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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the period ended
December 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from
____________________ To ______________________
Commission File Number: 1-8984
WEDGESTONE FINANCIAL
(Exact Name of Registrant as Specified in its Charter)
Massachusetts 04-26950000
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification Number)
5200 N. Irwindale Avenue
Suite 168
Irwindale, California 91706
(818) 338-3555
(Address, including zip code and telephone number, including area code of
registrant's principal executive offices)
---------------------------
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Shares of Beneficial Interest, $1.00 par value
Indicate by check mark whether the registrant has (1) 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 such shorter period that the registrant was required
to file such reports) and (2) has been subject to filing requirements for the
past 90 days.
[ X ] YES [ ] No
Indicated by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained here, and will not be contained, to the best
of registrant's knowledge, in definitive proxy of information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[ X ] YES [ ] No
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
[ X ] YES [ ] No
Shares of Beneficial Interest Outstanding as of March 28, 1996: 21,885,668
Documents Incorporated by Reference
Documents incorporated by reference in Part III of this Form 10-K:
Definitive Proxy Statement to be filed pursuant to Regulation 14A
Total number of pages in this document: 51 Exhibits at page: 39
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<PAGE>
PART I
Items 1. and 2. Business and Properties
A. Introduction and Background
Wedgestone Financial ("Wedgestone" or the "Company"), a Massachusetts
business trust which was organized in 1980, commenced operations as a real
estate investment trust under the Internal Revenue Code of 1986, as amended, and
continued those operations through December 31, 1991. On August 9, 1991,
Wedgestone filed a petition with the United States Bankruptcy Court for the
district of Massachusetts Eastern Division (the "Bankruptcy Court") under
Chapter 11 of the United States Bankruptcy Code, Case No. 91-16930-WCH (the
"Bankruptcy Proceeding"). Wedgestone's plan of reorganization (the "Plan") was
confirmed by the Bankruptcy Court on May 5, 1992.
Under its current management, Wedgestone operates in two business
segments as follows:
A) Automotive Products for the light duty truck aftermarket; and
B) Real Estate and Lending activities.
The business of the Automotive Products segment is conducted primarily
through Wedgestone's wholly owned subsidiary, Wedgestone Automotive Corp
("Wedgestone Automotive"), which, in turn, wholly owns the subsidiaries Fey
Automotive Products, Inc. ("Fey"), St. James Automotive Corp ("St. James"),
Sigma Plating Co., Inc. ("Sigma") and Hercules Automotive Products, Inc.
("Hercules") which was acquired on January 9, 1995. Fey and Sigma were acquired
on November 18, 1994, and have been accounted for as a put-together, which is
similar to the pooling of interest method of accounting. As a result of this
accounting treatment, the table of Financial Information Relating to Business
Segments that follows and other financial statements contained herein have been
restated to include the balance sheets, results of operations and cash flows for
Fey and Sigma for all periods presented.
<TABLE>
Financial Information Relating to Business Segments
(Amounts in Thousands)
<CAPTION>
For the Years Ended December 31,
1995 1994 1993
---------- ---------- -------
<S> <C> <C> <C>
Revenues:
Automotive Products:
Manufactured Products for Light Duty Trucks $39,970 $28,135 $23,897
Contract Plating 3,680 3,179 3,097
All Other 2,462 3,304 2,478
--------- ------- -------
Total $46,112 $34,618 $29,472
======= ======= =======
v
Real Estate and Lending (a) --- --- ---
Operating Income (Loss):
Automotive Products $ 3,259 $ 2,367 $ 986
Real Estate and Lending (529) (363) (433)
--------- ------- -------
Total $ 2,730 $ 2,004 $ 553
======= ======= =======
Identifiable Assets:
Automotive Products $17,228 $11,087 $ 9,555
Real Estate and Lending 1,375 1,880 1,818
--------- ------- -------
Total Identifiable Assets $18,603 $12,967 $11,372
======= ======= =======
<FN>
(a) Real Estate and Lending revenues are immaterial and reported with operating costs.
</FN>
</TABLE>
1
<PAGE>
B. Automotive Products Business Segment
On November 18, 1994 ,Wedgestone acquired the Automotive Segment of
Standun, Inc. ("Standun"), which consisted of Sigma and the Fey Automotive
Products division. The assets of the Fey division were merged into Wedgestone's
wholly owned subsidiary Fey Automotive Products, Inc. On January 9, 1995,
Wedgestone acquired substantially all of the assets of Hercules Bumpers, Inc., a
Georgia company. These acquisitions, along with Wedgestone's wholly owned
subsidiary St. James, were placed under the common ownership of Wedgestone's
wholly owned subsidiary, Wedgestone Automotive. Collectively, these companies
comprise the Automotive Products business segment which, unless the context
otherwise requires, will be hereinafter referred to as Wedgestone Automotive.
Wedgestone Automotive manufactures and distributes automotive
aftermarket products for the light duty truck market. Principal products include
rear bumpers; tubular products such as grille guards, push bars, and step rails;
and various other related aftermarket products. Additionally, Sigma provides
contract chrome plating services to other unrelated parties. Combined sales for
all products were $46,112,000, $34,618,000 and $29,472,000 for the years ended
December 31, 1995, 1994 and 1993, respectively. Hercules, acquired in 1995, also
manufactures and markets bumpers for the light duty truck aftermarket, reported
sales of $13,017,000 for its fiscal year ended September 30, 1994, and sales of
$10,993,000 for the year ended December 31, 1995. See Subsequent Events below.
The Company's automotive products are sold in the following markets:
Traditional Aftermarket: This market includes new car dealerships, body
shops, speed shops, off-road specialty shops and van and truck
converters. Wedgestone Automotive reaches these customers through an
established network of warehouse distributors, jobbers, dealer
expediters and specialty wholesalers.
Original Equipment Aftermarket: Utilizing products specifically
approved by truck manufacturers such as General Motors, Chrysler and
Nissan, Wedgestone Automotive ships directly into their distribution
channels in order to take advantage of factory supported sales of its
truck accessories through dealer level service parts operations.
Retail Aftermarket: Wedgestone Automotive reaches the retail consumer
through local, regional and national chains dedicated to automotive
products as well as independent retailers whose stores support a large
assortment of automotive product lines.
Significant Customers, Competitive Position, Intellectual Property
There is no single customer whose purchases exceeded 10% of Wedgestone
Automotive's sales. The sectors of the automotive industry in which Wedgestone
competes are extremely competitive and heavily influenced by policies and
programs implemented by the OE Manufacturers. The companies servicing Wedgestone
Automotive's markets with competing products vary in size and capability with
none dominating the market as a whole. All such companies compete on the basis
of product design, availability, lead time, price and product performance.
Wedgestone Automotive has no patents, trademarks, franchises or concessions. It
markets its products under various tradenames including Fey, Tuff Bar, Westin
and Hercules.
Raw Materials, Distribution, Inventories and Seasonality
Raw materials are purchased under standard industry terms through a
number of vendors located within the vicinity of the plant being served.
Management does not anticipate any shortages of materials. Wedgestone
Automotive's products are distributed through the manufacturing facilities in
California and Minnesota and further through distribution warehouses in Utah and
Texas since March 1996.
Sales are primarily serviced out of finished goods inventories. For
this reason, inventories are a material portion of the company's operating
assets. The Company schedules manufacturing to maintain desired inventory
levels. Order backlogs for Wedgestone Automotive Products totalled $1,500,000 as
of December 31, 1995 as compared to $500,000 as of December 31, 1994.
Substantially, all of this growth is due to the growing demand for Westin
products manufactured at St. James. While the automotive aftermarket is not
considered to be seasonal, it is subject to the annual effects of new model
introductions and, as such, business can increase in the fall after new models
are released and in the spring as dealers seek to move inventory in anticipation
of the next model year.
2
<PAGE>
Subsequent Events
On March 5, 1996, Hercules closed its manufacturing plant in Pelham,
Georgia. The market for the bumpers produced in the Pelham facility
significantly changed during 1995. Historically, a significant percentage of
Hercules business was for sales to dealers of a domestic OE Manufacturer. A new
program implemented by one of these manufacturers in late 1994 made it extremely
difficult for Hercules to remain competitive in this market segment.
Accordingly, Hercules incurred a net loss of $125,000 in 1995. As a result,
management determined that closing the Pelham facility was appropriate. Hercules
is working with its senior lender for an orderly liquidation of the assets in
Pelham. While the final outcome is uncertain, the Company does not expect the
closure of the Pelham facility to have a material effect on 1996 operations.
<TABLE>
Subsidiary Operations; Employees, Facilities and Environmental
As of March 15, 1996, Wedgestone Automotive manufactures its products
in several subsidiaries as follows:
<CAPTION>
Facility Square Footage Employees Products
-------- -------------- --------- ---------
<S> <C> <C> <C>
Fey Automotive Products, Inc. 89,000 137 Bumpers, Step Rails &
Related Products
St. James Automotive Corp. 95,000 103 Bumpers, Grille Guards, Step
Bars & other Tublular Products
Sigma Plating Co., Inc. 26,000 88 Intercompany and outside
------- ---- contract plating services
210,000 328
======= ===
</TABLE>
As of March 15, 1996, the manufacturing employees of Fey are
represented by a union whose contract expires in March 1996. Wedgestone believes
that its relations with all of its employees are satisfactory.
Fey leases 89,000 square feet of manufacturing, warehousing and office
space located in Irwindale, California, approximately 30 miles east of Los
Angeles. Fey also leases distribution warehouses in Salt Lake City, Utah and
Fort Worth, Texas. The leases expire at various times through 2002.
St. James leases a 95,000 square foot facility in St. James, Minnesota,
which is approximately 120 miles southwest of Minneapolis. The lease obligation
extends through October 31, 1998. The lease contains a purchase option for the
facility.
Sigma owns a 26,000 square foot facility on 3 acres of land in
LaPuente, California, approximately 25 miles east of Los Angeles.
Hercules owns a 280,000 square foot facility on 40 acres of land in
Pelham, Georgia, approximately 180 miles southwest of Atlanta. Operations at
this plant were terminated on March 5, 1996, and decommissioning of the facility
is in process.
Environmental Matters
St. James, Sigma and Hercules operate chrome plating facilities.
Hazardous wastes generated by these operations are disposed in the normal course
for this type of business. Aqueous wastes are treated at the facility to meet
applicable regulatory standards and then discharged to the public treatment
works. Solid wastes and by-products are transported to a recycler for processing
and destruction. All current activities at the facilities are believed to be
within the operational parameters of the required environmental permits and are
monitored both internally by facility personnel and periodically by regulatory
agencies. In anticipation of expanding the St. James facility and its
operations, St. James conducted tests which revealed possible environmental
contamination by a previous operator/tenant. St. James notified the principal
shareholder of the prior operator, who is also the landlord, and the relevant
regulatory authorities of the test results. St. James has been partially
indemnified from costs relating to potential clean-up by the principal
shareholder of the prior operator and the landlord. As a result of the closure
of its plant on March 5, 1996, Hercules is in the process of decommissioning its
plating line in Pelham, Georgia.
3
<PAGE>
C. Real Estate and Lending Segment
Although its primary focus has shifted toward its Automotive Products
business segment, Wedgestone's Real Estate and Lending business segment has
continued since emerging from bankruptcy in 1992.
Real Estate Acquired By Foreclosure
Wedgestone owns three properties that were acquired by foreclosure.
They include four commercial condominiums in Peabody, Massachusetts; 59 acres of
undeveloped land in Bristol, Connecticut; and approximately 21 acres of land in
Queens, New York, 15 acres of which are below water. The Queens property is
subject to litigation, which Wedgestone originated, relating to the original
loan. Wedgestone is required to transfer for the benefit of the pre-bankruptcy
creditors, 50% of the net proceeds received, if any, from this litigation.
Promissory Notes and Claims
Wedgestone has an outstanding loan on one property, the aggregate value
of which totals approximately $84,000 as of December 31, 1995, net of reserves.
Management believes that current reserves recorded against this loan are
adequate.
Genesis Plastics, Inc.
On August 24, 1992, Wedgestone entered into a secured loan agreement
(the "Loan") with Genesis Plastics, Inc. ("Genesis"), a plastics recycler. The
Loan, originally for borrowings of up to $1,000,000, was subsequently amended to
provide for borrowings of up to $2,000,000 and over advances at the discretion
of Wedgestone. Affiliated parties of Wedgestone agreed to purchase a pro rata
participation in excess of $800,000 of the Loan. Genesis had previously filed
for protection under Chapter 11 of the United States Bankruptcy Code on August
24, 1994 and had been unsuccessful in its efforts to secure a buyer for its
Charleroi, Pennsylvania recycling facility. Wedgestone held a senior security
interest in the inventory, receivables and certain equipment of Genesis. On
November 29, 1995, in accordance with its rights under the Loan, Wedgestone
consented to the liquidation of the Genesis' inventory and equipment of Genesis
through a public auction. As a result of this action, Wedgestone recorded a
one-time loss of $697,000 in December 1995.
Environmental Matters
Under the Comprehensive Environmental Response Compensation and
Liability Act of 1983, as amended ("CERCLA"), an owner or operator of property
(including, in certain circumstances, a lender who takes title by foreclosure or
who participates in the management of the property) may be liable to reimburse
the federal government or a third party for the cost of cleaning up oil or
hazardous substances found on the property. Many states in which Wedgestone
conducts business, including Massachusetts, have enacted similar statutes
("Superfund Laws"), under which an owner or operator of property (including a
foreclosing lender or a lender who actively participates in the management of
the property) may be liable to reimburse the state government or a third party
for clean-up costs and to compensate the state or any other person for injuries
or damages caused by oil or hazardous-substance contamination. The liability
created by CERCLA and the state Superfund Laws is joint and several subject, in
a limited number of cases, to certain defenses.
A number of states in which Wedgestone conducts business, including
Massachusetts, also allow the state to impose a lien on the property of a liable
party as security for the payment of clean-up costs. Many of these jurisdictions
provide that this lien, at least as it pertains to the contaminated property, is
senior to all pre-existing liens.
Accordingly, if real estate securing a Wedgestone loan were found to
contain oil or hazardous substances, enforcement of a state Superfund Law could
significantly reduce the value of Wedgestone's lien. In the event real estate
owned or controlled by Wedgestone pursuant to foreclosure or exercise of other
remedies under its loan documents were found to contain hazardous substances,
enforcement of a state Superfund Law or CERCLA could potentially require
expenditure of funds in amounts which may have a significant adverse impact upon
Wedgestone's earnings, capital expenditure requirements and liquidity.
Net Operating Loss
Wedgestone has a net operating loss carry forward for federal income
tax of approximately $43,000,000.
Item 3. Legal Proceedings
Bankruptcy Claims
4
<PAGE>
On October 30, 1992, a group calling itself the "Equity Security
Holders Committee of Wedgestone Financial" (the "Committee") filed a complaint
(the "Complaint") commencing an adversary proceeding in the United States
Bankruptcy Court for the District of Massachusetts. On May 20, 1993, the Court
dismissed the adversary proceeding. The Committee appealed the dismissal to the
District Court. The appeal was denied on August 17, 1994. The Committee appealed
to the United States Court of Appeals for the First Circuit. The appeal was
denied on March 1, 1995. The Committee requested a rehearing by the United
States Court of Appeals for the First Circuit. On March 22, 1995, the
Committee's request was denied.
Other
On May 25, 1995, the United States Bankruptcy Court for the District of
Massachusetts (the "Court") issued an order establishing rights and obligations
with respect to the then one remaining outstanding loan under which income
rights had been granted to certain Special Income Shareholders. The order
released Wedgestone from all obligations regarding the loan and authorized the
Company to transfer all loan documents to the Federal Deposit Insurance
Corporation. In connection with this order, Wedgestone was directed to cancel
the Special Income Shares subject to certain future distribution rights. The
balance sheet and income statement presentation included in this Form 10-K has
been changed to reflect this cancellation. A Mr. Landers has appealed to the
Court. On March 19, 1996, Wedgestone moved for dismissal of the appeal. A
decision is pending.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
5
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
Wedgestone's shares of beneficial interest are currently traded in the
over-the-counter market under the trading symbol "WDGF". The prices set forth
below represent trades between dealers, without adjustment for retail mark up,
mark down or commission, and do not necessarily represent actual transactions.
The following table sets forth the high and low bid prices of Wedgestone's
shares of beneficial interest for each quarter of 1995 and 1994.
Market Price Range
-----------------------------------------------
1995 1994
---- ----
Quarter High Low High Low
------- ---- --- ---- ---
First .48 .38 .05 .05
Second .56 .44 .07 .05
Third .52 .42 .15 .07
Fourth .31 .06 1.06 .06
-----------------------------------------------
On March 28, 1996, the bid price of Wedgestone's shares of beneficial
interest was .22.
Record Holders
On March 28, 1996, there were 2,558 record holders of Wedgestone's
shares of beneficial interest. Also see Note 9 of the financial statements
Cash Dividends Declared and Paid Per Share
There were no dividends declared or paid by Wedgestone on its shares of
beneficial interest for the years ended December 31, 1991 through 1995.
Wedgestone presently intends to retain all earnings in connection with its
business payment of dividends in the future will be within the discretion of the
Board of Trustees and will depend upon, among other factors, earnings and the
operating and financial condition of the business.
6
<PAGE>
<TABLE>
Item 6. Selected Financial Data
The following selected financial data includes the automotive products
segment since 1992, and have been derived from Wedgestone's Consolidated
Financial Statements and should be read in conjunction with the Management
Discussion and Analysis and the Consolidated Financial Statements and related
notes. Prior to 1992, Wedgestone's operations were limited to real estate
lending and investing activities.
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Operating Data: (In Thousands)
Net sales $46,112 $34,618 $29,472 $27,040 $ ---
Income (loss)before
extraordinary gain 1,845 1,493 (116) (1,677) (11,066)
Extraordinary gain from
net liabilities discharged
in bankruptcy proceeding --- --- --- 9,029 ---
-------- ------- ------- ------- ---------
Net income (loss) $ 1,845 $ 1,493 ($ 116) $ 7,352 ($ 11,066)
======= ======= ======= ======= =========
Per Share Data:
Income (loss) before
extraordinary gain $ 0.08 $ 0.07 ($ 0.01) $ (0.10) $ (1.75)
Extraordinary gain --- --- --- 0.52 ---
-------- ------- ------- ------- ---------
Net income (loss) $ 0.08 $ 0.07 $ (0.01) $ 0.42 $ (1.75)
======= ======= ======= ======= =========
Weighted average
Shares outstanding 21,764,280 20,385,668 20,385,668 17,303,683 6,307,554
========== ========== ========== ========== =========
Balance Sheet Data: (In Thousands)
Working Capital $ 4,188 $ 3,418 $ 2,390 $ 1,872 $ (35,360)
======= ======= ======= ======= =========
Total assets $21,398 $14,391 $11,530 $12,535 $ 31,187
======= ======= ======= ======= =========
Prepetition liabilities subject
to compromise --- --- --- --- $ 36,238
======= ======= ======= ======= =========
Long-term debt $ 8,447 $ 5,676 $ 3,835 $ 2,905 ---
======= ======= ======= ======= =========
Total shareholders' equity
(deficiency in assets) $ 5,747 $ 3,382 $ 2,558 $ 3,430 $ (6,676)
======= ======= ======= ======= =========
</TABLE>
7
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations For the Years Ended December 31, 1995 and 1994
Background
On November 18, 1994, Wedgestone acquired Fey and Sigma from the
related party, Standun, which has been accounted for as a put-together which is
similar to the pooling of interest method of accounting. This transaction has
resulted in a re-statement of Wedgestone's financial statements to include the
historical balance sheets, results of operations and cash flows for Fey and
Sigma for all periods presented. On January 9, 1995, Wedgestone acquired
substantially all of the assets of Hercules Bumpers, Inc., a Georgia company.
The management discussion and analysis of financial results that follows also
incorporates these companies.
Liquidity and Capital Resources
To date, Wedgestone has financed its business activities through the
cash flow from operations. Additional debt has been incurred primarily for
working capital and acquisitions. See Notes 7 and 10 to the Consolidated
Financial Statements.
Cash flows from operations totaling $2,440,000 were supplemented by
$617,000 in inventory reductions in 1995. Wedgestone used $1,016,000 of this
cash flow to reduce other accrued expenses. This resulted in $1,836,000 in net
cash provided by operating activities in 1995 compared to $66,000 in 1994.
Wedgestone invested $926,000 in new property and equipment and $126,000 in
investment real estate in 1995. For 1995, cash flows used in financing
activities totaled $198,000. Borrowings under the revolving line of credit and
certain long-term debt totaled $836,000 and repayments of long-term debt totaled
$949,000.
Wedgestone has borrowings outstanding from a related party totaling
$729,000 (the "Rockaway Loan") as of December 31, 1995, which mature in July
1996. Under this credit agreement, the borrowings are collateralized by
substantially all of the assets of the Company.
In connection with the acquisition of the Automotive Segment of
Standun, Inc., Wedgestone, through certain wholly-owned subsidiaries, entered
into a three-year $7.5 million revolving credit line with a financial
institution. The credit line provides for borrowings (minimum borrowings of $4
million are required) based on a percentage of inventory and accounts
receivable. Interest on the outstanding borrowings accrues at prime, plus 2.5%.
The agreement also includes equipment term loans approximating $1.4 million at
December 31, 1995. The agreement contains certain covenants which require the
maintenance of minimum working capital and equity.
In connection with the acquisition of Hercules on January 9, 1995, a
wholly-owned subsidiary of Wedgestone assumed certain debt currently consisting
of a term loan of $4.0 million, and an industrial revenue bond of $285,000 due
March 1, 1999.
On March 5, 1996, Hercules closed its facility in Pelham, Georgia, as a
result of unfavorable market conditions for products produced in the Pelham
facility. Hercules is working with its senior lender for an orderly liquidation
of the assets in Pelham. The Company does not expect the closure of the Pelham
facility to have a material effect on 1996 operations.
To the extent that Wedgestone expands its operations and makes
additional acquisitions, it will need to obtain additional funding from
institutional lenders and other sources. Wedgestone's ability to use equity in
obtaining funding may be limited by its desire to preserve certain tax
attributes including its net operating loss carry forwards.
Results Of Operations
Current Year Performance 1995 Compared to 1994
Operating income grew by 36% or $726,000 in 1995 over 1994. Hercules
accounted for $487,000 or 67% of this growth. During the latter part of 1995,
the performance of Hercules was significantly impacted by declining sales and
general market conditions due to direct OEM competition.
Sales increased over 1994 by 33% or $11,494,000. Hercules accounted for
$10,993,000 of this increase. Gross profit increased by $3,450,000 in 1995.
Gross margin as a percent of sales was comparable to 1994 at approximately 31%
of sales.
8
<PAGE>
Sales and Marketing costs increased $1,437,000 in 1995, $1,408,000 or
98% of which was attributable to Hercules. Administrative costs increased by
$1,287,000 in 1995, $913,000 or 71% of which was attributable to Hercules. Legal
and other acquisition fees related to the acquisition of the Standun Automotive
Segment which were expensed for an additional $300,000 of this increase.
Interest expense increased by $854,000 in 1995, $553,000 of which was
attributable to Hercules. Amortization of loan origination fees and interest on
the note payable assumed in connection with the acquisition of the Standun
Automotive Segment accounted for the majority of the remainder of this increase.
Other expenses in 1995 include loan losses of $697,000 on the Genesis
Plastics loan.
Income taxes in 1995 reflect a $1,258,000 benefit due to a $1,300,000
adjustment to the Company's valuation reserve. This adjustment is due to
management's expectations of the Company's ability to more fully utilize its net
operating loss carryforwards due to the Company's more recent earnings
performance, excluding Hercules and the Genesis loan loss.
Prior Performance: 1994 Compared to 1993
The significant increase in 1994 operating income over 1993 is
primarily due to the performance of the Automotive Products segment. Sales for
this segment were 17.5% higher than in 1993. This increase is due to the growth
of the domestic automotive industry and a growing acceptance of the Westin
product line manufactured at St. James. The increase in revenues enabled all
facilities to enhance their utilization of plant capacity and obtain a greater
return on fixed costs. As a result of this and the continuing efforts to lower
the Automotive Products segment's overhead structure, gross margins increased
from 29% of sales in 1993 to 31% in 1994.
In 1993, significant efforts were made to enhance the aftermarket
awareness of the Westin line of products manufactured in St. James. The market's
acceptance of this line of Grille Guards, Push Bars, Step Rails and other
tubular products in 1994, was such that the growth of this line accounted for
70% or $3,605,300 of the Company's $5,146,000 sales increase over 1993.
Sales and marketing expenses increased by $668,000 in 1994 over 1993.
Of this amount, $516,000 is due to variable selling costs such as commissions,
packaging and freight which increased due to the increase in sales from 1993 to
1994. To facilitate this increase in sales, Wedgestone Automotive increased its
advertising and promotion expenditures in 1994 by $152,000.
Administrative expenses increased in 1994 due to $190,000 in legal and
accounting costs incurred as a result of the acquisition of the Standun
Automotive Segment.
Accounting Pronouncements
In 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. The
principles established in the new statement must be applied by the Company in
1996. Among other provisions, the statement changed current accounting practices
for the evaluation of impairment of long-lived assets. Management has not yet
completed its analysis of the effect of adopting the new statement.
In 1995, the FASB also issued SFAS No. 123, Accounting for Stock-Based
Compensation, which will be effective for the Company beginning January 1, 1996.
SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require) compensation
cost to be measured based on fair value of the equity instrument awarded.
Companies are permitted, however, to continue to apply APB Opinion No. 25, which
recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. The Company will continue to apply APB Opinion No. 25 to its
stock based compensation awards to employees and will disclose the required pro
forma effect on net income and earnings per share.
9
<PAGE>
Item 8. Consolidated Financial Statements and Supplementary Data
WEDGESTONE FINANCIAL AND SUBSIDIARIES
INDEX
Page
----
Financial Statements
Independent Auditor's Report 11
Consolidated Balance Sheets as of
December 31, 1995, and December
31, 1994. 12
Consolidated Statements of Operations
for the years ended December 31,
1995, 1994, and 1993. 13
Consolidated Statements of
Shareholders' Equity for the years
ended December 31, 1995, 1994,and 1993. 14
Consolidated Statements of Cash
Flow for the years ended
December 31, 1995, 1994 and 1993. 15
Notes to Consolidated Financial
Statements. 16
10
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of Wedgestone Financial and
Subsidiaries:
We have audited the accompanying consolidated balance sheets of Wedgestone
Financial and Subsidiaries as of December 31, 1995 and 1994 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1995. Our audits also
included the consolidated financial statement schedules listed in the index at
Item 14. These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Wedgestone Financial and
Subsidiaries as of December 31, 1995 and 1994, and the results of their
operations, and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
Also, in our opinion, such consolidated financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
Deloitte & Touche LLP
Los Angeles, California
March 27, 1996
11
<PAGE>
<TABLE>
WEDGESTONE FINANCIAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 and 1994
(Amounts in Thousands--except share data)
<CAPTION>
1995 1994
------------- --------
<S> <C> <C>
ASSSETS (Note 7)
Current Assets:
Cash $ 365 $ 179
Accounts and other receivable - (net of allowances of $256 and
$202 in 1995 and 1994, respectively) 6,057 4,452
Inventories (Note 4) 4,123 3,610
Prepaid expenses and other assets 371 194
Deferred income taxes (Note 8) 476 316
-------- --------
Total Current Assets 11,392 8,751
Notes receivable - net (Note 6) 84 735
Real estate acquired by foreclosure - net (Note 6) 1,091 965
Property, plant and equipment - net (Note 5) 4,694 2,510
Goodwill 550 217
Deferred income taxes (Note 8) 2,114 974
Other assets 1,473 239
-------- --------
10,006 5,640
-------- --------
Total Assets $ 21,398 $ 14,391
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Revolving and current portion of long-term debt (Note 7) $ 2,305 $ 1,032
Accounts payable 3,308 2,975
Accrued payroll and related expenses 611 400
Other accrued expenses 980 926
-------- --------
Total Current Liabilities 6,475 5,333
Long-term debt (Note 7) 8,447 5,676
-------- --------
Total liabilities 15,651 11,009
Commitments and contingencies (Notes 10 and 12)
Shareholders' Equity: (Notes 9 and 11)
Shares of Beneficial Interest - par value $1.00 per
share: authorized -- unlimited shares;
issued and outstanding -- 21,885,668 shares and 20,385,668
at December 31, 1995 and 1994, respectively 21,886 20,386
Additional paid-in capital 31,396 32,376
Accumulated deficit (47,535) (49,380)
-------- --------
Total Shareholders' Equity 5,747 3,382
-------- --------
Total Liabilities and Shareholders' Equity $ 21,398 $ 14,391
======== ========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
12
<PAGE>
<TABLE>
WEDGESTONE FINANCIAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
(Amounts in Thousands--except per share data)
<CAPTION>
1995 1994 1993
-------------- -------------- ---------
<S> <C> <C> <C>
Net sales $46,112 $34,618 $29,472
Cost of sales 31,747 23,703 20,935
--------- --------- --------
Gross profit 14,365 10,915 8,537
Selling, general and administrative expenses (Note 3) 11,635 8,911 7,984
--------- ---------- ---------
Operating income 2,730 2,004 553
Goodwill amortization 106 44 43
Interest expense (Note 7) 1,340 486 415
Other expense (Note 6) 697 --- ---
--------- ---------- ---------
Income before taxes 587 1,474 95
Provision (benefit) for income taxes (Note 8) (1,258) (19) 211
-------- ----------- ----------
Net income (loss) $ 1,845 $ 1,493 ($116)
========= ======== ==========
Net income (loss) per share: (Note 1)
Share of Beneficial Interest $.08 $.07 ($.01)
========= ======== ==========
Weighted average number of shares outstanding:
Shares of Beneficial Interest 21,764 20,386 20,386
========= ========= =========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
13
<PAGE>
<TABLE>
WEDGESTONE FINANCIAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
(Amounts in Thousands)
<CAPTION>
Additional
Shares of beneficial paid-in Accumulated
interest capital deficit Total
---------------------- ---------- ---------- -------
Shares Amount
------- --------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1993 20,386 $20,386 $33,800 ($50,757) $3,429
Distributions to Standun (755) (755)
Net loss (116) (116)
------ ------- ------- -------- -------
Balance at December 31, 1993 20,386 20,386 33,045 (50,873) 2,558
Distributions to Standun (1,109) (1,109)
Increase in tax basis of assets (Note 8) 440 440
Net Income 1,493 1,493
------ ------- ------- -------- -------
Balance at December 31, 1994 20,386 20,386 32,376 (49,380) 3,382
Issuance of shares of beneficial interest to
secure third party debt guarantee (Note 1) 1,200 1,200 (840) 360
Issuance of shares of beneficial interest in
exchange for acquisition services (Note 3) 200 200 (140) 60
Issuance of shares of beneficial interest to
pay off outstanding debt (Note 1) 100 100 100
Net income 1,845 1,845
------ ------- ------- -------- -------
Balance at December 31, 1995 21,886 $21,886 $31,396 ($47,535) $ 5,747
====== ======= ======= ========= =======
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
14
<PAGE>
<TABLE>
WEDGESTONE FINANCIAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
(Amounts in Thousands)
<CAPTION>
1995 1994 1993
------------ ------------ -------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 1,845 $ 1,493 ($116)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Provision for loan losses --- 71 89
Write-off of note receivable 697 --- ---
Depreciation and amortization 1,198 829 602
Deferred income taxes (1,300) (681) 44
Gain on disposal of assets (net) --- (10) (23)
Changes in assets and liabilities:
Accounts and other receivables (109) (832) (504)
Inventories 617 (25) 485
Prepaid expenses and other current assets (177) (62) (24)
Accrued payroll and related expenses 211 99 40
Other accrued expenses (1,016) 570 (241)
Accounts payable 333 555 (320)
Other assets (463) (153) ---
Other liabilities --- (1,788) 195
------- ------- -----
Net cash provided by operating activities 1,836 66 227
------- ------- -----
Cash Flows from Investing Activities:
Proceed from sale of real estate and equipment --- 87 264
Proceeds from repayment of mortgage notes receivable 1 51 2
Notes receivable --- --- (25)
Acquisition costs paid (401) --- ---
Capital expenditures (926) (575) (179)
Investment in real estate (126) (172) (119)
------- ------- -----
Net cash used in investing activities (1,452) (609) (57)
------- ------- -----
Cash Flows from Financing Activities:
Distributions to Standun --- (801) (755)
Repayment of term debt (949) (362) (285)
Deferred financing fees paid (85)
Repayment of participation arrangements --- --- (3)
Borrowings on long term debt 635 192 493
Net borrowings on revolving debt 201 1,666 365
------- ------- -----
Net cash provided by (used in) financing activities (198) 695 (185)
------- ------- -----
Net Increase in Cash 186 152 (15)
Cash at Beginning of Period 179 27 42
------- ------- -----
Cash at End of Period $ 365 $ 179 $ 27
======= ======= =====
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
15
<PAGE>
WEDGESTONE FINANCIAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995, 1994 and 1993
NOTE 1. Background and Basis of Presentation
Background - Wedgestone Financial ("Wedgestone" or the "Company") was
formed in 1980 as a real estate investment trust ("REIT") and, on August 9,
1991, filed for bankruptcy. Wedgestone's plan of reorganization (the "Plan")
became effective on August 3, 1992.
Under the guidance of its current management, Wedgestone operates in
two business segments, Automotive Products and Real Estate and Lending
activities. The automotive segment manufactures and distributes automotive
aftermarket products for the light duty truck market. Its principal products
include rear bumpers; tubular products such as grille guards, push bars, and
step rails; and various other related aftermarket products. The Company's
automotive products are marketed in traditional, original equipment and retail
automotive aftermarkets. As of March 15, 1996, the automotive segment
manufactures and sells its products at two locations in California, and one in
Minnesota. Sales are also made from distribution centers in Texas and Utah.
Although its primary focus has shifted toward its Automotive Products
business segment, Wedgestone's Real Estate and Lending business segment has
continued since emerging from bankruptcy in 1992. Wedgestone owns three
properties that were acquired by foreclosure. The aggregate value, net of
reserves, is approximately $1,091,000 as of December 31, 1995. Wedgestone has
outstanding loans on one property, net of reserves, of approximately $84,000 as
of December 31, 1995.
Acquisitions - Since May 1992, Wedgestone has acquired three
manufacturing operations. In June 1992, Wedgestone acquired St. James Automotive
Corp. ("St. James") in exchange for 6,795,220 shares of beneficial interest of
Wedgestone and accounted for this acquisition as a purchase. On November 18,
1994, Wedgestone acquired the Automotive Segment of Standun, Inc. ("Standun"),
which consisted of the Fey Automotive Products Division ("Fey") and Sigma
Plating Co., Inc. ("Sigma") in exchange for 6,795,223 shares of beneficial
interest of Wedgestone and the assumption of approximately $1,104,000 of
outstanding debt due to related parties of both Wedgestone and Standun, and
certain other liabilities. The shareholders of Standun owned, directly or
indirectly, approximately 48% of Wedgestone prior to the acquisition and, as a
result, this acquisition was accounted for as a "put-together" which is similar
to the pooling of interest method of accounting. As a result of the acquisition,
Standun now owns 31% of the outstanding shares of beneficial interest of
Wedgestone. On January 9, 1995 Wedgestone acquired substantially all of the
assets of Hercules Bumpers, Inc. ("Hercules"). The purchase price for the assets
acquired was the assumption of certain debt and other liabilities approximating
$5.1 million. In addition, certain debt is being guaranteed jointly and
severally by Charles W. Brady ("Brady"), the former principal shareholder of
Hercules, and Chattahoochee Leasing Corporation ("CLC"), a corporation
controlled by Brady. In exchange for this guarantee, Brady received a promissory
note in the amount of $300,000 and 1,200,000 shares of beneficial interest of
Wedgestone. In consideration for an agreement to pay a liability of Hercules,
CLC received a promissory note for $100,000 which was secured by 100,000 shares
of beneficial interest of Wedgestone. In June, 1995, the Company exercised its
right under the CLC Agreement and acquired the note by issuing these shares to
CLC. See Subsequent Events (Note 14).
The following supplemental pro forma information has been prepared as
though the acquisition of Hercules had occurred at January 1, 1994: (In
Thousands)
Year ended
December 31, 1994
------------------
Net Sales $46,891
Net Income $ 1,188
Net Income per Share of Beneficial Interest $ .05
The pro forma Net Sales, Net Income, and Net Income per Share of
Beneficial Interest for the year ended December 31, 1995 would not be materially
different than the actual results presented.
16
<PAGE>
Basis of Presentation and Principles of Consolidation - The
accompanying consolidated financial statements include the operations of
Wedgestone and give retroactive effect to the acquisition of Fey and Sigma for
all periods presented. As a result, the financial position, results of
operations and cash flows are presented as if Wedgestone, Fey and Sigma had been
consolidated for all periods presented. The consolidated statements of changes
in Wedgestone's shareholders' equity reflect the Wedgestone shares of beneficial
interest issued to effect the Fey and Sigma acquisition as if they were
outstanding for all periods presented. The results of operations and cash flows
presented include the results of operations and cash flows of Hercules since its
date of acquisition.
The consolidated financial statements include the accounts of
Wedgestone and its wholly owned subsidiaries. All significant intercompany
transactions have been eliminated in consolidation.
NOTE 2. Summary of Significant Accounting Policies
Inventories - Inventories are stated at the lower of cost or market, with cost
being determined by the FIFO (first-in, first-out) method of accounting.
Property, Plant, and Equipment - Property, plant and equipment are stated at
cost. Expenditures that materially increase the life of the related assets are
capitalized and maintenance and repairs are charged to expense. The costs and
related accumulated depreciation applicable to property, plant and equipment
which are sold or retired are removed from the accounts, and any gain or loss is
included in income.
Depreciation and Amortization - Wedgestone uses the straight-line method for
depreciating property, plant and equipment over their estimated useful lives.
Buildings and improvements are depreciated from 5 to 40 years, machinery and
equipment from 3 to 10 years, furniture and fixtures from 3 to 5 years, and
leasehold improvements are amortized over the terms of the respective leases or
the life of the improvements, whichever is shorter.
Goodwill - The Company reviews the recoverability of goodwill to determine if
there has been any permanent impairment. This assessment is performed based on
the estimated undiscounted future cash flows from operating activities compared
with the carrying value of intangible assets. If the undiscounted future cash
flows are less than the carrying value, a write-down would be recorded, measured
by the amount of the difference. Accumulated amortization was $106,000 and
$44,000 for the years ended December 31, 1995 and 1994 respectively.
Income Taxes - Deferred tax assets and deferred tax liabilities reflect the tax
consequences in future years of differences between the income tax bases of
assets and liabilities and the corresponding bases used for financial reporting
purposes. The measurement of deferred tax assets is adjusted by a valuation
reserve, if necessary, so that the net tax benefits are recognized only to the
extent that they will more likely than not be realized.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments -
Cash, Accounts Receivable and Accounts Payable - The carrying amounts
approximate fair value because of the short maturities of these
instruments.
Revolving Line of Credit - The carrying amount approximates fair value
because the interest rate is based on variable reference rates.
Long-Term Debt (excluding revolving line of credit) - The carrying
amount of long-term debt approximates fair value.
Concentration of Credit Risk - Financial instruments which subject the Company
to credit risk consist primarily of accounts receivable. This risk is reduced
due to the number of customers and their geographic dispersion. The Company
performs ongoing credit evaluations of its customers and maintains an allowance
for potential credit losses.
Notes Receivable - Notes receivable are recorded at the lower of cost or
estimated net realizable value.
17
<PAGE>
Real Estate Acquired by Foreclosure - Real estate acquired by foreclosure is
recorded at the lower of cost or estimated net realizable value. Estimated net
realizable value is generally the estimated selling price which the property
will bring if placed on the open market allowing a reasonable time to find a
willing buyer.
Income/Loss Per Share of Beneficial Interest - Income/loss per share of
beneficial interest is calculated based on weighted average outstanding shares.
Accounting Pronouncements - In 1995, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS) No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of. The principles established in the new statement must be applied
by the Company in 1996. Among other provisions, the statement changed current
accounting practices for the evaluation of impairment of long-lived assets.
Management has not yet completed its analysis of the effect of adopting the new
statement.
In 1995, the FASB also issued SFAS No. 123, Accounting for
Stock-Based Compensation, which will be effective for the Company beginning
January 1, 1996. SFAS No. 123 requires expanded disclosures of stock-based
compensation arrangements with employees and encourages (but does not require)
compensation cost to be measured based on fair value of the equity instrument
awarded. Companies are permitted, however, to continue to apply APB Opinion No.
25, which recognizes compensation cost based on the intrinsic value of the
equity instrument awarded. The Company will continue to apply APB Opinion No. 25
to its stock based compensation awards to employees and will disclose the
required pro forma effect on net income and earnings per share.
NOTE 3. Related Parties
St. James has a five year consulting agreement with PSG Associates, an
affiliate of the former owners of St. James (who are also affiliated with
Wedgestone), to provide advisory services to St. James with respect to its
operations, expansion and financing activities at a minimum rate of $125,000 per
year plus reimbursement of expenses. St. James paid $125,000 to PSG Associates
for each of the years ended December 31, 1995, 1994 and 1993, respectively.
In connection with the acquisition of the Automotive Segment of Standun
Inc., Resource Holdings Associates and PFG Corp. ("PFG"), both of which are
controlled by certain Wedgestone shareholders, received a fee of $225,000, in
February 1995.
In connection with the Hercules acquisition, Resource Holdings
Associates and PFG received a fee of $220,000 consisting of $160,000 and 200,000
shares of beneficial interest of Wedgestone at a valuation price of $.30 per
share.
On January 25, 1995, Hercules entered into a five year agreement with
PFG and Wedgestone Partners, an affiliate of the aforementioned shareholders, to
provide advisory services to Hercules with respect to its operations, expansion
and financing activities at an aggregate amount of $175,000 per year. $175,000
was included in the 1995 general and administrative expenses for this agreement.
On January 12, 1993, as amended, Wedgestone entered into a credit
facility with Rockaway 605 Corp. ("Rockaway") pursuant to which Wedgestone was
permitted to borrow up to a maximum of $300,000 with additional over advances
available at the discretion of the lender to fund Wedgestone's working capital
needs and those of its subsidiaries. As a requirement of the financing to
purchase the Automotive Segment, Wedgestone paid Rockaway $25,000 to release its
lien on the stock of St. James and certain of Wedgestone's real
estate.Wedgestone also agreed to issue Rockaway transferable warrants to
purchase 225,000 shares of beneficial interest of Wedgestone at $.25 per share
if the loan was not paid by March 31, 1995. As of December 31, 1995, these
warrants had not yet been issued. As of December 31, 1995, Rockaway had advanced
$429,000 in excess of the funding agreement. The Rockaway Loan is secured by a
pledge of all of the stock of Wedgestone's direct subsidiaries and notes
receivable. Rockaway is a real estate holding company which is controlled by the
former shareholders of St. James. The loan is due in July 1996.
18
<PAGE>
NOTE 4. Inventories
Inventories consist of the following: (In Thousands)
December 31,
1995 1994
------ ------
Finished goods $1,984 $2,398
Work in progress 1,137 783
Raw materials 1,370 712
------ ------
4,491 3,893
Less allowances of (368) (283)
------ ------
$4,123 $3,610
====== ======
NOTE 5. Property, Plant and Equipment
The components of property, plant and equipment were as follows: (In
Thousands)
December 31,
1995 1994
------- -------
Buildings and leasehold improvements $ 2,331 $ 1,080
Land 556 500
Machinery and equipment 8,305 6,878
Furniture and fixtures 1,213 960
------- -------
12,405 9,418
Accumulated depreciation and amortization (7,711) (6,908)
------ --------
Net property, plant and equipment $ 4,694 $ 2,510
======== =======
NOTE 6. Real Estate and Lending
On August 24, 1992, Wedgestone entered into a secured loan agreement
(the "Loan") with Genesis Plastics, Inc. ("Genesis"). The Loan, as amended
provided for borrowings of up to $2,000,000 with over advances at the discretion
of the lender. As of December 31, 1992, the former shareholders of St. James
indirectly agreed to purchase a pro rata participation in the Loan in excess of
$800,000. As of December 31, 1994, $1,619,000 had been advanced to Genesis under
the participation agreement. Genesis, had previously filed for protection under
Chapter II of the United States Bankruptcy Code on August 24, 1994 and had been
unsuccessful in its efforts to secure a buyer for its Charleroi, Pennsylvania
recycling facility. Wedgestone held a senior security interest in the inventory,
receivables and certain equipment of Genesis. On November 29, 1995, in
accordance with its rights under the loan agreement with Genesis, Wedgestone
consented to the liquidation of the Genesis' inventory and equipment through a
public auction. As a result of this action, Wedgestone recorded a one time loss
relating to this loan of $697,000 in December 1995.
<TABLE>
The balance in notes receivable was as follows: (In Thousands)
<CAPTION>
December 31,
1995 1994
-------- --------
<S> <C> <C>
Other Notes $ 84 85
Principal -- Genesis Loan --- $ 2,419
Participation due to third party -- Genesis Loan --- (1,619)
Allowance for losses -- Genesis Loan --- (150)
-------- --------
$ 84 $ 735
======== =======
</TABLE>
The balance of real estate acquired by foreclosure was as follows: (In
Thousands)
December 31,
1995 1994
------- --------
Gross investment $7,649 $7,523
Writedown (6,558) (6,558)
------- --------
Net $1,091 $ 965
======= =======
19
<PAGE>
<TABLE>
NOTE 7. Revolving Credit Line and Long Term Debt
Revolving credit lines and long-term debt consisted of the following:
(In Thousands)
<CAPTION>
December 31,
1995 1994
-------- --------
<S> <C> <C>
Revolving credit line with The CIT Group, Inc.,
interest at prime plus 2.5%, payable November 1997 $ 3,576 $ 3,553
Revolving credit line with NationsBank of Georgia,
Interest at prime, payable January 2000 3,662 ---
Term loan with The CIT Group, Inc., interest at prime plus
2.5%, payable in monthly installments of
$19,892 with a balloon payment due November 1997 935 1,174
Term loan with The CIT Group, Inc., interest at prime plus
2.5%, payable in monthly installments of
$9,000 with a balloon payment due March 2000 459 ---
Notes payable to Fifth Avenue Partners, interest at 9%,
payable in monthly installments of $22,917 through
December 31, 1999 921 1,104
Notes payable to Rockaway 605 Corp.
interest at 15%, payable July, 1996 (See Note 3) 729 684
Notes payable to Charles Brady, interest at 8%
payable in four equal annual installments starting January 1997 300 ---
Notes payable to C.E. Westin, 0% interest rate, currently due
and payable 70 70
Other 100 123
------- -------
Total 10,752 6,708
Less current portion of long-term
debt and capital lease obligations (2,305) (1,032)
------- -------
Total long-term debt and capital
lease obligations $ 8,447 $ 5,676
======= =======
</TABLE>
The contractual payments of principal on long-term debt are due as
follows: $2,305,000 in 1996, $5,692,000 in 1997, $1,427,000 in 1998, $1,195,000
in 1999, and $107,000 in 2000, and $26,000 thereafter.
On November 18, 1994, in connection with the acquisition of the
Automotive Segment, Wedgestone, through its wholly owned subsidiaries Fey
Automotive Products, Inc., Sigma Plating Co., Inc. and St. James Automotive
Corp., entered into a three-year, $7.5 million credit facility, which provides
for a revolving credit line and term loan with CIT, and which is collateralized
by substantially all of the assets of these subsidiaries. There was a facility
fee of 1% of the maximum credit line associated with procurement of the loan.
The agreement provides for borrowings based on a percentage of inventory and
receivables and includes an equipment term loan, at the lender's prime rate plus
2.5% (11% at December 31, 1995 and 1994).
The agreement contains certain covenants which require maintenance of
minimum working capital and equity levels. There is a minimum borrowing required
of $4,000,000 under the agreement.
On January 8, 1995, in connection with the acquisition of substantially
all of the assets of Hercules Bumpers, Inc., Wedgestone, through its wholly
owned subsidiary, Hercules Automotive Products, Inc. entered into a one year
$4.0 million
20
<PAGE>
revolving credit line with NationsBank of Georgia which is collateralized by the
real property, receivables, inventory and certain equipment at Hercules. The
agreement provides for borrowings based on a percentage of inventory and
receivables. Under the terms of the agreement, in January 1996, the revolving
credit line was converted to a $4.0 million term loan due in 48 equal monthly
installments starting February 1996. See Subsequent Events (Note 14).
Wedgestone assumed a note associated with the termination of Standun's
management agreement with Fifth Avenue Partners, a related party of Wedgestone
and Standun, in the amount of $1,104,000 in conjunction with the acquisition of
the Automotive Segment (See Note 1).
Wedgestone has included in its short-term obligations $70,000
representing a note payment to C. E. Westin which was to have been made in 1992.
St. James exercised its right of indemnification under an environmental
liability letter and withheld part of the payment.
NOTE 8. Income Taxes
Wedgestone previously operated as a real estate investment trust
("REIT") under certain sections of the Internal Revenue Code. Wedgestone lost
its REIT status when it emerged from bankruptcy in August 1992, and as such,
income will be taxed at the Wedgestone level. Wedgestone currently has a net
operating loss carry forward of approximately $43,000,000 for federal Income tax
purposes. These losses expire in various years from 2004 to 2008.
The Automotive Segment filed a consolidated income tax return with
Standun for the year ended December 31, 1993 and for the period January 1, 1994
through date of acquisition, November 18, 1994. Income tax expense of $385,713
and $211,384 for the years ended December 31, 1994 and 1993 respectively,
represent income taxes on the Automotive Segment's taxable income had it filed
on a separate return basis. Had the acquisition taken place at the beginning of
each of these years, these taxes would have been absorbed by Wedgestone's net
operating loss. For the year ended December 31, 1995, $42,000 represents state
income taxes currently due and payable in the states in which the subsidiaries
do not file consolidated returns with Wedgestone.
In connection with the acquisition of the Automotive Segment, a tax
benefit of $440,000 which was attributable to the increase in tax basis of the
Automotive Segment's assets was allocated to additional paid-in capital.
The provision for income taxes consists of the following components:
1995 1994 1993
------ ----- ------
Current $ 42 $ 662 $ 167
Deferred 168 76 (164)
Change in Valuation Allowance (1,468) (757) 208
------ ----- ------
($1,258) ($ 19) $ 211
====== ===== ======
<TABLE>
Deferred tax assets were comprised of the following:
<CAPTION>
1995 1994
-------- ------
<S> <C> <C>
Net operating loss carry forward $14,627 $14,790
Accruals/Reserves 476 534
Depreciation 340 287
Basis difference on automotive segment assets acquired 440 440
Basis difference in real estate 542 542
---------- --------
Total deferred tax assets 16,425 16,593
Less: Valuation allowance (13,835) (15,303)
---------- --------
Net deferred tax assets 2,590 1,290
Less current deferred tax assets (476) (316)
---------- --------
Noncurrent deferred tax assets $ 2,114 $ 974
========== =========
</TABLE>
21
<PAGE>
<TABLE>
The following is a reconciliation between the income taxes computed at
the Federal statutory rate and the provision for income taxes:
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income taxes computed at the
Federal statutory rate 34.00% 34.00% 34.00%
State income taxes net of
Federal benefit 6.00% 6.00% 6.00%
Other (4.12%) 10.06% (35.98%)
Change in valuation allowance (215.19%) (51.34%) 218.84%
--------- -------- -------
(214.31%) ( 1.28%) 222.86%
======== ======= ======
</TABLE>
NOTE 9. Special Income Shares
Prior to 1990, in connection with Wedgestone's acquisition of all of
the net assets of Wedgestone Participation Mortgage Trust ("WPMT"), Wedgestone
issued 593,676 shares of beneficial interest and 565,406 Special Income Shares.
The Special Income Shares evidenced a share of all income which was earned from
the contingent-appreciation and gross-rental-increase portions of the mortgage
loans acquired from WPMT, of which none remained at December 31, 1995 and were
not entitled to share in any other Wedgestone income or assets. There were no
accrued earnings associated with special income shares for 1995, 1994 or 1993.
On May 25, 1995, the United States Bankruptcy Court for the District
of Massachusetts issued an order establishing rights and obligations with
respect to the then one remaining outstanding loan under which income rights had
been granted to certain Special Income Shareholders. The order released
Wedgestone from all obligations regarding the loan and authorized the Company to
transfer all loan documents to the Federal Deposit Insurance Corporation. In
connection with this order, Wedgestone was directed to cancel the Special Income
Shares subject to certain future distribution rights. The balance sheet and
income statement presentation reflect this cancellation.
NOTE 10. Commitments and Contingencies
Wedgestone is obligated under various cancelable and noncancelable
operating leases for manufacturing facilities, machinery and equipment. These
leases expire annually through August 31, 2002. Future minimum annual lease
commitments are:
1996 $ 904,000
1997 745,000
1998 664,000
1999 396,000
2000 368,000
Thereafter 594,000
--------
Total minimum lease payments $3,671,000
==========
Total net rental expense under the terms of various building and
equipment leases was $980,000, $1,069,000 and $1,010,000 for the years ended
December 31, 1995, 1994 and 1993, respectively. There is a purchase option in
the St. James manufacturing facility lease in the amount of $500,000,
exercisable at any time upon repayment of the mortgages which expire
concurrently with the sub-lease on October 31, 1998. St. James owes consulting
fees to C. E. Westin in the amount of $58,095 as of December 31, 1995.
Note 11. Stock Option and Profit Sharing Plans
During 1995, Wedgestone created the Wedgestone Financial 1995 Stock
Option Plan (the "Option Plan"), which became effective on December 15, 1995.
Officers, other key employees and significant non-employees who are responsible
for or contribute to the management, growth and/or profitability of the business
of Wedgestone are eligible to be granted stock options under the Option Plan.
The Option Plan replaces and supersedes a former stock option plan established
in 1994.
The optionees under the Option Plan will be selected from time to time
by the Committee (a group of individuals appointed by the Trustees). The stock
options granted under the Option Plan may be of two types: (i) Incentive Stock
Options
22
<PAGE>
and (ii) Non-Qualified Stock Options. The option price per share of stock under
a stock option will be determined by the Committee at the time of grant. The
option price with respect to an incentive stock option shall not be less than
100% of the fair market value of the Wedgestone stock on the date of the option
grant. The option price with respect to a non-qualified stock option shall not
be less than 85% of the fair market value of the stock on the date of the option
grant. The stock options can be exercised at such times as determined by the
Committee. The stock which is acquired through the exercise of the stock option,
is required to be held for investment and not for resale or other distribution.
Wedgestone has reserved 1,000,000 shares of its stock to be used for the Option
Plan. As of December 31, 1995, 995,000 options were granted, and none were
exercised.
Changes in the number of shares subject to options during the year ended
December 31, 1995 are summarized as follows:
1995
-------
Outstanding at beginning of year ---
Options granted at $ .25 share 995,000
Options exercised ---
Options cancelled or expired ---
-------
Outstanding at end of year 995,000
=======
Two outside directors were each granted 15,000 warrants to acquire
shares of beneficial interest in Wedgestone at an exercise price of $.25 per
warrant share. The warrants may be exercised at any time from the date of grant
until October 31, 1997. The warrants or the warrant shares may not be disposed
of or encumbered, except in accordance with certain provisions of the Securities
Act of 1933. As of December 31, 1995, none of the warrants were exercised.
There were no contributions to Wedgestone's former 401(k)
Profit-Sharing Plan ("Profit Plan") for the year ended December 31, 1993. The
Profit Plan was liquidated in July 1993, and the assets were distributed to the
plan participants.
In January 1995, the Company established the Wedgestone Automotive
Corp Retirement Savings Plan (the "Retirement Plan"). The Retirement Plan
provides that all eligible employees of the Company who have attained the age of
21, have completed one year of employment and are not subject to a collective
bargaining agreement are permitted to contribute up to 15% of their salary to
the Retirement Plan. The Company makes contributions on behalf of each
participant of a matching amount up to an employee contribution of 2% of such
employee's salary. Employees are fully vested at all times with respect to all
employee contributions to the Retirement Plan.
The contributions to Wedgestone's Retirement Plan for the year
ended December 31, 1995 were $8,300.
NOTE 12. Litigation
Bankruptcy Claims
On October 30, 1992, a group calling itself the "Equity Security
Holders Committee of Wedgestone Financial (the "Committee") filed a complaint
(the "Complaint") commencing an adversary proceeding in the United States
Bankruptcy Court for the District of Massachusetts. On May 20, 1993, the Court
dismissed the proceeding. The Committee appealed the dismissal to the District
Courts and it was denied. The Committee appealed to the First Circuit and on
March 1, 1995, the appeal was denied. The Committee requested a rehearing by the
Court of Appeals for the First Circuit. On March 22, 1995, the Court denied the
petition for rehearing.
Other
On May 25, 1995, the United States Bankruptcy Court for the
District of Massachusetts issued an order establishing rights and obligations
with respect to the one remaining outstanding loan under which income rights had
been granted to certain Special Income Shareholders. The order released
Wedgestone from all obligations regarding the loan and authorized the Company to
transfer all loan documents to the Federal Deposit Insurance Corporation. In
connection with this order, Wedgestone was directed to cancel the Special Income
Shares subject to certain future distribution rights. The balance sheet and
income statement presentation included in this registration has been changed to
reflect this cancellation.
23
<PAGE>
<TABLE>
NOTE 13. Segment Information
Wedgestone principally operates in two industries: Automotive
products and real estate and lending. The Automotive Segment manufactures
aftermarket automotive accessories which are sold and distributed throughout the
United States. The real estate activities include the sale of properties
previously acquired by foreclosure.
Financial Data By Business Segment: (In Thousands)
<CAPTION>
For the Years Ended December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenue:
Automotive Products $46,112 $34,618 $29,472
======== ======== =======
Income (Loss):
Automotive Products $3,259 $2,367 $986
Real Estate and Lending (529) (363) (433)
-------- -------- ------
Total Operating Income 2,730 2,004 553
Other Expenses including taxes (885) (511) (669)
-------- -------- ------
Net Income (Loss) $1,845 $1,493 ($116)
======= ======= ======
Identifiable Assets:
Automotive Products $ 17,228 $ 11,087 $ 9,555
Real Estate and Lending 1,375 1,880 1,818
-------- -------- --------
Total Identifiable Assets 18,603 12,967 11,372
Corporate Assets 2,795 1,424 158
-------- -------- --------
Total Consolidated Assets $ 21,398 $ 14,391 $ 11,530
========= ======== ========
Capital Expenditures:
Automotive Products $ 926 $ 575 $ 179
=========== =========== =========
Depreciation:
Automotive Products $ 1,092 $ 785 $ 559
========== =========== =========
</TABLE>
NOTE 14. Subsequent Events
On March 5, 1996, Hercules closed its manufacturing plant in Pelham,
Georgia. The market for the bumpers produced in the Pelham facility
significantly changed during 1995. Historically, a significant percentage of
Hercules business was for sales to dealers of a domestic OE Manufacturer. A new
program implemented by one of these manufacturers in late 1994 made it extremely
difficult for Hercules to remain competitive in this market segment. Hercules
incurred a net loss of $125,000 in 1995. As a result, management determined that
closing the Pelham facility was appropriate. Hercules is working with its senior
lender for an orderly liquidation of the assets in Pelham. While the final
outcome is uncertain, the Company does not expect the closure of the Pelham
facility to have a material effect on 1996 operations.
24
<PAGE>
NOTE 15. Supplemental Cash Flow Information
Cash paid during the year for:
(In Thousands)
1995 1994 1993
---- ---- ----
Interest $1,334 $561 $496
Income Taxes $ 287 $567 $167
Supplemental Schedule of Non-Cash Investing and Financing Activities
During 1994, Standun transferred land and buildings of $795,000 to the
Automotive Segment.
In connection with the acquisition of the Automotive Segment in
November 1994, Wedgestone assumed a note associated with the termination of
Standun's management agreement with a related party in the amount of $1,104,086.
On January 9, 1995 Wedgestone acquired substantially all of the assets
of Hercules Bumpers, Inc. ("Hercules") which manufactures and distributes rear
bumpers for both domestic and foreign light duty trucks. The purchase price for
the assets acquired was the assumption of certain debt and other liabilities
approximating $5.1 million. In addition, certain debt is being guaranteed
jointly and severally by Charles W. Brady ("Brady"), the principal shareholder
of Hercules, and Chattahoochee Leasing Corporation ("CLC"), a corporation
controlled by Brady. In exchange for this guarantee, Brady received a promissory
note in the amount of $300,000 and 1,200,000 shares of beneficial interest of
Wedgestone. In consideration for an agreement to pay a liability of Hercules,
CLC received a promissory note for $100,000 which was secured by 100,000 shares
of beneficial interest of Wedgestone. In June, 1995, the Company exercised its
right under the CLC Agreement and acquired the note by issuing these shares to
CLC. See Subsequent Events (Note 14).
In connection with the Hercules acquisition, Resource Holdings
Associates and PFG received a fee of $220,000 consisting of $160,000 and 200,000
shares of beneficial interest of Wedgestone at a valuation price of $.30 per
share.
In connection with the January 9, 1995 acquisition of Hercules,
Wedgestone assumed liabilities to acquire assets as follows:
Accrued expenses $1,094,021
Revolver and other debt 3,957,024
---------
Total liabilities assumed $5,051,225
=========
Receivables, inventories and other assets $2,990,855
Property, Plant and Equipment 2,060,370
---------
Total assets acquired $5,051,225
=========
25
<PAGE>
PART III
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<TABLE>
Item 10. Trustees and Executive Officers of the Registrant
The following table sets forth certain information concerning the
trustees, executive officers and other management personnel of Wedgestone and
its subsidiaries as of March 29, 1996:
<CAPTION>
Name Age Position
---- --- ---------
<S> <C> <C>
Jeffrey S. Goldstein 50 Trustee, President, Treasurer and Secretary - Wedgestone Financial
John C. Shaw 42 Trustee - Wedgestone Financial
Jeffrey A. Oberg 41 Trustee - Wedgestone Financial
John J. Doran 46 Trustee - Wedgestone Financial
David L. Sharp 44 Chief Executive Officer - Wedgestone Automotive Corp
Eric H. Lee 41 Chief Financial Officer, Treasurer / Secretary - Wedgestone Automotive Corp
Lawrence R. Wasielewski 52 Sr. Vice President, Sales/Marketing - Wedgestone Automotive Corp
Paul W. Westerhoff 45 Sr. Vice President, Operations - Wedgestone Automotive Corp
</TABLE>
Jeffrey S. Goldstein has served as President of Wedgestone since
October 1, 1992, and has served as a Trustee since June 16, 1992. Additionally,
Mr. Goldstein has served as President of Rockaway 605 Corp. since 1989. Mr.
Goldstein joined Rockaway 605 Corp. for the purpose of reorganizing Rockaway.
Mr. Goldstein also performs consulting services for Air Wisconsin Airlines Corp.
From 1985 to 1989, Mr. Goldstein served as Executive Vice President and
Treasurer of Kane Industries. From 1979 to 1985, Mr. Goldstein served as Vice
President and Treasurer of Arkay Packaging Corp.
John C. Shaw has served as a Trustee since November, 1992. Mr. Shaw has
served as a Managing Director of Resource Holdings Ltd., a New York based
private merchant banking firm, since 1983. Mr. Shaw is a member of the Board of
Directors of National Capital Management Corp., a publicly traded corporation
with specialty finance, real estate and industrial operations.
Jeffrey A. Oberg has served as a Trustee since October 1994. Mr. Oberg
has served as a Managing Director of KPMG Marwick since August 1995. Mr. Oberg
previously served as Senior Vice President Finance and Corporate Development at
United States Banknote Corporation from January 1994 through July 1995, and as
Vice President Finance and Corporate Development from February 1991 through
December 1993. Prior to February 1991, Mr. Oberg served as Vice President in the
Investment Banking Division at The First Boston Corporation.
John J. Doran has served as a Trustee since October 1994. For the past
ten years, Mr. Doran served as President of Citizens Medical Corporation and as
a consultant to Medco Containment Services, Inc. Mr. Doran is a member of the
Board of Directors of Sandwich CoOp. Bank, a publicly traded company.
David L. Sharp was hired as Chief Executive Officer of Wedgestone
Automotive Corp upon acquisition of the Automotive Segment from Standun on
November 18, 1994. Mr. Sharp has been with the Standun companies since 1979,
where he has served in various positions with Standun's subsidiaries and
divisions. From 1989 until the acquisition, Mr. Sharp served as President of
Standun and the Fey Automotive Products Division.
Eric H. Lee was hired as Chief Financial Officer, Treasurer and
Secretary of Wedgestone Automotive Corp upon acquisition of the Automotive
Segment from Standun on November 18, 1994. From January 1994 until the
acquisition, Mr. Lee served as Chief Financial Officer of Standun and as
Controller of the Fey Automotive Products division from February 23, 1993 until
January 1994. Prior to Mr. Lee's employment at Standun, he occupied various
management positions within the electronics industry, the latest being President
and Chief Operating Officer of Synthane Taylor, a subsidiary of Alco Industries.
26
<PAGE>
Lawrence R. Wasielewski was hired as Senior Vice President of
Sales/Marketing of Wedgestone Automotive Corp upon acquisition of the Automotive
Segment from Standun on November 18, 1994. Mr. Wasielewski began employment with
the Fey Automotive Products division in June 1992, where he served as Vice
President of Sales/Marketing. Prior to his employment with Standun, Mr.
Wasielewski occupied various senior management positions with Tenneco
Automotive, a division of Tenneco, Inc.
Paul W. Westerhoff was hired as Senior Vice President of Operations of
Wedgestone Automotive Corp upon acquisition of the Automotive Segment from
Standun on November 18, 1994. Mr. Westerhoff has been with the Standun companies
since November 1984, and has held various positions within the Company.
Mr. Goldstein, as the sole officer of Wedgestone, serves at the
pleasure of the Board of Trustees and each of the Trustees serve until their
successors are elected and qualified at the next annual meeting of Wedgestone's
Shareholders.
All trustees are reimbursed for their reasonable out-of-pocket expenses
incurred in connection with attendance at Board meetings. Wedgestone compensates
its trustees at a rate of $2,000 per quarter and $200 per meeting. All trustees
and officers are serving a current term of office that continues until
Wedgestone's next annual meeting of shareholders. There are no family
relationships among any of the executive officers or trustees of Wedgestone.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires
Wedgestone's officers and directors and persons who own more than ten percent of
a registered class of Wedgestone's equities securities, to file reports of
ownership on Form 3 and changes in ownership on Forms 4 or 5 with the Securities
and Exchange Commission (the "Commission") and the NASDAQ System. Such officers,
directors and ten percent shareholders are also required by the Commission's
rules to furnish Wedgestone with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
or written representation from certain reporting persons that no Form 5 was
required for such persons, Wedgestone believes that during the year ended
December 31, 1995, all Section 16(a) filing requirements applicable to its
officers, directors and ten percent shareholders were complied with.
Wedgestone's Audit Committee is comprised of John J. Doran and Jeffrey
A. Oberg. Wedgestone's Compensation Committee is comprised of John J. Doran,
Jeffrey A. Oberg and John C. Shaw. Wedgestone's Executive Committee, is
comprised of John C. Shaw and Jeffrey S. Goldstein. These individuals will hold
their respective positions until the appointment of their respective successors.
27
<PAGE>
Item 11. Executive Compensation
The three components of the Company's executive officer compensation
program are base salary, annual incentive compensation in the form of a cash
bonus and long-term incentive compensation in the form of stock options.
Executive officers are also entitled to various benefits including participation
in the Company's medical, life insurance and long-term disability plans which
are generally available to employees of the Company. The Compensation Committee
of the Board of Trustees consisting of two outside trustees and the Company's
Chairman, is responsible for the evaluation and approval of the compensation of
Wedgestone Financial officers.
<TABLE>
The following tabulation gives information with respect to remuneration
paid to each of the five highest paid executive officers of Wedgestone and its
subsidiaries for the years 1995, 1994, and 1993.
<CAPTION>
SUMMARY COMPENSATION
Year Salary Bonus Options Benefits
---- -------- ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Jeffrey S. Goldstein, President 1995 $160,200 $ -0- 85,000 $ -0-
Wedgestone Financial 1994 120,000 -0- -0- -0-
1993 120,000 -0- -0- -0-
David L. Sharp, Chief Executive Officer 1995 114,750 34,000 251,500 8,712
Wedgestone Automotive Corp 1994 110,000 48,000 -0- 12,673
1993 106,844 22,000 -0- 9,546
Eric H. Lee, Chief Financial Officer 1995 95,000 26,000 160,000 8,678
Wedgestone Automotive Corp 1994 88,000 34,000 -0- 9,775
1993 62,208(a) -0- -0- 3,588
Lawrence R. Wasielewski, Sr. Vice President, 1995 97,000 26,000 160,000 8,586
Sales/Marketing 1994 88,000 34,000 -0- 9,270
Wedgestone Automotive Corp 1993 80,750 -0- -0- 1,746
Paul W. Westerhoff, Sr. Vice President, 1995 92,000 26,000 185,000 8,618
Operations 1994 88,000 34,000 -0- 9,775
Wedgestone Automotive Corp 1993 88,000 12,500 -0- 8,394
<FN>
- -----------------------------------------------------
(a) Individual's compensation shown is for a partial year of employment.
</FN>
</TABLE>
Mr. Goldstein was first employed by Wedgestone on October 1, 1992, when he was
elected President. Messrs. Sharp, Lee, Wasielewski, and Westerhoff were hired as
executive officers of Wedgestone Automotive Corp upon Wedgestone's acquisition
of the Automotive Segment from Standun on November 18, 1994. Their salaries
above represent the annual compensation received as employees of Wedgestone and
Standun.
28
<PAGE>
<TABLE>
The following table shows, for those individuals named in the Summary
Compensation table, information concerning stock options granted during the year
ended December 31, 1995.
<CAPTION>
Option Grants in 1995
Options % of Total Exercise Expiration Potential Realizable Value(2)
Granted(1) Granted in 1995 Price Date(1) 5% 10%
---------- --------------- ----- ------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Jeffrey S. Goldstein 85,000 8.5% $.25 9/22/99 $25,500 $31,450
David L. Sharp 251,500 25.2% .25 9/22/99 75,450 93,055
Eric H. Lee 160,000 16.1% .25 9/22/99 48,000 59,200
Lawrence R. Wasielewski 160,000 16.1% .25 9/22/99 48,000 59,200
Paul W. Westerhoff 185,000 18.6% .25 9/22/99 55,500 68,450
<FN>
- --------------------------------------------
(1) Options indicated vest and become exercisable over a two-year period ending
December 31, 1996 based on the optionee's continued employment with the Company.
(2) Potential Realizable Value at assumed Annual Rates of Stock Price
Appreciation for Option terms at rates of 5% and 10% is information mandated by
the Securities and Exchange Commission and does not represent the Company's
estimate or projection of the future price of its shares of Beneficial Interest.
</FN>
</TABLE>
<TABLE>
No executive officer exercised options during 1995. The following table sets
forth, for each of the executive officers named in the Summary Compensation
Table, the year-end value of unexercised options.
<CAPTION>
Aggregated Option Exercises in 1995
and Year-End Option Values
Number of Value of Unexercised
Unexercised Options In-The-Money Options
At Year-End At-Year-End
------------ ------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jeffrey S. Goldstein 56,700 28,300 $0 $0
David L. Sharp 167,700 83,800 0 0
Eric H. Lee 106,700 53,300 0 0
Lawrence R. Wasielewski 106,700 53,300 0 0
Paul W. Westerhoff 123,300 61,700 0 0
</TABLE>
Compensation Committee Interlocks and Insider Participation
During Fiscal 1995, the Compensation Committee of the Board of Trustees
of the Company was comprised of John J. Doran, Jeffrey A. Oberg and John C.
Shaw. None of the members of the Compensation Committee has ever been an
employee or officer of the Company or any of its subsidiaries, with the
exception of Mr. Shaw who is the Chairman of the Board but does not receive
compensation for acting in such capacity. Mr. Shaw, however, is a significant
equity holder in PSG Associates, which provides financial and advisory services
to St. James and Hercules, subsidiaries of the Company. In Fiscal 1995, the
Company paid PSG Associates $125,000 in connection with such services to St.
James. The Trust will pay PSG Associates $125,000 for financial and advisory
services rendered to St. James for the current fiscal year. Otherwise, none of
the members of the Compensation Committee has any relationship requiring
disclosure under any paragraph of Item 404 or in Item 402(j)(3) of Regulation
S-K promulgated by the Commission.
29
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF TRUSTEES
The following is the report of the Compensation Committee of the Trust
(the "Committee") on executive compensation for Fiscal 1995.
Compensation Philosophy. The Committee believes that it is in the best
interests of the Shareholders for the Company to attract, maintain and motivate
top quality management personnel, especially its executive officers, by offering
and maintaining a competitive compensation package that exhibits an appropriate
relationship between executive pay and the creation of stockholder value. The
general philosophy of the committee is to integrate (i) adequate levels of
annual base compensation; (ii) annual cash bonuses and equity awards based on
achievement of short-term corporate and individual performance goals, such that
executive compensation levels will be higher in years in which performance goals
are achieved or exceeded; and (iii) equity awards, to ensure that management has
a continuing stake in the long term success of the Company and return of value
to its stockholders.
In November 1994, the Company acquired the assets of the Fey Automotive
division of Standun, Inc. In connection with this acquisition, the Company
formed a wholly-owned subsidiary, Wedgestone Automotive Corp, and hired the
senior management of the Fey Automotive division (the "Executive Group"). The
Executive Group included Mr. Sharp as Chief Executive Officer of Wedgestone
Automotive Corp, Mr. Lee as Chief Financial Officer of Wedgestone Automotive
Corp, Mr. Wasielewski as Senior Vice President of Sales of Wedgestone Automotive
Corp, and Mr. Westerhoff as Senior Vice President of Operations of Wedgestone
Automotive Corp. In connection with the acquisition, the Company agreed to pay
salary and benefit amounts to the members of the Executive Group consistent with
their prior salary and benefits at Standun, Inc.
The elements of the Committee's integrated compensation philosophy and
the application of these philosophies during Fiscal 1995, including in
connection with the hiring of the Executive Group, are summarized as follows:
Base Compensation Levels. Although the Committee believes that
performance-based pay elements should be a key element in the compensation
packages for its executive officers, the Company must maintain base compensation
levels commensurate with other comparable companies in its industry with whom
the Company competes for management personnel (the "Comparable Companies").
The Comparable Companies selected by the Company are those automotive
supply companies that have production and marketing strategies similar to those
of the Company, which are similar to the Company and which compete for
executives in the same markets as the Company.
Although the process of setting base compensation levels often reflects
subjective factors, such as leadership, commitment, attitude and motivational
effect, the Committee also considers objective factors, such as achievement of
performance goals (primarily profitability of the areas over which the executive
has management responsibility), level of responsibility and prior experience.
The Committee believes that the overall compensation paid to the Company's
executive officers for the last year was competitive with overall compensation
paid by the Comparable Companies for similar positions.
Performance-Based Compensation. The Company provides executive officers
with the following performance-based compensation programs:
o Cash Bonuses. Cash bonuses may be earned if certain specified
performance goals are achieved.
o Stock Options. Options may be granted pursuant to the
Wedgestone Financial 1995 Stock Option Plan (the "Option
Plan") at an exercise price equal to or greater than the fair
market value of the stock on the date of the grant. The value
of the options is related directly to the market price of the
stock and, accordingly to the long-term performance of the
Company.
An aggregate of 841,500 options were granted to the Company's executive
officers in 1995 under the Option Plan. The number of options granted was based
on the executive's length of service and level of responsibility in the Company.
30
<PAGE>
Compensation of Chief Executive Officer. Mr. Goldstein's base
compensation for 1995 was $160,200 and has been set at $175,000 for 1996. The
Committee believes that Mr. Goldstein's base salary in 1995 was comparable to
that of other chief executives in the industry in which the Company competes.
Mr. Goldstein did not receive a bonus in 1995, but was granted an option
exercisable for 85,000 shares at an exercise price of $ .25 per share.
John J. Doran, Chairman
Jeffrey A. Oberg
John C. Shaw
Members of the Compensation Committee
Profit Sharing, Stock Option Plans and Warrants
During 1995, Wedgestone created the Wedgestone Financial 1995 Stock
Option Plan (the "Option Plan"). The Option Plan became effective on December
15, 1995. The total number of shares of Wedgestone stock reserved and available
for distribution under the Option Plan is 1,000,000. Officers, other key
employees and significant non-employees who are responsible for or contribute to
the management, growth and/or profitability of the business of Wedgestone are
eligible to be granted stock options under the Option Plan. The Option Plan
replaces and supersedes a former stock option plan established in 1994. The
optionees under the Option Plan will be selected from time to time by the
Committee (a group of not less than three persons appointed by the Trustees).
The stock options granted under the Option Plan may be of two types: (i)
Incentive Stock Options and (ii) Non-Qualified Stock Options. The option price
per share of stock under a stock option will be determined by the Committee at
the time of grant. The option price with respect to an incentive stock option
shall not be less than 100% of the fair market value of the Wedgestone stock on
the date of the option grant. The option price with respect to a non-qualified
stock option shall not be less than 85% of the fair market value of the
Wedgestone stock on the date of the option grant. The stock options can be
exercised at such times as determined by the Committee. The stock which is
acquired through the exercise of the stock option is required to be held for
investment and not for resale or other distribution. The options and the stock
are non-transferable. As of March 28, 1996, 995,000 shares have been granted.
Two outside directors, Mr. John J. Doran and Mr. Jeffrey A. Oberg, were
each granted 15,000 warrants to acquire shares of beneficial interest in
Wedgestone at an exercise price of $.25 per warrant share. The warrants may be
exercised at any time from the date of grant until October 31, 1997. The
warrants or the warrant shares may not be disposed of or encumbered, except in
accordance with certain provisions of the Security Act. As of March 26, 1996,
none of the warrants have been exercised.
All former Profit Sharing, Stock Option and 401(k) Profit Sharing Plans
were terminated pursuant to the bankruptcy plan of reorganization in 1992. The
401(k) Profit Sharing Plan was liquidated as of July 21, 1993 and the assets
were distributed to the plan participants. In January 1995, the Company
established the Wedgestone Automotive Corp Retirement Savings Plan (the
"Retirement Plan"). The Retirement Plan provides that all eligible employees of
the Company who have attained the age of 21, have completed one year of
employment and are not subject to a collective bargaining agreement are
permitted to contribute up to 15% of their salary to the Retirement Plan. The
Company makes contributions on behalf of each participant of a matching amount
up to an employee contribution of 2% of such employee's salary. Employees are
fully vested at all times with respect to all employee contributions to the
Retirement Plan.
31
<PAGE>
<TABLE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table shows, as of December 31, 1995, certain information
known to Wedgestone regarding security holders of Wedgestone who may be deemed
to be the beneficial owners of 5% or more of each class of Wedgestone's shares.
<CAPTION>
Beneficial Shares
--------------------------------------------
Amount and Nature of Percent of
Name and Address of Beneficial Owners Beneficial Ownership Class
- ------------------------------------- -------------------- ----------
<S> <C> <C>
Standun, Inc. 6,795,223 31.0%
201 S. Hindry Avenue
Inglewood, CA 90301
JCS Management Co., Inc. 8,525,756(1) 39.0%
520 Madison Avenue, 40th Floor
New York, NY 10022
PFG Corporation 1,863,865(2) 8.5%
235 Sunrise Boulevard
Palm Beach, FL 33480
RAB Management Corp. 1,730,531(3) 7.9%
520 Madison Avenue, 40th Floor
New York, NY 10022
JMS Holdings Co., Inc. 1,730,531(4) 7.9%
520 Madison Avenue, 40th Floor
New York, NY 10022
Charles Brady 1,300,000(5) 5.9%
1315 Peachtree Street N.E. Suite 300
Atlanta, GA 30309
<FN>
- ------------------------------------------------
(1) Mr. John C. Shaw is the president and sole shareholder of this company.
6,795,223 of these shares are held by Standun. Resource Holdings
Associates owns 62.5% of the stock of Standun and Mr. Shaw is managing
director of the general partner of Resource Holdings Associates.
(2) Mr. James J. Pinto is the president and sole shareholder of this company.
PFG owns 37.5% of Standun, Inc.
(3) Mr Richard A. Bartlett is the president and sole shareholder of this
company.
(4) Mr. Jerry M. Seslowe is the president and sole shareholder of this
company.
(5) Includes 100,000 shares held by Chattahoochee Leasing Corporation, an
affiliate of Mr. Brady.
</FN>
</TABLE>
32
<PAGE>
<TABLE>
Security Ownership of Management
The following tables show, as of December 31, 1995, based upon
information supplied by the Trustees and officers of Wedgestone and its
subsidiaries, the amount and nature of ownership of Wedgestone Shares of each
Trustee of Wedgestone and of all Trustees and officers as a group.
<CAPTION>
Amount and Nature of Percent of
Name Beneficial Ownership Class
---- ---------------------- ----------
<S> <C> <C>
John C. Shaw 8,525,756(1) 37.3%
Jeffrey A. Oberg 15,000(2) *
John J. Doran 15,000(2) *
Jeffrey S. Goldstein 85,000(3) *
David L. Sharp 251,500(4) 1.1%
Eric H. Lee 160,000(5) *
Lawrence R. Wasielewski 160,000(6) *
Paul W. Westerhoff 185,000(7) *
All trustees and officers as a group
(eight persons, all above-named) 8,836,156 38.6%
========= =====
<FN>
- -----------------------------------------------------
* Represents less than 1%
(1) See Footnote (1) under Security Ownership of Certain Beneficial Owners.
(2) Represents an option that is immediately exercisable to purchase 15,000
shares.
(3) Includes an option granted to Mr. Goldstein that is immediately
exercisable to purchase 56,600.
(4) Includes an option granted to Mr. Sharp that is immediately exercisable to
purchase 167,600 shares.
(5) Includes an option granted to Mr. Lee that is immediately exercisable to
purchase 106,600 shares.
(6) Includes an option granted to Mr. Wasielewski that is immediately
exercisable to purchase 106,600 shares.
(7) Includes an option granted to Mr. Westerhoff that is immediately
exercisable to purchase 123,400 shares.
</FN>
</TABLE>
Item 13. Certain Relationships and Related Transactions
The Automotive Segment was purchased from Standun, which is indirectly
owned and/or controlled by Resource Holdings Associates and PFG Corp. The
managing directors of Resource Holdings Ltd. (the general partner of Resource
Holdings Associates) and PFG Corp are former shareholders of St. James. Each of
the managing directors owns directly or indirectly in excess of 5% of the
outstanding shares of Wedgestone. In connection with the acquisition, Standun
now owns 31.5% of Wedgestone. Wedgestone assumed a note associated with the
termination of Standun's management agreement with Fifth Avenue Partners, a
related party of Wedgestone and Standun, in the amount of $1,104,086 in
conjunction with the acquisition. The note is payable monthly with interest
calculated in arrears at 9% per annum over the five years ending December 31,
1999.
St. James has a Consulting Agreement with PSG Associates entered into
on January 10, 1992 ( prior to its acquisition by Wedgestone). Pursuant to this
Agreement, PSG Associates has agreed to provide advisory services to St. James
with respect to its operations, expansion and financing activities at a minimum
rate of $125,000 per year plus reimbursement of expenses. Mr. Shaw, a trustee of
the Company, is a significant equity holder in PSG Associates, through JCS
Holdings Corp. ("JCS") as is each of PFG Corp., JMS Holdings Corp., and RAB
Management Corp. (the former St. James shareholders). During 1995, 1994 and
1993, St. James paid $125,000 per year, to PSG Associates under this contract.
For the years 1996 and 1997, St. James is required to pay to PSG Associates
$125,000 annually, pursuant to this Agreement.
On January 12, 1993, as amended, Wedgestone entered into a secured, one
year credit facility due July 1996 with Rockaway pursuant to which Wedgestone
is permitted to borrow up to a maximum to $300,000 with additional over advances
available at the discretion of the lender to fund Wedgestone's working capital
needs and those of its subsidiaries. The contractual rate of interest on this
Loan is fifteen percent (15%) per annum and there was a commitment fee of
$4,500, payable upon initial funding and an extension fee of $5,000 in
connection with the amendment in 1994. The Rockaway Loan is secured by a pledge
of substantially all of the stock of Wedgestone's subsidiaries, its personal
assets and notes receivables. As of December 31, 1995, Wedgestone had borrowed
$300,000 pursuant to this facility and Rockaway advanced amounts in excess of
the agreement of $429,000. Rockaway is a real estate holding company which is
controlled by former St. James
33
<PAGE>
shareholders. The former St. James shareholders are entitled to substantially
all of the economic benefits of Rockaway. Mr. Goldstein, who is president and a
trustee of Wedgestone, is the president of Rockaway.
In connection with the Hercules acquisition, Resource Holdings
Associates and PFG received a fee of $220,000 consisting of $160,000 and 200,000
shares of beneficial interest of Wedgestone at a valuation price of $.30 per
share.
34
<PAGE>
PART IV
Item 14. Exhibits, Financial Statements, Schedules, and Reports on Form 10-K
(a) Set forth below are consolidated financial statements, financial
statement schedules and exhibits filed as part of this Annual Report on Form
10-K.
1. Consolidated Financial Statements
Reference is made to the index of consolidated financial
statements and supplementary data on page 10.
2. Financial Statement Schedules
Schedule II, Valuation and Qualifying Accounts, Schedule III,
Real Estate and Accumulated Depreciation and Schedule IV,
Mortgage Loans on Real Estate appear on pages 39 through 41
hereof. All other schedules are not included because they are
not applicable.
3. Exhibits
The following Exhibits are filed as part of, or incorporated
by reference into this report:
Exhibit No.
(2) (i) The Merger Agreement with St. James Automotive Corp.
into a subsidiary of Wedgestone as contemplated in
Wedgestone's Plan of Reorganization dated May 29,
1992 (Filed as Exhibit 2 to Form 8-K filed June 15,
1992 and incorporated herein by reference).
(ii) The Asset Sale Agreement between Wedgestone
Financial, Wedgestone Automotive Corp., Fey
Automotive Products, Inc. and Standun, Inc. dated
October 28, 1994 (Filed as Exhibit 1 to Form 8-K
filed October 28, 1994 and incorporated herein by
reference).
(iii) First Amendment to Asset Sale Agreement between Fey
Automotive Products, Inc. and Standun, Inc. dated
November 17, 1994 (Filed as Exhibit 2 to Form 8-K
filed December 1, 1994 and incorporated herein by
reference).
(iv) Asset Sale Agreement between Hercules Automotive
Products, Inc. (a subsidiary of Wedgestone Financial)
and Hercules Bumpers, Inc. dated December 23, 1994
(Filed as Exhibit 1 to Form 8-K filed January 23,
1995 and incorporated herein by reference).
(v) Letter Amendment to Asset Sale Agreement between
Hercules Automotive Products, Inc. and Hercules
Bumpers, Inc. dated December 23, 1994 (Filed as
Exhibit 2 to Form 8-K filed January 23, 1995 and
incorporated herein by reference).
(3) (i) Amendment and Restatement of Declaration of Trust and
Appointment of Trustees and Acceptance of Appointment
of Trustees dated June 15, 1992 (Filed as Exhibit 3
to Form 8-K on June 26, 1992 and incorporated herein
by reference).
(4) (i) Specimen certificate for shares of beneficial
interest, $1.00 par value (Filed as Exhibit 1 to Form
S-11 Registration Statement No. 2-66921 and
incorporated herein by reference).
(ii) Specimen certificate for Special Income Shares (Filed
as Exhibit 4(b) to Form S-14 Registration Statement
No. 2-98006 and incorporated herein by reference).
(10) (i) Letter of Intent between Wedgestone Financial and PSG
Holdings Corp., d/b/a St. James Automotive (Filed as
Exhibit C to First Amended of Reorganization which
was filed as Exhibit 2(ii) to Form 8-K filed February
12, 1992 and incorporated herein by reference).
35
<PAGE>
(ii) Term note for $1,000,000 from Genesis Plastics, Inc.,
to Wedgestone Financial (Filed as an exhibit to Form
8-K Report dated August 24, 1992 and incorporated
herein by reference).
(iii) Loan and Security Agreement dated August 24, 1992
between Genesis Plastics, Inc., and Wedgestone
Financial for loan (Filed as an exhibit to Form 8-K
Report dated August 24, 1992 and incorporated herein
by reference).
(iv) Unconditional Secured Guaranty dated August 24, 1992
between Nicon Holdings, Inc., and Wedgestone
Financial for loan (Filed as an exhibit to Form 8-K
Report dated August 24, 1992 and incorporated herein
by reference).
(v) Unconditional Guaranty dated August 24, 1992 between
Nicon Holdings, Inc., and Wedgestone Financial for
loan (Filed as an exhibit to Form 8-K Report dated
August 24, 1992 and incorporated herein by
reference).
(vi) Stock Exchange Agreement and Plan of Reorganization
dated August 24, 1992 between Nicon Plastics, Inc.,
and Wedgestone Financial (Filed as an exhibit to Form
8-K Report dated August 24, 1992 and incorporated
herein by reference).
(vii) Loan Participation and Sharing Agreement dated
December 17, 1992 between Wedgestone Financial and
JCS Holdings Corp., RAB Management Corp., JMS
Holdings Corp., and PFG Corp. (Filed as an exhibit to
Form 10-K filed March 31, 1993 and incorporated
herein by reference).
(viii) Loan and Security Agreement dated January 12, 1993
between Wedgestone Financial and Rockaway 605 Corp.
(Filed as an exhibit to Form 10-K filed March 31,
1993 and incorporated herein by reference).
(ix) Amendment dated January 15, 1994 of Loan
Participation and Security Agreement dated January
12, 1993 between Wedgestone Financial and Rockaway
605 Corp. (Filed as an exhibit to Form 10-K filed
April 13, 1994 and incorporated herein by reference).
(x) Court approved motion by IRP releasing guarantee of
indebtedness owed to Charles Sullivan in exchange for
the right to purchase Wedgestone's one acre parcel
and IRP's assignment of it's 50% interest in
Wedgestone's New York property to Wedgestone. (Filed
as an exhibit to Form 10-K filed April 13, 1994 and
incorporated herein by reference).
(xi) Amendment dated November 1, 1994 of Loan and Security
Agreement dated January 12, 1993 between Wedgestone
Financial and Rockaway 605 Corp. (Filed as an exhibit
to Form 10-K filed March 30, 1995 and incorporated
herein by reference).
(xii) Registration Rights Agreement between Standun, Inc.
and Wedgestone Financial dated November 18, 1994
(Filed as Exhibit 3 to Form 8-K filed December 1,
1994 and incorporated herein by reference).
(xiii) The Wedgestone Financial 1994 Stock Option Plan
effective September 24, 1994. (Filed as an exhibit to
Form 10-K filed March 30, 1995 and incorporated
herein by reference).
(xiv) Promissory Note between Standun, Inc. and 5th Avenue
Partners dated November 17, 1994 and Assignment
Agreement, assigning the note to Fey Automotive
Products, Inc. (Filed as an exhibit to Form 10-K
filed March 30, 1995 and incorporated herein by
reference).
(xv) Revolving Credit Line between Fey Automotive
Products, Inc., Sigma Plating Co., Inc. and St. James
Automotive Corp. and The CIT Group, Inc. dated
November 18, 1994.(Filed as an exhibit to Form 10-K
filed March 30, 1995 and incorporated herein by
reference).
(xvi) Credit Enhancement Agreement of Charles Brady,
Chattahoochee Leasing Corporation and Wedgestone
Financial dated January 8, 1995 (Filed as Exhibit 3
to Form 8-K filed January 23, 1995 and incorporated
herein by reference).
36
<PAGE>
(xvii) Promissory Note between Charles W. Brady and Hercules
Automotive Products, Inc. dated January 8, 1995
(Filed as Exhibit 4 to Form 8-K filed January 23,
1995 and incorporated herein by reference).
(xviii) Promissory Note between Chattahoochee Leasing
Corporation and Hercules Automotive Products, Inc.
dated January 8, 1995 (Filed as Exhibit 5 to Form 8-K
filed January 23, 1995 and incorporated herein by
reference).
(xix) The Wedgestone Financial 1995 Stock Option Plan
effective December 15, 1995 (Filed herewith).
(21) Subsidiaries of Registrant:
Wedgestone College Point Corp., a New York
corporation
Bristol Village Inc., a Connecticut corporation
MWF Corp., a Delaware corporation LIP Corp., a
Massachusetts corporation
St. James Automotive, a Delaware corporation
Wedgestone Automotive Corp., a Delaware corporation
Fey Automotive Products, Inc., a Delaware corporation
Sigma Plating Co., Inc., a California corporation
Hercules Automotive Products, Inc., a Delaware
corporation
Note: Wedgestone Financial has eight consolidated wholly
owned subsidiaries operating in the United States.
Wedgestone College Point Corp., Bristol Village Inc.,
MWF Corp., and LIP Corp. own real estate acquired
from a borrower. See Schedule III to this report for
a description of the real estate so acquired. St.
James Automotive Corp., Wedgestone Automotive Corp.,
Fey Automotive Products, Inc., and Hercules
Automotive Products, Inc. manufacture light duty
truck aftermarket accessories. Sigma Plating Co.,
Inc. operates an electroplating facility.
(27) Financial Data Schedule (Filed herewith).
(b) Reports on Form 8-K
The Company filed a report on Form 8-K dated December 11, 1995,
with respect to a loss in connection with the Genesis loan.
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WEDGESTONE FINANCIAL
Date: March 27, 1996
By: /s/ Jeffrey S. Goldstein,
--------------------------------
President
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Date: March 27, 1996 By: /s/ John C. Shaw
----------------
Trustee
Date: March 27, 1996 By:/s/ Jeffrey A. Oberg
--------------------
Trustee
Date: March 27, 1996 By:/s/ John J. Doran
-----------------
Trustee
Date: March 27, 1996 By:/s/ Jeffrey Goldstein
----------------------
Trustee
The name "Wedgestone Financial" (formally Wedgestone Realty Investors Trust) is
the designation of The Trustees under a Declaration of Trust dated March 12,
1980, as amended, and in accordance with such Declaration of Trust notice is
hereby given that all persons dealing with Wedgestone Financial by so acting
acknowledge and agree that such persons must look solely to Wedgestone property
for the enforcement of any claims against Wedgestone Financial and that neither
The Trustees, officers, employees, agents nor shareholders assume any personal
liability for claims against Wedgestone or obligations entered into on behalf of
Wedgestone Financial, and that the respective properties shall not be subject to
claims of any other person in respect of any such liability.
38
<PAGE>
<TABLE>
Schedule II - Valuation in Qualifying Accounts: (Amounts in Thousands)
<CAPTION>
Additions
-----------------------
Balance Charged Charged Balance
at beginning to costs & to other at end
Description Year of the Year expenses accounts Deductions of the year
----------- ---- ------------- ---------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Allowance for
Doubtful Accounts 1993 144 99 (115)(1) 128
1994 128 94 (20)(1) 202
1995 202 21 272(6) (239)(1) 256
Inventory Reserve 1993 398 24 (377)(2) 105
60 (3)
1994 105 187 83(5) (113)(4) 283
21 (3)
1995 283 (16) 230(6) (22)(2) 368
(107)(4)
<FN>
(1) Net Charge-off of bad debts
(2) Write off of obsolete inventory
(3) Sale of obsolete inventory for scrap
(4) Physical inventory adjustment
(5) Transfer to Warranty Accrual to bring account to zero
(6) Liability assumed in connection with Hercules acquisition
</FN>
</TABLE>
39
<PAGE>
<TABLE>
Schedule III - Real Estate and Accumulated Depreciation: (Amounts in Thousands)
<CAPTION>
Gross Amount at End of Period
----------------------------------------
Buildings & Date
Description Land Improvements Total Acquired
---------------------------------------- ------- -------------- ------- ----------
<S> <C> <C> <C> <C>
Land
Connecticut $ 128 $0 $ 128 10/88
New York 7,027 0 7,027 5/90
Residential Properties
Northeastern Massachusetts 494 494 10/89
------ ------ ------
Total Real Estate $7,649 $0 $7,649
====== ======== ======
1995 1994 1993
------ ------ ------
Balance at beginning of period $7,523 $7,905 $10,118
Additions during the period:
Improvements/Carrying costs 126 174 119
------ ------ ------
126 174 117
------ ------ ------
7,649 8,079 10,237
Deductions during the period
Sales 556 2,332
Write-off of real estate held
Depreciation
Legal Settlement
Transferred to IRP
------ ------ ------
--- 556 2,332
------ ------ ------
Balance at end of year $7,649 $7,523 $7,905
====== ====== ======
<FN>
See Note 6.
</FN>
</TABLE>
40
<PAGE>
<TABLE>
Schedule IV -- Mortgage Loans on Real Estate: (Amounts in Thousands)
<CAPTION>
Principal
Amount of
Interest Final Periodic Face Carrying Loans Subject
Rate At Maturity Payment Amount of Amount of to Delinquent
Property Type 12/31/95 Date Term Mortgages Mortgages Prin/Interest
------------- ----------- -------- -------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
MORTGAGE LOANS
Earning:
First Mortgage Loans:
Residential 8.00% June, 2011 (1) 168 84(2) $0
-------- -------- ------
TOTAL MORTGAGE LOANS 168 84 $0
======== ======== ======
LONG TERM NOTES
TOTAL LONG TERM NOTES --- --- $0
======== ======== ======
<FN>
- --------------------------------------------
(1) Interest due monthly, principal due monthly over 15 years starting June 1996.
(2) A reserve of $85,000 has been applied against this loan
</FN>
</TABLE>
<TABLE>
Changes in Mortgage Loans and Long Term Notes:
<CAPTION>
1995 1994 1993
-------- -------- ------
<S> <C> <C> <C>
Balance at beginning of period $735 $857 $921
Additions during period
New Mortgage Loans
Increase to existing mortgage loans 25
--- --- 25
----------- ----------- --------
$735 $857 $946
Deductions during period
Collections of principal 1 51
Cost of mortgages transferred to IRP
Reserve for loan loss 650 71 89
---------- ---------- ------
651 122 89
---------- --------- ------
Balance at end of year $84 $735 $857
========== ========= ======
</TABLE>
41
WEDGESTONE FINANCIAL
1995 STOCK OPTION PLAN
42
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. General Purpose of Plan;
Definitions..............................................1
SECTION 2. Administration...........................................2
SECTION 3. Stock Subject to Plan....................................3
SECTION 4. Eligibility..............................................3
SECTION 5. Stock Options............................................3
SECTION 6. Amendments and Termination...............................7
SECTION 7. Unfunded Status of Plan..................................7
SECTION 8. General Provisions.......................................7
SECTION 9. Effective Date of Plan...................................8
SECTION 10. Long-Term Capital Gains..................................8
43
<PAGE>
WEDGESTONE FINANCIAL
1995 STOCK OPTION PLAN
SECTION 1. General Purpose of Plan; Definitions.
The name of this plan is the Wedgestone Financial 1995 Stock
Option Plan (the "Plan"). The purpose of the Plan is to enable Wedgestone
Financial (the "Company") to retain and attract employees and other significant
non-employees who contribute to the Company's success by their ability,
ingenuity and industry, and to enable such individuals to participate in the
long-term success and growth of the Company by giving them a proprietary
interest in the Company.
For purposes of the Plan, the following terms shall be defined as
set forth below:
a. "Board" means the Board of Directors of the Company.
b. "Cause" means a felony conviction of a participant or the failure
of a participant to contest prosecution for a felony, or a
participant's willful misconduct or dishonesty, which is directly
and materially harmful to the business or reputation of the
Company.
c. "Code" means the Internal Revenue Code of 1986, as amended.
d. "Committee" means the Committee referred to in Section 2 of the
Plan. If at any time no Committee shall be in office, then the
functions of the Committee specified in the Plan shall be
exercised by the Board.
e. "Company" means Wedgestone Financial, a business trust organized
under the laws of the State of Massachusetts.
f. "Disability" means permanent and total disability under standards
established by the Committee.
g. "Disinterested Person" shall have the meaning set forth in Rule
16b-3(d) (3) as promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, or any
successor definition adopted by the Commission.
h. "Early Retirement" means retirement, with consent of the Committee
at the time of retirement, from active employment with the
Company.
i. "Fair Market Value" means the value of the Stock on a given date
as determined by the Committee in accordance with the applicable
Treasury Department regulations under Section 422 of the Code with
respect to "incentive stock portions."
j. "Incentive Stock Option" means any Stock Option intended to be and
designated as an "Incentive Stock Option" within the meaning of
Section 422 of the Code.
k. "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option, and is intended to be and is designated as
a "Non-Qualified Stock Option."
44
<PAGE>
i. "Normal Retirement" means retirement from active employment with
the Company and any Subsidiary or Parent Corporation of the
Company on or after age 65.
m. "Retirement" means Normal Retirement or Early Retirement.
n. "Stock" means the Common Stock of the Company.
o. "Stock Option" means any option to purchase shares of stock
granted pursuant to Section 5 below.
SECTION 2. Administration.
The Plan shall be administered by the Board of Directors or by a
Committee of not less than three Disinterested Persons, who shall be appointed
by the Board of Directors of the Company and who shall serve at the pleasure of
the Board.
The Committee shall, to the extent delegated by the Board, have
the power and authority to grant Stock Options, to eligible employees and
non-employees, pursuant to the terms of the Plan.
In particular, the Committee shall have the authority:
(a) to select the officers, key employees of the Company and key
non-employees to whom Stock Options from time to time may be
granted hereunder;
(b) to determine whether and to what extent Incentive Stock Options or
Non-Qualified Stock Options or a combination of the two, are to be
granted hereunder;
(c) to determine the number of shares to be covered by each such award
granted hereunder;
(d) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder (including, but
not limited to, any restriction on any Stock Option and/or the
shares of Stock relating thereto);
(e) to determine whether, to what extent and under what circumstances
Stock and other amounts payable with respect to an award under
this Plan shall be deferred either automatically or at the
election of the participant.
The Committee shall have the authority to adopt, alter and repeal
such administrative rules, guidelines and practices governing the Plan as it
shall, from time to time, deem advisable; to interpret the terms and provisions
of the Plan and any award issued under the Plan (and any agreements relating
thereto); and to otherwise supervise the administration of the Plan.
All decisions made by the Committee pursuant to the provisions of
the Plan shall be final and binding on all persons, including the Company and
Plan participants.
SECTION 3. Stock Subject to Plan.
45
<PAGE>
The total number of shares of Stock reserved and available for
distribution under the Plan shall be 1,000,000. Such shares may consist, in
whole or in part, of authorized and unissued shares.
If any shares that have been optioned cease to be subject to
Options, such shares shall again be available for distribution in connection
with future awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, other change in corporate structure affecting
the Stock, or spin-off or other distribution of assets to shareholders, such
substitution or adjustment shall be made in the aggregate number of shares
reserved for issuance under the Plan, and in the number and option price of
shares subject to outstanding options granted under the Plan, as may be
determined to be appropriate by the Committee, in its sole discretion, provided
that the number of shares subject to any award shall always be a whole number.
SECTION 4. Eligibility.
Officers, other key employees of the Company and other significant
non-employees who are responsible for or contribute to the management, growth
and/or profitability of the business of the Company are eligible to be granted
Stock Options under the Plan. The optionees under the Plan shall be selected
from time to time by the Committee, in its sole discretion, from among those
eligible, and the Committee shall determine, in its sole discretion, the number
of shares covered by each award.
SECTION 5. Stock Options.
Any Stock Option granted under the Plan shall be in such form as
the Committee may from time to time approve.
The Stock Options granted under the Plan may be of two types: (i)
Incentive Stock Options and (ii) NonQualified Stock Options. No Incentive Stock
Options shall be granted under the Plan ten (10) years from the date the Plan is
adopted by the Board of Directors.
The Committee shall have the authority to grant any optionee
Incentive Stock Options, Non-Qualified Stock Options, or both types of options.
To the extent that any option does not qualify as an Incentive Stock Option, it
shall constitute a separate Non-Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of
this Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be so
exercised, so as to disqualify either the Plan or any Incentive Stock Option
under Section 422 of the Code. The preceding sentence shall not preclude any
modification or amendment to an outstanding Incentive Stock Option, whether or
not such modification or amendment results in disqualification of such Option as
an Incentive Stock Option, provided the optionee consents in writing to the
modification or amendment.
Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable.
(a) Option Price. The option price per share of Stock purchasable
under a Stock Option shall be determined by the Committee at the
time of grant. In no event shall the option price per share of
Stock purchasable
46
<PAGE>
under an Incentive Stock Option be less than 100% of the Fair
Market Value of the Stock on the date of the grant of the option.
In no event shall the option price per share of a Non-Qualified
Stock Option be less than 85% of the Fair Market Value of the
Stock on the date of the grant of the option. If an employee owns
or is deemed to own (by reason of the attribution rules applicable
under Section 425 (d) or the Code) more than 10% of the combined
voting power of all classes of stock of the Company and an
Incentive Stock Option is granted to such employee, the option
price shall be no less than 110% of the Fair Market Value of the
Stock on the date the option is granted. The Fair Market Value of
the shares of Stock of the Company means the average of the
closing prices of the sales of the Stock on any securities
exchange on which the stock may at the time be listed, or the
average of the representative bid and asked prices quoted in the
NASDAQ Small-Cap Market. If at any time the Stock is not listed on
a Securities Exchange or quoted on the NASDAQ Small-Cap Market,
the Fair Market Value of the Stock shall be determined by the
Committee.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more
than ten (10) years after the date the option is granted. If an
employee owns or is deemed to own (by reason of the attribution
rules of Section 425(d) of the Code) more than 10% of the combined
voting power of all classes of stock of the Company and an
Incentive Stock Option is granted to such employee, the term of
such option shall be no more than five (5) years from the date of
grant.
(c) Exercisability. Stock Options shall be exercisable at such time or
times as determined by the Committee. If the Committee provides,
in its discretion, that any option is exercisable only in
installments, the Committee may waive such installment exercise
provisions at any time. Notwithstanding the foregoing, unless the
Stock Option Agreement provides otherwise, any Stock Option
granted under this Plan shall be exercisable in full, without
regard to any installment exercise provisions, for a period
specified by the Company, but not to exceed sixty (60) days, prior
to the occurrence of any of the following events: (i) dissolution
or liquidation of the Company other than in conjunction with a
bankruptcy of the Company or any similar occurrence, (ii) any
merger, consolidation, acquisition, separation, reorganization, or
similar occurrence, where the Company will not be the surviving
entity or (iii) the transfer of substantially all of the assets of
the Company or 51% or more of the outstanding Stock of the
Company.
(d) Methods of Exercise. Subject to any installment exercise
provisions to which they are subject, Stock Options may be
exercised in whole or in part at any time during the option period
by giving written notice of exercise to the Company specifying the
number of shares to be purchased. Such notice shall be accompanied
by payment in full of the purchase price, either by certified or
bank check, or by any other form of legal consideration deemed
sufficient by the Committee and consistent with the Plan's purpose
and applicable law, including promissory notes or a properly
executed exercise notice together with irrevocable instructions to
a broker acceptable to the Company to promptly deliver to the
Company the amount of sale or loan proceeds to pay the exercise
price. As determined by the Committee, in its sole discretion,
payment in full or in part may also be made in the form of
unrestricted Stock already owned by the optionee (based, on the
Fair Market Value of the Stock on the date the option is
exercised, as determined by the Committee), provided, however,
that, in the case of an Incentive Stock Option, the right to make
a payment in the form of already owned shares may be authorized
only at the time the option is granted. If the terms of an option
so permit, an optionee may elect to pay all or part of the option
exercise price by having the Company withhold from the shares of
Stock that would otherwise be issued upon exercise that number of
shares of Stock having a Fair Market Value
47
<PAGE>
equal to the aggregate option exercise price for the shares with
respect to which such election is made. No shares of Stock shall
be issued until full payment therefor has been made. Unless
provided otherwise in the Stock Option Agreement, an optionee
shall generally have the right to dividends and other rights of a
shareholder with respect to shares subject to the Stock Option
when the optionee has given written notice of exercise, has paid
in full for such shares, and, if requested, has given the
representation described in Section 8(a).
(e) Non-transferability of Options. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws
of descent and distribution, and all Stock Options shall be
exercisable, during the optionee's lifetime, only by the optionee.
(f) Termination by Death. If an optionee's employment by the Company
terminates by reason of death, the Stock Option may thereafter be
immediately exercised, to the extent then exercisable (or on such
accelerated basis as the Committee shall determine), by the legal
representative of the estate or by the legatee of the optionee
under the will of the optionee, for a period of three years (or
such shorter period as the Committee shall specify at grant) from
the date of such death or until the expiration of the stated term
of the option, whichever period is shorter.
(g) Termination by Reason of Disability. If an optionee's employment
by the Company terminates by reason of Disability, any Stock
Option held by such optionee may thereafter be exercised, to the
extent it was exercisable at the time of termination due to
Disability (or on such accelerated basis as the Committee shall
determine), but may not be exercised after three years (or such
shorter period as the Committee shall specify at grant) from the
date of such termination of employment by reason of Disability or
the expiration of the stated term of the option, whichever period
is the shorter. In the event of termination of employment by
reason of Disability, if an Incentive Stock Option is exercised
after the expiration of the exercise periods that apply for
purposes of Section 422 of the Code, the option will thereafter be
treated as a Non-Qualified Stock Option.
(h) Termination by Reason of Retirement. If an optionee's employment
by the Company terminates by reason of Retirement, any Stock
Option held by such optionee may thereafter be exercised to the
extent it was exercisable at the time of such Retirement (or on
such accelerated basis as the Committee shall determine), but may
not be exercised after three years (or such shorter period as
Committee shall specify at grant) from the date of such
termination of employment or the expiration of the stated term of
the option, whichever period is the shorter. In the event of
termination of employment by reason of Retirement, if an Incentive
Stock Option is exercised after the expiration of the exercise
periods that apply for purposes of Section 422 of the Code the
option will thereafter be treated as a Non-Qualified Stock Option.
(i) Other Termination. Unless otherwise determined by the Committee,
if an optionee's employment by the Company terminates for any
reason other than death, Disability or Retirement, the Stock
Option shall thereupon terminate, except that the option may be
exercised to the extent it was exercisable at such termination for
the lesser of three months or the balance of the option's term if
the optionee is involuntarily terminated without Cause by the
Company.
(j) Annual Limit on Incentive Stock Options. The aggregate Fair Market
Value (determined as of the time the Stock Option is granted) of
the common Stock with respect to which an
48
<PAGE>
Incentive Stock Option under this Plan or any other plan of the
Company is exercisable for the first time by an optionee during
any calendar year shall not exceed $100,000.
(k) No Equity Interest. An optionee shall have no equity interest in
the Company or any voting, dividend, liquidation, or dissolution
rights with respect to any Stock of the Company solely by reason
of having a Stock Option. Furthermore, prior to the exercise of an
optionee's Stock Option, that optionee shall have no interest in,
or any voting, dividend, liquidation or dissolution rights with
respect to, the Common Stock relating to that Stock Option.
SECTION 6. Amendments and Termination.
The Board may amend, alter, or discontinue the Plan, but no
amendment, alteration, or discontinuation shall be made (i) which impairs the
rights of an optionee or participant under a Stock Option granted, without the
optionee's consent, or (ii) which without the approval of the stockholders of
the Company would cause the Plan to no longer comply with Section 422 of the
Code or any other regulatory requirements.
The Committee may amend the terms of any award or option
theretofore granted, prospectively or retroactively, but, subject to Section 3
above, no such amendment shall impair the rights of any holder without his or
her consent. The Committee may also substitute new Stock Options for previously
granted options, including previously granted options having higher option
prices.
SECTION 7. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan for
incentive compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained herein shall give any
such participant or optionee any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Stock or payments in lieu of or with respect to awards
hereunder, provided, however, that the existence of such trusts or other
arrangements is consistent with the unfunded status of the Plan.
SECTION 8. General Provisions.
(a) The Committee may require each person purchasing shares pursuant
to a Stock Option under the Plan to represent to and agree with
the Company in writing that the optionee is acquiring the shares
without a view to distribution thereof. The certificates for such
shares may include any legend which the Committee deems
appropriate to reflect any restrictions on transfer.
All certificates for shares of Stock delivered under the Plan
pursuant to any Stock Option shall be subject to such stock
transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations, and other requirements of
the Securities and Exchange Commission, any stock exchange upon
which the Stock is then listed, and any applicable Federal or
state securities laws, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate
reference to such restrictions.
(b) Nothing contained in this Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such
arrangements may be either generally applicable or applicable only
in specific cases. The adoption of the Plan shall not
49
<PAGE>
confer upon any employee of the Company any right to continued
employment with the Company, as the case may be, nor shall it
interfere in any way with the right of the Company to terminate
the employment of any of its employees at any time.
(c) Each participant shall, no later than the date as of which any
part of the value of an award first becomes includable as
compensation in the gross income of the participant for Federal
income tax purposes, pay to the Company, or make arrangements
satisfactory to the Committee regarding payment of, any Federal,
state, or local taxes of any kind required by law to be withheld
with respect to the award. The obligations of the Company under
the Plan shall be conditional on such payment or arrangements and
the Company shall, to the extent permitted by law, have the right
to deduct any such taxes from any payment of any kind otherwise
due to the participant. With respect to any award under the Plan,
if the terms of such award so permit, a participant may elect by
written notice to the Company to satisfy part or all of the
withholding tax requirements associated with the award by (i)
authorizing the Company to retain from the number of shares of
Stock that would otherwise be deliverable to the participant, or
(ii) delivering to the Company from shares of Stock already owned
by the participant, that number of shares having an aggregate Fair
Market Value equal to part or all of the tax payable by the
participant under this Section 8(c). Any such election shall be in
accordance with, and subject to, applicable tax and securities
laws, regulations and rulings.
SECTION 9. Effective Date of Plan.
The Plan shall be effective on the date it is approved by a vote
of the holders of a majority of the Stock present and entitled to vote (whether
in person or by proxy) at a meeting of the Company's shareholders.
SECTION 10. Long-Term Capital Gains.
Incentive Stock Options granted pursuant to this Plan are intended
to qualify for long-term capital gains treatment available, under the provisions
of Sections 421(a) and 422 of the Code. As of January 1, 1994, eligibility for
such tax treatment required that no disposition of shares of Stock be made by
the optionee (i) within two (2) years from the date the Incentive Stock Option
is granted, or (ii) within one (1) year of the date the Stock underlying the
Incentive Stock Option is transferred to him.
50
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