549 employees, of whom 1,318
were represented by unions.
ITEM 2. PROPERTIES
----------
The Company's corporate offices are located in a leased facility in
Cleveland, Ohio. The Company's operating units use a total of 16 facilities
containing a total of approximately 1.5 million square feet of owned space and
approximately .6 million square feet of leased space. The facilities generally
include manufacturing and office space and are located in Illinois, Iowa,
Kansas, Kentucky, Michigan, Ohio, Texas and Ontario, Canada. One owned
property in Texas is encumbered by a mortgage.
The Company believes that all of its facilities are reasonably maintained
and are generally adequate for their present purposes. Facilities are believed
to be sufficient to accommodate reasonable increases in business.
- 6 -
7
ITEM 3. LEGAL PROCEEDINGS
-----------------
GENERAL
-------
Other than routine litigation incident to its business and except as
noted below, the Company is not a party to any legal proceedings which could be
material to its results of operations, financial position or liquidity.
BENNETT LITIGATION
------------------
On September 16, 1985, a derivative action was filed in the United
States District Court for the Northern District of Ohio by John H. Bennett, a
stockholder of the Company. The complaint named certain directors and officers
of the Company as defendants and alleged that the Company was damaged as a
result of the private placement of the Company's Common Stock. The complaint,
as later amended to add additional defendants and causes of action, sought
monetary damages of $20 million and punitive damages of $20 million, as well as
injunctive relief.
On April 24, 1987, the same stockholder who filed the foregoing action
filed another lawsuit in the United States District Court for the Northern
District of Ohio, which was purportedly a class action on behalf of certain
holders of the Company's capital stock. The complaint named the then current
directors and executive officers of the Company, the Company, and certain other
persons as defendants. The suit sought to enjoin the consummation of the
Company's 1987 corporate reorganization, or, in the alternative, an award of
damages if the 1987 reorganization was consummated. The plaintiff's Motion for
Preliminary Injunction was denied by the Court on May 22, 1987.
No further material developments took place in either lawsuit prior to
the filing of the Company's bankruptcy case in January 1992, which filing
automatically stayed the proceeding in connection with these lawsuits. The
Company's bankruptcy Plan of Reorganization contained provisions reserving to
the Company the sole right to assert or waive any cause of action possessed by
the Company. In connection with confirmation of the Plan, the Company
intervened and caused the pending derivative action described above to be
dismissed. The plaintiff appealed this dismissal and certain related orders
to the United States Court of Appeals for the Sixth Circuit. By order entered
June 27, 1995, the Sixth Circuit Court of Appeals dismissed the appeals as
moot. The Company does not anticipate further appeals by the plaintiff and
believes that the dismissal of the appeals will end the litigation.
ENVIRONMENTAL MATTERS
---------------------
Several of the Company's operating units have been identified as
potentially responsible parties ("PRPs") in legal proceedings or otherwise
notified that they may be liable for the cleanup of hazardous substances under
federal "Superfund" and other environmental protection legislation. The
Company intends to utilize all available legal defenses and remedies, including
insurance owned by the Company or its predecessors in interest, with respect to
these sites and any other site in which it may be involved in legal
proceedings, to minimize the Company's financial exposure to environmental
liability.
- 7 -
8
TransPlastics, Inc., a non-operating subsidiary of the Company is among
53 identified PRPs at the Millcreek Dump Superfund Site in Millcreek Township,
Pennsylvania. In October 1989, the United States filed a Complaint, UNITED
STATES V RALPH RIEHL, JR., ET AL, in the United States District Court for the
Western District of Pennsylvania ("District Court") seeking approximately $3.3
million of costs allegedly incurred by the United States Environmental
Protection Agency ("U.S. EPA") at the aforementioned site, as well as
prejudgment interest and declaratory relief for future cleanup costs. In June
1992, TransPlastics was one of 39 defendants named in an Amended Complaint.
Under the District Court's case management order, contribution claims are
deemed asserted among TransPlastics and the other defendants. In April 1992,
the U.S. EPA issued to TransPlastics and 36 other respondents (including almost
all of the defendants in the District Court case) a unilateral administrative
order pursuant to Section 106 of the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"). The CERCLA Section 106
Order requires completion of specified remedial action for the Millcreek Dump
Site estimated by the United States EPA to cost $12 million. In fiscal 1995,
the federal government and TransPlastics, Inc. entered into a settlement
agreement by which the U.S. EPA agreed to accept $500,000 in settlement of its
pending claims at this site, which was within the amount previously accrued by
the Company. The proposed agreement includes a provision granting
TransPlastics contribution protection for matters addressed in the settlement.
A mandatory notice period has passed and TransPlastics, Inc. is awaiting the
submission of the agreement for District Court approval.
On April 19, 1993, the Minnesota Pollution Control Agency (MPCA) issued
Metalcote Grease and Oil Company ("Metalcote"), a division of Western Capital
Corporation, a non-operating subsidiary of the Company, an order to investigate
and take other corrective action at property Metalcote owned in St. Paul,
Minnesota. The property is currently owned by Randolph Capital Corporation, a
subsidiary of Western Capital Corporation. Although Randolph Capital
Corporation is currently contesting its responsibility for environmental
conditions that allegedly exist at the property, Randolph Capital Corporation
is cooperating with the MPCA and has retained legal counsel and environmental
consultants to respond to the MPCA's order. Although additional investigation
is necessary and ongoing, Randolph Capital Corporation currently estimates that
the future costs to respond to the order will be at least $300,000. During
1995, the Minnesota legislature passed legislation making a substantial portion
of these costs potentially eligible for reimbursement from the Minnesota
Petroleum Tank Release Cleanup Fund.
A release of petroleum products has also been identified and reported
to regulatory authorities at a second site in St. Paul, Minnesota previously
owned and operated by Metalcote, and a site in Philadelphia, Pennsylvania
previously owned and operated by Master Lubricants, both divisions of Western
Capital Corporation. Environmental consultants have been retained to
investigate and address the two reported petroleum releases. Due to the
preliminary status of the investigations, there is no current estimate of
future costs for investigation and cleanup at these sites. With respect to the
Minnesota site, Randolph Capital Corporation may be eligible for reimbursement
of certain costs under the Minnesota Petroleum Tank Cleanup Program. There is
currently no similar program in Pennsylvania.
- 8 -
9
To date, Management believes that the resolution of other pending or
anticipated environmental proceedings and all claims in the aggregate (after
applicable reserves, see Note E -- Contingencies and Commitments of the
financial statements) are immaterial to the Company's financial position,
results of operations and liquidity taken as a whole. Although the Company
continues to assess the potential liability of its operating units for pending
and anticipated legal proceedings, the ultimate liability for such
environmental matters cannot be predicted with certainty.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
The following sets forth the name, age and recent business experience of
each person who is an executive officer of the Company. All executive officers
are elected by and serve at the pleasure of the Board of Directors.
Principal occupation or
employment for the past
Name five years Age
---- ------------------------------ ---
Jacques R. Sardas Director, President and Chief 64
Executive Officer since
January 13, 1992; Chairman of
the Board of Directors and
Treasurer since January 1993;
Director and Executive Vice
President of Goodyear Tire and
Rubber Co., which develops and
sells tires domestically and
abroad (1980-1991); President
of Goodyear International
(September 1984-August 1988);
President and Chief Operating
Officer-Tires (August 1988-
April 1991).
Mark E. Brody Vice President and Chief 33
Financial Officer since
October 1994; Vice President
of Finance (October 1992 -
October 1994); Controller
(September 1991 - October 1994);
Assistant Controller (April
1989-September 1991); Director
of Taxes (December 1987-
April 1989).
- 9 -
10
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
-------------------------------------------------------------
MATTERS
-------
The Company's common shares are listed on the Nasdaq National Market
System. The information required by this item appears under the caption
"Market For Registrant's Common Equity and Related Stockholder Matters" on
page 28 of the 1995 Annual Report and is incorporated herein by reference
thereto.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The information required by this item appears under the caption
"Selected Financial Data" on page 1 of the 1995 Annual Report and is
incorporated herein by reference thereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The information required by this item appears under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 26 through 28 of the 1995 Annual Report and is
incorporated herein by reference thereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The information required by this item appears on pages 13 through 25 of
the 1995 Annual Report and is incorporated herein by reference thereto.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
----------------------------------------------------
Not Applicable
- 10 -
11
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
-----------------------------------------------
The information required by this item appears under the caption
"Election of Directors" on pages 4 through 6 of the Company's definitive Proxy
Statement to be filed with the Securities and Exchange Commission within 120
days of the close of the Company's fiscal year ended May 31, 1995 and is
incorporated herein by reference thereto.
Information concerning executive officers of the Company is contained
in Part I of this report under the caption "Executive Officers of the
Registrant."
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The information required by this item is located on pages 7 through 13
of the Company's definitive Proxy Statement to be filed with the Securities and
Exchange Commission within 120 days of the close of the Company's fiscal year
ended May 31, 1995 and is incorporated herein by reference thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The information required by this item appears under the caption
"Beneficial Ownership of Securities" on pages 2 and 3 of the Company's
definitive Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days of the close of the Company's fiscal year ended May
31, 1995 and is incorporated herein by reference thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Not applicable.
- 11 -
12
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a)(1), (a)(2) and (d) Financial Statements and Financial Schedules.
---------------------------------------------
The financial statements and financial statement schedules listed
in accompanying index to financial statements and financial
schedules are filed as part of this Annual Report on Form 10-K.
(a)(3) and (c) Exhibits.
---------
The exhibits listed on the accompanying index to exhibits are
filed as part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K.
None.
- 12 -
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on August 18, 1995 on its behalf by the undersigned, thereunto duly authorized.
SUDBURY, INC.
By:/S/Mark E. Brody
------------------------------------
Mark E. Brody
Vice President and Chief Financial
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, and
the rules and regulations promulgated thereunder, this report has been signed
on behalf of the Registrant by the following persons, in their indicated
capacities, on August 18, 1995.
/S/Jacques R. Sardas
------------------------------
Jacques R. Sardas Director, Chairman, President and Chief Executive Officer (Principal Executive Officer)
/S/Mark E. Brody
------------------------------
Mark E. Brody Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
/S/Cloyd J. Abruzzo
------------------------------
Cloyd J. Abruzzo Director
/S/Jerry A. Cooper
------------------------------
Jerry A. Cooper Director
/S/Preston Heller, Jr.
------------------------------
Preston Heller, Jr. Director
/S/James A. Karman
------------------------------
James A. Karman Director
/S/David A. Preiser
------------------------------
David A. Preiser Director
/S/Thomas F. Slater
------------------------------
Thomas F. Slater Director
- 13 -
14
SUDBURY, INC.
ANNUAL REPORT ON FORM 10-K
ITEMS 14 (a) (1), (2) (d) AND (3) (c)
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENT SCHEDULES
INDEX TO EXHIBITS
CERTAIN EXHIBITS
FISCAL YEAR ENDED MAY 31, 1995
- 14 -
15
SUDBURY, INC.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(ITEM 14(a)(1) AND (2)(d))
PAGE REFERENCE
-------------------------
FORM 10-K ANNUAL REPORT
--------- -------------
Data incorporated by reference from the
1995 Annual Report:
Consolidated Statements of Operations -
Fiscal Years Ended May 31, 1995 and 1994,
Nine Months Ended May 31, 1993 and the
Three Months Ended August 31, 1992 13
Consolidated Balance Sheets - May 31, 1995
and May 31, 1994 14
Consolidated Statements of Stockholders'
Equity (Deficit) - Fiscal Years Ended
May 31, 1995 and 1994, Nine Months Ended
May 31, 1993 and the Three Months Ended
August 31, 1992 15
Consolidated Statements of Cash Flows -
Fiscal Years Ended May 31, 1995 and 1994,
Nine Months Ended May 31, 1993 and the
Three Months Ended August 31, 1992 16
Notes to Consolidated Financial Statements 17-25
Report of Independent Auditors 25
Consolidated Financial Statement Schedules:
Schedule VIII - Valuation and Qualifying Accounts 16
Report of Independent Auditors 17
All other schedules for the Company have been omitted since the required
information is not present or not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the financial statements, including the notes thereto.
The consolidated financial statements of the Company listed in the preceding
index, which are included in the 1995 Annual Report, are incorporated herein by
reference. With the exception of the pages listed in the above index and
information incorporated by reference elsewhere herein, the 1995 Annual Report
is not to be deemed filed as part of this report.
- 15 -
16
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
SUDBURY, INC. AND SUBSIDIARIES
____________________________________________________________________________________________________________________________
COL. A COL. B COL. C COL. D COL. E
----------------------------------------------------------------------------------------------------------------------------
ADDITIONS
BALANCE AT CHARGED TO CHARGED BALANCE AT
BEGINNING COSTS AND TO OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Fiscal year ended May 31, 1995:
Deferred tax asset valuation
allowance $9,214 $ 215 $ (946) (1) $(2,020) (1) $6,463
Fiscal year ended May 31, 1994:
Deferred tax asset valuation
allowance $9,208 $ 6 (2) $9,214
Nine months ended May 31, 1993:
Deferred tax asset valuation
allowance $5,688 $ 3,520 (2) $9,208
Three months ended August 31, 1992:
Deferred tax asset valuation
allowance $ 5,688 (3) $5,688
(1) Valuation allowance was reduced as a result of an evaluation of future realizability.
(2) Increases in valuation allowance resulted primarily from net operating and capital losses which could not be realized.
(3) Valuation allowance was recorded in conjunction with the adoption by the Company of SFAS No. 109 under the Fresh Start
accounting adjustment discussed in Note P to the financial statements.
- 16 -
17
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of Sudbury, Inc. as of
May 31, 1995 and 1994, and for the years ended May 31, 1995 and 1994, the nine
months ended May 31, 1993, and the three months ended August 31, 1992, and have
issued our report thereon dated July 17, 1995 [incorporated by reference
elsewhere in this Annual Report (Form 10-K)]. Our audits also included the
related consolidated financial statement schedule of Sudbury, Inc. listed in
item 14(a) of this Annual Report (Form 10-K). This schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits.
In our opinion, the consolidated 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 set forth
therein.
ERNST & YOUNG LLP
Cleveland, Ohio
July 17, 1995
- 17 -
18
SUDBURY, INC.
FORM 10-K
EXHIBIT INDEX
-------------
Item 14(a)(3) EXHIBITS: Exhibits identified in parenthesis below, on
file with the SEC, are incorporated herein by reference as
exhibits hereto.
EXHIBIT NO.
-----------
(2) Third Amended Plan of Reorganization as confirmed by the United States Bankruptcy Court, Northern District of Ohio.
(Exhibit (2) to Form 10-K for the fiscal year ended May 31, 1992.)
(3)(a) By-Laws of Sudbury, Inc., as amended November 19, 1992. (Exhibit (3)(a) to Form 10-K for the fiscal year ended May 31,
1993.)
(3)(b) Second Restated Certificate of Incorporation of Sudbury, Inc. (Exhibit (3)(b) to Form 10-K for the fiscal year ended
May 31, 1993.)
(4)(a) Indenture, dated as of April 15, 1986, from Sudbury to FirsTier Bank, National Association, Omaha, Nebraska, as
Trustee, for Sudbury's 7-1/2% Convertible Subordinated Debentures due 2011. (Exhibit (4)(a) to Amendment No. 1 to
Registration Statement No. 33-4699 filed April 10, 1986.)
(4)(b) Supplemental Indenture, dated as of May 27, 1987, from Sudbury to FirsTier Bank, National Association, as Trustee.
(Exhibit (4)(b) to Form 10-K for the fiscal year ended May 30, 1987.)
(4)(c) Credit Agreement by and among Sudbury, Inc. and National City Bank, Star Bank, National Association and National City
Bank, as Agent, dated May 30, 1995.
(4)(d) Form of Participation Certificate Agreement entered into in connection with Sudbury's Third Amended Plan of
Reorganization. (Exhibit (4)(r) to Form 10-K for the fiscal year ended May 31, 1992.)
(4)(e) Form of Indenture between Sudbury and IBJ Schroder Bank and Trust Company, as Trustee for Sudbury's 8.6% $10 million
Senior Subordinated Pay-In-Kind Notes due 1997, distributed pursuant to Sudbury's Third Amended Plan of Reorganization.
(Exhibit T3C to the Form T-3 filed on August 17, 1992.)
(10)(a) 1990 Stock Option Plan. (Exhibit (10)(l) to Form 10-K for the fiscal year ended May 31, 1990.)
(10)(b) Amended Employment Agreement dated January 13, 1992 between Sudbury and Jacques R. Sardas. (Exhibit (10)(h) to Form
10-K for the fiscal year ended May 31, 1992.)
- 18 -
19
SUDBURY, INC.
FORM 10-K
EXHIBIT INDEX (CONTINUED)
EXHIBIT NO.
-----------
(10)(c) Agreement and Plan of Merger dated November 7, 1989 among Sudbury, Western, General Products Delaware Corporation,
General Products Angola Corporation and General Products Corporation. (Exhibit (10)(b) to Current Report on Form 8-K
for event occurring on November 7, 1989.)
(10)(d) Asset Purchase Agreement dated November 7, 1989 among Sudbury, Western and General Products Delaware Corporation.
(Exhibit 10(a) to the Current Report on Form 8-K filed for event occurring on November 7, 1989.)
(10)(e) Settlement Agreement and Mutual Release dated July 29, 1994 between Jacques R. Sardas and Sudbury, Inc. (Exhibit
(10)(e) to Form 10-K for the fiscal year ended May 31, 1994.)
(10)(f) Stock Option Agreement dated July 29, 1994 between Jacques R. Sardas and Sudbury, Inc. (Exhibit (10)(f) to Form 10-K
for the fiscal year ended May 31, 1994.)
(10)(g) Summary Description of the Sudbury, Inc. Incentive Bonus Plan. (Exhibit (10)(g) to Form 10-K for the fiscal year ended
May 31, 1994.)
(10)(h) Directors' Deferral Plan adopted September 12, 1994.
(10)(i) 1995 Stock Option Plan.
(10)(j) Employment Agreement between Jacques R. Sardas and Sudbury, Inc. dated July 28, 1995.
(10)(k) Non-Qualified Stock Option Agreement between Sudbury, Inc. and Jacques R. Sardas dated July 28, 1995.
(11) Statement re: Computation of Per Share Earnings
(13) Selected portions of the 1995 Annual Report
(21) Subsidiaries of the Company
(23) Consent of Independent Auditors
(27) Financial Data Schedule
The above exhibits are available to shareholders upon written request to:
Corporate Secretary
Sudbury, Inc.
30100 Chagrin Boulevard, Suite 203
Cleveland, Ohio 44124
- 19 -
EX-4.C
2
EXHIBIT 4.C
1
Exhibit (4)(c)
CREDIT AGREEMENT
by and among
SUDBURY, INC.
and
NATIONAL CITY BANK,
STAR BANK, NATIONAL ASSOCIATION
and
NATIONAL CITY BANK, as Agent
May 30, 1995
--
$40,000,000 Revolving Commitment
2
Table of Contents
1. CROSS-REFERENCE ..................................................... 1
2A. REVOLVING COMMITMENT .............................................. 1
2A.01 AMOUNT ..................................................... 1
2A.02 TERM ....................................................... 1
2A.03 OPTIONAL AND MANDATORY REDUCTIONS .......................... 1
2A.04 COMMITMENT FEE ............................................. 2
2A.05 EXTENSION OF REVOLVING COMMITMENT .......................... 3
2A.06 MONITORING FEE ............................................. 3
2A.07 ANNUAL FACILITY FEE ........................................ 3
2A.08 TERM OUT OPTION ............................................ 3
2B. REVOLVING LOANS ................................................... 4
2B.01 REVOLVING NOTE ............................................. 5
2B.02 CREDIT REQUESTS ............................................ 5
2B.03 CONDITION: NO DEFAULT ...................................... 5
2B.04 CONDITION: PURPOSE ......................................... 6
2B.05 LOAN MIX ................................................... 6
2B.06 AMOUNTS .................................................... 6
2B.07 LIBOR CONTRACT PERIODS ..................................... 7
2B.08 MATURITIES ................................................. 7
2B.09 ROLLOVER ................................................... 8
2B.10 INTEREST: PR LOANS ......................................... 8
2B.11 INTEREST: LIBOR LOANS ...................................... 8
2B.12 PREPAYMENTS ................................................ 9
2B.13 DISBURSEMENT ............................................... 10
2B.14 BORROWING BASE ............................................. 10
2B.15 BORROWING BASE MAINTENANCE ................................. 11
2B.16 LIBOR LOANS: UNAVAILABILITY ................................ 11
2B.17 LIBOR LOANS: ILLEGALITY .................................... 12
2B.18 SUBJECT LOAN BACK-UP ....................................... 12
2B.19 UNCONDITIONAL OBLIGATION ................................... 12
2C. LETTERS OF CREDIT ................................................. 13
2C.01 RATABLE PARTICIPATION ...................................... 13
2C.02 MAXIMUM .................................................... 13
2C.03 TERM ....................................................... 13
2C.04 CREDIT REQUESTS ............................................ 14
2C.05 FORM ....................................................... 14
2C.06 COMMISSION ................................................. 14
2C.07 REIMBURSEMENT .............................................. 14
3A. INFORMATION ....................................................... 14
3
3A.01 FINANCIAL STATEMENTS ...................................... 14
3A.02 NOTICE .................................................... 17
3B. GENERAL FINANCIAL STANDARDS ....................................... 17
3B.01 TANGIBLE NET WORTH ........................................ 18
3B.02 LEVERAGE RATIO ............................................ 18
3B.03 PRETAX INTEREST COVERAGE .................................. 18
3B.04 FIXED CHARGE RATIO ........................................ 18
3C. AFFIRMATIVE COVENANTS ............................................. 19
3C.01 TAXES ..................................................... 19
3C.02 FINANCIAL RECORDS ......................................... 19
3C.03 VISITATION ................................................ 20
3C.04 INSURANCE ................................................. 20
3C.05 CORPORATE EXISTENCE ....................................... 20
3C.06 COMPLIANCE WITH LAW ....................................... 20
3C.07 PROPERTIES ................................................ 21
3C.08 MORTGAGES ON REAL ESTATE .................................. 21
3C.09 INTERCOMPANY LOANS ........................................ 21
3D. NEGATIVE COVENANTS ................................................ 22
3D.01 EQUITY TRANSACTIONS ....................................... 22
3D.02 CREDIT EXTENSIONS ......................................... 23
3D.03 BORROWINGS ................................................ 25
3D.04 LIENS, LEASES ............................................. 25
3D.05 FIXED ASSETS .............................................. 27
3D.06 DIVIDENDS ................................................. 27
3D.07 SUBORDINATED NOTES ........................................ 27
4A. CLOSING ........................................................... 27
4A.01 REVOLVING NOTES ........................................... 27
4A.02 RESOLUTIONS/INCUMBENCY .................................... 27
4A.03 LEGAL OPINION ............................................. 27
4A.04 FINANCIAL STATEMENTS ...................................... 28
4A.05 SECURITY AGREEMENTS ....................................... 28
4A.06 GUARANTY .................................................. 28
4A.07 DOCUMENTATION FEE ......................................... 28
4A.08 LIEN WAIVERS .............................................. 28
4A.09 OTHER DOCUMENTS ........................................... 28
4A.10 EXISTING LOAN PAYOFF ...................................... 29
4A.11 NO MATERIAL ADVERSE CHANGE ................................ 29
4B. REPRESENTATIONS/WARRANTIES ........................................ 29
4B.01 EXISTENCE ................................................. 29
4B.02 GOVERNMENTAL RESTRICTIONS ................................. 29
4B.03 CORPORATE AUTHORITY ....................................... 29
4
4B.04 LITIGATION ................................................ 30
4B.05 TAXES ..................................................... 30
4B.06 TITLE ..................................................... 30
4B.07 LAWFUL OPERATIONS ......................................... 30
4B.08 INSURANCE ................................................. 31
4B.09 FINANCIAL STATEMENTS ...................................... 31
4B.10 INDEBTEDNESS .............................................. 31
4B.11 DEFAULTS .................................................. 31
4B.12 FULL DISCLOSURE ........................................... 31
5A. EVENTS OF DEFAULT ................................................. 32
5A.01 PAYMENTS .................................................. 32
5A.02 WARRANTIES ................................................ 32
5A.03 COVENANTS WITHOUT GRACE ................................... 32
5A.04 COVENANTS WITH GRACE ...................................... 32
5A.05 CROSS-DEFAULT ............................................. 32
5A.06 BORROWER'S SOLVENCY ....................................... 33
5A.07 COMPANIES' SOLVENCY ....................................... 33
5A.08 MATERIAL ADVERSE CHANGE ................................... 33
5B. EFFECTS OF DEFAULT ................................................ 33
5B.01 OPTIONAL DEFAULTS ......................................... 33
5B.02 AUTOMATIC DEFAULTS ........................................ 34
5B.03 OFFSETS ................................................... 34
5B.04 SUBJECT LCs ............................................... 34
5B.05 EQUALIZATION .............................................. 35
6A. INDEMNITY: STAMP TAXES ............................................ 35
6B. INDEMNITY: GOVERNMENTAL COSTS/LIBOR-RATE LOANS .................... 35
6C. INDEMNITY: FUNDING COSTS .......................................... 36
6D. CREDIT REQUESTS ................................................... 36
6E. INDEMNITY: UNFRIENDLY TAKEOVERS ................................... 36
6F. INDEMNITY: GOVERNMENTAL COSTS/SUBJECT LCs ......................... 36
6G. INDEMNITY: MISCELLANEOUS COSTS/SUBJECT LCs ........................ 36
6H. INDEMNITY: CAPITAL REQUIREMENTS ................................... 37
6I. INDEMNITY: COLLECTION COSTS ....................................... 37
6J. CERTIFICATE FOR INDEMNIFICATION ................................... 37
7A. BANK'S PURPOSE .................................................... 37
7B. NCB-AGENT ......................................................... 37
7B.01 NATURE OF APPOINTMENT .................................... 38
7B.02 NCB AS A BANK; OTHER TRANSACTIONS ........................ 38
7B.03 INSTRUCTION FROM BANKS ................................... 38
7B.04 BANKS' DILIGENCE ......................................... 38
7B.05 NO IMPLIED REPRESENTATIONS ............................... 38
5
7B.06 SUB-AGENTS ............................................... 39
7B.07 NCB-AGENT'S DILIGENCE .................................... 39
7B.08 NOTICE OF DEFAULT ........................................ 39
7B.09 NCB-AGENT'S LIABILITY .................................... 39
7B.10 COMPENSATION ............................................. 39
7B.11 DISBURSEMENTS ............................................ 39
7B.12 NCB-AGENT'S INDEMNITY .................................... 40
7B.13 RESIGNATION .............................................. 40
7C. TRANSFER OF SUBJECT LOANS .................................... 40
7C.01 PRIOR CONSENT ............................................ 41
7C.02 AGREEMENT ................................................ 41
7C.03 NOTE ..................................................... 41
7C.04 PARTIES .................................................. 41
8. INTERPRETATION ................................................ 41
8.01 WAIVERS .................................................. 41
8.02 CUMULATIVE PROVISIONS .................................... 41
8.03 BINDING EFFECT ........................................... 42
8.04 SURVIVAL OF PROVISIONS ................................... 42
8.05 IMMEDIATE U.S. FUNDS ..................................... 42
8.06 CAPTIONS ................................................. 42
8.07 SUBSECTIONS .............................................. 42
8.08 ILLEGALITY ............................................... 42
8.09 OHIO LAW ................................................. 42
8.10 INTEREST/FEE COMPUTATIONS ................................ 42
8.11 NOTICE ................................................... 43
8.12 ACCOUNTING TERMS ......................................... 43
8.13 ENTIRE AGREEMENT ......................................... 43
8.14 WAIVER OF JURY TRIAL ..................................... 43
8.15 LATE CHARGE; APPLICATION OF PAYMENTS ..................... 43
8.16 EXPENSES ................................................. 44
8.17 JURISDICTION AND VENUE ................................... 44
8.18 AMBIGUITIES .............................................. 44
8.19 OTHER WAIVERS AND ACKNOWLEDGMENT ......................... 44
9. DEFINITIONS ................................................... 45
Account Debtor ................................................. 45
Account Officer ................................................ 45
Accumulated Funding Deficiency ................................. 45
Advantage ...................................................... 45
Affiliate ...................................................... 45
Agreement ...................................................... 45
Availability ................................................... 46
6
Bank ............................................................ 46
Banking Day ..................................................... 46
Borrower ........................................................ 46
Borrowing Base .................................................. 46
Borrowing Base Report ........................................... 46
Company ......................................................... 46
Conversion Date ................................................. 46
Credit Request .................................................. 46
Debt ............................................................ 46
Default Under ERISA ............................................. 47
Default Under This Agreement .................................... 47
Distribution .................................................... 47
Eligible Inventory .............................................. 47
Eligible Receivables ............................................ 47
Environmental Law ............................................... 50
ERISA ........................................................... 50
Event of Default ................................................ 50
Existing Revolving Facility ..................................... 50
Expiration Date ................................................. 51
Federal Funds Rate .............................................. 51
Fixed Charge Ratio .............................................. 51
Funded Indebtedness ............................................. 51
GAAP ............................................................ 51
Guarantor ....................................................... 51
Initial Funding Date ............................................ 51
Insider ......................................................... 52
Insolvency Action ............................................... 52
Inventory ....................................................... 52
Leverage Ratio .................................................. 52
LIBOR Contract Period ........................................... 52
LIBOR Loan ...................................................... 52
LIBOR Pre-Margin Rate ........................................... 52
Margin .......................................................... 52
Maturity ........................................................ 53
Most Recent 4A.04 Financial Statements .......................... 53
NCB ............................................................. 53
Net Amount of Eligible Receivables .............................. 53
Net Income ...................................................... 53
Noteholders ..................................................... 53
PBGC ............................................................ 53
Pension Plan .................................................... 53
7
Person .......................................................... 53
PR Loan ......................................................... 53
Prime Rate ...................................................... 53
Proforma Covenant Compliance .................................... 53
Progress Billings ............................................... 53
Projections ..................................................... 54
Ratable and Ratably ............................................. 54
Receivable ...................................................... 54
Related Writing ................................................. 54
Reportable Event ................................................ 54
Repricing Event ................................................. 54
Revolving Commitment ............................................ 54
Revolving Loan .................................................. 54
Revolving Note .................................................. 54
Sardas Shares ................................................... 54
Series .......................................................... 55
Subject Indebtedness ............................................ 55
Subject LC ...................................................... 55
Subject Loan .................................................... 55
Subordinated .................................................... 55
Subsidiary ...................................................... 55
Supplemental Schedule ........................................... 55
Tangible Net Worth .............................................. 55
Term Out Option ................................................. 55
Term Maturity Date .............................................. 55
Total Liabilities ............................................... 56
plurals .............................................................. 56
10. EXECUTION ........................................................ 56
Signatures and Addresses ............................................. 57
EXHIBIT A: Supplemental Schedule (4B.)
EXHIBIT B: Revolving Note (2B.01; 4A.01)
EXHIBIT C: [Intentionally omitted]
EXHIBIT D: Extension Agreement (2A.06)
EXHIBIT E: Credit Request (2B.02)
EXHIBIT F: List of Subsidiaries (4B.01)
8
CREDIT AGREEMENT
----------------
This Credit Agreement (this "Agreement") is made as of May 30, 1995 by and
among SUDBURY, INC. ("Borrower") and the Banks named in subsection 2A.01 below
(the "Banks") and NATIONAL CITY BANK as agent (in that capacity, "NCB-Agent")
of the Banks for the purposes of this Agreement and the Related Writings:
1. CROSS-REFERENCE -- Certain capitalized terms and phrases used but not
otherwise defined in the body hereof are defined in section 9 below.
2A. REVOLVING COMMITMENT -- The basic terms of the Revolving Commitments and
the compensation therefor are as follows:
2A.01 AMOUNT -- The aggregate amount of the Revolving Commitments shall
be Forty Million and 00/100 Dollars ($40,000,000), but said amount may
be Ratably reduced from time to time pursuant to subsection 2A.03 and
the Revolving Commitments may be terminated pursuant to section 5B. The
amount of each Bank's maximum Revolving Commitment (subject to such
reduction or termination), and the proportion (expressed as a
percentage) that it bears to all of the Revolving Commitments, is set
forth opposite the Bank's name below, to-wit:
$20,000,000 50% National City Bank
$20.000.000 50% Star Bank, National Association
----------- ---- -------------------------------
$40,000,000 100% Total
2A.02 TERM -- Each Revolving Commitment shall become effective as of the
date of this Agreement and shall remain in effect on a revolving basis
until May 30, 1998 (the "Expiration Date") EXCEPT that a later
Expiration Date may be established from time to time pursuant to
subsection 2A.05 and EXCEPT that the Revolving Commitments shall end in
any event upon any earlier reduction thereof to zero pursuant to
subsection 2A.03 or any earlier termination pursuant to section 5B.
2A.03 OPTIONAL AND MANDATORY REDUCTIONS -- Borrower shall have the
right, at all times and without the payment of a premium, to permanently
and Ratably reduce the Revolving Commitments in whole or in part by
giving NCB-Agent irrevocable notice (to be given not later than 12:00
noon of the Banking Day next preceding the effective date of the
reduction and either to be given in writing or to be promptly confirmed
in writing) of the aggregate amount by which the Revolving Commitments
are to be reduced and the effective date thereof subject, however, to
the following:
(a) Subject to section 2A.03(c) below, no such reduction shall
reduce any Bank's Revolving Commitment to a lesser amount than the
sum of
(1) the aggregate unpaid principal balance of that Bank's
Revolving Loans outstanding at that time plus
9
(2) the aggregate unpaid principal balance of any of that Bank's
LIBOR Loans to be obtained pursuant to any unfulfilled Credit
Request under subsection 2B.02 plus
(3) that Bank's Ratable share of the aggregate undrawn balance of
the Subject LCs and any unreimbursed drawings pursuant to the
Subject LCs plus
(4) that Bank's Ratable share of any Subject LCs to be issued
pursuant to any unfilled Credit Request under subsection 2C.04.
(b) Each such reduction of the Revolving Commitments shall aggregate One
Million and 00/100 Dollars ($1,000,000) or any multiple thereof.
(c) Concurrently with each reduction Borrower shall make a principal
payment on each Bank's Revolving Loans then outstanding in a principal
amount equal to the excess, if any, of (1) the amount of the aggregate
unpaid principal balance of that Bank's Revolving Loans plus that Bank's
Ratable share of the aggregate undrawn balance of the Subject Lcs and
any unreimbursed drawings pursuant to the Subject LCs over (2) that
Bank's Revolving Commitment as so reduced. Subsection 2B.12 and section
6C shall apply to each such prepayment. In addition, Borrower shall pay
to NCB-Agent, for the account of the Banks, on the date of such
reduction, the commitment fees under section 2A.04, on the amount of the
portion of the Revolving Commitments so reduced, accrued through the
date of such reduction.
In addition to the optional reductions in the Revolving Commitments discussed
above, it is acknowledged and agreed that the Revolving Commitments shall be
automatically and permanently reduced on the Conversion Date by the full amount
of the Revolving Loans converted by Borrower upon any exercise by Borrower of
its Term Out Option. Concurrently with any such reduction, Borrower shall make
a principal payment on each Bank's Revolving Loans then outstanding in a
principal amount equal to the excess, if any, of the amount of the aggregate
unpaid balance of that Bank's Revolving Loans over that Bank's Revolving
Commitment as so reduced.
NCB-Agent shall promptly notify each Bank of the amount and type of its
Revolving Commitment being reduced and the effective date thereof.
2A.04 COMMITMENT FEE -- Each Bank shall, so long as its Revolving Commitment
remains in effect, earn a commitment fee
(a) based on the average daily difference between the amount of that
Bank's Revolving Commitment from time to time in effect and the
aggregate unpaid principal balance of that Bank's Revolving Loans plus
its Ratable share of the Subject LCs then outstanding,
-2-
10
(b) computed at the rate of one-quarter of one percent (1/4%) per annum
and
(c) payable in arrears by Borrower to NCB-Agent for the account of the
Banks on August 31, 1995 and quarter-annually thereafter on the last day
of each quarter and on the Expiration Date.
2A.05 EXTENSION OF REVOLVING COMMITMENT -- Whenever Borrower furnishes its
audited financial statements to Banks pursuant to clause (b) of subsection
3A.01, commencing with the fiscal year ending May 31, 1996, Borrower may
request that the Revolving Commitments be extended one year to the May 30 next
following the Expiration Date then in effect. Each such request shall be
executed and delivered to each Bank in triplicate and shall be in the form of
Exhibit D with all blanks appropriately filled. Banks agree to give
consideration to each such request; but in no event shall any Bank be committed
to extend its Revolving Commitment, nor shall any Bank's Revolving Commitment
be so extended, unless and until every Bank has executed and delivered the form
of assent in Exhibit D.
2A.06 MONITORING FEE -- Borrower agrees to pay to each Bank the actual costs of
any field audits plus other related monitoring costs incurred by such Bank, all
as reasonably determined by such Bank, within five (5) days written notice of
the same.
2A.07 ANNUAL FACILITY FEE -- Each Bank shall, so long as its Revolving
Commitment remains in effect, earn a facility fee
(a) based on the amount of that Bank's Revolving Commitment from time
to time in effect,
(b) computed at the rate of one-tenth of one percent (1/10%) per annum
and
(c) payable by Borrower to NCB-Agent for the account of the Banks on
an annual basis in advance commencing one (1) year from the date
hereof.
2A.08 TERM OUT OPTION -- At any time prior to the Expiration Date and provided
no Default Under This Agreement then exists, Borrower shall have the right and
option (the "Term Out Option") to Ratably convert up to Fifteen Million and
00/100 Dollars ($15,000,000) of the aggregate Revolving Commitments to a Series
of term loans pursuant to the following terms:
(a) If Borrower desires to exercise such option, it shall provide
Banks and NCB- Agent with not less than ten (10) days nor more
than thirty (30) days prior written notice of the same, which
notice must specify the amount of the aggregate Revolving
Commitments which Borrower desires to convert and the date of
conversion (the "Conversion Date").
-3-
11
(b) From the Conversion Date through the earliest of four (4)
years after the Conversion Date, five (5) years after the
date of this Agreement or the acceleration of the Subject
Indebtedness pursuant to subsection 5B.01 or 5B.02 hereof
(such earliest date being the "Term Maturity Date"), Borrower
shall pay to NCB-Agent for the benefit of the Banks
consecutive monthly installments of principal and interest
commencing on the first (1st) day of the month following the
Conversion Date and continuing on the first (1st) day of each
month thereafter until the Term Maturity Date. The amount of
each installment shall be equal to one-forty-eighth (1/48th)
of the amount of the Revolving Commitments converted plus
accrued interest through the date of such installment. It is
acknowledged and agreed that the term of any such Series of
term loans shall in no event extend past the Term Maturity
Date, at which time the final such installment shall be due
in an amount equal to all remaining unpaid principal together
with all accrued and unpaid interest on such Series of term
loans.
(c) The interest rate applicable to any Series of term loans
shall, prior to the Term Maturity Date, be equal to the
interest rate applicable to the converted Revolving Loans on
the Conversion Date plus one-quarter of one percent (1/4%)
per annum and, after the Term Maturity Date, be equal to the
interest rate applicable to the converted Revolving Loan on
the Conversion Date plus two and one quarter percent (2 1/4%)
per annum. Each change in the Prime Rate shall automatically
and immediately change the rate thereafter applicable to the
term loans; PROVIDED, that in no event shall the rate
applicable to the term loans at any time after the Term
Maturity Date be less than the rate applicable thereto
immediately after the Term Maturity Date regardless of future
reductions in the Prime Rate.
(d) If an amount in excess of Ten Million and 00/100 Dollars
($10,000,000) is desired to be termed out by Borrower, Banks
may require machinery and equipment appraisals reasonably
satisfactory to Banks as a condition to Borrower exercising
its Term Out Option.
(e) Borrower agrees to execute all such further documents,
instruments and agreements requested by Banks or NCB-Agent
in order to more fully document the arrangement contemplated
by the Term Out Option and containing such terms and
provisions consistent herewith as they may require.
2B. REVOLVING LOANS -- Each Bank (for itself only and not for the others)
agrees that so long as its Revolving Commitment remains in effect it will,
subject to the conditions of, and in reliance upon the representations and
warranties set forth in, this Agreement, grant Borrower its Ratable share of
such Revolving Loans as Borrower may from time to time request. In no event
shall any
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Bank be responsible for any failure of any other Bank to make any Subject Loan
required to be made by such other Bank.
2B.01 REVOLVING NOTE -- Each Bank's Revolving Loans shall be evidenced
at all times by a Revolving Note executed and delivered by Borrower,
payable to the order of that Bank in a principal amount equal to the
dollar amount of that Bank's Revolving Commitment as in effect at the
execution and delivery of the Revolving Note and being in the form and
substance of EXHIBIT B with the blanks appropriately filled.
(a) Whenever Borrower shall obtain a Series of Revolving Loans,
each Bank shall endorse an appropriate entry on the Revolving Note
or make an appropriate entry in a loan account in that Bank's
books and records, or both. Each entry, absent manifest error,
shall be prima facie evidence of the data entered; but such
entries (or any Bank's failure to make such entries) shall not be
a condition to or limit or otherwise affect Borrower's or any of
the other Companies' obligation to pay.
(b) No holder of any Revolving Note shall transfer a Revolving
Note, or seek a judgment or file a proof of claim based on a
Revolving Note, without in each case first endorsing the Revolving
Note to reflect the true amount owing thereon.
2B.02 CREDIT REQUESTS -- Whenever Borrower desires to obtain a Series of
Revolving Loans, Borrower shall give NCB-Agent an appropriate notice (a
"Credit Request") which shall be irrevocable and shall be in the form of
EXHIBIT E (or in other form and detail reasonably satisfactory to
NCB-Agent) with the blanks appropriately filled. NCB-Agent shall give
each Bank immediate notice of each Credit Request. Borrower may make its
request by telephone PROVIDED it promptly confirms the request by a
written request as aforesaid. Borrower hereby agrees to assume the risk
of a misunderstanding in the case of any telephone request. Except in
the case of Revolving Loans obtained at the execution and delivery of
this Agreement, the Credit Request is to be given not later than 12:00
noon of the Banking Day on which the loan proceeds are to be disbursed
EXCEPT in the case of LIBOR Loans, in which latter case the Credit
Request shall be given not later than 12:00 noon of the third (3rd)
Banking Day prior to the day the proceeds are to be disbursed. Each
Credit Request shall specify (a) the date of the proposed Revolving Loan
(which shall be a Banking Day), (b) the aggregate amount of the
requested Revolving Loans, (c) whether such request is for PR Loans or
LIBOR Loans, and (d) if such request is for a LIBOR Loan, the initial
LIBOR Contract Period with respect thereto. If no election as to the
type of Revolving Loan is specified in any such Credit Request, then the
request shall be deemed to be for PR Loans. If no LIBOR Contract Period
with respect to a request for LIBOR Loans is specified in any such
Credit Request, then Borrower shall be deemed to have selected a LIBOR
Contract Period of one (1) month's duration.
2B.03 CONDITION: NO DEFAULT -- Borrower shall not be entitled to obtain
any Revolving Loan or Subject LC if
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(a) any Default Under This Agreement shall then exist or would thereupon
begin to exist or
(b) any representation or warranty made in subsections 4B.01 through
4B.08 (both inclusive) or 4B.10 or 4B.12 shall have ceased to be true
and complete in any material respect except for such changes, if any, as
shall have been fully disclosed in the applicable Credit Request and as
may be waived by Banks in the reasonable exercise of their discretion,
or
(c) there shall have occurred any material adverse change in Borrower's
financial condition, properties or business since the date of Borrower's
Most Recent 4A.04 Financial Statements, or
(d) if, immediately before or after giving effect to such Revolving Loan
or issuance of a Subject LC, Availability is less than zero.
Each Credit Request, both when made and when honored, shall of itself
constitute a continuing representation and warranty by Borrower to NCB-Agent
for the benefit of the Banks that Borrower is entitled to make the Credit
Request.
2B.04 CONDITION: PURPOSE -- Borrower shall not use the proceeds of any
Revolving Loan in any manner that would violate or be inconsistent with
Regulation U or X of the Board of Governors of the Federal Reserve System; nor
will it use any such proceeds for the purpose of financing the acquisition of
any corporation or other business entity if the acquisition is publicly opposed
by such corporation's or business entity's management, or if Bank deems that
its participation in the financing would involve it in a conflict of interest.
2B.05 LOAN MIX -- The Revolving Loans at any one time outstanding may consist
of PR Loans or LIBOR Loans or any combination thereof as Borrower may from time
to time duly elect; provided, that any given Series of Revolving Loans shall at
all times consist only of PR Loans or only of LIBOR Loans and, in the case of
LIBOR Loans, shall have identical LIBOR Contract Periods.
2B.06 AMOUNTS -- Each borrowing shall be a Series of Revolving Loans, one by
each Bank, which shall be divided Ratably among the Banks and shall be in such
aggregate principal amount as Borrower may request subject, however, to the
following:
(a) The aggregate principal amount,
in the case of PR Loans, shall be One Hundred Thousand and 00/100
Dollars ($100,000) or any multiple thereof, and
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in the case of LIBOR Loans, shall be Five Hundred Thousand and
00/100 Dollars ($500,000) or any greater amount that is a multiple
of One Hundred Thousand and 00/100 Dollars ($100,000).
(b) In no event shall the unpaid principal amount of the Revolving Loans
owing to any Bank at any time exceed the amount of that Bank's Revolving
Commitment then in effect.
(c) In no event shall the aggregate unpaid principal amount of the
Revolving Loans plus the aggregate undrawn balance of the Subject LCs
and any unreimbursed drawings pursuant to the Subject LCs (to the extent
PR Loans have not been advanced by Banks in respect thereof pursuant to
subsection 2B.18) plus the amount of any Subject LCs to be issued
pursuant to any unfilled Credit Request under subsection 2C.04 at any
time exceed the lesser of the aggregate of the Revolving Commitments or
the Borrowing Base.
2B.07 LIBOR CONTRACT PERIODS -- Each Series of LIBOR Loans shall have
applicable thereto a LIBOR Contract Period to be duly elected by Borrower in
the Credit Request therefor. Each LIBOR Contract Period shall begin on the date
of borrowing of the applicable LIBOR Loans and shall end on such date, not
later than the Expiration Date, as Borrower may select in its relevant Credit
Request therefor subject, however, to the following:
(a) The LIBOR Contract Period for each LIBOR Loan shall end one (1), two
(2), three (3) or six (6) months after the date of borrowing; PROVIDED,
that
(1) if any such LIBOR Contract Period otherwise would end on a day
that is not a Banking Day, it shall end instead on the next
following Banking Day unless that day falls in another calendar
month, in which latter case the LIBOR Contract Period shall end
instead on the last Banking Day of the next preceding calendar
month, and
(2) if the LIBOR Contract Period commences on a day for which
there is no numerical equivalent in the calendar month in which
the LIBOR Contract Period is to end, it shall end on the last
Banking Day of that calendar month, and
(b) Borrower shall never elect a LIBOR Contract Period the term of which
extends beyond the Expiration Date.
2B.08 MATURITIES -- The stated Maturity of each PR Loan shall be the Expiration
Date. The stated Maturity of each LIBOR Loan shall be the last day of the
LIBOR Contract Period applicable thereto. In no event, however, shall the
stated Maturity of any Revolving Loan be later than the Expiration Date.
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2B.09 ROLLOVER -- If
(a) prior to the Expiration Date any Series of LIBOR Loans shall not be
paid in full at the stated Maturity thereof and
(b) Borrower shall have failed to duly give NCB-Agent a timely Credit
Request in respect thereof,
Borrower shall be deemed to have duly given NCB-Agent a timely Credit Request
to obtain (and at that Maturity the Banks shall make) a Series of PR Loans in
an aggregate principal amount equal to the aggregate unpaid principal of the
Series of LIBOR Loans then due, the proceeds of which Series of PR Loans shall
be applied to the payment in full of the Series of LIBOR Loans then due;
PROVIDED, that no such Series of PR Loans shall of itself constitute a waiver
of any then-existing Default Under This Agreement.
2B.10 INTEREST: PR LOANS -- The principal of and overdue interest on the PR
Loans shall bear interest payable in arrears on the first (1st) day of each
month, commencing July 1, 1995, and at Maturity and computed (in accordance
with subsection 8.10)
(a) prior to Maturity, at a fluctuating rate equal to the Prime Rate
from time to time in effect, and
(b) after Maturity (whether occurring by lapse of time or by
acceleration), at a fluctuating rate equal to the Prime Rate from time
to time in effect plus two percent (2%) per annum,
with each change in the Prime Rate automatically and immediately changing the
rate thereafter applicable to the PR Loans; PROVIDED, that in no event shall
the rate applicable to the PR Loans at any time after the Maturity thereof be
less than the rate applicable thereto immediately after Maturity regardless of
future reductions in the Prime Rate.
2B.11 INTEREST: LIBOR LOANS -- The principal of and overdue interest on each
LIBOR Loan shall bear interest computed (in accordance with subsection 8.10)
and payable as follows:
(a) Prior to Maturity each LIBOR Loan shall bear interest at a rate
equal to the LIBOR Pre-Margin Rate in effect at the start of the
applicable LIBOR Contract Period selected by Borrower in the applicable
Credit Request plus the applicable "Margin". The applicable "Margin"
shall be dependent on the Borrower and its Subsidiaries' consolidated
Leverage Ratio and Fixed Charge Ratio as of the end of any given fiscal
year and shall be determined in accordance with the following pricing
grid:
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Leverage Ratio
>2.25 >2.0 & <_2.25 >1.5 & <_2.0 <_1.5
--------------------------------------------------
--------------------------------------------------------------------------------
Fixed <_1.5 1.50% 1.25% 1.00% .75%
--------------------------------------------------------------------------------
Charge >1.5 & <_2.0 1.25% 1.00% .75% .50%
--------------------------------------------------------------------------------
Ratio >2.00 1.00% .75% .50% .50%
--------------------------------------------------------------------------------
* Less than or equal to
It is acknowledged and agreed that for purposes of this section 2B.11
only, Leverage Ratio shall be computed as the ratio of the
consolidated Total Liabilities (other than Subordinated indebtedness,
if any) of Borrower and its Subsidiaries to the sum of the
consolidated Tangible Net Worth (except that for purposes of this
section 2B.11 only, the first Two Million Dollars ($2,000,000) of
intangible assets will be excluded) of Borrower and its Subsidiaries
plus their Subordinated indebtedness, if any.
The interest rate applicable to a LIBOR Loan prior to Maturity shall
initially be equal to the LIBOR Pre-Margin Rate plus one percent
(1%); provided that the applicable Margin shall be adjusted (1)
annually upon the Banks' receipt of the audited financial statements
contemplated in subsection 3A.01 (b) below based on the Borrower and
its Subsidiaries' consolidated Leverage Ratio and Fixed Charge Ratio
as of the end of the respective fiscal year and effective at the
beginning of the first month subsequent to such receipt and (2) upon
the occurrence of a Repricing Event effective at the beginning of the
first month subsequent to such Repricing Event.
(b) After Maturity (whether occurring by lapse of time or by
acceleration), each LIBOR Loan shall bear interest computed and
payable in the same manner as in the case of PR Loans (after
Maturity) as set forth in section 2B.10(b) hereof.
(c) Interest on each LIBOR Loan shall be payable in arrears on the
last day of the LIBOR Contract Period applicable thereto and at
Maturity and, in the case of any Contract Period having a longer term
than three (3) months, shall also be payable every three (3) months
after the first (1st) day of the LIBOR Contract Period.
(d) The applicable LIBOR Pre-Margin Rate for each LIBOR Contract
Period shall be determined by NCB-Agent, and such determination shall
be presumptively correct absent manifest error.
2B.12 PREPAYMENTS -- Borrower may from time to time Ratably prepay the
principal of the PR Loans in whole or in part and may from time to time
Ratably prepay the principal of any given Series of LIBOR Loans in whole or
in part, subject to the following:
(a) Borrower shall give NCB-Agent an appropriate notice not later
than 12:00 noon on the Banking Day of any such prepayment, which
notice, if not originally given in writing, shall be promptly
confirmed in writing. Such notice shall be irrevocable and
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shall commit the Borrower to prepay such Revolving Loans by the amount
stated in such notice on the date stated therein. NCB-Agent shall
promptly report the notice to each Bank.
(b) Each prepayment of a Series of PR Loans shall aggregate the
principal amount of One Hundred Thousand and 00/100 Dollars ($100,000)
or any multiple thereof or an amount equal to the then aggregate
principal outstanding and shall be allocated thereto Ratably. Each
prepayment of a Series of LIBOR Loans shall aggregate Five Hundred
Thousand and 00/100 Dollars ($500,000) or any greater amount that is a
multiple of One Hundred Thousand and 00/100 Dollars ($100,000) or an
amount equal to the aggregate unpaid principal balance of that Series of
LIBOR Loans and shall be applied Ratably thereto.
(c) Each prepayment of the PR Loans may be made without penalty or
premium. Any prepayment of any LIBOR Loans (regardless of the reason
for the prepayment) shall be subject to the payment of any indemnity
required by section 6C.
(d) Prior to the Expiration Date, no prepayment shall of itself reduce
any Revolving Commitment.
(e) Concurrently with each prepayment of a Series of LIBOR Loans,
Borrower shall prepay the interest accrued on the prepaid principal.
2B.13 DISBURSEMENT -- Each Bank may disburse the proceeds of each Revolving
Loan made by it from any office selected by that Bank and in each case shall
disburse the same in immediately available funds to Borrower's general checking
account in the absence of written instructions from Borrower to the contrary,
which funds shall be so disbursed on the Banking Day specified in the Credit
Request for a Revolving Loan; PROVIDED, that this subsection shall not apply to
Revolving Loans made pursuant to subsection 2B.09.
2B.14 BORROWING BASE -- The "Borrowing Base" at any given time shall be the
aggregate of
(a) an amount equal to eighty-five percent (85%) of the Net Amount of
Eligible Receivables (or such other percentage of Eligible Receivables
as may, upon notice to Borrower from time to time, be fixed by Banks in
their reasonable discretion based upon the results of field audits or
the dilution of the Companies' Receivables), plus
(b) an amount equal to the lesser of either
(1) fifty percent (50%) of the Eligible Inventory (determined on a
first-in- first-out basis and calculated at the lesser of cost or
market in the aggregate and other than Iowa Mold Tooling Co., Inc.
for which the advance rate on raw materials will be thirty percent
(30%)) applicable to each Company or
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(2) Eight Million Seven Hundred Thousand and 00/100 Dollars
($8,700,000), plus
(c) an amount initially equal to Ten Million and 00/100 Dollars
($10,000,000), provided that to the extent Borrower has elected to
exercise the Term Out Option, this amount shall be reduced on a dollar
for dollar basis but no lower than zero Dollars ($0);
all as reasonably determined by Banks either on the basis of the then most
recent Borrowing Base Report furnished by Borrower to Banks pursuant to
subsection 3A.01 or on the basis of the then most recent field audit (if any)
made or other information received by Banks or NCB-Agent.
2B.15 BORROWING BASE MAINTENANCE -- Whenever Borrower shall furnish to Banks a
Borrowing Base report showing that the sum of the aggregate unpaid principal
balance of the Revolving Loans then outstanding exceeds the amount of
Borrower's Borrowing Base as shown in that report, Borrower shall immediately
make a payment to Banks in an amount equal to that excess for application to
the principal of the Revolving Loans.
2B.16 LIBOR LOANS: UNAVAILABILITY -- If at any time
(a) the Banks shall determine that dollar deposits of the relevant
amount for the relevant LIBOR Contract Period are not available in the
London interbank eurodollar market (in the case of LIBOR rates) for the
purpose of funding the LIBOR rates in question, or
(b) NCB-Agent shall reasonably determine that circumstances affecting
that market make it impracticable for NCB-Agent to ascertain LIBOR
rates, or
(c) the Banks shall give NCB-Agent written notice that the costs of
those Banks in funding of any Subject Loans at a LIBOR rate are equal to
or greater than the interest payable by Borrower in respect thereof,
then and in each such case NCB-Agent shall, by written notice to Borrower and
to all the Banks, suspend Borrower's right thereafter to obtain LIBOR Loans,
which suspension shall remain in effect until such time, if any, as NCB-Agent
may give written notice to Borrower and to all of the Banks that the condition
giving rise to the suspension no longer prevails, which notice NCB-Agent agrees
to provide within ten (10) days of the end of the condition giving rise to the
suspension. In the event of any such determination set forth above, any request
by Borrower for a LIBOR Loan shall, until NCB-Agent shall have notified
Borrower that the circumstances causing such suspension no longer exist, be
deemed to be a request
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for a PR Loan. Each determination by NCB-Agent or any Bank under this section
2B.16 shall be conclusive.
2B.17 LIBOR LOANS: ILLEGALITY -- If any Bank shall give NCB-Agent written
notice (an "illegality notice") that it is, or any governmental authority has
asserted that it is, unlawful for that Bank to fund, make or maintain LIBOR
Loans,
(a) NCB-Agent shall give Borrower and the other Bank prompt written
notice thereof,
(b) Borrower shall promptly pay in full the principal of and interest on
the LIBOR Loan in question and make the reimbursement, if any, required
by section 6C, and
(c) Borrower's right to obtain LIBOR Loans shall be suspended until such
time, if any, as NCB-Agent may give written notice to Borrower and to
all of the Banks that the condition giving rise to the suspension no
longer prevails, which notice NCB-Agent agrees to provide within ten
(10) days of the end of the condition giving rise to the suspension. In
the event of any such illegality notice, any request by Borrower for a
LIBOR Loan shall, until NCB-Agent shall have notified Borrower that the
circumstances causing such suspension no longer exists, be deemed to be
a request for a PR Loan. Each determination by NCB-Agent or any Banks
under this section 2B.17 shall be conclusive.
2B.18 SUBJECT LOAN BACK-UP -- Borrower agrees that in the event Borrower for
any reason fails to make a timely reimbursement (together with interest, if
any, thereon) to NCB-Agent in respect of any draft or other item paid by
NCB-Agent pursuant to subsection 2C.07, NCB-Agent is irrevocably authorized but
not obligated in each case to prepare, to sign Borrower's name to, and to
deliver on Borrower's behalf an appropriate Credit Request requesting a Series
of PR Loans in an aggregate amount equal to the reimbursement amount plus any
interest thereon. The Banks agree that on the specified date, the Banks will
make the requested PR Loans even if any Default Under This Agreement shall then
exist and even if Borrower for any other reason would, but for this provision,
then be not entitled to obtain any Subject Loan. Banks shall disburse all such
loan proceeds directly to NCB-Agent to satisfy Borrower's aforesaid
reimbursement liability.
2B.19 UNCONDITIONAL OBLIGATION -- The obligation of the Banks to make, and of
Borrower to pay, each Series of PR Loans made pursuant to subsection 2B.18
shall be absolute and unconditional and shall be performed under all
circumstances, including (without limitation)
(a) any lack of validity or enforceability of any Subject LC,
(b) the existence of any claim, offset, defense or other right that
Borrower may have against the beneficiary of any Subject LC or any
successor in interest,
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(c) the existence of any claim, offset, defense or other right
that any Bank may have against Borrower or any of its Subsidiaries
or against the beneficiary of any Subject LC or against any
successor in interest owing thereto,
(d) the existence of any fraud or misrepresentation in the
presentment of any draft or other item drawn and paid under any
Subject LC or
(e) any payment of any draft or other item by NCB-Agent which does
not strictly comply with the terms of any Subject LC provided such
payment by NCB-Agent shall not have constituted gross negligence
or willful misconduct on the part of NCB-Agent.
2C. LEVERS OF CREDIT -- NCB-Agent and the Banks agree that so long as all of
the Revolving Commitments remain in effect NCB-Agent will, in NCB's name but
only as agent for the Banks, issue such standby letters of credit (each, a
"Subject LC") for Borrower's account as Borrower may from time to time request
subject, however, to the conditions of this Agreement.
2C.01 RATABLE PARTICIPATION -- Each issuance of a Subject LC shall, of
itself, confer upon each Bank the benefits and liabilities of a
participation constituting an undivided interest in the Subject LC to
the extent of that Bank's Ratable share. Promptly after the issuance of
each Subject LC, NCB-Agent shall notify each Bank of such issuance.
Upon the request of any Bank, NCB-Agent shall deliver a copy of each
Subject LC issued hereunder to such requesting Bank.
2C.02 MAXIMUM -- In addition to the conditions set forth in section
2B.03 hereof, NCB-Agent shall not issue any Subject LC if, after giving
effect thereto,
(a) the aggregate undrawn balance of all then outstanding Subject
LCs would exceed Five Million and 00/100 Dollars ($5,000,000) or
(b) the aggregate undrawn balance of all Subject LCs and any
unreimbursed drawings in respect thereof (to the extent PR Loans
have not been advanced by Banks in respect thereof pursuant to
subsection 2B.18) plus any Subject LCs to be issued pursuant to
any unfilled Credit Request under subsection 2C.04 plus the
aggregate amount of Revolving Loans outstanding or to be obtained
pursuant to any unfilled Credit Requests would at any time exceed
the lesser of the aggregate of the Revolving Commitments as then
in effect or the Borrowing Base.
2C.03 TERM -- No Subject LC shall permit any draft to be drawn
thereunder on a date (the "last draw date") that is later than the third
(3rd) Banking Day next preceding the Expiration Date in effect at the
date of issuance of such Subject LC.
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2C.04 CREDIT REQUESTS -- Each request by Borrower for a Subject LC shall
be in writing and shall be given not later than 12:00 noon of the third
(3rd) Banking Day prior to the day it is to be issued.
2C.05 FORM -- Each Subject LC shall
(a) be issued in such form as NCB-Agent may reasonably require,
(b) be a commercial letter of credit used for any valid business
purpose in Borrower's business, and
(c) be denominated in United States dollars.
2C.06 COMMISSION -- Borrower agrees to pay NCB all of its standard fees
and charges, at prevailing rates from time to time established by NCB's
International Department, in regard to any Subject LC, including but not
limited to an issuance fee, an annual maintenance fee, an amendment fee
and a negotiation fee. In addition, Borrower shall pay NCB-Agent, for the
Ratable benefit of the Banks, a non-refundable commission (billed
quarterly in advance) equal to a percentage equal to the applicable
Margin in effect at the time in question multiplied by the face amount of
each Subject LC. NCB shall be entitled to keep each of the aforesaid
standard fees, if any, payable by Borrower in respect of the Subject LC
as well as keeping its Ratable share of the commissions.
2C.07 REIMBURSEMENT -- Borrower agrees to reimburse NCB-Agent for each
draft or other item paid by NCB-Agent pursuant to or otherwise in respect
of any Subject LC.
3A. INFORMATION-- Borrower agrees that so long as the Revolving Commitments
remains in effect and thereafter until the Subject Indebtedness shall have been
paid in full, Borrower will perform and observe each of the following:
3A.01 FINANCIAL STATEMENTS -- Borrower will furnish to each Bank
(a) within forty-five (45) days after the end of each of the first
three quarter-annual periods of each of Borrower's fiscal years,
balance sheets of Borrower and its Subsidiaries as at the end of
the period and their statements of cash flow and income for the
current fiscal year to the end of that period, all prepared (but
unaudited) on a consolidated and consolidating basis, on a
comparative basis with the prior year, in accordance with GAAP
(EXCEPT as disclosed therein) and in form and detail reasonably
satisfactory to Banks,
(b) as soon as available (and in any event within ninety (90) days
after the end of each of Borrower's fiscal years), a complete copy
of an annual audit report (including, without limitation, all
financial statements of Borrower and its Subsidiaries therein and
notes thereto) of Borrower for that year which shall be
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(1) prepared on a consolidated basis, on a comparative basis with the
prior year, in accordance with GAAP (EXCEPT as disclosed therein) and in
form and detail reasonably satisfactory to Banks,
(2) certified (without qualification as to GAAP) by independent public
accountants selected by Borrower and satisfactory to Banks,
(3) accompanied by a copy of any management report, letter or similar
writing furnished to Borrower by the accountants in respect of Borrower's
systems, operations, financial condition or properties, and
(4) either (A) a written statement of the accountants that in making the
examination necessary for their report or opinion they obtained no
knowledge of the occurrence of any Default Under This Agreement or (B) if
they know of any, their written disclosure of its nature and status,
PROVIDED, that the accountants shall not be liable directly or indirectly
to anyone for any failure to obtain knowledge of any Default Under This
Agreement,
(c) concurrently with the delivery of any financial statement to Banks pursuant
to clause (a) or (b), a certificate by Borrower's chief financial officer or
controller
(1) certifying that to the best of the officer's knowledge and belief,
(A) those financial statements fairly present in all material respects
the financial condition and the results of its operations of Borrower and
its Subsidiaries in accordance with GAAP subject, in the case of interim
financial statements, to routine year-end audit adjustments and (B) no
Default Under This Agreement then exists or if any does, a brief
description of the default and Borrower's intentions in respect thereof,
and
(2) setting forth calculations indicating whether or not Borrower and
its Subsidiaries are in compliance with the general financial standards
of section 3B,
(d) within thirty (30) days after the end of each month (and at such other
times as Borrower may deem advisable or NCB-Agent may reasonably request), a
Borrowing Base Report being in form and detail reasonably satisfactory to
Banks, setting forth the Companies' consolidated and consolidating Borrowing
Base as at the end of that month (and containing reasonably sufficient detail
regarding any interCompany loans or advances) and certified by an appropriate
officer of Borrower to be true and complete to the best of the officer's
knowledge and belief, it being agreed that Borrower at its option may furnish
other such reports at other times,
- 15 -
23
(e) within thirty (30) days after the end of each monthly period of each of
Borrower's fiscal years (other than fiscal quarter and fiscal year ends which
are governed by other subsections hereunder), balance sheets of Borrower and
its Subsidiaries as at the end of the period and their statements of cash flow
and income for the current fiscal year to the end of that period, all
internally prepared (but unaudited) on a consolidated and consolidating basis,
on a comparative basis with the prior year, in accordance with GAAP (except as
disclosed therein) and in form and detail reasonably satisfactory to Banks,
(f) promptly when filed (in final form) or sent, a copy of
(1) each registration statement, Form 10-K annual report, Form 10-Q
quarterly report, Form 8-K current report or similar document filed by
Borrower with the Securities and Exchange Commission (or any similar
federal agency having regulatory jurisdiction over Borrower's
securities),
(2) each proxy statement, annual report, certificate, notice or other
document sent by Borrower to the holders of any of its securities (or
any trustee under any indenture which secures any of its securities or
pursuant to which such securities are issued),
(g) not less than ten (10) days nor more than forty-five (45) days prior to (1)
an acquisition by Borrower of substantially all the assets or equity interests
of another corporation or business enterprise or (2) the repurchase of the
Sardas Options, financial projections (the "Projections"), including a
projected balance sheet and cash flow and income statements, prepared by
Borrower's chief financial officer, controller or another officer reasonably
satisfactory to Banks. In the case of an acquisition, the Projections shall be
prepared on the basis of the historical operations of the Companies (and any
entity to be acquired) after giving effect to the event in question and all
reasonable related assumptions. In the case of a repurchase of the Sardas
Options, the Projections shall be prepared after giving effect to the impact on
the current balance sheet of the repurchase and, to the extent the amount paid
in the aggregate for the Sardas Options exceeds Seven Million Five Hundred
Thousand and 00/100 Dollars ($7,500,000) (net of the tax benefits from the
exercise of the option), outlining the impact on the Fixed Charge Ratio. The
officer preparing such Projections shall certify to Banks and NCB-Agent that,
to the best of his knowledge and belief, such financial information is not
misleading and is accurate in all material respects. Borrower shall promptly
notify Banks of any change in the assumptions upon which the Projections are
based between the date of preparation and the date of the event in question,
(h) accompanying the delivery of Borrower's and its Subsidiaries' annual audit
report (and in any event within ninety (90) days after the end of each of
Borrower's fiscal years), one (1) year projected consolidated and consolidating
financial statements for
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Borrower and its Subsidiaries, including balance sheets and
statements of cash flow and income, prepared in accordance with
GAAP (EXCEPT as disclosed therein) in form and detail reasonably
satisfactory to Banks,
(i) forthwith upon Bank's written request, such other information
in writing about the financial condition, properties and operations
of the Companies and about their Pension Plans, if any, as Banks
may from time to time reasonably request.
3A.02 NOTICE -- Borrower will cause its chief financial officer or
controller, or in their absence another officer designated by Borrower,
to give each Bank prompt written notice whenever any officer of any
Company
(a) reasonably believes (or receives notice from any governmental
agency alleging) that any Reportable Event has occurred in respect
of any Pension Plan or that a Company has become in non-compliance
with any law or governmental order referred to in subsection 3C.06
if non-compliance therewith may have a material adverse effect on
that Company's financial condition, properties or business,
(b) receives from the Internal Revenue Service or any other
federal, state or local taxing authority any allegation of any
default by a Company m the payment of any tax that is material in
amount or notice of any assessment in respect thereof,
(c) learns there has been brought against a Company before any
court, administrative agency or arbitrator any litigation or
proceeding which, if successful, might have a material adverse
effect such Company,
(d) reasonably believes that any representation or warranty made in
subsections 4B.01 through 4B.08 (both inclusive) or 4B.10 or 4B.12
shall have ceased in any material respect to be true and complete
or that any Default Under This Agreement shall have occurred or
(e) reasonably believes that there has occurred or begun to exist
any other event, condition or thing, including, but not limited to,
any material labor dispute, violation of law or customer dispute,
that likely may have a material adverse effect on the financial
condition, operations or properties of a Company,
(f) reasonably believes (or receives any notice from any third
party) that a Company has defaulted or otherwise breached any
material contract or other agreement to which such Company is a
party, the default or breach of which would likely have a material
adverse effect.
3B. GENERAL FINANCIAL STANDARDS -- Borrower agrees that so long as the
Revolving Commitments remains in effect and thereafter until the Subject
Indebtedness shall have been paid in full, Borrower will perform and observe
each of the following:
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3B.01 TANGIBLE NET WORTH -- Borrower will not suffer or permit the sum of the
consolidated Tangible Net Worth of Borrower and its Subsidiaries plus their
Insider Subordinated indebtedness, if any, at the end of any fiscal quarter to
be less than the required minimum amount in effect at the time in question. The
required minimum amount shall be Thirty-Five Million and 00/100 Dollars
($35,000,000) on May 31, 1995 and that amount shall be permanently increased
(a) on August 31, 1995 and on each quarter-end thereafter by an amount
equal to sixty percent (60%) of the consolidated Net Income, if any,
after taxes, of Borrower and its Subsidiaries for the fiscal quarter
then ending; provided, however, if there is a loss in any fiscal
quarter, sixty percent (60%) of such loss shall be subtracted from the
required minimum amount, but in no event shall the amount of the
decrease in any fiscal quarter exceed the aggregate amount of the
increases in any given fiscal year and
(b) upon each issuance or other sale by Borrower of any of its capital
stock or Insider Subordinated indebtedness by an amount equal to sixty
percent (60%) of the net proceeds (after costs and expenses) thereof.
3B.02 LEVERAGE RATIO-- Borrower will not suffer or permit the ratio (the
"Leverage Ratio") of the consolidated Total Liabilities (other than
Subordinated indebtedness, if any) of Borrower and its Subsidiaries to the sum
of the consolidated Tangible Net Worth of Borrower and its Subsidiaries plus
their Subordinated indebtedness, if any, at the end of any fiscal quarter to
exceed (a) 3:1 from the date of this Agreement through and including May 31,
1996 or (b) 2.5:1 from and after June 1, 1996.
3B.03 PRETAX INTEREST COVERAGE -- Borrower will not, during any period of four
(4) consecutive fiscal quarters (commencing with the present quarter and
looking back three (3) additional quarters) during the term of this Agreement,
suffer or permit the aggregate of
(a) Borrower's and its Subsidiaries' consolidated Net Income for that
period plus
(b) Borrower's and its Subsidiaries' consolidated interest expense
(excluding amortization of debt discount) for that period plus
(c) Borrower's and its Subsidiaries' consolidated federal, state and
local income taxes for that period
to be less than an amount equal to 4.5 times Borrower's and its Subsidiaries
consolidated interest expense (excluding amortization of debt discount) for
that period.
3B.04 FIXED CHARGE RATIO -- Borrower will not suffer or permit the following
ratio (the "Fixed Charge Ratio") of Borrower and its Subsidiaries on a
consolidated basis to be
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less than (a) .95:1 from the date of this Agreement through and including
May 31, 1996 (calculated annually) or (b) 1.0:1.0 at any time thereafter
(calculated annually):
EBITDA
--------------------------------------------------------------------------
interest expense (excluding amortization of debt discount) + CAPEX +
Taxes (cash) + CPLTD + dividends
In addition to those terms defined in Section 9 below, the following
terms have the following meanings all as customarily applied in
accordance with GAAP:
EBITDA means earnings before interest, taxes, depreciation and
amortization; CAPEX means the net amount of capital expenditures;
Taxes (cash) means taxes actually paid in cash; and CPLTD means
the current portion of long term debt.
It is acknowledged and agreed that in the event of a repurchase by
Borrower of the Sardas Options, any amounts paid in the aggregate by
Borrower in excess of Seven Million Five Hundred Thousand and 00/100
Dollars ($7,500,000) (net of the tax benefits from the exercise of the
option) shall count toward the denominator of the Fixed Charge Ratio. In
addition, it is acknowledged and agreed that for purposes of computing
the Fixed Charge Ratio, twenty-five percent (25%) of the portion of the
indebtedness to the Noteholders which is characterized as CPLTD shall be
included.
3C. AFFIRMATIVE COVENANTS -- Borrower agrees that so long as the Revolving
Commitments remain in effect and thereafter until the Subject Indebtedness
shall have been paid in full, Borrower will perform and observe, and will cause
each Company to perform and observe, each of the following:
3C.01 TAXES -- Each Company will pay in full
(a) prior in each case to the date when penalties for the
nonpayment thereof would attach, all material taxes, assessments
and governmental charges and levies for which it may be or become
subject and
(b) prior in each case to the date the claim would become
delinquent for nonpayment, all other lawful claims (whatever their
kind or nature) which, if unpaid, would become a lien or charge
upon its property;
PROVIDED, that no item need be paid so long as and to the extent that it
is contested in good faith and by timely and appropriate proceedings
which are effective to stay enforcement thereof and Borrower either posts
a bond or otherwise establishes adequate reserves therefore in accordance
with GAAP.
3C.02 FINANCIAL RECORDS -- Each Company will at all times keep true and
complete financial records in accordance with GAAP and, without limiting
the generality of the
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foregoing, make appropriate accruals to reserves for estimated and contingent
losses and liabilities.
3C.03 VISITATION -- Each Company will permit each Bank at all reasonable times
upon reasonable advance notice except in the case of an emergency
(a) to visit and inspect that Company's properties and examine its
records at that Bank's expense and to make copies of and extracts from
such records, and
(b) to consult with that Company's directors, officers, employees,
accountants, actuaries, trustees and plan administrators in respect of
its financial condition, properties and operations and the financial
condition of its Pension Plans, each of which parties is hereby
authorized to make such information available to each Bank to the same
extent that it would to that Company.
3C.04 INSURANCE -- Each Company will
(a) keep itself and all of its insurable properties insured at all times
to such extent, with such deductibles, by such insurers and against such
hazards and liabilities as is generally and prudently done by like
businesses, EXCEPT that if a more specific standard is provided in any
Related Writing, the more specific standard shall prevail, and
(b) forthwith upon any Bank's written request, furnish to that Bank such
information about Borrower's insurance as that Bank may from time to
time reasonably request, which information shall be prepared in form and
detail reasonably satisfactory to that Bank and certified by an officer
of Borrower.
3C.05 CORPORATE EXISTENCE -- Each Company will at all times maintain its
corporate existence, rights and franchises; provided, that this subsection
shall not prevent any dissolution in liquidation of any Subsidiary or any
merger or consolidation permitted by subsection 3D.01.
3C.06 COMPLIANCE WITH LAW -- Each Company will comply with all laws (whether
federal, state or local and whether statutory, administrative or judicial or
other) and with every lawful governmental order (whether administrative or
judicial) and will, without limiting the generality of the foregoing,
(a) use and operate all of its facilities and properties in material
compliance with all Environmental Laws; keep in full effect each permit,
approval, certification, license or other authorization required by any
Environmental Law for the conduct of any material portion of its
business; and comply in all other material respects with all
Environmental Laws;
- 20 -
28
(b) make a full and timely payment of PBGC premiums required by ERISA
and perform and observe all such further and other requirements of
ERISA such that no Default Under ERISA shall occur or begin to exist;
and
(c) comply with all material requirements of all occupational health
and safety laws;
PROVIDED, that this subsection 3C.06 shall not apply to any of the foregoing
(i) if and to the extent that the same shall be contested in good
faith by timely and appropriate proceedings which are effective to
stay enforcement thereof and against which a bond has been posted or
appropriate reserves in accordance with GAAP shall have been
established or
(ii) in any other case if non-compliance therewith would not
materially and adversely affect the financial condition, properties or
business of the Companies taken as a whole.
3C.07 PROPERTIES -- Each Company will maintain all fixed assets necessary to
its continuing operations in good working order and condition, ordinary wear
and tear and damage from casualty or the elements excepted.
3C.08 MORTGAGES ON REAL ESTATE -- Upon the occurrence of any Event of
Default, at the written request of the Banks each Company agrees to execute
and deliver to NCB-Agent, for the benefit of the Banks, as security for the
Subject Indebtedness a mortgage or mortgages being in form and substance to be
negotiated in good faith with counsel for Borrower and reasonably
satisfactory to NCB-Agent and constituting a first mortgage lien on all of
such Company's then-owned real property. In addition, at the time of the
execution and delivery of any such mortgage(s), Borrower shall furnish to
NCB-Agent in respect of each parcel of real property owned by the Companies,
at Borrower's expense (a) a mortgagee's standard A.L.T.A. policy of title
insurance without additional endorsements other than a revolving credit
endorsement and showing the property as being subject to all then existing
easements, reservations, conditions and matters of record and all liens and
encumbrances of record, but not subject to liens for funded indebtedness or
any other mortgage having priority over such first mortgage lien (other than
as set forth on the Supplement Schedule), issued in such amount as NCB-Agent
may reasonably require by an insurer reasonably satisfactory to NCB-Agent,
(b) a professional so called "phase I" environmental assessment, and (c) a
survey by a registered surveyor.
3C.09 INTERCOMPANY LOANS -- In the event any interCompany loans or any loans
from a Company to a Subsidiary of a Company are or become evidenced by any
note or other instrument, Borrower agrees to (or to cause the payee Company
to) (a) promptly notify NCB-Agent and Banks of such fact and, upon
NCB-Agent's request, deliver the same to NCB-Agent, appropriately endorsed
to the order of NCB-Agent for the benefit of the Banks, and, regardless of
the form of such endorsement, Borrower hereby waives presentment,
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demand, notice of dishonor, protest and notice or protest and all other
notices with respect thereto and (b) upon NCB-Agent's request, execute a
note pledge agreement in form and substance reasonably acceptable to
Banks.
3D. NEGATIVE COVENANTS -- Borrower agrees that so long as the Revolving
Commitments remain in effect and thereafter until the Subject Indebtedness
shall have been paid in full, Borrower will perform and observe each of the
following:
3D.01 EQUITY TRANSACTIONS -- No Company will
(a) be a party to any merger or consolidation,
(b) purchase or otherwise acquire all or substantially all of the
assets and business of any corporation or other business
enterprise,
(c) unless Borrower shall give Banks at least fifteen (15) days
prior written notice in sufficient detail and Banks shall fail to
reasonably object to the same within fifteen (15) days after the
receipt of such notice, create, acquire or hold any Subsidiary, or
be or become a party to any joint venture or partnership (to the
extent such investments in joint ventures and partnerships exceed
One Million Dollars ($1,000,000) in the aggregate at any time), or
make or keep any investment in any stocks or other equity
securities of any kind, except that this clause (c) shall not apply
to Borrower's existing investments in the stocks and other equity
securities of Subsidiaries or any other investment fully disclosed
in Borrower's Most Recent 4A.04 Financial Statements or in the
Supplemental Schedule,
(d) lease as lessor, sell, sell-leaseback or otherwise transfer
(whether in one transaction or a series of transactions) all or any
substantial part of its fixed assets EXCEPT chattels that shall
have become obsolete or no longer useful in its present business,
or fixed assets leased, sold, acquired or disposed of in the
ordinary course of such Company's business,
(e) sell or otherwise transfer (in the case of any Company) or
issue (in the case of a Subsidiary) any shares of stock (other than
shares issued or transferred solely for the purpose of qualifying
directors under any applicable law) or other equity securities of
any Subsidiary to anyone other than Borrower, or
(f) repurchase any shares of its stock or other equity securities;
provided, that if no Default Under this Agreement shall then exist and if
none would thereupon begin to exist, this subsection shall not apply to
(i) any future investment by Borrower in stocks and other equity
securities of its existing Subsidiaries, or
- 22 -
30
(ii) any merger or consolidation involving only Subsidiaries, or any
merger involving only Borrower and its Subsidiaries in which Borrower is
the surviving corporation, or any transfer of assets between Companies
for fair value, or
(iii) any acquisition by Borrower of substantially all of the assets or
equity interest of another corporation or business enterprise provided
that (A) the total consideration paid (including the amount of any Funded
Indebtedness (i.e., not accounts payable and accrued liabilities) in all
such acquisitions does not exceed Ten Million and 00/100 Dollars
($10,000,000) in any fiscal year, (B) the target entity is in the same,
substantially similar or a complementary line of business, (C) Proforma
Covenant Compliance pertains and Banks do not reasonably object to the
assumptions or other information upon which the relevant Projections were
based and (D) there will be at least Ten Million and 00/100 Dollars
($10,000,000) in excess Availability immediately following the
acquisition, or
(iv) a repurchase of Sardas Options provided that (A) Proforma Covenant
Compliance pertains and Banks do not reasonably object to the assumptions
or other information upon which the relevant Projections were based, (B)
there will be at least Ten Million and 00/100 Dollars ($10,000,000) in
excess Availability immediately following the repurchase and (C) any
amounts paid in the aggregate for the Sardas Options in excess of Seven
Million Five Hundred Thousand and 00/100 Dollars ($7,500,000) (net of the
tax benefits from the exercise of the option) will count toward the Fixed
Charge Ratio for all purposes under this Agreement, or
(v) any disposition of assets otherwise prohibited under this subsection
3D.01 provided that the maximum aggregate amount thereof (for all
Companies collectively) shall not exceed Two Million and 00/100 Dollars
($2,000,000) during the term of this Agreement and provided further that
the net proceeds realized upon such disposition are applied in full to
Ratably reduce the Subject Loans outstanding, if any.
3D.02 CREDIT EXTENSIONS -- No Company will
(a) make or keep any investment in any notes, bonds or other obligations
of any kind for the payment of money or make or have outstanding at any
time any advance or loan to anyone or
(b) be or become a Guarantor of any kind;
PROVIDED, that this subsection shall not apply to
- 23 -
31
(i) any existing or future advance made to an officer or employee of any
Company solely for the purpose of paying ordinary and necessary business
expenses of such Company,
(ii) any existing or future investment in direct obligations of the United
States of America or any agency thereof, or in certificates of deposit issued
by any Bank, or in any other money-market investment if it carries the highest
quality rating of any nationally-recognized rating agency, PROVIDED, that no
such investment shall mature more than one (1) year after the date when made,
(iii) any existing investment, advance, loan or Guaranty fully disclosed in
Borrower's Most Recent 4A.04 Financial Statements or in the Supplemental
Schedule,
(iv) any existing or future Guaranty of any direct or contingent obligation
owing to Banks,
(v) any endorsement of a check or other medium of payment for deposit or
collection, or any similar transaction in the normal course of business,
(vi) the repurchase of the Sardas Options in compliance with the other terms
and provisions of this Agreement,
(vii) any Guaranty of any indebtedness permitted in section 3D.03 by any
Company up to a maximum of Two Hundred Fifty Thousand and 00/100 Dollars
($250,000) outstanding in the aggregate at any time,
(viii) loans from a Company to any other Company,
(ix) loans to Subsidiaries which are not Companies up to a maximum of One
Million Dollars ($1,000,000) outstanding in the aggregate (for all Subsidiaries
collectively) at any time, provided that this maximum dollar limit shall not
apply to (A) a loan required pursuant to the items disclosed under the heading
"Environmental -- Additional Disclosures" on Section 4B.04 on the Supplemental
Schedule or (B) the existing indebtedness of Western Capital Corporation to
Borrower in an amount of approximately $31,000,000, or
(x) loans to any Subsidiary acquired or formed after the date of this Agreement
to the extent such Subsidiary executes a Guaranty and a security agreement, in
each case substantially similar to the forms executed by the Companies
concurrently herewith and acceptable to Banks. From and after the date such
documents are executed and delivered to NCB-Agent, such Subsidiary shall be
deemed a Company for purposes of this Agreement.
- 24 -
32
3D.03 BORROWINGS -- No Company will create, assume or have outstanding at any
time any indebtedness for borrowed money or any Funded Indebtedness of any
kind; PROVIDED, that this subsection shall not apply to
(i) the Subject Indebtedness,
(ii) any Subordinated indebtedness,
(iii) any existing or future indebtedness secured by a purchase money
security interest permitted by subsection 3D.04 or incurred under a lease
permitted by subsection 3D.04,
(iv) any existing indebtedness fully disclosed in Borrower's Most Recent
4A.04 Financial Statements or in the Supplemental Schedule or any renewal
or extension thereof in whole or in part,
(v) up to a maximum of One Million and 00/100 Dollars ($1,000,000)
outstanding in the aggregate at any time (for all Companies collectively)
of other indebtedness to the extent unsecured or secured by assets other
than the Companies' equipment, Inventory, Receivables, general
intangibles, books and records and real estate,
(vi) any indebtedness permitted pursuant to subsections 3D.02(viii), (ix)
or (x).
3D.04 LIENS, LEASES -- No Company will
(a) lease any property as lessee or acquire or hold any property subject
to any land contract, Inventory consignment or other title retention
contract, other than property leased, sold, acquired, held or disposed
of in the ordinary course of such Company's business,
(b) sell or otherwise transfer any Receivables (other than foreign
Receivables), whether with or without recourse or
(c) suffer or permit any property (whether real or personal or tangible
or intangible) now owned or hereafter acquired by it to be or become
encumbered by any mortgage, security interest, lien or financing
statement;
PROVIDED, that this subsection shall not apply to
(i) any tax lien for taxes not yet due and payable, lien for real
property assessments, or any lien securing workers' compensation or
unemployment insurance obligations, or any mechanic's, carrier's or
landlord's lien, or any lien arising under ERISA, or any security
interest arising under article four (bank deposits and collections) or
five (letters of credit) of the Uniform Commercial Code, or any similar
security interest
- 25 -
33
or other lien, EXCEPT that this clause (i) shall apply only
to security interests and other liens arising by operation
of law (whether statutory or common law) and in the ordinary
course of business and shall not apply to any security
interest or other lien that secures any indebtedness for
borrowed money or any Guaranty thereof or any obligation
that is in material default in any manner (other than any
default contested in good faith by timely and appropriate
proceedings effective to stay enforcement of the security
interest or other lien in question and against which a bond
has been posted or appropriate reserves shall have been
established),
(ii) zoning or deed restrictions, conditions and
reservations, public utility easements, other easements and
licenses of record, minor title irregularities and similar
matters in each case having no material adverse effect as a
practical matter on the ownership or use of any of the
property in question,
(iii) any lien securing or given in lieu of surety, stay,
appeal or performance bonds, or securing performance of
contracts or bids (other than contracts for the payment of
money borrowed), or deposits required by law or governmental
regulations or by any court order, decree, judgment or rule
or as a condition to the transaction of business or the
exercise of any right, privilege or license, EXCEPT that
this clause (iii) shall not apply to any lien or deposit
securing an obligation that is in material default in any
manner (other than any default contested in good faith by
timely and appropriate proceedings effective to stay
enforcement of the security interest or other lien in
question and against which a bond has been posted or
appropriate reserves shall have been established),
(iv) any mortgage, security interest or other lien securing
only the Subject Indebtedness,
(v) any mortgage, security interest or other lien (each, a
"purchase money security interest") which is created or
assumed in purchasing, leasing (pursuant to a capitalized
lease), constructing or improving any real property or
equipment or to which any such property is subject when
purchased, PROVIDED, that (A) the purchase money security
interest shall be confined to the aforesaid property, (B)
the indebtedness secured thereby does not exceed the total
cost of the purchase, construction or improvement, (C) any
such indebtedness, if repaid in whole or in part, cannot be
reborrowed and (D) the aggregate amount of all such purchase
money security interest does not exceed Two Million Five
Hundred Thousand and 00/100 Dollars ($2,500,000) in any
fiscal year,
(vi) any lease other than any capitalized lease (it being
agreed that a capitalized lease is a lien rather than a
lease for the purposes of this Agreement) so long as the
aggregate annual rentals of all such leases do not exceed
Seven Million and 00/100 Dollars ($7,000,000),
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34
(vii) any mortgage, security interest or other lien which
(together with the indebtedness secured thereby) is fully
disclosed in Borrower's Most Recent 4A.04 Financial Statements or
in the Supplemental Schedule or
(viii) any financing statement perfecting a security interest that
would be permissible under this subsection.
3D.05 FIXED ASSETS -- The Companies, viewed on a consolidated basis, will
not invest (net after trade-ins, if any) in fixed assets and leasehold
improvements (in each case, excluding capitalized interest) more than
Twenty Million and 00/100 Dollars ($20,000,000) during the fiscal year
ending May 31, 1996 or more than Fifteen Million and 00/100 Dollars
($15,000,000) during any fiscal year thereafter.
3D.06 DIVIDENDS -- No Company will make or commit itself to make any
Distribution to its shareholders at any time if any Default Under This
Agreement shall then exist or would thereupon occur, provided that
dividends may be paid within ninety (90) days after being declared even
if a Default Under This Agreement exists at the time of payment so long
as no Default Under This Agreement existed at the time of such
declaration and, provided further, that this subsection shall not
prohibit a repurchase of the Sardas Options in compliance with the other
terms and provisions of this Agreement.
3D.07 SUBORDINATED NOTES -- Borrower will not assent to any amendment or
modification of the notes due to the Noteholders or increase the interest
rate applicable thereto or prepay any principal thereon.
4A. CLOSING-- The following conditions shall have been satisfied prior to or
at the execution and delivery of this Agreement (except that with respect to
subsections 4A.10 and 4A.11, the same will be satisfied prior to the Initial
Funding Date):
4A.01 REVOLVING NOTES -- Borrower shall execute and deliver to each Bank
a Revolving Note in accordance with subsection 2B.01.
4A.02 RESOLUTIONS/INCUMBENCY -- Each Company's secretary or assistant
secretary shall have certified to Banks (a) a copy of resolutions duly
adopted by that Company's board of directors in respect of this Agreement
and the transactions contemplated hereby and (b) the names and true
signatures of officers authorized to execute and deliver this Agreement
and Related Writings on behalf of that Company.
4A.03 LEGAL OPINION -- The Companies' counsel shall have rendered to
Banks their written opinion in respect of the matters referred to in
subsections 4B.01, 4B.02, 4B.03 and 4B.04 and in respect of the
perfection of each security interest or other lien referred to in this
section 4A, which opinion shall be in such form and substance (and may be
subject only to such qualifications and exceptions, if any) as shall be
satisfactory to Banks.
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35
4A.04 FINANCIAL STATEMENTS -- Borrower shall have furnished to Banks at least
one (1) true and complete copy of each of the following: the annual audit
report (including, without limitation, all financial statements therein and
notes thereto and the accompanying accountants' opinion and management report)
of the Borrower and its Subsidiaries prepared as at May 31, 1994 and annual
audit reports for each of the two (2) next preceding fiscal years (each having
been certified by Ernst & Young) and unaudited interim financial statements
prepared as at March 31, 1995.
4A.05 SECURITY AGREEMENTS -- Each Company shall have executed and delivered a
security agreement being in form and substance satisfactory to Banks and
granting NCB- Agent, for the benefit of the Banks, security interests in and to
all of that Company's existing and future equipment (other than motor
vehicles), Inventory, Receivables, general intangibles and books and records as
security for the Subject Indebtedness (and, in the case of each Company of
Borrower, as security for such of that Company's existing and future
indebtedness to Borrower in which NCB-Agent shall have a security interest).
Each Company shall have joined with NCB-Agent in executing and filing such
financing statements and other documents and in making and doing such further
and other acts and things as NCB-Agent may deem necessary for the evidence,
perfection or other protection of Banks' security interests.
4A.06 GUARANTY -- The Companies shall have executed and delivered to NCB-Agent
on behalf of the Banks their joint and several guaranty of payment of the
Subject Indebtedness together with individual security agreements securing the
same granting NCB-Agent security interests in and to all of their existing and
future equipment, Inventory, Receivables, general intangibles and books and
records and appropriately executed financing statements relating thereto.
4A.07 DOCUMENTATION FEE -- Borrower shall have paid NCB-Agent a documentation
fee of Thirty Five Thousand and 00/100 Dollars ($35,000), Ten Thousand and
00/100 Dollars ($10,000) of which will be allocated to cover Star Bank,
National Association's legal costs of reviewing the documentation.
4A.08 LIEN WAIVERS -- Each Company shall provide NCB-Agent with duly executed
written lien waivers in favor of (or otherwise enforceable by) NCB-Agent from
each lessor, bailee, warehouseman, materialman, mortgagee or similarly situated
person or entity who may, with respect to any location at which any of the
collateral for the Subject Indebtedness is to be located or stored, by
operation of law or otherwise, have any lien or like interest in or upon such
collateral.
4A.09 OTHER DOCUMENTS -- Borrower shall execute or deliver to NCB-Agent such
other agreements, instruments and documents, including, without limitation,
those listed below, which NCB-Agent may require to be executed and/or delivered
in connection
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36
herewith (all of which shall be in form and substance reasonably
acceptable to NCB-Agent and its counsel):
(a) good standing certificates for the Companies issued by the
Secretary of State in their respective jurisdictions of
organization.
4A.10 EXISTING LOAN PAYOFF -- The Existing Revolving Facility shall be
paid off in full.
4A.11 NO MATERIAL ADVERSE CHANGE -- No material adverse change in the
Companies' consolidated financial condition, properties or business since
the date of Borrower's Most Recent 4A.04 Financial Statements has
occurred.
4B. REPRESENTATIONS/WARRANTIES -- Subject only to such additions and
exceptions, if any, as may be set forth in the Supplemental Schedule, in
Borrower's Most Recent 4A.04 Financial Statements or as relates to the Existing
Revolving Facility (from the date hereof through the Initial Funding Date
only), Borrower represents and warrants as follows:
4B.01 EXISTENCE -- Borrower is a duly organized and validly existing
Delaware corporation in good standing. Exhibit F sets forth the name of
each of Borrower's Subsidiaries, the address of its chief executive
office, the location of its books and records, the location of its other
assets, the jurisdiction in which it is incorporated as of the closing
date and its equity ownership. Each Company is duly qualified to transact
business in each state or other jurisdiction in which it owns or leases
any real property or in which the nature of the business conducted makes
such qualification necessary or, if not so qualified, such failure to
qualify will have no material adverse effect upon the Companies'
financial condition on a consolidated basis and the Companies' ability to
transact business. The jurisdiction(s) in which each Company is
qualified are specified in the Supplemental Schedule. Each Subsidiary's
outstanding stock is fully paid and non-assessable and owned by Borrower
(or a Company) free from any security interests, option, equity or other
right of any kind. Except as provided in the Supplemental Schedule, no
Company has, during the past five (5) years, been known by or used any
other corporate or fictitious name, or been a party to any merger or
consolidation, or acquired any of its property outside of the ordinary
course of business.
4B.02 GOVERNMENTAL RESTRICTIONS -- No registration with or approval of
any governmental agency of any kind is required on the part of any
Company for the due execution and delivery or for the enforceability of
this Agreement or any Related Writing other than the filing or recording
of documents with public officials and similar acts and things related to
the perfection of the mortgages, security interests and other liens
referred to in section 4A.
4B.03 CORPORATE AUTHORITY -- Each Company has requisite corporate power
and authority to enter into this Agreement and to obtain and secure the
Subject Indebtedness in
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accordance with this Agreement. The officer executing and delivering
this Agreement on behalf of each Company has been duly authorized to do
so and to execute and deliver the Revolving Note and other Related
Writings in accordance with section 4A. Neither the execution and
delivery of this Agreement or any Related Writing by the Companies nor
their performance and observance of the respective provisions thereof
will violate any existing provision in their articles of incorporation,
regulations or by-laws or any applicable law or violate or otherwise
constitute a default under any contract or other obligation now
existing and binding upon them. Upon the execution and delivery
thereof, this Agreement and the aforesaid Related Writings will each
become a valid and binding obligation enforceable against the Companies
according to their respective terms subject, however, to any applicable
insolvency or bankruptcy law of general applicability and general
principles of equity. Each Subsidiary (a) will derive a direct
pecuniary benefit herefrom, which benefit is a fair equivalent for the
obligation incurred, (b) will be solvent immediately after the
execution and delivery of this Agreement and at all times during the
term of this Agreement, (c) has sufficient capital by any reasonable
standard for all businesses in which it is engaged or will, in the
foreseeable future, be engaged, and (d) believes and intends that the
liabilities which it will incur in the foreseeable future are not
beyond its ability to pay as they mature.
4B.04 LITIGATION -- No litigation or proceeding is pending or
currently threatened against any Company before any court,
administrative agency or arbitrator which would, if successful, have a
material adverse effect on the Companies taken as a whole.
4B.05 TAXES -- Each Company has filed all federal, state and local tax
returns which are required to be filed by it and paid all taxes due as
shown thereon (EXCEPT to the extent, if any, permitted by subsection
3C.01). The Internal Revenue Service has not alleged any material
default by any Company in the payment of any tax material in amount or
threatened to make any assessment in respect thereof which has not been
reflected in Borrower's Most Recent 4A.04 Financial Statements.
4B.06 TITLE -- The Companies have good and marketable title to all
material assets reflected in Borrower's Most Recent 4A.04 Financial
Statements EXCEPT for changes resulting from transactions in the
ordinary course of business. All such assets are free of any mortgage,
security interest or other lien of any kind other than any permitted by
subsection 3D.04, and other than those to be cancelled, released and
terminated in conjunction with the payoff of the Existing Revolving
Facility. The Supplemental Schedule identifies all owned and leased
real property of the Companies.
4B.07 LAWFUL OPERATIONS -- To the knowledge of Borrower, the
Companies' operations have at all relevant times been and continue to
be in material compliance with all requirements imposed by law, whether
federal, state or local, whether statutory, regulatory or other,
including (without limitation) ERISA, all Environmental Laws, and
occupational safety and health laws and, to the knowledge of Borrower,
all applicable zoning ordinances except in each such case where the
failure to comply would not have a material adverse effect on the
Companies taken as a whole. Without limiting the generality of the
foregoing,
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38
(a) no condition exists at, on or under any facility or other property
now or previously owned by any Company which would give rise to any
material liability for the Companies taken as a whole under any
Environmental Law; and no Company has received any notice from any
governmental agency, court or anyone else that it is a potentially
responsible party for the clean-up of any environmental waste site, is in
violation of any environmental permit or law or has been placed on any
registry of solid or hazardous waste disposal site;
(b) no material Accumulated Funding Deficiency exists in respect of any
of the Companies' Pension Plans; and no Reportable Event has occurred in
respect of any such plan which is continuing and which constitutes
grounds either for termination of the plan by the PBGC or for court
appointment of a trustee for the administration thereof or which may have
a material adverse effect on the Companies' financial condition,
properties or business taken as a whole.
4B.08 INSURANCE -- The Companies' insurance coverage complies with the
standards set forth in subsection 3C.04 and those set forth in the Related
Writings referred to in subsection 4A.05.
4B.09 FINANCIAL STATEMENTS -- Each of the financial statements referred to in
subsection 4A.04 has been prepared in accordance with GAAP applied on a basis
consistent with those used by it during its then next preceding full fiscal
year EXCEPT to the extent, if any, specifically noted therein and fairly
presents in all material respects (subject to routine year-end audit
adjustments in the case of the unaudited financial statements) the consolidated
financial condition of the Companies as of the date thereof (including a full
disclosure of material contingent liabilities, if any) and the consolidated
results of their operations, if any, for the fiscal period then ending. There
has been no material adverse change in the financial condition, properties or
business of the Companies since the date of Borrower's Most Recent 4A.04
Financial Statements nor any change in their accounting policies since the end
of Borrower's latest full fiscal year covered by those statements.
4B.10 INDEBTEDNESS -- No Company has outstanding any material indebtedness for
borrowed money or any Funded Indebtedness of any kind except any permitted by
subsection 3D.03.
4B.11 DEFAULTS -- No Default Under This Agreement (and no default under any
other agreement which is material to the Companies taken as a whole) exists,
nor will any exist immediately after the execution and delivery of this
Agreement.
4B.12 FULL DISCLOSURE -- Neither this Agreement or any Related Writing, nor any
written statement made by Borrower in connection herewith or therewith,
contains any untrue statement of a material fact or omits a material fact
necessary to make the statements contained herein or therein not misleading.
There is no fact which Borrower or any
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39
Company has not disclosed to Banks which has or is likely to have a
material adverse effect on the Companies' property, business,
operations, prospects, profitability or condition (financial or
otherwise) taken as a whole or on Borrower's or the Companies' (taken as
a whole) ability to repay the Subject Indebtedness or Bank's (or
NCB-Agent's) lien and security interest in the collateral or the
priority thereof as contemplated hereby and in the Related Writings.
Each of the representations and warranties contained in this section 4B are
true and correct on the date hereof and shall be true and correct as of the
Initial Funding Date, currently contemplated as May 30, 1995. In the event the
Initial Funding Date of the loan proceeds contemplated hereby shall not occur
on or before July 31, 1995, this Agreement shall be deemed null and void and
the parties shall be relieved of any further liability to each other.
5A. EVENTS OF DEFAULT -- Each of the following shall constitute an Event Of
Default hereunder:
5A.01 PAYMENTS -- If any principal included in the Subject Indebtedness
shall not be paid in full promptly when the same becomes payable; or if
any Subject Indebtedness (EXCEPT principal) or any other Debt of the
Companies or any thereof to Banks and NCB- Agent or any thereof (EXCEPT
any payable on demand) shall not be paid in full promptly when the same
becomes payable and shall remain unpaid for ten (10) consecutive days
thereafter; or if such of the Debt of the Companies or any thereof to
Banks and NCB-Agent or any thereof as may be payable on demand shall not
be paid in full within ten (10) days after any actual demand for
payment.
5A.02 WARRANTIES -- If any representation, warranty or statement made
in this Agreement or in any Related Writing referred to in section 4A
shall be false or erroneous in any material respect; or if any
representation, warranty or statement hereafter made by or on behalf of
any Company in any Related Writing not referred to in section 4A shall
be false or erroneous many material respect.
5A.03 COVENANTS WITHOUT GRACE -- If any Company shall fail or omit to
perform or observe any provisions in subsections 3A.02 or 3B.01 through
3B.04, both inclusive.
5A.04 COVENANTS WITH GRACE -- If anyone (other than the Banks and
NCB-Agent and their respective agents) shall fail or omit to perform and
observe any agreement (other than those referred to in subsection 5A.01
or 5A.03 and not including the representations, warranties and
statements referred to in subsection 5A.02) contained in this Agreement
or any Related Writing that is on its part to be complied with, and that
failure or omission shall not have been fully corrected within thirty
(30) days after the giving of written notice to Borrower by any Bank or
NCB-Agent that it is to be remedied.
5A.05 CROSS-DEFAULT -- If any indebtedness of any Company for borrowed
money (regardless of maturity) or any of its Funded Indebtedness shall
be or become "in default"
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40
(as defined below) except any indebtedness if and so long as the
aggregate unpaid principal balance of all such indebtedness in
default for all Companies does not exceed Five Hundred Thousand and
00/100 Dollars ($500,000) at any one time outstanding. In this
subsection, "in default" means that (a) there shall have occurred
(or shall exist) in respect of the indebtedness in question (either
as in effect at the date of this Agreement or as in effect at the
time in question) any event, condition or other thing which
constitutes, or which with the giving of notice or the lapse of any
applicable grace period or both would constitute, a default which
accelerates (or permits any creditor or creditors or representative
or creditors to accelerate) the maturity of any such indebtedness;
or (b) any such indebtedness (other than any payable on demand)
shall not have been paid in full at its stated maturity; or (c) any
such indebtedness payable on demand shall not have been paid in full
within ten (10) Banking Days after any actual demand for payment.
5A.06 BORROWER'S SOLVENCY -- If (a) Borrower shall discontinue
operations, or (b) Borrower shall commence any Insolvency Action of
any kind or admit (by answer, default or otherwise) the material
allegations of, or consent to any relief requested in, any
Insolvency Action of any kind commenced against Borrower by its
creditors or any thereof, or (c) any creditor or creditors shall
commence against Borrower any Insolvency Action of any kind which
shall remain in effect (neither dismissed nor stayed) for sixty (60)
consecutive days.
5A.07 COMPANIES' SOLVENCY -- If (a) any Company shall discontinue
operations, (b) any Company other than Borrower shall commence any
Insolvency Action of any kind or admit (by answer, default or
otherwise) the material allegations of, or consent to any relief
requested in, any Insolvency Action of any kind commenced against
that Company by its creditors or any thereof, or (c) any creditor
or creditors of any Company other than Borrower shall commence
against that Company any Insolvency Action of any kind which shall
remain in effect (neither dismissed nor stayed) for sixty (60)
consecutive days.
5A.08 MATERIAL ADVERSE CHANGE -- If there shall occur any event,
condition or other thing that has a material adverse effect on the
financial condition, properties or business operations of the
Companies taken as a whole or on Banks' or NCB-Agent's ability to
enforce any right arising under or in connection with this
Agreement or any other Related Writing.
5B. EFFECTS OF DEFAULT -- Notwithstanding any contrary provision or
inference in this Agreement or in any Related Writing:
5B.01 OPTIONAL DEFAULTS --If any Event Of Default referred to in
subsections 5A.01 through 5A.05, both inclusive, or 5A.07 or 5A.08
shall occur and be continuing, Banks shall have the right in their
discretion, by giving written notice to Borrower,
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41
(a) to terminate the Revolving Commitments (if not already expired or
reduced to zero pursuant to section 2A or terminated pursuant to this
section) and no Bank shall have any obligation thereafter to grant any
Revolving Loan to Borrower, and
(b) to accelerate the Maturity of all of the Subject Indebtedness and all
other Debt, if any, then owing to the Banks and NCB-Agent or any thereof
(other than Debt, if any, already due and payable), and all such Debt
shall thereupon become and thereafter be immediately due and payable in
full without any presentment or demand and without any further or other
notice of any kind, all of which are hereby waived by Borrower.
5B.02 AUTOMATIC DEFAULTS -- If any Event Of Default referred to in subsection
5A.06 shall occur,
(a) the Revolving Commitments shall automatically and immediately
terminate (if not already expired or reduced to zero pursuant to section
2A or terminated pursuant to this section) and no Bank shall have any
obligation thereafter to grant any Revolving Loan to Borrower, and
(b) all of the Subject Indebtedness and all other Debt, if any, then
owing to the Banks and NCB-Agent or any thereof (other than Debt, if any,
already due and payable) shall thereupon become and thereafter be
immediately due and payable in full, all without any presentment, demand
or notice of any kind, which are hereby waived by Borrower.
5B.03 OFFSETS -- If there shall occur or exist any Default Under This Agreement
then, so long as that Default Under This Agreement exists, each Bank shall have
the right at any time to set off against and to appropriate and apply toward
the payment of the Subject Indebtedness then owing to it (and any participation
purchased or to be purchased pursuant to subsection 5B.05), whether or not the
same shall then have matured, any and all deposit balances then owing by that
Bank to or for the credit or account of the Companies or any thereof, all
without notice to or demand upon Borrower or any Subsidiary or any other
person, all such notices and demands being hereby expressly waived; provided,
however, that any such setoff, appropriation and application shall be subject
to the provisions of section 5B.05 hereof. Each Bank shall promptly notify each
other Bank after any such setoff and application made by such Bank; provided,
however, that the failure to give such notice shall not affect the validity of
such setoff and application.
5B.04 SUBJECT LCs -- If the Maturity of the Subject Indebtedness shall be
accelerated pursuant to subsection 5B.01 or 5B.02, Borrower shall immediately
deposit with NCB-Agent, as security for Borrower's obligation to reimburse
NCB-Agent and the Banks for any then outstanding Subject LCs, cash or
acceptable marketable securities having a fair cash value equal to the sum of
the aggregate undrawn balance of any then outstanding Subject LCs. For this
purpose, acceptable marketable securities include only those referred
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42
to in clause (ii) of subsection 3D.02. The Borrower shall have
no control over funds in such cash deposit account.
5B.05 EQUALIZATION -- Each Bank agrees with the other Banks that
if at any time it shall obtain any Advantage over the other
Banks or any thereof in respect of the Subject Indebtedness it
will purchase from such other Bank or Banks, for cash and at
par, such additional participation in the Subject indebtedness
owing to the other or others as shall be necessary to nullify
the Advantage. If any such Advantage resulting in the purchase
of an additional participation as aforesaid shall be recovered
in whole or in part from the Bank receiving the Advantage, each
such purchase shall be rescinded, and the purchase price
restored (with interest and other charges if and to the extent
actually incurred by the Bank receiving the Advantage) Ratably
to the extent of the recovery. During the existence of any Event
of Default, any payment (whether made voluntarily or
involuntarily, by offset of any deposit or other indebtedness or
otherwise) of any indebtedness for borrowed money owing by
Borrower to any Bank shall be applied to the Subject
Indebtedness owing to that Bank until the same shall have been
paid in full before any thereof shall be applied to other
indebtedness for borrowed money owing to that Bank. The Borrower
agrees that any Bank so purchasing a participation from another
Bank pursuant to this section 5B.05 may exercise all of its
rights of payment with respect to such participation as fully as
if such Bank were the direct creditor of the Borrower in the
amount of such participation.
6A. INDEMNITY: STAMP TAXES -- Borrower will pay all stamp taxes and
similar taxes, if any, including interest and penalties, if any,
payable in respect of the issuance of the Subject Indebtedness.
6B. INDEMNITY: GOVERNMENTAL COSTS/LIBOR-RATE LOANS -- If
(a) there shall be introduced or changed any treaty, statute,
regulation or other law, or there shall be made any change in the
interpretation or administration thereof, or there shall be made
any request from any central bank or other lawful governmental
authority, the effect of any of which events shall be to (1)
impose, modify or deem applicable any reserve or special deposit
requirements against assets held by or deposits in or Loans by any
national banking association or other commercial banking
institution (whether or not applicable to any Bank) or any Bank or
(2) subject any Bank to any tax, duty, fee, deduction or
withholding or (3) change the basis of taxation of payments due to
any Bank from Borrower (otherwise than by a change in taxation of
that Bank's overall Net Income), or (4) impose on any Bank any
penalty in respect of any loans bearing interest at a LIBOR rate
and
(b) in that Bank's reasonable opinion any such event (1) increases
(or, if the event were applicable to that Bank, would increase)
the cost of making, funding or maintaining any loans at such rate
or (2) reduces the amount of any payment to be made to that Bank
in respect of the principal or interest on any loans bearing
interest at such rate or other payment under this Agreement,
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43
then, within fifteen (15) business days of such Bank's written demand, Borrower
shall from time to time pay Bank an amount equal to each such cost increase or
reduced payment, as the case may be.
6C. INDEMNITY: FUNDING COSTS -- Borrower agrees to indemnify each Bank against
any loss relating in any way to its funding of any loan bearing interest at a
LIBOR rate paid before its stated Maturity (whether a prepayment or a payment
following any acceleration of Maturity) and to pay that Bank, as liquidated
damages for any such loss, an amount (discounted to the present value in
accordance with standard financial practice at a rate equal to the Treasury
Yield) equal to interest computed on the principal payment from the payment
date to the respective stated maturities thereof at a rate equal to the
difference of the contract rate less the Treasury Yield, all as determined by
that Bank in its reasonable discretion. "Treasury Yield" means the annual yield
on direct obligations of the United States having a principal amount and
Maturity similar to that of the principal being paid.
6D. CREDIT REQUESTS -- Whenever Borrower shall revoke any Credit Request for a
LIBOR loan, or shall for any other reason fail to borrow pursuant thereto or
otherwise comply therewith, or shall fail to honor any prepayment notice, then,
in each case on any Bank's written demand, Borrower shall pay each Bank such
amount as will compensate it for any loss, cost or expense incurred by it by
reason of its liquidation or reemployment of deposits or other funds.
6E. INDEMNITY: UNFRIENDLY TAKEOVERS -- Borrower agrees to indemnify each Bank
and NCB-Agent (each an "Indemnitee") and hold each Indemnitee harmless from and
against any and all liabilities, losses, damages, costs and expenses of any
kind (including, without limitation, the reasonable fees and disbursements of
counsel in connection with any investigative, administrative or judicial
proceeding, whether or not such Indemnitee shall be designated a party thereto)
which may be incurred by each Indemnitee relating to or arising out of any
actual or proposed use of proceeds of the Revolving Loans in connection with
the financing of an acquisition of any corporation or other business entity,
PROVIDED that no Indemnitee shall have the right to be indemnified hereunder
for its own gross negligence or willful misconduct as determined by a court of
competent jurisdiction.
6F. INDEMNITY: GOVERNMENTAL COSTS/SUBJECT LCs -- If any change in any law or
regulation or in the interpretation thereof shall impose, modify, or deem
applicable any reserve, special deposit, or similar requirement which would
impose on NCB-Agent or any Bank any additional cost relating generally to the
issuance or maintenance of letters of credit or specifically to the issuance or
maintenance of any Subject LC, then, on written demand by NCB-Agent or the Bank
in question, Borrower shall pay NCB-Agent or that Bank, as the case may be, the
amount of each such additional cost.
6G. INDEMNITY: MISCELLANEOUS COSTS/SUBJECT LCs -- Borrower agrees to defend
and indemnify NCB-Agent against, and to hold NCB-Agent harmless from, any loss,
liability, damage, claim, cost, or expense relating to NCB-Agent's issuance or
maintenance of any Subject LC or to NCB-Agent's payment of any draft drawn
thereunder, excluding any such loss, liability, damage, claim, cost, or expense
resulting from NCB-Agent's gross negligence or willful misconduct.
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44
6H. INDEMNITY: CAPITAL REQUIREMENTS -- If
(a) at any time any governmental authority shall require any Bank (or
any corporate shareholder of that Bank), whether or not the requirement
has the force of law, to maintain, as support for that Bank's Revolving
Commitment, capital in a specified minimum amount that either is not
required or is greater than that required at the date of this Agreement,
whether the requirement is implemented pursuant to the "risk-based
capital guidelines" (published at 12 CFR 3 in respect of "national
banking associations", 12 CFR 208 in respect of "state member banks" and
12 CFR 225 in respect of "bank holding companies") or otherwise, and
(b) as a result thereof the rate of return on capital of that Bank or
its shareholder or both (taking into account their then policies as to
capital adequacy and assuming full utilization of their capital) shall
be directly or indirectly reduced by reason of any new or added capital
thereby allocable to that Bank's Revolving Commitment,
then and in each such case Borrower shall, on that Bank's demand, pay that Bank
as an additional fee such amounts as will in that Bank's reasonable opinion
reimburse that Bank or its shareholder for any such reduced rate of return.
6I. INDEMNITY: COLLECTION COSTS -- If any Event Of Default shall occur and
shall be continuing, Borrower will pay the Banks and NCB-Agent such further
amounts, to the extent permitted by law, as shall cover their respective costs
and expenses (including, without limitation, the reasonable fees,
interdepartmental charges and disbursements of its counsel) incurred in
collecting the Subject Indebtedness or in otherwise enforcing its rights and
remedies in respect thereof.
6J. CERTIFICATE FOR INDEMNIFICATION -- Each demand by NCB-Agent or a Bank for
payment pursuant to section 6A, 6B, 6C, 6D, 6E, 6F, 6G, 6H or 6I shall be
accompanied by a certificate setting forth the reason for the payment, the
amount to be paid, and the computations and assumptions in determining the
amount, which certificate shall be presumed to be correct in the absence of
manifest error. In determining the amount of any such payment, each Bank may
use reasonable averaging and attribution methods.
7A. BANK'S PURPOSE -- Each Bank represents and warrants to the other Banks and
to Borrower that such Bank is familiar with the Securities Act of 1933 as
amended and the rules and regulations thereunder and is not entering into this
Agreement with any intention of violating that Act or any rule or regulation
thereunder, it being understood, however, that each Bank shall at all times
retain full control of the disposition of its assets.
7B. NCB-AGENT -- Each Bank irrevocably appoints NCB to be its agent with full
authority to take such actions, and to exercise such powers, on behalf of the
Banks in respect of this Agreement and the Related Writings as are therein
respectively delegated to NCB-Agent or as are reasonably incidental to those
delegated powers.
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45
7B.01 NATURE OF APPOINTMENT -- NCB-Agent shall have no fiduciary relationship
with any Bank by reason of this Agreement and the Related Writings, nor shall
NCB-Agent have any duty or responsibility whatever to any Bank EXCEPT those
expressly set forth in this Agreement and the Related Writings. Without
limiting the generality of the foregoing, each Bank acknowledges that NCB-Agent
is acting as such solely as a convenience to the Banks and not as a manager of
the Subject Loans or Subject Indebtedness. This section 7B does not confer any
rights upon Borrower or anyone else (EXCEPT NCB-Agent and the Banks), whether
as a third party beneficiary or otherwise.
7B.02 NCB AS A BANK; OTHER TRANSACTIONS -- NCB's rights under this Agreement
and the Related Writings shall not be affected by its serving as NCB-Agent.
Subject to the terms and provisions of this Agreement, NCB and its affiliates
may generally transact any banking, financial, trust advisory or other business
with Borrower (including, without limitation, the acceptance of deposits, the
extension of credit, forward exchange rate contracts, interest rate caps,
swaps, collars and other like contracts and the acceptance of fiduciary
appointments) without notice to the Banks, without accounting to the Banks, and
without prejudice to NCB's rights as a Bank under this Agreement and the
Related Writings.
7B.03 INSTRUCTION FROM BANKS -- NCB-Agent shall not be required to exercise any
discretion or take any action as to matters not expressly provided for by this
Agreement and the Related Writings (including, without limitation, collection
and enforcement actions in respect of the Subject Indebtedness and any
collateral therefor) EXCEPT that NCB-Agent shall take such action (or omit to
take such action) as may be requested of it in writing by all the Banks unless
NCB-Agent's counsel advises against doing so, which instructions and which
actions and omissions shall be binding upon all the Banks; PROVIDED, that
NCB-Agent shall not be required to act (nor omit any act) if, in its judgment,
any such action or omission might expose NCB-Agent to liability or might be
contrary to this Agreement, any Related Writing or any applicable law.
7B.04 BANKS' DILIGENCE -- Each Bank
(a) represents and warrants that it has made its decision to enter into
this Agreement and the Related Writings and
(b) agrees that it will make its own decision as to taking or not
taking future actions in respect of this Agreement and the Related
Writings
in each case without reliance on NCB-Agent or any other Bank and on the basis
of its independent credit analysis and its independent examination of and
inquiry into such documents and other matters as it deems relevant and
material.
7B.05 NO IMPLIED REPRESENTATIONS -- NCB-Agent shall not be liable for any
representation, warranty, agreement or obligation of any kind of any other
party to this
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46
Agreement or anyone else (except for those made by NCB-Agent), whether made or
implied by Borrower in this Agreement or any Related Writing or by a Bank in
any notice or other communication or by anyone else or otherwise.
7B.06 SUB-AGENTS -- Except as otherwise provided herein, NCB-Agent may employ
agents and shall not be liable (EXCEPT as to money or property received by it
or its agents) for any negligence or misconduct of any such agent selected by
it with reasonable care. NCB-Agent may consult with legal counsel, certified
public accountants and other experts of its choosing (including, without
limitation, NCB's salaried employees, any employed by Borrower or any otherwise
not independent) and shall not be liable for any action or inaction taken or
suffered in good faith by it in accordance with the advice of any such counsel,
accountants or other experts.
7B.07 NCB-AGENT'S DILIGENCE -- NCB-Agent shall not be required (a) to keep
itself informed as to anyone's compliance with any provision of this Agreement
or any Related Writing, (b) to make any inquiry into the properties, financial
condition or operations of Borrower or any other matter relating to this
Agreement or any Related Writing, (c) to report to any Bank any information
(other than which this Agreement or any Related Writing expressly requires to
be so reported) that NCB-Agent or any of its affiliates may have or acquire in
respect of Borrower's properties, business or financial condition or any other
matter relating to this Agreement or any Related Writing or (d) to inquire
into the validity, effectiveness or genuineness of this Agreement or any
Related Writing.
7B.08 NOTICE OF DEFAULT -- NCB-Agent shall not be deemed to have knowledge of
any Event of Default unless and until it shall have received a written notice
describing it and citing the relevant provision of this Agreement or any
Related Writing.
7B.09 NCB-AGENT'S LIABILITY -- Neither NCB-Agent nor any of its directors,
officers, employees, attorneys and other agents shall be liable for any action
or omission on their respective parts EXCEPT for gross negligence or willful
misconduct or any action or failure to act in accordance with instructions from
the Banks in accordance with this Agreement.
7B.10 COMPENSATION -- At the execution and delivery of this Agreement and
annually thereafter so long as any Subject Loans are outstanding, Borrower
shall pay NCB-Agent a fee to be determined by mutual agreement of Borrower and
NCB-Agent. NCB-Agent shall receive no other compensation for its services as
agent of the Banks in respect of this Agreement and the Related Writings, but
Borrower shall reimburse NCB-Agent periodically on its demand for out-of-pocket
expenses, if any, reasonably incurred by it as such.
7B.11 DISBURSEMENTS -- Whenever NCB-Agent shall receive any funds in respect of
the Subject Indebtedness or otherwise in respect of this Agreement or any
Related Writing, whether from Borrower for the account of the Banks or from the
Banks for the account of Borrower, NCB-Agent shall disburse the funds on the
day the funds shall be deemed to have been received. NCB-Agent shall be
entitled (but not obligated) to make a timely disbursement
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of loan proceeds to Borrower before actually receiving funds from the
Banks (EXCEPT if and to the extent NCB-Agent shall have received written
instructions to the contrary from any Bank or Banks) and to make a timely
disbursement of payments to the Banks on a Ratable basis before actually
receiving funds from Borrower. If the funds to be disbursed are not
received by NCB-Agent on a timely basis, NCB-Agent at its option may (a)
rescind the disbursement and require the disbursee to return the funds in
question with interest or (b) require the party who failed to furnish the
funds for disbursement on a timely basis to pay NCB-Agent interest thereon
-- the interest in each case to be computed at the Federal Funds Rate and
to be paid on demand.
7B.12 NCB-AGENT'S INDEMNITY -- The Banks shall indemnify NCB-Agent (to the
extent NCB-Agent is not reimbursed by Borrower) from and against any loss
or liability (other than any caused by NCB-Agent's gross negligence or
willful misconduct) incurred by NCB-Agent as such in respect of this
Agreement or any Related Writing and from and against any out-of-pocket
expenses incurred in defending itself or otherwise related to this
Agreement or any Related Writing including, without limitation, reasonable
fees and disbursements of legal counsel of its own selection (including,
without limitation, the reasonable interdepartmental charges of its
salaried attorneys) in the defense of any claim against it or in the
prosecution of its rights and remedies as NCB-Agent (unless it is
determined in such proceeding that NCB- Agent shall have been grossly
negligent or shall have engaged in willful misconduct); PROVIDED, that
each Bank shall be liable for only its Ratable share of the whole loss or
liability.
7B.13 RESIGNATION -- NCB-Agent (or any successor) may resign as such at
any time upon thirty (30) days prior written notice to Borrower and to
each Bank, in which event all the Banks may, upon obtaining the prior
written consent of Borrower, which consent will not be unreasonably
withheld, appoint a successor agent by giving written notice thereof to
Borrower and the resigning agent. In the absence of a timely appointment,
NCB-Agent shall have the right (but not the duty) to make a temporary
appointment of any Bank (but only with that Bank's consent) to act as its
successor pending an appointment pursuant to the next preceding sentence.
In either case, the successor agent shall deliver its written acceptance
of appointment to Borrower, to each Bank and to the former agent,
whereupon the successor agent shall automatically acquire and assume all
the rights and duties as those prescribed for NCB-Agent by this section
7B. Any resigning agent shall execute and deliver such assignments and
other writings as the Successor agent may reasonably require to facilitate
its becoming the successor agent.
7C. TRANSFER OF SUBJECT LOANS -- Each Bank shall have the right at any time or
times to transfer its Subject Loans (or commitment to make the same) in whole
or in part and without recourse to another financial institution, PROVIDED, in
each such case, that the transferor and the transferee shall have complied with
the following requirements:
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7C.01 PRIOR CONSENT -- No Subject Loans (or commitment to make the same)
may be transferred, either in whole or in part, without the prior written
consent of Borrower and NCB-Agent, neither of which consents shall be
unreasonably withheld.
7C.02 AGREEMENT -- The transferee shall execute and deliver to Borrower,
NCB-Agent and each Bank (other than any transferor which thereafter will
have no interest in any Subject Loans or any commitment to make the same) a
counterpart of this Agreement and such additional amendments, assurances
and other writings as NCB-Agent may reasonably require.
7C.03 NOTE -- Borrower shall execute and deliver to the transferee an
appropriate note or notes, as the case may be, and an appropriate release
to the transferor.
7C.04 PARTIES -- Upon satisfaction of the requirements of this section 7C,
(a) the transferee shall become and thereafter be deemed to be a
Bank for the purposes of this Agreement and
(b) The transferor (i) shall continue to be a Bank for the purposes
of this Agreement only if and to the extent that the transfer shall
not have been a transfer of its entire interest in the Subject
Loans (or commitment to make the same) and (ii) shall cease to be
and thereafter shall no longer be deemed to be a Bank in the case
of any transfer of its entire interest in the Subject Loans (or
commitment to make the same).
8. INTERPRETATION -- This Agreement and the Related Writings shall be governed
by the following provisions:
8.01 WAIVERS -- The Banks and NCB-Agent may from time to time grant
waivers and consents in respect of this Agreement or any Related Writing
or assent to amendments thereof, but no such waiver, consent or assent
shall be binding upon the Banks and NCB-Agent or any thereof unless (a)
it shall have been reduced to writing, each such writing to be narrowly
construed and (b) the waiver, consent or amendment shall have been
approved and executed by all of the Banks and NCB-Agent. Without
limiting the generality of the foregoing, Borrower agrees that no course
of dealing in respect of, nor any omission or delay in the exercise of,
any right, power or privilege by Banks and NCB-Agent or any thereof
shall operate as a waiver thereof, nor shall any single or partial
exercise thereof preclude any further or other exercise thereof or of
any other right, power or privilege, and each such right, power or
privilege may be exercised either independently or concurrently with
others and as often and in such order as the party or parties exercising
the same may deem expedient.
8.02 CUMULATIVE PROVISIONS -- Each right, power or privilege specified
or referred to in this Agreement or any Related Writing is in addition
to and not in limitation of any other rights, powers and privileges that
Banks and NCB-Agent may respectively otherwise
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have or acquire by operation of law, by other contract or otherwise. All
rights, powers and privileges shall be deemed cumulative.
8.03 BINDING EFFECT -- The provisions of this Agreement and the Related
Writings shall bind and benefit Borrower, NCB-Agent and each Bank and their
respective successors and assigns, including each subsequent holder, if any, of
the Revolving Notes or any thereof; PROVIDED, that no person or entity other
than Borrower may obtain Revolving Loans and Borrower may not assign its rights
or obligations hereunder without Banks' consent; and PROVIDED, FURTHER, that
neither any holder of any Revolving Note or assignee of any Revolving Loan,
whether in whole or in part, shall thereby become obligated thereafter to grant
to Borrower any Revolving Loan.
8.04 SURVIVAL OF PROVISIONS -- All representations and warranties made in or
pursuant to this Agreement or any Related Writing shall survive the execution
and delivery of this Agreement and the Revolving Notes. The provisions of
sections 6 and 7B.12 shall survive the payment of the Subject Indebtedness.
8.05 IMMEDIATE U.S. FUNDS -- Any reference to money is a reference to lawful
money of the United States of America which, if in the form of credits, shall
be in immediately available funds.
8.06 CAPTIONS -- The several captions to different sections and subsections of
this Agreement are inserted for convenience only and shall be ignored in
interpreting the provisions thereof.
8.07 SUBSECTIONS -- Each reference to a section includes a reference to all
subsections thereof (i.e., those having the same character or characters to the
left of the decimal point) EXCEPT where the context clearly does not so permit.
8.08 ILLEGALITY -- If any provision in this Agreement or any Related Writing
shall for any reason be or become illegal, void or unenforceable, that
illegality, voidness or unenforceability shall not affect any other provision.
8.09 OHIO LAW -- This Agreement and the Related Writings and the respective
rights and obligations of the parties hereto shall be construed in accordance
with and governed by internal Ohio law.
8.10 INTEREST/FEE COMPUTATIONS -- All interest and all fees for any given
period shall accrue on the first (1st) day thereof but not on the last day
thereof and in each case shall be computed on the basis of a 360-day year and
the actual number of days elapsed. In no event shall interest accrue at a
higher rate than the maximum rate, if any, permitted by law.
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8.11 NOTICE -- A notice to or request of Borrower shall be deemed to have been
given or made under this Agreement or any Related Writing either upon the
delivery of a writing to that effect (either in person or by transmission of a
telecopy) to an officer of Borrower or five (5) days after a writing to that
effect shall have been deposited in the United States mail and sent, with
postage prepaid, by registered or certified mail, properly addressed to
Borrower (Attention: chief financial officer or controller), with a copy to Ira
C. Kaplan, Esq., Benesch, Friedlander, Coplan and Aronoff, 2300 BP America
Building, 200 Public Square, Cleveland, Ohio 44114. No other method of actually
giving actual notice to or making a request of Borrower is hereby precluded.
Every notice required to be given to NCB-Agent or any Bank pursuant to this
Agreement or any Related Writing shall be delivered (either in person or by
transmission of a telecopy) to an Account Officer of that party. The Banks and
NCB-Agent each agree to give prompt notice to the others whenever it gives any
notice pursuant to section 5A or 5B. A notice or request by mail is properly
addressed to a party when addressed to it at the address set forth opposite its
signature below or at such other address as that party may furnish to each of
the others in writing for that purpose. A telecopy is transmitted to a party
when transmitted to the telecopy number set forth opposite that party's
signature below (or at such other telecopy number as that party may furnish to
the other in writing for that purpose).
8.12 ACCOUNTING TERMS -- Any accounting term used in this Agreement shall have
the meaning customarily ascribed thereto by GAAP subject, however, to such
modification, if any, as may be provided by section 9 or elsewhere in this
Agreement.
8.13 ENTIRE AGREEMENT -- This Agreement and the Related Writings referred to in
or otherwise contemplated by this Agreement set forth the entire agreement of
the parties as to the transactions contemplated by this Agreement.
8.14 WAIVER OF JURY TRIAL -- THE PARTIES ACKNOWLEDGE AND AGREE
THAT ANY CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT AND
THE RELATED WRITINGS WOULD INVOLVE DIFFICULT AND COMPLEX ISSUES
AND THEREFORE AGREE THAT ANY LAW SUIT GROWING OUT OF OR
INCIDENTAL TO ANY SUCH CONTROVERSY WILL BE TRIED IN A COURT OF
COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
8.15 LATE CHARGE; APPLICATION OF PAYMENTS -- If Borrower fails to pay any
amount due hereunder, or any fee in connection herewith, in full within ten
(10) days after its due date, Borrower will, in each case, incur and shall pay
a late charge equal to the greater of twenty dollars ($20.00) or five percent
(5%) of the unpaid amount. The payment of a late charge will not cure or
constitute a waiver of any Event Of Default under this Agreement. Except as
otherwise agreed in writing, payments will be applied first to accrued but
unpaid interest and fees, in that order, on an invoice by invoice basis in the
order of their respective due dates, until paid in full, then to late charges
and then to principal.
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8.16 EXPENSES -- Borrower agrees to reimburse each Bank, on that Bank's demand
from time to time, for any and all fees, costs and expenses (including, without
limitation, the reasonable fees, interdepartmental charges and disbursements of
legal counsel) incurred by that Bank in connection with (a) preparing and
reviewing any amendments or modifications to this Agreement or the Related
Writings, (b) administering this Agreement and the Subject Indebtedness
evidenced and contemplated hereby and by the other Related Writings, (c) any
filing or recording fees, lien search fees, documentary stamp taxes or other
like fees, taxes or charges, (d) any litigation, contest, dispute, suit,
proceeding or action (whether instituted by Banks, Borrower or any other
Person) in any way relating to the Banks' collateral for the Subject
Indebtedness, this Agreement or any of the other Related Writings or Borrower's
affairs, but excluding any litigation between Borrower and Bank as adverse
parties unless otherwise permitted by law in connection with any judgment
awarded in favor of the prevailing party or (e) any inspection, verification or
protection of any of Banks' collateral for the Subject Indebtedness.
Borrower's reimbursement obligations hereunder shall constitute a part of
Borrower's Debt.
8.17 JURISDICTION AND VENUE -- As part of the consideration for new value
received, Borrower hereby consents to the jurisdiction of any state or federal
court located within the state of Ohio and consents that all such service of
process be made by registered or certified mail directed to such Borrower at
the address set forth opposite its name and officer's signature on the
execution page hereof and service so made shall be deemed to be completed upon
actual receipt thereof. Borrower waives any objection to jurisdiction and venue
of any action instituted hereunder or in connection with any Related Writing
and agrees not to assert any defense based on lack of jurisdiction or venue.
Nothing contained herein shall affect the right of Banks or NCB-Agent to serve
legal process in any other manner permitted by law or affect the right of Banks
or NCB-Agent to bring any action or proceeding against Borrower or its
property in the courts of any other jurisdiction. Borrower agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
8.18 AMBIGUITIES -- Borrower and Banks acknowledge that this Agreement and the
Related Writings have been entered into in the context of free and
understanding negotiations and are the product of individual bargaining, in a
competitive market, between parties enjoying equal bargaining strength. In the
event that a court is called upon to interpret any ambiguous provision in this
Agreement or the Related Writings, Borrower and Banks agree that the ambiguity
shall not be construed against Borrower or Banks simply because Borrower or
Banks, or their respective agents or counsel, may have drafted such provision.
8.19 OTHER WAIVERS AND ACKNOWLEDGMENT -- Except as otherwise provided for in
this Agreement or as required by applicable law, Borrower waives (i)
presentment, demand and protest and notice of presentment, protest, default,
nonpayment, maturity,
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52
release, compromise, settlement, extension or renewal of any or all
commercial paper, accounts, contract rights, documents, instruments,
chattel paper and guaranties at any time held by Banks or NCB-Agent on
which Borrower may in any way be liable and (ii) notice prior to taking
possession or control of any collateral which might be required by any
court prior to allowing Banks to exercise any of Banks' or NCB-Agent's
remedies.
Borrower acknowledges that it has been advised by counsel of its choice
with respect to this Agreement and the transactions contemplated hereby,
and Borrower acknowledges and agrees that (a) each of the waivers set
forth herein, were knowingly and voluntarily made; (b) the rights of
Banks and NCB-Agent hereunder shall be strictly construed in favor of
Banks and NCB-Agent, as the case may be; and (c) no representative of
Banks or NCB-Agent has waived or modified any of the provisions of this
Agreement or any Related Writing as of the date hereof and no such waiver
or modification following the date hereof shall be effective unless made
in accordance with section 8.01 hereof.
9. DEFINITIONS -- As used in this Agreement and in the Related Writings, EXCEPT
where the context clearly requires otherwise,
ACCOUNT DEBTOR means a Person obligated in any way on or in connection
with a Receivable;
ACCOUNT OFFICER means that officer who at the time in question is
designated by the Bank in question as the officer having primary
responsibility for giving consideration to Borrower's requests for
credit or, in that officer's absence, that officer's immediate superior
or any other officer who reports directly to that superior officer;
ACCUMULATED FUNDING DEFICIENCY shall have the meaning ascribed thereto
in section 302(a)(2) of ERISA;
ADVANTAGE means any payment (whether made voluntarily or involuntarily,
by offset of any deposit or other indebtedness or otherwise) received by
a Bank in respect of any of the Subject Indebtedness if the payment
results in that Bank's having less than its Ratable share of the Subject
Indebtedness in question;
AFFILIATE, when used with reference to any corporation (or other
business entity) (the "subject") means, a corporation (or other business
entity) or person that is in control of or under the control of or under
common control (by another) with the subject; the term CONTROL meaning
the direct or indirect power to direct the management or policies of the
subject or the Affiliate or both (as the case may be), whether through
the direct or indirect ownership of voting securities, by contract or
otherwise;
AGREEMENT means this Agreement and includes each amendment, supplement
or restatement, if any, to this Agreement;
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AVAILABILITY means (a) the lesser of the aggregate of the Revolving Commitments
or the Borrowing Base minus (b) the aggregate unpaid principal amount of the
Revolving Loans outstanding at the time of reference plus the aggregate undrawn
balance of the Subject LCs and any unreimbursed drawings pursuant to the
Subject LCs (to the extent PR Loans have not been advanced by Banks in respect
thereof pursuant to subsection 2B.18) plus the amount of any Subject LCs to be
issued pursuant to any unfilled Credit Request under subsection 2C.04;
BANK means one of the banking institutions that is a party to this Agreement;
BANKING DAY means (a) in the case of a LIBOR Loan, a day on which banks in the
London interbank market deal in United States dollar deposits and on which
banking institutions are generally open for domestic and international business
in Cleveland and (b) in any other case, any day other than a Saturday or a
Sunday or a public holiday or other day on which banking institutions in
Cleveland, Ohio are generally closed and do not conduct banking business;
BORROWER means Sudbury, Inc., a Delaware corporation;
BORROWING BASE is defined in subsection 2B.14;
BORROWING BASE REPORT means a report furnished by Borrower pursuant to clause
(d) of subsection 3A.01;
COMPANY refers to Borrower, Cast-Matic Corporation, Frisby P.M.C.,
Incorporated, Industrial Powder Coatings, Inc., Iowa Mold Tooling Co., Inc.,
South Coast Terminals, Inc., Wagner Castings Company or Wagner Havana, Inc., as
the case may be;
CONVERSION DATE shall have the meaning ascribed to that term in subsection
2A.08(a);
CREDIT REQUEST means a request made pursuant to subsection 2B.02 or 2C.04, as
the case may be;
DEBT means, collectively, all liabilities (including principal, interest, fees,
charges, expenses and any other amounts) of the party or parties in question to
the Banks and NCB-Agent or any thereof, whether owing by one such party alone
or with one or more others in a joint, several, or joint and several capacity,
whether now owing or hereafter arising, whether owing absolutely or
contingently, whether created by loan, overdraft, guaranty of payment or other
contract or by quasi-contract or tort, statute or other operation of law or
otherwise, whether incurred directly to the Banks and NCB-Agent of any thereof
or acquired by purchase, pledge or otherwise, and whether participated to or
from the Banks and NCB-Agent or any thereof in whole or in part; and in the
case of Borrower includes, without limitation, the Subject Indebtedness;
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54
DEFAULT UNDER ERISA means (a) the occurrence or existence of a material
Accumulated Funding Deficiency in respect of any of any of the Companies'
Pension Plans, (b) any material failure by a Company to make a lull and timely
payment of PBGC premiums required by ERISA for insurance against any employer's
liability in respect of any such plan, (c) any material breach of a fiduciary
duty by a Company or any trustee in respect of any such plan or (d) the
existence of any action by the PBGC for the forcible termination of any such
plan;
DEFAULT UNDER THIS AGREEMENT means an event, condition or thing which
constitutes (or which with the lapse of any applicable grace period or the
giving of notice or both would constitute) an Event Of Default referred to in
section 5A and which has not been appropriately waived in writing in accordance
with this Agreement or corrected to Banks' full satisfaction;
DISTRIBUTION means a payment made, liability incurred or other consideration
(other than any stock dividend or stock split payable solely in capital stock
of Borrower) given by a Company for the purchase, acquisition, redemption or
retirement of any capital stock of the Company or as a dividend, return of
capital or other distribution in respect of the Company's capital stock and
DISTRIBUTE means to make a Distribution;
ELIGIBLE INVENTORY means all of the Companies' Inventory that constitutes raw
materials (excluding packaging) and, except as set forth below, first quality
finished goods and that: (a) is not, in NCB-Agent's reasonable judgment,
defective, slow-moving, obsolete or unmerchantable; (b) does not constitute
work-in-process Inventory; (c) upon which NCB-Agent, for the benefit of the
Banks, has a first priority perfected security interest and with respect to
which the Companies have delivered landlords' waivers and/or bailee letters
satisfactory in form and substance to NCB-Agent and the Banks; and (d)
NCB-Agent otherwise deems eligible as the basis for Revolving Loans based on
such other credit and collateral considerations as NCB-Agent may from time to
time establish in its reasonable discretion.
ELIGIBLE RECEIVABLES means those Receivables in which NCB-Agent, for the
benefit of the Banks, has a first priority and, except as set forth below with
respect to the Metzeler Gimetall of Germany and Ford of Germany Receivables,
perfected security interest and which are not ineligible as the basis for
Revolving Loans, based on the following criteria and on such other criteria as
NCB-Agent may from time to time establish in its reasonable discretion. Banks
acknowledge that their security interest in the Receivables of Metzeler
Gimetall of Germany and Ford of Germany does not have to be perfected in
Germany to render those Receivables eligible. Without intending to limit
NCB-Agent's discretion to establish other criteria of eligibility, Eligible
Receivables shall NOT include any Receivable:
(a)(i) in the case of Receivables relating to invoices that are issued
without extended terms, if more than ninety (90) days have elapsed since
the date of the original invoice; or
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55
(a)(ii) in the case of Receivables relating to invoices that are issued on
extended terms (i.e. they have a due date that is equal to or more than ninety
(90) days from their invoice date) if more than sixty (60) days have elapsed
since the due date or if more than one hundred fifty (150) days have elapsed
since the date of the original invoice; or,
(b) with respect to which any of the representations, warranties, covenants,
and agreements contained in this Agreement are not or have ceased to be
complete and correct or have been breached;
(c) with respect to which, in whole or in part, a check or other instrument for
the payment of money has been received, presented for payment and returned
uncollected for any reason;
(d) which represents a Progress Billing or as to which any Company has extended
the time for payment without the consent of the NCB-Agent; for the purpose
hereof, "Progress Billing" means any invoice for goods sold or leased or
services rendered under a contract or agreement pursuant to which the Account
Debtor's obligation to pay such invoice is conditioned upon any Company's
completion of any further performance under the contract or agreement;
(e) as to which any one or more of the following events has occurred with
respect to the Account Debtor on such Receivable: death or judicial
declaration of incompetency of an Account Debtor who is any individual; the
filing by or against the Account Debtor of a request or petition for
liquidation, reorganization, arrangement, adjustment of debts, adjudication as
a bankrupt, winding-up, or other relief under the bankruptcy, insolvency, or
similar laws of the United States, any state or territory thereof, or any
foreign jurisdiction, now or hereafter in effect; the making of any general
assignment by the Account Debtor for the benefit of creditors; the appointment
of a receiver or trustee for the Account Debtor or for any of the assets of the
Account Debtor; the institution by or against the Account Debtor of any other
type of insolvency proceeding (under the bankruptcy laws of the United States
or otherwise) or of any formal or informal proceeding for the dissolution or
liquidation of, settlement of claims against, or winding up of affairs of, the
Account Debtor; the nonpayment generally by the Account Debtor of its debts as
they become due; or the cessation of the business of the Account Debtor as a
going concern;
(f) if the aggregate dollar amount of all Receivables owed by the Account
Debtor thereon exceeds a credit limit determined by NCB-Agent in its sole
discretion, but only to the extent such Receivable exceeds such limit;
(g) owed by an Account Debtor which: (i) does not maintain its chief executive
office in the United States; or (ii) is not organized under the laws of the
United States
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56
or any state thereof; or (iii) is the government of any foreign country or
sovereign state, or of any state, province, municipality, or other political
subdivision thereof, or of any department, agency, public corporation, or other
instrumentality thereof except to the extent that (A)(i) such Receivable is
secured or payable by letter of credit or acceptance terms acceptable to
NCB-Agent; and (A)(ii) NCB-Agent, for the benefit of the Banks, has obtained a
first priority perfected security interest in the proceeds of drawings under
such letters of credit or acceptance or (B) such Receivable is owed by a
Canadian Account Debtor that has neither its chief executive office nor any of
its business operations located in the Provence of Quebec but only then to the
extent the Receivable has been reduced by the amount of any Canadian taxes that
may be due from the applicable Company in connection with receipt of payment of
the Receivable;
(h) owed by the Borrower, any Company or by any Account Debtor which is an
Affiliate of the Borrower other than General Products Delaware Corporation, a
Delaware corporation;
(i) except as provided in clause (k) below, as to which either perfection,
enforceability, or validity of the security interest of NCB-Agent in such
Receivable, or NCB-Agent's right or ability to obtain direct payment to
NCB-Agent, for the benefit of the Banks, of the proceeds of such Receivable, is
governed by any federal, state, or local statutory requirements other than
those of the UCC;
(j) which is owed by an Account Debtor to which any of the Companies is
indebted in any way, or which is subject to any right of set-off by the Account
Debtor, unless the Account Debtor has entered into an agreement acceptable to
NCB-Agent to waive set-off rights; or if the Account Debtor thereon has
disputed liability or made any claim with respect to any other Receivable due
from such Account Debtor but in each such case referred to in this subparagraph
(j) only to the extent of such indebtedness, set-off, dispute, or claim; for
the purposes of this calculation an amount of $500,000 will be used, and may be
reasonably adjusted by NCB-Agent from time to time;
(k) which is owed by the government of the United States of America, or any
department, agency, public corporation, or other instrumentality thereof,
unless the Federal Assignment of Claims Act of 1940, as amended, and any other
steps necessary to perfect, for the benefit of the Banks, NCB-Agent's security
interest therein, have been complied with to NCB-Agent's satisfaction with
respect to such Receivable;
(l) which is owed by any state, municipality, or other political subdivision of
the United States of America, or any department, agency, public corporation, or
other instrumentality thereof and as to which NCB-Agent determines that
NCB-Agent's security interest therein, for the benefit of the Banks, is not or
cannot be perfected;
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(m) which arises out of a sale to an Account Debtor on a bill-and-hold,
guaranteed sale, sale and return, sale on approval, consignment, or other
repurchase or return basis;
(n) which is evidenced by a promissory note or other instrument or by
chattel paper;
(o) if NCB-Agent believes in its reasonable credit judgment that the
prospect of collection of such Receivable is impaired or that the
Receivable may not be paid by reason of the Account Debtor's financial
inability to pay;
(p) all Receivables owing by a single Account Debtor, if fifty percent
(50%) or more of the balance of all Receivables owing by such Account
Debtor to any Company is ineligible by reason of either of the criteria
set forth in clause (a) above;
(q) which is subject to any contra account, any chargeback, deduction,
unapplied credit or accrual allowance or rebate, but only then to the
extent of any such contra account, chargeback, deduction, unapplied
credit, accrual allowance or rebate;
(r) owed by Metzeler Gimetall of Germany or Ford of Germany to any
Company to the extent that (i) all such Receivables owed by them exceed
at any given time the aggregate amount of $4,000,000.00 or (ii) any such
Receivable contains payment terms of more than ninety (90) days after the
invoice date; or
(s) which arises out of a floor planning or similar financing
arrangement.
ENVIRONMENTAL LAW means the Comprehensive Environmental Response, Compensation,
and Liability Act (42 USC 9601 et seq.), the Hazardous Material Transportation
Act (49 USC 1801 et seq.), the Resource Conservation and Recovery Act (42 USC
6901 et seq.), the Federal Water Pollution Control Act (33 USC 1251 et seq.),
the Toxic Substances Control Act (15 USC 2601 et seq.) and the Occupational
Safety and Health Act (29 USC 651 et seq.), as such laws have been or hereafter
may be amended, and any and all analogous present or future federal, state or
local statutes and the regulations promulgated pursuant thereto;
ERISA means the Employee Retirement Income Security Act of 1974 (P.L. 93-406)
as amended from time to time and in the event of any amendment affecting any
section thereof referred to in this Agreement, that reference shall be a
reference to that section as amended, supplemented, replaced or otherwise
modified;
EVENT OF DEFAULT is defined in section 5A;
EXISTING REVOLVING FACILITY means the loans evidenced by a certain Loan and
Security Agreement dated as of May 28, 1993 between and among Borrower, certain
of Borrower's
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58
Subsidiaries, BA Business Credit, Inc. (individually and as Agent) and NCB (and
participated in by Star Bank, National Association), as the same has been
amended from time to time;
EXPIRATION DATE means the date referred to as such in subsection 2A.02, EXCEPT
that in the event of any extension pursuant to subsection 2A.05, "Expiration
Date" shall mean the latest date to which the Revolving Commitments shall have
been so extended;
FEDERAL FUNDS RATE means a fluctuating interest rate per annum, as in effect at
the time in question, that is the rate determined by NCB-Agent to be the
opening Federal Funds Rate per annum paid or payable by it on the day in
question in its regional federal funds market for overnight borrowings from
other banking institutions;
FIXED CHARGE RATIO shall have the meaning ascribed to that term in subsection
3B.04;
FUNDED INDEBTEDNESS means indebtedness of the person or entity in question
which matures or which (including each renewal or extension, if any, in whole
or in part) remains unpaid for more than twelve (12) months after the date
originally incurred and includes, without limitation (a) any indebtedness
(regardless of its maturity) if it is renewable or refundable in whole or in
part solely at the option of that person or entity (in the absence of default)
to a date more than one (1) year after the date of determination, (b) any
capitalized lease, (c) any Guaranty of Funded Indebtedness owing by another
person or entity and (d) any long-term indebtedness secured by a security
interest, mortgage or other lien encumbering any property owned or being
acquired by the person or entity in question even if the full faith and credit
of that person or entity is not pledged to the payment thereof; PROVIDED, that
in the case of any indebtedness payable in installments or evidenced by serial
notes or calling for sinking fund payments, those payments maturing within
twelve (12) months after the date of determination shall be considered current
indebtedness rather than Funded Indebtedness for the purposes of section 3B but
shall be considered Funded Indebtedness for all other purposes;
GAAP means generally accepted accounting principles applied in a manner
consistent with those used in Borrower's Most Recent 4A.04 Financial
Statements;
GUARANTOR means one who pledges his credit or property in any manner for the
payment or other performance of the indebtedness, contract or other obligation
of another and includes (without limitation) any guarantor (whether of
collection or payment), any obligor in respect of a standby letter of credit or
surety bond issued for the obligor's account, any surety, any co-maker, any
endorser, and anyone who agrees conditionally or otherwise to make any loan,
purchase or investment in order thereby to enable another to prevent or correct
a default of any kind; and GUARANTY means the obligation of a Guarantor;
INITIAL FUNDING DATE means the date of the initial disbursement of loan
proceeds pursuant to this Agreement by Banks;
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59
INSIDER, as applied to Subordinated indebtedness, refers to any person (a)(i)
who is a director or officer of a Company or (ii) who is the record and
beneficial owner of ten percent (10%) or more of a Company's capital stock or
(iii) who is a member of the immediate family of any such director, officer or
stockholder, and (b) at the time in question, to whom Subordinated indebtedness
is owed;
INSOLVENCY ACTION means either (a) a pleading of any kind filed by the person,
corporation or entity (an "insolvent") in question to seek relief from the
insolvent's creditors, or filed by the insolvent's creditors or any thereof to
seek relief of any kind against that insolvent, in any court or other tribunal
pursuant to any law (whether federal, state or other) relating generally to the
rights of creditors or the relief of debtors or both, or (b) any other action
of any kind commenced by an insolvent or the insolvent's creditors or any
thereof for the purpose of marshaling the insolvent's assets and liabilities
for the benefit of the insolvent's creditors; and "Insolvency Action" includes
(without limitation) a petition commencing a case pursuant to any chapter of
the federal bankruptcy code, any application for the appointment of a receiver,
trustee, liquidator or custodian for the insolvent or any substantial part of
the insolvent's assets, and any assignment by an insolvent for the general
benefit of the insolvent's creditors;
INVENTORY means, collectively, all goods which at the time in question are
owned by a Company and are held for sale or lease, or furnished (or to be
furnished) by a Company to another party under a contract of service or sale,
or used or consumed (or to be used or consumed) in a Company's business and
includes, without limitation, all raw materials, work in process, finished
goods, supplies, parts and packing materials but excludes leases which are
included among Receivables;
LEVERAGE RATIO shall have the meaning ascribed to that term in subsection
3B.02;
LIBOR CONTRACT PERIOD is defined in subsection 2B.07;
LIBOR LOAN means a Subject Loan having a LIBOR Contract Period described in
subsection 2B.07 and bearing interest in accordance with subsection 2B.11;
LIBOR PRE-MARGIN RATE means the rate per annum (rounded upwards, if necessary,
to the next higher one-sixteenth of one percent (1/16%), as determined by
NCB-Agent, which equals the average rate per annum at which deposits in United
States dollars are offered for deposits of the Maturity and amount in question,
at 11:00 A.M. London time (or as soon thereafter as practicable) two Banking
Days prior to the first (1st) day of the LIBOR Contract Period in question, to
NCB by prime Banking institutions in any Eurodollar market reasonably selected
by NCB;
MARGIN means the applicable margin defined in subsection 2B.11;
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MATURITY means, when used with reference to a Subject Loan, the date (whether
occurring by lapse of time, acceleration or otherwise) upon which that Subject
Loan is due;
MOST RECENT 4A.04 FINANCIAL STATEMENTS means Borrower's most recent financial
statements that are referred to in subsection 4A.04 delivered prior to the date
of this Agreement;
NCB means National City Bank;
NET AMOUNT OF ELIGIBLE RECEIVABLES means the gross amount of Eligible
Receivables less sales, excise or similar taxes, and less returns, discounts,
claims, credits and allowances of any nature at any time issued, owing,
granted, outstanding, available or claimed;
NET INCOME means net income as determined in accordance with GAAP, after taxes
and after extraordinary items, but without giving effect to any gain resulting
from any reappraisal or write-up of any asset;
NOTEHOLDERS means the holders of those certain 8-3/5% Senior Subordinated
Pay-In-Kind Notes due 1997 issued pursuant to an Indenture dated as of
September 1, 1992 between Borrower and IBJ Schroder Bank and Trust Company, as
trustee;
PBGC means the Pension Benefit Guaranty Corporation;
PENSION PLAN means a defined benefit plan (as defined in section 3(35) of
ERISA) of a Company that is subject to Title IV of ERISA and includes, without
limitation, any such plan that is a multi-employer plan (as defined in section
3(37) of ERISA) applicable to any of the Companies' employees;
PERSON means any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation, limited
liability company or partnership or any other entity;
PR LOAN means a Revolving Loan maturing in the manner described in the first
sentence of subsection 2B.08 and bearing interest in accordance with subsection
2B.10;
PRIME RATE means the fluctuating rate of interest which is publicly announced
from time to time by NCB at its principal place of business as being its "Prime
Rate" or "base rate" thereafter in effect, with each change in the Prime Rate
automatically, immediately and without notice changing the fluctuating interest
rate thereafter applicable hereunder, it being agreed that the Prime Rate is
not necessarily the lowest rate of interest then available from NCB on
fluctuating rate loans;
PROFORMA COVENANT COMPLIANCE means compliance by Borrower with the general
financial standards contained in Section 3B of this Agreement as of the time of
the event in question and based upon the Projections delivered by Borrower in
contemplation of such event;
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61
PROGRESS BILLINGS shall have the meaning ascribed to that term in clause (d) of
the definition of Eligible Receivable herein;
PROJECTIONS shall have the meaning ascribed to that term in subsection
3A.01(f);
RATABLE and RATABLY mean in the proportion that the Subject Loan is divided
among the Banks as set forth in section 2;
RECEIVABLE means a claim of any Company for money due or to become due, whether
classified as an account, instrument, chattel paper, general intangible,
incorporeal hereditament or otherwise, and any proceeds of the foregoing and
any right, title and interest in the merchandise or services which gave rise
thereto, including the rights of reclamation and stoppage in transit and all
rights of an unpaid seller thereof;
RELATED WRITING means any note, mortgage, security agreement, other lien
instrument, financial statement, audit report, notice, legal opinion, Credit
Request, officer's certificate or other writing of any kind which is delivered
to Banks and NCB-Agent or any thereof and which is relevant in any manner to
this Agreement or any other Related Writing and includes, without limitation,
the Revolving Notes and the other writings referred to in sections 3A and 4A;
REPORTABLE EVENT has the meaning ascribed thereto by ERISA other than any event
as to which the requirement of notifying PBGC has been waived by regulation;
REPRICING EVENT means an acquisition or divestiture by any Company, a breach of
any covenant or agreement contained in this Agreement or any Related Writing, a
stock repurchase or public or private stock or debt offering by any Company;
REVOLVING COMMITMENT means the commitment of a Bank to extend credit to
Borrower pursuant to sections 2A and 2B of this Agreement and upon the terms,
subject to the conditions and in accordance with the other provisions of this
Agreement;
REVOLVING LOAN means a loan obtained by Borrower pursuant to subsections 2A and
2B of this Agreement and evidenced by a Revolving Note;
REVOLVING NOTE means a note executed and delivered by Borrower and being in the
form and substance of EXHIBIT B with the blanks appropriately filled;
SARDAS OPTIONS means (i) the options to purchase shares of stock of Borrower
which Jacques R. Sardas has pursuant to an Amended Employment Agreement dated
January 13, 1992 between Borrower and Mr. Sardas (without giving effect to any
amendments or supplements thereto or other modifications thereof, after the
date of this Agreement) as well as a certain Non-Statutory Stock Option
Agreement between such parties dated as of September 1, 1992
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62
(without giving effect to any amendments or supplements thereto or other
modifications thereof, after the date of this Agreement) and any other
agreement providing for the employ of Mr. Sardas beyond the term of his
existing employment agreement or any other agreement and which options with
respect to which he has a right to cause Borrower to make payment to him in
cancellation of such options in certain circumstances described in such
agreements and (ii) any shares of stock of Borrower issued from time to time to
Mr. Sardas upon the exercise of such options;
SERIES means a borrowing obtained by Borrower from the Banks pursuant to this
Agreement and divided Ratably among the Banks and includes, without limitation,
a borrowing the proceeds of which represent new money to Borrower and a
borrowing the proceeds of which are applied to other Subject Loans at the
stated Maturity thereof;
SUBJECT INDEBTEDNESS means, collectively, the principal of and interest on the
Revolving Loans, the principal of and interest on any term loans relating to
Borrower's exercise of its Term Out Option and all fees and other liabilities,
if any, incurred by Borrower to Banks and NCB-Agent or any thereof pursuant to
this Agreement or any Related Writing;
SUBJECT LC means a standby letter of credit as defined in Section 2C;
SUBJECT LOAN means any loan obtained by Borrower pursuant to this Agreement;
SUBORDINATED, as applied to any liability of Borrower, means a liability which
at the time in question is subordinated (by written instrument in form and
substance satisfactory to Banks) first in favor of the prior payment in full of
the Subject Indebtedness and then, subject to the prior payment in full of the
Subject Indebtedness, in favor of the prior payment in full of all of
Borrower's other Debt, if any, to the Banks and NCB-Agent or any thereof;
SUBSIDIARY means a corporation or other business entity if shares constituting
a majority of its outstanding capital stock (or other form of ownership) or
constituting a majority of the voting power in any election of directors (or
shares constituting both majorities) are (or upon the exercise of any
outstanding warrants, options or other rights would be) owned directly or
indirectly at the time in question by the corporation in question or another
"Subsidiary" of that corporation or any combination of the foregoing;
SUPPLEMENTAL SCHEDULE means the schedule incorporated into this Agreement as
Exhibit A;
TANGIBLE NET WORTH means the excess (as determined in accordance with GAAP) of
the net book value (after deducting all applicable valuation reserves and
without any consideration to any re-appraisal or write-up of assets except
those reflected on the Most Recent 4A.04 Financial Statements) of the
Companies' consolidated tangible assets (i.e., all assets other than
intangibles such as patents, costs of businesses over net assets acquired, good
will and treasury shares) over the Companies' consolidated Total Liabilities;
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63
TERM OUT OPTION shall have the meaning ascribed to that term in subsection
2A.08;
TERM MATURITY DATE shall have the meaning ascribed to that term in
subsection 2A.08(b);
TOTAL LIABILITIES means the aggregate (without duplication) of all
liabilities of the Companies in question and includes, without
limitation, (a) any indebtedness which is secured by any mortgage,
security interest or other lien on any of its property even if the full
faith and credit of it is not pledged to the payment thereof, (b) any
indebtedness for borrowed money or Funded Indebtedness if a Company is a
Guarantor thereof and (c) any Subordinated indebtedness; PROVIDED, that
there shall be excluded any liability under a reimbursement agreement
relating to a letter of credit issued to finance the importation or
exportation of goods;
the foregoing definitions shall be applicable to the respective plurals
of the foregoing defined terms.
10. EXECUTION - This Agreement may be executed in one or more counterparts,
each counterpart to be executed by Borrower, by NCB-Agent and by one or more or
all of the Banks. Each such executed counterpart shall be deemed to be an
executed original for all purposes but all such counterparts taken together
shall constitute but one agreement, which agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof.
Address: SUDBURY, INC.
30100 Chagrin Blvd., Suite #203
Cleveland, Ohio 44124
Telecopy: 216/464-4429 By:/s/ Mark E. Brody
-------------------------
Printed Name: Mark E. Brody
Title: Vice President and
Chief Financial Officer
Address: NATIONAL CITY BANK
1900 East Ninth Street
Attn: Metro/Ohio Division
Cleveland, Ohio 44114-3484 By:/s/ James R. Myers
Telecopy: 216/575-9396 -------------------------
Printed Name: James R. Myers
Title: Vice President
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64
Address: NATIONAL CITY BANK, as Agent
1900 East Ninth Street
Attn: Metro/Ohio Division
Cleveland, Ohio 44114-3484 By: /s/ James R. Myers
Telecopy: 216/575-9396 ----------------------------
Printed Name: James R. Myers
Title: Vice President
Address: STAR BANK, National Association
1350 Euclid Avenue, Suite 220
Mail Location 4432
Cleveland, Ohio 44115 By: /s/ John D. Barrett
Telecopy: 216/623-9289 ----------------------------
Printed Name: John D. Barrett
Title: Vice President
- 57 -
EX-10.H
3
EXHIBIT 10.H
1
Exhibit (10)(h)
SUDBURY, INC.
DIRECTORS' DEFERRAL PLAN
1. PURPOSES OF THIS PLAN.
This Directors' Deferral Plan of Sudbury, Inc., adopted on this 12th day
of September, 1994 is intended to attract and retain qualified Directors and to
provide incentives to these Directors through the ability to defer their
receipt of Directors' fees and to participate in the Company's growth.
2. DEFINITIONS.
(a) "Board" means the Board of Directors of the Company.
(b) "Cash Account" means an account for deferred Fees established
by the Company for a Director which is valued on the basis of cash as
provided in Paragraph 5.
(c) "Common Shares" means units equivalent in value and dividend
rights to Common Stock, $.01 par value per share, of the Company.
(d) "Company" means Sudbury, Inc.
(e) "Deferred Account" means the account established by the
Company for each Director who elects to defer the fees payable to him as
a Director. A Director's Deferred Account shall consist of either a Cash
Account or a Stock Account, or both.
(f) "Director" means any Director of the Company who is not an
employee of the Company.
(g) "Election Agreement" means the written election to defer
Director fees signed by the Director and in the form provided by the
Chief Financial Officer (or person performing similar functions) of the
Company.
2
(h) "Fees" means that amount of the fees payable to a Director by
reason of his serving on the Board either (i) as a retainer (without regard to
attendance at meetings); (ii) on a per meeting basis; or (iii) otherwise.
(i) "Market Price" for any day shall be the closing price quoted for a
share of Common Stock of the Company on the NASDAQ National Market System or on
such national securities exchange as the Common Stock may be traded and, if not
so traded, then as the Board in its discretion may determine.
(j) "Member" means any Director who has at any time deferred the
receipt of Director fees in accordance with this Plan.
(k) "Plan" means the Directors Deferral Plan.
(l) "Stock Account" means an account for deferred Fees established by
the Company for a Director which is valued on the basis of the Company's Common
Stock.
(m) "Term" means the duration of the term for which a Director is
elected.
(n) "Full Term" means a term of one (1) year.
(o) "Year" means the calendar year.
(p) Whenever appropriate, words used herein in the singular may be read
as the plural and the plural may be read as the singular.
(q) Masculine pronouns used herein shall be deemed to refer to both
women and men.
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3. ELECTION TO DEFER DIRECTORS' FEES.
(a) ELIGIBILITY.
A Director may elect to defer receipt of all or a portion of his fees for
any Year in accordance with Paragraph 3(b) hereof.
(b) TIME OF ELECTION.
A Director desiring to defer all or a portion of his Fees for the
upcoming Year must submit an Election Agreement to the Chief Financial Officer
(or person performing similar functions) of the Company no later than the last
day of the Year prior to the Year for which the election is to be effective.
Any Director who was not a Director during the previous Year may make an
election to defer all or a portion of the Fees for the Year in which the
Director is elected to the Board of Directors by delivering an Election
Agreement to the Chief Financial Officer (or person performing similar
functions) of the Company within thirty (30) days after such election to the
Board. A Director fulfilling the above requirements shall be considered a
"Member" for purposes of this Plan.
(c) DURATION OF ELECTION.
A Member's election to defer Fees shall be effective from Year to Year
unless modified or revoked by the Member through written notice to the Chief
Financial Officer (or person performing similar functions) of the Company prior
to the beginning of the Year for which the revocation or modification is to
apply.
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(d) ELECTION IRREVOCABLE.
Subject to the provisions of Paragraph 3(e), the terms set forth in
an Election Agreement for any particular Year are irrevocable once the
Year has commenced.
(e) MODIFICATION OF ELECTION.
Notwithstanding the provisions of Paragraph 3(d) a Member may
modify or amend an Election Agreement for a prior Year to modify the
payment schedule of distributions covered by such Election Agreement if
such Director's membership on the Board has been terminated, and he is
not otherwise a reporting person under Section 16 of the Securities
Exchange Act of 1934, as amended, ("Exchange Act") at the time of such
modification or amendment, and he files a new Election Agreement with the
revised distribution schedule at least one year in advance of the date
such distributions were originally scheduled to commence.
4. THE AMOUNT AND DATE OF DEFERRAL.
The Election Agreement of the Member shall indicate the amount of Fees to
be deferred and the date to which the Fees are to be deferred. Deferral shall
be to the earlier to occur of (1) the date indicated by the Member; provided,
however, distributions of deferred fees from Stock Accounts may be no sooner
than six months after the Year for which such deferred fees relate, or (2) the
date of the death of the Member. In the case of the death of the Member,
distribution of the deferred fees shall be made in accordance with Paragraph 7.
A Member may (i) select a lump-sum distribution or a series of distributions or
installments and (ii) choose the date on which the lump sum shall be paid
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5
or the installments shall commence. The installments may not be more frequent
than annually and may not consist of more than ten (10) annual installments.
5. DEFERRAL ACCOUNTS.
(a) ACCOUNTS.
The Company shall establish and preserve one or more accounts for
each Director. A Member shall designate on the Election Agreement with
respect to each Year's deferred Fees whether to have the account
attributable to such Year's deferred Fees valued on the basis of the
Common Shares of the Company in accordance with Paragraph 5(b) hereof or
on the basis of cash in accordance with Paragraph 5(c) hereof. A Member
may defer a portion of his fees into each type of account. A Member may
not transfer fees from one account to another after he has made an
election for any Year; except that at the time such Member executes an
Election Agreement with respect to a Year's Fees he may elect to have all
amounts attributable to such Year's Fees in his Stock Accounts
automatically transfer into his Cash Account upon the termination of his
membership on the Board as long as such Member is not at that time
otherwise subject to the provisions of Section 16 of the Exchange Act.
The Company may establish separate accounts for a Member to properly
account for amounts deferred under the two alternatives or during
different Years.
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6
(b) STOCK ACCOUNT.
There shall be credited to a Member's Stock Account, on the last day of
each quarter, the number of Common Shares (whole or fractional, rounded to the
nearest thousandth of a share) equal to the quotient obtained by dividing (i)
the sum of the Fees he elects to defer to his Stock Account which otherwise
would have been paid to him during the quarter and the dividends payable during
such quarter on the Common Shares held in the Stock Account on the first day of
such quarter, by (ii) the Market Price of the Common Stock on the last business
day of such quarter.
(c) CASH ACCOUNT.
If a Member elects to have a portion of his Fees deferred into a Cash
Account, there will be credited to his Cash Account, on the last day of each
quarter, an amount equal to the sum of (i) the Fees he elects to defer to his
Cash Account which otherwise would have been paid to him during the quarter and
(ii) interest on the balance in the Cash Account on the first day of such
quarter at a rate based on the rate of interest paid by the Company on its
senior revolving credit facility (the "Interest Rate"). The Interest Rate
applicable to any Year will be set on the first business day of such Year.
(d) CLAIMS OF GENERAL CREDITORS.
All compensation deferred and amounts credited to the Cash and Stock
Accounts under this Plan shall remain a part of the general assets of the
Company. Accordingly, the compensation deferred under this Plan shall be an
unsecured claim
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against the general assets of the Company and shall be subject to the
claims of the Company's general creditors.
6. PAYMENT OF ACCOUNTS.
The accounts established and maintained for each Director shall be
distributed in a lump sum or installments. The selection of the distribution
date(s) and the method of distribution are to be indicated on the Election
Agreement to be submitted by the Member. The election as to the method of and
time for payment of the amount of an account relating to Fees deferred for a
particular Year may not thereafter be altered with respect to that particular
Year once the Year has commenced except as provided in Paragraph 3(e). Changes
in the method of and time for payment of the amount of an account may be
effected for future Years by notifying the Chief Financial Officer (or person
performing similar functions) in writing prior to the beginning of the Year for
which the modification is to apply in accordance with Paragraph 3 above.
With respect to all distributions to be made under the Plan, the
following rules shall apply:
(i) All distributions whether from a Stock Account or a Cash
Account shall be paid in cash subject to withholding or deduction by the
Company of any taxes, contributions, payments and assessments which the
Company is now or may hereafter be required or authorized by law to
withhold or deduct from distributions;
(ii) The amount of the distribution from the Stock Account shall
be valued based on the Market Price of the Common Stock on the last
business day of the calendar quarter immediately preceding the
distribution date; and
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8
(iii) The amount of the distribution from the Cash Account shall
be valued based on the value of the Cash Account on the last business day
of the quarter immediately preceding the distribution date.
In the event a Member elects to receive installment payments, the
following rules shall apply:
(i) The balance of the Stock Account shall be credited, pursuant
to Paragraph 5(b) above, with additional Common Shares upon the payment
of dividends until the Stock Account is completely distributed;
(ii) The balance of the Cash Account shall be credited, pursuant
to Paragraph 5(c) above, with interest quarterly until the Cash Account
is completely distributed; and
(iii) The amount of each installment shall be determined by
dividing the value of the Stock Account, the Cash Account, or both, by
the number of installments remaining to be paid to the Member.
7. DEATH OF MEMBER.
A Member may, in the Election Agreement provided in Paragraph 3 above,
provide that, in the event of his death prior to the expiration of the period
during which his account balance is distributable, the account balance shall be
distributed to his estate or designated beneficiary in a single distribution or
in the installments contemplated by Paragraph 6 above. This election shall be
made at the time of the election contemplated by Paragraph 3 above. If no such
election is made the account balance shall be distributed in a single
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9
distribution six months after the Member's death to his surviving spouse, or if
there be no surviving spouse, then to his estate.
8. VALUATION OF ACCOUNTS.
Each account shall be valued as of the last day of each calendar quarter
until payment of the account in full to the Member in accordance with Paragraph
6. Each Member shall receive a statement of his accounts not less than
annually.
9. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
In the event of changes in the outstanding Common Shares of the Company
by reason of any stock dividend or split, recapitalization, merger,
consolidation, spin-off, reorganization, combination or exchange of shares or a
similar corporate change, the Board of Directors shall, in its sole discretion,
equitably adjust the number of Common Shares held in the Stock Accounts and
such adjustment shall be made by the Company and shall be conclusive and
binding on all Members of the Plan.
10. VESTING IN DEFERRED DIRECTORS' FEES.
All amounts deferred by a Director pursuant to the Plan shall be
immediately and fully vested. Notwithstanding the foregoing, all amounts
deferred under the Plan shall be subject to Paragraph 5(b).
11. ADMINISTRATION.
This Plan shall be administered by the Compensation Committee of the
Board of Directors. The Compensation Committee shall have the sole right and
authority to interpret and construe the provisions of this Plan, and its
decisions on disputes arising from the Plan shall be binding and conclusive
upon the Members. If a Member is part of the
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Compensation Committee that administers this Plan, he shall not participate in
any deliberations or actions of the Compensation Committee relating exclusively
to his membership in this Plan.
12. TERMINATION OR MODIFICATION OF PLAN.
This Plan may be terminated, modified, or amended at the sole discretion
of the Board of Directors; provided, that no amendment of the Plan shall impair
any of the rights of any Member, without the Member's consent, in his Deferred
Account balance. If this Plan is terminated, the remaining Deferred Account
balances will be distributed pursuant to the terms of this Plan and no
additional deferrals will be permitted.
13. NONTRANSFERABILITY OF ACCOUNTS.
Neither any account maintained for a Director under this Plan nor the
Director's right to receive any payment specified herein with respect to any
such account shall be subject in any manner to anticipation, alienation, sale,
transfer (other than by will or the laws of descent or distribution),
assignment, pledge, encumbrance or charge, either voluntary or involuntary, and
any attempt to so alienate, anticipate, sell, transfer, assign, pledge,
encumber or charge the same shall be null and void. No amount payable under
this Plan shall be liable for or be subject to the debts, contracts,
liabilities, engagements or torts of any person to whom such payment is or may
be payable, except as required under applicable law.
14. CLAIMS OF OTHER PERSONS.
The provisions of the Plan shall in no event be construed as giving any
person, firm or corporation any legal or equitable right as against the Company
or any subsidiary, or the
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11
officers, employees, or Directors of the Company or any subsidiary, except any
such rights as are specifically provided for in the Plan or are hereafter
created in accordance with the terms and provisions of the Plan.
15. SEVERABILITY.
The invalidity and unenforceability of any particular provision of the
Plan shall not affect any other provision hereof, and the Plan shall be
construed in all respects as if such invalid or unenforceable provisions were
omitted herefrom.
16. CAPTIONS. The captions used in the Plan are for convenience only
and shall not affect the meaning of any provision hereof.
17. GOVERNING LAW.
The provisions of the Plan shall be governed and construed in accordance
with the laws of the State of Ohio.
-11-
EX-10.I
4
EXHIBIT 10.I
1
Exhibit (10(i)
SUDBURY, INC.
1995 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN. The purpose of this 1995 Stock Option Plan (the
"Plan") adopted as of the 22nd day of June, 1995 is to advance the interests of
Sudbury, Inc. (the "Company") and its stockholders by allowing the Company to
provide to certain present and future key employees of the Company and its
subsidiaries an incentive to acquire shares of the $.01 par value common stock
(the "Shares") of the Company on reasonable terms, thereby securing for the
Company the benefits inherent in such Share ownership. Additionally, the Plan
was designed to accord the Compensation Committee of the Company flexibility to
grant key employees either Incentive Stock Options (as defined in Section
422(b) of the Internal Revenue Code of 1986, as amended (the "Code"), or
options which do not qualify as Incentive Stock Options (such options being
hereinafter referred to as "Non-Qualified Stock Options").
2. STOCK SUBJECT TO THE PLAN. The aggregate number of Shares of the
Company for which options may be granted under the Plan shall be 1,000,000 (One
Million). Shares issued pursuant to an exercise of options under the Plan
shall be made available from either authorized but unissued or reacquired
Shares of the Company. If an option shall expire or terminate for any reason
without being exercised in full, then the Shares as to which such option was
not exercised shall become available for other options to be granted under the
Plan.
3. ADJUSTMENT. The number of Shares subject to the Plan and to options
granted under the Plan shall be adjusted as follows: (a) in the event that all
of the outstanding Shares are changed by any stock dividend, stock split or
recapitalization or in the event that extraordinary cash or non-cash dividends
are declared with respect to the Shares, the number of Shares subject to the
Plan and to options granted hereunder shall be equitably adjusted; (b) except
as otherwise provided in Section 7.1 hereof, in the event of any merger,
consolidation or reorganization of the Company with any other corporation or
corporations, there shall be substituted, on an equitable basis as determined
by the Committee, for each Share then subject to the Plan, whether or not at
the time subject to outstanding options, the number and kind of Shares or other
securities to which the holders of Shares of the Company will be entitled
pursuant to the transaction; and (c) except as otherwise provided in Section
7.2 hereof, in the event of any other relevant change in the capitalization of
the Company, the Committee shall provide for an equitable adjustment in the
number of Shares then subject to the Plan, whether or not then subject to
outstanding options. In the event of any such adjustment the purchase price
per Share shall be equitably adjusted. Any such adjustment or substitution may
provide for the elimination of any fractional Share which might otherwise
become subject to an option. The adjustment and manner of application of the
foregoing provisions shall be determined by the Committee in its sole
discretion.
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Sudbury, Inc. 1995 Stock Option Plan
Page 2 of 6
4. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Compensation Committee, appointed by the Board of Directors and consisting of
not less than two outside directors as defined under Section 162(m) of the Code
(the "Committee") who shall be "disinterested persons" (as defined in Rule
16b-3 of the Securities Exchange Act of 1934, as amended (("Exchange Act")).
Except as otherwise provided in Section 16 of the Exchange Act or Rule 16b-3
thereof, the members of the Committee shall not be eligible, to participate in
the Plan or any other plan of the Company or of any affiliate (as defined under
the Exchange Act) of the Company entitling the participants therein to acquire
stock, stock options, or stock appreciation rights of the Company or an
affiliate thereof so long as they remain a member of the Committee. Subject to
the express provisions of the Plan, the Committee shall have authority to
determine among the full-time employees of the Company, its subsidiaries or a
subsidiary of its subsidiaries to whom options shall be granted. For these
purposes, a subsidiary shall be deemed to include any company as to which the
Company owns and/or controls 50% of the outstanding voting equity securities.
The Committee shall also have authority to determine the number of shares to be
covered by each option grant and the terms of any such option grant; to amend
or cancel options; to accelerate vesting of options; to require the
cancellation or surrender of any previously granted options or other awards
under the Plan or any other plans of the Company as a condition to the granting
of an option; to construe and interpret the Plan and any option agreement
entered into thereunder; to establish, amend, and rescind rules and regulations
for administration of the Plan; and shall have such additional authority as the
Board of Directors from time to time may determine to be necessary or
desirable.
5. BASIC OPTION TERMS:
5.1 TYPES OF OPTIONS. Options granted under the Plan may be (a)
Incentive Stock Options or (b) Non-Qualified Stock Options. Option
agreements reflecting the grant of options shall designate whether an
option is an Incentive Stock Option or a Non-Qualified Stock Option.
In the case of a grant intended to qualify as an Incentive Stock
Option under Section 422 of the Code, no such option shall be granted
hereunder to any person who, immediately after such option is granted,
owns (as defined in Sections 422 and 424 of the Code) stock possessing
more than 10% of the total combined voting power or value of all
classes of stock of the Company or its subsidiary corporations. The
aggregate fair market value (determined on the date of grant) of the
Shares with respect to which Incentive Stock Options are exercisable
for the first time by any individual during any calendar year (under
this Plan or any other plan of the Company and any subsidiary
corporation that provides for the granting of incentive stock options)
shall not exceed $100,000.
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Sudbury, Inc. 1995 Stock Option Plan
Page 3 of 6
The maximum aggregate number of Shares underlying options that may be
granted to any employee under the Plan during any calendar year is
250,000.
5.2 OPTION PERIOD. An option grant under the Plan shall expire on
a date fixed by the Committee which shall be not later than ten years
after the date on which the option is so granted.
5.3 OPTION PRICE. The option price shall be not less than the per
share fair market value of the outstanding Shares of the Company on
the date the option is granted, and not less than the par value of the
Shares as to which the option is granted. The date on which the
Committee approves the granting of an option shall be deemed the date
on which the option is granted. The purchase price of the Shares as
to which an option is exercised shall be payable in full at the time
of exercise either (a) in cash (including check, bank draft, wire
transfer or money order), (b) by delivering, in transferable form,
that number of Shares which, on the business day preceding the date of
exercise, has an aggregate fair market value equal to such purchase
price, or (c) a combination of the foregoing. The fair market value
of the Shares shall be deemed to be (a) the closing price of the
Shares on the principal stock exchange on which the Shares are then
traded on the last business day preceding the date of exercise of the
option, or (b) if no sales take place on such day on any such
exchange, the average of the last reported closing bid and asked
prices on such day as officially quoted on the principal stock
exchange on which the Shares are then traded, or (c) if the Shares are
not listed on any such exchange, the average of the last reported
closing bid and asked prices on the over-the-counter market on the day
preceding the date of exercise of the option. The Nasdaq Stock Market
shall be deemed a principal stock exchange.
5.3 NON-TRANSFERABILITY. Options shall not be transferable other
than by will or the laws of descent and distribution or pursuant to a
qualified domestic relation order as defined by the Code or Title I of
the Employee Retirement Income Security Act of 1974, as amended, or
the rules thereunder; provided that an Incentive Stock Option may not
be transferred pursuant to a qualified domestic relations order unless
the transfer is otherwise permitted pursuant to the Code without
affecting the option's qualification as an Incentive Stock Option.
Options shall not be exercisable except by the optionee during his
lifetime either directly or though his guardian or legal
representative.
All actions of the Committee under this Section 5 shall be binding and
conclusive on the Company, on optionees under the Plan, and on
employees eligible to receive options under the Plan.
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Sudbury, Inc. 1995 Stock Option Plan
Page 4 of 6
6. OPTION AGREEMENT. Each grant of an option under the Plan shall be
evidenced by an option agreement in a form approved by the Committee, which
option agreement shall set forth the option price, the option period, and such
additional terms and conditions as the Committee may prescribe. The option
agreement shall be signed on behalf of the Company by the Chairman, the
President, or a Vice President of the Company, other than the employee who is a
party to the agreement, and shall be dated as of the date of the granting of
the option, as determined by Paragraph 5.3 above.
7. CHANGE OF CONTROL:
7.1 If the Company shall liquidate or dissolve, or shall be a
party to a merger, consolidation or other business combination with
respect to which it shall not be the surviving corporation, the Company
shall give written notice thereof to the holders of options not
previously exercised at least thirty days prior thereof, and the
optionee shall have the right within said thirty-day period to
exercise all options in full to the extent not previously exercised.
To the extent that an option shall not have been exercised on or prior
to the effective date of such liquidation, dissolution, merger or
consolidation or business combination, it shall terminate on said
date, unless it is assumed by another corporation.
7.2 Options granted under the Plan shall become exercisable in
full if and when any corporation, partnership, joint venture, person
or a group acting together ("Acquiring Entity") for a similar purpose
shall directly or indirectly acquire or announce an intent to directly
or indirectly acquire control of the Company or any successor or
assignee of the Company. For purposes of this Section 7, control
shall mean the acquisition of, or the formation of a group whose
members beneficially own Shares, which after giving effect thereto,
shall permit the Acquiring Entity to vote 45% or more of the aggregate
voting power, as measured by all Shares then outstanding, in the
election of directors of the Company.
8. AMENDMENT AND TERMINATION OF THE PLAN. The Company, by action of its
Board of Directors or stockholders, may amend, modify, suspend, or terminate
the Plan at any time; provided, however, that no action by the Board of
Directors or stockholders may (a) impair an optionee's rights under any
outstanding option without such optionee's consent, (b) increase the total
number of shares as to which options may be granted (except increases
attributable to the adjustments authorized by Paragraph 3 hereof), (c) reduce
the price at which options may be granted, or (d) extend the expiration date of
the Plan. No action may be taken by the Company (without the consent of the
optionee) which will prevent the Incentive Stock Options issued under this Plan
from being "Incentive Stock Options" under Section 422 of the Code.
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Sudbury, Inc. 1995 Stock Option Plan
Page 5 of 6
Moreover, no amendment without the approval of stockholders of the Company
shall be made if stockholder approval under Section 422 of the Code or Rule
16b-3 of the Exchange Act would be required.
9. GOVERNANCE BY RULE 16B-3. The Plan is intended to comply with the
provisions of 16b-3 promulgated under the Exchange Act and shall be interpreted
in a manner consistent therewith.
10. EXPIRATION OF THE PLAN. Options may be granted under the Plan at any
time through June 22, 2005, on which date the Plan shall expire unless sooner
terminated by stockholder vote. No Plan termination shall affect any options
then outstanding.
11. GENERAL PROVISIONS. The Company may establish procedures whereby an
optionee subject to the requirements of Rule 16b-3, Regulation T, of the Code,
and other federal, state and local tax and securities laws, may exercise an
option without making a direct payment of the option price to the Company;
provided, however, that these cashless exercise procedures shall not apply to
Incentive Stock Options which are outstanding on the date the Company
establishes such procedures unless the application of such procedures to such
options is permitted pursuant to the Code and the regulations thereunder,
without affecting the options' qualification under Code Section 422 as
Incentive Stock Options. If the Company elects to establish a cashless
exercise program the Company shall determine administrative procedures and
policies it deems appropriate and these procedures and policies shall be
binding on any optionee wishing to use the cashless exercise program.
Nothing contained in the Plan or in any option granted pursuant thereto shall
confer upon any optionee any right to continue in the employ of the Company or
any subsidiary of the Company, or limit or restrict any right of the Company or
its subsidiaries to terminate the employment of the optionee at any time.
No optionee shall have any of the rights of a stockholder with respect to any
Shares subject to an option grant until certificates representing those Shares
have been issued to the optionee.
At the time of the exercise of any option, the Company may require, as a
condition of the exercise of such option, the optionee to pay the Company an
amount equal to the amount of tax the Company may be required to withhold with
respect to the Shares.
The Plan shall be governed by and construed in accordance with the laws of the
State of Delaware.
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Sudbury, Inc. 1995 Stock Option Plan
Page 6 of 6
12. EFFECTIVENESS OF THE PLAN. The Plan shall be approved by the Board.
The Plan shall thereafter be submitted to the Company's stockholders for
approval and unless the Plan is approved by the affirmative votes of the
holders of shares having a majority of the voting power of all shares
represented at a meeting duly held in accordance with Delaware law within
twelve (12) months after being approved by the Board, the Plan and all options
granted under it shall be void and of no force and effect. The Plan shall
become effective on June 22, 1995 at which time the Company's 1990 Stock Option
Plan will terminate.
EX-10.J
5
EXHIBIT 10.J
1
Exhibit (10)(j)
EMPLOYMENT AGREEMENT
AGREEMENT made this 28th day of July, 1995 between Sudbury, Inc., a
Delaware corporation with its principal office at 30100 Chagrin Blvd., Suite
203, Pepper Pike, Ohio 44124 (the "Company"), and Jacques R. Sardas, whose
residential address is 1287 Country Club Road, Akron, Ohio 44313 ("Sardas").
RECITALS
--------
The Company is a holding company with subsidiaries engaged in the
manufacture and sale of a broad range of industrial products.
The Company and Sardas are currently parties to an amended employment
agreement made January 13, 1992, as amended as of April 16, 1992 (the "Current
Employment Agreement").
The Company and Sardas desire to enter into a new employment agreement to
commence upon the expiration of the Current Employment Agreement.
Now, therefore, the parties agree as follows:
1. EMPLOYMENT
The Company agrees to employ Sardas, and Sardas agrees to be so employed,
in the capacity of Chairman and Chief Executive Officer, with such duties and
authority as are customary for such offices. The Company, by action of the
Company's Board of Directors (the "Board"), may, at any time during the term of
this Agreement, elect or designate a person other than Sardas as Chief
Executive Officer, upon which election or designation, Sardas's employment
pursuant hereto shall not include employment as Chief Executive Officer but
shall include employment as Chairman. From and after the time that Sardas is no
longer Chief Executive Officer of the Company, Sardas's duties and authority as
2
Chairman shall be in accordance with and subject to the direction and approval
of the Board; provided, however, that Sardas' duties will not be inconsistent
with duties customary for a Chairman.
2. TERM
Subject to the provisions for termination as hereinafter provided and
except as specifically provided to the contrary herein, the term of this
Agreement shall begin on January 13, 1996 and shall continue for a term of two
(2) years from such date to and including January 12, 1998 unless terminated by
the Company for "Cause" (as defined below), or by Sardas's death or "permanent
disability" (as defined below); provided however, this Agreement shall be null
and void and of no effect if the Current Employment Agreement is validly
terminated prior to January 12, 1996. It is hereby acknowledged that the
Current Employment Agreement will not have been validly terminated for purposes
of this Section 2 if terminated by the Company without Cause (as defined for
purposes of this Section 2 in the Current Employment Agreement). However, it
will have been validly terminated for purposes of this Section 2 if terminated
by the Company for Cause (as defined therein for purposes of this Section 2),
if terminated by Sardas or if terminated as a result of the death or permanent
disability (as defined therein) of Sardas. Therefore, the parties acknowledge
and agree that unless prior to the expiration of the Current Employment
Agreement Sardas is terminated for Cause thereunder, dies, is permanently
disabled or Sardas terminates this Agreement, the provisions of this Agreement
will remain in full force and effect.
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3. TIME AND EFFORTS
Sardas shall diligently and conscientiously devote his full business
time and attention and best efforts in discharging his duties hereunder, as
specified by the Board, which duties shall be consistent with his position as
set forth in paragraph 1 above; provided, however, that from and after such
time as Sardas is no longer Chief Executive Officer of the Company, Sardas
shall be required to devote not more than fifty percent (50%) of his business
time and attention and best efforts in discharging his duties hereunder. During
the balance of such time, Sardas may engage in other business activities. It is
understood that Sardas may serve as a director of one or more other business
entities upon consent by the Board; provided, however, that such consent shall
no longer be required hereunder from and after such time as Sardas is no longer
Chief Executive Officer of the Company. Notwithstanding anything to the
contrary contained herein, during the term of this Agreement, Sardas shall not
be employed by, invest in or otherwise be affiliated with any entity which is
in competition with the Company if such activity would constitute a violation
of Sardas' fiduciary duty to the Company.
4. COMPENSATION
(A) CASH COMPENSATION. For all services he may render to the
Company, the Company shall pay to Sardas a base salary at a rate of
$500,000 per year, subject to withholding tax, payable at the same times
as payments to other salaried corporate employees. Upon the later of (i)
the date the Board elects or designates someone other than Sardas as
Chief Executive Officer (but Sardas shall remain as Chairman hereunder)
and (ii) January 13, 1997, the base salary rate to be paid by the
Company to Sardas for all services he may render to the Company shall
change to $250,000 per
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year. Such salary may be increased from time to time at the discretion of
the Board, in conjunction with salary adjustments of other in the
Company's corporate management group.
(b) BONUSES. The Company shall pay to Sardas in a lump sum payment
within ninety (90) calendar days following the end of each fiscal year of
employment an annual target bonus of up to sixty percent (60%) of his
aggregate paid base salary for each such previous fiscal year during the
term of his employment. Each such payment shall be conditioned on Sardas
being employed by the Company at the time of such fiscal year-end,
provided that in the event that Sardas's employment by the Company is
terminated by reason of his death or permanent disability or by the
Company other than for Cause, such bonus payment shall be made to Sardas
or his estate, as the case may be, on a pro rata basis, determined by
reference to the number of days from the beginning of the then current
fiscal year to the date of such termination as compared to the total
number of days in such fiscal year. Achievement of the full amount of
such bonus will depend on Sardas's performance with respect to corporate
bonus plan as set by the Board after consultation with Sardas no later
than August 31 of each fiscal year.
5. BENEFITS
Sardas shall be entitled to benefits and perquisites generally provided
by the Company to its executive officers and such benefits and perquisites as
are recommended by the Compensation Committee and approved by the Board.
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5
6. PAYMENT UPON TERMINATION
(a) In the event of a termination of this Agreement by Sardas or
termination by the Company for "Cause" prior to January 12, 1998, Sardas shall
receive no severance pay or additional compensation other than the fixed
compensation and benefits earned and accrued as of such termination date
pursuant to Paragraphs 4 and 5 herein. For the purposes of this Agreement, the
Company shall have "Cause" to terminate employment hereunder only (i) if
termination shall have been the result of an act or acts of dishonesty by
Sardas constituting a felony and resulting or intended to result directly or
indirectly in substantial gain or personal enrichment at the expense of the
Company; or (ii) upon the willful and continued failure by Sardas substantially
to perform his duties with the Company (other than any such failure resulting
from incapacity due to mental or physical illness) after a demand in writing
for substantial performance is delivered by the Board, which demand
specifically identifies the manner in which the Board believes that Sardas has
not substantially performed his duties, and such failure results in
demonstrably material injury to the Company. Sardas's employment shall in no
event be considered to have been terminated by the Company for Cause if such
termination took place as the result of (i) bad judgment or negligence, or (ii)
any act or omission without intent of gaining therefrom directly or indirectly
a profit to which Sardas was not legally entitled, or (iii) any act or omission
believed in good faith to have been in or not opposed to the interest of the
Company, or (iv) any act or omission in respect of which a determination is
made that Sardas met the applicable standard of conduct prescribed for
indemnification or reimbursement or payment of
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6
expenses under the by-laws of the Company or the laws of the State of Delaware,
in each case as in effect at the time of such act or omission. Sardas shall
not be deemed to have been terminated for Cause unless and until there shall
have been delivered to him a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters of the entire membership of
the Board at a meeting of the Board called and held for the purpose (after
reasonable notice to Sardas and an opportunity for him, together with his
counsel, to be heard before the Board), finding that in the good faith opinion
of the Board, Sardas was guilty of conduct set forth above in clauses (i) or
(ii) of the second sentence of this paragraph and specifying the particulars
thereof in detail.
(b) In the event of a termination by the Company without Cause at any
time after the date of execution hereof (even if prior to January 13, 1996) and
prior to January 12, 1998, the Company shall pay to Sardas his base salary at
the rates provided for in this Agreement (or such higher rate as may have been
provided for by the Board during the term of this Agreement pursuant to Section
4(a) hereof) for the remainder of the term of this Agreement and any bonus due
under Section 4(b) hereof.
(c) In the event of death or permanent disability during the term of
this Agreement, this Agreement shall terminate and Sardas (or his estate or
personal or legal representative) shall receive no severance pay or additional
compensation other than the fixed compensation and benefits earned and accrued
as of the date of such death or termination for permanent disability, including
any bonus due under Paragraph 4(b) hereunder. For purposes of this Agreement,
termination for
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7
permanent disability shall occur on such date and in such circumstance that, as
a result of his incapacity due to physical or mental illness, Sardas were to
have been absent from his duty with the Company on a full-time basis for a
period of six (6) consecutive months, provided that the Company had given
Sardas thirty (30) days written notice of potential termination, and within
said thirty (30) day period after written notice of termination had been given,
Sardas had not returned to the full-time performance of his duties.
7. EXISTING OPTIONS
(a) Pursuant to that certain Non-Statutory Stock Option Agreement dated
September 1, 1992 between the Company and Sardas (the "1992 Option Agreement"),
Sardas was granted the option to purchase 1,764,706 shares (the "1992 Option
Shares") of the Company's common stock, subject to the terms and conditions set
forth therein. The first sentence of Section 5 of the 1992 Option Agreement is
hereby amended, effective the date hereof, to read in its entirety as follows:
"Notwithstanding any other provision hereof, this option shall
not be exercisable after April 12, 1998, or upon such earlier
expiration date as may be provided by Sections 7 or 9."
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(b) (i) Until January 13 1998 (even if prior thereto Sardas shall
have terminated this Agreement), Sardas, or his estate, as the case may be,
shall have the right to sell to the Company, and the Company shall be required
to purchase from Sardas for cash, the following amounts of 1992 Option Shares
on each of the indicated dates (individually, an "Option Purchase Date" and
collectively, the "Option Purchase Dates"):
Option Purchase Date Number of 1992 Option Shares
-------------------- ----------------------------
February 7, 1996 352,942
July 13, 1996 352,941
January 13, 1997 352,941
July 13, 1997 352,941
January 13, 1998 352,941
(b) (ii) In order to exercise such right, Sardas must deliver to the
Company no later than five (5) business days prior to the relevant Option
Purchase Date a notice stating that he is exercising his right pursuant to this
Section 7(b) of this Agreement and setting forth the number of 1992 Option
Shares as to which such right was being exercised (e.g. no Option Shares or one
or two full installments as applicable pursuant to the provisions of this
Agreement). The purchase price for each of the 1992 Option Shares so purchased
shall be the Fair Market Value for the Company's common stock on the Option
Purchase Date. For purposes of this Section 7, the "Fair Market Value" for the
Company's common stock on the Option Purchase Date shall mean the average
closing price (or, as to any such day on which
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no sales of the Company's common stock shall have taken place, then as to such
day, the average of the last reported closing bid and asked prices) of the
Company's common stock on the principal stock exchange on which the Company's
common stock is then traded (or if the Company's common stock is not then
listed on any such exchange, then on the over-the-counter market) during the
period comprising the ten consecutive trading days immediately preceding the
fifth business day immediately preceding the relevant Option Purchase Date, as
such prices are reported in The Wall Street Journal, or if not so published in
such newspaper, in any other newspaper of general circulation selected by the
Company and reasonably acceptable to Sardas.
(b) (iii) Unless Sardas previously shall have been terminated for Cause or
has terminated this Agreement prior to the expiration of its term, Sardas may,
at his option, delay the exercise of his right pursuant to Section 7(b)(i) as
to the indicated number of 1992 Option Shares until the next succeeding Option
Purchase Date. If at that next succeeding Option Purchase Date, Sardas does not
exercise his right as to the delayed 1992 Option Shares, then his rights
pursuant to this Section 7 as to those delayed 1992 Option Shares shall cease.
(c) If this Agreement is terminated due to the death or permanent
disability of Sardas, then Sardas (or the estate or personal or legal
representative of Sardas, as the case may be) shall have the right, exercisable
by written notice delivered to the Company within thirty (30) days following
such death or disability to sell to the Company, and the Company shall be
required to purchase for cash, all of the 1992 Option Shares at a purchase
price equal to the Fair Market Value for
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the Company's common stock on the date of such death or permanent disability,
calculated as if such date was an Option Purchase Date. Such purchase shall
occur within forty-five (45) days following receipt by the Company of the
written notice referred to in the immediately preceding sentence.
(d) If this Agreement is terminated by the Company other than for Cause
at any time after the date of execution hereof (even if prior to January 13,
1996) and prior to January 12, 1998, then, in such event, Sardas shall have the
right, exercisable by written notice to the Company delivered within fifteen
(15) days following such termination, to sell to the Company, and the Company
shall be required to purchase from Sardas for cash, all, but not less than all,
of the then remaining 1992 Option Shares. Such purchase shall occur within
forty-five (45) days following the receipt by the Company of the written notice
referred to in the immediately preceding sentence. The purchase price for each
share purchased pursuant to this Section 7(d) shall be the Fair Market Value
for the Company's common stock on the date of such termination calculated as if
such date was an Option Purchase Date.
(e) If this Agreement is terminated by the Company other than for Cause
or by reason of Sardas' death or permanent disability, and Sardas does not
exercise the right set forth in Sections 7(c) or 7(d) above, as applicable,
then, in such event, Sardas shall have the right, exercisable on the Option
Purchase Date immediately following such termination, to specify in his notice
to the Company pursuant to Section 7(b)(ii) above that the number of 1992
Option Shares as to which such right was being exercised is all, but not less
than all, of the then remaining 1992 Option
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Shares and such purchase shall occur within forty-five (45) days following the
receipt by the Company of such written notice.
(f) If this Agreement is terminated by the Company other than for Cause
or is terminated by reason of Sardas' death or permanent disability, and Sardas
does not exercise either the right set forth in Sections 7(c), 7(d) or 7(e)
above, as applicable, then, in such event, the provisions set forth in Section
7(b) shall continue as set forth therein.
(g) If this Agreement is terminated by the Company for Cause, then, in
such event, the Company shall have the right, exercisable by written notice to
Sardas delivered within fifteen (15) days following such termination, to
purchase from Sardas for cash, and Sardas, subject to the next sentence of this
paragraph, shall be required to sell to the Company, all, but not less than
all, of the then remaining 1992 Option Shares. Such purchase shall occur within
forty-five (45) days following the delivery to Sardas of the written notice
referred to in the immediately preceding sentence, unless within fifteen (15)
days after such notice Mr. Sardas, by written notice to the Company, declines
to tender his 1992 Option Shares. In such event, all of the Company's
obligations hereunder to repurchase the 1992 Option Shares shall terminate
except only for those obligations that shall have arisen prior to such
termination of employment. The purchase price for each share purchased pursuant
to this Section 7(g) shall be the Fair Market Value for the Company's common
stock on the date of such termination calculated as if such date was an Option
Purchase Date.
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8. NEW OPTION
Effective immediately under entering into this Employment Agreement, the
Company and Sardas shall enter into a certain Stock Option Agreement,
substantially in the form of Exhibit A hereto, granting to Sardas the option to
purchase up to 200,000 shares of the Company's common stock, on the terms and
conditions as set forth therein. Such option shall be granted under the Plan
(as defined in the Stock Option Agreement) and subject to stockholder approval
of the Plan.
9. BUSINESS EXPENSES
The Company shall reimburse Sardas for all reasonable and necessary
expenses incurred in carrying out his duties under this Agreement. Sardas
shall present to the Company from time to time itemized accounts of such
expenses in the usual form required by the Company.
10. INDEMNIFICATION
Sardas shall be covered by the Company's indemnification policies for
Directors and Officers and shall be offered an indemnification agreement in the
form as may from time to time be in effect with other Directors and Officers of
the Company.
11. CONFIDENTIALITY
Sardas agrees to be bound by the Company's confidentiality policy.
12. ARBITRATION
Any controversy or claim arising out of, or relating to, this Agreement
or the breach thereof shall be settled by a three-member arbitration panel (one
member selected by the Company, one member by Sardas and one member selected by
the other two members, or if not by a court of competent jurisdiction), in
accordance with the governing rules of the
12
13
American Arbitration Association. Judgment upon the award rendered shall be
final and may be entered in any court of competent jurisdiction in Cleveland,
Ohio.
13. SUCCESSORS; BINDING AGREEMENT
This Agreement and all rights of Sardas hereunder shall inure to the
benefit of, and be enforceable by Sardas's personal or legal representatives.
14. MODIFICATIONS AND WAIVERS
No provisions of this Agreement may be modified or discharged unless
such modification or discharge is authorized by the Board and is agreed to in
writing, signed by Sardas and by another executive officer of the Company. No
waiver by either party hereto of any breach by the other party hereto or any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.
15. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement of the parties hereto
relating to the subject matter hereof and there are no written or oral terms or
representations made by either party other than those contained herein.
16. GOVERNING LAW
The validity, interpretation, construction, performance and enforcement
of this Agreement shall be governed by the laws of the State of Ohio.
13
14
17. INVALIDITY
The invalidity or unenforceability of any term or terms of this Agreement
shall not invalidate, make unenforceable or otherwise affect any other term of
this Agreement which shall remain in full force and effect.
IN WITNESS WHEREOF the parties have executed this Agreement as amended as
of the dates indicated above.
SUDBURY, INC.
By: /s/ Mark E. Brody
--------------------------------------
Mark E. Brody, Vice President and
Chief Financial Officer
And: /s/ Thomas F. Slater
-------------------------------------
Thomas F. Slater, Chairman
Compensation Committee of the
Board of Directors
/s/ Jacques R. Sardas
-----------------------------------------
Jacques R. Sardas, Individually
14
15
EXHIBIT A
-----------
SUDBURY, INC. NON-QUALIFIED STOCK OPTION AGREEMENT
--------------------------------------------------
This Agreement, dated this 28th day of July, 1995, by and between
Sudbury, Inc., a Delaware corporation with an office at 30100 Chagrin Blvd.,
Suite 203, Pepper Pike, Ohio 44124 (the "Company") and Jacques R. Sardas (the
"Employee"), a full-time employee of the Company or one of its subsidiaries.
SECTION 1. Under the provisions of the Company's 1995 Stock Option Plan
(the "Plan"), the Company hereby grants to the Employee the option of
purchasing an aggregate of 200,000 shares of common stock, par value $.01, of
the Company ("Shares") at the price of $7.625 per share [market price], subject
to the terms and conditions as hereinafter set forth.
SECTION 2. Notwithstanding any other provisions herein, this option
shall expire no later than five (5) years from the date of this Agreement.
SECTION 3. The option granted pursuant to this Agreement shall vest on
the following schedule:
(a) options to purchase 100,000 Shares on January 13, 1996; and
(b) options to purchase an additional 100,000 Shares on January
13, 1997.
SECTION 4. This option is not transferable by the Employee other than
(a) by will or by the laws of descent and distribution, and is exercisable,
during the lifetime of the Employee, only by him or her, or in the event of
death, his or her estate, or in the event of disability, his or her personal
representative, or (b) pursuant to a qualified domestic relations order, as
defined in the 1986 Internal Revenue Code, as amended (the "Code") or Title 1
of the Employee Retirement Income Security Act of 1974, as amended. Except as
otherwise provided in Sections 5, 6, and 9, this option can be exercised only
if the Employee has remained in the employ of the Company continuously from the
date this option is granted.
SECTION 5. In the event of termination of employment of the Employee
for any reason other than death, permanent disability (as defined in that
certain Employment Agreement between the Company and the Employee of even date
herewith (the "Employment Agreement")) or for Cause (as defined in the
Employment Agreement), then (a) the Employee, at any time within the
three-month period following such termination of employment (but within the
term specified in Section 2), may exercise the option rights or any unexercised
portion thereof to the extent such rights were otherwise exercisable by the
Employee at the date of termination of employment, and (b) the portion of the
option not vested as of the date of Employee's termination of employment shall
automatically vest as of the date of such termination. If, however, the
Employee is terminated from employment for Cause (as defined in the Employment
Agreement), all option rights, heretofore unexercised, shall expire.
SECTION 6. If the Employee shall die or become permanently disabled (as
defined in the Employment Agreement) while in the employ of the Company or
within the three-year
16
period after termination of employment with the Company, (a) the option rights
or any unexercised portion thereof may be exercised within the one-year period
after the Employee's death or permanent disability (but within the term
specified in Section 2), by the person entitled by will or the applicable laws
of descent and distribution to the extent that the Employee was entitled to
exercise the same at the date of his or her death, and (b) the portion of the
option that has not vested as of the earlier of the Employee's (i) death or
permanent disability, as the case may be, or (ii) termination shall
automatically expire.
SECTION 7. Nothing herein contained shall confer upon the Employee any
right to continue in the employ of the company, or limit or restrict any right
which the company would otherwise have to terminate the employment of the
employee with or without cause or to adjust his or her compensation.
SECTION 8. Subject to the provisions of Section 9(a) of this Agreement,
in the event that, during the term hereof and while the option as to any of the
Shares covered hereby shall remain unexercised, the number of Shares subject to
the Plan and to options granted under the Plan shall be adjusted as follows:
(a) in the event that all of the outstanding Shares are changed by any stock
dividend, stock split or recapitalization or in the event that extraordinary
cash or non-cash dividends are declared with respect to the Shares, the number
of Shares subject to the Plan and to options granted hereunder shall be
equitably adjusted; (b) in the event of any merger, consolidation or
reorganization of the Company with any other corporation or corporations, there
shall be substituted, on an equitable basis as determined by the Compensation
Committee of the Board of Directors (the "Committee"), for each Share then
subject to the Plan, whether or not at the time subject to outstanding options,
the number and kind of Shares or other securities to which the holders of
Shares of the Company will be entitled pursuant to the transaction; and (c)
subject to the provisions of Section 9(b) of this Agreement in the event of any
other relevant change in the capitalization of the Company, the Committee shall
provide for an equitable adjustment in the number of Shares then subject to the
Plan, whether or not then subject to outstanding options.
In the event of any such adjustment the purchase price per Share shall be
equitably adjusted. Any such adjustment or substitution may provide for the
elimination of any fractional Share which might otherwise become subject to an
option. The adjustment and manner of application of the foregoing provisions
shall be determined by the Committee in its sole discretion.
SECTION 9.
(a) If the Company shall liquidate or dissolve, or shall be a
party to a merger or consolidation or other business combination with respect
to which it shall not be the surviving corporation, the Company shall give
written notice thereof to the Employee at least thirty days prior thereto, and
notwithstanding the provisions of Section 3, the Employee shall have the right
within said thirty-day period (but within
2
17
the term specified in Section 2) to exercise this option in full to the
extent not previously exercised. To the extent that this option shall not
have been exercised on or prior to the effective date of such liquidation,
dissolution, merger or consolidation, it shall terminate on said date,
unless it is assumed by another corporation.
(b) Notwithstanding the provisions of Section 3, the option
granted hereby shall become exercisable in full if and when any
corporation, partnership, joint venture, person, or a group acting
together ("Acquiring Entity") for a similar purpose shall directly or
indirectly acquire or announce an intent to directly or indirectly acquire
control of the Company or any successor or assignee of the Company for
purposes of this Section, control shall mean the acquisition of, or the
formation of a group whose members beneficially own shares of the Company,
which after giving effect thereto, shall permit the Acquiring Entity to
vote 45% or more of the aggregate voting power, as measured by all Shares
then outstanding, in the election of directors of the Company.
SECTION 10. This option shall be exercised by delivering to the Company
at the office of its Secretary (a) a written notice, signed by the person
entitled to exercise the option, stating the number of Shares to be purchased
hereunder, (b) payment in an amount equal to the full purchase price of the
Shares to be purchased, and (c) in the event the option is exercised by a
person other than the Employee, evidence satisfactory to the Company that such
person has the right to exercise the option. Payment may be made, at the
election of the Employee (a) in cash (including check, bank draft, money order,
or wire transfer), (b) by delivering, in transferable form, that number of
Shares which, on the business day preceding the date of exercise, has an
aggregate fair market value equal to such purchase price, or (c) a combination
of the foregoing. The fair market value of the Shares shall be deemed to be (a)
the closing price of the Shares on the principal stock exchange on which the
Shares are then traded on the last business day preceding the date of exercise
of the option, or (b) if no sales take place on such day on any such exchange,
the average of the last reported closing bid and asked prices on such day as
officially quoted on the principal stock exchange on which the Shares are then
traded, or (c) if the Shares are not listed on any such exchange, the average
of the last reported closing bid and asked prices on the over-the-counter
market on the day preceding the date of exercise of the option. The National
Association of Securities Dealers Market System shall be deemed a principal
stock exchange. The Employee shall also pay, within the time period specified
by the Company, any amounts required to be withheld for federal, state, or
local tax purposes as a result of the exercise of the options. Upon due
exercise of the option, the Company shall issue in the name of the person
exercising the option and deliver to such person one or more certificates for
the shares in respect of which the option shall have been exercised. No holder
of this option shall have any rights as a stockholder in respect of any Shares
as to which the option shall not have been duly exercised and no rights as a
shareholder shall arise in respect of any Shares as to which the option shall
have been duly exercised until and except to the extent that a certificate or
certificates for such Shares shall have been issued.
3
18
SECTION 11. This option shall not be exercisable if such exercise would
violate:
(a) Any applicable state securities law;
(b) Any applicable registration or other requirements under the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934,
as amended, or the listing requirements of any stock exchange; or
(c) Any applicable legal requirement of any other governmental
authority.
The Company agrees to make reasonable efforts to comply with the foregoing laws
and requirements so as to permit the exercise of this option. Furthermore, if a
Registration Statement with respect to the Shares to be issued upon the
exercise of this option is not in effect or if counsel for the Company deems it
necessary or desirable in order to avoid possible violation of the Securities
Act of 1933, as amended (the "Act"), the Company may require, as a condition to
its issuance and delivery of certificates for the Shares, the delivery to the
Company of a commitment in writing by the person exercising the option that at
the time of such exercise it is his or her intention to acquire such Shares for
his or her own account for investment only and not with a view to, or for
resale in connection with, the distribution thereof; that such person
understands the Shares may be "restricted securities" as defined in Rule 144 of
the Securities and Exchange Commission; and that any resale, transfer or other
disposition of said Shares will be accomplished only in compliance with Rule
144, of the Act, or the other Rules and Regulations thereunder. The Company may
place on the certificates evidencing such shares an appropriate legend
reflecting the aforesaid commitment and may refuse to permit transfer of such
certificates until it has been furnished evidence satisfactory to it that no
violation of the Act or the Rules and Regulations thereunder would be involved
in such transfer.
SECTION 12. References herein to the Company shall include all parents
and subsidiaries of the Company, and shall be determined consistently with the
definitions of parent and subsidiary in the Code and all relevant Treasury
Department Regulations.
SECTION 13. This option is a non-qualified stock option within the
meaning of Section 422 of the Code and shall not be treated or interpreted for
federal income tax purposes as an Incentive stock option as defined in the
Code.
SECTION 14. The Committee shall have authority, subject to the express
provisions of the plan, to construe and interpret this Agreement and the Plan,
to establish, and to make all other determinations in the judgment of the
Committee necessary or desirable for the administration of the Plan. All
determinations of the Committee shall be final and binding upon all persons.
The Board of Directors may at any time or from time to time grant to the
Committee such further powers and authority as the Board shall determine to be
necessary or desirable.
4
19
SECTION 15. All of the provisions of the Plan are incorporated herein by
reference and are made a part of this Agreement. To the extent any conflict
shall arise between this Agreement and the terms of the Plan, the Plan shall
control.
SECTION 16. This Agreement shall be governed by the laws of the state of
Delaware.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
duplicate as of the day and year first written above.
SUDBURY, INC.
By: /s/ MARK E. BRODY
------------------------------
EMPLOYEE
/s/ JACQUES R. SARDAS
---------------------------------
Jacques R. Sardas
5
EX-10.K
6
EXHIBIT 10.K
1
EXHIBIT (10)(K)
----------------
SUDBURY, INC. NON-QUALIFIED STOCK OPTION AGREEMENT
--------------------------------------------------
This Agreement, dated this 28th day of July, 1995, by and between
Sudbury, Inc., a Delaware corporation with an office at 30100 Chagrin Blvd.,
Suite 203, Pepper Pike, Ohio 44124 (the "Company") and Jacques R. Sardas (the
"Employee"), a full-time employee of the Company or one of its subsidiaries.
SECTION 1. Under the provisions of the Company's 1995 Stock Option Plan
(the "Plan"), the Company hereby grants to the Employee the option of
purchasing an aggregate of 200,000 shares of common stock, par value $.01, of
the Company ("Shares") at the price of $7.625 per share [market price], subject
to the terms and conditions as hereinafter set forth.
SECTION 2. Notwithstanding any other provisions herein, this option
shall expire no later than five (5) years from the date of this Agreement.
SECTION 3. The option granted pursuant to this Agreement shall vest on
the following schedule:
(a) options to purchase 100,000 Shares on January 13, 1996; and
(b) options to purchase an additional 100,000 Shares on January
13, 1997.
SECTION 4. This option is not transferable by the Employee other than
(a) by will or by the laws of descent and distribution, and is exercisable,
during the lifetime of the Employee, only by him or her, or in the event of
death, his or her estate, or in the event of disability, his or her personal
representative, or (b) pursuant to a qualified domestic relations order, as
defined in the 1986 Internal Revenue Code, as amended (the "Code") or Title 1
of the Employee Retirement Income Security Act of 1974, as amended. Except as
otherwise provided in Sections 5, 6, and 9, this option can be exercised only
if the Employee has remained in the employ of the Company continuously from the
date this option is granted.
SECTION 5. In the event of termination of employment of the Employee
for any reason other than death, permanent disability (as defined in that
certain Employment Agreement between the Company and the Employee of even date
herewith (the "Employment Agreement")) or for Cause (as defined in the
Employment Agreement), then (a) the Employee, at any time within the
three-month period following such termination of employment (but within the
term specified in Section 2), may exercise the option rights or any unexercised
portion thereof to the extent such rights were otherwise exercisable by the
Employee at the date of termination of employment, and (b) the portion of the
option not vested as of the date of Employee's termination of employment shall
automatically vest as of the date of such termination. If, however, the
Employee is terminated from employment for Cause (as defined in the Employment
Agreement), all option rights, heretofore unexercised, shall expire.
SECTION 6. If the Employee shall die or become permanently disabled (as
defined in the Employment Agreement) while in the employ of the Company or
within the three-year
2
period after termination of employment with the Company, (a) the option rights
or any unexercised portion thereof may be exercised within the one-year period
after the Employee's death or permanent disability (but within the term
specified in Section 2), by the person entitled by will or the applicable laws
of descent and distribution to the extent that the Employee was entitled to
exercise the same at the date of his or her death, and (b) the portion of the
option that has not vested as of the earlier of the Employee's (i) death or
permanent disability, as the case may be, or (ii) termination shall
automatically expire.
SECTION 7. Nothing herein contained shall confer upon the Employee any
right to continue in the employ of the company, or limit or restrict any right
which the company would otherwise have to terminate the employment of the
employee with or without cause or to adjust his or her compensation.
SECTION 8. Subject to the provisions of Section 9(a) of this Agreement,
in the event that, during the term hereof and while the option as to any of the
Shares covered hereby shall remain unexercised, the number of Shares subject to
the Plan and to options granted under the Plan shall be adjusted as follows:
(a) in the event that all of the outstanding Shares are changed by any stock
dividend, stock split or recapitalization or in the event that extraordinary
cash or non-cash dividends are declared with respect to the Shares, the number
of Shares subject to the Plan and to options granted hereunder shall be
equitably adjusted; (b) in the event of any merger, consolidation or
reorganization of the Company with any other corporation or corporations, there
shall be substituted, on an equitable basis as determined by the Compensation
Committee of the Board of Directors (the "Committee"), for each Share then
subject to the Plan, whether or not at the time subject to outstanding options,
the number and kind of Shares or other securities to which the holders of
Shares of the Company will be entitled pursuant to the transaction; and (c)
subject to the provisions of Section 9(b) of this Agreement in the event of any
other relevant change in the capitalization of the Company, the Committee shall
provide for an equitable adjustment in the number of Shares then subject to the
Plan, whether or not then subject to outstanding options.
In the event of any such adjustment the purchase price per Share shall be
equitably adjusted. Any such adjustment or substitution may provide for the
elimination of any fractional Share which might otherwise become subject to an
option. The adjustment and manner of application of the foregoing provisions
shall be determined by the Committee in its sole discretion.
SECTION 9.
(a) If the Company shall liquidate or dissolve, or shall be a
party to a merger or consolidation or other business combination with respect
to which it shall not be the surviving corporation, the Company shall give
written notice thereof to the Employee at least thirty days prior thereto, and
notwithstanding the provisions of Section 3, the Employee shall have the right
within said thirty-day period (but within
2
3
the term specified in Section 2) to exercise this option in full to the
extent not previously exercised. To the extent that this option shall not
have been exercised on or prior to the effective date of such liquidation,
dissolution, merger or consolidation, it shall terminate on said date,
unless it is assumed by another corporation.
(b) Notwithstanding the provisions of Section 3, the option
granted hereby shall become exercisable in full if and when any
corporation, partnership, joint venture, person, or a group acting
together ("Acquiring Entity") for a similar purpose shall directly or
indirectly acquire or announce an intent to directly or indirectly acquire
control of the Company or any successor or assignee of the Company for
purposes of this Section, control shall mean the acquisition of, or the
formation of a group whose members beneficially own shares of the Company,
which after giving effect thereto, shall permit the Acquiring Entity to
vote 45% or more of the aggregate voting power, as measured by all Shares
then outstanding, in the election of directors of the Company.
SECTION 10. This option shall be exercised by delivering to the Company
at the office of its Secretary (a) a written notice, signed by the person
entitled to exercise the option, stating the number of Shares to be purchased
hereunder, (b) payment in an amount equal to the full purchase price of the
Shares to be purchased, and (c) in the event the option is exercised by a
person other than the Employee, evidence satisfactory to the Company that such
person has the right to exercise the option. Payment may be made, at the
election of the Employee (a) in cash (including check, bank draft, money order,
or wire transfer), (b) by delivering, in transferable form, that number of
Shares which, on the business day preceding the date of exercise, has an
aggregate fair market value equal to such purchase price, or (c) a combination
of the foregoing. The fair market value of the Shares shall be deemed to be (a)
the closing price of the Shares on the principal stock exchange on which the
Shares are then traded on the last business day preceding the date of exercise
of the option, or (b) if no sales take place on such day on any such exchange,
the average of the last reported closing bid and asked prices on such day as
officially quoted on the principal stock exchange on which the Shares are then
traded, or (c) if the Shares are not listed on any such exchange, the average
of the last reported closing bid and asked prices on the over-the-counter
market on the day preceding the date of exercise of the option. The National
Association of Securities Dealers Market System shall be deemed a principal
stock exchange. The Employee shall also pay, within the time period specified
by the Company, any amounts required to be withheld for federal, state, or
local tax purposes as a result of the exercise of the options. Upon due
exercise of the option, the Company shall issue in the name of the person
exercising the option and deliver to such person one or more certificates for
the shares in respect of which the option shall have been exercised. No holder
of this option shall have any rights as a stockholder in respect of any Shares
as to which the option shall not have been duly exercised and no rights as a
shareholder shall arise in respect of any Shares as to which the option shall
have been duly exercised until and except to the extent that a certificate or
certificates for such Shares shall have been issued.
3
4
SECTION 11. This option shall not be exercisable if such exercise would
violate:
(a) Any applicable state securities law;
(b) Any applicable registration or other requirements under the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934,
as amended, or the listing requirements of any stock exchange; or
(c) Any applicable legal requirement of any other governmental
authority.
The Company agrees to make reasonable efforts to comply with the foregoing laws
and requirements so as to permit the exercise of this option. Furthermore, if a
Registration Statement with respect to the Shares to be issued upon the
exercise of this option is not in effect or if counsel for the Company deems it
necessary or desirable in order to avoid possible violation of the Securities
Act of 1933, as amended (the "Act"), the Company may require, as a condition to
its issuance and delivery of certificates for the Shares, the delivery to the
Company of a commitment in writing by the person exercising the option that at
the time of such exercise it is his or her intention to acquire such Shares for
his or her own account for investment only and not with a view to, or for
resale in connection with, the distribution thereof; that such person
understands the Shares may be "restricted securities" as defined in Rule 144 of
the Securities and Exchange Commission; and that any resale, transfer or other
disposition of said Shares will be accomplished only in compliance with Rule
144, of the Act, or the other Rules and Regulations thereunder. The Company may
place on the certificates evidencing such shares an appropriate legend
reflecting the aforesaid commitment and may refuse to permit transfer of such
certificates until it has been furnished evidence satisfactory to it that no
violation of the Act or the Rules and Regulations thereunder would be involved
in such transfer.
SECTION 12. References herein to the Company shall include all parents
and subsidiaries of the Company, and shall be determined consistently with the
definitions of parent and subsidiary in the Code and all relevant Treasury
Department Regulations.
SECTION 13. This option is a non-qualified stock option within the
meaning of Section 422 of the Code and shall not be treated or interpreted for
federal income tax purposes as an Incentive stock option as defined in the
Code.
SECTION 14. The Committee shall have authority, subject to the express
provisions of the plan, to construe and interpret this Agreement and the Plan,
to establish, and to make all other determinations in the judgment of the
Committee necessary or desirable for the administration of the Plan. All
determinations of the Committee shall be final and binding upon all persons.
The Board of Directors may at any time or from time to time grant to the
Committee such further powers and authority as the Board shall determine to be
necessary or desirable.
4
5
SECTION 15. All of the provisions of the Plan are incorporated herein by
reference and are made a part of this Agreement. To the extent any conflict
shall arise between this Agreement and the terms of the Plan, the Plan shall
control.
SECTION 16. This Agreement shall be governed by the laws of the state of
Delaware.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
duplicate as of the day and year first written above.
SUDBURY, INC.
By: /s/ MARK E. BRODY
------------------------------
EMPLOYEE
/s/ JACQUES R. SARDAS
---------------------------------
Jacques R. Sardas
5
EX-11
7
EXHIBIT 11
1
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
SUDBURY, INC. AND SUBSIDIARIES
Prede-
Successor cessor
---------------------------------------- --------
Nine Three
Year Year Months Months
Ended Ended Ended Ended
May 31, May 31, May 31, Aug 31,
1995 1994 1993 1992
--------- -------- -------- --------
(Amounts in thousands, exce0pt per share data)
PRIMARY ||
||
Average shares ||
outstanding 10,376 10,071 10,000 ||
Net effect of dilutive stock ||
options and other common ||
stock equivalents - based ||
on the treasury stock ||
method using average ||
market price 2,275 2,259 1,763 ||
------- ------- ------- ||
TOTAL 12,651 12,330 11,763 ||
======= ======= ======= ||
||
Net income $13,572 $ 6,830 $ 2,808 ||
======= ======= ======= ||
Per share amount $ 1.07 $ .55 $ .24 || (A)
======= ======= ======= ||
||
FULLY DILUTED ||
||
Average shares outstanding 10,376 10,071 10,000 ||
Net effect of dilutive stock ||
options and other common ||
stock equivalents - based ||
on the treasury stock ||
method using the year-end ||
market price if higher than ||
average market price 2,294 2,411 2,008 ||
------- ------- ------- ||
TOTAL 12,670 12,482 12,008 ||
======= ======= ======= ||
||
Net income $13,572 $ 6,830 $ 2,808 ||
======= ======= ======= ||
Per share amount $ 1.07 $ .55 $ .23 || (A)
======= ======= ======= ||
(A) As a result of the changes in ownership and capital structure from the
Plan, primary and fully diluted net income per share calculations are
not relevant for the three months ended August 31, 1992.
- 20 -
EX-13
8
EXHIBIT 13
1
EXHIBIT 13
----------
SELECTED FINANCIAL DATA (A)
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(Dollars in thousands, except per share amounts)
Net Sales:
Ongoing operations $305,435 $250,329 $222,410 $198,197 $206,872
Businesses held for sale 315 50,221 156,678 174,678
-------- -------- -------- -------- --------
TOTAL 305,435 250,644 272,631 354,875 381,550
Special charges (B) (5,956) (586) (51,851)
Reorganization items (C) (1,095) (46,315)
Income (loss) before
extraordinary gain 13,572 6,830 3,108 (56,410) (64,088)
Extraordinary gain (C) 78,805
Net income (loss) 13,572 6,830 81,913 (56,410) (64,088)
Net income per common
share 1.07 .55 (D) (D) (D)
Cash dividends per common
share - - - - -
Assets 129,637 114,200 116,456 162,233 237,071
Working capital (deficiency) 15,762 19,667 19,148 (27,583) (119,123)
Short-term obligations 678 2,300 3,088 60,874 155,014
Long-term debt 17,978 29,961 45,984 23,931 8,405
Liabilities deferred pursuant
to Chapter 11 86,279
Serial preferred stock 7,563 7,563
Stockholders' equity (deficit) 44,552 29,410 16,808 (56,833) (423)
-------------------------
(A) As discussed more fully in Note P -- Proceedings Under Chapter 11 and Restructuring of the financial
statements, the Company emerged from Chapter 11 of the Federal Bankruptcy Code on September 1, 1992. Accordingly,
financial data presented for periods subsequent to the date of emergence are not comparable to prior periods.
(B) Refer to Note C -- Special Charges of the financial statements for a further discussion of these charges.
(C) Refer to Note P -- Proceedings Under Chapter 11 and Restructuring of the financial statements for a further discussion
of these items.
(D) Calculations of net income per share are not meaningful as a result of the Company's reorganization described in
Note P -- Proceedings Under Chapter 11 and Restructuring of the financial statements.
- 21 -
2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS - FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994:
SALES. The Company's net sales for fiscal 1995 increased by 22% to $305.4
million from $250.6 million in the prior year. This sales improvement of $54.8
million came from a $27.3 million increase in sales of existing products, $21.1
million of net new business and $6.4 million of price increases.
Each of the Company's subsidiaries experienced sales increases over the prior
year. During the year the Company's sales to the automotive industry improved
to $186 million which is a 26% increase over the prior year level of $148
million. The Company's Wagner Castings Company ("Wagner") and Industrial
Powder Coatings, Inc. ("IPC") subsidiaries accounted for most of this increase
as their volumes improved in line with the overall rise in demand which
occurred over the past year in the domestic automotive industry. At Wagner,
$10.8 million of new business arose from the start-up of Ford Motor Company's
North American version of its "World Car" program which consists of the Ford
Contour and Mercury Mystique.
Sales at the Company's Iowa Mold Tooling Company subsidiary increased by $8.6
million over the prior year as a result of improvements in several of its
construction related markets.
GROSS PROFIT. Gross profit (net sales less costs of products sold) for fiscal
1995 increased by $11.7 million to $51.0 million from $39.3 million in the
prior year. Gross profit as a percentage of net sales was 16.7% for fiscal
1995 compared to 15.7% in the prior year. The increase in margin rate came
from increased sales volume, improved operating efficiencies and a $.9 million
favorable impact in scrap steel prices at Wagner as scrap steel prices did not
escalate as rapidly as they had in the prior year. Commitments with most of
Wagner's major customers allow Wagner to pass on the majority of increases or
decreases in the cost of scrap steel to these customers, however, these
adjustments are generally passed along three to six months subsequent to the
time the change occurs.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses as a
percentage of net sales decreased to 9.3% in fiscal 1995 from 9.6% in the prior
year due principally to higher sales. In terms of dollars, such expenses
increased by $4.2 million due primarily to a $3.3 million increase in the
expense related to a contractual bonus accrued for Jacques R. Sardas, Chairman,
President and Chief Executive Officer of the Company under his January 1992
employment agreement ("1992 Agreement") which was confirmed as part of the
Company's Plan of Reorganization. The bonus, payable to Mr. Sardas at the end
of the 1992 Agreement in January 1996, is based on an amount which equals 5% of
the net fair value of the Company in excess of $35 million at the expiration of
the 1992 Agreement. The bonus expense is being amortized over the term of the
1992 Agreement. The actual bonus payment under the 1992 Agreement will be
determined
- 22 -
3
based on an independent appraisal of the fair value of the Company at the end
of the 1992 Agreement in January 1996 and may vary from amounts previously
accrued by the Company. At May 31, 1995, the Company had accrued $4.8 million
for the bonus payable to Mr. Sardas. Also impacting the increase in selling and
administrative expenses was an increase in selling expenses associated with
higher revenues.
SPECIAL CHARGES. Special charges of $6.0 million were recognized in
fiscal 1994 in connection with the aforementioned 1992 Agreement with Mr.
Sardas. These charges include expenses of $4.7 million associated with stock
options and a $1.3 million bonus accrual. The bonus accrual remains subject to
the achievement of certain performance targets described previously in the
paragraph captioned "Selling and Administrative Expenses." The charge
relating to the stock options was noncash and no future charges are required to
account for these options.
INTEREST EXPENSE. Interest expense decreased by $.9 million due to reductions
in debt as a result of the Company's cash flow from operations. Partially
offsetting this reduction was an increase in the interest rate on the Company's
bank indebtedness due to increases in the base interest rates.
INCOME TAX EXPENSE. Income tax expense of $6.4 million in the current period
(an effective tax rate of 32%) represented a significant increase over the
prior year's income tax benefit of $.2 million. In fiscal 1995, the Company
fully utilized its net operating loss carryforwards generated subsequent to the
Company's emergence from Chapter 11 and is therefore currently subject to
income taxes on its earnings. The effective tax rate of 32% is less than the
statutory rate of 35% due principally to the impacts of income tax benefits
associated with Mr. Sardas' 1992 Agreement and the utilization of net
operating loss carryforwards. During fiscal 1995, the deferred tax asset
valuation allowance was reduced by $2.1 million as a result of management's
evaluation of the future realization of certain deferred tax assets. In fiscal
1994, the income tax benefit resulted from refunds received by the Company due
to the favorable resolution of certain state tax disputes.
As of May 31, 1995, the Company had recognized a net deferred tax asset of $3.8
million which relates principally to net operating loss carryforwards and
future income tax benefits associated with Mr. Sardas' 1992 Agreement.
Valuation allowances have been established for those deferred tax assets for
which management believes there does not exist sufficient objective evidence to
support their recognition under generally accepted accounting principles.
- 23 -
4
RESULTS OF OPERATIONS - FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993:
SALES. The Company's net sales from ongoing operations for fiscal 1994
increased by 13% to $250.3 million from $222.4 million in the prior year. This
sales improvement of $27.9 million came from a $14.1 million increase in sales
of existing products, $9.5 million of net new business and $4.3 million of
price increases.
During fiscal 1994 the Company's sales to the automotive industry improved to
$148 million which is a 19% increase over the prior year level of $124 million.
The Company's Wagner and IPC subsidiaries accounted for most of this increase
as their volumes improved in line with the overall rise in demand which
occurred over the past year in the domestic automotive industry. In addition,
sales at Wagner increased by $6.8 million due to a full year's production of a
new program which was started in fiscal 1993 with Ford Motor Company of Europe
and other indirect suppliers to Ford for Ford's "World Car" program.
Sales at the Company's Iowa Mold Tooling Company subsidiary increased by $4.6
million over the prior year as a result of improvements in several of its
construction related markets.
Sales of businesses held for sale decreased to $.3 million in fiscal 1994 from
$50.2 million in the prior fiscal year due to the sale of 15 of the Company's
businesses during fiscal 1993.
GROSS PROFIT. Gross profit from ongoing operations (net sales less
costs of products sold) for fiscal 1994 increased by $6.8 million to $39.1
million from $32.3 million in fiscal 1993. Gross profit from ongoing
operations as a percentage of net sales was 15.6% for fiscal 1994 compared to
14.5% in the prior year. The increase in margin rate came from increased sales
volume and improved operating efficiencies. Partially offsetting the
improvements in gross margin was the negative impact of $1.1 million in fiscal
1994 from significant price increases in scrap steel which is the principal raw
material utilized at Wagner. Commitments with most of Wagner's major customers
allow Wagner to pass on the majority of increases or decreases in the cost of
scrap steel to these customers, however, these adjustments are generally passed
along three to six months subsequent to the time the change occurs.
Gross profit from businesses held for sale decreased in fiscal 1994 from the
prior year due to the previously mentioned sales of businesses during fiscal
1993.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses from
ongoing operations as a percentage of net sales decreased to 9.6% in fiscal
1994 from 9.8% in the prior year principally due to higher sales. In terms of
dollars, such expenses from ongoing operations increased by $2.2 million due
principally to: (1) $.9 million recorded as a result of the Company's issuance
of 479,893 stock options with exercise prices ranging from $3.17 to $5.69 per
share to Jacques R. Sardas, Chairman, President and Chief Executive Officer of
the Company as described in Note J -- Stockholders' Equity of the financial
statements and (2) an increase in selling expenses associated with higher
revenues.
- 24 -
5
Selling and administrative expenses from businesses held for sale decreased in
fiscal 1994 from the prior year due to the previously mentioned sales of
businesses during fiscal 1993.
SPECIAL CHARGES AND REORGANIZATION ITEMS. In fiscal 1994, special charges of
$6.0 million represent expenses incurred under the Company's previously
discussed 1992 Agreement with Mr. Sardas.
Special charges and reorganization items which totaled $1.7 million in fiscal
year 1993 related to consulting and other expenses incurred under the Company's
restructuring program.
INTEREST EXPENSE. Interest expense decreased by $1.8 million due to reductions
in debt (1) caused by the Company's asset sale program, (2) due to cash flow
from increased profitability, and (3) in connection with a new credit facility
obtained by the Company at the end of fiscal 1993 which provided the Company
with a revolving line of credit. The Company's previous credit facility did
not include a revolving line of credit and cash balances could not be applied
against debt.
OTHER INCOME. The Company favorably settled two lawsuits and resolved a
preconfirmation liability resulting in income of $.8 million in fiscal 1994 as
described in Note D -- Settlement of Preconfirmation Liabilities of the
financial statements. Other income of $.5 million in fiscal 1994 principally
related to the receipt of miscellaneous contingent proceeds and escrows
relating to previous asset sales.
INCOME TAX BENEFIT. In fiscal 1994, an income tax benefit of $.2 million
resulted from refunds received by the Company due to the favorable resolution
of certain state tax disputes. The Company recorded a net deferred tax asset
of $1.4 million in fiscal 1994 which principally related to the Company's $8.9
million net operating loss carryforward generated after emergence from
bankruptcy which the Company believes will be utilized through the generation
of taxable income in future years.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's financial position improved during fiscal 1995 as its operating
activities provided cash of $32.0 million compared to $21.8 million in the
prior fiscal year. This improvement came principally from increased
profitability and a favorable change in working capital. Operating cash flows
were applied primarily to fund capital expenditures and to reduce outstanding
indebtedness.
At May 31, 1995, long-term debt (including current maturities) was $18.7
million, a decrease of $13.6 million from May 31, 1994. Long-term debt
represents 30% of long-term debt plus stockholders' equity at May 31, 1995,
compared to 52% at the end of fiscal 1994.
- 25 -
6
In May 1995, the Company entered into a $40 million revolving credit facility
("Credit Facility") which expires in May 1998. As of May 31, 1995, the Company
had borrowed $5.5 million and had $32.8 million of additional borrowing
capacity under the Credit Facility. The Credit Facility provides the Company
the ability to incur capital expenditures of up to $20 million in fiscal year
1996 and $15 million in fiscal years 1997 and 1998. The Credit Facility
permits the Company to borrow to fund acquisitions, subject to certain
conditions.
Capital expenditures were $16.2 million in fiscal 1995 compared with $7.0
million in fiscal 1994. The increase in capital expenditures was mainly
attributable to the purchase of equipment to be used in IPC's new powder
coating facility in Louisville, Kentucky, and equipment improvements at Wagner
and Frisby P.M.C., Incorporated to improve production capacity, product quality
and reduce costs.
The Company currently has capital expenditure commitments for fiscal 1996 of
$2.8 million. Most of these commitments relate to equipment which will be
purchased by Wagner as part of a $12 million modernization project to expand
its ductile processing capacity during fiscal 1996.
As a result of the Company's increased profitability, it began paying federal
income taxes in fiscal 1995 as it utilized all of its net operating loss
carryforwards which were generated subsequent to the Company's emergence from
Chapter 11.
The Company believes that funds available under the Credit Facility and funds
generated from operations will be sufficient to satisfy its anticipated
operating needs and capital improvements for fiscal 1996.
OTHER MATTERS. As approximately 61% of the Company's sales are dependent on
the automotive markets in the United States and Europe, related profits will be
dependent on sales of vehicles in these markets in the future.
The Company's current and previous businesses operate in a variety of locations
and industries where environmental situations could exist based on current or
past operations. Certain operating and non-operating subsidiaries of the
Company have been named as potentially responsible parties ("PRPs") liable for
cleanup costs by the United States Environmental Protection Agency ("EPA"),
state regulatory authorities and private parties with respect to several sites
in various states, including Minnesota, Ohio, Pennsylvania and Texas. The
Company continues to evaluate the environmental conditions and its potential
liability at these sites.
The Company has initiated corrective action and/or preventive environmental
projects to ensure the safe and lawful operation of its facilities. For known
environmental conditions, the Company, with the assistance of environmental
engineers and consultants, has accrued $4,975,000 to cover estimated future
environmental expenditures. While the ultimate result of both known and
unknown environmental conditions cannot be predicted with certainty, the
Company does not expect these matters to have a material adverse effect on its
financial condition, results of operations, or cash flows.
- 26 -
7
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On September 28, 1993, the Company's Common Stock was listed on the Nasdaq
Stock Market ("Nasdaq") under the symbol "SUDS." From April 1993 until its
listing on Nasdaq, the Common Stock had been traded in the over-the-counter
market via the OTC Bulletin Board ("Bulletin Board") under the symbol "SUBY."
Notwithstanding the eligibility for trading in the Bulletin Board, during the
first quarter of fiscal 1994 there was limited trading activity and thus, there
was no established public trading market for the Company's Common Stock until
its listing on Nasdaq. During fiscal 1994, the high and low closing bid
quotations as reported on the Bulletin Board or Nasdaq ranged from a high bid
of $8.00 to a low bid of $4.375. During fiscal 1995, the high and low closing
bid quotations as reported on Nasdaq ranged from a high bid of $7.375 to a low
bid of $5.125. The following table sets forth the high and low closing bid
quotations as reported either on Nasdaq or the Bulletin Board. The prices
represent quotations between dealers without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
PERIOD HIGH LOW
------ ------ ------
YEAR ENDED MAY 31, 1995
-----------------------
First quarter $7.00 $6.125
Second quarter 7.375 6.25
Third quarter 6.75 5.125
Fourth quarter 7.125 5.75
YEAR ENDED MAY 31, 1994
-----------------------
First quarter $4.75 $4.375
Second quarter 7.25 5.375
Third quarter 8.00 5.50
Fourth quarter 7.50 6.875
On August 4, 1995, there were approximately 1,500 record holders of the
Company's Common Stock.
The Company has never paid dividends on shares of Common Stock and does not
expect to pay dividends in the foreseeable future.
- 27 -
8
CONSOLIDATED STATEMENTS OF OPERATIONS
SUDBURY, INC. AND SUBSIDIARIES
For the Fiscal Years Ended May 31, 1995 and 1994, the Nine Months Ended May 31,
1993 (Successor) and the Three Months Ended August 31, 1992 (Predecessor) (See
Note P)
Prede-
Successor cessor
----------------------------------------------- -------
Nine Three
Year Year Months Months
Ended Ended Ended Ended
May 31, May 31, May 31, Aug 31,
1995 1994 1993 1992
-------- -------- -------- -------
(Dollars in thousands, except per share amounts)
Net sales: ||
Ongoing operations $305,435 $250,329 $170,310 || $ 52,100
Businesses held for sale 315 19,328 || 30,893
-------- -------- -------- || -------
Total 305,435 250,644 189,638 || 82,993
||
Costs and expenses: ||
Costs of products sold: ||
Ongoing operations 254,472 211,254 145,770 || 44,394
Businesses held for sale 151 16,646 || 26,679
-------- -------- -------- || -------
Total 254,472 211,405 162,416 || 71,073
||
Selling and administrative ||
expenses: ||
Ongoing operations 28,333 23,945 16,365 || 5,426
Businesses held for sale 164 2,039 || 3,755
-------- -------- -------- || -------
Total 28,333 24,109 18,404 || 9,181
||
Special charges 5,956 586 ||
Reorganization items || 1,095
-------- -------- -------- || -------
||
OPERATING INCOME 22,630 9,174 8,232 || 1,644
||
Interest expense - net (2,974) (3,848) (4,111) || (1,520)
Settlement of preconfirmation ||
liabilities 846 ||
Other income (expense) 292 484 (1,023) || 226
-------- -------- -------- || -------
||
Income before income taxes 19,948 6,656 3,098 || 350
Income tax expense (benefit) 6,376 (174) 290 || 50
-------- -------- -------- || -------
||
INCOME BEFORE ||
EXTRAORDINARY GAIN 13,572 6,830 2,808 || 300
||
Extraordinary gain - ||
forgiveness of ||
prepetition liabilities || 78,805
-------- -------- -------- || -------
||
NET INCOME $ 13,572 $ 6,830 $ 2,808 || $ 79,105
======== ======== ======== || ========
||
Net income per Common share: $ 1.07 $ .55 $ .24 ||
======== ======== ======== ||
||
Average Common shares and share ||
equivalents outstanding 12,651 12,330 11,763 ||
======== ======== ======== ||
See notes to consolidated financial statements.
- 28 -
9
CONSOLIDATED BALANCE SHEETS
---------------------------
SUDBURY, INC. AND SUBSIDIARIES
------------------------------
MAY 31, 1995 AND 1994
(Dollars in thousands)
ASSETS
------
1995 1994
-------- --------
CURRENT ASSETS
Cash and cash equivalents $ 3,548 $ 245
Accounts receivable, less allowance
for doubtful accounts (in 1995: $498,
in 1994: $412) 41,800 39,272
Inventories 18,124 18,592
Deferred taxes 2,554
Other 4,722 4,020
-------- --------
TOTAL CURRENT ASSETS 70,748 62,129
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements 2,263 2,191
Buildings 17,334 17,163
Machinery and equipment 53,580 38,534
-------- --------
73,177 57,888
Less accumulated depreciation 18,931 11,450
-------- --------
NET PROPERTY, PLANT AND EQUIPMENT 54,246 46,438
OTHER ASSETS 4,643 5,633
-------- --------
$129,637 $114,200
======== ========
See notes to consolidated financial statements.
- 29 -
10
CONSOLIDATED BALANCE SHEETS--CONTINUED
--------------------------------------
SUDBURY, INC. AND SUBSIDIARIES
------------------------------
MAY 31, 1995 AND 1994
(Dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
1995 1994
--------- -----------
CURRENT LIABILITIES
Trade accounts payable $ 25,891 $ 18,504
Accrued compensation and employee benefits 14,286 10,000
Other accrued expenses 14,131 11,658
Current maturities of long-term debt 678 2,300
-------- --------
TOTAL CURRENT LIABILITIES 54,986 42,462
LONG-TERM DEBT 17,978 29,961
OTHER LONG-TERM LIABILITIES 12,121 12,367
STOCKHOLDERS' EQUITY
Common Stock--par value $0.01 per share;
authorized 20,000,000 shares; 10,289,883
(10,233,932 at May 31, 1994) shares
issued and outstanding 103 102
Additional paid-in capital 22,076 20,224
Retained earnings 23,210 9,638
Minimum pension liability adjustment - net (837) (554)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 44,552 29,410
-------- --------
$129,637 $114,200
======== ========
See notes to consolidated financial statements.
- 30 -
11
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
SUDBURY, INC. AND SUBSIDIARIES
------------------------------
For the Fiscal Years Ended May 31, 1995 and 1994, the Nine Months Ended May 31, 1993 (Successor),
and the Three Months Ended August 31, 1992 (Predecessor) (See Note P)
(Dollars and shares in thousands)
PREDECESSOR SUCCESSOR PREDECESSOR MINIMUM
SERIAL COMMON STOCK COMMON STOCK ADDITIONAL RETAINED PENSION
PREFERRED -------------- -------------- PAID-IN (DEFICIT) LIABILITY
STOCK AMOUNT SHARES AMOUNT SHARES CAPITAL EARNINGS ADJUSTMENT
----------- ------ ------ ------ ------ --------- --------- ----------
BALANCE AT MAY 31, 1992 $ 7,563 $-0- -0- $131 13,107 $57,509 $(122,036) $ -0-
Net income for three
months ended August 31,
1992 (Predecessor) 79,105
Effects of reorganiza-
tion (Note P):
Fresh Start adjustments (8,272)
Elimination of accumu-
lated deficit (42,931) 42,931
Cancellation of predeces-
sor shares and issu-
ance of new shares (7,563) 100 10,000 (131) (13,107) 7,594
------- ---- ------- ---- ------- -------- --------- ------
BALANCE AT AUGUST 31, 1992 -0- 100 10,000 -0- -0- 13,900 -0- -0-
Net income for nine
months ended May 31,
1993 (Successor) 2,808
------- ---- ------ ---- ------- -------- --------- ------
BALANCE AT MAY 31, 1993 -0- 100 10,000 -0- -0- 13,900 2,808 -0-
Net income for 1994 6,830
Stock options to Chief
Executive Officer
(Note J) 5,547
Exercise of participation
certificates and stock
options 2 234 680
Tax benefits from exercise
of stock options 97
Adjustment for minimum
pension liability - net (554)
------- ---- ------ ---- ------- -------- --------- ------
BALANCE AT MAY 31, 1994 -0- 102 10,234 -0- -0- 20,224 9,638 (554)
Net income for 1995 13,572
Exercise of participation
certificates and stock
options and other - net 1 56 718
Tax benefits from exercise
of stock options 188
Utilization of net operating
loss carryforwards and recog-
nition of deferred tax asset 946
Adjustment for minimum
pension liability - net (283)
------- ---- ------ ---- ------- -------- --------- ------
BALANCE AT MAY 31, 1995 $ -0- $103 10,290 $-0- -0- $ 22,076 $ 23,210 $ (837)
======= ==== ====== ==== ======= ======== ========= ======
See notes to consolidated financial statements.
- 31 -
12
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
SUDBURY, INC. AND SUBSIDIARIES
------------------------------
For the Fiscal Years Ended May 31, 1995 and 1994, the Nine Months Ended May 31,
1993 (Successor) and the Three Months Ended August 31, 1992 (Predecessor) (See
Note P)
Prede-
Successor cessor
------------------------------------------ --------
Nine Three
Year Year Months Months
(Dollars in thousands) Ended Ended Ended Ended
May 31, May 31, May 31, Aug 31,
1995 1994 1993 1992
--------- -------- ------- || --------
||
OPERATING ACTIVITIES: ||
Income before extraordinary gain $ 13,572 $ 6,830 $ 2,808 || $ 300
Items included not affecting cash: ||
Depreciation and amortization: ||
Ongoing operations 9,800 8,314 5,220 || 1,829
Businesses held for sale 47 1,079 || 1,137
Deferred taxes and other 2,068 (351) 26 || (53)
Special charges 5,956 ||
Changes in operating assets ||
and liabilities: ||
Ongoing operations 6,592 1,069 (9,153) || 1,808
Businesses held for sale (28) (713) || (366)
-------- -------- ------- || --------
NET CASH PROVIDED BY (USED IN) ||
OPERATING ACTIVITIES 32,032 21,837 (733) || 4,655
||
INVESTING ACTIVITIES: ||
Purchases of property, plant and equipment: ||
Ongoing operations (16,232) (6,951) (2,225) || (781)
Businesses held for sale (38) || (162)
Proceeds from sale of businesses 666 23,889 || 10,687
Proceeds from collection of notes ||
receivable 470 2,362 545 ||
Other - net 230 (17) 65 || (663)
-------- -------- ------- || --------
NET CASH (USED IN) PROVIDED BY ||
INVESTING ACTIVITIES (15,532) (3,940) 22,236 || 9,081
||
FINANCING ACTIVITIES: ||
Borrowings, refinancings and repayments: ||
Long-term borrowings 304,861 238,788 35,045 || 21
Reductions of debt (318,777) (256,067) (67,055) || (13,194)
Common stock issued 719 682 ||
--------- -------- ------- || --------
NET CASH USED IN FINANCING ||
ACTIVITIES (13,197) (16,597) (32,010) || (13,173)
--------- -------- ------- || --------
||
INCREASE (DECREASE) IN CASH ||
AND CASH EQUIVALENTS 3,303 1,300 (10,507) || 563
||
Cash and cash equivalents at ||
beginning of period 245 (1,055) 9,452 || 8,889
-------- -------- ------- || --------
||
CASH AND CASH EQUIVALENTS ||
AT END OF PERIOD $ 3,548 $ 245 $(1,055) || $ 9,452
======== ======== ======= || ========
See notes to consolidated financial statements.
- 32 -
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE A -- SUMMARY OF ACCOUNTING POLICIES
CONSOLIDATION: The consolidated financial statements include the accounts of
Sudbury, Inc. and its subsidiaries (the "Company"). Significant intercompany
balances and transactions have been eliminated.
BASIS OF PRESENTATION: The Company emerged from bankruptcy on September 1,
1992 (the "Effective Date") following approval of the Company's amended Plan of
Reorganization (the "Plan") by the United States Bankruptcy Court. In
implementing the Plan, the Company adopted "Fresh Start" reporting on September
1, 1992 pursuant to Statement of Position 90-7 of the American Institute of
Certified Public Accountants, entitled "Financial Reporting By Entities in
Reorganization Under the Bankruptcy Code" ("SOP 90-7") which caused material
changes in the amounts and classifications reported in the consolidated
historical financial statements. These changes are further discussed in Note P.
As a result of the Company's emergence from Chapter 11, certain amounts
presented on the statements of operations for the years ended May 31, 1995 and
1994 and the nine month period ended May 31, 1993, principally for interest
expense, and on the statements of cash flows for the years ended May 31, 1995
and 1994 and the nine months ended May 31, 1993 are not comparable to the prior
periods and therefore a solid double line has been placed between the amounts.
Also, net income per share amounts for the Company prior to its emergence from
Chapter 11 are not presented as a result of the reorganization.
CASH: The Company considers liquid instruments with a maturity of 90 days or
less at date of purchase to be cash equivalents.
INVENTORIES: Inventories are stated at the lower of cost or market. Cost is
determined by the last-in, first-out method (LIFO) for approximately 82% and
85% of the Company's inventories at May 31, 1995 and 1994, respectively, and by
the first-in, first-out (FIFO) method for all other inventories. The FIFO
method would approximate the current cost.
PROPERTIES AND DEPRECIATION: Property, plant and equipment are stated at cost.
As discussed in Note P, in conjunction with the emergence from Chapter 11
bankruptcy proceedings, the Company implemented Fresh Start reporting and,
accordingly, all property, plant and equipment was restated to reflect
reorganization value, which approximates fair value in continued use.
Depreciation and amortization are provided using the straight-line method over
the estimated useful lives of the related assets. With minor exceptions
straight-line composite rates for depreciation of plant assets are as follows:
buildings 20 to 40 years; machinery, equipment and fixtures 10 years. Interest
costs of $171,000 were capitalized in 1995.
- 33 -
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE A -- SUMMARY OF ACCOUNTING POLICIES - CONTINUED
ENVIRONMENTAL EXPENDITURES: Environmental expenditures that pertain to current
operations or relate to future revenues are expensed or capitalized consistent
with the Company's capitalization policy. Expenditures that result from the
remediation of an existing condition caused by past operations, that do not
contribute to current or future revenues, are expensed. Liabilities are
recognized for remedial activities when the cleanup is probable and the cost
can be reasonably estimated.
NET INCOME PER SHARE: For the fiscal years ended May 31, 1995 and 1994 and
nine months ended May 31, 1993, net income per common share was calculated by
dividing net income applicable to common stock by the average common stock
outstanding and common stock equivalents. As a result of the changes in
ownership and capital structure from the Plan, net income per common share
calculations are not relevant for the three months ended August 31, 1992.
INCOME TAXES: The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" ("SFAS No. 109"). Under SFAS No. 109, the deferred income tax asset
or liability is determined based on the difference between the financial
statement and tax basis of assets and liabilities measured by the enacted tax
rates which will be in effect when these differences reverse. Prior to
September 1, 1992, the Company accounted for income taxes under the provisions
of Statement of Financial Accounting Standards No. 96 "Accounting for Income
Taxes."
RECLASSIFICATIONS: Certain prior year amounts have been reclassified to
conform to the 1995 presentation.
NOTE B -- INVENTORIES
The components of inventories are summarized as follows (in thousands):
1995 1994
------- -------
Raw materials and supplies $ 7,474 $ 8,315
Work in process 7,217 6,995
Finished products 3,875 3,664
------- -------
Total at FIFO 18,566 18,974
Less excess of FIFO cost over LIFO values 442 382
------- -------
$18,124 $18,592
======= =======
- 34 -
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE C -- SPECIAL CHARGES
Special charges of $5,956,000 in fiscal 1994 relate to accruals
recorded in connection with the achievement of certain performance targets
established in the January 1992 employment agreement ("1992 Agreement") with
Jacques R. Sardas, Chairman, President and Chief Executive Officer of the
Company. The 1992 Agreement was confirmed as part of the Plan. The special
charges include a noncash charge of $4,650,000 which represents the estimated
value of 653,595 stock options granted to Mr. Sardas on September 1, 1992,
which are exercisable in increments after the fair value of the Company exceeds
value targets ranging from $15,000,000 to $35,000,000. The Company determined,
and an appraisal by an investment banking firm confirmed in accordance with
procedures specified in the 1992 Agreement, that performance targets
established in the 1992 Agreement had been met as of February 28, 1994 and
therefore the options became exercisable.
The remaining $1,306,000 of the fiscal 1994 special charges represents
expense associated with the estimated cash bonus payable to Mr. Sardas at the
end of the 1992 Agreement in January 1996. The bonus amount equals 5% of the
net fair value of the Company in excess of $35,000,000 at the expiration of the
1992 Agreement and is being amortized over the term of the 1992 Agreement.
Amortization of the bonus expense subsequent to the initial charge made on
February 28, 1994 has been included as part of the Company's selling and
administrative expenses. In fiscal 1995, the Company accrued $3,400,000
for the bonus payable to Mr. Sardas. This amount included an accrual
of $2,200,000 in the fourth quarter of fiscal 1995. This additional
accrual was based on the Company's recent earnings and balance sheet
improvements and an analysis of the estimated fair value of the Company
prepared by an investment banking firm in April 1995. At May 31, 1995, the
Company had accrued $4,792,000 for the bonus payable to Mr. Sardas. The actual
bonus payment will be determined based on an independent appraisal of the fair
value of the Company at the end of the 1992 Agreement in January 1996 and may
vary from amounts previously accrued by the Company.
Special charges of $586,000 recorded for the nine months ended May 31, 1993
represent consulting and other expenses incurred under the Company's
restructuring program.
NOTE D -- SETTLEMENT OF PRECONFIRMATION LIABILITIES
Two lawsuits which had been pending in United States Bankruptcy Court against
the Company and several of its former officers and directors were settled in
fiscal 1994. The lawsuits related to events which occurred prior to the
Company's entry into and emergence from bankruptcy. Under the Plan, the
Company had retained certain indemnification obligations with respect to the
defendants who were former officers or former directors of the Company. These
obligations were limited to $2,000,000. The lawsuits were settled using
$765,000 of funds which had been previously held in escrow, $616,000 of the
Company's funds, and funds contributed by co-defendants. The Company also
resolved an insurance-related bankruptcy claim in fiscal 1994. As a result of
these settlements, the Company recognized an $846,000 benefit as such
settlements were for less than the amounts reserved for such claims.
- 35 -
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE E -- CONTINGENCIES AND COMMITMENTS
The Company is party to a number of lawsuits and claims arising out of the
conduct of its business, including those relating to commercial transactions,
product liability and environmental, safety and health matters.
The Company, using historical trends, actuarially calculates the estimated
amount of its current exposure for product liability. The Company is insured
for amounts in excess of established deductibles which total $2,500,000 and
accrues for the estimated liability described above up to the limits of the
deductibles. Other claims and lawsuits are handled on a case-by-case basis.
Three subsidiaries of the Company are self-insured for health care to an
aggregate amount of $7,000,000 and workers' compensation up to $400,000 per
incident, above which third party insurance applies.
All operating locations acquired by the Company since 1984 operate in a variety
of locations and industries where environmental situations could exist based on
current or past operations. Certain operating and non-operating subsidiaries
of the Company have been named as potentially responsible parties ("PRPs")
liable for cleanup of known environmental conditions. For known environmental
situations, the Company, with the assistance of environmental engineers and
consultants, has accrued $4,975,000 to cover estimated future environmental
expenditures. The Company has initiated corrective action and/or preventative
environmental projects to ensure the safe and lawful operation of its
facilities. There could exist, however, more extensive or unknown
environmental situations at existing or previously owned businesses for which
the future cost is not known or accrued at May 31, 1995.
While the ultimate result of the above contingencies cannot be predicted with
certainty, management does not expect these matters to have a material adverse
effect on the consolidated financial position or results of operations of the
Company.
Under the terms of the 1992 Agreement with Jacques R. Sardas, Chairman,
President and Chief Executive Officer of the Company, if Mr. Sardas' employment
is terminated for cause, or from Mr. Sardas' death, disability or voluntary
resignation before the end of the 1992 Agreement in January 1996, the Company
is obligated to pay to Mr. Sardas in cancellation of his currently exercisable
1,764,706 stock options the appraised value of the shares underlying the
options as determined by an investment banking firm or appraiser mutually
acceptable to the Company and Mr. Sardas, less the exercise price thereof.
Based on the closing price of the Company's Common Stock on May 31, 1995, and
assuming that such price is equal to the appraised value of the Common Stock,
the obligation for the options would total approximately $11,500,000. The
Company is the beneficiary of a key-man life insurance policy on Mr. Sardas'
life in the amount of $14,000,000. The proceeds of this policy would be used to
fulfill the Company's obligation in the event of Mr. Sardas' death.
- 36 -
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE E -- CONTINGENCIES AND COMMITMENTS - CONTINUED
At May 31, 1995, the Company has commitments to purchase $2,800,000 in
machinery and equipment.
NOTE F -- DISPOSITIONS
During fiscal 1994 the Company sold one business for net cash proceeds of
$666,000. During fiscal 1993 the Company sold 14 of its businesses for
aggregate net cash proceeds of $34,576,000 and promissory notes of $2,770,000.
NOTE G -- STATEMENTS OF CASH FLOWS INFORMATION
Prede-
Successor cessor
----------------------------------------- --------
Nine Three
Year Year Months Months
(Dollars in thousands) Ended Ended Ended Ended
May 31, May 31, May 31, Aug 31,
1995 1994 1993 1992
------- ------- ------- --------
Funds provided (used) by changes
in operating assets and
liabilities of ongoing
operations are as follows:
Accounts receivable $(2,528) $(6,370) $(5,663) || $ 1,953
Inventories 468 1,261 (1,666) || (1,374)
Prepaid expenses and other (702) 6,502 (6,092) || 3,119
Trade accounts payable 7,387 (1,161) 5,035 || 1,491
Accrued expenses 1,967 837 (767) || (3,381)
------- ------- ------- || --------
$ 6,592 $ 1,069 $(9.153) || $ 1,808
======= ======= ======= || ========
||
Cash payments (refunds): ||
Interest $ 2,794 $ 3,635 $ 3,708 || $ 2,090
Taxes 3,711 (154) 200 || 19
- 37 -
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE H -- LONG-TERM DEBT
Long-term debt consisted of the following at May 31 (in thousands):
1995 1994
------- -------
New Revolving Line of Credit $ 5,479
Prior Revolving Line of Credit $ 9,689
Prior Bank Term Loans 9,053
Subordinated Notes 8,461 8,149
PIK Notes 665 665
Industrial Revenue Bonds 450 550
Real estate mortgage notes 2,392 2,649
Other 1,209 1,506
------- -------
18,656 32,261
Less current maturities 678 2,300
------- -------
$17,978 $29,961
======= =======
Effective May 30, 1995, the Company refinanced all its then existing bank debt
obligations with a new three year secured $40 million credit facility ("Credit
Facility"). The Credit Facility provides a $40 million revolving credit
commitment and an option to convert up to $15 million of the revolving credit
to a term loan. The Credit Facility is secured by substantially all assets of
the Company and its subsidiaries. The Company's six subsidiaries are
guarantors of the Credit Facility. Covenants require the Company to maintain
certain fixed charge, interest coverage, net worth and leverage ratios.
As of May 31, 1995, $1,769,000 of the New Revolving Line of Credit was
utilized to secure the Company's irrevocable letters of credit. These letters
of credit were issued primarily for insurance purposes. As of May 31, 1995 the
Company had the ability to borrow an additional $32,752,000 under the New
Revolving Line of Credit. The New Revolving Line of Credit bears interest at
the prime rate or at the London Interbank Offered Rate ("LIBOR"), plus a
marginal rate based on the leverage and fixed charge ratios of the Company
ranging from 1/2% to 1 1/2% (1% at May 31, 1995). The Credit Facility has
unused facility fees of .25% and letter of credit fees equal to the marginal
rate on LIBOR loans payable on a quarterly basis.
The Subordinated Notes due September 1, 1997 represent $10,000,000 principal
amount of 8 3/5% Senior Subordinated Pay-In-Kind Notes issued in accordance
with the Plan on September 1, 1992. Due to the below market interest rate for
this type of debt instrument at issuance, a discount of $2,526,000 was recorded
against this debt at the time of its issuance, making the effective rate 16%.
The discount is being amortized over the five year term of the indebtedness.
At May 31, 1995, the unamortized debt discount was $1,350,000. Interest is
payable semi-annually, however, prior to the refinancing of the Company's bank
debt in May of 1993, the Subordinated Notes provided that interest payments
would be made through the issuance of additional promissory notes in the
aggregate principal of the amount of interest owed (the "PIK Notes"). The
terms and conditions of the PIK Notes are identical to the Subordinated Notes.
- 38 -
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE H -- LONG-TERM DEBT - CONTINUED
The Industrial Revenue Bonds as of May 31, 1995 represent debt used for
construction and expansion and are payable quarterly through December 1999 with
an interest rate of 7.45%.
Real estate mortgage notes are payable to a former owner of a subsidiary. The
notes bear interest at 8.5% and are payable monthly through June 2002.
The future maturities of long-term debt outstanding at May 31, 1995 for the
four fiscal years ending May, 2000 and thereafter are as follows: $716,000 in
1997, $16,791,000 in 1998, $524,000 in 1999, $507,000 in 2000 and $790,000
thereafter.
In fiscal 1993, contractual interest expense amounted to $7,422,000 which is
$1,689,000 in excess of reported interest expense.
NOTE I -- OTHER LONG-TERM LIABILITIES
Amounts classified under the caption "Other Long-Term Liabilities" as of May 31
consist of the following (in thousands):
1995 1994
------- -------
Environmental reserves $ 3,751 $ 3,984
Accrued pension costs 4,175 3,674
Post-retirement benefit obligations 2,523 1,679
Reserves for self-insurance and other 1,672 3,030
------- -------
$12,121 $12,367
======= =======
- 39 -
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE J -- STOCKHOLDERS' EQUITY
PREDECESSOR SERIAL PREFERRED STOCK: Pursuant to the terms of the Plan
described in Note P, effective September 1, 1992, holders of 94,535 shares of
the then outstanding Serial Preferred Stock of the Company exchanged these
shares for 294,118 shares of Common Stock of the Company and 1,359,694
Participation Certificates (described below).
COMMON STOCK: The Plan provided for the issuance of 10,000,000 shares of
Common Stock of the Company to former creditors, common and preferred
stockholders and employees in the Sudbury Savings and Profit Sharing Plan.
PREDECESSOR COMMON STOCK: Pursuant to the terms of the Plan, effective
September 1, 1992, holders of the 13,106,796 shares of then outstanding common
stock of the Company exchanged these shares for 294,118 shares of Common Stock
of the Company and 1,359,694 Participation Certificates (described below).
PARTICIPATION CERTIFICATES: Under the provisions of the Plan, as of September
1, 1992, holders of the Company's Predecessor Common Stock and Predecessor
Serial Preferred Stock were granted Series A, Series B and Series C
Participation Certificates. The Series A Participation Certificates are rights
to purchase 619,194 shares of Common Stock and expire on September 1, 1996.
The Series B Participation Certificates are rights to purchase 651,784 shares
of Common Stock and expire on September 1, 1999. The Series C Participation
Certificates are rights to purchase 1,448,410 shares of Common Stock and expire
on September 1, 2002. The Participation Certificates are subject to adjustment
for changes in the Company's capitalization.
The Series A and B Participation Certificates have increasing exercise prices
and are as follows:
Exercise Price
----------------------------
Series A Series B
-------- --------
September 1, 1994 - August 31, 1995 $3.17 $5.69
September 1, 1995 - August 31, 1996 3.27 5.86
September 1, 1996 - August 31, 1997 N/A 6.04
September 1, 1997 - August 31, 1998 N/A 6.34
September 1, 1998 - August 31, 1999 N/A 6.66
- 40 -
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE J -- STOCKHOLDERS' EQUITY - CONTINUED
The Series C Participation Certificates are not exercisable by their holders
until the closing price or the average of the reported closing bid and asked
prices of the Common Stock has averaged a price equal to, or in excess of, the
specified price per share (the "Trigger Price") for 20 consecutive trading
days. Thereafter, the Series C Participation Certificates may be exercised at
the option of the holder at any time. The Trigger Price and related exercise
price increase each year and are as follows:
Trigger Exercise
Price Price
------- --------
September 1, 1994 - August 31, 1995 $ 9.74 $4.870
September 1, 1995 - August 31, 1996 10.03 5.015
September 1, 1996 - August 31, 1997 10.33 5.165
September 1, 1997 - August 31, 1998 10.85 5.425
September 1, 1998 - August 31, 1999 11.39 5.695
September 1, 1999 - August 31, 2000 11.96 5.980
September 1, 2000 - August 31, 2001 12.55 6.275
September 1, 2001 - August 31, 2002 13.18 6.590
Participation Certificate activity was as follows:
Series A Series B Series C
-------- -------- --------
Outstanding at May 31, 1993 619,194 651,784 1,448,410
Exercised (172,300) (11,632)
-------- ------- ---------
Outstanding at May 31, 1994 446,894 640,152 1,448,410
Exercised (33,766) (20,121)
-------- ------- ---------
Outstanding at May 31, 1995 413,128 620,031 1,448,410
======== ======= =========
EMPLOYEE STOCK OPTIONS: Under the terms of the Company's 1992 Agreement with
Jacques R. Sardas, the Chairman, President and Chief Executive Officer of the
Company, effective September 1, 1992, Mr. Sardas was granted options for
1,764,706 shares of Common Stock. All such options are currently exercisable,
have an exercise price of $.01 per share and a term of five years. As of May
31, 1995, none of the 1,764,706 options had been exercised.
- 41 -
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE J -- STOCKHOLDERS' EQUITY (DEFICIT) - CONTINUED
In fiscal year 1994, the Company reached an agreement with Mr. Sardas regarding
settlement of his claim that under his 1992 Agreement and related stock option
agreement the Company was obligated to protect his 15% effective ownership
position in the Company's Common Stock from the dilution created as a result of
the issuance of the Series A, B and C Participation Certificates under the
Plan. Under this agreement, 479,893 stock options were issued to Mr. Sardas to
give him the equivalent of 15% of the total common shares reserved for issuance
under the Participation Certificates and these options. The option prices
range from $3.17 to $5.69 per share. Of these options, 224,291 were
exercisable upon issuance and the remaining 255,602 options are exercisable in
January 1996. The Company recorded a charge of $897,000 in selling and
administrative expense in fiscal 1994 which represents the difference between
the option price and the fair value of the Common Stock.
The Plan provided for the continuation of the 1990 Stock Option Plan (under
which no options had previously been issued) and allows for the granting of up
to 619,195 options for shares of the Company's Common Stock subject to
adjustment for changes in the Company's capitalization. These options are
intended to qualify as incentive or non-statutory stock options under the
Internal Revenue Code. The option price is the fair market value of the shares
on the date of the grant and the options are exercisable over periods ranging
from one to five years after grant date. Options may be granted through April
2000.
Stock option activity under the 1990 Stock Option Plan was as follows:
Shares Option Prices
------- --------------
Outstanding at September 1, 1992 -0-
Granted 420,000 $1.75 to $3.75
-------
Outstanding at May 31, 1993 420,000 $1.75 to $3.75
Granted 110,000 $6.875
Exercised (50,000) $1.75
Cancelled (50,000) $3.75
-------
Outstanding at May 31, 1994 430,000 $1.75 to $6.875
Granted 115,000 $6.75
Exercised (160,000) $1.75 to $3.75
-------
Outstanding at May 31, 1995 385,000 $3.75 to $6.875
=======
At May 31, 1995, there were a total of 2,203,997 options exercisable by
employees under the 1990 Stock Option Plan and by Jacques R. Sardas at prices
ranging from $.01 to $6.875.
- 42 -
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE K -- INCOME TAXES
Components of income tax expense (benefit) are as follows (in thousands):
|| Prede-
Successor || cessor
------------------------------- || --------
Nine || Three
Year Year Months || Months
Ended Ended Ended || Ended
May 31, May 31, May 31, || Aug 31,
1995 1994 1993 || 1992
-------- -------- ------- || --------
Federal - current $ 7,436 $ 1,511 ||
- deferred (1,600) (1,511) ||
State and local 540 $ (174) $ 290 || $ 50
-------- -------- -------- || --------
||
Total income tax ||
expense (benefit) $ 6,376 $ (174) $ 290 || $ 50
======== ======== ======== || ========
Included in the deferred tax benefit is a $2,113,000 reduction in the opening
valuation allowance due to the future realizability of deferred tax assets.
Reconciliations of the total income tax expense (benefit) from amounts computed
by applying the U.S. Federal income tax rate of 35% for fiscal 1995 and 34% for
prior years to income before income tax expense are as follows (in thousands):
|| Prede-
Successor || cessor
-------------------------------- || --------
Nine || Three
Year Year Months || Months
Ended Ended Ended || Ended
May 31, May 31, May 31, || Aug 31,
1995 1994 1993 || 1992
-------- -------- ------- || --------
Computed tax provision at ||
statutory Federal rate $ 6,982 $ 2,263 $ 1,053 || $ 119
Increase (decrease) in ||
taxes resulting from: ||
State taxes, net of ||
federal income taxes 351 (113) 191 || 33
Effect of Fresh Start ||
reporting and ||
business combinations 473 || 176
Effect of temporary ||
differences and ||
reserves 2,449 (1,241) (1,427) || (570)
Unrecognized net ||
operating loss || 286
Utilization of net ||
operating loss (3,432) (1,373) ||
Other items 26 290 || 6
------- ------- -------- || --------
$ 6,376 $ (174) $ 290 || $ 50
======= ======= ======= || ========
- 43 -
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE K -- INCOME TAXES - CONTINUED
Significant components of the Company's deferred income tax assets and
liabilities at May 31 are as follows (in thousands):
1995 1994
-------- --------
Deferred income tax liabilities:
Book basis of fixed assets in
excess of tax basis $(5,189) $(6,259)
Other (2,284) (2,505)
------- -------
Total deferred tax liabilities (7,473) (8,764)
Deferred income tax assets:
Net operating loss carryforwards 3,859 7,011
Capital loss carryforwards 2,784 2,784
Other accruals and reserves 11.050 9,538
------- -------
Total deferred tax assets 17,693 19,333
Valuation allowance (6,463) (9,214)
------- -------
Net deferred tax asset $ 3,757 $ 1,355
======= =======
SFAS No. 109 requires the establishment of a valuation allowance when it is
more likely than not that deferred tax assets will not be realized. At May 31,
1995, the valuation allowance was attributable to $2,914,000 of net operating
loss carryforwards limited by the reorganization disclosed below (which will be
credited to stockholders' equity when recognized), $2,784,000 of capital loss
carryforwards and $765,000 of other accruals and reserves.
As discussed in Note A, the Company emerged from bankruptcy effective September
1, 1992. Upon emergence from bankruptcy, the Company experienced a change in
ownership for purposes of Section 382 of the Internal Revenue Code. Under
Section 382 an annual limitation of approximately $900,000 is placed upon the
utilization of the Company's existing net operating loss carryforwards as of
September 1, 1992. The Company has available as of May 31, 1995 for federal
income tax purposes, a net operating loss carryforward of approximately
$25,074,000 (of which only $11,025,000 can be utilized given the Section 382
limitations) and an alternative minimum tax loss carryforward of $7,853,000
(all of which can be utilized given the Section 382 limitations), both of which
expire in 2008. The Company also has a capital loss carryforward of $7,953,000
which will expire in 1998, that is not subject to the limitation under Section
382.
- 44 -
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE L -- RETIREMENT PLANS
The Company maintains a defined benefit pension plan that covers the union
employees of a subsidiary. Benefits are determined by years of service. The
Company's policy is to fund at least the minimum amount required by federal
regulations. Pension plan assets consist primarily of common stocks, bonds and
government obligations.
The following sets forth the funded status and amounts recognized in the
consolidated balance sheets (in thousands):
1995 1994
------------ ------------
ACCUMULATED ACCUMULATED
BENEFITS BENEFITS
EXCEED PLAN EXCEED PLAN
ASSETS ASSETS
----------- -----------
Actuarial present value of benefit
obligations:
Vested $21,723 $21,600
Accumulated 821 799
------- -------
Projected 22,544 22,399
Plan assets at fair value 18,259 18,640
------- -------
Plan assets less than projected
benefits (4,285) (3,759)
Items not yet recognized:
Net loss 1,398 937
Net obligations existing at transition 1,160 1,319
Prior service cost 36 40
Adjustment required to recognize
minimum liability (2,484) (2,211)
------- -------
Net pension liability $(4,175) $(3,674)
======= =======
- 45 -
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE L -- RETIREMENT PLANS - CONTINUED
The components of net periodic pension cost for the defined benefit plan are as
follows (in thousands):
1995 1994 1993
-------- -------- --------
Service cost $ 369 $ 360 $ 325
Interest cost on projected
benefit obligation 1,782 1,728 1,726
Actual return on plan assets (822) (451) (1,888)
Net amortization and deferral (684) (1,002) 529
------- ------- -------
Net periodic pension cost $ 645 $ 635 $ 692
======= ======= =======
Assumptions for the plan were:
Discount rate - pension expense 8% 8.25% 8.75%
Expected long-term rate of return
on assets 9% 9% 9%
Discount rate - projected benefit
obligation 8.25% 8% 8.25%
The cost for defined contribution plans was $962,000 in fiscal 1995. The
majority of such plans provide for matching of employee contributions and for
discretionary contributions. The defined contribution plans cover hourly and
salaried employees.
- 46 -
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE M -- POST-RETIREMENT MEDICAL PLAN
One of the Company's subsidiaries maintains an unfunded post-retirement welfare
plan which provides certain contributory and non-contributory health care and
life insurance benefits for employees who retired on or before December 31,
1991 and their dependents. Future hourly retirees are eligible for life
insurance coverage upon retirement at age 55 or later with at least five years
of service.
The following sets forth the plan's funded status (in thousands):
Accumulated post-retirement benefit obligation (APBO):
May 31, May 31,
1995 1994
------- -------
Retirees $10,220 $12,762
Fully eligible active plan participants 420 313
Other active plan participants 316 324
------- -------
Total APBO 10,956 13,399
Unrecognized transition obligation (13,092) (13,864)
Unrecognized net gain 4,659 2,144
------- -------
Accrued balance sheet liability $ 2,523 $ 1,679
======= =======
Net periodic post-retirement benefit cost
included the following components:
1995 1994 1993
------- ------- -------
Service cost $ 17 $ 16 $ 19
Interest cost 1,035 1,031 1,222
Amortization of
transition obligation 689 654 779
------- ------- -------
Total expense $ 1,741 $ 1,701 $ 2,020
======= ======= =======
- 47 -
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE M -- POST-RETIREMENT MEDICAL PLAN - CONTINUED
The assumed annual rate of increase in the per capita cost of covered health
care benefits was 10.5% in 1995 (11.75% in 1994) and the rate is assumed to
decrease annually to 6.0% in the year 2000. The assumed annual rate of
increase in the per capita cost of covered dental care benefits was 8.5% in
1995 (9.75% in 1994) and the rate is assumed to decrease annually to 6.0% in
the year 1998. The per capita health care and dental benefit costs used to
compute the APBO were reduced in 1995 to reflect recent favorable claim
experience. A one percentage point increase in the assumed annual cost trend
rates would have increased the APBO as of May 31, 1995 by $500,000 and the net
periodic post-retirement benefit cost for 1995 by $41,000.
The weighted average annual discount rate used in determining the APBO was
8.25% in 1995 and 8.0% in 1994.
NOTE N -- OPERATING LEASES
Rental expense under operating leases was $3,943,000 in 1995, $3,406,000 in
1994 and $3,069,000 in 1993 for ongoing operations and $1,104,000 for
businesses held for sale in 1993. Leases are principally for rental of
facilities and contain renewal rights to extend the terms from five to
fifteen years. At May 31, 1995, future minimum payments under non-cancelable
operating leases with initial or remaining terms of more than one year were as
follows: 1996 - $2,500,000; 1997 - $1,992,000; 1998 - $1,652,000; 1999 -
$1,146,000; 2000 - $887,000 and $1,819,000 thereafter.
NOTE O -- BUSINESS SEGMENT INFORMATION
The Company operates in one business segment - the manufacture of industrial
products.
Net sales to two customers with which the Company has long-standing customer
relationships amounted to $46,637,000 and $36,263,000, respectively, in 1995
($34,573,000 and $31,466,000 in 1994 and $26,033,000 and $24,020,000 in 1993).
At May 31, 1995 and 1994, accounts receivable from companies in the automotive
and truck industries were approximately 51% and 56%, respectively, of total
accounts receivable. Credit is extended based on an evaluation of the
customer's financial condition, and generally collateral is not required.
Credit losses are provided for in the financial statements and consistently
have been within management's expectation.
- 48 -
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE P - PROCEEDINGS UNDER CHAPTER 11 AND RESTRUCTURING
On January 10, 1992, the Company filed a petition (relative only to Sudbury,
Inc. and not to its subsidiaries) under Chapter 11 of the United States
Bankruptcy Code. The Chapter 11 filing was made to implement an agreement in
principle which had been reached with the Company's major creditor groups
regarding a restructuring plan and the related sales of a substantial number of
its business units.
The Plan was confirmed by the Bankruptcy Court by Order dated August 18, 1992
and became effective on September 1, 1992. Distributions under the Plan
commenced on October 15, 1992.
The Plan implemented a restructuring of the Company by providing for a new
amortization schedule for the repayment of the indebtedness owed to its secured
lender banks and a significant reduction of the Company's indebtedness to
subordinated debtholders and certain other unsecured creditors through the
conversion of debt into equity of the restructured Company.
In order to repay the indebtedness owed to the secured lender banks as provided
by the Plan, the Company implemented a business plan with an asset disposition
program involving the sale of a substantial number of its subsidiaries which
sales generated aggregate net cash proceeds of approximately $37,600,000.
Included in the statement of operations for the three months ended August 31,
1992 are reorganization items of $1,095,000 which represent consulting and
other expenses incurred while the Company operated under Chapter 11.
In May 1993, the Company successfully completed the refinancing of its then
existing bank debt which allowed the Company to retain six core businesses and
cease the previous asset sale process except for the Company's 35% investment
in General Products Delaware Corporation.
- 49 -
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE P -- PROCEEDINGS UNDER CHAPTER 11 AND RESTRUCTURING - CONTINUED
The following financial information represents the effects of implementing the
Plan and applying Fresh Start reporting under SOP 90-7 on the Company's
historical consolidated balance sheet at August 31, 1992 (in thousands):
Adjustments
------------------------------------- As
ASSETS Historical Plan (A) Fresh Start (B) Adjusted
------ ---------- -------- --------------- --------
Current assets $ 64,517 $ 1,249 $ 65,766
Property, plant and
equipment, net 48,568 176 48,744
Intangibles, net 7,636 (7,636) 0
Net assets of businesses
held for sale 22,439 22,439
Other assets 3,757 3,757
-------- -------- -------- --------
$146,917 $ -0- $ (6,211) $140,706
======== ======== ======== ========
LIABILITIES AND
---------------
STOCKHOLDERS' EQUITY (DEFICIT)
------------------------------
Current liabilities $ 85,844 $ 1,607 (C) $ 87,451
Deferred income taxes 1,394 (844)(D) 550
Other long-term liabilities 6,659 1,000 (C) 7,659
Long-term debt 23,274 298 (C) 23,572
New notes, net of original
issue discount $ 7,474 7,474
Liabilities deferred pursuant
to proceedings under
Chapter 11 86,279 (86,279) 0
Stockholders' (deficit) equity (56,533) 78,805 (8,272) 14,000
-------- --------- -------- --------
$146,917 $ -0- $ (6,211) $140,706
======== ========= ======== ========
- 50 -
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE P -- PROCEEDINGS UNDER CHAPTER 11 AND RESTRUCTURING - CONTINUED
NOTES:
(A) Reflects the conversion of certain unsecured obligations to equity in
accordance with the Plan and the issuance of $10 million face amount of
new subordinated debt which was discounted to fair market value.
(B) Reflects the impact of recording assets and liabilities at fair value
under SOP 90-7 assuming a reorganization value of the Company of $14
million at the Effective Date. In determining the reorganization value
of the Company, the value for the retained subsidiaries was calculated
by considering a number of factors customarily utilized in such
valuation methodologies, which was then reduced by actual and estimated
liabilities of the Company. For the companies held for sale, the value
was derived from the anticipated net realizable value of those
companies based primarily on offers received for those assets, which
proceeds would be used to reduce a like amount of secured bank debt.
(C) Represents a $2,000,000 reserve established for limited indemnification
obligations to certain of the Company's present and former officers and
directors which were provided for under the Plan. The remainder of
this accrual of $905,000 principally represents other contractual
liabilities which arose under the Plan.
(D) To record the impact of SFAS No. 109 which the Company was required to
adopt under Fresh Start reporting on the Effective Date.
The impact of the Plan resulted in an extraordinary gain from forgiveness of
prepetition liabilities in the amount of $78,805,000 which is reflected in the
Company's statement of operations for the three month period ended August 31,
1992. The gain from forgiveness of prepetition liabilities qualifies for
exemption from federal income tax under Section 108(a)(1) of the Internal
Revenue Code relating to the discharge of indebtedness in Chapter 11 cases.
Consequently, the Company has not recognized taxable income related to debt
forgiveness.
- 51 -
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE Q -- QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(In thousands, except share data)
1995:
----
Net sales $67,720 $74,355 $76,247 $87,113
Gross profit 10,475 12,578 11,740 16,170
Income before income taxes 3,501 5,399 4,747 6,301
Net income (A) 2,219 3,425 3,015 4,913
Net income per Common
share (B) $ .18 $ .27 $ .24 $ .39
======= ======= ======= =======
(A) Fourth quarter net income includes an after tax charge of $1,401,000
for a contractual bonus obligation to the Company's Chairman,
President and Chief Executive Officer.
(B) The sum of the quarterly per Common share amounts does not equal the
annual amount reported as per Common share amounts are computed
independently for each quarter and the full year based on respective
weighted average Common shares outstanding.
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(In thousands, except share data)
1994:
----
Net sales $54,759 $60,584 $60,765 $74,536
Gross profit 7,407 9,076 9,038 13,718
Special charges - Note C 5,956
Settlement of precon-
firmation liabilities -
Note D 846
Income (loss) before
income taxes 1,143 2,774 (2,640) 5,379
Net income (loss) 1,082 3,232 (2,653) 5,169
Net income (loss) per
Common share $ .09 $ .26 $ (.21) $ .41
======= ======= ======== =======
- 52 -
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE R -- SUBSEQUENT EVENT
On July 17, 1995, the Company's Board of Directors authorized the Company's
management to proceed with the sale of its South Coast Terminals, Inc.
subsidiary. The Company is in the process of negotiating a definitive
agreement with a prospective purchaser, and the ultimate consummation of the
sale will be contingent on the occurrence of certain events. For the year
ended May 31, 1995, South Coast Terminals had sales of $23,484,000 and total
assets at May 31, 1995 of $16,558,000. The Company expects that the proceeds
of the sale, as currently contemplated, would be in excess of the Company's
investment in South Coast Terminals.
- 53 -
34
REPORT OF INDEPENDENT AUDITORS
STOCKHOLDERS AND BOARD OF DIRECTORS
SUDBURY, INC.
We have audited the accompanying consolidated balance sheets of Sudbury, Inc.
and subsidiaries (the "Company") as of May 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the years ended May 31, 1995 and 1994, the nine-months ended May 31,
1993 and the three-months ended August 31, 1992. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements 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
Sudbury, Inc. and subsidiaries at May 31, 1995 and 1994, and the consolidated
results of their operations and their cash flows for the years ended May 31,
1995 and 1994, the nine months ended May 31, 1993 and the three months ended
August 31, 1992, in conformity with generally accepted accounting principles.
As discussed in the notes to the consolidated financial statements, effective
September 1, 1992, the Company changed its method of accounting for income
taxes and post-retirement benefits other than pensions.
Ernst & Young LLP
Cleveland, Ohio
July 17, 1995
- 54 -
EX-21
9
EXHIBIT 21
1
EXHIBIT 21
----------
SUBSIDIARY STATE OR COUNTRY OF INCORPORATION
---------- ---------------------------------
Western Capital Corporation Nebraska
Iowa Mold Tooling Co., Inc. Iowa
Industrial Powder Coatings, Inc. Ohio
Cast-Matic Corporation Michigan
South Coast Terminals, Inc. Texas
Transnational Indemnity Company Vermont
Wagner Castings Company Delaware
Wagner Havana, Inc. Delaware
Frisby P.M.C., Incorporated Illinois
- 55 -
EX-23
10
EXHIBIT 23
1
EXHIBIT 23
----------
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Sudbury, Inc. of our report dated July 17, 1995 included in the Annual
Report to Shareholders of Sudbury, Inc. for the year ended May 31, 1995.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-52727) pertaining to the Sudbury Savings and Profit Sharing
Plan and in the related Prospectus and in the Registration Statement (Form S-8
No. 33-72234) pertaining to the Sudbury, Inc. 1990 Stock Option Plan and in
the related Prospectus and in the Registration Statement (Form S-8 No.
33-57463) pertaining to the Sudbury, Inc. Stock Option Agreement dated July
29, 1994, the Sudbury, Inc. Non-Statutory Stock Option Agreement dated
September 1, 1992 and in the related Prospectus of our reports dated July 17,
1995 with respect to the consolidated financial statements and schedule of
Sudbury, Inc. incorporated by reference and included in this Annual Report
(Form 10-K) for the year ended May 31, 1995.
ERNST & YOUNG LLP
Cleveland, Ohio
August 17, 1995
- 56 -
EX-27
11
EXHIBIT 27
5
1,000
YEAR
MAY-31-1995
JUN-01-1994
MAY-31-1995
3,548
0
41,800
0
18,124
70,748
73,177
18,931
129,637
54,986
17,978
103
0
0
44,449
129,637
305,435
305,435
254,472
28,333
(292)
0
2,974
19,948
6,376
13,572
0
0
0
13,572
1.07
1.07