<PAGE> 1
As filed with the Securities and Exchange Commission on April 1, 1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee Required)
For the year ended: DECEMBER 31, 1995
Commission file number: 1-6322
Exact name of registrant as specified in its charter: MEDALIST INDUSTRIES, INC.
State of incorporation: Wisconsin
IRS employer ID number: 39-0873294
Registrant's principal executive offices: 10850 West Park Place, Suite 150
Milwaukee, Wisconsin 53224
(414) 359-3000
Securities registered pursuant to Common Shares 7 1/2% Convertible
Section 12(g) of the Act: $1 par value Subordinated Debentures
per share due July 1, 2001
Securities registered pursuant to
Section 12(b) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by nonaffiliates as of
March 25, 1996 was $51,919,426 (excludes 238,762 shares held by directors and
officers of registrant). This is based on the closing price of the common
stock on the NASDAQ-National Market System on that date.
Number of shares of common stock outstanding
as of March 25, 1996 3,898,281
See pages 26 to 27 for index of exhibits. The original of this document on
file with the Securities and Exchange Commission consists of 52 pages.
<PAGE> 2
PART I
Item 1 Business
The Company was organized in 1954 and through the years has been
involved in a number of industrial and consumer businesses. By the
mid 1960's, the Company had become a leader in team-sports apparel and
equipment. In recent years Medalist has undergone a major
restructuring, with the intention of focusing on the industrial
fastener industry. Since early 1992, non-fastener related businesses
representing over 40 percent of 1991 sales were divested. Since 1994,
the Company's businesses all involved manufacturing or distribution of
industrial fasteners.
Medalist has been in the industrial fastener business since 1972 when
it acquired the Champion Screw Company. In 1988, it acquired
controlling interest in Lewis Screw, and completed that acquisition in
1990. In January of 1992, it acquired controlling interest in the FHM
Corporation, and completed that acquisition in January 1993. In
August of 1992 it acquired Badger Fastener & Supply, and in October of
1992 it acquired Pioneer Screw & Nut.
PRODUCTS AND SERVICES
Medalist designs, manufactures, and distributes custom engineered and
standard screws, small bolts, and related components used by
automotive, electronics, consumer-durables, and other manufacturers in
their assembly operations. The Company also provides quality-
assured, just-in-time inventory management services to other
manufacturers. Sales are direct to other manufacturers and through
independent distributors. Medalist provides products to a broad range
of customers including automotive, appliance, lawn and garden, and
various other consumer and industrial equipment manufacturers.
MANUFACTURED PRODUCTS
Medalist designs and manufactures custom engineered and standard
screws, bolts, and related industrial fasteners and other components
used by a wide variety of U.S. manufacturers. Most are in diameters
of 1/16-inch to 1/2-inch and up to 4 inches long, though there is some
production in smaller and larger sizes. Approximately 94 percent of
the parts Medalist manufactures are made to order, and less than
one-third can be fully described by industry-standard references to
length, width, and thread type. Many of these fasteners are designed
for a single application by a specific customer and are made to that
customer's precise specifications and requirements. Manufactured
parts incorporate a wide variety of head, thread, and drive designs,
including self-tapping screws for metal and plastic assemblies, which
eliminates the need for a nut or a tapped hole, and "SEMs" screws,
which have up to three washers assembled under the head of the
fastener itself, eliminating costly assembly steps in the customers'
operations. The Company leverages its engineering resources by
licensing selected fastener technology from a number of other
developers, including some manufacturing competitors. As a result of
this approach, the amount spent on research and development during the
last three years was less than one percent of sales.
PURCHASED PRODUCTS
To meet the full-range of its customers' product needs, Medalist
purchases approximately 37 percent of its sales volume from over 500
other manufacturers. These products include a wide variety of
internally-threaded fasteners such as nuts, non-threaded fasteners
such as rivets, clips, and pins, and other fasteners which fall
outside the Company's production capabilities due to size or type of
material. The Company also purchases and resells other small
components such as washers, springs, bushings, and passive
electronics. These parts are generally purchased to meet the
requirements of a specific customer; the Company inspects and
maintains test results for most of these items.
INVENTORY MANAGEMENT AND DELIVERY SERVICES
The Company provides a range of value-added inventory management
services and delivery options. While most of Medalist sales are
shipped by common carrier to the customers' receiving docks, the
Company increasingly times shipments, through electronic data
interchange, to meet customers' production schedules, thereby reducing
customers' inventory carrying costs. The Company's C-TECH operation
is a leader in providing inventory management services of fasteners
and related small parts to its customers. Services provided by C-TECH
include sourcing, purchasing, inspecting, packaging and just-in-time
delivery
1
<PAGE> 3
of fasteners and related components by Medalist employees to the
points-of-use in the customers' manufacturing plants. These services
can add value by allowing customers to focus on their assembly
operations while Medalist is responsible for the procurement and
delivery of the customers' fastener needs. Management believes, based
on data supplied by its customers, that inventory management services
also allow customers to reduce their overall cost of purchasing
fasteners. Reduced costs can be in freight, receiving and inspection,
materials management, inventory carrying costs, and accounting and
other transaction costs. Inventory management services have been the
Company's fastest growing source of revenue.
CUSTOMERS AND PRODUCT APPLICATIONS
About 25 percent of sales are to the automotive industry (primarily
General Motors, Ford, and Chrysler, with Chrysler being the largest at
approximately 11.1% of net sales). The remainder of the business is
split among manufacturers of industrial and consumer electronics,
major appliances, lawn and garden, and agricultural and off-road
equipment.
Raw materials used in the manufacturing process are readily available
from a number of foreign and domestic suppliers. Most secondary
processing, including heat-treating and plating, is also available
from a number of local and regional suppliers. While the Company
endeavors to establish long-term supply contracts with a limited
number of suppliers to assure service, quality, and price levels, the
loss of any single contract would not be material to the continued
operations of the business.
SEASONALITY AND BACKLOGS
The Company's business is somewhat seasonal, with sales tending to be
stronger in the first half of each year. Backlogs at December 31,
1995 were $27.1 million, compared with $26.3 million at December 31,
1994.
MARKETING AND SALES
Medalist sells its industrial fasteners directly to original equipment
manufacturers through a sales force of 77 people, including 26
independent representatives. It also sells through several hundred
independent distributors nationwide. Distributors purchase from
several manufacturers based on product range, quality, service, and
price, and consolidate those purchases to meet a broader range of
needs than could be obtained from most manufacturers. No unusual
terms for receivables or returns are material to the business. No
material part of the business is subject to renegotiation or
termination due to the cancellation of government contracts.
COMPETITION
The industrial fastener industry is highly fragmented, with over 250
manufacturers and 5,000 distributors of cold-forged metal fasteners,
none of which has more than ten percent of the market. The Company
competes with many of these manufacturers and distributors, a few of
whom are larger and have greater financial resources than the Company.
The Company competes primarily on the basis of manufacturing,
engineering, and design capabilities, product quality, cost, delivery,
and customer service. Included among the companies with significant
investments in this industry are Illinois Tool Works Inc., RB&W
Corporation, and Textron, Inc.
Competing technologies for similar fastening requirements include
hot-forged metal fasteners, screw-machined parts, and extruded and
injected parts. Parts produced through these alternative technologies
range from machined metal parts, which closely resemble the kinds of
parts Medalist manufactures, to simple plastic clips. Each of these
technologies offers different cost and performance profiles, so there
is little direct competition among them for a particular application.
ENVIRONMENTAL MATTERS
Medalist's manufacturing operations are subject to federal, state, and
local environmental laws and regulations which impose limits and
require permits, monitoring, and reporting of industrial waste
discharges. The Company believes it is in substantial compliance with
applicable environmental laws and regulations.
2
<PAGE> 4
The Company has been previously identified by the Environmental
Protection Agency as a potentially responsible party at a federal
Superfund site in Ohio. The Company believes, based on the large
number and size of other potentially responsible parties at the site
and the small volume and character of waste from the Company, that its
liability, if any, would not have a material adverse effect on the
Company.
EMPLOYEES
On December 31, 1995, Medalist had 840 employees, of whom 14 were
covered by collective bargaining agreements. Manufacturing employees
are highly skilled, and the Company maintains training programs for
both new employees and new process implementations. The Company
believes it has a good working relationship with its employees.
Item 2 Properties
The Company currently operates three manufacturing facilities and
nineteen distribution facilities. All of these are leased, except the
location in Hustisford, Wisconsin. All of the Company's properties
are pledged to secure its bank debt. The following lists the
Company's operating facilities:
<TABLE>
<CAPTION>
===============================================================================================
Location FUNCTION
<S> <C>
Chicago, Illinois Manufacturing, warehousing, and distribution
Cincinnati, Ohio Distribution service
Denver, Colorado Distribution service
Eden Prairie, Minnesota Distribution service
Elk Grove Village, Illinois Manufacturing, warehousing, and distribution
Elk Grove Village, Illinois Warehousing
Elkhart, Indiana Distribution service
Forest City, Iowa Distribution service
Franklin, Wisconsin Distribution service
Grand Prairie, Texas Distribution service
Green Bay, Wisconsin Distribution service
Greensboro, North Carolina Distribution service
Huntsville, Alabama Distribution service
Hustisford, Wisconsin Manufacturing, warehousing, and distribution
Milwaukee, Wisconsin Corporate office
Plymouth, Minnesota C-Tech division office
Santa Fe Springs, California Distribution service
Slinger, Wisconsin Distribution service
Sullivan, Illinois Distribution service
Tomah, Wisconsin Distribution service
Troy, Michigan Sales and service center
Tucson, Arizona Distribution service
Windom, Minnesota Distribution service
===============================================================================================
</TABLE>
The Company has property for sale in Chicago, Illinois.
The Company has continuing lease obligations for property which had
been used in its discontinued operations.
Item 3 Legal proceedings
The Company is a defendant in numerous lawsuits which are all
ordinary, routine, and incidental to its business. In the opinion of
management, this litigation is not likely to have a material adverse
effect on the Company's financial position or results of operations.
Item 4 Submission of matters to a vote of security holders
None
3
<PAGE> 5
Executive officers of the registrant
The following are the executive officers of the registrant. There does
not exist any family relationship among any of the officers.
<TABLE>
<CAPTION>
Name Title Age
------------------------------------------------------------------------------------------------
<S> <C> <C>
James S. Dahlke President and Chief Executive Officer 45
John T. Paprocki Vice-President and Chief Financial Officer 44
James G. Gumm Vice-President, Human Resources 44
William C. O'Loughlin Vice-President and Corporate Secretary 56
</TABLE>
Mr. Dahlke joined the Company in May 1995 as President and Chief
Executive Officer. Since 1988, Mr. Dahlke was President of
Waukesha Fluid Handling, a subsidiary of United Dominion
Industries, Inc. Prior to that, he was Director of Sales for
Waukesha Pumps, a division of Waukesha Foundry, Inc.
Mr. Paprocki joined the Company in May 1994 as Vice President and
Chief Financial Officer. Prior to joining the Company, Mr.
Paprocki served Apogee Enterprises, Inc. as its Corporate
Controller from 1989 to 1991 and as President of the Architectural
Products Group from 1991 to 1993. Prior to 1989, Mr. Paprocki
held senior financial positions with several companies.
Mr. Gumm was elected Vice-President, Human Resources, in 1991.
Since 1990, he had been Vice President, Human Resources of Cook
Companies and from 1980 to 1990 had been Vice-President, Human
Resources and Public Affairs, of Freeman Chemical Corporation.
Mr. O'Loughlin has been an employee of Medalist Industries, Inc.
since 1971. He was elected Assistant Treasurer of the Company in
1974 and served as Treasurer from 1988 to 1993. In 1989, Mr.
O'Loughlin was elected Assistant Secretary and has served as Vice
President and Corporate Secretary since 1993.
PART II
Item 5 Market for registrant's common equity and related shareholder matters
The common stock of the Company is listed and traded on the NASDAQ
(National Market System). There were approximately 973 holders of
record of the Company's common stock as of December 31, 1995. No
dividends were declared in 1995 or 1994. (See Note 5 to the financial
statements about restrictions under the credit and debenture
agreements on the payment of future dividends.) The price ranges of
the Company's stock during the last two years by quarter are as
follows:
<TABLE>
<CAPTION>
=======================================================
1995
--------------------------------------
1ST 2ND 3RD 4TH
-------------------------------------------------------
<S> <C> <C> <C> <C>
High $ 8.50 $ 7.00 $ 7.88 $ 7.25
Low $ 5.50 $ 5.00 $ 5.63 $ 5.25
-------------------------------------------------------
<CAPTION>
-------------------------------------------------------
1994
--------------------------------------
1st 2nd 3rd 4th
-------------------------------------------------------
<S> <C> <C> <C> <C>
High $ 15.75 $ 14.50 $ 8.50 $ 7.50
Low $ 12.00 $ 6.50 $ 5.25 $ 5.00
=======================================================
</TABLE>
4
<PAGE> 6
Item 6 Selected financial data
<TABLE>
<CAPTION>
Years ending December 31
-------------------------------------------------------------
(Dollars in thousands) 1995 1994 1993 1992 1991
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Results of operations
Statement of operations data
Net sales of continuing operations $ 126,016 $ 133,531 $ 131,498 $ 79,885 $ 55,007
Income (loss) from continuing op. 1,729 69 4,625 (3,223) 1,544
Loss from discontinued operations 0 0 0 0 (3,525)
Loss on disposal of operations 0 0 0 (2,396) (16,784)
Cumulative effect of accounting change 0 0 1,814 0 0
-------------------------------------------------------------------------------------------------------
Net income (loss) $ 1,729 $ 69 $ 6,439 $ (5,619) $ (18,765)
=======================================================================================================
Per share data
Primary
Income (loss) from continuing
operations $ 0.45 $ 0.02 $ 1 .20 $ (1.26) $ 0.66
Net income (loss) $ 0.45 $ 0.02 $ 1 .67 $ (2.19) $ (8.03)
=======================================================================================================
Assuming full dilution
Income (loss) from continuing
operations $ 0.45 $ 0.02 $ 1 .21 $ (1.26) $ 0.66
Net income (loss) $ 0.45 $ 0.02 $ 1 .62 $ (2.19) $ (8.03)
=======================================================================================================
Balance sheet data (at period end)
Total assets $ 87,987 $ 93,704 $ 93,379 $ 89,629 $ 63,026
Short term debt 3,017 3,030 2,122 32,659 13,500
Long term debt 33,376 39,949 40,423 8,841 9,205
Shareholders' equity 31,688 29,679 29,426 20,946 21,415
No dividends have been declared in the five year period ending December 31, 1995.
=======================================================================================================
</TABLE>
Item 7 Management's discussion and analysis of financial condition and
results of operations
RESULTS OF OPERATIONS - PERCENT OF NET SALES
To assist in the analysis of the results of operations, the following table
comparing key statement of operations categories as a percent of net sales
has been prepared:
<TABLE>
<CAPTION>
==================================================
Continuing Operations - Percent of Net Sales
==================================================
1995 1994 1993
--------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0 100.0 100.0
Cost of goods sold 74.2 75.6 73.8
Selling, general and
administrative expenses 21.2 21.8 20.1
Gain on sale of a portion
of a line of business 0.0 0.2 0.0
--------------------------------------------------
Operating income 4.6 2.8 6.1
Interest expense 3.1 2.7 2.6
--------------------------------------------------
Income before income
taxes 1.5 0.1 3.5
Provision for income
taxes 0.1 0.0 0.0
--------------------------------------------------
Income 1.4 0.1 3.5
==================================================
</TABLE>
5
<PAGE> 7
Minimal provisions for income taxes were recorded for the years 1993
through 1995 as the Company continued to utilize its operating loss
carryforward. During 1993, the Company adopted Financial Accounting
Standards No. 109, the cumulative effect of which resulted in a
benefit to income in 1993 of $1.8 million.
1995 RESULTS COMPARED TO 1994
1995 results reflect the continuing improvement in financial
performance resulting from the turnaround efforts initiated in May,
1994. Net sales were off 5.6% from the $134 million recorded in
1994. Sales in the Industrial Fastener Division (IFD) of $78.4
million in 1995 were down 3.4% from the $81.2 million in 1994
despite increased sales in the primary automotive sector, while
operating profits improved dramatically. Even though sales to
domestic auto manufacturers were up 4.8% over 1994, sales to IFD's
other customers decreased as a result of IFD failing to meet
customer schedules in 1994. The C-Tech Division recorded sales of
$40 million which represented a growth of 6.5% in 1995, well below
the 1994 and 1993 growth pace. C-Tech signed agreements with 10
new customers in 1995, but did not receive the full sales impact of
these new customers' activity during the year.
Gross margins improved to 25.8% versus 24.4% reported in 1994.
Margin improvements resulted from significant operational changes in
the IFD factories, increased material control, and reduced staffing
levels of non-critical personnel. IFD was also able to increase its
prices on new parts, primarily due to the technical assistance
provided to customers.
Total cost of goods sold decreased as all divisions continued to
focus on elimination of the causes of scrap and the reduction in
slow-moving inventories. The Company believes that the portion of
its inventory classified as slow-moving is significantly improved as
compared to prior years.
Selling, general and administrative expenses dropped to 21.2% of net
sales from 21.8% for 1994. The Company made additional reductions
in staffing at all divisions by consolidating functions and
eliminating non-essential positions company-wide. 1995 headcounts
were down 7% from 1994.
Interest expense continued to run higher than previous years despite
reductions in inventories and other working capital assets.
Interest rate increases in 1995 were the single contributing factor
to the larger interest expense. While the Company experienced
several violations in covenants under its loan agreement in 1995,
waivers were obtained from its bank group for these violations at no
additional cost to the Company.
1994 RESULTS COMPARED TO 1993
The Company's 1994 net sales grew 1.5% during the year to $134
million. The increase was directly attributable to the C-Tech
Division, which experienced sales of $37.5 million, a growth of 34%
over 1993 sales of $28 million. C-Tech's sales growth was due to
the increase in business with existing customers. IFD 1994 revenues
of $81.2 million were down 6.4% from 1993 sales of $86.7 million due
to the loss of orders and customer service disruptions arising from
the consolidation of the former Lewis, Champion and Pioneer
facilities in the third quarter of 1993.
IFD sales to the automotive sector were up 17% over 1993, but gross
margins on this business were lower than those earned with
distributor or other industrial customers.
Cost of goods sold rose as a percent of net sales as IFD experienced
operating inefficiencies early in 1994. These inefficiencies, which
impacted the valuation of slow-moving inventories, have been the
subject of close scrutiny and ongoing corrective actions, which have
focused on production planning and control. Specific actions to
improve operations have been discussed in the 1995 results compared
to 1994. The provision for slow-moving and obsolete inventories was
$1.8 million in 1994, or $1.3 million greater than the expense
recorded in 1993. The provision increased as a result of the
decrease in volume; production planning was slow to react to the
loss of orders and, as a result, customer specific parts were
produced in excess of demand.
Selling, general and administrative expenses were up 10% over 1993,
primarily due to severance expenses of approximately $600,000 for
three executives of the Company, outside consulting fees, and bank
fees related to a new credit agreement.
During the fourth quarter of 1994, the Company sold the
Redi-Bolt operation of the Hardware Division. The sale generated a
profit of $212,000.
Interest expense in 1994 was up over 1993 as the Company
renegotiated with its banks to obtain additional availability under
its credit facility. Higher rates of interest on a larger debt base
resulted in increased interest expense.
6
<PAGE> 8
LIQUIDITY AND CAPITAL RESOURCES
Major balance sheet captions as a percentage of total assets at
December 31, 1995 and 1994 are presented as follows:
<TABLE>
<CAPTION>
==========================================
Percent to Total Assets
==========================================
1995 1994
------------------------------------------
<S> <C> <C>
Current assets 53.7% 53.6%
Current liabilities 22.4% 21.8%
Working capital 31.3% 31.8%
Long term debt,
including current
maturities 41.4% 45.9%
Shareholders' equity 36.0% 31.7%
==========================================
Debt to equity ratio 51.3% 57.4%
==========================================
</TABLE>
During 1995, all of the Company's operations were focused on managing their
use of working capital and increasing not only profits but cash flow via
improved asset turnover velocity. Receivable and inventory balances
declined from the year-end balances at December 31, 1994. However,
inventories, the Company's primary area of focus from a working capital
perspective, fell 3.4% from their 1994 level ($29.0 million versus $30.1
million).
Cash flows from reduced working captial investments were applied towards
the Company's bank and subordinated debt. Bank debt declined $6.1 million
in 1995 as part of the Company's strategy to shift its debt to equity ratio
to a lower, more acceptable, level. In 1995, debt as a percent of total
assets fell 8.5% with 1996 plans projecting further debt reductions. Under
terms of the Company's subordinated debt, an annual sinking fund payment of
$518,000 is due through the year 2000.
The Company has reviewed its credit facility and operating plans for 1996
with its bank group. As previously mentioned, there were several
covenant violations under the 1995 loan agreement which were waived by the
bank group. Given the Company's performance and 1996 plans, covenants for
1996 have been revised and the credit facility has been extended through
January 14, 1998. Negotiated reductions in loan interest charges should
favorably impact operations in calendar 1996. As of February 29, 1996, the
Company had $8.2 million available under its credit facility. Borrowings
under the revolving loan bear interest at LIBOR (5.3%) plus 2.5% or prime
(8.25%) plus 0.5%, and borrowings under the term loan bear interest at LIBOR
plus 3% or prime plus 1%.
Capital investments for 1995 totaled $1.1 million versus $3.1 million
in 1994. Capital investments in 1995 consisted primarily of expenditures
to maintain the quality of the operating plants, whereas 1994 capital
investments also included expenditures to broaden the Company's product
lines. Capital investments for 1996 are estimated at $3.3 million, with
plans calling for IFD and Hardware capacity expansion and C-Tech service
oriented upgrades.
The Company believes that cash generated from operations and its capacity
for borrowing will be sufficient to fund current business operations,
annual sinking fund requirements under the subordinated debt, and
anticipated future capital investments.
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121 that requires impairment losses to be recorded on long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. The Company will adopt Statement No. 121
in the first quarter of 1996 and, based on current circumstances, there will
not be any effect from the adoption of Statement No. 121.
The Company presents its financial statements on a historic cost basis,
which does not account for inflation effects. However, the Company's
inventories are valued using LIFO, which generally reflects current costs.
Steel is the primary raw material commodity used by the Company. Steel is
purchased on firm quotes from suppliers, and the Company expects to offset
any price or inflation effects through price increases to customers and cost
containment programs already in place.
7
<PAGE> 9
Item 8 Financial statements and supplementary data
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the years ended December 31
====================================================================================================
(Dollars in thousands except per share amounts) 1995 1994 1993
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 126,016 $ 133,531 $ 131,498
Cost of goods sold 93,476 100,895 97,070
Selling, general and administrative expenses 26,788 29,122 26,427
Gain on sale of a portion of a line of business (Note 4) 0 212 0
----------------------------------------------------------------------------------------------------
Operating income 5,752 3,726 8,001
Interest expense 3,948 3,657 3,376
----------------------------------------------------------------------------------------------------
Income before income taxes 1,804 69 4,625
Provision for income taxes 75 0 0
----------------------------------------------------------------------------------------------------
Income 1,729 69 4,625
Cumulative effect of accounting change (Note 9) 0 0 1,814
----------------------------------------------------------------------------------------------------
Net income $ 1,729 $ 69 $ 6,439
====================================================================================================
====================================================================================================
Earnings per share
Primary
Income $ 0.45 $ 0.02 $ 1.20
Cumulative effect of accounting change 0.00 0.00 0.47
----------------------------------------------------------------------------------------------------
Net income $ 0.45 $ 0.02 $ 1.67
====================================================================================================
Assuming full dilution
Income $ 0.45 $ 0.02 $ 1.21
Cumulative effect of accounting change 0.00 0.00 0.41
----------------------------------------------------------------------------------------------------
Net income $ 0.45 $ 0.02 $ 1.62
====================================================================================================
Average shares outstanding - Primary 3,864,909 3,841,297 3,867,255
Average shares outstanding - Full Dilution 3,864,909 3,841,297 4,384,644
The accompanying notes to financial statements are an integral part of these statements.
====================================================================================================
</TABLE>
8
<PAGE> 10
<TABLE>
<CAPTION>
BALANCE SHEET
December 31
=======================================================================================
(Dollars in thousands) 1995 1994
---------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (Note 5)
Current assets
Cash $ 434 $ 1,765
Accounts receivable, net 14,997 15,501
Inventories 29,030 30,066
Prepaid expenditures and other 2,772 2,880
---------------------------------------------------------------------------------------
Total current assets 47,233 50,212
Plant and equipment, at cost
Land and buildings 593 590
Machinery and equipment 27,010 25,983
---------------------------------------------------------------------------------------
Plant and equipment 27,603 26,573
Less accumulated depreciation 13,205 10,330
---------------------------------------------------------------------------------------
Net plant and equipment 14,398 16,243
Other assets
Goodwill, net 17,872 18,381
Other intangibles, net 2,810 3,493
Other noncurrent assets 5,674 5,375
---------------------------------------------------------------------------------------
Total other assets 26,356 27,249
---------------------------------------------------------------------------------------
Total assets $ 87,987 $ 93,704
=======================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 10,231 $ 10,967
Accrued income taxes 183 0
Accrued liabilities 6,258 6,448
Current maturities of long-term debt 3,017 3,030
---------------------------------------------------------------------------------------
Total current liabilities 19,689 20,445
Long-term liabilities
Long-term debt 26,134 32,189
Convertible subordinated debentures 7,242 7,760
Other liabilities 3,234 3,631
---------------------------------------------------------------------------------------
Total long-term liabilities 36,610 43,580
Commitments and contingencies (Notes 6 and 10)
Shareholders' equity
Common stock ($1 par value), authorized 10,000,000 shares,
issued 3,881,025 shares in 1995 and 3,837,054 shares in 1994 3,881 3,837
Capital in excess of par value 17,170 16,934
Retained earnings 10,637 8,908
---------------------------------------------------------------------------------------
Total shareholders' equity 31,688 29,679
---------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 87,987 $ 93,704
=======================================================================================
The accompanying notes to financial statements are an integral part of these statements.
=======================================================================================
</TABLE>
9
<PAGE> 11
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
For the years ended December 31
====================================================================================================
(Dollars in thousands) 1995 1994 1993
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Income from continuing operations $ 1,729 $ 69 $ 4,625
Adjustments to reconcile income from continuing operations to
cash provided by continuing operations
Depreciation 2,964 2,618 2,358
Amortization 1,192 1,479 1,465
(Gain) loss on disposal of plant and equipment (5) (2) 26
Gain on sale of a portion of a line of business 0 (212) 0
Provision for losses on accounts receivable 75 361 908
Changes in
Accounts receivable 429 (1,520) 16
Inventories 1,036 (678) (2,126)
Prepaid expenditures 50 (164) (239)
Income taxes recoverable and accrued income taxes 183 284 124
Accounts payable and accrued liabilities (1,221) 1,386 (3,562)
Noncurrent assets and liabilities (696) (1,482) (2,690)
----------------------------------------------------------------------------------------------------
Cash provided by continuing operations 5,736 2,139 905
Cash flows from discontinued operations 353 132 602
Cash flows from investing activities
Purchases of plant and equipment (1,143) (3,150) (3,245)
Proceeds from disposal of assets 29 1,554 869
Purchase of C-Tech Division, net of acquired cash 0 0 (115)
----------------------------------------------------------------------------------------------------
Cash used by investing activities (1,114) (1,596) (2,491)
Cash flows from financing activities
Long-term debt borrowings 136,470 137,495 156,381
Repayments of long-term debt (142,525) (137,451) (124,281)
Net short-term debt increase (decrease) (13) 900 (30,638)
Retirement of debentures (518) (510) (417)
Proceeds from sale of common stock 280 184 43
----------------------------------------------------------------------------------------------------
Cash provided (used) by financing activities (6,306) 618 1,088
----------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (1,331) 1,293 104
Cash at beginning of year 1,765 472 368
----------------------------------------------------------------------------------------------------
Cash at end of year $ 434 $ 1,765 $ 472
====================================================================================================
Cash paid (recovered) for
Interest $ 3,910 $ 3,373 $ 2,991
Taxes (199) (81) (38)
The accompanying notes to financial statements are an integral part of these statements.
====================================================================================================
</TABLE>
10
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS
For the years ended December 31, 1995, 1994, and 1993
===========================================================================
1. DESCRIPTION OF BUSINESS AND ACCOUNTING PRINCIPLES
The Company designs, manufactures, and distributes fasteners and related
products used by automotive, electronics, consumer-durables, and other
manufacturers in their assembly operations. The Company also provides
quality-assured, just-in-time inventory management services to
manufacturers. Sales to the automotive industry (primarily Chrysler,
Ford and General Motors) account for approximately 24.7%, 22.0% and
21.3% of the Company's sales in 1995, 1994, and 1993, respectively, with
Chrysler being the largest at 11.1%, 9.9% and 9.1% of sales in 1995,
1994, and 1993, respectively. Trade receivables from Chrysler
represented 18% and 19% of outstanding receivables as of December 31,
1995 and 1994, respectively.
While concentrated in the Midwest, sales are delivered throughout the
United States and are direct to manufacturers and independent
distributors. There are no foreign operations, and export sales were
less than 5.3% of net sales in each of the three years in the period
ending December 31, 1995.
Raw materials used in the manufacturing process are readily available
from a number of domestic and foreign suppliers. The loss of any one
supplier would not be material to the continued operations of the
Company.
The financial statements include the accounts of the Company
and its divisions. The preparation of the Company's financial
statements, in conformity with generally accepted accounting principles,
requires management to make estimates and assumptions that affect the
amounts reported in the finanical statements and accompanying notes.
Actual results could differ from those estimates.
Depreciation is provided on a straight line basis to amortize the cost
of plant and equipment during their estimated lives.
Identifiable intangible assets consist of customer relationships,
assembled work force, engineering drawings, non-compete agreements and
trade names, and are amortized over their estimated lives, which range
from 3 to 15 years. Amortization expense was $684,000 in 1995, $955,000
in 1994, and $941,000 in 1993.
Goodwill is amortized over forty years. Amortization expense was
$508,000 in 1995, $524,000 in 1994, and $524,000 in 1993. Goodwill is
reviewed for impairment whenever events or circumstances provide
evidence that suggest that the carrying amount of the asset may not be
recoverable. Impairment is determined by using identifiable cash flows
over the remaining amortization period.
The Company has applied Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," in accounting for its stock
option plans. Accordingly, no compensation cost has been recognized. No
decision has been reached as to how the Company will apply, beginning in
1996, recently issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation", which permits the Company
to continue accounting for stock options in the same manner, with fair
value disclosures, or measure compensation cost by the fair value of
stock options granted after January 1, 1995.
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121 that requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. The Company will adopt Statement
No. 121 in the first quarter of 1996 and, based on current circumstances,
there will not be any effect from the adoption of Statement No. 121.
All interest incurred during 1995, 1994, and 1993 was expensed.
The Company recognizes revenue upon shipment of product to the customer.
Primary earnings per share are computed by dividing net income by the
weighted average number of shares of common stock outstanding and
issuable under dilutive stock options. Earnings per common share,
assuming full dilution, are computed by dividing net income (adjusted
for interest net of income taxes on the subordinated debentures) by the
weighted average number of shares of common stock, dilutive stock
options, and common shares issuable upon the conversion of the
subordinated debentures when such conversions would dilute primary
earnings per share.
At December 31, 1995 and 1994, inventories at LIFO approximated current
costs. Exhibit 1 shows inventory components at such dates.
11
<PAGE> 13
<TABLE>
<CAPTION>
==========================================
Exhibit 1
Inventory Components
==========================================
December 31
(Dollars in thousands) 1995 1994
------------------------------------------
<S> <C> <C>
Raw materials $ 4,108 $ 3,955
Work in process 4,525 4,425
Finished goods 20,397 21,686
------------------------------------------
Total inventory $29,030 $30,066
==========================================
</TABLE>
2. SHAREHOLDERS' EQUITY
In addition to common stock, the Company has authorized preferred stock of
10,000 shares of $100 par value preferred, and 20,000 shares of $50 par
value preference, neither of which have been issued. At December 31, 1995,
816,427 shares of common stock were reserved for conversion of the
subordinated debentures and issuance of stock options.
In January 1993, the Company acquired the minority interest in the C-Tech
Division in exchange for 133,000 shares of the Company's common stock
and $115,000. In October of 1993, the Company retired 177,152 shares of
treasury stock. Exhibit 2 shows changes in the Company's shareholders'
equity accounts during the years ended December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
=============================================================
Exhibit 2
Changes in Shareholders' Equity
=============================================================
Year ended December 31
(Dollars in thousands) 1995 1994 1993
-------------------------------------------------------------
<S> <C> <C> <C>
Capital in excess of par value
Beginning balance $ 16,934 $ 16,771 $ 15,777
Shares issued for
C-Tech acquisition 0 0 1,866
Stock options exercised 5 15 38
401K plan purchases 231 148 0
Retirement of treasury stock 0 0 (910)
-------------------------------------------------------------
Ending balance $ 17,170 $ 16,934 $ 16,771
=============================================================
Retained earnings
Beginning balance $ 8,908 $ 8,839 $ 4,502
Retirement of treasury stock 0 0 (2,102)
Net income 1,729 69 6,439
-------------------------------------------------------------
Ending balance $ 10,637 $ 8,908 $ 8,839
=============================================================
</TABLE>
3. STOCK OPTIONS
In 1990 and 1994, the Company adopted Stock Option Plans for employees and
directors. The plans are limited to a total of 350,000 shares of common
stock. Options may be granted at prices of 90 percent of market or higher
at date of grant. Options expire no more than 10 years from date of grant.
For employees, option prices, vesting provisions, and life of the option
are determined at date of grant by the Compensation Committee of the Board
of Directors. Each non-employee director receives an annual option equal
to his annual retainer divided by the fair value of a share of common stock
on the date of grant. Transactions for 1995, 1994, and 1993 are as
follows:
12
<PAGE> 14
<TABLE>
<CAPTION>
========================================================
Exhibit 3
Option Plan Transactions
========================================================
1995 1994 1993
--------------------------------------------------------
<S> <C> <C> <C>
Options outstanding
on January 1 188,468 173,610 169,010
Changes during year
Granted (per share)
1995 - $6.00 to $7.88 118,246 - - - -
1994 - $13.50 to $14.00 - - 66,358 - -
1993 - $10.25 to $13.00 - - - - 12,540
Exercised (per share)
1995 - $6.00 (1,000) - - - -
1994 - $8.75 - - (2,000) - -
1993 - $8.75 to $10.25 - - - - (4,440)
Canceled (187,500) (49,500) (3,500)
--------------------------------------------------------
Net increase (decrease) (70,254) 14,858 4,600
--------------------------------------------------------
Options outstanding
on December 31 118,214 188,468 173,610
========================================================
Other December 31 information
Option price range $ 6.00 TO $ 7.75 to $ 7.75 to
$ 14.00 $ 14.00 $13.00
Options exercisable 118,214 187,136 137,277
Options available
for grant 224,346 155,092 71,950
========================================================
</TABLE>
In 1994, an employee, as part of an employment agreement, was granted
options totaling 15,000 shares at $14.00 per share. One-third of these
options became exercisable in 1995 and one-third become exercisable in 1996
and 1997. No portion of this option has been excercised. In 1995, an
employee, as part of an employment agreement, was granted options totaling
45,000 shares at $6.125 per share. One third of these options are
exercisable in each of 1996, 1997 and 1998.
4. DIVESTITURE
During the fourth quarter of 1994, the Company sold the Redi-Bolt operation
of the Hardware Division for cash and notes totaling $1.5 million. This
operation had revenues of $6,934,000 and $7,468,000 in 1994 and 1993,
respectively.
5. INDEBTEDNESS
The Company's credit agreement provides a revolving loan of up to
$27,600,000 through January, 1998 (with options to renew through May, 2000)
and an original term loan of $12,400,000. The term loan requires quarterly
principal payments of $620,000, with final payment of the unpaid balance
due January 1998 (or such later date as the revolving loan is renewed).
Borrowings under the revolving loan and term loan are $18,663,000 and
$9,920,000, respectively, at December 31, 1995 ($26,370,000 and $8,250,000,
respectively, at December 31, 1994). The credit agreement provides
restrictive monthly covenants regarding interest coverage, leverage ratio,
current ratio and tangible net worth and prohibits the payment of
dividends.
Commitments under the credit agreement are shared equally by three lenders.
Both parts of the credit agreement are asset-based: the availability under
the term portion is based on fixed assets and the availability under the
revolver is limited to the sum of eligible accounts receivable and
inventories. Borrowings are secured by substantially all assets of the
Company.
Interest on the term loan is at LIBOR (5.9% at December 31, 1995) plus 4%
or prime (8.5% at December 31, 1995) plus 2%; interest on borrowings under
the revolver is at LIBOR plus 3.5% or prime plus 1.5%, at the Company's
option. An amendment (dated December 29, 1995) to the loan
agreement provides for interest on the term loan at LIBOR plus 3% or prime
plus 1% and interest on borrowings under the revolver at LIBOR plus 2.5%
or prime plus 0.5% as of January 1, 1996. The credit agreement requires a
quarterly commitment fee of 0.25 percent per annum on the average unused
amount of the revolving credit commitment.
Under the terms of the 7.5 percent convertible subordinated debentures, and
after reflecting conversions and repurchases to date, an annual sinking
fund payment of $518,000 is due each July 1, with a final payment of
13
<PAGE> 15
$5,170,000 due July 1, 2001. The debentures can be redeemed at par value.
The debentures are convertible into shares of common stock of the Company
at the rate of $18.75 of the face amount of the debentures for each share
of common stock. The indenture agreement for the debentures limits the
payment of cash dividends and repurchase of common stock to an amount equal
to the cumulative net income since January 1, 1986, plus $2,000,000.
Therefore, the Company must earn $10,902,000 subsequent to December 31,
1995, before any common stock can be repurchased. The debentures are
unsecured and subordinate to all current and future senior debt of the
Company.
Aggregate maturities of long-term debt, including the convertible
subordinated debentures and capital leases for periods subsequent to
December 31, 1995, are: $3,017,000 in 1996, $3,017,000 in 1997, $24,153,000
in 1998 (assuming the credit agreement is not renewed), $518,000 in 1999,
$518,000 in 2000; and thereafter, $5,170,000.
The Company has no formal compensating balance requirements. It pays the
cost of services provided by its banks by either providing balances or
paying fees for the services.
6. LEASE COMMITMENTS
The Company leases certain plants, warehouses, offices and machinery and
equipment under operating leases. The total rental expense of all
operating leases was $2,365,000 in 1995, $2,260,000 in 1994 and $2,079,000
in 1993. Future payments for operating leases for periods subsequent to
December 31, 1995, are $11,223,000: $2,404,000 in 1996, $2,345,000 in
1997, $2,151,000 in 1998, $1,706,000 in 1999, $964,000 in 2000, and
thereafter $1,653,000.
7. EMPLOYEE BENEFIT PLANS
Since January 1, 1994, the Company has sponsored a defined contribution
plan covering substantially all employees. Company contributions match the
first one percent and one-half of the next five percent of payroll dollars
for each employee contributing to the plan. Company contributions vest
after 5 years of service. The Company's contribution to this plan was
$566,000 in 1995 and $662,000 in 1994.
During 1992, the Company assumed responsibility for three defined
contribution plans related to acquired companies. The Company's
contributions to these plans was $275,000 in 1993. These plans were merged
into the Company's defined contribution plan effective January 1, 1994.
The Company has a defined benefit plan covering certain employees. This
plan is noncontributory and provides pension benefits based on the
employee's earnings during the years of employment prior to December 31,
1993. Effective December 31, 1993, the Company suspended this plan.
Employees do not earn additional defined benefits for future service,
although future service may be counted toward vesting of benefits
accumulated based on service prior to the suspension date. As a result of
the suspension of this defined benefit plan, the Company recognized a
curtailment gain of $552,000 during 1993. Pension assets consist of pooled
funds invested by insurance companies, and stocks and bonds of publicly
held companies. The components of net pension costs for 1995, 1994, and
1993 are shown in Exhibit 7.1.
<TABLE>
<CAPTION>
========================================================
Exhibit 7.1
Net Pension Costs
========================================================
Year ended December 31
(Dollars in thousands) 1995 1994 1993
--------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned
during the period $ 0 $ 0 $ 360
Interest cost on projected
benefit obligation 660 675 682
Return on assets (886) (1,151) (1,064)
Amortization and deferral 19 (225) (328)
--------------------------------------------------------
Net pension income $ (207) $ (701) $ (350)
========================================================
Actuarial assumptions
Discount rate 8% 7.75% 8%
Compensation increase N/A N/A 6%
Long-term return on assets 8% 9% 9%
========================================================
</TABLE>
14
<PAGE> 16
The actuarial assumptions used in calculating net pension costs are
developed in consultation with the Company's outside actuaries and
evaluated in light of the Company's pension plan's investment
performance.
Exhibit 7.2 sets forth the plan's funded status and amounts recognized
in the Company's balance sheet at December 31, 1995 and 1994.
<TABLE>
<CAPTION>
====================================================================
Exhibit 7.2
Components of Prepaid Pension Costs
====================================================================
December 31
(Dollars in thousands) 1995 1994
--------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations
Vested benefit $ 8,585 $ 8,957
====================================================================
Accumulated benefit $ 8,695 $ 9,194
====================================================================
Funding status
Plan assets $11,526 $13,562
Projected benefit 8,695 9,194
--------------------------------------------------------------------
Over funding $ 2,831 $ 4,368
====================================================================
Balance sheet recognition
of over funding $ 2,831 $ 4,368
Unrecognized net (gain) loss 1,612 (94)
Prior service cost not yet recognized
in net periodic pension cost 67 29
Prepaid pension cost
recognized in balance sheet $ 4,510 $ 4,303
====================================================================
</TABLE>
8. ADDITIONAL BALANCE SHEET INFORMATION
At December 31, 1995 and 1994, accounts receivable are net of an allowance
for doubtful accounts of $704,000 and $1,229,000, respectively, goodwill is
net of accumulated amortization of $2,442,000 and $1,934,000, respectively,
and other intangibles are net of accumulated amortization of $3,034,000 and
$2,350,000, respectively.
In December 1994, the Company's Board of Directors determined that the
employment contract of its former Chairman, President, and CEO would not be
renewed and amended his contract to provide for severance and benefits for
up to one year after his termination date. An accrual for these costs of
$370,000 was made in the fourth quarter of 1994 and was included in selling,
general and administrative expenses.
9. INCOME TAXES
Effective January 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (FAS109). The cumulative effect of adopting FAS109 as of January 1,
1993 was to increase net income by $1,814,000.
A reconciliation between taxes computed at the Federal statutory rate on
income before income taxes and the provision for income taxes is shown in
Exhibit 9.1. The components of the provision for deferred income taxes are
presented in Exhibit 9.2, and the components of the liability for deferred
income taxes are presented in Exhibit 9.3.
15
<PAGE> 17
<TABLE>
<CAPTION>
===========================================================
Exhibit 9.1
Reconciliation of Statutory and Effective Tax Rates
===========================================================
Year ended December 31
(Dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
-----------------------------------------------------------
Income before
income taxes $ 1,804 $ 69 $ 4,625
===========================================================
Income tax expense at federal
statutory rate of 34% $ 613 $ 23 $ 1,573
Adjustments
State income taxes, net of
federal income tax benefits 36 0 0
Goodwill amortization 173 178 114
Change in valuation
allowance (932) (309) (1,689)
Other 185 108 2
-----------------------------------------------------------
Total adjustments (538) (23) (1,573)
-----------------------------------------------------------
Income tax provision $ 75 $ 0 $ 0
===========================================================
</TABLE>
The income tax provision of $75,000 in 1995 consists of $20,000 federal and
$55,000 state. For income tax purposes, the operating loss carry forwards
are approximately $16,000,000 and expire between 2006 and 2009. The use
of the carry forwards in future years will be limited by the Internal
Revenue Code should the Company merge with Illinois Tool Works (see Note
12).
<TABLE>
<CAPTION>
=============================================================
Exhibit 9.2
Provision for Deferred Income Taxes
=============================================================
Year ended December 31
(Dollars in thousands) 1995 1994 1993
-------------------------------------------------------------
<S> <C> <C> <C>
Components of deferred tax provision
Depreciation and basis
differences $ (156) $ (13) $ (450)
LIFO basis difference 0 0 (232)
Pensions 81 271 364
Intangible asset basis
differences 9 170 194
Restructuring of operations 89 159 1,479
Discontinued operations 674 545 446
Inventories (459) 24 (130)
Self-insurance reserves 114 132 156
Bad debts 206 (10) (44)
Deferred compensation 35 44 29
Net operating loss
carryforwards 143 (1,211) 295
Other 196 (317) 126
-------------------------------------------------------------
Total 932 (206) 2,233
Change in valuation
allowance (932) 206 (2,233)
-------------------------------------------------------------
Provision for deferred
income taxes $ 0 $ 0 $ 0
=============================================================
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
========================================================
Exhibit 9.3
Net Liability for Deferred Income Taxes
========================================================
December 31
(Dollars in thousands) 1995 1994
--------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities
Depreciation and basis
differences $ 2,956 $ 3,112
LIFO basis difference 2,033 2,033
Pensions 1,467 1,386
Intangible asset basis
differences 906 897
Prepaid expenditures basis
difference 431 431
--------------------------------------------------------
Total deferred liabilities 7,793 7,859
Deferred tax assets
Restructuring of operations (134) (223)
Discontinued operations (828) (1,502)
Inventories (2,079) (1,620)
Self-insurance reserves (393) (507)
Bad debts (276) (482)
Deferred compensation (282) (317)
Net operating loss
carryforwards (6,122) (6,265)
Other (526) (722)
--------------------------------------------------------
(10,640) (11,638)
Valuation allowance 5,101 6,033
--------------------------------------------------------
Total deferred assets (5,539) (5,605)
--------------------------------------------------------
Net deferred income taxes (included in
other long-term liabilities) $ 2,254 $ 2,254
========================================================
</TABLE>
For financial accounting purposes, a valuation allowance has been
recognized to offset deferred tax assets related to net operating loss
carryforwards and other temporary differences. The tax benefit for these
items will be used to reduce current tax expense when realized.
10. OTHER COMMITMENTS AND CONTINGENCIES
The Company is involved in various lawsuits and claims which are normal to
the Company's business. In the opinion of management, the amount of losses
which might be sustained, if any, is not likely to materially affect the
Company's financial position or results of operations.
The Company has been self-insured for a portion of its product liability
claims since November 1, 1976. Accordingly, the Company has recognized
estimated liabilities which management believes are adequate for estimated
claim settlements. Included in the December 31, 1995 and 1994 balance
sheet within "other long-term liabilities" are $802,000 and $1,093,000,
respectively, as estimated liabilities for self- insurance.
11. DISCONTINUED OPERATIONS
During 1991, the Company decided to concentrate its efforts on fastener and
fastener-related businesses and to sell its unrelated operations. By 1993,
the Company had sold or exited all of its unrelated businesses. Net sales
of the discontinued operations were $1,218,000 in 1993. During 1993, the
operating loss from the discontinued businesses totaled $918,000 and was
charged to the reserve for the estimated loss on disposal of operations.
Exhibit 11 presents the cash flows from the discontinued operations.
17
<PAGE> 19
<TABLE>
<CAPTION>
=====================================================================
Exhibit 11
Cash Flows From Discontinued Operations
=====================================================================
Year ended December 31
(Dollars in thousands) 1995 1994 1993
---------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Loss from discontinued operations $ 0 $ 0 $ 0
Reconciling adjustments
Depreciation 20 93 263
Loss on asset disposals 63 105 276
Current assets/liabilities changes (397) (1,706) (1,673)
Proceeds from asset disposals 667 1,640 2,121
Debt retirement 0 0 (385)
---------------------------------------------------------------------
Cash provided by
discontinued operations $ 353 $ 132 $ 602
=====================================================================
</TABLE>
12. SUBSEQUENT EVENT
The Company has filed a proxy statement relating to the merger of
Illinois Tool Works Inc. (ITW) and the Company as publicly announced
on January 8, 1996. Under the terms of the merger, each share of
Medalist stock would be valued at $14.50 and converted into the
appropriate number of ITW shares, based upon an average closing price
for ITW shares for the ten day period just prior to the closing date
of the merger.
The merger requires a 66 2/3% affirmative vote by Medalist
shareholders of record. Management of the Company is not aware of any
material adverse issues which might prevent this merger from being
completed.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Medalist Industries, Inc.
We have audited the accompanying balance sheet of Medalist Industries,
Inc. as of December 31, 1995 and 1994, and the related statements of
operations and cash flows for each of the three years in the period ended
December 31, 1995. Our audits also included the financial statement
schedule listed in the index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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, the financial statements referred to above present
fairly, in all material respects, the financial position of Medalist
Industries, Inc. at December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information
set forth therein.
As discussed in Note 9 to the financial statements, the Company
changed its method of accounting for income taxes effective January 1,
1993.
Milwaukee, Wisconsin ERNST & YOUNG LLP
February 2, 1996
18
<PAGE> 20
Item 9 Changes in and disagreements with accountants on accounting and
financial disclosure
None.
PART III
Item 10 Directors and executive officers of the registrant
<TABLE>
<CAPTION>
Director
Name and age Principal occupation and business experience since
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
DIRECTORS WITH TERMS EXPIRING IN 1998
James S. Dahlke, 45 President and chief executive officer of Medalist Industries, Inc. 1995
Peter A. Fischer, 53 Assembly of God Minister; director of Bando-McGlocklin Capital Corp. 1975
and the Gehl Company.
John S. Sammond, 67 Partner, Quarles & Brady (attorneys for Medalist) since 1960. 1978
DIRECTORS WITH TERMS EXPIRING IN 1997
James D. Dodson, 59 Private Investor 1993
John B. Howenstine, 55 President, chief executive officer and chairman of Fiberflex, Inc. 1989
since 1994; managing director, Riverway Capital Partners,
(financial advisory firm) since 1989.
Mark Train, 54 Co-founder, executive vice-president and director of Jason, Inc. 1995
DIRECTORS WITH TERMS EXPIRING IN 1996
Harry S. Burker, 67 President, Execu-Com Inc. (business consultants) since 1991; 1989
director, president, and chief executive officer, Siemens Energy &
Automation, Inc.(electrical eqpt. mfgr.), 1985 through 1990; director
of SPD Technologies, Inc. since 1993.
Roger E. Secrist, 56 Retired chairman of the board and chief executive officer of ANGUS 1984
Company (specialty chemicals); director of Gehl Company since 1982.
Information concerning the executive officers is included in Part I of this filing, page 4.
</TABLE>
Item 11 Executive compensation
The following table summarizes the compensation to each of the Company's
executive officers with total 1995 salary and bonus exceeding $100,000.
<TABLE>
<CAPTION>
Long-Term compensation
----------------------
Annual compensation Restricted
Name and present -------------------
position Year Salary($) Bonus($) stock($) Options(#) All Others($) (1)
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
James S. Dahlke 1995 148,997 95,000 0 45,000 0
CEO
John T. Paprocki 1995 141,259 30,000 0 15,000 4,042
CFO 1994 77,884 23,125 0 15,000 541
William C. O'Loughlin 1995 102,906 15,000 0 5,000 3,065
V.P. - Secretary 1994 100,544 0 0 0 2,156
1993 95,336 0 0 0 0
James G. Gumm 1995 101,165 20,000 0 4,000 3,023
V.P. - Administration 1994 97,502 0 0 0 2,156
1993 90,572 0 0 0 0
(1) Company match dollars for Medalist Employee Retirement Incentive Trust Plan
</TABLE>
19
<PAGE> 21
STOCK OPTIONS AND STOCK COMPENSATION
Mr. Dahlke, as a condition of employment, was awarded options to purchase
45,000 shares of common stock in 1995. These options vest over a three
year period and have an exercise price equal to the market value of the
common stock on the issue date. Also during 1995, Mr. Paprocki was
awarded options to purchase 15,000 shares of common stock. Messrs.
O'Loughlin and Gumm had previously been awarded options in 1994 in the
amounts of 5,000 and 4,000 shares, respectively. During 1995, these
options were cancelled and reissued at the then current market price.
OPTIONS GRANTED IN 1995
<TABLE>
<CAPTION>
Options granted Potential realizable value at
--------------------------------------- assumed annual rates of stock
Shares of Exercise Expiration price appreciation for option term
Executive Number total grants price date 5% 10%
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
James S. Dahlke 45,000 100% 6.125 05/15/2005 173,339 439,275
John T. Paprocki 15,000 27% 6.000 04/27/2005 56,601 143,437
William C. O'Loughlin 5,000 9% 6.000 04/27/2005 18,867 47,812
James G. Gumm 4,000 7% 6.000 04/27/2005 15,093 38,250
OPTIONS EXERCISED IN 1995, AND 1995 YEAR-END OPTION VALUES
<CAPTION>
Value of unexercised
Number of in-the-money options
Shares Unexercised options at year end ($)
acquired on Value --------------------------- --------------------------
Executive exercise realized ($) Exercisable Unexercisable Exercisable Unexercisable
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
James S. Dahlke 0 0 0 45,000 0 0
John T. Paprocki 0 0 20,000 10,000 0 0
William C. O'Loughlin 0 0 6,000 0 0 0
James G. Gumm 0 0 19,000 0 0 0
</TABLE>
Retirement plans
From December 1, 1979 through the end of 1993, Medalist maintained a
defined benefit pension plan for all salaried employees. Effective
December 31, 1993, Medalist merged its hourly production pension plans into
its salaried pension plan and ceased all future benefit accruals under the
surviving salaried plan and the merged hourly production plans. The plan
provides a benefit equal to 1.5% of the employee's average monthly pay (up
to $235,840 per year) for the period from 1989 through 1993, multiplied by
the number of years of credited service. Remuneration under the plan is
defined as total compensation pay which would be subject to tax for social
security benefits without regard to the dollar limitation on such
compensation subject to FICA taxes. Mr. O'Loughlin has five years of
credited service, and his estimated annual benefits payable upon retirement
will be $24,534. In conjunction with the merger of its defined benefit
plans, the Company simultaneously merged its defined contribution plans
effective December 31, 1993. This merger created the Medalist Employee
Retirement Incentive Trust Plan. This plan encourages employee
participation with Company matching funds and allows employees to direct
personal, as well as, company contributions into six separate accounts, one
of which is Medalist Common Stock. Executives participate in this plan on
the same terms as eligible non-executive employees.
Employment contracts
Medalist has an employment agreement with James S. Dahlke, which provides
that in the event of termination without cause or on a "Change of Control
of the Board," in exchange for a release Mr. Dahlke will have the right to
receive continued medical benefits plus an amount equal to his base salary
(currently $225,000) for one year following his termination (or in the case
of termination without cause, the later of May 15, 1997 or one year
following his termination). Medalist also has an agreement with William C.
O'Loughlin, its Vice President and Secretary, pursuant to which Mr.
O'Loughlin is entitled to receive severance benefits equal to one year's
base salary in the event of a change in control of Medalist, or his
termination of employment within eighteen months
20
<PAGE> 22
of the change in control. Messrs. John T. Paprocki and James G. Gumm are
each parties to a Continuing Employment and Severance Agreement with the
Company. Those agreements provide that in exchange for a release (a) if
the executive does not voluntarily terminate employment prior to any
Business Combination Transaction as defined therein plus, if requested by
an acquiror, an additional transition period of up to 90 days, (b) if such
a Business Combination Transaction occurs before June 14, 1996, and (c) if
the executive's employment is terminated for any reason within 90 days
thereafter, each executive will be entitled to severance benefits in an
amount equal to one year's annual salary plus medical and dental benefits,
unused vacation time and any 1995 incentive compensation.
Directors' fees
Directors' fees are paid only to non-employee directors, who receive an
annual retainer of $12,500 and a fee of $700 (and necessary expenses) for
each Board or committee meeting attended. Each committee chairperson
receives $950 for each committee meeting held. Each non-employee director
receives an annual option at the fair market value at the date of grant
equal to his annual retainer divided by the fair value of a share on the
date of grant. Grants to directors were made in 1995, at market price on
the date of grant (2,041 shares each at $6.125 per share), to Messrs.
Burker, Dodson, Fischer, Howenstine, Sammond, and Secrist.
Item 12 Security ownership of certain beneficial owners and management
The following table sets forth information regarding the beneficial
ownership of Common Stock of Medalist as of January 8, 1996 by each of
Medalist's directors and executive officers, by all directors and executive
officers as a group, and by each person or entity believed by Medalist to
beneficially own more than five percent of Medalist's outstanding Common
Stock. Except as otherwise indicated, each listed person or entity has
sole voting and investment power for the shares listed, except for 26,398
shares, included in the total for Messrs. Gumm, O'Loughlin and Paprocki
and for all directors and executive officers, which is owned by the
Medalist Salaried Pension Trust for which these officers are trustees.
<TABLE>
<CAPTION>
Rights to Acquire Total Percent of
Directors and Executive Officers Position Beneficial Ownership Beneficially Owned Class
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
James S. Dahlke President, CEO 45,000 49,000 1.2
and Director
Harry S. Burker, Jr. Director 8,255 11,256 .3
James D. Dodson Director 2,934 105,434 2.7
Peter A. Fischer Director 8,256 24,556 .6
John B. Howenstine Director 8,256 68,256 1.8
John S. Sammond Director 10,549 17,549 .5
Roger E. Secrist Director 8,256 8,356 .2
Mark Train Director 0 0
John T. Paprocki Vice President 30,000 67,898 1.9
and CFO
James G. Gumm Vice President, 19,000 48,101 1.2
Administration
William C. O'Loughlin Vice President and 6,000 38,139 1.0
Corporate Secretary
All Directors and Executive 146,987 385,749 9.9
Officers as a Group (11 persons)
</TABLE>
21
<PAGE> 23
<TABLE>
<CAPTION>
Total Percent of
5% Beneficial Owners Beneficially Owned Class
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Heartland Advisors, Inc. 661,250 (1) 16.9
790 North Milwaukee St.
Milwaukee, WI 53202
State of Wisconsin Investment Board 377,800 (2) 9.7
P.O. Box 7842
Madison, WI 53707
Brinson Partners, Inc. 352,544 (3) 9.1
209 South LaSalle Stret
Chicago, IL 60604
</TABLE>
(1) As indicated in its amendment to Schedule 13G dated March 7, 1996,
Heartland Advisors, Inc. has sole dispositive power for 661,250
shares, including 46,400 shares issuable upon conversion of $870,000
of the Company's Debentures, and has sole voting power for 628,470
shares.
(2) As indicated in its amendment to Schedule 13G dated February, 1996,
State of Wisconsin Investment Board has sole voting and dispositive
power over 377,800 shares.
(3) As indicated in its amendment to Schedule 13G dated February 15,
1996, Brinson Partners, Inc. and its affiliates share voting and
dispositive power over 352,544 shares.
Item 13 Certain relationships and related transactions
Director John Sammond is a partner in Quarles and Brady, and Quarles and
Brady acts as counsel to the Company.
PART IV
Item 14 Exhibits, financial statement schedules and reports on Form 8-K
(a) 1. Financial statements
The financial statements listed in the accompanying index to
financial statements and financial statement schedule are filed as
a part of this annual report.
2. Financial statement schedules
The financial statement schedule listed in the accompanying index
to financial statements and financial statement schedule is filed
as a part of this annual report.
3. Exhibits
The exhibits listed in the accompanying index to exhibits are
filed as a part of this annual report.
(b) Reports on Form 8-K
None.
22
<PAGE> 24
MEDALIST INDUSTRIES, INC.
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
Item 14(a) (1) The following financial statements are included in Item 8:
<TABLE>
<CAPTION>
Form 10-K
Financial statements page number
-------------------- -----------
<S> <C>
Report of independent auditors 18
Balance sheet - December 31, 1995 and 1994 9
Statement of operations for the years ended
December 31, 1995, 1994, and 1993 8
Statement of cash flows for the years ended
December 31, 1995, 1994, and 1993 10
Notes to financial statements 11-18
Item 14(a) (2)
Financial statement schedule
Schedule II Valuation and qualifying accounts for each of the
three years in the period ended December 31, 1995
25
The following schedules are omitted as not applicable or not
required under rules of Regulation S-X: I, III, IV, V
</TABLE>
23
<PAGE> 25
Item 14 (a) (3) Exhibits
<TABLE>
<CAPTION>
Exhibit
number Description
------ ------------------------------------------------------------
<S> <C>
(3) (a) Restated Articles of Incorporation-June 15, 1990
(b) Bylaws as amended February 21, 1991
(c) Bylaws as amended February 21, 1995
(d) Bylaws as amended April 27, 1995.
(4) (a) Indenture dated as of July 1, 1986, between Medalist Industries and
the Marine Trust Company N.A., as trustee, relating to registrant's
7 1/2% Convertible Subordinated Debentures.
(b) Instruments defining the rights of security holders, including indentures: Registrant agrees to furnish
upon request a copy of any such instruments with respect to certain long-term debt where the amount of
securities outstanding thereunder does not exceed 10 percent of consolidated total assets.
(c) U.S. $40,000,000 Credit Agreement by and between Medalist Industries, Inc. and Harris Trust and Savings Bank,
dated January 29, 1993
(d) Fifth amendment to U.S. $40,000,000 Credit Agreement by and between Medalist Industries, Inc. and Harris Trust
and Savings Bank, dated December 29, 1995
(10) Material contracts:
(a) Description of Management Incentive Plans *
(b) Form of Indemnification Agreement entered into with all officers and directors
(c) Form of Severance Agreement *
(d) Medalist Industries, Inc. 1990 Stock Option Plan *
(e) Medalist Industries, Inc. 1994 Stock Option Plan *
(f) 1995 James S. Dahlke Employment Contract *
(g) Executive Officer Employment Contracts *
(11) Computation of earnings per share
(23) Consent of independent auditor
* Management contract on compensation plan required to be identified in compliance with Item
14(a) 3 of Form 10-K
</TABLE>
24
<PAGE> 26
Schedule II
MEDALIST INDUSTRIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
Balance at Acquired Charged
beginning (disposed) Charged FAS -109 against
Description of period balance to income adoption (2) allowance
----------- ---------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
1995 $ 1,229,000 $ 0 $ (161,000) $ 0 $ 364,000(1)
=========== ======== ========== ========= ==========
1994 $ 1,149,000 $ (91,000)(3) $ 361,000 $ 0 $ 190,000(1)
=========== ========= ========== ========= ==========
1993 $ 403,000 $ 0 $ 908,000 $ 0 $ 162,000(1)
=========== ========= ========== ========= ==========
Reserve for obsolescence:
1995 $ 3,382,000 $ 0 $2,340,000 $ 0 $1,716,000
=========== ========= ========== ========= ==========
1994 $ 2,870,000 $ (10,000)(3) $1,840,000 $ 0 $1,318,000
=========== ========= ========== ========= ==========
1993 $ 2,658,000 $ 0 $ 503,000 $ 281,000 $ 572,000
=========== ========= ========== ========= ==========
<CAPTION>
Balance
at end
Description of period
----------- ---------
<S> <C>
Allowance for doubtful account
1995 $ 704,000
===========
1994 $ 1,229,000
===========
1993 $ 1,149,000
===========
Reserve for obsolescence:
1995 $ 4,006,000
===========
1994 $3,382,000
==========
1993 $2,870,000
==========
</TABLE>
(1) Uncollectible accounts written-off, net of recoveries.
(2) Due to the adoption of FAS 109 in 1993, deferred tax benefits are no
longer netted against the related valuation account.
(3) Balances of product lines disposed of at date of sale.
25
<PAGE> 27
MEDALIST INDUSTRIES, INC.
INDEX TO EXHIBITS
Item 14 (a) (3)
<TABLE>
<CAPTION>
Exhibit Incorporated herein Form 10-K
number Description by reference to page number
------ ----------- ---------------------- -----------
<S> <C> <C> <C>
(3) (a) Restated Articles of Exhibit 3.4 to 10-Q for
Incorporation-June 15, 1990 quarter ended June 30, 1990
(b) Bylaws as amended Exhibit 28 to 10-Q for quarter
February 21, 1991 ended March 31, 1991
(c) Bylaws as amended Exhibit 3(c) to 10-K for year
February 21, 1995 ended December 31, 1994
(d) Bylaws as amended 28
April 27, 1995
(4) (a) Indenture dated as of July 1, Exhibit 4(c) to
1986, between Medalist Registration Statement
Industries and the Marine No. 33-6040
Trust Company N.A., as trustee,
relating to registrant's 7 1/2%
Convertible Subordinated
Debentures.
(b) Instruments defining the rights
of security holders, including
indentures: Registrant agrees to
furnish upon request a copy of
any such instruments with respect
certain long-term debt where the
amount of securities outstanding
thereunder does not exceed 10
percent of consolidated total
assets.
(c) U.S. $40,000,000 Credit Exhibit 4(c) to Form 10-K
Agreement by and between for 1992
Medalist Industries, Inc. and
Harris Trust and Savings Bank,
dated January 29, 1993 (incorporated
by reference)
(d) Fifth Amendment to U.S. $40,000,000 29 - 43
Credit Agreement by and between
Medalist Industries, Inc. and Harris Trust
and Savings Bank, dated December 29, 1995
(10) Material contracts:
a. Description of Management Exhibit 10(c) to Registration
Incentive Plans Statement No. 33-6040
</TABLE>
26
<PAGE> 28
MEDALIST INDUSTRIES, INC.
INDEX TO EXHIBITS
Item 14 (a) (3)
<TABLE>
<CAPTION>
Exhibit Incorporated herein Form 10-K
number Description by reference to page number
------ ----------- ---------------------- -----------
<S> <C> <C> <C>
b. Form of Indemnification Exhibit 10 to Form
Agreement entered into 10-K for 1986
with all officers and
directors
c. Form of Severance Exhibit 10(g) to Form
Agreement 10-K for 1987
d. Medalist Industries, Inc. Exhibit 10(o) to Form
1990 Stock Option Plan 10-K for 1989
e. Medalist Industries, Inc. Exhibit A to 1994 Annual Meeting
1994 Stock Option Plan Proxy Statement, dated
March 23, 1994
f. Employment and Non-Competition Exhibit 10.1 to Form 10-Q for
Agreement dated April 27, 1995 quarter ended June 30, 1995
between the Company and
James S. Dahlke
g. Executive Officers' Employment 44 - 49
Contracts
(11) Computation of earnings per share 50
(23) Consent of independent auditor 51
</TABLE>
27
<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this annual
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MEDALIST INDUSTRIES, INC.
By: /s/ James S. Dahlke /s/ John T. Paprocki
------------------------------------- --------------------
James S. Dahlke John T. Paprocki
President and Chief Executive Officer Vice President and Chief
Financial Officer
(and Principal Accounting
Officer)
Date: March 29, 1996
-----------------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints James S. Dahlke and John T. Paprocki,
and each of them, his true and lawful attorneys-in-fact and agents, for him and
in his name, place and stead in any and all capacities, to sign any and all
amendments to this report, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf of the
registrant and in the capacities indicated, as of March 29, 1996.
/s/ Harry S. Burker /s/ John B. Howenstine
---------------------------------- ----------------------------
Harry S. Burker, Director & Acting John B. Howenstine, Director
Chairman
/s/ James S. Dahlke /s/ John S. Sammond
---------------------------------- ----------------------------
James S. Dahlke, Director John S. Sammond, Director
/s/ James D. Dodson /s/ Roger E. Secrist
---------------------------------- ----------------------------
James D. Dodson, Director Roger E. Secrist, Director
/s/ Peter A. Fischer /s/ Mark Train
---------------------------------- ----------------------------
Peter A. Fischer, Director Mark Train, Director
<PAGE> 1
EXHIBIT 3 (d)
RESOLUTION OF THE BOARD OF DIRECTORS
OF
MEDALIST INDUSTRIES, INC.
I hereby certify that the following is a true and correct copy of a
resolution duly adopted by the Board of Directors at a meeting held on April
27, 1995, and that said resolution is in full force and effect on the date
hereof.
RESOLVED, that the second sentence of Section 3.01 of the
Company's Bylaws be revised to read as follows:
"The number of directors of the corporation shall be eight
(8) and shall be divided into three classes, as nearly equal
in number as possible."
FURTHER RESOLVED, that James S. Dahlke be and hereby is
appointed, effective May 15, 1995, to fill a vacancy on the
Board of Directors thus created, for a term expiring on the
date of the annual meeting of shareholders in 1998.
IN WITNESS WHEREOF, I hereunto set my hand and affix the seal of Medalist
Industries, Inc. on this 27th day of April, 1995.
MEDALIST INDUSTRIES, INC.
By:
______________________________
William C. O'Loughlin
Secretary
28
<PAGE> 1
EXHIBIT 4 (d)
MEDALIST INDUSTRIES INC.
FIFTH AMENDMENT TO CREDIT AGREEMENT
Harris Trust and Savings Bank
Chicago, Illinois
LaSalle National Bank
Milwaukee, Wisconsin
Bank One, Milwaukee, NA
Milwaukee, Wisconsin
Fleet Capital Corporation (formerly
known as Shawmut Capital Corporation)
successor by assignment from
Barclays Business Credit, Inc.
Waukesha, Wisconsin
Gentlemen:
Reference is hereby made to the Credit Agreement dated as of January
29, 1993 between Medalist Industries, Inc. (the "Company") and each of you (the
"Lenders") and Harris Trust and Savings Bank, as Agent for the Lenders (the
"Agent"), as amended by those certain First, Second, Third and Fourth
Amendments to Credit Agreement dated as of May 17, 1993, July 1, 1994, August
31, 1994 and January 17, 1995, respectively (such Credit Agreement as so
amended being referred to as the "Credit Agreement"). Capitalized terms used
herein without definition shall have the same meanings herein as they have in
the Credit Agreement.
The Company hereby applies to the Lenders to extend the availability
of the Revolving Credit from January 14, 1997 to January 14, 1998, to amend
certain of the financial covenants contained in the Credit Agreement to remove
LaSalle National Bank as a "Lender" under the Credit Agreement and to make
certain other amendments to the borrowing arrangements between us.
Accordingly, upon satisfaction of the conditions precedent to
effectiveness set forth below, this letter shall serve as an agreement between
the Lenders and the Company amending the Credit Agreement as hereinafter set
forth.
1. REMOVAL OF LaSALLE NATIONAL BANK.
Upon satisfaction of all of the conditions precedent set forth in
Section 5 hereof, LaSalle National Bank ("LaSalle") shall cease to be a Lender
under the Credit Agreement and shall have no rights or obligations (including
any Commitments) thereunder. The parties hereto consent to such termination
and agree that all references to the term "Lenders" in the Credit Agreement,
the Collateral Documents, or any note, instrument or other document related to
the Revolving Credit and/or the Term Credit shall no longer include LaSalle.
Upon the effectiveness hereof, LaSalle acknowledges that it shall not be
entitled to any benefits or rights granted under the Credit Agreement or under
any other loan document related thereto to which it and the Company are
parties, and LaSalle releases and forever discharges the Company from all
claims and causes of action that it may now have or ever had against the
Company arising out of or related to the Credit Agreement.
Concurrently with the effectiveness of this Amendment, the Company
hereby directs Harris Trust and Savings Bank, Bank One, Milwaukee, NA and Fleet
Captial Corporation (collectively, the "Remaining Lenders") to make, and the
Remaining Lenders each hereby agree to make, an additional loan to the Company
under the Term Credit in one advance on the date hereof, each such loan to be
in the amount of $826,666.66 (which represent each Lender's pro rata share of
the outstanding principal amount of the loans heretofore made by LaSalle under
Term Credit) and the Company agrees to apply the proceeds of such additional
loans to pay in full its Obligations to LaSalle under the Term Credit. The
additional loan made by each Lender under the Term Credit, as well as the
outstanding principal amount of all other loans heretofore made by such Lender
to the Company under the Term Credit, shall be evidenced by, and mature and
bear interest as set forth in, a Term Credit Note of the Company (individually
a "Term Credit Note" and collectively the "Term Credit Notes") in the form
(with appropriate insertions) attached hereto as Exhibit B-1, the Term Credit
Notes to be dated as of the date hereof. The Term Credit Notes
29
<PAGE> 2
shall be secured by the Collateral Documents. All references to the term "Term
Credit Notes" in the Credit Agreement or any other note, instrument or other
document shall be deemed a reference to the Term Credit Notes as defined in
this Amendment.
Concurrently with the effectiveness of this Amendment, the Company
hereby directs the Remaining Lenders to make, and the Remaining Lenders each
hereby agree to make, an additional Revolving Loan to the Company on the date
hereof, such Revolving Loan to be in the amount equal to each Lender's pro rata
share of the outstanding principal amount of the Revolving Loans heretofore
made by LaSalle and the Company agrees to apply the proceeds of such Revolving
Loans to pay in full its Obligations to LaSalle under the Revolving Credit.
Such additional Revolving Loan made by each Lender hereunder, as well as the
outstanding principal amount of all other Revolving Loans heretofore made by
such Lender to the Company under the Revolving Credit, shall be evidenced by,
and mature and bear interest as set forth in, a Revolving Credit Note of the
Company (individually a "Revolving Credit Note" and collectively the "Revolving
Credit Notes") in the form (with appropriate insertions) attached hereto as
Exhibit A-1, the Revolving Credit Notes to be dated as of the date hereof. The
Revolving Credit Notes shall be secured by the Collateral Documents. All
references to the term "Revolving Credit Notes" in the Credit Agreement or any
other note, instrument or other document shall be deemed a reference to the
Revolving Credit Notes as defined in this Amendment.
2. AMENDMENTS.
Upon the effectiveness of this Amendment as hereinafter set forth, the
Credit Agreement shall be and hereby is amended as follows:
(a) All references in the Credit Agreement to LaSalle (including
the signature page) shall be stricken.
(b) The amount and percentage of each Lender's Revolving Credit
Commitment set forth on the applicable signature page of the Credit Agreement
for each Lender is hereby amended and as so amended shall be in the amounts and
percentages set forth below:
AMOUNT AND PERCENTAGE OF
LENDER REVOLVING CREDIT COMMITMENT
Harris Trust and Savings Bank $9,200,000 (33-1/3%)
Fleet Capital Corporation $9,200,000 (33-1/3%)
Bank One, Milwaukee, NA $9,200,000 (33-1/3%)
(c) The amount and percentage of each Lender's Term Credit
Commitment set forth in Section 1.4 of the Credit Agreement for each Lender is
hereby amended and as so amended shall be in the amounts and percentages set
forth below:
AMOUNT AND PERCENTAGE OF
LENDER TERM CREDIT COMMITMENT
Harris Trust and Savings Bank $3,306,666.68 (33-1/3%)
Fleet Capital Corporation $3,306,666.66 (33-1/3%)
Bank One, Milwaukee, NA $3,306,666.66 (33-1/3%)
(d) The first sentence appearing after subsection (h) of Section
7.5 of the Credit Agreement is hereby amended and as so amended shall be
restated in its entirety to read as follows:
"Each monthly report required by Section 7.5(b) shall be accompanied
by a certificate in the form attached hereto as Exhibit G signed on
behalf of the Company by its Chairman, President or Chief Financial
Officer setting forth compliance in reasonable detail with Sections
7.6, 7.7, 7.9, 7.10 and 7.29 hereof and stating that no Default or
Event of Default exists hereunder as of the date of such certificate,
or if such Default or Event of Default exists the nature thereof shall
be specified."
(e) Section 7.7 of the Credit Agreement is hereby amended and as
so amended shall be restated in its entirety to read as follows:
"Section 7.7. Consolidated Tangible Net Worth. The Company will at
all times maintain a Consolidated Tangible Net Worth of not less than
the Required Amount. For purposes of this Section 7.7, the "Required
Amount" shall be equal to $12,750,000 from December 29, 1995 through
and including March 30, 1996 and
30
<PAGE> 3
shall increase by $700,000 as of the end of each fiscal quarter ending
thereafter (commencing with the fiscal quarter ending March 31,
1996)."
(f) Section 7.8 to the Credit Agreement is hereby amended and as
so amended shall be restated in its entirety to read as follows:
"Section 7.8. Intentionally Deleted"
(g) Section 7.9 of the Credit Agreement is hereby amended and as
so amended shall be restated in its entirety to read as follows:
"Section 7.9. Interest Coverage" The Company will, as of the last
day of each calendar month ending during each of the periods specified
below, maintain the ratio of (x) the Company's EBIT for the twelve
calendar months then ended to (y) the Company's Interest Expense for
the same such period, at not less:
<TABLE>
<CAPTION>
Interest Coverage
From and To and Ratio Shall Not Be
Including Including Less Than
--------- --------- ---------
<S> <C> <C>
12/29/95 02/29/96 1.25 to 1.0
03/01/95 06/30/96 1.50 to 1.0
07/01/95 All times 1.75 to 1.0
thereafter
</TABLE>
(h) Section 7.10 of the Credit Agreement is hereby amended and as
so amended shall be restated in its entirety to read as follows:
"Section 7.10. Leverage. The Company will at all times
maintain its Leverage Ratio at not more than 2.50 to 1.0."
(i) Section 7.11 of the Credit Agreement is hereby amended and as
so amended shall be restated in its entirety to read as follows:
"Section 7.11. Intentionally Deleted"
(j) The first sentence of Section 9.5 of the Credit Agreement is
hereby amended and as so amended shall be restated in its entirety to read as
follows:
"The "Applicable Margin" with respect to loans under the Revolving
Credit and the Term Credit and shall be as follows:
<TABLE>
<CAPTION>
Applicable
Margin for Applicable Margin Applicable
If the Average Domestic Rate for LIBOR Margin for Applicable Margin
Leverage Ratio Portion Under Portions Under Domestic Rate for LIBOR
for the Relevant Revolving Revolving Credit Portions Under Portions Under
Period is: Credit is: is: Term Credit is: Term Credit is:
<S> <C> <C> <C> <C>
Equal to or 1.00% 3.00% 1.50% 3.50%
greater than 2.5
to 1.0
Greater than 2.0 0.50% 2.50% 1.00% 3.00%
to 1.0 but less
than 2.5 to 1.0
Equal to or less 0.00% 2.00% 0.50% 2.50%
than 2.0 to 1.0
</TABLE>
31
<PAGE> 4
(k) Section 9.15 of the Credit Agreement is hereby amended and as
so amended shall be restated in its entirety to read as follows:
"Section 9.15. Intentionally Deleted"
(l) Section 9.29 of the Credit Agreement is hereby amended and as
so amended shall be restated in its entirety to read as follows:
"Section 9.29. Intentionally Deleted"
(m) Section 9.52 of the Credit Agreement is hereby amended and as
so amended shall be restated in its entirety to read as follows:
"Section 9.52. "Termination Date" shall mean January 14, 1998 or
such earlier date on which the Revolving Credit Commitments are
terminated in whole pursuant to Section 3.10, 8.2, or 8.3 hereof or
such later date to which the Revolving Credit Commitments are extended
pursuant to Section 11.15 hereof."
(n) Exhibit A to the Credit Agreement shall be amended and as so
amended shall be restated in its entirety to read as set forth in Exhibit A-1
to this Amendment.
(o) Exhibit B to the Credit Agreement shall be amended and as so
amended shall be restated in its entirety to read as set forth in Exhibit B-1
to this Amendment.
(p) Exhibit G to the Credit Agreement shall be amended and as so
amended shall be restated in its entirety to read as set forth in Exhibit G-1
to this Amendment.
3. REPRESENTATION REAFFIRMED.
In order to induce the Lenders to execute and deliver this Agreement,
the Company hereby represents to the Lenders that as of the date hereof and as
of the time that this Agreement becomes effective, each of the representations
and warranties by the Company set forth in Section 5 of the Credit Agreement
are and shall be true and correct (except that the representations contained in
Section 5.5 shall be deemed to refer to the most recent financial statements of
the Company delivered to the Agent pursuant to Section 7.5) and no Default or
Event of Default shall have occurred or be continuing.
4. ACKNOWLEDGEMENTS AND AGREEMENTS.
The Company agrees to furnish the Lenders on or before December 31,
1996 a business and financial plan for the Company for the 1997 fiscal year in
reasonable detail and in any event including projected balance sheets for each
of the following twelve months, projected cash flow for each of the following
twelve months (including details of cash disbursements and the Borrowing Base)
and a projected income statement for each of the following twelve months. The
Company acknowledges that either of the following shall constitute an Event of
Default under the Credit Agreement: (i) the Company's failure to furnish such
plan to the Lenders on or before December 31, 1996 or (ii) the failure of the
Company and the Lenders to agree on adjustments to the financial covenants set
forth in Sections 7.6, 7.7, 7.9 and 7.10 of the Credit Agreement for the 1997
fiscal year by December 31, 1996.
32
<PAGE> 5
5. CONDITIONS PRECEDENT.
The effectiveness of this Amendment is subject to the satisfaction of
all of the following conditions precedent:
(a) The Company, the Agent, the Remaining Lenders and LaSalle
shall have executed this Amendment.
(b) All amounts owing by the Company to LaSalle under the Credit
Agreement (including any amounts owing under Section 2.8 of the Credit
Agreement) shall have been paid in full.
(c) The Company shall have executed and delivered to each
Remaining Lender (i) a new Revolving Credit Note in the form (with appropriate
insertions) attached hereto as Exhibit A-1 and (ii) a new Term Credit Note in
the form (with appropriate insertions) attached hereto as Exhibit B-1.
(d) Legal matters incident to the execution and delivery of this
Amendment shall be satisfactory to the Agent, the Lenders and their respective
counsel.
(e) The Company shall be in compliance with the terms of the
Credit Agreement, as amended hereby, and the Collateral Documents and no
Default or Event of Default shall have occurred or be continuing.
(f) The Lenders shall have received copies (executed or certified,
as may be appropriate) of all legal documents or proceedings taken in
connection with the execution and delivery of this Amendment to the extent the
Lenders or their counsel may reasonably request.
6. MISCELLANEOUS
(a) The Company has heretofore executed and delivered to the
Collateral Agent that certain Security Agreement Re: Accounts Receivable,
General Intangibles, Inventory and Equipment dated as of January 29, 1993 (the
"Security Agreement") and the Company hereby acknowledges and agrees that,
notwithstanding the execution and delivery of this Amendment, the Security
Agreement remains in full force and effect and the rights and remedies of the
Collateral Agent thereunder, the obligations of the Company thereunder and the
liens and security interests created and provided for thereunder remain in full
force and effect and shall not be affected, impaired or discharged hereby.
Nothing herein contained shall in any manner affect or impair the priority of
the liens and security interests created and provided for by the Security
Agreement as to the indebtedness which would be secured thereby prior to giving
effect to this Amendment.
(b) Except as specifically amended hereby and as otherwise waived
in writing by the Lenders, all of the terms and conditions of the Credit
Agreement shall stand and remain unchanged and in full force and effect and the
execution and delivery of this Amendment shall not constitute a waiver of any
Default or Event of Default, existing under the Credit Agreement prior to the
effectiveness of this Amendment. No reference to this Amendment or to the
amendments herein contained need be made in any instrument or document at any
time referring to the Credit Agreement, a reference to the Credit Agreement in
any of such to be deemed to be a reference to the Credit Agreement as amended
hereby.
(c) This Amendment may be executed in counterparts and by separate
parties hereto on separate counterparts, each to constitute an original but all
but one and the same instrument. This Amendment shall be governed by the
internal laws of the State of Illinois (without regard to principles of
conflicts of law). Section headings in this Amendment are included for
convenience only and shall not constitute part of this Amendment for any other
purpose.
(d) The Company agrees to pay all out-of-pocket costs and expenses
incurred by the Lenders in connection with the preparation, execution and
delivery of this Amendment and the documents and transactions contemplated
hereby.
33
<PAGE> 6
Dated as of this 29th day of December, 1995.
MEDALIST INDUSTRIES INC.
By ______________________________
James A. Lathrop
Its Vice President and Treasurer
Accepted and agreed to as of the date last above written.
HARRIS TRUST AND SAVINGS BANK,
Individually and as Agent
By ______________________________
Its Vice President
FLEET CAPITAL CORPORATION
(formerly known as
Shawmut Capital Corporation)
successor by assignment from Barclays
Business Credit, Inc.
By ______________________________
Its __________________________
BANK ONE, MILWAUKEE, NA
By ______________________________
Its Vice President
LaSALLE NATIONAL BANK
By ______________________________
Its __________________________
34
<PAGE> 7
EXHIBIT TO THE FIFTH AMENDMENT TO CREDIT AGREEMENT
EXHIBIT A
MEDALIST INDUSTRIES, INC.
REVOLVING CREDIT NOTE
$9,200,000 Chicago, Illinois
December 29, 1995
On the Termination Date, for value received, the undersigned, Medalist
Industries, Inc., a Wisconsin corporation (the "Company"), hereby promises to
pay to the order of ______________________ (the "Lender"), at the principal
office of Harris Trust and Savings Bank in Chicago, Illinois, the principal sum
of (i) Nine Million Two Hundred Thousand Dollars ($9,200,000), or (ii) such
lesser amount as may at the time of the maturity hereof, whether by
acceleration or otherwise, be the aggregate unpaid principal amount of all
loans owing from the Company to the Lender under the Revolving Credit provided
for in the Credit Agreement hereinafter mentioned.
This Note evidences loans constituting part of a "Domestic Rate
Portion" and "LIBOR Portions" as such terms are defined in that certain Credit
Agreement dated as of January 29, 1993, as amended, by and between the Company,
Harris Trust and Savings Bank individually and as Agent and the other Lenders
which are now or may from time to time hereafter become parties thereto (the
"Credit Agreement") made and to be made to the Company by the Lender under the
Revolving Credit provided for under the Credit Agreement, and the Company
hereby promises to pay interest at the office specified above on each loan
evidenced hereby at the rates and times specified therefor in the Credit
Agreement.
Each loan made under the Revolving Credit provided for in the Credit
Agreement by the Lender to the Company against this Note, any repayment of
principal hereon, the status of each such loan from time to time as part of the
Domestic Rate Portion or a LIBOR Portion and the interest rates and interest
periods applicable thereto shall be endorsed by the holder hereof on the
reverse side of this Note or recorded on the books and records of the holder
hereof (provided that such entries shall be endorsed on the reverse side hereof
prior to any negotiation hereof) and the Company agrees that in any action or
proceeding instituted to collect or enforce collection of this Note, the
entries so endorsed on the reverse side hereof or recorded on the books and
records of the Lender shall be prima facie evidence of the unpaid balance of
this Note and the status of each loan from time to time as part of a Domestic
Rate Portion or a LIBOR Portion and the interest rates and interest periods
applicable thereto.
This Note is issued by the Company under the terms and provisions of
the Credit Agreement and is secured, inter alia, by certain security
agreements, mortgages, deeds of trust and other instruments and documents from
the Company, and this Note and the holder hereof are entitled to all of the
benefits and security provided for thereby or referred to therein, equally and
ratably with all other notes thereby secured, to which reference is hereby made
for a statement thereof. This Note may be declared to be, or be and become,
due prior to its expressed maturity upon the occurrence of an Event of Default
specified in the Credit Agreement, voluntary prepayments may be made hereon,
and certain prepayments are required to be made hereon, all in the events, on
the terms and with the effects provided in the Credit Agreement. All
capitalized terms used herein without definition shall have the same meanings
herein as such terms have in the Credit Agreement.
This Note is issued in substitution and replacement for, and evidences
in part the indebtedness previously evidenced by, that certain Revolving Credit
Note dated January 29, 1993 payable to the order of the Lender in the face
principal amount of $7,250,000.
This Note shall be construed in accordance with, and governed by, the
internal laws of the State of Illinois without regard to principles of conflict
of law.
All amounts payable under the terms of the Note shall be payable with
collection costs, including reasonable attorneys' fees, and without relief from
valuation and appraisement laws.
35
<PAGE> 8
The Company and any endorsers severally hereby waive demand,
presentment for payment and notice of nonpayment of this Note and each of them
hereby consents to any renewals or extensions of the time of payment of this
Note without notice.
MEDALIST INDUSTRIES, INC.
By __________________________________
Its Vice President and Treasurer
36
<PAGE> 9
EXHIBIT B-1 TO THE
FIFTH AMENDMENT TO CREDIT AGREEMENT
EXHIBIT B
MEDALIST INDUSTRIES, INC.
TERM CREDIT NOTE
$3,306,666.6____ December 29, 1995
FOR VALUE RECEIVED, the undersigned, Medalist Industries, Inc. a
Wisconsin corporation (the "Company"), promises to pay to the order of
______________________ (the "Lender"), at the principal office of Harris Trust
and Savings Bank in Chicago, Illinois, the principal sum of Three Million Three
Hundred Six Thousand Six Hundred Sixty-Six and 6___/00Dollars
($3,306,666.6___), in consecutive quarterly installments, commencing on
February 1, 1996 and continuing on the first day of each May, August, November
and February and occurring thereafter to and including the first day of the
calendar quarter occurring immediately prior to the Termination Date (as
defined in the Credit Agreement defined below) with such installments to each
be in the amount of $206.666.6___ and the last such installment to be in the
amount equal to the remaining unpaid principal amount hereunder and to be
payable on the Termination Date.
This Note evidences a loan constituting part of a "Domestic Rate
Portion" and "LIBOR Portions" as such terms are defined in that certain Credit
Agreement dated as of January 29, 1993, as amended, by and between the Company,
Harris Trust and Savings Bank individually and as Agent and the other Lenders
which are now or may from time to time hereafter become parties thereto (the
"Credit Agreement") made and to be made to the Company by the Lender under the
Term Credit provided for under the Credit Agreement, and the Company hereby
promises to pay interest at the office specified above on the loan evidenced
hereby at the rates and times specified therefor in the Credit Agreement.
The loan made under the Term Credit provided for in the Credit
Agreement by the Lender to the Company against this Note, any repayment of
principal hereon, the status of such loan from time to time as part of the
Domestic Rate Portion or a LIBOR Portion and the interest rates and interest
periods applicable thereto shall be endorsed by the holder hereof on the
reverse side of this Note or recorded on the books and records of the holder
hereof (provided that such entries shall be endorsed on the reverse side hereof
prior to any negotiation hereof) and the Company agrees that in any action or
proceeding instituted to collect or enforce collection of this Note, the
entries so endorsed on the reverse side hereof or recorded on the books and
records of the Lender shall be prima facie evidence of the unpaid balance of
this Note and the status of such loan from time to time as part of a Domestic
Rate Portion or a LIBOR Portion and the interest rates and interest periods
applicable thereto.
This Note is issued by the Company under the terms and provisions of
the Credit Agreement and is secured, inter alia, by certain security
agreements, mortgages, deeds of trust and other instruments and documents from
the Company, and this Note and the holder hereof are entitled to all of the
benefits and security provided for thereby or referred to therein, equally and
ratably with all other notes thereby secured, to which reference is hereby made
for a statement thereof. This Note may be declared to be, or be and become,
due prior to its expressed maturity upon the occurrence of an Event of Default
specified in the Credit Agreement, voluntary prepayments may be made hereon,
and certain prepayments are required to be made hereon, all in the events, on
the terms and with the effects provided in the Credit Agreement. All
capitalized terms used herein without definition shall have the same meanings
herein as such terms have in the Credit Agreement.
This Note is issued in substitution and replacement for, and evidences
in part the indebtedness previously evidenced by, that certain Term Credit Note
dated January 17, 1995 payable to the order of the Lender in the face principal
amount of $3,100,000.
This Note shall be construed in accordance with, and governed by, the
internal laws of the State of Illinois without regard to principles of conflict
of law.
All amounts payable under the terms of the Note shall be payable with
collection costs, including reasonable attorneys' fees, and without relief from
valuation and appraisement laws.
37
<PAGE> 10
The Company and any endorsers severally hereby waive demand,
presentment for payment and notice of nonpayment of this Note and each of them
hereby consents to any renewals or extensions of the time of payment of this
Note without notice.
MEDALIST INDUSTRIES, INC.
By __________________________________
Its Vice President and Treasurer
38
<PAGE> 11
EXHIBIT G-1 TO THE
FIFTH AMENDMENT TO CREDIT AGREEMENT
EXHIBIT G
MEDALIST INDUSTRIES, INC.
COMPLIANCE CERTIFICATE
For the Month Ending __________
To: Harris Trust and Savings Bank
as Agent under, and the Lenders
party to the Credit Agreement
described below
This Compliance Certificate is furnished to the Lenders pursuant to
the requirements of Section 7.5 of the Credit Agreement dated as of January 29,
1993, by and between Medalist Industries, Inc. (the "Company"), Harris Trust
and Savings Bank as agent thereunder (the "Agent") and the Lenders named
therein, as amended from time to time (the "Credit Agreement"). Unless
otherwise defined herein, the terms used in this Compliance Certificate have
the meanings ascribed thereto in the Credit Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly elected ______________ of the Company;
2. I have reviewed the terms of the Credit Agreement and I have
made, or have caused to be made under my supervision, a detailed review of the
transactions and conditions of the Company and the Subsidiaries during the
accounting period covered by the financial statements being furnished
concurrently with this Certificate;
3. The examinations described in paragraph 2 did not disclose,
and I have no knowledge of, the existence of any condition or the occurrence of
any event which constitutes a Default or an Event of Default at any time during
or at the end of the accounting period covered by the accompanying financial
statements or as of the date of this Certificate, except as set forth
immediately below;
4. The financial statements required by Section 7.5 of the Credit
Agreement and being furnished to you concurrently with this Certificate are
true, correct and complete as of the dates and for the periods covered thereby;
and
5. Schedule I attached hereto sets forth financial data and
computations evidencing the Company's compliance with certain covenants of the
Credit Agreement, all of which data and computations are true, complete and
correct and have been made in accordance with the relevant Sections of the
Credit Agreement.
Described below are the exceptions, if any, to paragraph 3 by listing,
in detail, the nature of the condition or event, the period during which it has
existed and the action which the Company has taken, is taking, or proposes to
take with respect to each such condition or event:
________________________________________________
________________________________________________
________________________________________________
________________________________________________
39
<PAGE> 12
The foregoing certifications, together with the computations set forth
in Schedule I attached hereto and the financial statements furnished
concurrently with this Certificate in support hereof, are made and delivered as
of this ______ day of _______________, 19___.
______________________________________________
______________________________________________
Title for the Company
______________________________________________
(Type or Print Name)
40
<PAGE> 13
SCHEDULE
MEDALIST INDUSTRIES, INC.
COMPLIANCE CALCULATIONS FOR JANUARY 29, 1993
CREDIT AGREEMENT
Calculations as of _______________, 19__A.
<TABLE>
<S> <C> <C>
A. Consolidated Current Ratio (Section 7.6)
1. Consolidated current assets _______________
2. Consolidated current liabilities _______________
3. Ratio of Line 1 to Line 2
("Consolidated Current Ratio") :1
================
4. Consolidated Current Ratio
must be in an amount not less than 1.75:1
================
5. Company is in compliance?
(Circle yes or no) Yes / No
================
B. Consolidated Tangible Net Worth (Section 7.7)
1. Consolidated total assets
Less
(a) Goodwill _______________
(b) Deferred charges _______________
(c) Other intangible assets _______________
2. Adjusted consolidated total assets
Line 1 minus Lines (a), (b) and (c) _______________
3. Consolidated total liabilities
and reserves (including all liabilities
included in Consolidated Total
Liabilities) _______________
4. Excess of Line 2 over Line 3
("Consolidated Tangible Net Worth") _______________
5. Required Amount as defined $____________________
</TABLE>
41
<PAGE> 14
<TABLE>
<S> <C> <C>
6. As listed in Section 7.7, for the
date of this Certificate, Consolidated
Tangible Net Worth (Line 4) must not be
less than the Required Amount (Line 5).
Company is in compliance? (Circle yes or no) Yes/No
===============
C. Interest Coverage (Section 7.9)
1. Consolidated Income From
Continuing Operations
as defined _______________
2. Amounts deducted in arriving
at Consolidated Income From
Continuing Operations
in respect of
(a) Interest Expense _______________
(b) Taxes imposed on or
measured by income or
excess profits _______________
3. Sum of Lines 1, 2(a) and
2(b) ("EBIT") _______________
4. Interest Expense _______________
5. Ratio of EBIT (Line 3)
to Interest Expense (Line 3)
("Interest Coverage Ratio") :1
===============
6. As listed in Section 7.9, for the
date of this Certificate, the Interest
Coverage Ratio shall not be less than :1
===============
7. Company is in compliance?
(Circle yes or no) Yes/No
===============
D. Leverage Ratio (Section 7.10)
1. Consolidated Total Liabilities
as defined _______________
2. Principal amount outstanding on the
Subordinated Indebtedness _______________
3. Line 1 less Line 2
("Adjusted Debt") $==============
4. Consolidated Tangible Net
Worth (from Line B4 above) _______________
5. Principal amount outstanding
on the Subordinated
Indebtedness _______________
6. Line 4 plus Line 5
("Adjusted Consolidated
</TABLE>
42
<PAGE> 15
<TABLE>
<S> <C> <C>
Tangible Net Worth") ===============
7. Ratio of Adjusted Debt (Line 3)
to Adjusted Consolidated
Tangible Net Worth (Line 6)
("Leverage Ratio") :1
===============
8. As listed in Section 7.10, for
the date of this Certificate,
the Leverage Ratio shall not
be greater than 2.5 to 1.0.
Company is in compliance?
(Circle yes or no) Yes / No
===============
E. Capital Expenditures (Section 7.29)
1. Capital Expenditures
as defined _______________
2. Capital Expenditures must
be no greater than $==============
3. Company is in compliance?
(Circle yes or no) Yes / No
===============
4. Consolidation Capital Expenditures
as defined $==============
5. Consolidation Capital Expenditures
must be no greater than $==============
6. Company is in compliance?
(Circle yes or no) Yes / No
===============
</TABLE>
43
<PAGE> 1
EXHIBIT 10 (g)
CONTINUING EMPLOYMENT AND SEVERANCE AGREEMENT
This agreement is made by and between Medalist Industries, Inc.
("Medalist" or the "Company") and John T. Paprocki ("Executive").
Background
The Company is participating or may participate in discussions that
could lead to a consolidation or merger of the Company, a transfer of all or
substantially all of its assets, or the aggregation of a controlling interest
of 51% or more of the common stock of the Company (a "Business Combination
Transaction") by an acquiror or group of related acquirors (an "Acquiror").
The Company desires to secure the continuing professional services of Executive
performed responsibly, cooperatively and in good faith in support of a
successful transaction, despite the uncertainties created by any possible
Business Combination Transaction. The Company also desires to ensure that the
Executive will receive reasonable severance benefits if he continues through
the date of any Business Combination Transaction and for an additional
reasonable transition period if requested by the Acquiror and then leaves the
employ of the Company and/or the Acquiror shortly thereafter.
Agreement
1. Conditional Promise of Severance Benefits. The Company hereby
agrees that if (a) Executive does not voluntarily terminate his employment with
the Company during the Term and prior to any Business Combination Transaction
plus, if requested by the Acquiror, an additional transition period of up to 90
days (the "Service Period") and is not terminated by the Company for cause, (b)
a Business Combination Transaction occurs during the Term, and (c) Executive's
employment is terminated by the Company without cause at any time during the
Term or by Executive for any reason at the end of the Service Period or at any
time within 90 days thereafter (a "Termination with Benefits"), Executive shall
be entitled to receive from the Company, upon execution and delivery of a
mutual and general release substantially in the form attached hereto as Exhibit
A, severance benefits in an amount equal to 12 months' salary, less any
applicable withholding. Such amount shall be payable by the Company in cash
within 15 days after a Termination with Benefits as provided herein. None of
the benefits payable under this Agreement shall be counted for purposes of any
other benefit program of the Company.
2. Term. The term of this agreement (the "Term") shall begin
December 14, 1995 and shall terminate June 14, 1996.
3. Unused Vacation Time. Any vacation earned for the period of
this Agreement but not yet taken by the Executive at the time of a Termination
with Benefits will be paid within 30 days.
4. Medical and Dental Benefits. In the event of a Termination
with Benefits as provided herein, Medalist will continue to cover executive and
his eligible dependents under the medical and dental portions of its Flexible
Benefits Plan for any period mandated by COBRA, provided that, for the lesser
of 12 months after the Termination with Benefits or until Executive receives
such coverage through other employment, such coverage shall be at not cost to
Executive.
5. 1995 Incentive Compensation. In the event of a Termination
with Benefits as provided herein, any earned or approved incentive compensation
for 1995, less any applicable withholding, shall be paid on the earlier of (a)
the date the cash severance benefits are payable as provided in Section 1
hereof or (b) the date 1995 incentive compensation is paid to other employees.
Executed at ___________________________ this ______ day of December, 1995.
MEDALIST INDUSTRIES, INC.
By: ______________________________
Name _________________________
Its __________________________
By: ______________________________
John T. Paprocki
44
<PAGE> 2
EXHIBIT A
TERMINATION AGREEMENT
AND MUTUAL RELEASE
WHEREAS, John T. Paprocki, ("Executive") has been employed by Medalist
Industries, Inc., a Wisconsin corporation ("Medalist"); and
WHEREAS, Executive is conditionally entitled to severance benefits
under that certain Continuing Employment and Severance Agreement dated December
_____, 1995 (the "Severance Agreement"); and
WHEREAS, Medalist and Executive desire to avoid any disputes or
proceedings with respect to Executive's employment and the termination thereof;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein set forth, Medalist and Executive agree as
follows:
3. Executive's termination as an employee shall be effective
________________________ (the "Termination Date"). The Executive agrees that
he or she will not apply for or seek employment with Medalist after the
Termination Date.
4. Executive shall be paid as settlement an amount equal to one
year's salary (the "Settlement Payment"), which shall be paid promptly upon the
expiration of the seven-day cancellation period set forth in Section 6 and
shall be made in respect of any and all claims.
5. Any vacation earned but not yet taken by the Executive will be
paid within 30 days.
6. Executive is not authorized after the Termination Date to incur
any expenses or obligations on behalf of Medalist or any of its subsidiaries.
Executive will immediately return all reports, files, memoranda, and records;
credit cards; door and file keys or passes; computer access cards; software; and
other tangible or intangible property which Executive has received or prepared
in connection with his employment and to take such other actions as may be
reasonably requested by Medalist in order to fulfill the terms of this
Agreement. Copies, duplicates or reproductions shall not be retained.
7. Executive hereby releases Medalist and its subsidiaries and
each of their stockholders, agents, directors, officers, employees and
attorneys, and Medalist hereby releases Executive, his personal representatives,
heirs, administrators and assigns from any and all claims, liabilities, damages
and causes of actions of any nature, known or unknown, arising out of the
Executive's employment by Medalist and the termination thereof through the date
of this Agreement.
This release includes any and all suits, charges, liability
and damages arising under the laws and regulations of the federal and state
governments, including the Age Discrimination in Employment Act of 1967, as
amended, and claims of wrongful discharge whether arising in tort or contract.
8. Executive has twenty one (21) days from the date hereof to
execute this Agreement (provided he has taken no actions inconsistent with the
provisions of this Agreement in the interim) and thereafter may, within seven
(7) calendar days following the date he executes this Agreement and returns it
to Medalist, cancel and terminate this Agreement by giving written notice of his
intent to terminate to Medalist, and this Agreement shall not become effective
or enforceable until this seven day period has expired. TIME IS OF THE ESSENCE
WITH REGARD TO THIS SECTION.
9. This Agreement and the Severance Agreement sets forth the
entire agreement between Executive and Medalist and fully supersede any and all
prior agreements between the parties except as provided above. Executive has
read this Agreement and has been advised to consult with legal counsel before
its execution. Executive fully understands the Agreement and has not relied
upon any representations of statements not set forth herein.
45
<PAGE> 3
Executed at _________________________ this ______ day of
_____________________, 1995.
MEDALIST INDUSTRIES, INC.
By: ______________________________
Name _________________________
Its __________________________
Executed at _________________________ this ______ day of
_____________________, 1995.
By: ______________________________
John T. Paprocki
46
<PAGE> 4
CONTINUING EMPLOYMENT AND SEVERANCE AGREEMENT
This agreement is made by and between Medalist Industries, Inc.
("Medalist" or the "Company") and James G. Gumm ("Executive").
Background
The Company is participating or may participate in discussions that
could lead to a consolidation or merger of the Company, a transfer of all or
substantially all of its assets, or the aggregation of a controlling interest
of 51% or more of the common stock of the Company (a "Business Combination
Transaction") by an acquiror or group of related acquirors (an "Acquiror").
The Company desires to secure the continuing professional services of Executive
performed responsibly, cooperatively and in good faith in support of a
successful transaction, despite the uncertainties created by any possible
Business Combination Transaction. The Company also desires to ensure that the
Executive will receive reasonable severance benefits if he continues through
the date of any Business Combination Transaction and for an additional
reasonable transition period if requested by the Acquiror and then leaves the
employ of the Company and/or the Acquiror shortly thereafter.
Agreement
1. Conditional Promise of Severance Benefits. The Company hereby
agrees that if (a) Executive does not voluntarily terminate his employment with
the Company during the Term and prior to any Business Combination Transaction
plus, if requested by the Acquiror, an additional transition period of up to 90
days (the "Service Period") and is not terminated by the Company for cause, (b)
a Business Combination Transaction occurs during the Term, and (c) Executive's
employment is terminated by the Company without cause at any time during the
Term or by Executive for any reason at the end of the Service Period or at any
time within 90 days thereafter (a "Termination with Benefits"), Executive shall
be entitled to receive from the Company, upon execution and delivery of a
mutual and general release substantially in the form attached hereto as Exhibit
A, severance benefits in an amount equal to 12 months' salary, less any
applicable withholding. Such amount shall be payable by the Company in cash
within 15 days after a Termination with Benefits as provided herein. None of
the benefits payable under this Agreement shall be counted for purposes of any
other benefit program of the Company.
2. Term. The term of this agreement (the "Term") shall begin
December 14, 1995 and shall terminate June 14, 1996.
3. Unused Vacation Time. Any vacation earned for the period of
this Agreement but not yet taken by the Executive at the time of a Termination
with Benefits will be paid within 30 days.
4. Medical and Dental Benefits. In the event of a Termination
with Benefits as provided herein, Medalist will continue to cover executive and
his eligible dependents under the medical and dental portions of its Flexible
Benefits Plan for any period mandated by COBRA, provided that, for the lesser
of 12 months after the Termination with Benefits or until Executive receives
such coverage through other employment, such coverage shall be at not cost to
Executive.
5. 1995 Incentive Compensation. In the event of a Termination
with Benefits as provided herein, any earned or approved incentive compensation
for 1995, less any applicable withholding, shall be paid on the earlier of (a)
the date the cash severance benefits are payable as provided in Section 1
hereof or (b) the date 1995 incentive compensation is paid to other employees.
Executed at ___________________________ this ______ day of December, 1995.
MEDALIST INDUSTRIES, INC.
By: ______________________________
Name _________________________
Its __________________________
By: ______________________________
James G. Gumm
47
<PAGE> 5
EXHIBIT A
TERMINATION AGREEMENT
AND MUTUAL RELEASE
WHEREAS, James G. Gumm ("Executive") has been employed by Medalist
Industries, Inc., a Wisconsin corporation ("Medalist"); and
WHEREAS, Executive is conditionally entitled to severance benefits
under that certain Continuing Employment and Severance Agreement dated December
_____, 1995 (the "Severance Agreement"); and
WHEREAS, Medalist and Executive desire to avoid any disputes or
proceedings with respect to Executive's employment and the termination thereof;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein set forth, Medalist and Executive agree as
follows:
3. Executive's termination as an employee shall be effective
________________________ (the "Termination Date"). The Executive agrees that
he or she will not apply for or seek employment with Medalist after the
Termination Date.
4. Executive shall be paid as settlement an amount equal to one
year's salary (the "Settlement Payment"), which shall be paid promptly upon the
expiration of the seven-day cancellation period set forth in Section 6 and
shall be made in respect of any and all claims.
5. Any vacation earned but not yet taken by the Executive will be
paid within 30 days.
6. Executive is not authorized after the Termination Date to incur
any expenses or obligations on behalf of Medalist or any of its subsidiaries.
Executive will immediately return all reports, files, memoranda, and records;
credit cards; door and file keys or passes; computer access cards; software; and
other tangible or intangible property which Executive has received or prepared
in connection with his employment and to take such other actions as may be
reasonably requested by Medalist in order to fulfill the terms of this
Agreement. Copies, duplicates or reproductions shall not be retained.
7. Executive hereby releases Medalist and its subsidiaries and
each of their stockholders, agents, directors, officers, employees and
attorneys, and Medalist hereby releases Executive, his personal
representatives, heirs, administrators and assigns from any and all claims,
liabilities, damages and causes of actions of any nature, known or unknown,
arising out of the Executive's employment by Medalist and the termination
thereof through the date of this Agreement.
This release includes any and all suits, charges, liability and
damages arising under the laws and regulations of the federal and state
governments, including the Age Discrimination in Employment Act of 1967, as
amended, and claims of wrongful discharge whether arising in tort or contract.
8. Executive has twenty one (21) days from the date hereof to
execute this Agreement (provided he has taken no actions inconsistent with the
provisions of this Agreement in the interim) and thereafter may, within seven
(7) calendar days following the date he executes this Agreement and returns it
to Medalist, cancel and terminate this Agreement by giving written notice of
his intent to terminate to Medalist, and this Agreement shall not become
effective or enforceable until this seven day period has expired. TIME IS OF
THE ESSENCE WITH REGARD TO THIS SECTION.
9. This Agreement and the Severance Agreement sets forth the
entire agreement between Executive and Medalist and fully supersede any and all
prior agreements between the parties except as provided above. Executive has
read this Agreement and has been advised to consult with legal counsel before
its execution. Executive fully understands the Agreement and has not relied
upon any representations of statements not set forth herein.
48
<PAGE> 6
Executed at _________________________ this ______ day of
_____________________, 1995.
MEDALIST INDUSTRIES, INC.
By: ______________________________
Name _________________________
Its __________________________
Executed at _________________________ this ______ day of
_____________________, 1995.
By: ______________________________
James G. Gumm
49
<PAGE> 1
MEDALIST INDUSTRIES, INC.
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
Years ended December 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------- --------------------------- ------------------------
Earnings Earnings
Earnings
Shares ($/1000) Shares ($/1000) Shares ($/1000)
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Primary
Average shares outstanding 3,862,353 3,823,892 3,812,430
Net income $ 1,729 $ 69 $ 6,439
Assumed issuance of stock upon the
exercise of stock options 2,556 0 17,405 0 54,825 0
--------- ------------- --------- ----------- --------- ---------
Basis of primary computation 3,864,909 $ 1,729 3,841,297 $ 69 3,867,255 $ 6,439
========= ============= ========= =========== ========= =========
Earnings per share $ .45 $ .02 $ 1.67
============= =========== =========
Fully diluted
Average shares outstanding 3,862,353 3,823,892 3,812,430
Net income $ 1,729 $ 69 $ 6,439
Assumed issuance of stock upon the
exercise of stock options 2,556 0 17,405 0 96,1070
Assumed issuance of common stock up
conversion of Convertible Subordi
Debentures and the elimination of
after-tax interest expense 0 0 0 0 476,107 670
--------- ------------- --------- ----------- --------- ---------
Basis of fully-diluted computation 3,864,909 $ 1,729 3,841,297 $ 69 4,384,644 $ 7,109
========= ============= ========= =========== ========= =========
Earnings per share $ .45 $ .02 $ 1.62
============= =========== =========
</TABLE>
50
<PAGE> 1
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITOR
We consent to the incorporation by reference in the Registration Statement
(Form S-8) pertaining to the Medalist Industries, Inc. 1990 Stock Option Plan,
the Registration Statement (Form S-8) pertaining to the Medalist Employees'
Retirement and Investment Plan, and the Registration Statement (Form S-8)
pertaining to the Medalist Industries, Inc. 1994 Stock Option Plan of our
report dated February 2, 1996, with respect to the financial statements and
schedule of Medalist Industries, Inc. included in the Annual Report (Form 10-K)
for the year ended December 31, 1995.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
March 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 434
<SECURITIES> 0
<RECEIVABLES> 14,997
<ALLOWANCES> 704
<INVENTORY> 29,030
<CURRENT-ASSETS> 47,233
<PP&E> 27,603
<DEPRECIATION> 13,205
<TOTAL-ASSETS> 87,987
<CURRENT-LIABILITIES> 19,689
<BONDS> 7,242
0
0
<COMMON> 3,881
<OTHER-SE> 27,807
<TOTAL-LIABILITY-AND-EQUITY> 87,987
<SALES> 126,016
<TOTAL-REVENUES> 126,016
<CGS> 93,476
<TOTAL-COSTS> 26,788
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,948
<INCOME-PRETAX> 1,804
<INCOME-TAX> 75
<INCOME-CONTINUING> 1,729
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,729
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
</TABLE>
