-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M7uFJCgrMpP7O/zhj9d2RcrF1DnKGSEqZkg5opDgVImBduNmwnZ7pK7r6Oa562Ul TakmimKmDAnCjJuurdSTFw== 0000950134-96-002156.txt : 19960517 0000950134-96-002156.hdr.sgml : 19960517 ACCESSION NUMBER: 0000950134-96-002156 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUN COAST INDUSTRIES INC /DE/ CENTRAL INDEX KEY: 0000319129 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 591952968 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12476 FILM NUMBER: 96565826 BUSINESS ADDRESS: STREET 1: 2700 S WESTMORELAND AVE CITY: DALLAS STATE: TX ZIP: 75233 BUSINESS PHONE: 2143737864 MAIL ADDRESS: STREET 1: 2700 S WESTMORELAND AVE CITY: DALLAS STATE: TX ZIP: 75233 FORMER COMPANY: FORMER CONFORMED NAME: SUN COAST INDUSTRIES INC /DE/ DATE OF NAME CHANGE: 19940308 FORMER COMPANY: FORMER CONFORMED NAME: SUN COAST PLASTICS INC /DE/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: ANAEROBIC ENERGY SYSTEMS INC DATE OF NAME CHANGE: 19830630 10-Q 1 FORM 10-Q FOR QUARTER ENDED MARCH 31, 1996 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended March 31, 1996 ------------------------------------ Commission File Number 0-10937 ------------------------------ SUN COAST INDUSTRIES, INC. -------------------------- (Exact name of Registrant) Delaware #59-1952968 - ------------------------------- ------------------------------------ (State of Incorporation) (IRS Employer Identification No.) 2700 South Westmoreland Ave., Dallas, TX 75233 ----------------------------------------------- (Address of principal executive offices) (214) 373-7864 ------------------------------- (Registrant's telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuers' classes of common stock, as of May 8, 1996, the latest practable date. Class Outstanding at May 8, 1996 ----- -------------------------- Common stock $0.01 par value 4,004,229 1 2 SUN COAST INDUSTRIES, INC. INDEX Part I. Financial Information - ----------------------------- Item I - Financial Statements Condensed Consolidated Balance Sheets --March 31, 1996 and June 30, 1995 3 Condensed Consolidated Statements of Operations - Nine Months ended March 31, 1996 and 1995 5 Condensed Consolidated Statements of Operations -- Three Months ended March 31, 1996 and 1995 6 Condensed Consolidated Statements of Cash Flows -- Nine Months ended March 31, 1996 and 1995 7 Notes to Condensed Consolidated Financial Statements 8 Item II - Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Part II. Other Information - -------------------------- Items 1 through 6 17
2 3 PART I. FINANCIAL INFORMATION Item I. FINANCIAL STATEMENTS SUN COAST INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands)
March 31, 1996 June 30, (unaudited) 1995 ----------- -------- ASSETS Current assets: Cash and cash equivalents $ 583 $ 1,173 Accounts receivable, net of allowance for doubtful accounts of $172 and $312 12,104 9,602 Inventories 11,106 13,248 Other current assets 391 394 --------- ------- Total current assets 24,184 24,417 Property, plant and equipment, net of accumulated depreciation of $23,116 and $19,277 29,124 29,739 Intangible assets 962 1,026 Other assets 1,927 2,014 --------- -------- Total assets $ 56,197 $ 57,196 ========= ========
See accompanying notes to condensed consolidated financial statements. 3 4 SUN COAST INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands, except par value)
March 31, 1996 June 30, LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited) 1995 ----------- --------- Current liabilities: Accounts payable $ 6,947 $ 4,456 Accrued expenses 1,948 2,179 Current portion of long-term debt 26,251 2,958 Deferred income taxes 493 879 -------- ------- Total current liabilities 35,639 10,472 Other liabilities 12 57 Long-term debt 3,205 27,464 Deferred income taxes 2,684 2,430 -------- ------- Total liabilities 41,540 40,423 -------- ------- Stockholders' equity: Common stock, $.01 par value; 40,000,000 shares authorized; issued 4,017,629 and 4,005,629 and outstanding 4,004,229 and 4,005,629 40 40 Additional paid-in capital 11,222 11,300 Currency translation adjustment (643) - Retained earnings 4,038 5,433 -------- ------- Total stockholders' equity 14,657 16,773 -------- ------- Total liabilities and stockholders' equity $ 56,197 $57,196 ======== =======
See accompanying notes to condensed consolidated financial statements. 4 5 SUN COAST INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (dollars in thousands, except per share data)
Nine Months Ended March 31, --------- 1996 1995 ---- ---- Sales $ 58,984 $ 65,141 Costs and expenses: Cost of sales 49,756 50,720 Selling, general and administrative expense 9,898 9,588 Interest, net 1,447 1,313 ----------- ---------- 61,101 61,621 ----------- ---------- (Loss) income before provision for income taxes (2,117) 3,520 Provision for income taxes 722 (1,300) ----------- ---------- Net (loss) income $ (1,395) $ 2,220 =========== ========== Net (loss) income per common share $ (0.35) $ 0.55 =========== ==========
See accompanying notes to condensed consolidated financial statements. 5 6 SUN COAST INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (dollars in thousands, except per share data)
Three Months Ended March 31, --------- 1996 1995 ---- ---- Sales $ 21,033 $21,562 Costs and expenses: Cost of sales 18,267 17,207 Selling, general and administrative expense 3,973 3,303 Interest, net 504 514 -------- ------- 22,744 21,024 -------- ------- (Loss) income before provision for income taxes (1,711) 538 Provision for income taxes 567 (232) -------- ------- Net (loss) income ($ 1,144) $ 306 ======== ======= Net (loss) income per common share ($ 0.29) $ 0.08 ======== =======
See accompanying notes to condensed consolidated financial statements. 6 7 SUN COAST INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (dollars in thousands)
Nine Months Ended March 31, --------- 1996 1995 ---- ---- Cash flows from operating activities: Net (loss) income $(1,395) $2,220 Adjustments to reconcile net income to net cash provided by (used in) operations: Depreciation and amortization 4,250 3,596 Deferred taxes (124) 74 Changes in assets and liabilities: Accounts receivable (2,670) (1,648) Inventories 2,036 (4,783) Other current assets (150) 371 Intangible and other assets (244) 234 Accounts payable and accrued expenses 2,223 (2,482) ------- ------ Net cash provided by (used in) operations 3,926 (2,418) ------- ------ Cash flows from investing activities: Capital expenditures (3,467) (6,720) ------- ------ Net cash used in investing activities (3,467) (6,720) ------- ------ Cash flows from financing activities: Proceeds from long-term debt 2,958 10,069 Repayments of long-term debt (3,925) (2,950) Issuance of Common Stock 72 245 ------- ------ Net cash (used in) provided by financing activities (895) 7,364 ------- ------ Effect of exchange rate changes on cash (154) - Change in cash and cash equivalents (590) (1,774) Cash and cash equivalents at beginning of period 1,173 1,824 ------- ------ Cash and cash equivalents at end of period $ 583 $ 50 ======= ======
See accompanying notes to condensed consolidated financial statements. 7 8 SUN COAST INDUSTRIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1996 NOTE 1 - THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The Company's (defined below) interim financial statements are unaudited and should be read in conjunction with the consolidated financial statements and notes thereto in its Form 10-K and Annual Report to Stockholders for the year ended June 30, 1995. In the opinion of management, the accompanying consolidated financial statements contain all adjustments, consisting only of those of a normal recurring nature, necessary for a fair statement of the results of operations for the interim periods presented. Description of Business Sun Coast Industries, Inc. (the "Company") manufactures and sells melamine and urea resins and compounds and, from these and other materials, molds consumer products and commercial plastic products, including dinnerware, drinkware and closures. The Company has manufacturing facilities in Texas, Florida, Tennessee and Mexico and offers its products through five divisions. The Chemical Division manufactures melamine and urea resins and compounds, which it supplies to other manufacturers and uses in producing its own Consumer Products and Foodservice products. The Consumer Products and Foodservice Divisions manufacture compression molded melamine dinnerware and injection molded plastic drinkware, which the Company sells to retail and commercial markets. The Closures Division manufactures linerless, foil or foam lined and tamper-evident plastic closures and lids. These closures are used to bottle or package food, beverage, chemical and pharmaceutical products. The Custom Laminates Division is a start-up division employing the Company's proprietary process that permits lamination of images in a range of design, color and detail for use in furniture and countertops. No significant sales have been generated for this latest division to date. Industry Segment The Company operates in a single industry segment, supplying consumer and commercial related plastic products on a direct and indirect basis, utilizing similar production processes and methods. 8 9 SUN COAST INDUSTRIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1996 NOTE 1 - THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All significant intercompany balances and transactions have been eliminated in consolidation. Certain amounts in previously issued financial statements have been reclassified to conform with the current period financial statement presentation. Inventories Inventories are valued at the lower of cost or market, with cost determined utilizing the first-in, first-out (FIFO) method. Property, Plant and Equipment Property, plant and equipment are carried at cost and depreciated using the straight-line method over the estimated useful lives of the related assets. Lives assigned to asset categories are 5 to 15 years for machinery and equipment, 30 to 35 years for buildings and 5 years for molds. Machinery and equipment under capital leases are stated at the present value of minimum lease payments. Renewals and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Repairs and maintenance are charged to expense as incurred. Intangible Assets Intangible assets are stated at cost and consist primarily of patents and goodwill. Intangible assets are amortized on the straight-line method over their estimated useful lives. The carrying values and amortization periods of intangibles are periodically evaluated by the Company to determine whether current events and circumstances warrant adjustment. 9 10 SUN COAST INDUSTRIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1996 NOTE 1 - THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) Advertising Costs The Company expenses the costs of advertising as incurred, except for direct-response advertising and catalog costs which are capitalized and amortized over their expected periods of future benefit (generally six months). Direct response advertising and catalog costs consist primarily of printing and contract services for catalogs to market the Company's products. Income Taxes Deferred income taxes are provided for temporary differences between financial and tax reporting. Income taxes are provided for taxes currently payable based on taxable income. Environmental Costs A liability for environmental assessments and/or cleanup is accrued when it is probable a loss has been incurred and is estimable. No significant liabilities were in existence at March 31, 1996 and June 30, 1995. Net Income (Loss) Per Common Share Net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during each period after giving effect to stock options and warrants considered to be dilutive common stock equivalents. All stock options and warrants were considered anti-dilutive for the three and nine months ended March 31, 1996. 10 11 SUN COAST INDUSTRIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1996 NOTE 1 - THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) Revenue Recognition Sales are recognized when the product is shipped. Research and Development Research and development costs associated with new product development and testing are expensed as incurred. Statement of Cash Flows For purposes of the statements of cash flows, the Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Foreign Currency Translation and Transactions The Company's foreign subsidiary uses the local currency as the functional currency. Translation gains or losses are included as a component of stockholders' equity. Gains or losses from foreign currency transactions are included in net income. NOTE 2 - INVENTORIES
March 31, 1996 June 30, (unaudited) 1995 ----------- ------ (in thousands) Raw Materials $ 3,844 $ 5,224 Work-in-process 934 806 Finished goods 7,147 7,792 -------- ------- 11,925 13,822 Obsolescence reserve (819) (574) -------- ------- $ 11,106 $13,248 ======== =======
11 12 NOTE 3 - LONG TERM DEBT
March 31, 1996 June 30, (unaudited) 1995 ----------- ------ (in thousands) Term loan $ 6,245 $ 7,167 Revolving credit line 12,159 11,020 Capital expenditures term loan 7,611 8,278 Industrial development revenue bonds 2,213 2,325 Subordinated notes payable 1,000 1,300 Capitalized lease obligations 228 332 -------- -------- 29,456 30,422 Current maturities on original maturity schedule (2,865) (2,958) Long term debt classified as current (23,386) - -------- -------- $ 3,205 $ 27,464 ======== ========
In December 1995, the Company refinanced its existing indebtedness with a new lender and increased its credit facility to provide a total of $35.7 million in borrowings secured by substantially all the assets of the Company. The facility provides for borrowings under three separate sub facilities - (i) two separate one-time term advances in an aggregate principal amount of $6.7 million payable in quarterly installments through April 1, 2001, (ii) multiple term advances for capital expenditures in an aggregate principal amount of $14 million payable in quarterly installments over 2 to 7 years, and (iii) a $15.0 million revolving loan, due December 31, 1998. As of March 31, 1996, outstanding borrowings under the credit facility included $6.2 million under the two term loans, $7.6 million under the capital expenditure term loan and $12.2 million under the revolving credit line. At March 31, 1996, based on the Company's borrowing formula, incremental borrowing availability was approximately $2.8 million under the revolving credit line. The Company may fund principal repayments on portions of its term debt through advances on the revolving credit line. The credit facility provides for the issuance of up to $2.0 million of letters of credit, subject to the borrowing availability under the revolving credit line. The loan agreement contains various covenants, including maintaining certain financial ratios and tests, and limitations on the issuance of debt and the amount of capital expenditures, capital leases, investments and dividends. The primary financial covenants include quarter-end calculations of leverage, fixed charge coverage and tangible net worth. The Company was not in compliance with two of its loan covenants at March 31, 1996: (1) The Company's Tangible Net Worth (as defined in the Credit Facility) was below the required minimum of $14,650,000 and (2) the Company's Fixed Charge Coverage Ratio (as defined in the Credit Facility) was below the required minimum of 1.3 to 1.0. On May 9, 1996, the Company obtained a waiver of these covenants as of March 31, 1996. However, the same or more restrictive covenants must be met in future periods. As a result, the debt will be subject to acceleration at future dates in the absence of refinancing, additional equity or additional covenant waivers or loan modifications, and, therefore, has been classified as a current liability on the consolidated balance sheet at March 31, 1996. In relation to this waiver the lender increased its interest rate by 1.25% to 1.75% spread over the relevant borrowing rate index. The Company is currently pursuing various strategic and financing alternatives that may satisfy its covenant requirements, although there is no assurance that such alternatives will be in place by June 30, 1996, the next measurement date for the loan covenant compliance, or thereafter. In the event of non-compliance, 12 13 management intends to seek the necessary waivers or amendments such that the loan agreement will remain in force; however, there can be no assurance that the Company's lender will grant such additional waivers or amendments. Item II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three Months Ended March 31, 1996, Compared to the Three Months Ended March 31, 1995 Sales for the three months ended March 31, 1996, decreased $529,000 or 2.4%, when compared to the same period in 1995. Closure Division's sales increased 6.1% due to increased demand. Consumer Products and Foodservice Divisions' sales decreased 9.1% as a result of the downturn in the retail economy. Chemical Division's sales decreased 4.6% due to a weak housing market and customer efforts to better manage their inventory to lower levels. Cost of sales as a percentage of net sales increased to 86.8% from 79.8%. The decline in gross margin was primarily the result of volume declines in the Foodservice and Consumer Products Divisions causing shortfalls in the absorption of fixed costs. In addition, substantially all of the Company's major raw materials incurred unprecedented and repeated price increases over the past year. While the Company is currently experiencing some declines in raw material costs, these declines did not occur in time to impact the quarter. Further, other costs continue to increase and the overall impact to future earnings is not predictable. Selling, general and administrative expense ("SG&A") increased $670,000 to 18.9% of sales for the three months ended March 31, 1996, as compared to 15.3% of sales for the three months ended March 31, 1995. Severance for the former President of the Company, and related expenses, including costs associated with the recruitment of the new President, were the primary cause of this increase. Interest expense has remained relatively constant at $504,000 for the three months ended March 31, 1996 from $514,000 for the three months ended March 31, 1995. Net income decreased $1,450,000 from the comparable prior fiscal period primarily because of the impact on gross margin of depressed sales volumes, and the increase in SG & A noted above. 13 14 Nine Months Ended March 31, 1996, Compared to the Nine Months Ended March 31, 1995 Sales decreased $6,157,000 or 9.4% for the nine months ended March 31, 1996, as compared to the nine months ended March 31, 1995. Sales in the Chemical Division decreased by 9.6% for the nine months ended March 31, 1996 from the same period in 1995, primarily as a result of decreased industry demand. Sales in the Consumer Products and Foodservice Divisions decreased by 21.9% for the nine months ended March 31, 1996 from the same period in 1995, resulting from a sluggish retail economy and because of significant children's licensed product sales in the 1995 period that did not recur in the 1996 period. Sales in the Closures Division increased 3.3% for the nine months ended March 31, 1996 from the same period in 1995. Cost of sales as a percentage of sales increased to 84.4% for the nine months ended March 31, 1996 from 77.9% in the same period in 1995. The decrease in gross margin was primarily the result of raw material price increases and decreased production volumes. While raw materials prices have increased significantly during the past year and may increase further, the Company cannot predict future trends with any certainty. Selling, general and administrative expense ("SG&A") increased by 3.2% for the nine months ended March 31, 1996 from the same period in 1995. SG&A increased as a percentage of sales to 16.8% for the nine months ended March 31, 1996 from 14.7% for the nine months ended March 31, 1995, due to certain fixed administrative costs and the severance related expenses discussed previously. Interest expense increased 10.2% for the nine months ended March 31, 1996 from the same period in 1995 due primarily to increased borrowing. The average borrowing during the nine months ended March 31, 1996 was $28.9 million compared to $25.5 million during the same period in 1995. Net income decreased $3,615,000 for the nine months ended March 31, 1996 from the nine month period ended March 31, 1995 as a result of lower sales volumes and the other factors described above. 14 15 Liquidity and Capital Resources Management reviews the Company's working capital, accounts receivable and relationship of debt to equity on a continuing basis. The Company's growth has been financed through long-term debt financing and cash generated from operations. During the nine months ended March 31, 1996, the Company decreased net borrowings by $1.0 million. Cash flow from operations generated $3.9 million. Capital expenditures for the nine months ended March 31, 1996 were $3.5 million. Anticipated future capital additions should approximate less than $1 million for the remainder of fiscal 1996 and management anticipates current debt capacity and cash flow from operations should be adequate to fund this level of expenditure. In December 1995, the Company refinanced its existing indebtedness with a new lender and increased its credit facility to provide a total of $35.7 million in borrowings secured by substantially all the assets of the Company. The facility provides for borrowings under three separate subfacilities - (i) two separate one-time term advances in an aggregate principal amount of $6.7 million payable in quarterly installments through April 1, 2001, (ii) multiple term advances for capital expenditures in an aggregate principal amount of $14.0 million payable in quarterly installments over 2 to 7 years, and (iii) a $15.0 million revolving loan, due December 31, 1998. As of March 31, 1996, outstanding borrowings under the credit facility included $6.2 million under the two term loans, $7.6 million under the capital expenditure term loan and $12.2 million under the revolving credit line. At March 31, 1996, based on the Company's borrowing formula, incremental borrowing availability was approximately $2.8 million under the revolving credit line. The Company may fund principal repayments on portions of its term debt through advances on the revolving credit line. The credit facility provides for the issuance of up to $2.0 million of letters of credit, subject to the borrowing availability under the revolving credit line. The loan agreement contains various covenants, including maintaining certain financial ratios and tests, and limitations on the issuance of debt and the amount of capital expenditures, capital leases, investments and dividends. The primary financial covenants include quarter-end calculations of leverage, fixed charge coverage, and tangible net worth. The Company was not in compliance with two of its loan covenants at March 31, 1996: (1) The Company's Tangible Net Worth (as defined in the Credit Facility) was below the required minimum of $14,650,000 and (2) the Company's Fixed Charge Coverage Ratio (as defined in the Credit Facility) was below the required minimum of 1.3 to 1.0. On May 9, 1996, the Company obtained a waiver of these covenants as of March 31, 1996. However, the same or more restrictive covenants must be met in future periods. As a result, the debt will be subject to acceleration at future dates in the absence of refinancing, additional equity or additional covenant waivers or loan modifications and, therefore, has been classified as a current liability on the consolidated balance sheet at March 31, 1996. In relation to this waiver the lender increased its interest rate by 1.25% to 1.75% spread over the relevant borrowing rate index. The Company is currently pursuing various strategic and financing alternatives that may satisfy its covenant requirements, although there is no assurance that such alternatives will be in place by June 30, 1996, the next measurement date for the loan covenant compliance, or thereafter. In the event of non-compliance, management intends to seek the necessary waivers or amendments such that the loan agreement will remain in force; however, there can be no assurance that the Company's lender will grant such additional waivers or amendments. Disclosures Regarding Forward-Looking Statements This report on Form 10-Q includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included in this Form 10-Q, including, without limitation, statements contained in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding the Company's financial position, business strategy, plans and objectives of management of the Company for future operations, and industry conditions, are forward-looking statements. Although the Company believes that the expectations reflected in any such forwarding-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Any forward-looking statements herein are subject to certain risks and uncertainties in the Company's business, including, but not limited to, the intense competition in its markets, its recent experience of increasing raw materials prices, the absence of assurance of strategic and financing alternatives, Mexican currency fluctuations and its reliance on certain key customers; all of which may be beyond the control of the Company. Any one or more of these factors could cause actual results to differ materially from those expressed in any forward-looking statement. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements disclosed in this paragraph and otherwise in this report. 15 16 SUN COAST INDUSTRIES, INC. MARCH 31, 1996 PART II - OTHER INFORMATION Item 1 - Legal Proceedings None. Item 2 - Changes in Securities None. Item 3 - Defaults Upon Senior Securities None. Item 4 - Submission of Matters to a Vote of Security Holders None. Item 5 - Other Information None. Item 6 - Exhibits and Reports in Form 8K (a) Exhibits: 10.1 Retention Bonus Agreement, dated March 11, 1996, between the Company and Cynthia R. Morris. 10.2 Amended Severance Agreement, dated March 13, 1996, between the Company and Cynthia R. Morris. 10.3 Severance Agreement, dated as of April 22, 1996 between the Company and Eddie Lesok 10.4 Letter dated May 9, 1996, waiving violation of certain provisions of the Loan Agreement 16 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Sun Coast Industries, Inc. --------------------------------------------------------------- Registrant 5/13/96 By: - --------- ------------------------------------------------------------ Date Eddie Lesok, President and Chief Executive Officer 5/13/96 By: - --------- ------------------------------------------------------------ Date Cynthia R. Morris, CFO, Secretary and Treasurer 17 18 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.1 Retention Bonus Agreement, dated March 11, 1996, between the Company and Cynthia R. Morris. 10.2 Amended Severance Agreement, dated March 13, 1996, between the Company and Cynthia R. Morris. 10.3 Severance Agreement, dated as of _______ between the Company and Eddie Lesok
EX-10.1 2 RETENTION BONUS AGREEMENT 1 EXHIBIT 10.1 SUN COAST INDUSTRIES, INC. Retention Bonus Agreement This Retention Bonus Agreement ("Agreement") is made and effective as of the 11th day of March, 1996, by and between Sun Coast Industries, Inc., a Delaware corporation having its principal place and business in Dallas, Dallas County, Texas (the "Company"), and Cynthia R. Morris, an individual currently residing in Dallas, Texas ("Employee"). RECITALS The Board of Directors of the Company (the "Board") has determined that it is in the best interest of the Company to assure that the Company will have the continued dedication of Employee, following the resignation of R. Carter Pate as President and Chief Executive Officer and during the transition to a new Chief Executive Officer. The Board believes it is imperative to encourage the Employee's full attention and dedication to the Company currently. AGREEMENT Now, therefore, in consideration of Employee's continued employment by the Company, as well as the promises, covenants and obligations contained herein, the Company and Employee, intending to be legally bound hereby, agree as follows: 1. Payment of Retention Bonus Amount. The Company shall pay Employee, as additional compensation, $225,000 (the "Retention Bonus") on the earliest to occur of the following: (a) September 30, 1996, if the Employee is then employed by the Company; (b) the date on which the Employee's employment is terminated by the Company other than for Cause; or (c) the date on which the Employee's employment is terminated by the Employee for Good Reason. If at the time a Retention Bonus is payable hereunder, the Employee has received payment of the Severance Amount pursuant to the Severance Agreement dated as of August 8, 1995, the amount of the Retention Bonus payable hereunder shall be reduced, but not below zero, by the Severance Amount so paid. 2. Definitions. As used in this Agreement: "Cause" as used herein with respect to termination of Employee's employment shall mean termination upon (A) the willful and continued failure by Employee to substantially perform 2 Employee's duties with the Company (other than any such failure resulting from Employee's incapacity due to physical or mental illness), after a demand for substantial performance is delivered to the Employee by the Chief Executive Officer of the Company or the Board, which specifically identifies the manner in which such officer or the Board believes that Employee has not substantially performed Employee's duties, or (B) the willful engaging by Employee in misconduct which is materially injurious to the Company, monetarily or otherwise. For purposes of this paragraph, no act, or failure to act, on Employee's part shall be considered "willful" unless done, or omitted to be done, by Employee not in good faith and without reasonable belief that Employee's action or omission was in the best interest of the Company. Notwithstanding the foregoing, Employee shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to Employee a copy of a notice of termination from the Chief Executive Officer of the Company or the Board, after reasonable notice to Employee and an opportunity for Employee, together with Employee's counsel, to be heard before the Board, finding that, in the good faith opinion of the Board, Employee was guilty of conduct set forth above in clauses (A) or (B) of the first sentence of this subparagraph and specifying the particulars thereof in detail. "Good Reason" shall mean any of the following (without Employee's express written consent): (A) A significant and material change in the nature or scope of the Employee's duties from those engaged in immediately prior to the date of this Agreement to duties that are, taken as a whole, inconsistent with Employee's range and duration of experience; (B) A reduction in Employee's base salary from that provided to her immediately prior to the date of this Agreement; (C) A diminution in Employee's eligibility to participate in bonus, stock option or other incentive compensation plans or employee benefit plans (including medical, dental, life insurance and long-term disability plans) provided for executives with comparable duties, provided the Retention Bonus shall be considered to be in lieu of any bonus that would otherwise be considered with respect to Employee for the Company's fiscal year 1996; and (D) Any required relocation of Employee of more than thirty miles from Employee's the current location (including any required business travel in excess of the greater of 90 days per year or the level of business travel of Employee prior to the date of this Agreement). 3. Consultation and Cooperation. In consideration of the Retention Bonus, and without further consideration but subject to reimbursement of the Employee's reasonable expenses, Employee agrees that if Employee elects to resign without Good Reason after the payment of the Retention Bonus, the Company for the six-month period following such resignation may request that Employee consult and cooperate with it, and Employee agrees to be available at mutually agreeable 2 3 times, personally or by telephone, as necessary, at reasonable times and without unreasonable interference with Employee's new employment or personal activities, to consult and provide such information as may from time to time be reasonably requested by the Company in connection with various business matters in which Employee was involved during Employee's active employment with the Company, or about which Employee has knowledge. 4. Notices. For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Company to: Sun Coast Industries, Inc. 2700 South Westmoreland Dallas, Texas 75233 Attention: Chairman of the Board If to Employee to: Cynthia R. Morris 11031 Hillcrest Road Dallas, Texas 75230 or to such other address as either party may furnish to the other in writing in accordance herewith, except that notices of changes of address shall be effective only upon receipt. 5. Applicable Law. This contract is entered into under, and shall be governed for al purposes by, the laws of the State of Texas. 6. Severability. If a court of competent jurisdiction determines that any provision of Agreement is invalid or unenforceable, then the invalidity or unenforceability of that provision shall not affect the validity or enforceability of any other provision of this Agreement, and all other provisions shall remain in full force and effect. 7. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement. 8. Withholding of Taxes. Company may withhold from any benefits payable under this Agreement all federal, state, city or other taxes as may be required pursuant to any law or governmental regulation or ruling. 3 4 9. No Employment Agreement. Nothing in this Agreement shall give employee any rights (or impose any obligations) to continued employment by the Company or any subsidiary thereof or successor thereto, nor shall it give the Company any rights (or impose any obligations) with respect to continued performance of duties by Employee for the Company or any subsidiary thereof or successor thereto. 10. Assignment. (a) This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign or transfer this Agreement or any rights or obligations hereunder, except as provided in the remainder of this paragraph 10. Without limiting the Employee's right to receive payments hereunder shall not be assignable or transferable, whether by pledge, creation of a security interest or otherwise, or other than a transfer by her will or by the laws of descent or distribution, and in the event of any attempted assignment or transfer contrary to this paragraph 10 the Company shall have no liability to pay any amount so attempted to be assigned or transferred. This Agreement shall inure to the benefit of and be enforceable by Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. (b) The Company may: (x) as long as it remains obligated with respect to this Agreement, cause its obligations hereunder to be performed by a subsidiary or subsidiaries for which Employee performs services, in whole or in part; (y) assign this Agreement and its rights hereunder in whole, but not in part, to any corporation with or into which it may hereafter merge or consolidate or to which it may transfer all or substantially all of its assets, if said corporation shall by operation of law or expressly in writing assume all liabilities of the Company hereunder as fully as if it has been originally named the Company herein (but such assignment shall not release the Company from its obligations hereunder); but may not otherwise assign this Agreement or its rights hereunder. Subject to the foregoing, this Agreement shall inure to the benefit of and be enforceable by the Company's successors and assigns. 11. Modifications. This Agreement shall not be varied, altered, modified, canceled, changed or in any way amended except by mutual agreement of the parties in a written instrument executed by the parties hereto or their legal representatives. 4 5 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered as of the day and year first above written. SUN COAST INDUSTRIES, INC. By:/s/ STEPHEN P. SMILEY ------------------------------ Stephen P. Smiley, Chairman of the Board EMPLOYEE /s/ CYNTHIA R. MORRIS --------------------------------- Cynthia R. Morris 5 EX-10.2 3 AMENDED SEVERANCE AGREEMENT 1 EXHIBIT 10.2 SUN COAST INDUSTRIES, INC. Amended Severance Agreement This Amended Severance Agreement ("Agreement") is made and effective as of the 13th day of March, 1996, by and between Sun Coast Industries, Inc., a Delaware corporation having its principal place of business in Dallas, Dallas County, Texas (the "Company"), and Cynthia R. Morris, an individual currently residing in Dallas, Texas ("Employee") and supersedes the Severance Agreement dated as of August 8, 1995 between the Company and Employee (the "Original Severance Agreement"). RECITALS The Board of Directors of the Company (the "Board") has determined that it is in the best interest of the Company to assure that the Company will have the continued dedication of the Employee, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below). The Board believes it is imperative to diminish the inevitable distraction of the Employee by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control, to encourage the Employee's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide Employee with compensation and benefit arrangements upon a Change of Control which insures that such compensation and benefits are competitive with other corporations. AGREEMENT Now, therefore, in consideration of Employee's continued employment by the Company, as well as the promises, covenants and obligations contained herein, the Company and Employee agree as follows: 1. Payment of Severance Amount. Upon the occurrence of a Termination Event (as defined in paragraph 2), the Company shall: (a) pay Employee an amount equal to (i) Employee's Base Annual Salary (as defined in paragraph 2) multiplied by the Employment Term Factor (as defined in paragraph 2), (ii) less all principal of any loans from the Company to Employee, as well as any interest then due thereon, payable as a lump sum cash payment within 30 days after the date of the termination constituting such Termination Event (the "Termination Date"); provided: (x) Employee may elect to have such amount paid in equal monthly installments over a period not to exceed 13 months and (y) notwithstanding any provision herein to the contrary, no amount shall be paid pursuant to this subparagraph 1(a) if Employee has received payment under that certain Retention Bonus Agreement of even date herewith between the Company and Employee within six months prior to the Termination Date; -1- 2 (b) provide Employee with life, disability and medical insurance at the level provided at either the date of the Change of Control (as defined in paragraph 2) or the Termination Date, as Employee shall in her sole discretion elect by providing written notice thereof to the Company, for a period of time equal to twelve (12) months multiplied by the Employment Term Factor (as defined in paragraph 2) following the Termination Date, or such shorter period until Employee shall obtain substantially equivalent insurance coverage from a subsequent employer, if any, in the same manner as if Employee's employment had not been terminated until the end of such period. Employee shall immediately notify the Company upon obtaining any insurance from a subsequent employer and shall provide all information required by the Company regarding such insurance to enable the Company to make a determination of whether such insurance is substantially equivalent; (c) for a period of twelve months from and after such Termination Event, or until such earlier time as the Employee obtains other employment, provide the Employee with outplacement services of a firm of Employee's choice; and (d) pay all reasonable legal fees and expenses incurred by Employee in seeking to obtain or enforce any right or benefit provided by the Agreement. 2. Definitions. (a) A "Termination Event" shall be deemed to have occurred if: (i) The Company or any successor thereto shall terminate Employee's employment for any reason other than for Cause; or (ii) The Employee shall voluntarily terminate her employment within one (1) year of a Change of Control for "Good Reason." For purposes of this Agreement, "Good Reason" shall mean any of the following (without Employee's express written consent): (A) A significant and material change in the nature or scope of the Employee's duties from those engaged in immediately prior to the date on which a Change of Control occurs to duties that are, taken as a whole, inconsistent with Employee's range and duration of experience; provided, however, that Employee's title, scope of responsibility and authority may be altered (by reason of the creation of or filling of offices with the Company senior to Employee's office or otherwise) without constituting "Good Reason" so long as Employee's new duties are not inconsistent with her prior experience; (B) A reduction in Employee's base salary from that provided to him immediately prior to the date the Change of Control occurs; (C) A diminution in Employee's eligibility to participate in bonus, stock option or other incentive compensation plans or employee -2- 3 benefit plans (including medical, dental, life insurance and long-term disability plans) provided for executives with comparable duties; and (D) Any required relocation of Employee of more than thirty miles from Employee's the current location (including any required business travel in excess of the greater of 90 days per year or the level of business travel of Employee prior to the most recent Change of Control). (b) A "Change of Control" shall be deemed to have occurred if: (i) individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least fifty-one percent (51%) of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; (ii) the stockholders of the Company shall approve a reorganization, merger or consolidation, in each case, with respect to which persons who were the stockholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than fifty percent (50%) of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company's then outstanding voting securities, or of a liquidation or dissolution of the Company or of the sale of all or substantially all of the assets of the Company; or (iii) the stockholders of the Company shall approve a sale of all or substantially all of the assets of the Company. (c) "Employment Term Factor" is equal to (i) the sum of (a) twelve plus (b) the number of years' service Employee has with the Company (ii) divided by twelve. In no event will the Employment Term Factor exceed three (3.0). (d) "Base Annual Salary" shall, as determined on the Termination Date, be equal to the greater of (i) Employee's annual salary on the date of the earliest Change of Control to occur during the eighteen month period prior to the Termination Date plus any bonuses or special incentive payments received in the twelve months prior to such Change of Control or (ii) Employee's annual salary on the Termination Date plus any bonuses or special incentive payments received in the prior twelve months. (e) "Cause" as used herein with respect to termination of Employee's employment shall mean termination upon (A) the willful and continued failure by Employee to substantially perform Employee's duties with the Company (other than any such failure resulting from Employee's incapacity due to physical or mental illness), after a demand for substantial performance is delivered to you by the Chief Executive Officer of the Company or the Board of Directors, which specifically identifies the manner in -3- 4 which such officer or the Board of Directors believes that Employee has not substantially performed Employee's duties, or (B) the willful engaging by Employee in misconduct which is materially injurious to the Company, monetarily or otherwise. For purposes of this paragraph, no act, or failure to act, on Employee's part shall be considered "willful" unless done, or omitted to be done, by Employee not in good faith and without reasonable belief that Employee's action or omission was in the best interest of the Company. Notwithstanding the foregoing, Employee shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to Employee a copy of a notice of termination from the Chief Executive Officer of the Company or the Board of Directors, after reasonable notice to Employee and an opportunity for Employee, together with Employee's counsel, to be heard before the Board of Directors, finding that, in the good faith opinion of the Board, Employee was guilty of conduct set forth above in clauses (A) or (B) of the first sentence of this subparagraph and specifying the particulars thereof in detail. 3. Parachute Payment Limitations. Any other provision of this Agreement to the contrary notwithstanding, if the total amount of payments and benefits to be paid or provided to Employee under this Agreement which are considered to be "parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), when added to any other such "parachute payments" received by Employee from the Company or from a member of the Company's affiliated group (as provided in Code Section 280G(d)(5)), whether or not under this Agreement, are in excess of the amount Employee can receive without causing the Company to lose its deduction with respect to all or any portion of such total amount on account of Code Section 280G, the amount of payments and benefits to be paid or provided to Employee under this Agreement which are parachute payments shall be reduced to the highest amount which will not cause the Company to lose its deduction with respect to any such payments and benefits on account of Code Section 280G. 4. Notices. For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Company to: Sun Coast Industries, Inc. 2700 South Westmoreland Dallas, Texas 75233 Attention: Chairman of the Board If to Employee to: Cynthia R. Morris 11031 Hillcrest Road Dallas, Texas 75230 or to such other address as either party may furnish to the other in writing in accordance herewith, except that notices of changes of address shall be effective only upon receipt. 5. Applicable Law. This contract is entered into under, and shall be governed for all purposes by, the laws of the State of Texas. -4- 5 6. Severability. If a court of competent jurisdiction determines that any provision of this Agreement is invalid or unenforceable, then the invalidity or unenforceability of that provision shall not affect the validity or enforceability of any other provision of this Agreement, and all other provisions shall remain in full force and effect. 7. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement. 8. Withholding of Taxes. Company may withhold from any benefits payable under this Agreement all federal, state, city or other taxes as may be required pursuant to any law or governmental regulation or ruling. 9. No Employment Agreement. Nothing in this Agreement shall give employee any rights (or impose any obligations) to continued employment by the Company or any subsidiary thereof or successor thereto, nor shall it give the Company any rights (or impose any obligations) with respect to continued performance of duties by Employee for the Company or any subsidiary thereof or successor thereto. 10. Assignment. (a) This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign or transfer this Agreement or any rights or obligations hereunder, except as provided in the remainder of this paragraph 10. Without limiting the foregoing, Employee's right to receive payments hereunder shall not be assignable or transferable, whether by pledge, creation of a security interest or otherwise, other than a transfer by her will or by the laws of descent or distribution, and in the event of any attempted assignment or transfer contrary to this paragraph 10 the Company shall have no liability to pay any amount so attempted to be assigned or transferred. This Agreement shall inure to the benefit of and be enforceable by Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. (b) The Company may: (x) as long as it remains obligated with respect to this Agreement, cause its obligations hereunder to be performed by a subsidiary or subsidiaries for which Employee performs services, in whole or in part; (y) assign this Agreement and its rights hereunder in whole, but not in part, to any corporation with or into which it may hereafter merge or consolidate or to which it may transfer all or substantially all of its assets, if said corporation shall by operation of law or expressly in writing assume all liabilities of the Company hereunder as fully as if it has been originally named the Company herein; but may not otherwise assign this Agreement or its rights hereunder. Subject to the foregoing, this Agreement shall inure to the benefit of and be enforceable by the Company's successors and assigns. 11. Modifications. This Agreement shall not be varied, altered, modified, canceled, changed or in any way amended except by mutual agreement of the parties in a written instrument executed by the parties hereto or their legal representatives. -5- 6 12. Previous Agreement. This Agreement supersedes the Original Severance Agreement. Upon execution and delivery by the parties of this Agreement, the Original Severance Agreement shall have no further force or effect. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered as of the day and year first above written. SUN COAST INDUSTRIES, INC. By: __________________________________________ Stephen P. Smiley, Chairman of the Board EMPLOYEE _______________________________________________ Cynthia R. Morris -6- EX-10.3 4 SEVERANCE AGREEMENT 1 EXHIBIT 10.3 SUN COAST INDUSTRIES, INC. Severance Agreement This Severance Agreement ("Agreement") is made and effective as of the 22nd day of April, 1996, by and between Sun Coast Industries, Inc., a Delaware corporation having its principal place of business in Dallas, Dallas County, Texas (the "Company"), and Eddie Lesok, an individual currently residing in Fort Worth, Texas ("Employee"). RECITALS The Board of Directors of the Company (the "Board") has determined that it is in the best interest of the Company to assure that the Company will have the continued dedication of the Employee, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below). The Board believes it is imperative to diminish the inevitable distraction of the Employee by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control, to encourage the Employee's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide Employee with compensation and benefit arrangements upon a Change of Control which insures that such compensation and benefits are competitive with other corporations. AGREEMENT Now, therefore, in consideration of Employee's continued employment by Sun Coast Industries, Inc. ("Sun Coast"), a Delaware corporation, as well as the promises, covenants and obligations contained herein, the Company and Employee agree as follows: 1. Payment of Severance Amount. Upon the occurrence of a Termination Event (as defined in paragraph 2), the Company shall: (a) pay Employee an amount equal to (i) Employee's Base Annual Salary (as defined in paragraph 2) multiplied by the Employment Term Factor (as defined in paragraph 2), (ii) less all principal of any loans from the Company to Employee, as well as any interest then due thereon, payable as a lump sum cash payment within 30 days after the date of the termination constituting such Termination Event (the "Termination Date"), provided, Employee may elect to have such amount paid in equal monthly installments over a period not to exceed 13 months; (b) provide Employee with life, disability and medical insurance at the level provided at either the date of the Change of Control (as defined in paragraph 2) or the Termination Date, as Employee shall in his sole discretion elect by providing written notice thereof to the Company, for a period of time equal to twelve (12) months multiplied by the Employment Term Factor (as defined in paragraph 2) following the Termination Date, or such shorter period until Employee shall obtain substantially 2 equivalent insurance coverage from a subsequent employer, if any, in the same manner as if Employee's employment had not been terminated until the end of such period. Employee shall immediately notify the Company upon obtaining any insurance from a subsequent employer and shall provide all information required by the Company regarding such insurance to enable the Company to make a determination of whether such insurance is substantially equivalent. (c) for a period of twelve months from and after such Termination Event, or until such earlier time as the Employee obtains other employment, provide the Employee with outplacement services of a firm of Employee's choice. (d) pay all reasonable legal fees and expenses incurred by Employee in seeking to obtain or enforce any right or benefit provided by the Agreement. 2. Definitions. (a) A "Termination Event" shall be deemed to have occurred if: (i) Sun Coast or any successor thereto shall terminate Employee's employment for any reason other than for Cause; or (ii) The Employee shall voluntarily terminate his employment with Sun Coast within one (1) year of a Change of Control for "Good Reason." For purposes of this Agreement, "Good Reason" shall mean any of the following (without Employee's express written consent): (A) A significant and material change in the nature or scope of the Employee's duties from those engaged in immediately prior to the date on which a Change of Control occurs to duties that are, taken as a whole, inconsistent with Employee's range and duration of experience; provided, however, that Employee's title, scope of responsibility and authority may be altered (by reason of the creation of or filling of offices with the Company senior to Employee's office or otherwise) without constituting "Good Reason" so long as Employee's new duties are not inconsistent with his prior experience; (B) A reduction in Employee's base salary from that provided to him immediately prior to the date the Change of Control occurs; (C) A diminution in Employee's eligibility to participate in bonus, stock option or other incentive compensation plans or employee benefit plans (including medical, dental, life insurance and long-term disability plans) provided for executives with comparable duties; and (D) Any required relocation of Employee of more than thirty miles from Employee's current location (including any required business -2- 3 travel in excess of the greater of 90 days per year or the level of business travel of Employee prior to the most recent Change of Control). (b) A "Change of Control" shall be deemed to have occurred if: (i) individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least fifty-one percent (51%) of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; (ii) the stockholders of the Company shall approve a reorganization, merger or consolidation, in each case, with respect to which persons who were the stockholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than fifty percent (50%) of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company's then outstanding voting securities, or of a liquidation or dissolution of the Company or of the sale of all or substantially all of the assets of the Company; (iii) the stockholders of the Company shall approve a sale of all or substantially all of the assets of the Company; (iv) a stock sale, reorganization, merger or consolidation of Plastics Manufacturing Company, a Nevada corporation ("PMC"), takes place and the Company and/or its subsidiaries do not, immediately thereafter, own more than 50% of the combined voting power entitled to vote generally in the election of directors of the sold, reorganized, merged or consolidated company's then outstanding voting securities; or (v) all or substantially all of the assets of PMC are sold. (c) "Employment Term Factor" is equal to (i) the sum of (a) twelve plus (b) the number of years' service Employee has with the Company (ii) divided by twelve. In no event will the Employment Term Factor exceed three (3.0). (d) "Base Annual Salary" shall, as determined on the Termination Date, be equal to the greater of (i) Employee's annual salary on the date of the earliest Change of Control to occur during the eighteen month period prior to the Termination Date plus any bonuses or special incentive payments received in the twelve months prior to such Change of Control or (ii) Employee's annual salary on the Termination Date plus any bonuses or special incentive payments received in the prior twelve months. (e) "Cause" as used herein with respect to termination of Employee's employment shall mean termination upon (A) the willful and continued failure by -3- 4 Employee to substantially perform Employee's duties with the Company (other than any such failure resulting from Employee's incapacity due to physical or mental illness), after a demand for substantial performance is delivered to you by the Chief Executive Officer of the Company or the Board of Directors, which specifically identifies the manner in which such officer or the Board of Directors believes that Employee has not substantially performed Employee's duties, or (B) the willful engaging by Employee in misconduct which is materially injurious to the Company, monetarily or otherwise. For purposes of this paragraph, no act, or failure to act, on Employee's part shall be considered "willful" unless done, or omitted to be done, by Employee not in good faith and without reasonable belief that Employee's action or omission was in the best interest of the Company. Notwithstanding the foregoing, Employee shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to Employee a copy of a notice of termination from the Chief Executive Officer of the Company or the Board of Directors, after reasonable notice to Employee and an opportunity for Employee, together with Employee's counsel, to be heard before the Board of Directors, finding that, in the good faith opinion of the Board, Employee was guilty of conduct set forth above in clauses (A) or (B) of the first sentence of this subparagraph and specifying the particulars thereof in detail. 3. Parachute Payment Limitations. Any other provision of this Agreement to the contrary notwithstanding, if the total amount of payments and benefits to be paid or provided to Employee under this Agreement which are considered to be "parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), when added to any other such "parachute payments" received by Employee from the Company or from a member of the Company's affiliated group (as provided in Code Section 280G(d)(5)), whether or not under this Agreement, are in excess of the amount Employee can receive without causing the Company to lose its deduction with respect to all or any portion of such total amount on account of Code Section 280G, the amount of payments and benefits to be paid or provided to Employee under this Agreement which are parachute payments shall be reduced to the highest amount which will not cause the Company to lose its deduction with respect to any such payments and benefits on account of Code Section 280G. 4. Notices. For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Company to: Sun Coast Industries, Inc. 2700 South Westmoreland Dallas, Texas 75233 Attention: Chairman of the Board If to Employee to: Eddie Lesok 5005 Crestline Road Fort Worth, Texas 76107 -4- 5 or to such other address as either party may furnish to the other in writing in accordance herewith, except that notices of changes of address shall be effective only upon receipt. 5. Applicable Law. This contract is entered into under, and shall be governed for all purposes by, the laws of the State of Texas. 6. Severability. If a court of competent jurisdiction determines that any provision of this Agreement is invalid or unenforceable, then the invalidity or unenforceability of that provision shall not affect the validity or enforceability of any other provision of this Agreement, and all other provisions shall remain in full force and effect. 7. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement. 8. Withholding of Taxes. Company may withhold from any benefits payable under this Agreement all federal, state, city or other taxes as may be required pursuant to any law or governmental regulation or ruling. 9. No Employment Agreement. Nothing in this Agreement shall give employee any rights (or impose any obligations) to continued employment by the Company or any subsidiary thereof or successor thereto, nor shall it give the Company any rights (or impose any obligations) with respect to continued performance of duties by Employee for the Company or any subsidiary thereof or successor thereto. 10. Assignment. (a) This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign or transfer this Agreement or any rights or obligations hereunder, except as provided in the remainder of this paragraph 10. Without limiting the foregoing, Employee's right to receive payments hereunder shall not be assignable or transferable, whether by pledge, creation of a security interest or otherwise, other than a transfer by his will or by the laws of descent or distribution, and in the event of any attempted assignment or transfer contrary to this paragraph 10 the Company shall have no liability to pay any amount so attempted to be assigned or transferred. This Agreement shall inure to the benefit of and be enforceable by Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. (b) The Company may: (x) as long as it remains obligated with respect to this Agreement, cause its obligations hereunder to be performed by a subsidiary or subsidiaries for which Employee performs services, in whole or in part; (y) assign this Agreement and its rights hereunder in whole, but not in part, to any corporation with or into which it may hereafter merge or consolidate or to which it may transfer all or substantially all of its assets, if said corporation shall by operation of law or expressly in writing assume all liabilities of the Company hereunder as fully as if it has been originally named the -5- 6 Company herein; but may not otherwise assign this Agreement or its rights hereunder. Subject to the foregoing, this Agreement shall inure to the benefit of and be enforceable by the Company's successors and assigns. 11. Modifications. This Agreement shall not be varied, altered, modified, canceled, changed or in any way amended except by mutual agreement of the parties in a written instrument executed by the parties hereto or their legal representatives. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered as of the day and year first above written. SUN COAST INDUSTRIES, INC. By: _________________________________________ Stephen P. Smiley, Chairman of the Board EMPLOYEE ______________________________________________ Eddie Lesok -6- EX-10.4 5 LOAN AGREEMENT 1 EXHIBIT 10.4 May 9, 1996 VIA CERTIFIED MAIL #P649 010 113 AND REGULAR MAIL Mr. Eddie Lesok, CEO Ms. Cynthia Morris, CFO Sun Coast Holdings, Inc. 2700 Westmoreland Ave. Dallas, Texas 75233 RE: LOAN AGREEMENT (AS AMENDED FROM TIME TO TIME, THE "LOAN AGREEMENT") BETWEEN COMERICA BANK-TEXAS ("LENDER") AND SUN COAST HOLDINGS, INC., ("BORROWER") DATED DECEMBER 20, 1995. Dear Mr. Lesok and Ms. Morris: Unless otherwise defined herein, capitalized terms used herein shall have the meanings given such terms in the Loan Agreement. As of March 31, 1996, Borrower was in violation of certain provisions of the Loan Agreement and has requested Lender to provide a limited waiver of such violations. In consideration of Lender granting the limited waiver set forth herein, Lender and Borrower (with the express consent and confirmation of Guarantors) agree as follows: 1. Notwithstanding the provisions of Section 11.5 of the Loan Agreement, as of March 31, 1996, Borrower shall not be deemed to have been in default under the Loan Agreement simply because as of such date, Tangible Net Worth (as defined in the Loan Agreement) was less than the required $14,650,000 however, after March 31, 1996, the provisions of Section 11.5 of the Loan Agreement shall apply as originally written and shall govern all periods subsequent to March 31, 1996. 2. Notwithstanding the provisions of Section 11.7 of the Loan Agreement, as of March 31, 1996, Borrower shall not be deemed to have been in default under the Loan Agreement simply because as of such date, Fixed Charge Coverage (as defined in the Loan Agreement) was less than the required 1.30 to 1.0 however, after March 31, 1996, the provisions of Section 11.7 of the Loan Agreement shall apply as originally written and shall govern all periods subsequent to March 31, 1996. 2 SUN COAST WAIVER MAY 9, 1996 PAGE 2 3. Effective May 15, 1996, and until Lender notifies Borrower otherwise in writing, the Applicable Margin shall be 0.75% for Prime Rate Advances and 3.00% for CD Advances and for LIBOR Advances. The preceding waiver and modification is for a limited time and purpose herein expressed. Such waiver shall not adversely affect or impair any rights or remedies available to Lender under the Loan Agreement, or otherwise, and shall not constitute a waiver of any subsequent defaults or other violations of the provisions of the Agreement and shall not imply that the Lender will in the future grant any other waivers or modifications. The preceding waiver and modification shall not be effective until Lender shall have received a copy of this letter bearing the original signatures of Borrower and the Guarantors. To the extent this letter constitutes a notice, it is being transmitted as a courtesy to you and is not an admission that any written notice is otherwise due you, nor is it an election or waiver of remedies by Lender. Sincerely, /s/ MELINDA A. CHAUSSE - ---------------------- Melinda A. Chausse Vice President ACKNOWLEDGED, ACCEPTED AND AGREED TO AS OF THE DATE OF THE ABOVE LETTER: BORROWER SUN COAST HOLDINGS, INC. BY: --------------------------- ITS: --------------------------- ACKNOWLEDGED, ACCEPTED AND AGREED TO (AND CONFIRMING IN ALL RESPECTS THE GUARANTY OF EACH OF THE UNDERSIGNED GUARANTORS) AS OF THE DATE OF THE ABOVE LETTER: GUARANTORS: SUN COAST HOLDINGS, INC. BY: --------------------------- ITS: --------------------------- 3 SUN COAST CLOSURES, INC. BY: --------------------------- ITS: --------------------------- PLASTICS MANUFACTURING COMPANY BY: --------------------------- ITS: --------------------------- CUSTOM LAMINATES, INC. BY: --------------------------- ITS: --------------------------- SUN COAST ACQUISITION, INC. BY: --------------------------- ITS: --------------------------- EX-27 6 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS JUN-30-1996 JUL-01-1995 MAR-31-1996 583 0 12,276 172 11,106 24,184 52,240 23,116 56,197 35,639 29,456 40 0 0 14,617 56,197 58,984 58,984 49,756 49,756 9,898 0 1,447 (2,117) (722) (1,395) 0 0 0 (1,395) (.35) (.35)
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