================================================================================
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, 1996
[ ] 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
Indicate 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
As of March 27, 1997, 21,885,668 shares of beneficial interest were
outstanding. The aggregate market value of the shares held by non-affiliates of
the registrant on that date was approximately $ 2,571,000 based on the last
reported sale price of the shares at that date.
Total number of pages in this document: 59 Exhibits at page: 35
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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. which
was acquired on January 9, 1995 and sold on April 18, 1996. 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,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Automotive Products:
Manufactured Products for Light Duty Trucks $ 41,452 $ 39,970 $ 28,135
Contract Plating 3,312 3,680 3,179
All Other 1,522 2,462 3,304
-------- -------- --------
Total $ 46,286 $ 46,112 $ 34,618
======== ======== ========
Real Estate and Lending (a) -- -- --
Operating Income (Loss):
Automotive Products $ 2,944 $ 3,259 $ 2,367
Real Estate and Lending (174) (529) (363)
-------- -------- --------
Total $ 2,770 $ 2,730 $ 2,004
======== ======== ========
Identifiable Assets:
Automotive Products $ 16,221 $ 17,228 $ 11,087
Real Estate and Lending 1,167 1,375 1,880
-------- -------- --------
Total Identifiable Assets $ 17,388 $ 18,603 $ 12,967
======== ======== ========
<FN>
(a) Real Estate and Lending revenues are immaterial and reported with operating costs.
</FN>
</TABLE>
1
<PAGE>
B. Automotive Products Business Segment
On June 15, 1992, Wedgestone acquired St. James Automotive Corp. This
subsidiary manufactures and sells tubular products, consisting primarily of
accessories for the light-duty truck market such as grille guards, push bars and
step rails. 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, which included the stock of
Sigma, were merged into Wedgestone's wholly owned subsidiary Fey Automotive
Products, Inc. In conjunction with the acquisition of the Automotive Segment of
Standun, Wedgestone placed St. James, Fey and Sigma under the common ownership
of its wholly owned subsidiary, Wedgestone Automotive. Collectively, these
companies comprise the Automotive Products business segment which, unless the
context requires otherwise, will be hereinafter referred to as Wedgestone
Automotive.
On January 5, 1995, Wedgestone Automotive, through its wholly owned
subsidiary Hercules Automotive Products, Inc. (Hercules), acquired substantially
all of the assets of Hercules Bumpers, Inc., a Georgia company. This acquisition
was intended to provide access to a new business segment for Wedgestone
Automotive. The segment, known as dealer direct, involved the sale of rear step
bumpers for light duty trucks to new vehicle dealers as an alternative to the
factory supplied bumper. Hercules Bumpers, Inc., was the largest domestic
supplier in this dealer direct segment. During 1995, a major OE manufacturer
initiated a program to secure a greater portion of rear step bumper sales. The
program, which involved severe price competition and program buying, eroded a
substantial portion of Hercules' sales base and placed Hercules in a loss
position for the fourth quarter of 1995. In response to the likely prospect of
significant continued losses, Wedgestone Automotive ceased manufacturing
operations at Hercules on March 5, 1996. In a further decision to exit this
segment, Wedgestone Automotive sold its stock ownership in Hercules to MBC
Corporation for $1.00 and the assumption of certain debt and other liabilities
approximating $4.5 million pursuant to a Stock Purchase Agreement. The Pelham
manufacturing plant along with its inventory and accounts receivable constituted
all of the material assets of Hercules. There are no remaining assets of
Hercules.
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 $46,286,000, $46,112,000 and $34,618,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.
The Company's automotive products are sold in the following markets:
Traditional Aftermarket: This market includes dealership replacement
parts departments, 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 including General Motors, Chrysler,
Nissan and Subaru, 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, franchises or concessions. It markets its
products under various trade names including Fey, Tuff Bar and Westin and holds
registered trademarks on the names Quad Tube, Surstep, Contour and Diamondstep.
2
<PAGE>
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 utilizing direct sales personnel and manufacturer's representatives.
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 totaled $2,300,000 as
of December 31, 1996, as compared to $1,500,000 as of December 31, 1995.
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.
Subsidiary Operations; Employees, and Facilities
As of March 15, 1997, Wedgestone Automotive manufactures its products
in several subsidiaries as follows:
Facility Square Footage Employees Products
-------- -------------- --------- --------
Fey Automotive Products, Inc. 89,000 180 Bumpers, Step
Rails & Related
Products
St. James Automotive Corp. 95,000 200 Bumpers, Grille
Guards, Step
Bars & other
Tubular Products
Sigma Plating Co., Inc. 26,000 90 Intercompany and
------- --- outside contract
plating services
210,000 470
======= ===
The manufacturing employees of Fey are represented by a union whose
contract expires in March 1999. 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 La
Puente, California, approximately 25 miles east of Los Angeles.
Environmental Matters
St. James and Sigma operate chrome plating facilities. Hazardous wastes
generated by these operations are disposed of 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 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. St. James, working in conjunction with local, state
and federal authorities, has performed the remediation work required on this
site. Post remediation site approval is pending. The Company does not anticipate
any material expenditures in 1997 in connection with compliance with
environmental regulations.
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; 53 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 "College Point"
property). The College Point Property original mortgage loan was the subject of
litigation which Wedgestone originated. The nature of the litigation stemmed
from a lawsuit filed by the Company against various parties for fraud. This
litigation has been concluded without recovery. There are no appeals
anticipated.
The Company generally holds its real estate properties for investment
purposes but entertains offers to sell these properties from time-to-time. On
January 31, 1997, the Company signed a contract for the sale of its College
Point property for $1.375 million, This sale was completed on February 27, 1997.
(See Subsequent Events.) The Company owns four firstfloor units in a seven-story
condo building in Peabody, Massachusetts. These units are designed for
commercial use. At present, none of the Company's units are occupied. The
Company does not intend to develop the Bristol, Connecticut property at the
present time. If the Company did decide to develop this property, the Company
would require the assistance of a real estate development partner.
Promissory Notes and Claims Receivable
Wedgestone has an outstanding loan receivable on one property in Sebago
Lake, Maine, the aggregate value of which totals approximately $81,000 as of
December 31, 1996, net of reserves. Management believes that current reserves
recorded against this loan are adequate. Interest and principal payments are
current.
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 through a
public auction. As a result of this action, Wedgestone recorded a loss of
$756,900 of which $697,000 was recognized in 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.
4
<PAGE>
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.
Subsequent Events
On January 30, 1997, the Company entered into an agreement to sell its
21 acres of land known as the College Point property for $1,375,000. Of this
amount, $137,500 was tendered upon signing of the agreement and the balance,
$1,237,500, was received at closing on February 27, 1997. The book value of this
property as of December 31, 1996 was $914,800. The Company will recognize a gain
of approximately $425,000 in 1997 on this transaction.
Net Operating Loss
Wedgestone has a net operating loss carry forward for federal income
tax of approximately $40,200,000.
Item 3. Legal Proceedings
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 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
An appeal was filed against the Company on May 25, 1995, by a holder of
the Company's formerly issued Special Income Shares (the "Income Shares"). The
Income Shares were designated to receive a distribution of any excess "profit or
appreciation" realized by the Company on certain specific mortgages and notes
receivable. The one remaining outstanding loan under which income rights had
been granted related to a loan the Company participated in with a bank. This
bank subsequently was liquidated and the FDIC assumed control. The FDIC
approached the Company to seek approval to foreclose on the note since it was in
default. Since the Company was involved in a bankruptcy proceeding, the Company
sought bankruptcy court approval to proceed on the foreclosure action. In the
motion seeking such approval was a request that (i) the FDIC remit to the
Company any excess proceeds from the note, (ii) the Company cancel the Special
Income Shares since this note was the sole remaining loan and (iii) the Company
pay any funds, net of costs and fees collected from the FDIC to the holders of
Income Shares as a liquidating distribution. This motion was approved by the
bankruptcy court and the appeal was instituted. The appeal remains pending.
A complaint was filed against Fey, a wholly owned subsidiary of
Wedgestone Automotive Corp ("WAC"), on September 10, 1996, in the Superior Court
of Mitchell County in the state of Georgia, by Mitchell Real Estate Partnership,
C. Ray Council, Hal A. Council, Max R. Council, Rex A. Council, June Council
Hunter and Gay Council Moring (collectively, "Mitchell").
In its complaint, Mitchell asserts breach of contract and fraud claims
against the defendants resulting from a Marketing Agreement between Mitchell,
Fey and HAP for marketing consulting services relating to Hercules products,
alleging, among other things, that Fey has impeded Mitchell's ability to earn
commissions under the Marketing Agreement. Mitchell seeks monetary damages in
excess of $4 million.
Fey and the other defendants have removed the case to the United States
District Court for the Middle District of Georgia. Fey and the other defendants
have filed a motion to dismiss the case. Fey has agreed to extend the period for
filing a responsive pleading pending the resolution of the procedural issues.
Additional named defendants are John C. Shaw, chairman and trustee of the
Company, Jeffrey S. Goldstein, a trustee and the President of the Company, James
J. Pinto, the President of PFG Corporation, which holds in excess of 5% of the
Company's shares, and David L. Sharp, the Chief Executive Officer of WAC.
5
<PAGE>
This litigation is in the initial stages and as of March 27,1997, no
discovery has taken place. Fey and the other defendants believe Mitchell's
claims are without merit and intend to vigorously contest the Mitchell complaint
and pursue counter claims and affirmative defenses. As previously reported in
its Form 10-Q for the period ended June 30, 1996, the Company has taken a
reserve for costs arising from or relating to the closure of the Hercules
facility. Management is unable to evaluate the likelihood of an unfavorable
outcome or estimate the amount or range of potential loss, if any.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
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 1996 and 1995.
Market Price Range
======================================================
1996 1995
---- ----
Quarter High Low High Low
------- ---- --- ---- ---
First .25 .20 .48 .38
Second .60 .22 .56 .44
Third .60 .35 .52 .42
Fourth .45 .31 .31 .06
======================================================
On March 24, 1997, the bid price of Wedgestone's shares of beneficial
interest was $ .32.
Record Holders
On March 24, 1997, there were 2,509 record holders of Wedgestone's
shares of beneficial interest. Also see Note 10 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 1996.
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,
-----------------------------------------------------------------------------------
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Operating Data: (In Thousands)
Net sales $ 46,286 $ 46,112 $ 34,618 $ 29,472 $ 27,040
Income (loss) before
extraordinary gain $ 1,372 $ 1,845 $ 1,493 $ (116) ($ 1,677)
Extraordinary gain from
net liabilities discharged
in bankruptcy proceeding -- -- -- -- 9,029
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 1,372 $ 1,845 $ 1,493 ($ 116) $ 7,352
============ ============ ============ ============ ============
Per Share Data:
Income (loss) before
extraordinary gain $ .06 $ .08 $ .07 ($ .01) ($ .10)
Extraordinary gain -- -- -- -- .52
------------ ------------ ------------ ------------ ------------
Net income (loss) $ .06 $ .08 $ .07 ($ .01) $ .42
============ ============ ============ ============ ============
Weighted average
Shares outstanding 21,885,668 21,764,280 20,385,668 20,385,668 17,303,683
============ ============ ============ ============ ============
Balance Sheet Data: (In Thousands)
Working Capital $ 5,324 $ 4,188 $ 3,418 $ 2,390 $ 1,872
============ ============ ============ ============ ============
Total assets $ 20,350 $ 21,398 $ 14,391 $ 11,530 $ 12,535
============ ============ ============ ============ ============
Long-term debt $ 5,269 $ 8,447 $ 5,676 $ 3,835 $ 2,905
============ ============ ============ ============ ============
Total shareholders' equity $ 7,119 $ 5,747 $ 3,382 $ 2,558 $ 3,430
============ ============ ============ ============ ============
</TABLE>
7
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations For the Years Ended December 31, 1996 and 1995
Background
On June 15, 1992, Wedgestone acquired St. James Automotive Corp. This
subsidiary manufactures and sells tubular products for the light-duty truck
market such as grille guards, push bars and step bars. 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, which included the stock of Sigma, were merged into Wedgestone's
wholly owned subsidiary Fey Automotive Products, Inc. In conjunction with the
acquisition of the Automotive Segment of Standun, Wedgestone placed St. James,
Fey and Sigma under the common ownership of its wholly owned subsidiary,
Wedgestone Automotive. Collectively, these companies comprise the Automotive
Products business segment which, unless the context requires otherwise, will be
hereinafter referred to as Wedgestone Automotive.
On January 5, 1995, Wedgestone Automotive, through its wholly owned
subsidiary Hercules acquired substantially all of the assets of Hercules
Bumpers, Inc., a Georgia company. This acquisition was intended to provide
access to a new business segment for Wedgestone Automotive. The segment, known
as dealer direct, involves the sale of rear step bumpers for light-duty trucks
to new vehicle dealers as an alternative to the factory supplied bumper.
Hercules Bumpers, Inc., was the largest domestic supplier in this dealer direct
segment offering dealers a line of specialty bumpers that exceeded the
manufacturer's alternative in towing capacity. During 1995, a major OE
manufacturer initiated a program to secure a greater portion of rear step bumper
sales. The program, which involved severe price competition and program buying,
eroded a substantial portion of Hercules' sales base and placed Hercules in a
loss position for the fourth quarter of 1995. In response to the likely prospect
of continued losses, Wedgestone Automotive ceased manufacturing operations at
Hercules on March 5, 1996. In a further decision to exit this segment,
Wedgestone Automotive sold its stock ownership in Hercules to MBC Corporation of
$1.00 and the assumption of certain debt and other liabilities approximating
$4.5 million pursuant to a Stock Purchase Agreement. The Pelham manufacturing
plant along with its inventory and accounts receivable constituted all of the
material assets of Hercules. There are no remaining assets of Hercules.
Liquidity and Capital Resources
To date, Wedgestone has financed its business activities through cash
flows from operations. Additional debt has been incurred primarily for working
capital and acquisitions. See Notes 8 and 11 to the Consolidated Financial
Statements.
Cash flows from operations totaling $2,918,000 were supplemented by
$1,349,000 in additional advances by unsecured creditors. These funds were used
to provide $4,068,000 in additional working capital consisting of $2,196,000 in
advances to customers, $1,598,000 in inventories and $193,000 in other current
assets resulting in net cash provided by operations totaling $280,000 in 1996
compared to $1,836,000 in 1995. Net cash flows from operations were further
supplemented by collections on mortgage notes totaling $220,000 and additional
borrowings on revolving debt totaling $1,818,000. During 1996, the Company
invested $933,000 in new equipment and made payments on long term debt totaling
$1,406,000 including $729,000 in repayments on borrowings from a related party.
(The "Rockaway Loan". See Note 4 of the Consolidated Financial Statements.)
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 / Credit Finance ("CIT"), and
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. On March 18, 1997, the Company amended and restated the
agreement with CIT to a five-year $10 million credit facility providing a
revolving credit line and term loan under terms substantially similar to the
original agreement. The amended and restated 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 1.375% (11% at December 31, 1996).
In connection with the acquisition of Hercules on January 9, 1995, a
wholly-owned subsidiary of Wedgestone assumed certain debt 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, the Company closed the Hercules facility in Pelham,
Georgia, as a result of unfavorable market conditions. On April 18, 1996, the
Company sold its stock ownership in Hercules to MBC Corporation for $1.00 and
the assumption of certain debt and other liabilities, including the outstanding
borrowings on the term loan and industrial revenue bond. The total debt and
liabilities assumed by MBC Corporation approximated $4.5 million.
The company continues to actively seek acquisition opportunities in the
Automotive Products Business Segment. While there are no specific opportunities
identified at this time, to the extent that Wedgestone expands its operations
and makes additional
8
<PAGE>
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: 1996 Compared to 1995
Net sales increased $174,000 to $46,286,000 in 1996 compared to
$46,112,000 in 1995. This reflects a $9,668,000 decrease is the sales of
Hercules products offset by a $6,592,000 or 67% increase in the sales of
products manufactured in the Company's St. James subsidiary and a $3,250,000
increase in the products manufactured in the Company's Fey subsidiary.
Contributing to the overall growth in net sales is a 44% and 43% increase in the
Company's Traditional and Retail market segments, respectively. Growth in these
two segments totaled $11,944,000 and were offset by a $2,102,000 or 27% decline
in the Company's Original Equipment Manufacturer's segment. The Company
continues to pursue the OE segment of the light-duty truck aftermarket and
considers this segment to be an important component of future growth. During
1996, the Company secured orders from two new OE customers whose initial 1996
sales totaled $289,000.
Gross margins increased $360,000 or 3% to $14,725,000 or 32% of sales
in 1996 compared to $14,365,000 or 31% of sales in 1995. This increase is due to
an increase in sales and a more favorable product sales mix in 1996 compared to
1995.
Sales and marketing costs increased by $501,000 or 7% to $7,227,000 or
16% of sales in 1996 compared to $6,726,000 or 15% of sales in 1995. The
majority of this increase is selling costs incurred to enhance and maintain the
higher sales volumes achieved in 1996. $674,000 or 39% of the increase is due to
additional advertising and promotional costs incurred by the Company to further
penetrate the Traditional and Retail market segments. The Company believes that
further expenditures in this area are required to maintain the market growth
achieved in 1996 and expand these markets further.
Administrative costs decreased by $182,000 or 3% to $4,727,000 in 1996
compared to $4,909,000 in 1995. This reflects a decrease of $829,000 in
administrative costs attributable to Hercules operations and an increase of
$658,000 in continuing administrative costs. Product design and development
costs account for 59% or $390,000 of this increase. Included in these costs are
salaries, benefits and overhead costs for additions to the Company's engineering
staff. The Company believes that its future competitive position in the
automotive aftermarket will require significant increases in engineering and
development costs over the next several years and that overhead expenditures in
this area totaling $390,000 in 1996 are expected to exceed $690,000 in 1997. The
remainder of the increase in administrative costs include management labor,
insurance and other costs associated with sales growth in 1996 over 1995.
Interest expense decreased $214,000 or 16% to $1,126,000 in 1996
compared to $1,340,000 in 1995. This decrease is attributable to the decrease in
debt associated with Hercules offset by additional borrowings under the
Company's revolving line of credit used to finance working capital growth.
Income taxes in 1996 reflect an $566,000 adjustment to the Company's
valuation reserve compared to $1,300,000 recorded in 1995. The adjustments are
due to management's expectations of the Company's enhanced ability to utilize
its net operating loss carry forwards due to its more recent earnings
performance.
Prior 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.
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
9
<PAGE>
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.
Accounting Pronouncements
During 1996 the Company adopted 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. Among other provisions, the statement
changed current accounting practices for the evaluation of impairment of
long-lived assets. The adoption did not have a material effect on the Company's
financial statements.
During 1996 the Company also adopted SFAS No. 123, Accounting for
Stock-Based Compensation. 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 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.
Forward Looking Information
Information contained in this Form 10-K contains "forward-looking
statements" within the meaning of the private Securities Litigation Reform Act
of 1995, which can be identified by the use of forward-looking terminology such
as "may", "will", "expect", "plan", "anticipate", "estimate or "continue" or the
negative thereof or other variations thereon or comparable terminology. There
are certain important factors that could cause results to differ materially from
those anticipated by some of these forward-looking statements. Investors are
cautioned that all forward-looking statements involve risks and uncertainty. The
factors, among others, that could cause actual results to differ materially
include: pricing and merchandising policies from the major automotive
manufacturers; the Company's ability to execute its business plan; the
acceptance of the Company's merchandising strategies by its target customers,
particularly dealers; continuity of a relationship with or sales to major auto
dealers; competitive pressures on sales and pricing; and increases in other
costs which cannot be recovered through improved pricing of merchandise.
10
<PAGE>
<TABLE>
Item 8. Consolidated Financial Statements and Supplementary Data
WEDGESTONE FINANCIAL AND SUBSIDIARIES
INDEX
<CAPTION>
Page
----
<S> <C>
Financial Statements
Independent Auditor's Report 11
Consolidated Balance Sheets as of
December 31, 1996 and 1995 12
Consolidated Statements of Operations
for the years ended December 31,
1996, 1995, and 1994. 13
Consolidated Statements of
Shareholders' Equity for the years
ended December 31, 1996, 1995, and 1994. 14
Consolidated Statements of Cash
Flows for the years ended
December 31, 1996, 1995 and 1994. 15
Notes to Consolidated Financial
Statements. 16
</TABLE>
11
<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, 1996 and 1995 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the results of their
operations, and their cash flows for each of the three years in the period ended
December 31, 1996, 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 26, 1997
12
<PAGE>
<TABLE>
WEDGESTONE FINANCIAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 and 1995
(Amounts in Thousands--except share data)
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
ASSETS (Note 8)
Current Assets:
Cash $ 344 $ 365
Accounts and other receivables - (net of allowances of $333 and
$256 in 1996 and 1995, respectively) 7,282 6,057
Inventories (Note 5) 4,619 4,123
Prepaid expenses and other current assets 565 371
Deferred income taxes (Note 9) 476 476
-------- --------
Total Current Assets 13,286 11,392
Notes receivable - net (Note 7) 81 84
Real estate acquired by foreclosure - net (Note 7) 1,086 1,091
Property, plant and equipment - net (Note 6) 3,237 4,694
Goodwill - net 130 550
Deferred income taxes (Note 9) 2,196 2,114
Other assets 334 1,473
-------- --------
7,064 10,006
-------- --------
Total Assets $ 20,350 $ 21,398
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Revolving credit line and current portion of long-term debt (Note 8) $ 1,952 $ 2,305
Accounts payable 3,882 3,308
Accrued payroll and related expenses 593 611
Other accrued expenses 1,535 980
-------- --------
Total Current Liabilities 7,962 7,204
Long-term debt (Note 8) 5,269 8,447
-------- --------
Total liabilities 13,231 15,651
Commitments and contingencies (Notes 11 and 13)
Shareholders' Equity: (Notes 10 and 12)
Shares of Beneficial Interest - par value $1.00 per
share: authorized -- unlimited shares;
issued and outstanding -- 21,885,668 shares
at December 31, 1996 and 1995 21,886 21,886
Additional paid-in capital 31,396 31,396
Accumulated deficit (46,163) (47,535)
-------- --------
Total Shareholders' Equity 7,119 5,747
-------- --------
Total Liabilities and Shareholders' Equity $ 20,350 $ 21,398
======== ========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
13
<PAGE>
<TABLE>
WEDGESTONE FINANCIAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
(Amounts in Thousands--except per share data)
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net sales $ 46,286 $ 46,112 $ 34,618
Cost of sales 31,561 31,747 23,703
-------- -------- --------
Gross profit 14,725 14,365 10,915
Selling, general and administrative expenses (Note 4) 11,955 11,635 8,911
-------- -------- --------
Operating income 2,770 2,730 2,004
Goodwill amortization 49 106 44
Interest expense (Note 8) 1,126 1,340 486
Other expense (Notes 3 and 7) 67 697 --
-------- -------- --------
Income before taxes 1,528 587 1,474
Provision (benefit) for income taxes (Note 9) 156 (1,258) (19)
-------- -------- --------
Net income $ 1,372 $ 1,845 $ 1,493
======== ======== ========
Net income per share of beneficial interest:
Net income $ .06 $ .08 $ .07
======== ======== ========
Weighted average number of shares outstanding:
Shares of Beneficial Interest 21,886 21,764 20,386
======== ======== ========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
14
<PAGE>
<TABLE>
WEDGESTONE FINANCIAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
(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, 1994 20,386 $ 20,386 $ 33,045 ($ 50,873) $ 2,558
Distributions to Standun (1,109) (1,109)
Increase in tax basis of assets (Note 9) 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 4) 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
Net income 1,372 1,372
------ -------- -------- --------- -------
Balance at December 31, 1996 21,886 $ 21,886 $ 31,396 ($ 46,163) $ 7,119
====== ======== ======== ========== =======
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
15
<PAGE>
<TABLE>
WEDGESTONE FINANCIAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
(Amounts in Thousands)
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 1,372 $ 1,845 $ 1,493
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses -- -- 71
Write-off of note receivable 60 697 --
Depreciation and amortization 771 1,198 829
Deferred income taxes (82) (1,300) (681)
Gain on disposal of assets (net) -- -- (10)
Loss on sale of subsidiary 797 -- --
Changes in assets and liabilities:
Accounts and other receivables (2,196) (109) (832)
Inventories (1,598) 617 (25)
Prepaid expenses and other current assets (193) (177) (62)
Accounts payable 1,143 333 555
Accrued payroll and related expenses 92 211 99
Other accrued expenses 100 (1,016) 570
Other assets 14 (463) (153)
Other liabilities -- -- (1,788)
------- ------- -------
Net cash provided by operating activities 280 1,836 66
------- ------- -------
Cash Flows from Investing Activities:
Proceed from sale of real estate and equipment 217 -- 87
Proceeds from repayment of mortgage notes receivable 3 1 51
Acquisition costs paid -- (401) --
Capital expenditures (933) (926) (575)
Investment in real estate -- (126) (172)
------- ------- -------
Net cash used in investing activities (713) (1,452) (609)
------- ------- -------
Cash Flows from Financing Activities:
Distributions to Standun -- -- (801)
Repayment of term debt (1,406) (949) (362)
Deferred financing fees paid -- (85) --
Borrowings on long-term debt -- 635 192
Net borrowings on revolving debt 1,818 201 1,666
------- ------- -------
Net cash provided by (used in) financing activities 412 (198) 695
------- ------- -------
Net Increase (Decrease) in Cash (21) 186 152
Cash at Beginning of Period 365 179 27
------- ------- -------
Cash at End of Period $ 344 $ 365 $ 179
======= ======= =======
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
16
<PAGE>
WEDGESTONE FINANCIAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1996, 1995 and 1994
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.
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. 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 $1,086,000 as of December 31, 1996 (See Note 7: Real
Estate and Lending). Wedgestone has outstanding loans on one property of
approximately $81,000 as of December 31, 1996.
Acquisitions - Since May 1992, Wedgestone has acquired three
manufacturing operations. On June 15, 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 a related party of Wedgestone, 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 owned 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 was 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 Note 3
- - Sale of Subsidiary.)
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
17
<PAGE>
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.
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 (excluding interest charges) from
operating activities compared with the carrying value of goodwill. 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 $132,000 and $106,000 at December 31, 1996 and 1995,
respectively. Goodwill is amortized over a period of seven years.
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.
18
<PAGE>
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.
Real Estate Acquired by Foreclosure - Real estate acquired by foreclosure was
initially 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 - During 1996 the Company adopted 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. Among other
provisions, the statement changed current accounting practices for the
evaluation of impairment of long-lived assets. The adoption did not have a
material effect on the Company's financial statements.
During 1996 the Company also adopted SFAS No. 123, Accounting for Stock-Based
Compensation. 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 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. Sale of Subsidiary
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 domestic original equipment
manufacturers. 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 and continued
to incur losses in 1996 through the date of sale totaling $966,000. As a result,
management determined that closing the Pelham facility was appropriate.
On April 18, 1996, the Board of Directors authorized and completed the
sale of the Company's stock ownership in Hercules to MBC Corporation for $1.00
and the assumption of certain debt and other liabilities approximating $4.5
million, pursuant to a Stock Purchase Agreement. Included in other expense is a
loss on the sale of Hercules totaling $ 7,000.
NOTE 4. 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, 1996, 1995 and 1994, 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 1995 acquisition of Hercules, 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. Hercules paid
$175,000 for the year ended December 31, 1995,
19
<PAGE>
and $44,000 of this fee through April 18, 1996. This agreement was terminated in
connected with the sale of the Company's stock ownership in Hercules.
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. These warrants remain outstanding. The
Rockaway Loan was 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 was repaid
in November, 1996.
Effective January 1, 1996, Fey Automotive Products, Inc. entered into a
four-year agreement with PFG and Resource Holdings Associates to provide
advisory services to Fey with respect to its operations, expansion and financing
activities at an aggregate amount of $180,000 per annum.
NOTE 5. Inventories
Inventories consist of the following: (In Thousands)
December 31,
1996 1995
Finished goods $2,474 $1,984
Work in progress 1,239 1,137
Raw materials 1,025 1,370
------ ------
4,738 4,491
Less allowances (119) (368)
------ ------
$4,619 $4,123
====== ======
NOTE 6. Property, Plant and Equipment
The components of property, plant and equipment are as follows:
(In Thousands)
December 31,
1996 1995
------ ------
Buildings and leasehold improvements $1,229 $2,331
Land 500 556
Machinery and equipment 8,440 8,305
Furniture and fixtures 1,324 1,213
------ ------
11,493 12,405
Accumulated depreciation and amortization (8,256) (7,711)
------ ------
Net property, plant and equipment $3,237 $4,694
======= ======
NOTE 7. Real Estate and Lending
On January 30, 1997, the Company entered into an agreement to sell its
21 acres of land known as the Queens property for $1,375,000. Of this amount,
$137,500 was tendered upon signing of the agreement and the balance, $1,237,500,
was received upon closing on February 27, 1997. The book value of this property
as of December 31, 1996 was $914,800. The Company will recognize a gain of
approximately $425,000 on this transaction.
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 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
20
<PAGE>
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 loss relating
to this loan of $756,900 of which $697,000 was recognized in 1995.
The balance in notes receivable is as follows: (In Thousands)
December 31,
1996 1995
-------- -------
Sebago Lake Note $ 81 $ 84
======== =======
The balance of real estate acquired by foreclosure is as follows:
(In Thousands)
December 31,
1996 1995
------ ------
Gross investment 7,644 $7,649
Write down (6,558) (6,558)
------ ------
Net $1,086 $1,091
======= ======
<TABLE>
NOTE 8. Revolving Credit Line and Long-term Debt
Revolving credit lines and long-term debt consist of the following:
(In Thousands)
<CAPTION>
December 31,
1996 1995
-------- --------
<S> <C> <C>
Revolving credit line with The CIT Group/Credit Finance,
interest at prime plus 2.5% (11% at December 31, 1996) $ 5,394 $ 3,576
Revolving credit line with NationsBank of Georgia
interest at prime, payable January, 2000 -- $ 3,662
Term loan with The CIT Group/Credit Finance, interest
at prime plus 2.5% (11% at December 31, 1996) 696 935
Term loan with The CIT Group/Credit Finance, interest
at prime plus 2.5% (11% at December 31, 1996) 351 459
Notes payable to Fifth Avenue Partners, interest at 9%,
payable in monthly installments of $22,917 through
December 31, 1999 721 921
Notes payable to Rockaway 605 Corp.
interest at 15%, payable July 1996 (See Note 4) -- 729
Notes payable to Charles Brady, interest at 8%
payable in four equal installments starting in January 1997 -- 300
Notes payable to C.E. Westin, 0% interest rate, currently due
and payable -- 70
Other 59 100
-------- --------
21
<PAGE>
Total 7,221 10,752
Less current portion of long-term debt (1,952) (2,305)
-------- --------
Total long-term debt $ 5,269 $ 8,447
======== ========
</TABLE>
The contractual payments of principal on long-term debt are due as
follows: $1,952,000 in 1997, $563,000 in 1998, $587,000 in 1999, $115,000 in
2000, and $4,004,000 in 2001.
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/Credit Finance ("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. On March 18, 1997, the Company amended
and restated the agreement with CIT to a five year $10 million credit facility
providing a revolving credit line and term loan under terms substantially
similar to the original agreement. The amended and restated 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 1.375% (9.875% at
December 31, 1996 and 1995).
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.
Wedgestone assumed a note associated with the termination of Standun's
management agreement with Fifth Avenue Partners, a related party of Wedgestone,
in the amount of $1,104,000 in conjunction with the acquisition of the
Automotive Segment (See Note 1).
NOTE 9. 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 is taxed at the Wedgestone level. Wedgestone currently has a net
operating loss carry forward of approximately $40,200,000 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 $385,700
and $211,400 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, 1996 and 1995, $134,000 and
$42,000, respectively, represent 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.
<TABLE>
The provision for income taxes consists of the following components:
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Current $ 238 $ 42 $ 662
</TABLE>
22
<PAGE>
<TABLE>
<S> <C> <C> <C>
Deferred 484 168 76
Change in valuation allowance (566) (1,468) (757)
------- ------- -------
$ 156 ($1,258) ($ 19)
======= ======= =======
</TABLE>
<TABLE>
Deferred income tax assets were comprised of the following:
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Net operating loss carry forward $ 13,673 $ 14,627
Accruals/Reserves 1,065 476
Depreciation 320 340
Basis difference on automotive segment assets acquired 440 440
Basis difference in real estate 443 542
-------- --------
Total deferred tax assets 15,941 16,425
Less valuation allowance (13,269) (13,835)
-------- --------
Net deferred tax assets 2,672 2,590
Less current deferred tax assets (476) (476)
-------- --------
Noncurrent deferred tax assets $ 2,196 $ 2,114
======== ========
</TABLE>
<TABLE>
The following is a reconciliation between the income taxes computed at
the Federal statutory rate and the provision for income taxes:
1996 1995 1994
------ ------- -----
<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 11.03% 6.00% 6.00%
Other 3.91% 4.12% (10.06%)
Change in valuation allowance (38.73%) (215.19%) 51.34%
------ ------- -----
10.21% (214.31%) (1.28%)
====== ======= =====
</TABLE>
NOTE 10. 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 grossrental-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. (See Note 13.)
NOTE 11. Commitments and Contingencies
Wedgestone is obligated under various cancelable and non cancelable
operating leases for manufacturing facilities, machinery and equipment. These
leases expire annually through August 31, 2002. Future minimum annual lease
commitments are as follows:
23
<PAGE>
1997 $ 817,500
1998 831,800
1999 629,800
2000 611,800
2001 525,800
Thereafter 262,300
----------
Total minimum lease payments $3,679,000
==========
Total net rental expense under the terms of various building and
equipment leases was $904,000, $980,000 and $1,069,000 for the years ended
December 31, 1996, 1995 and 1994, respectively. There is a purchase option in
the St. James manufacturing facility lease in the amount of $500,000, subject to
certain offsets, exercisable at any time upon repayment of the mortgages which
expire concurrently with the sub-lease on October 31, 1998.
Note 12. Stock Option and Profit Sharing Plans
During 1996, Wedgestone created the Wedgestone Financial 1996 Stock
Option Plan (the "Option Plan"). The Plan carries an effective date of December
31, 1996 and is subject to shareholder ratification. 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 1995.
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 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, 1996, 995,000 options were granted, were
immediately exercisable. None were exercised.
Changes in the number of shares subject to options during the year ended
December 31, 1996, are summarized as follows:
1996
-------
Outstanding at beginning of year --
Options granted at $ .31 share 995,000
Options exercised --
Options canceled 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, 1996, none of the warrants were exercised.
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 were $20,700 and
$8,300 for the years ended December 31, 1996 and 1995, respectively.
24
<PAGE>
NOTE 13. 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 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
An appeal was filed against the Company on May 25, 1995, by a
holder of the Company's formerly issued Special Income Shares (the "Income
Shares"). The Income Shares were designated to receive a distribution of any
excess "profit or appreciation" realized by the Company on certain specific
mortgages and notes receivable. The one remaining outstanding loan under which
income rights had been granted related to a loan the Company participated in
with a bank. This bank subsequently was liquidated and the FDIC assumed control.
The FDIC approached the Company to seek approval to foreclose on the note since
it was in default. Since the Company was involved in a bankruptcy proceeding,
the Company sought bankruptcy court approval to proceed on the foreclosure
action. In the motion seeking such approval was a request that (i) the FDIC
remit to the Company any excess proceeds from the note, (ii) the Company cancel
the Special Income Shares since this note was the sole remaining loan and (iii)
the Company pay any funds, net of costs and fees collected from the FDIC to the
holders of Income Shares as a liquidating distribution. This motion was approved
by the bankruptcy court and the appeal was instituted. The appeal remains
pending.
A complaint was filed against Fey, a wholly owned subsidiary of
Wedgestone Automotive Corp ("WAC"), on September 10, 1996, in the Superior Court
of Mitchell County in the state of Georgia, by Mitchell Real Estate Partnership,
C. Ray Council, Hal A. Council, Max R. Council, Rex A. Council, June Council
Hunter and Gay Council Moring (collectively, "Mitchell").
In its complaint, Mitchell asserts breach of contract and fraud
claims against the defendants resulting from a Marketing Agreement between
Mitchell, Fey and HAP for marketing consulting services relating to Hercules
products, alleging, among other things, that Fey has impeded Mitchell's ability
to earn commissions under the Marketing Agreement. Mitchell seeks monetary
damages in excess of $4 million.
Fey and the other defendants have removed the case to the United
States District Court for the Middle District of Georgia. Fey and the other
defendants have filed a motion to dismiss the case. Fey has agreed to extend the
period for filing a responsive pleading pending the resolution of the procedural
issues. Additional named defendants are John C. Shaw, chairman and trustee of
the Company, Jeffrey S. Goldstein, a trustee and the President of the Company,
James J. Pinto, the President of PFG Corporation, which holds in excess of 5% of
the Company's shares, and David L. Sharp, the Chief Executive Officer of WAC.
This litigation is in the initial stages no discovery has taken
place. Fey and the other defendants believe Mitchell's claims are without merit
and intend to vigorously contest the Mitchell complaint and pursue counter
claims and affirmative defenses. As previously reported in its Form 10-Q for the
period ended June 30, 1996, the Company has taken a reserve for costs arising
from or relating to the closure of the Hercules facility. Management is unable
to evaluate the likelihood of an unfavorable outcome or estimate the amount or
range of potential loss, if any.
NOTE 14. Segment Information
Wedgestone principally operates in two business segments:
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.
<TABLE>
Financial Data By Business Segment: (In Thousands)
<CAPTION>
For the Years Ended December 31,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Automotive Products $ 46,286 $ 46,112 $ 34,618
======== ======== ========
Income:
</TABLE>
25
<PAGE>
<TABLE>
<S> <C> <C> <C>
Automotive Products $ 2,944 $ 3,259 $ 2,367
Real Estate and Lending (174) (529) (363)
-------- -------- --------
Total Operating Income 2,770 2,730 2,004
Other Expenses including Taxes (1,398) (885) (511)
-------- -------- --------
Net Income (Loss) $ 1,372 $ 1,845 $ 1,493
======== ======== ========
Identifiable Assets:
Automotive Products $ 16,221 $ 17,228 $ 11,087
Real Estate and Lending 1,167 1,375 1,880
-------- -------- --------
Total Identifiable Assets 17,388 18,603 12,967
Corporate Assets 2,962 2,795 1,424
-------- -------- --------
Total Consolidated Assets $ 20,350 $ 21,398 $ 14,391
======== ======== ========
Capital Expenditures:
Automotive Products $ 933 $ 926 $ 575
======== ======== ========
Depreciation:
Automotive Products $ 771 $ 1,092 $ 785
======== ======== ========
</TABLE>
<TABLE>
NOTE 16. Supplemental Cash Flow Information
Cash paid during the year for:
<CAPTION>
(In Thousands)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest $1,126 $1,334 $ 561
Income Taxes $ 278 $ 287 $ 567
</TABLE>
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 Sale of Subsidiary (Note 3).
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.
26
<PAGE>
In connection with the January 9, 1995 acquisition of Hercules,
Wedgestone assumed liabilities to acquire assets as follows:
Accrued expenses $1,094,201
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
==========
In connection with the April 18, 1996 sale of Hercules, $5,088,000 of
assets were sold and liabilities of $4,793,000 were assumed.
27
<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 28, 1997:
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Jeffrey S. Goldstein 51 Trustee, President, Treasurer and Secretary - Wedgestone Financial
John C. Shaw 43 Trustee - Wedgestone Financial
Jeffrey A. Oberg 42 Trustee - Wedgestone Financial
John J. Doran 47 Trustee - Wedgestone Financial
David L. Sharp 45 Chief Executive Officer - Wedgestone Automotive Corp
Eric H. Lee 42 Chief Financial Officer, Treasurer / Secretary - 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 and MBC
Corp. as of 1996. Mr. Goldstein joined Rockaway 605 Corp. for the purpose of
reorganizing Rockaway and he joined MBC for the purpose of assisting in its
liquidation of Hercules, formally owned by Wedgestone. 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 Peat 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 has served as Chief Executive Officer of Wedgestone
Automotive Corp since the 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 has served as Chief Financial Officer, Treasurer and
Secretary of Wedgestone Automotive Corp since the 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, and from 1991 to 1993
served as President and Chief Operating Officer of Synthane Taylor, a subsidiary
of Alco Industries.
28
<PAGE>
Mr. Shaw, as Chairman, and Mr. Goldstein, as the sole officer of
Wedgestone, serve 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.
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.
All trustees are reimbursed for their reasonable out-of-pocket expenses
incurred in connection with attendance at Board meetings. Wedgestone compensates
its trustees who are not officers of the Company at a rate of $2,000 per quarter
and $200 per meeting. 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.
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 three highest paid executive officers of Wedgestone and its
subsidiaries for the years 1996, 1995, and 1994.
<CAPTION>
SUMMARY COMPENSATION
Long-Term
Annual Compensation (1) Compensation
------------------------------------------ -------------
Year Salary Bonus Benefits Options
---- ------- ------ -------- -------
<S> <C> <C> <C> <C> <C>
Jeffrey S. Goldstein, President 1996 $175,000 $ -0- $ -0- 85,000
Wedgestone Financial 1995 160,200 -0- -0- -0-
1994 120,000 -0- -0- -0-
David L. Sharp, Chief Executive Officer 1996 126,200 25,000 6,000 251,500
Wedgestone Automotive Corp 1995 114,750 34,000 8,712 -0-
1994 110,000 48,000 12,673 -0-
Eric H. Lee, Chief Financial Officer 1996 99,100 25,000 6,000 160,000
Wedgestone Automotive Corp 1995 95,000 26,000 8,678 -0-
1994 88,000 34,000 9,775 -0-
</TABLE>
29
<PAGE>
- -----------------------------------------------------
(1) Mr. Goldstein was first employed by Wedgestone on October 1, 1992, when he
was elected President. Messrs. Sharp, and Lee 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.
<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, 1996.
<CAPTION>
Option Grants in 1995
Options % of Total Exercise Expiration Potential Realizable Value(2)
Granted(1) Granted in 1996 Price Date(1) 5% 10%
---------- --------------- ----- ------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Jeffrey S. Goldstein 85,000 8.5% $.31 9/22/99 $25,500 $31,450
David L. Sharp 251,500 25.2% .31 9/22/99 75,450 93,055
Eric H. Lee 160,000 16.1% .31 9/22/99 48,000 59,200
<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 1996. 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 1996
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 85,000 -0- $0 $0
David L. Sharp 251,500 -0- 0 0
Eric H. Lee 160,000 -0- 0 0
</TABLE>
Compensation Committee Interlocks and Insider Participation
During 1996, 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 and Resource Holdings Associates, each of which respectively
provide financial and advisory services to St. James and Fey, subsidiaries of
the Company. In 1996, the Company paid PSG Associates $125,000 in connection
with such services to St. James and $14,600 and $28,000 to PFG Corp and
Wedgestone Partners, respectively, for such services to Hercules. The Company
will pay PSG Associates $125,000 for financial and advisory services rendered to
St. James for the current year and $60,000 and $120,000 to PFG and Resource
Holdings Associates, respectively for such services rendered to Fey. 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.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF TRUSTEES
The following is the report of the Compensation Committee of the
Company (the "Committee") on executive compensation for Fiscal 1996.
30
<PAGE>
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.
The elements of the Committee's integrated compensation philosophy and
the application of these philosophies during 1996 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 1996 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 496,500 options were granted to the
Company's executive officers in 1996 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.
Compensation of Chief Executive Officer. Mr. Goldstein's base
compensation for 1996 was $175,000 and has been set at $175,000 for 1997. The
Committee believes that Mr. Goldstein's base salary in 1996 was comparable to
that of other chief executives in the industry in which the Company competes.
Mr. Goldstein did not receive a bonus in 1996.
John J. Doran, Chairman
Jeffrey A. Oberg
John C. Shaw
Members of the Compensation Committee
31
<PAGE>
Profit Sharing, Stock Option Plans and Warrants
During 1996, Wedgestone created the Wedgestone Financial 1996 Stock
Option Plan (the "Option Plan"). The Option Plan carries an effective date of
December 31, 1996 and is subject to shareholder ratification. 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 1995. 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,
1997, 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 Securities Act. As of March 28, 1997,
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.
32
<PAGE>
<TABLE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table shows, as of December 31, 1996, 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>
Stockwood LLC 6,795,223 31.0%
520 Madison Avenue, 40th Floor
New York, NY 10022
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 Stockwood LLC.
Resource Holdings Associates owns 62.5% of the stock of Stockwood LLC 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 Stockwood LLC.
(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>
33
<PAGE>
<TABLE>
Security Ownership of Management
The following table shows, as of December 31, 1996, 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 and Address of Beneficial Owners Beneficial Ownership Class
- ------------------------------------- -------------------- ------
<S> <C> <C>
John C. Shaw 8,525,756 (1) 39.0%
Jeffrey A. Oberg 15,000 (2) *
John J Doran 15,000 (2) *
Jeffrey S. Goldstein 85,000 (3) *
David L. Sharp 251,500 (3) 1.1%
Eric H. Lee 160,000 (3) *
<FN>
- ------------------------------------
* Represents less than 1%
(1) See Footnote (1) under Security Ownership of Certain Beneficial Owners.
(2) Represents a Warrant that is immediately exercisable to purchase 15,000 shares.
(3) Represents options that are immediately exercisable to purchase shares indicated.
</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. Stockwood owns 31.0% of Wedgestone. Wedgestone
assumed a note associated with the termination of Standun's management agreement
with Fifth Avenue Partners, a related party of Wedgestone 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. In 1996 Wedgestone paid $ 275,000 in principal and interest
on this loan.
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 1996, 1995 and
1994, St. James paid $125,000 per year to PSG Associates under this contract.
For 1997, St. James is required to pay to PSG Associates $125,000 annually,
pursuant to this Agreement.
Effective January 1, 1996, Fey Automotive Products, Inc. entered into a
four-year agreement with PFG and Resource Holdings Associates to provide
advisory services to Fey with respect to its operations, expansion and financing
activities at an aggregate amount of $180,000. Amounts owing under this
agreement have been accrued for in 1996.
On January 12, 1993, as amended, Wedgestone entered into a secured, one
year credit facility due July 1996 with Rockaway pursuant to which Wedgestone
was 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 facility was 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 was 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. In 1996, the Company paid $ 717,800 in principal and
interest on this credit facility. Rockaway is a real estate holding company
which is controlled by former St. James 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. This credit facility was repaid in 1996.
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 11.
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 40 through 42
hereof. All other schedules are not included because they are
not applicable.
<TABLE>
3. Exhibits
The following Exhibits are filed as part of, or incorporated
by reference into this report:
<CAPTION>
Exhibit No.
-------------
<S> <C>
(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).
36
<PAGE>
(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).
(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 1996 Stock Option Plan effective December 31, 1996 (Filed herewith).
(xx) The Management Agreement between Fey Automotive Products, Inc. and PFG Corp. effective January 1,
1996 (Filed herewith).
(xxi) The Management Agreement between Fey Automotive Products, Inc. and Resource Holdings Associates
effective January 1, 1996 (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
Note: Wedgestone Financial has seven 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., and Fey 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
NONE
</TABLE>
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
37
<PAGE>
Date: March 27, 1996
By: /s/ Jeffrey S. Goldstein,
--------------------------------------
President and Chief Accounting Officer
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 and 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 1994 128 94 (20)(1) 202
1995 202 21 272(6) (239)(1) 256
1996 256 190 (60)(6) (53)(1) 333
Inventory Reserve 1994 105 187 83(5) (113)(4) 283
21 (3)
1995 283 (16) 230(6) (22)(2) 368
(107)(4)
1996 368 24 (231)(6) (42)(2) 119
<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
(5) Assumed and subsequently disposed of in connection with the 1995 purchase and 1996 sale of Hercules.
</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 $ 27 $0 $ 27 10/88
New York 915 0 915 5/90
Residential Properties
Northeastern Massachusetts 494 494 10/89
------ ------ ------
Total Real Estate $1,086 $0 $1,086
====== ======== ======
1996 1995 1994
------ ------ ------
Balance at beginning of period $1,091 $ 965 $1,347
Additions during the period:
Improvements/Carrying costs --- 126 174
------ ------ ------
--- 126 174
------ ------ ------
1,091 1,091 1,521
Deductions during the period
Sales --- 556
Write-off of real estate held 5
Depreciation
Legal Settlement
Transferred to IRP
--- --- 556
------ ------ ------ ------
Balance at end of year $1,086 $1,091 $ 965
====== ====== ======
<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 12/31/96 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) 165 81(2) $0
-------- -------- ------
TOTAL MORTGAGE LOANS 165 81 $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>
1996 1995 1994
-------- -------- ------
<S> <C> <C> <C>
Balance at beginning of period $ 84 $735 $857
Additions during period
New Mortgage Loans
Increase to existing mortgage loans ---
--- --- ---
-------- -------- ------
$ 84 $735 $857
Deductions during period
Collections of principal 3 1 51
Cost of mortgages transferred to IRP
Reserve for loan loss --- 650 71
-------- -------- ------
$ 3 $651 122
-------- -------- ------
Balance at end of year $ 81 $ 84 $735
======== ======= ====
</TABLE>
41
<PAGE>
WEDGESTONE FINANCIAL
1996 STOCK OPTION PLAN
42
<PAGE>
<TABLE>
TABLE OF CONTENTS
-----------------
<CAPTION>
Page
<S> <C>
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
</TABLE>
43
<PAGE>
WEDGESTONE FINANCIAL
1996 STOCK OPTION PLAN
SECTION 1. General Purpose of Plan; Definitions.
The name of this plan is the Wedgestone Financial 1996 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>
l. "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.
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SECTION 3. Stock Subject to Plan.
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.
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(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 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
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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 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.
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(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 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.
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(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 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.
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MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT is effective as of January 1, 1996
("Agreement"), by and between Fey Automotive Products, Inc., a Delaware
corporation (the "Company") and PFG Corp. (the "Advisors").
WHEREAS, the company and the advisors desire to enter into this Agreement
pursuant to which Advisors agree to provide the company with consulting
services.
The Company and the Advisors hereby agree as follows:
Section 1 Engagement of Advisors
The Company hereby retains the Advisors to provide the Company with the
advice and services described in Section 2 during the term of this Agreement.
Subject to the terms of this Agreement, the Advisors hereby accept the
engagement.
Section 2 Advisors' Advice and Services
2.1 During the Term (as defined in Section 3), the Advisors shall
provide such advisory, consultation and other services as herein described or as
the Board of Directors may request and they shall agree from time-to-time.
Without limiting the generality of the foregoing, the Advisors hereby agree to
use their skill and abilities in a good and businesslike manner to provide
transactional and general business consulting services and will, among other
things (I) advise on a business plan for the Company's future growth; (ii)
provide financial advice with respect to internal growth, projects, capital
expenditures and financing requirements; and (iii) perform such other duties as
may be requested by the Company or its Board of Directors from time-to-time.
2.2 All actions of the Advisors on behalf of the Company are
subject to the direction, control and approval of the Company's Board of
Directors. The Advisors as such shall have no authority or power to enter
into any contract or commitment on the Company's behalf, nor shall the
Advisors have the authority or power to alter, amend, terminate, or
otherwise change any contract or other document issued by the Company. The
Advisors shall be considered independent contractors and not employees or
agents of the Company.
2.3 In accordance with the terms hereof, the Advisors shall devote
such portion of their time and effort to the affairs of the Company as
described herein or as they deem necessary to assist the Company in
fulfilling its corporate objectives. It is expressly agreed that, subject
to the preceding sentence, the Advisors may participate (in any capacity)
in any other activities.
Section 3 Term
This Agreement shall commence on the date hereof and shall continue
until December 30, 1999, unless otherwise extended or sooner terminated by
mutual agreement (the "Term").
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Section 4 Compensation
In consideration for the Advisors' agreement to enter into this Agreement,
the Company shall pay Advisors (in addition to amounts due under Section 5
hereof) a monthly fee of $5,000 which fee shall be paid in advance.
Section 5 Expenses
The Company shall pay or reimburse the Advisors for all expenses reasonably
incurred by them during the Term in connection with the business of the
Company. All such reimbursements must be supported by documentation
specifying the business purpose.
Section 6 Indemnification
The Company shall indemnify the Advisors to the fullest extent permitted by
the laws of the State of Delaware (or any other state in which the Company
may at any time otherwise be incorporated) and the existing Bylaws of the
Company. The Advisors shall be entitled to protection of any insurance
policies the Company may elect to maintain generally for the benefit of
members of its Board of Directors and for the benefits of other persons
acting at the direction of the Board of Directors.
Section 7 Notices
Any notice, request or other communication required or permitted under this
Agreement shall be in writing and given or made by physical delivery,
electronic transmissions or by registered or certified mail, postage
prepaid, return receipt requested or by overnight carrier addressed to the
other party. All such notices shall be addressed as follows:
If to the Advisors: PFG Corp.
520 Madison Avenue (40th Floor)
New York, New York 10022
Attention: James J. Pinto
If to the Company: Fey Automotive Products, Inc.
5200 N. Irwindale Avenue
Suite 168
Irwindale, California 91706
Attention: President
Any party may change the persons and addresses to which notices, requests
or other communications are to be sent by giving written notice of such
change to the other party in the manner provided herein for giving notice.
Notices shall be effective upon receipt in the case of physical delivery,
overnight carrier or electronic transmission and three (3) days after
deposit in the U.S. mails in the case of mailing.
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Section 8 Arbitration
Any dispute between the parties hereto arising out of or in connection
with this Agreement or any breach of this Agreement, will be determined and
settled by arbitration in the State of New York and in accordance with the rules
then in effect of the American Arbitration Association.
Section 9 Miscellaneous
9.1 This Agreement shall be binding upon and inure to the benefit of
any successors of the Company, including any corporation into or with which the
Company shall consolidate or merge or to which it shall sell or otherwise
transfer substantially all of its assets, properties and business.
9.2 This Agreement may not be assigned by the Company or the Advisors
except in the case of merger.
9.3 This Agreement is o be governed by and interpreted in accordance
with the laws of the State of New York (or any other state in which the company
may at any time otherwise be incorporated) applicable to agreements made and to
be performed within that State.
9.4 This Agreement may not be amended, supplemented, canceled or
discharged except by written instrument executed by both parties hereto.
9.5 If any provision of this Agreement, as applied to either party or
to any circumstances, shall be adjudged by a court or an arbitrator to be void
or unenforceable, the same shall be deemed stricken from this Agreement and
shall in no way affect any other provision of this Agreement or the validity or
enforceability of this Agreement. Notwithstanding the foregoing, if a court or
an arbitrator holds that the provisions hereof that relate to compensation paid
or to be paid to the Advisors by the Company are void or unenforceable, the
Advisors may terminate this Agreement at his option.
9.6 The waiver by the Company or the Advisors of a breach of any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any subsequent breach by the other party.
9.7 Expiration of the Term shall not impair or otherwise affect any
obligations which have accrued prior thereto (including any right to sue for
damages). The provisions of Sections 4, 5, 6 and 8 shall survive the termination
of this Agreement.
9.8 The section headings contained in this agreement are for
convenience of reference only and shall not affect the construction of any
provision of this agreement.
9.9 This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
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9.10 This Agreement represents the final agreement between the parties
and supersedes all prior agreements and understandings relating to the subject
matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
FEY AUTOMOTIVE PRODUCTS, INC.
By___________________________
David S. Sharp, President
PRG CORP.
By____________________________
James J. Pinto
54
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MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT is effective as of January 1, 1996 ("Agreement"),
by and between Fey Automotive Products, Inc., a Delaware corporation (the
"Company") and Resource Holdings Associates. (the "Advisors").
WHEREAS, the company and the advisors desire to enter into this Agreement
pursuant to which Advisors agree to provide the company with consulting
services.
The Company and the Advisors hereby agree as follows:
Section 1 Engagement of Advisors
The Company hereby retains the Advisors to provide the Company
with the advice and services described in Section 2 during the term of this
Agreement. Subject to the terms of this Agreement, the Advisors hereby
accept the engagement.
Section 2 Advisors' Advice and Services
2.1 During the Term (as defined in Section 3), the Advisors shall
provide such advisory, consultation and other services as herein described
or as the Board of Directors may request and they shall agree from
time-to-time. Without limiting the generality of the foregoing, the
Advisors hereby agree to use their skill and abilities in a good and
businesslike manner to provide transactional and general business
consulting services and will, among other things (I) advise on a business
plan for the Company's future growth; (ii) provide financial advice with
respect to internal growth, projects, capital expenditures and financing
requirements; and (iii) perform such other duties as may be requested by
the Company or its Board of Directors from time-to-time.
2.2 All actions of the Advisors on behalf of the Company are
subject to the direction, control and approval of the Company's Board of
Directors. The Advisors as such shall have no authority or power to enter
into any contract or commitment on the Company's behalf, nor shall the
Advisors have the authority or power to alter, amend, terminate, or
otherwise change any contract or other document issued by the Company. The
Advisors shall be considered independent contractors and not employees or
agents of the Company.
2.3 In accordance with the terms hereof, the Advisors shall devote
such portion of their time and effort to the affairs of the Company as
described herein or as they deem necessary to assist the Company in
fulfilling its corporate objectives. It is expressly agreed that, subject
to the preceding sentence, the Advisors may participate (in any capacity)
in any other activities.
Section 3 Term
This Agreement shall commence on the date hereof and shall continue until
December 30, 1999, unless otherwise extended or sooner terminated by mutual
agreement (the "Term").
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Section 4 Compensation
In consideration for the Advisors' agreement to enter into this Agreement,
the Company shall pay Advisors (in addition to amounts due under Section 5
hereof) a monthly fee of $10,000 which fee shall be paid in advance.
Section 5 Expenses
The Company shall pay or reimburse the Advisors for all expenses reasonably
incurred by them during the Term in connection with the business of the
Company. All such reimbursements must be supported by documentation
specifying the business purpose.
Section 6 Indemnification
The Company shall indemnify the Advisors to the fullest extent permitted by
the laws of the State of Delaware (or any other state in which the Company
may at any time otherwise be incorporated) and the existing Bylaws of the
Company. The Advisors shall be entitled to protection of any insurance
policies the Company may elect to maintain generally for the benefit of
members of its Board of Directors and for the benefits of other persons
acting at the direction of the Board of Directors.
Section 7 Notices
Any notice, request or other communication required or permitted under this
Agreement shall be in writing and given or made by physical delivery,
electronic transmissions or by registered or certified mail, postage
prepaid, return receipt requested or by overnight carrier addressed to the
other party. All such notices shall be addressed as follows:
If to the Advisors: Resource Holdings Associates.
520 Madison Avenue (40th Floor)
New York, New York 10022
Attention: John C. Shaw
If to the Company: Fey Automotive Products, Inc.
5200 N. Irwindale Avenue
Suite 168
Irwindale, California 91706
Attention: President
Any party may change the persons and addresses to which notices, requests
or other communications are to be sent by giving written notice of such
change to the other party in the manner provided herein for giving notice.
Notices shall be effective upon receipt in the case of physical delivery,
overnight carrier or electronic transmission and three (3) days after
deposit in the U.S. mails in the case of; mailing.
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Section 8 Arbitration
Any dispute between the parties hereto arising out of or in connection
with this Agreement or any breach of this Agreement, will be determined and
settled by arbitration in the State of New York and in accordance with the rules
then in effect of the American Arbitration Association.
Section 9 Miscellaneous
9.1 This Agreement shall be binding upon and inure to the benefit of
any successors of the Company, including any corporation into or with which the
Company shall consolidate or merge or to which it shall sell or otherwise
transfer substantially all of its assets, properties and business.
9.2 This Agreement may not be assigned by the Company or the Advisors
except in the case of merger.
9.3 This Agreement is o be governed by and interpreted in accordance
with the laws of the State of New York (or any other state in which the company
may at any time otherwise be incorporated) applicable to agreements made and to
be performed within that State.
9.4 This Agreement may not be amended, supplemented, canceled or
discharged except by written instrument executed by both parties hereto.
9.5 If any provision of this Agreement, as applied to either party or
to any circumstances, shall be adjudged by a court or an arbitrator to be void
or unenforceable, the same shall be deemed stricken from this Agreement and
shall in no way affect any other provision of this Agreement or the validity or
enforceability of this Agreement. Notwithstanding the foregoing, if a court or
an arbitrator holds that the provisions hereof that relate to compensation paid
or to be paid to the Advisors by the Company are void or unenforceable, the
Advisors may terminate this Agreement at his option.
9.6 The waiver by the Company or the Advisors of a breach of any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any subsequent breach by the other party.
9.7 Expiration of the Term shall not impair or otherwise affect any
obligations which have accrued prior thereto (including any right to sue for
damages). The provisions of Sections 4, 5, 6 and 8 shall survive the termination
of this Agreement.
9.8 The section headings contained in this agreement are for
convenience of reference only and shall not affect the construction of any
provision of this agreement.
9.9 This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
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9.10 This Agreement represents the final agreement between the parties
and supersedes all prior agreements and understandings relating to the subject
matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
FEY AUTOMOTIVE PRODUCTS, INC.
By________________________
David S. Sharp, President
RESOURCE HOLDINGS ASSOCIATES.
By_________________________
John C. Shaw
58
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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0
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