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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 — NATIONAL LOCK DIVISION, PLAINTIFFS,
v.
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 — 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 evidence.

The Court makes the following findings of fact and conclusions of law.

FINDINGS OF FACT

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 ("Contran").

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 Simmons.

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.

13. On September 8, 1981, National announced its intention to make a tender offer to purchase all outstanding shares of LLC Corporation ("LLC"). It also filed suit against LLC in that regard.

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, 1981.

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 Directors.

19. By November 23, 1981, Contran was the beneficial owner of approximately 43% of LLC's outstanding shares of common stock.

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 contests.

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 Keystone.

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 ("Mercantile").

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 KDIT.

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 Industries, Inc.

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 June 1982.

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 current income.

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 liabilities.

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 successful years.

53. The record reflects that the Corporate Committee met regularly up until April 22, 1982. Written minutes of those meetings were kept by the designated Secretary to the Committee. At the meetings, the Committee, inter alia, reviewed and discussed written summaries of the performance of the various investment managers retained by the Committee and established investment guidelines for those managers.

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 resolution.

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 the plans.

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 these men.

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.

63. Prior to the Fall of 1981, Galbraith had never heard of Harold Simmons. He first learned of Simmons' involvement with KCI when he was told by the Chief Executive Officer of KCI of a Schedule 13D filing indicating that Simmons had increased his stock ownership in KCI to over five percent (5%).

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 Simmons.

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 Simmons.

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.

77. In certain circumstances Galbraith would investigate other aspects of a company in which the KMPT invested, such as their proprietary technology. With respect to National Standard Corp., for example, he engaged the KCI engineering department to advise him as to their views about a particular type of powder metal technology.

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 quick look."

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, 1982.

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 to writing.

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 turned up.

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 to $50.00.

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 reports.

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 Amalgamated stock.

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 of Directors.

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.

101. In July 1982, Harold Simmons used assets of the KMPT to purchase 429,400 shares of stock in 22 companies for a total cost of $7,120,677.

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 to $53.00.

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 Amalgamated.

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 ...


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