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SANDOVAL v. SIMMONS
August 2, 1985
FLORENCIO SANDOVAL, DONALD EDWARDS, HAZEL ELLIS, JAMES M. HOLMES, HERBERT C. JOHNSON AND THEODORE G. PETERSON, INDIVIDUALLY AND AS PARTICIPANTS IN THE KEYSTONE MASTER PENSION PLAN &MDASH; NATIONAL LOCK DIVISION, PLAINTIFFS,
HAROLD SIMMONS, INDIVIDUALLY AND AS SOLE TRUSTEE OF A TRUST FORMED BY HAROLD C. SIMMONS IN 1964 FOR THE BENEFIT OF HIS CHILDREN AND GRANDCHILDREN AND AS DIRECTOR OF KEYSTONE CONSOLIDATED INDUSTRIES, INC., AND AS A MEMBER OF THE CORPORATE COMMITTEE &MDASH; EMPLOYEES BENEFIT PLANS OF KEYSTONE CONSOLIDATED INDUSTRIES, INC., GLENN R. SIMMONS, INDIVIDUALLY AND AS PRESIDENT AND CHIEF EXECUTIVE OF KEYSTONE CONSOLIDATED INDUSTRIES, INC., MICHAEL A. SNETZER, INDIVIDUALLY AND AS DIRECTOR OF KEYSTONE CONSOLIDATED INDUSTRIES, INC., JOHN R. SOMMER, INDIVIDUALLY AND AS CHAIRMAN OF THE BOARD OF DIRECTORS AND AS A MEMBER OF THE CORPORATE COMMITTEE AT KEYSTONE CONSOLIDATED INDUSTRIES, INC., ALEX M. GALBRAITH, INDIVIDUALLY AND AS VICE-PRESIDENT OF FINANCE AND TREASURER AND AS A MEMBER OF THE CORPORATE COMMITTEE AT KEYSTONE CONSOLIDATED INDUSTRIES, INC., KEYSTONE CONSOLIDATED INDUSTRIES, INC., AS ADMINISTRATOR OF THE KEYSTONE MASTER PENSION TRUST AND NATIONAL LOCK DIVISION OF KEYSTONE CONSOLIDATED INDUSTRIES, INC., AS ADMINISTRATOR AND SPONSOR OF NATIONAL LOCK DIVISION HOURLY EMPLOYEES PENSION PLAN, DEFENDANTS.
The opinion of the court was delivered by: Mihm, District Judge.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
This action was previously consolidated with Jefferson Trust
and Savings Bank of Peoria v. Simmons, et al (83-1101) and
Donovan v. Simmons, et al (83-1115). Stipulated settlement
agreements were entered into in both of those actions and were
approved by the Court.
The Court granted Plaintiffs' motion for separate trials on
the issues of liability and appropriate relief. The issues of
liability were tried before the Court on February 11-15, 1985.
During the trial of this case, the Court granted Motions for
Judgment of Dismissal pursuant to Rule 41(b) of the Federal
Rules of Civil Procedure on the claims brought pursuant to
sections 404(a)(1)(C) and 405(c) of the Employee Retirement
Income Security Act of 1974 ("ERISA"),
29 U.S.C. § 1104(a)(1)(C) and 1105(c). As to the remainder of the claims,
the Court declined to render judgment until the close of all
The Court makes the following findings of fact and
conclusions of law.
The Parties, the Principals, and the Trusts
1. Plaintiffs are six former or current employees of the
National Lock Division ("National Lock") of Keystone
Consolidated Industries, Inc. ("Keystone" or "KCI"). When used
in this document, "KCI," "Keystone," and "Keystone
Consolidated Industries," are all abbreviations for Keystone
Consolidated Industries, Inc.
2. Each Plaintiff is a participant in the National Lock
Division Pension Plan for Hourly Employees ("Pension Plan"),
which has been maintained by Keystone during the period
relevant to these proceedings.
3. Harold Simmons joined the Keystone Consolidated
Industries, Inc. board of directors in February, 1982.
4. In 1964 Harold Simmons formed a trust for the benefit of
his children and grandchildren ("the Simmons Trust"). Harold
Simmons is the sole trustee of the Simmons Trust.
5. Since 1982, the only substantial asset of the Simmons
Trust is approximately 99% of the stock of Contran Corporation
6. At all times relevant herein, Contran maintained two
employee pension benefit plans: the Retirement Trust for
Employees of Contran Corporation and the Profit Sharing Trust
for Employees of Contran Corporation ("the Contran Trusts").
7. An original Schedule 13D concerning the stock of National
City Lines, Inc. ("National"), signed by Harold Simmons and
Michael Snetzer, was filed with the U.S. Securities and
Exchange Commission ("SEC") on April 7, 1980 on behalf of NOA,
Inc., Valhi, Inc., Contran, Flight Proficiency and Harold
8. On April 10, 1980, Harold Simmons and Glenn Simmons,
Harold Simmons' brother, met with representatives of National
to discuss the possibility of Harold Simmons' nomination to
the Boards of Directors of National and T.I.M.E. — DC
("TIME-DC"), which was then a subsidiary of National. In May
1980, Harold Simmons became a director of both National and
TIME-DC. Within seven months, Glenn Simmons and Michael Snetzer
also became directors.
9. Throughout 1980, certain subsidiaries of Contran obtained
approximately 91% of the outstanding common stock of National
through open market purchases and through tender offer. By the
end of 1980, Harold Simmons was elected to the position of
President and Chief Executive Officer of National and Chairman
of the Boards of TIME-DC and National.
10. In December 1980, Harold Simmons was elected a director
and Chairman of the Board of NLI Corp. ("NLI"), a wholly-owned
subsidiary of TIME-DC; Glenn Simmons was elected a director
and President of NLI; and Michael Snetzer was elected a
director, Vice President and Treasurer of NLI.
11. On March 16, 1981, at a special meeting of the Executive
Committee of the TIME-DC Board of Directors, attended only by
Harold Simmons, Glenn Simmons and Hugh C. Shurtleff, the
Committee accepted the resignation of the TIME-DC Retirement
Committee and the Trustees of the TIME-DC Pension Trust
("TIME-DC Trust") and appointed Harold Simmons, Glenn Simmons
and Michael Snetzer to the resulting vacancies.
12. On May 5, 1981, National purchased all of the issued and
outstanding stock of Gibson Products of Shreveport, Inc.
("Gibson"). On the same day, Gibson combined its two employee
benefit plans, thereby forming the Profit Sharing Plan and
Trust for Employees of Gibson Products of Shreveport, Inc.
("Gibson Trust"). Harold Simmons, Glenn Simmons and Al Knutson
were appointed to administer the Gibson Trust.
14. On September 14, 1981, National made a cash offer to
purchase any and all outstanding shares of LLC's common stock.
15. On October 30, 1981, an LLC subsidiary filed a petition
for injunctive relief against National, Contran, Harold
Simmons, Michael Snetzer and Glenn Simmons, regarding
National's tender offer.
16. On November 10, 1981, National, Harold Simmons and other
individuals announced that they were soliciting proxies for a
slate of directors in opposition to the nominees of LLC's
Board of Directors for an election to be held November 17,
17. On November 16, 1981, LLC filed suit against National,
Harold Simmons and Contran, seeking to enjoin them from voting
any proxies received by them in their proxy contest.
18. By November 17, 1981, Harold Simmons and persons
associated with him held six seats on LLC's 15-member Board of
19. By November 23, 1981, Contran was the beneficial owner
of approximately 43% of LLC's outstanding shares of common
20. In October 1982, Michael Snetzer became Chairman of the
Board of LLC. Effective January 18, 1983, Harold Simmons
replaced him. Snetzer remained as a director.
21. Since at least September 1981, Harold Simmons has been
the sole trustee of the Simmons Trust; a director and the
President of Contran; Chief Executive Officer, Chairman of the
Board and a director of National; director of TIME-DC; a
Trustee of the Contran Trusts; the President and director of
NOA, a subsidiary of Contran; a Trustee of the TIME-DC Trust;
and a Trustee (until March 24, 1984) of the Gibson Trust.
22. At all relevant times herein, Harold Simmons has
frequently engaged in a practice of seeking to take control of
companies through stock purchases or other means. Harold
Simmons involves himself, his companies and trusts over which
he exercises investment authority in corporate control
23. Glenn Simmons is the brother of Harold Simmons. Since at
least September 1981, Glenn Simmons has been Vice President
and a director of Contran; President and director of National;
Vice President and director of NOA; a director of TIME-DC; a
Trustee of the Contran Trusts; a Trustee of the TIME-DC Trust;
and a Trustee (until March 24, 1984) of the Gibson Trust.
24. Since at least September 1981, Michael Snetzer has been
a Vice President, Treasurer and director of Contran; Financial
Vice President and Treasurer of National; a director of
TIME-DC; and a Trustee of the TIME-DC Trust.
25. At all times relevant herein, Harold Simmons has been
the official with responsibility for setting investment policy
for Contran; National; NOA; NLI Corporation, a National
subsidiary; and Keycon Insurance, Ltd., a Keystone subsidiary
(collectively "the Simmons Companies"). He also set the
investment policy for and exercised discretionary control over
the assets of TIME-DC, Contran and Gibson Trusts. Harold
Simmons did not have investment authority for LLC and
26. An original schedule 13D concerning the common stock of
Keystone, signed by Harold Simmons and Michael Snetzer, was
filed on November 16, 1981, on behalf of National, NOA,
Southwest Louisiana, Dixie Rice, Contran, Contran Holding
Company, TIME-DC Trust, the Contran Trusts and Harold Simmons,
individually. This schedule 13D and amendments thereto reflect
that between September 14, 1981 and August 31, 1982, NLI was
added to the list of those that had purchased Keystone stock.
28. In November 1981 Harold Simmons and Michael Snetzer
reported in Amendment No. 2 to the Keystone 13D that NLI's
purchases of Keystone's shares were to be funded by a credit
agreement with Mercantile National Bank at Dallas
29. On February 25, 1982, at a special meeting of Keystone's
stockholders, Harold Simmons, Glenn Simmons and Snetzer were
elected directors of Keystone; Glenn Simmons was elected
President of Keystone; and Snetzer was appointed to serve on
Keystone's Audit and Executive Committees.
30. At all times relevant herein, the principal executive
offices of Contran, National, NOA, NLI, Dixie Rice
Agricultural Corp., and Southwest Louisiana Land Company were
located at 4835 LBJ Freeway, Suite 600, Dallas, Texas 75234.
31. At all times relevant herein, the business address of
the Contran, Gibson and TIME-DC Trusts has been 4835 LBJ
Freeway, Suite 600, Dallas, Texas.
32. The principal executive offices of Keystone were moved
from Peoria, Illinois to 4835 LBJ Freeway, Suite 600, Dallas,
Texas on or about June 1, 1982.
33. The assets of several of Keystone's employee pension
benefit plans, including those of the Pension Plan, are held
as part of the Keystone Master Pension Trust ("KMPT"), and
have been so held at all times relevant herein.
34. The KMPT was established by an agreement dated May 1,
1977 between Keystone and the Northern Trust Company of
Chicago, Illinois, which was named as the trustee under the
agreement. It was signed on behalf of Keystone by Alex
Galbraith. This agreement provides for a Corporate Committee
to be appointed by the Keystone Board of Directors. The
committee, inter alia, is the named fiduciary for purposes of
ERISA and establishes investment policy. Under the agreement,
the Northern Trust Company was to hold the trust fund as a
single, co-mingled fund, but for bookkeeping purposes, was to
maintain an account which reflected the interest of each plan
with assets in the trust fund.
35. Keystone established the Keystone Master Deferred
Incentive Trust ("KDIT") to hold the assets of the Keystone
Deferred Incentive Plans. The KDIT was established by an
agreement dated May 1, 1977 between Keystone and the Northern
Trust Company of Chicago, Illinois, which was named as trustee
under the agreement. This agreement was signed on behalf of
Keystone by Alex Galbraith. This agreement provided for the
appointment of a Corporate Committee by the Keystone Board of
Directors. The committee, inter alia, is the named fiduciary
for purposes of ERISA and establishes investment policy.
36. Since 1980, the Jefferson Trust and Savings Bank of
Peoria ("Jefferson Bank") has served as successor trustee of
37. Alex Galbraith became associated with KCI in 1972,
almost ten years before Harold Simmons' involvement with the
Company. Galbraith served as chief financial officer for KCI
until March of 1984 when he became chief officer for Keycon
38. John Sommer began his career with KCI in 1935 and
retired in 1974 as president. Since 1974 his exclusive
relationship with KCI has been as a member of the board of
directors and of the Corporate Committee.
39. Galbraith first became associated with the Corporate
Committee in 1976 when he was asked to analyze the investment
results of the investment managers retained by the Committee
and to recommend changes in the investment managers.
41. Galbraith is a vested participant in employee benefit
plans whose assets are held by the Keystone Deferred Incentive
Trust and the Keystone Master Pension Trust. Galbraith holds
the largest interest of any Keystone employee in the Keystone
Deferred Incentive Plan.
42. Galbraith does not now have and never has had an
association or affiliation of any sort with any of the
following entities: Contran, Dixie Rice, National City Lines,
LLC, NOA, Southwest Louisiana Land Company, Gibson Products,
NLI, T.I.M.E.-D.C., and Amalgamated Sugar. He has never had
any association with any Simmons' affiliated trust or
corporate entity except KCI, Keycon Insurance, a KCI
subsidiary, and now Keycon Industries, Inc.
43. Alex Galbraith moved from Illinois to Dallas, Texas in
44. Sommer receives no compensation for his activity as a
member of the Corporate Committee and receives a total annual
compensation of $7,500 as a member of the board of directors.
That money does not constitute a significant portion of his
45. Sommer is a beneficiary of plans whose assets are held
and invested as part of the Keystone Master Pension Trust.
46. Sommer's only involvement with Harold Simmons or any of
his affiliated entities has been through his concurrent
membership with Simmons on the Corporate Committee and, for a
period, on the Board of Directors of KCI.
Appointment of Harold Simmons to the Corporate Committee and
his Assumption of Management Authority
47. Several additional members were added to the Corporate
Committee subsequent to May 1, 1977. As of February 25, 1982
0the Corporate Committee had seven members. The number
remained at seven until the reconstitution of the Committee on
April 22, 1982.
48. Keystone's operations had experienced severe losses in
1981 and early 1982, and the employee benefit plans within the
Keystone Master Pension Trust had substantial unfunded
49. The contribution obligations of Keystone Consolidated
Industries to the KMPT for the year ended June 30, 1982, as
reflected on the Forms 5500, was approximately $11,400,000.
50. The aggregate future contribution obligations of
Keystone Consolidated Industries on the plans whose assets
were held by the KMPT as reflected in the 1982 annual report
were approximately $129 million for vested benefits and
approximately $11 million for nonvested benefits, constituting
an aggregate obligation of approximately $140 million.
51. When the Corporate Committee met on February 24, 1982,
Alex Galbraith reported to the Committee that he had conferred
by phone with all money managers, and that all seemed to have
a good understanding of the market situation. Galbraith stated
that he did not recommend the Committee make any changes at
that time. The Committee agreed with Galbraith's
recommendations and decided to reevaluate the situation when
investment results were reported at the March and April
meetings of the Committee.
52. When the Corporate Committee met on April 21, 1982,
Galbraith reported that Mr. Brokaw seemed to be less in
control of the investments of Brokaw Capital Management (the
KMPT and KDIT equity manager) than he had been in prior, more
54. When the Keystone Board of Directors met on April 22,
1982, in response to advice from Glenn Simmons, the Board
adopted a resolution authorizing and directing the officers of
Keystone to execute documents necessary to amend, restate and
continue the plans and trusts. The Board also adopted a
resolution terminating previous appointments to the Corporate
Committee, appointing Harold Simmons to be Chairman, and
reappointing Alex Galbraith and John Sommer as members of the
Corporate Committee; appointing Warren Reynolds as a
non-voting member and the Secretary to the Committee;
authorizing the Committee to continue to employ, supervise and
remove investment managers, investment trustees or insurance
companies as required from time to time and to perform such
other duties as authorized in the pension plans included under
the Master Pension Trust Agreement; and ratifying and
confirming all prior actions of the Committee with regard to
investments of Trust Funds and appointments or changes in
investment managers. All of the directors present, including
Glenn Simmons and Michael Snetzer, voted in favor of the
55. Two directors of KCI, J. Walter Tucker and Stanley
Vermeil, nominated Harold Simmons to fill the remaining seat
on the Corporate Committee. Tucker and Vermeil were
independent of the Simmons interests.
56. On April 22, 1982 Glenn Simmons and Snetzer knew of and
were familiar with Harold Simmons' principals of fundamental
securities analysis. They were aware of the high degree of
skill that Harold Simmons had shown in applying his investment
method to the portfolios of employee benefit plans. They were
aware that Harold Simmons was successful in both managing the
downside risk of the plans and achieving long term gains for
57. Glenn Simmons and Snetzer were not at any time members
of the Corporate Committee. They were not at any time
investment managers for the KMPT.
58. At the time Harold Simmons was named to the Corporate
Committee and Galbraith and Sommer were reappointed to the
Corporate Committee in April of 1982, KCI had no reason to
doubt the competence, integrity or responsibility of any of
59. In late April or early May of 1982, Harold Simmons
approached Alex Galbraith and raised the possibility that
Harold Simmons be permitted to make initial investment
decisions on behalf of the Corporate Committee.
60. Galbraith sought clarification from Northern Trust
Company (the Trustee for the plans at the time) as to the
Corporate Committee's authority to delegate initial investment
decisions to Harold Simmons and was advised that the Corporate
Committee was empowered to assume full management of all
pension funds under the trust agreement. Galbraith received
this information on June 8, 1982.
61. Galbraith did not check to see if the KMPT trust
documents required that the delegation of investment authority
to Harold Simmons be in writing.
62. Prior to October 28, 1982, the KMPT Trust Agreement did
not address any administrative aspect of the internal
functioning of the Corporate Committee. The KMPT trust
document did not provide that an oral delegation of investment
authority could be made by the Corporate Committee as a body
to any of its members individually. In fact, there was no
provision in the trust agreement prohibiting one Corporate
Committee member from assuming such responsibility.
64. Prior to delegation of initial investment authority to
Harold Simmons, Alex Galbraith formed an opinion of Harold
Simmons' ability on the basis of statements made to Galbraith
by a bank officer that Harold Simmons checked out fine and had
the reputation of being an astute investor; Galbraith's
first-hand exposure to Harold Simmons during the period since
the fall of 1981 when the Simmons' companies became
significant investors in KCI; a statement from Michael Snetzer
that Harold Simmons successfully managed the investment of
certain Contran trusts with a rate of return of 60 to 70
percent per year over the last several years; and confirmation
by Glenn Simmons of that investment return.
65. In May and/or early June of 1982 Galbraith spoke with
Sommer regarding Harold Simmons' proposal that he be given
responsibility to manage investment of the plan assets. They
discussed at that time Galbraith's knowledge of Harold
66. Sometime after June 8, 1982, Messrs. Sommer and
Galbraith both engaged in a telephone conversation with Harold
Simmons in which they indicated to him that they had reviewed
his request and had determined that it was sensible and a good
idea that he should assume initial investment responsibility.
67. Galbraith assumed de facto responsibility for
administrative duties of the Corporate Committee.
68. Glenn Simmons, Snetzer and Keystone did not object to
Harold Simmons' taking over management of the assets of the
KMPT and KDIT.
69. On June 25, 1982, the Corporate Committee terminated all
investment management agreements.
70. The fees paid to outside investment managers had been
approximately $350,000 per year up until that time. Bringing
the investment management functions "in house" relieved the
trust funds of this expense.
71. In part, allocation of primary investment responsibility
to Harold Simmons was intended to benefit the KMPT by
increasing its rate of return on investments.
72. In a letter dated June 25, 1982, Galbraith informed
Robert Grimshaw of Northern Trust Company of recent actions
which had taken place with regard to the KMPT including the
change in the composition of the Corporate Committee and the
removal of the KMPT's investment managers.
73. Galbraith did not inform Grimshaw that the Corporate
Committee had delegated its investment authority to Harold
74. Prior to Harold Simmons' assumption of investment
authority, members of the Corporate Committee had received
only monthly reports concerning the investment activities of
the Trust and those were often not received until
approximately forty-five days after the close of each month.
After Harold Simmons assumed investment responsibility for the
KMPT, the other Corporate Committee members received more
frequent and more detailed reports than they had previously
received. These reports included information on the KMPT's
portfolio composition and liquidity needs.
75. Galbraith received current daily trading reports
indicating the securities that had been bought or sold and the
prices with respect thereto.
76. Galbraith read the reports upon receipt. If purchases of
securities with which he was not familiar were indicated, it
was his practice to obtain published materials or other
information to familiarize himself with the investment.
Galbraith periodically reviewed Harold Simmons' investment
files to obtain additional information on investments made by
Simmons on behalf of the KMPT.
78. Sommer received some daily reports but generally
received current weekly reports. Sommer also received
cumulative records kept by KCI listing purchases, sales,
commission rates, and prices at relevant dates. Sommer did not
carefully review the materials he received. He just took "a
79. Harold Simmons himself obtained and utilized both weekly
and monthly reports of the cash availability, cash needs, and
portfolio status of the KMPT.
80. Contrary to prior practice, there were no meetings of
the Corporate Committee between April 22, 1982 and October 3,
81. Harold Simmons is not aware of any written policy with
respect to the investment of the assets of the KMPT.
82. Harold Simmons has not committed his investment policy
Harold Simmons' Investments for the KMPT Prior to September
1982 and his Interest in Amalgamated
83. In contrast to paid investment managers, who commonly
liquidate the previous manager's portfolio upon undertaking a
new investment responsibility, Harold Simmons did not
liquidate the KMPT's investment portfolio at the start of his
management tenure. Mr. Simmons wanted to avoid unnecessary
costs or losses to the Trust.
84. The Form 5500 for the Pension Plan for the plan year
ending June 30, 1982, reflects net assets of $9,778,002,
including a receivable for contributions from Keystone in the
amount of approximately $3,267,900. Attached to the Form 5500
is a Summary of Assets held in the KMPT as of June 30, 1982.
The Summary reflects KMPT assets of $33,311,210, of which
$6,634,689, or 19.92% was held for the Pension Plan.
85. Harold Simmons began to make significant changes in the
KMPT's stock portfolio during July 1982. His investment
strategy involved buying stocks in depressed industries where
the price was likely to improve when the general stock market
86. Harold Simmons also utilized an investment strategy of
purchasing "special situation" stocks in which he had
identified unusual economic values in relation to their market
prices. Harold Simmons' method in selecting a special
situation stock followed principles of fundamental securities
analysis. This method of analysis, as Mr. Simmons applied it,
concentrated on the economic strength and underlying asset
values of a company. Harold Simmons believed that this method
tended to protect the stock investment from any large downside
risk of loss.
87. One aspect of Harold Simmons' investment method was the
perceived need to concentrate his investment in relatively few
companies. He made his investments in companies that he had
studied carefully and in which he had found substantial values
not widely recognized by other investors and not reflected in
the stock market prices of the securities.
88. Harold Simmons imposed upon himself a 25 percent
concentration limit for any single security when making
investments on behalf of the KMPT and other ERISA-governed
plans as to which he exercised investment authority.
89. Harold Simmons had shown a high degree of skill prior to
1982 in applying his investment method to the portfolios of
employee benefit plans. For example, his seven-year
performance for the Contran Plans had outperformed the general
stock market in every year with no losing year. His successful
method and performance were also displayed in the
T.I.M.E.-D.C. Pension Trust prior to 1982.
91. Harold Simmons had directed the purchase of Amalgamated
stock by various employee benefit plans and affiliated
companies since July 1981, even before his affiliation with
KCI or with the Keystone plans.
92. On September 14, 1981, an original schedule 13D, signed
by Harold Simmons and Michael Snetzer, concerning the common
stock of The Amalgamated Sugar Company, was filed on behalf of
National, NOA, Southwest Louisiana Land Company, Dixie Rice
Agricultural Corp., Contran, Contran Holding Company, and
Harold Simmons, individually ("the reporting persons"). This
schedule 13D and amendments thereto reflect that between July
17, 1981 and July 15, 1982, added to the list of reporting
persons were, inter alia, TIME-DC Trust, Gibson Trust, NLI,
Keycon and Keystone and that the various reporting persons
purchased shares of Amalgamated at prices ranging from $38.25
93. In Amendments to the Amalgamated 13D, Harold Simmons and
Michael Snetzer reported that certain of the Simmons'
Companies' purchases of Amalgamated stock were in part funded
by credit agreements with Mercantile.
94. Galbraith had become interested in Amalgamated stock as
a possible investment for the KMPT in early 1982. At that time
he requested and received from Coopers & Lybrand Amalgamated's
annual reports. He also received and reviewed Amalgamated's
Form 10-K and other information including Standard & Poor's
95. Galbraith first learned of purchases of Amalgamated
stock on behalf of the KMPT in July of 1982. As of that date,
he engaged in further investigation of Amalgamated stock.
96. Galbraith's curiosity about Amalgamated was triggered
because, although Amalgamated and Keystone were substantially
similar in that they operated in mature industries usually
plagued by slow growth and old plants and although both were
subject to fluctuations in the market price of raw materials,
Amalgamated managed to be profitable even when the sugar
industry was in a down part of its business cycle. Galbraith
knew that Amalgamated was the low cost producer in its
industry. Additionally, he considered that the Sugar Act of
1981 lent stability and protection to domestic sugar prices.
97. In February 1982, Harold Simmons offered to fill a
recent vacancy on Amalgamated's Board of Directors. In March
1982, Arthur Benning, Chairman and Chief Executive Officer of
Amalgamated, communicated to Simmons the Amalgamated Board's
determination that it would not be advisable to have Simmons
as a director.
98. By letter dated April 23, 1982, Harold Simmons informed
Horace Havemeyer, Jr., one of the directors of Amalgamated,
that he would be interested in purchasing Havemeyer's block of
99. By letter dated May 3, 1982, Harold Simmons informed Mr.
R.H. Burton, a director of Amalgamated, that he might be
interested in purchasing Burton's Amalgamated stock if Burton
ever considered selling. Simmons also noted his earlier
unaccepted request to be considered for the Amalgamated Board
100. By letter dated May 19, 1982, Harold Simmons informed
Spencer Eccles — Chairman of First Security Corporation in
Salt Lake City, a director of Amalgamated — that if he or his
bank ever considered selling a block of Amalgamated stock,
Simmons would be interested in buying.
102. The first time Harold Simmons used assets of the KMPT
to purchase Amalgamated stock was on July 14, 1982 at prices
of $49.125 and $49.50. In Amendment No. 9 to the Amalgamated
13D, dated July 15, 1982 and signed by Harold Simmons, Alex
Galbraith, and Michael Snetzer, the KMPT was added to the list
of reporting persons who had purchased Amalgamated stock.
103. Amendment No. 10 to the Amalgamated 13D dated July 22,
1982, was signed by Harold Simmons, Michael Snetzer and Alex
Galbraith. Harold Simmons purchased Amalgamated shares for
Keycon and the KMPT between July 16 and 20, 1982 at prices
ranging from $50.00 to $52.75.
104. In August 1982 Harold Simmons purchased 17,400
Amalgamated shares for Keycon at prices ranging from $48.375
105. In August 1982 Harold Simmons used almost $1.4 million
of KMPT assets to purchase 130,000 shares of stock — but no
Amalgamated stock. Because of his heavy stock purchases in July
and August, Simmons virtually depleted the cash balances in the
KMPT, i.e., as of August 31, 1982 there was only slightly more
than $80,000 in cash and cash equivalents.
106. As of September 2, 1982: NLI held 182,200 shares of
Amalgamated common stock and had paid an average of $48.128
for each such share; NOA held 104,500 shares of Amalgamated
and had paid an average of $43.833 for each such share; the
TIME-DC Trust held 32,900 shares of Amalgamated and had paid
an average of $43.777 for each such share; the Gibson Trust
held 1,200 shares of Amalgamated and had paid an average of
$42.458 for each such share; Keycon held 27,000 shares of
Amalgamated and had paid an average of $50.99 for each such
share; and the KMPT held 22,100 shares of Amalgamated and had
paid an average of $51.415 for each such share.
107. As of September 2, 1982, NLI, NOA and Keycon held
313,700 shares of Amalgamated. These shares represented about
15.50% of the total number of outstanding Amalgamated shares
as reported in Amalgamated's quarterly report on Form 10-Q for
the quarter ended June 28, 1982 ("the June 1982 Form 10-Q").
NLI, NOA and Keycon purchased these shares for approximately
$14,726,500 (exclusive of commissions).
108. As of September 2, 1982, the KMPT held 22,100 shares of
Amalgamated. These shares represented about 1.1% of the total
number of Amalgamated shares as reported in the June 1982 Form
10-Q. The KMPT purchased these Amalgamated shares for
approximately $1,136,262.50 (exclusive of commissions).
The Amalgamated — SKZ Merger Proposal
109. Amalgamated's board of directors had hired First Boston
Corporation in early 1981 to study and propose a major
restructuring of the company, including a possible sale of the
company. The hiring of First Boston preceded any purchase of
Amalgamated stock by the Simmons interests in 1981 and 1982.
110. During most of 1982, First Boston looked for potential
purchasers of Amalgamated. First Boston proposed to structure
a "leveraged buy-out." A "leveraged buy-out" would be a
transaction in which the purchaser would buy Amalgamated
primarily with Amalgamated's own assets and earnings.
111. Amalgamated's decision in March of 1982 to authorize
First Boston Corporation to explore the possibility of a sale
of Amalgamated and the resultant SKZ merger proposal were in
part a response to the possibility that Harold Simmons might
be able to acquire working control of Amalgamated through open
market purchases of shares without acquiring 100% of the
shares outstanding and without paying a control premium. First
Boston approached 40 to 50 companies seeking a buyer, but it
never approached Harold Simmons or one of his Companies.
112. On September 2, 1982, Amalgamated announced a Merger
Agreement with SKZ Holdings, Inc., a company newly formed by
investor Selim Zilkha for purposes of the merger. The
agreement provided for the merger of Mina, Inc. into
Amalgamated, the surviving company. The successful completion
of the SKZ merger proposal was to result in SKZ's control of
113. The proposed SKZ/Amalgamated merger was structured to
be a leveraged but-out. It also was structured to be an
involuntary "freeze-out" in which Amalgamated's shareholders
would receive $60 per share in cash, plus a $1.25 per share
dividend, payable to shareholders of record as of October 15,
1982, regardless of whether they wished to sell their stock.
114. On September 2, 1982, Amalgamated also entered into a
Stock Option Agreement pursuant to which SKZ was granted the
unconditional option to purchase up to 374,000 shares of
Amalgamated at $60 per share.
115. On September 2, 1982, Amalgamated Directors A.E.
Benning, R.H. Burton, Spencer F. Eccles and Horace Havemeyer,
Jr. entered into separate Shareholder Agreements with SKZ,
which provided that they would vote all shares they
beneficially owned (which constituted 16.1% of the
approximately two million shares outstanding as of September
2, 1982) in favor of the SKZ merger proposal and that they
would not dispose of their shares to anyone but SKZ.
116. Amalgamated announced that a special shareholders
meeting to vote on the proposed merger had been ...