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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
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Commission File Number 0-10937
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SUN COAST INDUSTRIES, INC.
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(Exact name of Registrant)
Delaware #59-1952968
- ------------------------------- ------------------------------------
(State of Incorporation) (IRS Employer Identification No.)
2700 South Westmoreland Ave., Dallas, TX 75233
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(Address of principal executive offices)
(214) 373-7864
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(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
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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
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Items 1 through 6 17
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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.
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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
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Total liabilities 41,540 40,423
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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
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Total stockholders' equity 14,657 16,773
-------- -------
Total liabilities and stockholders' equity $ 56,197 $57,196
======== =======
See accompanying notes to condensed consolidated financial statements.
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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.
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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.
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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)
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Net cash provided by (used in) operations 3,926 (2,418)
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Cash flows from investing activities:
Capital expenditures (3,467) (6,720)
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Net cash used in investing activities (3,467) (6,720)
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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
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Net cash (used in) provided by financing activities (895) 7,364
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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
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Cash and cash equivalents at end of period $ 583 $ 50
======= ======
See accompanying notes to condensed consolidated financial statements.
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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.
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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.
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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.
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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
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11,925 13,822
Obsolescence reserve (819) (574)
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$ 11,106 $13,248
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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,
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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.
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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.
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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.
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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
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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
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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