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<PAGE>1=======================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission File Number 33-63274
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CHATWINS GROUP, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 74-2156829
- ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
300 WEYMAN PLAZA, SUITE 340
PITTSBURGH, PENNSYLVANIA 15236
------------------------------------------------------------
(Address of principal executive offices, including zip code)
(412) 885-5501
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or 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
----- -----
At October 31, 1996, 242,887 shares of common stock, par value $.01 per share,
were outstanding.
Exhibit index is on page 18.
Page 1 of 31 pages.
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<PAGE>2 CHATWINS GROUP, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet at
September 30, 1996 and December 31, 1995 3
Condensed Consolidated Statement of Income for the
three and nine months ended September 30, 1996 and 1995 4
Condensed Consolidated Statement of Cash Flows for
the nine months ended September 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits 16
(b) Reports on Form 8-K 16
SIGNATURES 17
<PAGE>
<PAGE>3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE><CAPTION> CHATWINS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
AT SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(in thousands)
At September 30, At December 31,
1996 1995
----------- --------------
(unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 460 $ 357
Receivables, net 24,812 29,958
Inventories, net (note 2) 20,829 19,487
Other current assets 3,495 4,556
-------- --------
Total current assets 49,596 54,358
Property, plant and equipment, net 28,997 26,385
Amounts due from related parties - 3,523
Investments, net 13,447 13,209
Goodwill, net 4,915 5,015
Other assets, net 5,588 4,846
-------- --------
Total assets $102,543 $107,336
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current maturities of debt $ 504 $ 148
Trade payables 11,913 16,175
Amount due to related parties 956 2,924
Other current liabilities 11,197 9,179
-------- --------
Total current liabilities 24,570 28,426
Revolving Credit Facility 20,857 23,147
Senior notes due 2003, net 49,870 49,852
Other long-term debt 870 1,018
Other liabilities 4,613 4,713
-------- --------
Total liabilities 100,780 107,156
Commitments and contingent liabilities (note 5) - -
Minority interests 1,124 -
Redeemable preferred stock 7,456 7,114
Warrant value 210 210
Stockholders' equity (note 3) (7,027) (7,144)
-------- --------
Total liabilities and stockholders' equity $102,543 $107,336
======== ========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<PAGE>4
<TABLE><CAPTION> CHATWINS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(in thousands, except share and per share information)(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net sales $36,560 $44,305 $114,526 $138,553
Cost of sales 29,367 35,456 91,405 110,439
------- ------- -------- --------
Gross profit 7,193 8,849 23,121 28,114
Selling, general & administrative 4,931 5,550 15,159 16,311
Other expense (income), net 122 (1,075) 697 (393)
------- ------- -------- --------
Operating profit 2,140 4,374 7,265 12,196
Interest expense, net 2,400 2,633 7,158 7,448
------- ------- -------- --------
Income before income taxes and
equity in income of affiliate (260) 1,741 107 4,748
Provision for income taxes (52) 265 13 957
------- ------- -------- --------
Income before equity in income
of affiliate (208) 1,476 94 3,791
Equity loss from continuing
operations of affiliate (20) (220) (220) (220)
Equity income from discontinued
operations of affiliate - - 428 -
------- ------- -------- --------
Net income (loss) $ (228) $ 1,256 $ 302 $ 3,571
======= ======= ======== ========
Earnings applicable to common stock $ (342) $ 1,142 $ (40) $ 3,229
======= ======= ======== ========
Earnings (loss) per common share:
Before equity in income of affiliate $ (1.10) $ 4.65 $ (0.85) $ 11.77
Continuing operations of affiliate (0.07) (0.75) (0.75) (0.75)
Discontinued operations of affiliate - - 1.46 -
------- ------- -------- --------
Earnings (loss) per common share $ (1.17) $ 3.90 $ (0.14) $ 11.02
======= ======= ======== ========
Average equivalent common
shares outstanding 292,887 292,887 292,887 292,887
======= ======= ======== ========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<PAGE>5
<TABLE><CAPTION> CHATWINS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(in thousands)(unaudited)
Nine Months Ended
September 30,
1996 1995*
------- -------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 302 $ 3,571
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 2,379 2,555
Amortization 750 804
Gain on sale of business - (1,190)
Equity income (loss) from affiliate (208) 220
Changes in assets, liabilities
and minority interests 1,199 (1,609)
------- -------
Cash provided by operating activities 4,422 4,351
------- -------
Cash flow from investing activities:
Receipts from related parties 3,664 -
Proceeds from sale of business - 3,107
Investment in joint venture (150) -
Equity investment - (6,671)
Capital expenditures (3,175) (4,295)
------- -------
Cash provided by (used in) investing activities 339 (7,859)
------- -------
Cash flow from financing activities:
Repayments of debt (48) (1,750)
Repayments to related parties (2,320) (3,107)
Net borrowings (repayments) under revolver (2,290) 8,124
------- -------
Cash provided by (used in) financing activities (4,658) 3,267
------- -------
Net increase (decrease) in cash and cash equivalents 103 (241)
Cash and cash equivalents, beginning of year 357 445
------- -------
Cash and cash equivalents, end of period $ 460 $ 204
======= =======
Noncash investing and financing activities:
Equity investment and related increases in note
payable and other long-term debt $ - $ 6,000
======= =======
* Certain amounts have been reclassified for comparative purposes.
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<PAGE>6
CHATWINS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all normal recurring
adjustments considered necessary for a fair statement of the results of
operations have been included. The results of operations for the three and
nine month periods ended September 30, 1996 are not necessarily indicative of
the results of operations for the full year. When reading the financial
information contained in this Quarterly Report, reference should be made to
the financial statements, schedules and notes contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.
NOTE 2: INVENTORIES
<TABLE>
Inventories are comprised of the following (in thousands):
At September 30, At December 31,
1996 1995*
--------------- --------------
(unaudited)
<S> <C> <C>
Raw materials $ 9,746 $10,918
Work-in-process 9,069 6,876
Finished goods 2,929 2,608
------- -------
Total inventories 21,744 20,402
Less: LIFO reserves (915) (915)
------- -------
Inventories, net $20,829 $19,487
======= =======
* Certain amounts have been reclassified for comparative purposes.
</TABLE>
<PAGE>
<PAGE>7
NOTE 3: STOCKHOLDERS' EQUITY
<TABLE>
The following represents a reconciliation of the change in stockholders'
equity for the nine month period ended September 30, 1996 (in thousands):
Par Capital Accum-
Value in ulated
of Trea- Excess Notes Accum- Trans-
Common sury of Par Receiv- ulated lation
Stock Stock Value able Deficit Adjmt. Total
------ ----- ------- ------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
At January 1,
1996 $ 3 $(500) $1,664 $(1,001) $ (6,891) $(419) $ (7,144)
Activity
(unaudited):
Net income - - - - 302 - 302
Preferred stock
accretions - - - - (342) - (342)
Translation
adjustment - - - - - 157 157
--- ----- ------ ------- -------- ----- --------
At September 30,
1996 $ 3 $(500) $1,664 $(1,001) $ (6,931) $(262) $ (7,027)
=== ===== ====== ======= ======== ===== ========
</TABLE>
Earnings per share amounts are based on the weighted average equivalent
number of shares of common stock outstanding during the period. In
calculating earnings (loss) per common share, income before income taxes has
been adjusted for dividends earned on preferred stock for the three and nine
month periods ended September 30, 1996 and 1995 of $114,000 and $342,000,
respectively.
NOTE 4: RELATED PARTY TRANSACTIONS
The Company has a consulting agreement with Stanwich Partners, Inc. under
which $75,000 and $225,000 were recorded as expense in each of the three and
nine month periods ended September 30, 1996 and 1995, respectively.
In May 1996, Reunion Industries, Inc. (Reunion) paid the Company $3.7
million in cash in final repayment, including interest, of the Oneida Advances
(as defined herein). The Company holds 38% of the outstanding common stock of
Reunion. Charles E. Bradley, Sr. (Mr. Bradley), Chairman of the Board of the
Company, is Reunion's President and Chief Executive Officer.
Contemporaneously with the $3.7 million cash payment received from Reunion,
the Company paid $1.7 million to Mr. Bradley in partial repayment, including
interest, of the Parkdale Note (as defined herein). During 1996, the Company
made payments totalling $2.2 million to Mr. Bradley in partial repayment of
the Parkdale Note, including interest thereon.
On January 6 and June 6, 1996, the Company made principal repayments of
$50,000 each, plus interest, of the Gesterkamp Note (as defined herein). The
Gesterkamp Note is owned by Mr. Franklin Myers, a director of Reunion.
<PAGE>
<PAGE>8
NOTE 5: COMMITMENTS AND CONTINGENT LIABILITIES
The Company is involved in various litigation matters in the ordinary
course of business. In management's opinion, settlement of these and other
contingent matters will have no material effect on the Company's financial
position. The Company has no adverse commitments at September 30, 1996.
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
Through September 14, 1995, the Company's organizational structure
included six divisions that design, manufacture and market metal products, a
wholly-owned subsidiary that manufactured high volume, precision plastic
products and provided engineered plastic services, an oil and gas division and
an equity investment in Reunion Industries, Inc. (Reunion), formerly Reunion
Resources Company. In 1995, the combined operations of the six metal
manufacturing divisions accounted for approximately 85% of the Company's net
sales and approximately 91% of the Company's operating income before corporate
office expenses. As discussed below, several significant changes to the
Company's structure transpired in 1995.
On June 20, 1995, the Company acquired 1,450,000 shares (Reunion Common
Stock), or approximately 38%, of the issued and outstanding shares of common
stock of Reunion from Parkdale Holdings Corporation N.V. (Parkdale), and
purchased 75,000 warrants to purchase shares of Reunion common stock from P.
Dean Gesterkamp (Gesterkamp Warrants) (such transactions collectively referred
to herein as the "Chatwins Acquisition"). The aggregate purchase price
consisted of $5.8 million paid in cash and a $5.8 million promissory note
issued to Parkdale (Parkdale Note), and $0.3 million paid in cash and a $0.2
million two-year promissory note issued to P. Dean Gesterkamp (Gesterkamp
Note). Subsequent to its acquisition of Oneida Molded Plastics Corp. (Oneida)
on September 14, 1995 (see below), Reunion is primarily engaged in the
manufacture of high volume, precision plastics products and providing
engineered plastics services. Additionally, with the merger of Oneida and
Rostone, Inc. (Rostone) (see below), Reunion also compounds and molds
thermoset polyester resins. Reunion also has real estate development and wine
grape agricultural operations in Napa County, California. Reunion was also
engaged in producing and selling crude oil and natural gas in the United
States until May 24, 1996, when Reunion sold substantially all of its oil and
gas assets to a Houston-based corporation for approximately $8.0 million in
cash and a $2.2 million note. Of the $8.0 million in cash proceeds, Reunion
used approximately $5.1 million to pay in full related-party indebtedness,
which included $1.4 million owed to Charles E. Bradley, Sr. (Mr. Bradley),
Reuniuon's President and Chief Executive Officer and Chairman of the Board of
the Company, and $3.7 million owed to the Company as a result of the
acquisition of Oneida by Reunion. The Company's investment in Reunion is
being accounted for under the equity method of accounting. The Company's
proportional share of Reunion's operating results is included in the
accompanying condensed consolidated statement of income for the three and nine
month periods ended September 30, 1996 as equity income (loss) from operations
of affiliate. See "Results of Operations" and "Liquidity and Capital
Resources."
<PAGE>
<PAGE>9
On September 14, 1995 (Sale Date), the Company, through its wholly-owned
subsidiary, Chatwins Holdings, Inc. (CHI), sold its holdings of all of the
issued and outstanding shares of common stock and preferred stock of Oneida to
Reunion, 38% of the common stock of which is owned by the Company. Oneida was
a wholly-owned subsidiary of the Company which manufactured high volume,
precision plastic products and provided engineered plastic services. The
total purchase price received by the Company was $3.1 million in cash.
Through August 31, 1995, the Company had made advances to Oneida
totalling $4.9 million (Oneida Advances). The liabilities of Oneida upon its
sale to Reunion included the Oneida Advances. In November 1995, the Company
received $1.6 million in cash from Reunion in partial repayment, including
interest from September 1, 1995, of the Oneida Advances. In May 1996, Reunion
paid the Company $3.7 million in cash in final repayment, including interest
from November 1995, of the Oneida Advances. See below and "Liquidity and
Capital Resources."
The Company owns 49% of a holding company, CGI Investment Corporation
(CGII), which owned 100% of the outstanding preferred stock and approximately
94% of the fully diluted common stock of Rostone. On February 2, 1996, CGII
acquired the minority interest in Rostone's common stock it did not already
own. Rostone compounds and molds thermoplastic polyester resin (bulk and
sheet molding compound) primarily for the electrical distribution market and
business machine market. On December 22, 1995, Rostone and Oneida entered
into a merger agreement (Merger Agreement) whereby Rostone was subsequently
merged into Oneida, which is owned by Reunion, and, as the surviving
corporation, Oneida's name was changed to Oneida Rostone Corp. (ORC). In the
merger, ORC purchased all of the issued and outstanding preferred and common
stock of Rostone. See "Liquidity and Capital Resources."
In December 1995, the Company entered into a joint venture agreement with
China Metallurgical Import & Export Shanghai Company (CMIESC) and Wanggang
Township Economic Development Corporation (Wanggang) to form the Shanghai
Klemp Metal Products Co., Ltd. (Shanghai Klemp). The joint venture will
provide metal grating to the expanding construction industries in China and
nearby countries. See "Liquidity and Capital Resources."
During 1996, the Company's Mexican subsidiary, Klemp de Mexico, entered
into a joint venture agreement with Consolidated Fabricators, Inc., a
Massachusetts company, to form CFI-Klemp de Mexico (CFI), a Mexican
corporation. CFI is in the business of metal fabrications. See "Results of
Operations."
Results of Operations
Nine Months Ended September 30, 1996 Compared to
Nine Months Ended September 30, 1995
Net sales for the first nine months of 1996 totalled $114.5 million,
compared to $138.6 million for the first nine months of 1995. Sales for the
first nine months of 1995 included $26.2 million from Oneida, which was sold
in September 1995. Excluding Oneida's sales, sales for the first nine months
of 1996 increased $2.2 million, or 2%, over the first nine months of 1995.
The increase in sales is primarily due to $1.9 million of increased sales at
each of CPI and Hanna and a $1.5 million increase at the Company's Mexican
subsidiary offset by decreases of $2.5 million at Auto-Lok and $0.8 millon at <PAGE>
<PAGE>10
Alliance. The increase at CPI is primarily due to increased international
marketing efforts, which has resulted in a continued expansion into foreign
markets. The increase at Hanna is also due to increased marketing efforts
resulting in higher volumes while the increase at the Mexican subsidiary is
primarily due to a slightly improved Mexican economy as well as the
consolidation during 1996 of Klemp de Mexico's 50.1% investment in CFI. The
decrease in sales at Auto-Lok and Alliance was primarily due to a soft markets
and competition which held down orders in the first seven months of 1996.
Orders increased in August 1996 at Auto-Lok and Alliance, and consolidated
orders for the month of September 1996 totalled $27.2 million, the highest
order level in Company history, resulting in a total-Company backlog at
September 30, 1996 of $57.9 million, its highest level since month-end
September 1995.
Gross profit for the first nine months of 1996 was $23.1 million,
compared to $28.1 million for the first nine months of 1995. Gross profit for
the first nine months of 1995 included $4.6 million from Oneida. Excluding
Oneida's year-to-date 1995 gross profit, year-to-date 1996 gross profit
decreased $0.4 million, or nearly 2%. Profit margin decreased to 20.2% in the
first nine months of 1996, compared to 20.9% in the comparable 1995 period,
excluding the gross profit and sales of Oneida. Gross profit in the first
nine months of 1996 compared to the first nine months of 1995 improved at the
CPI and Klemp divisions and the Company's Klemp de Mexico subsidiary. Profit
margin increased at Klemp, but either remained flat or decreased at the other
divisions of the Company. The improvements in gross profit and margin at
Klemp were primarily due to productivity efficiencies resulting in higher
favorable variances in the first nine months of 1996. The increases in gross
profit at CPI and Klemp de Mexico were primarily due to higher volumes. The
decreases at Auto-Lok were primarily due to lower volume as a result of a
softening in the markets for Auto-Lok's products. The decreases at Alliance
were primarily due to a decline in third quarter volume as well as a change in
product mix from higher margin fabrication sales to lower margin engineered
products caused by a change in customer demand. The decreases at Steelcraft
were primarily due to unfavorable labor and overhead variances. Hanna's
profit margin was affected by competitive pressures in the hydraulic cylinder
industry which resulted in sales price compression and a change in product mix
to lower margin specialty cylinders caused by a change in customer demand, in
addition to manufacturing inefficiencies caused by the harsh weather
conditions in the midwest during the first quarter of 1996.
Selling, general and administrative (SGA) expenses for the first nine
months of 1996 were $15.2 million, compared to $16.3 million for the first
nine months of 1995. SGA expenses for the first nine months of 1995 included
$2.5 million from Oneida. Excluding Oneida's SGA expenses, year-to-date 1996
SGA expenses increased $1.4 million compared to year-to-date 1995. SGA
expenses as a percentage of sales, excluding the SGA expenses and sales of
Oneida, increased to 13% in the first nine months of 1996 compared to 12% in
the 1995 first nine months. The increase in SGA expenses primarily relates to
additional expenses incurred in connection with increased marketing and sales
efforts, both domestically and internationally.
Other expense for the first nine months of 1996 was $0.7 million,
compared to other income of $0.4 million for the first nine months of 1995.
Other income for the first nine months of 1995 included a $1.2 million gain on
the sale of Oneida. Excluding this gain, the first nine months of 1995 had
other expenses totalling $0.8 million. Other expenses for the first nine
months of 1995 included approximately $0.2 million related to the devaluation <PAGE>
<PAGE>11
of the Mexican Peso during 1995, which resulted in foreign currency
transaction losses at the Company's Mexican subsidiary. Such losses did not
recur in the first nine months of 1996.
Interest expense, net, for the first nine months of 1996 was $7.2
million, which was approximately $0.3 million less than interest expense, net,
for the first nine months of 1995. Interest expense for the first nine months
of 1995 included $0.6 million related to Oneida. Excluding Oneida's interest
expense, year-to-date 1996 interest expense increased $0.3 million over year-
to-date 1995. The increase is primarily due to a higher level of debt during
the first nine months of 1996 as a result of the Chatwins Acquisition.
There was a tax provision of less than $0.1 million in the first nine
months of 1996, compared to a tax provision of almost $1.0 million in the
first nine months of 1995. The tax provisions were attributable to the pre-
tax incomes in each period.
The equity losses from continuing operations of affiliate of $0.2 million
in each of the first nine months of 1996 and 1995 relate to the Company's June
1995 investment in Reunion and represents the Company's proportionate share of
Reunion's results from such periods.
The equity income from discontinued operations of affiliate of $0.4
million in the first nine months of 1996 relates to the Company's June 1995
investment in Reunion and represents the Company's proportionate share of
Reunion's results from discontinued operations for its first nine months of
1996.
Three Months Ended September 30, 1996 Compared to
Three Months Ended September 30, 1995
Net sales for the third quarter of 1996 totalled $36.6 million, compared
to $44.3 million for the third quarter of 1995. Sales for the third quarter
of 1995 included $8.0 million from Oneida, which was sold in September 1995.
Excluding Oneida's sales, sales for the third quarter of 1996 increased $0.3
million compared to the third quarter of 1995. Increases of $1.5 million at
CPI, $0.6 million at Hanna and $0.4 million at Klemp de Mexico, were partially
offset by decreases of $1.2 million at Auto-Lok and $1.0 million at Alliance.
The increase in sales at CPI is the result of continued expansion into foreign
markets while the increase at Hanna is due to domestic marketing efforts. The
increase at the Mexican subsidiary is primarily due to the consolidation of
CFI. Auto-Lok and Alliance continued to be negatively affected during the
third quarter by a the lower order levels during the first half of 1996.
Gross profit for the third quarter of 1996 was $7.2 million, compared to
$8.8 million for the third quarter of 1995. Gross profit for the third
quarter of 1995 included $1.5 million from Oneida. Excluding Oneida's third
quarter 1995 gross profit, third quarter 1996 gross profit decreased $0.2
million. Gross profit margin decreased to 19.7% in the third quarter of 1996,
compared to 20.3% in the comparable 1995 period, excluding the gross profit
and sales of Oneida. In general, an increase in gross profit of $0.3 million
at CPI was more than offset by a decrease at Auto-Lok of $0.4 million, with
the remaining divisions of the Company experiencing a slight increase or
decrease. Divisional gross margins either remained flat or decreased when
compared to the third quarter of 1995 with the most notable decrease at Auto-
Lok. The declines at Auto-Lok were primarily due to lower volume as a result <PAGE>
<PAGE>12
of a softening in the markets for Auto-Lok's products.
SGA expenses for the third quarter of 1996 were $4.9 million, compared to
$5.6 million for the third quarter of 1995. SGA expenses for the third
quarter of 1995 included $0.8 million from Oneida. Excluding Oneida's SGA
expenses, third quarter 1996 SGA expenses increased $0.1 million compared to
third quarter 1995. SGA expenses as a percentage of sales, excluding the SGA
expenses and sales of Oneida, were 13% in the third quarters of 1996 and 1995.
Other expense for the third quarter of 1996 was $0.1 million, compared to
other income of $1.1 million for the third quarter of 1995. Other income for
the third quarter of 1995 includes the $1.2 million gain from the sale of
Oneida in September 1995. Excluding this gain, there was no significant
change in other expenses for the third quarter of 1996 compared to the third
quarter of 1995.
Interest expense, net, for the third quarter of 1996 was $2.4 million,
compared to $2.6 million for the third quarter of 1995. Interest expense for
the third quarter of 1995 included $0.2 million related to Oneida. Excluding
Oneida's interest expense, third quarter 1996 interest expense did not change
compared to third quarter 1995.
There was a tax benefit of $0.1 million in the third quarter of 1996,
compared to a tax provision of $0.3 million in the third quarter of 1995. The
tax provisions were attributable to the pre-tax results in each period.
The equity losses from continuing operations of affiliate of less than
$0.1 million in the third quarter of 1996 and of $0.2 million in the third
quarter of 1995 relate to the Company's June 1995 investment in Reunion and
represent the Company's proportionate share of Reunion's results from
continuing operations for these periods.
Liquidity and Capital Resources
General
The Company manages its liquidity as a consolidated enterprise. The
operating divisions of the Company carry minimal cash balances. Cash
generated from the divisions' operating activities generally is used to repay
previous borrowings under the Revolving Credit Facility (as defined in the
Loan Agreement), as well as other uses (e.g. corporate headquarters expenses,
debt service, capital expenditures, etc.). Conversely, cash required for the
divisions' operating activities generally is provided from funds available
under the Revolving Credit Facility. Although the Company operates in
relatively mature markets, it intends to continue to invest in and grow its
businesses through selected capital expenditures as cash generation permits.
Management believes that all required principal and interest payments, as well
as capital expenditures, will be met by cash flows from operations and/or
borrowings under the Revolving Credit Facility, if necessary. While Oneida
was a subsidiary of the Company, its liquidity was managed separately. Prior
to its sale, Oneida had a $5.0 million credit facility with Congress Financial
Corporation (Congress). This facility consisted of a term loan and a
revolving loan. In addition to advances to Oneida from the Company, this
facility provided a primary source of liquidity to Oneida.
Prior to March 4, 1994, the Company had a $20.0 million revolving credit <PAGE>
<PAGE>13
facility with Heller Financial, Inc. On March 4, 1994, the Company refinanced
this facility into the Revolving Credit Facility under which Congress agreed
to make revolving loans to the Company of up to $20.0 million, subject to
compliance with various covenants, representations and warranties, and
contingent upon there being no events of default, all as defined in the Loan
and Security Agreement (Loan Agreement) between Congress and the Company. The
Maximum Credit (as defined in the Loan Agreement) under the Revolving Credit
Facility was temporarily increased to $26 million on June 20, 1995 in
connection with the Chatwins Acquisition, and then fixed at $25 million on
October 18, 1995 through the remainder of the term of the Loan Agreement. At
September 30, 1996, the Company was in compliance with all covenants and there
were no events of default under the Revolving Credit Facility. Borrowings
outstanding under the Revolving Credit Facility at September 30, 1996 totalled
$20.9 million.
Borrowings under the Revolving Credit Facility bear interest at an annual
rate of the Philadelphia National Bank Prime Rate plus 1.5%. The facility
also contains an unused line fee of 0.5% and a $5,000 monthly servicing fee.
The Loan Agreement was originally scheduled to expire on March 4, 1997 but has
been extended to June 30, 1998 and is renewable annually thereafter. The
Company and Congress have made various amendments to the Revolving Credit
Facility, discussions of which follow.
On June 20, 1995, the Company acquired the Reunion Common Stock in the
Chatwins Acquisition. The purchase price consisted of $5.8 million in cash
and the Parkdale Note. On September 14, 1995, Mr. Bradley purchased the
Parkdale Note from Parkdale and the Company made a partial repayment of the
Parkdale Note as required by the terms thereof equal to the $3.1 million
proceeds from the sale of Oneida. In May 1996, the Company made a partial
repayment of the Parkdale Note totalling $1.7 million, including interest
thereon, primarily from the $3.7 million in cash received by the Company from
Reunion in full payment of the Oneida Advances. As discussed below, the
remainder of the proceeds were paid to Congress. In a letter agreement dated
June 18, 1996, the Company and Mr. Bradley agreed to extend the maturity date
of the Parkdale Note to December 31, 1996. In connection with the purchase of
the Reunion Common Stock, the Company purchased the Gesterkamp Warrants. The
purchase price for the Gesterkamp Warrants totalled $0.5 million and consisted
of $0.3 million paid in cash and the Gesterkamp Note. Subsequent to its
issuance, the Gesterkamp Note was purchased by Mr. Franklin Myers, a director
of Reunion. Pursuant to the terms of the Gesterkamp Note, the Company made
principal repayments of $50,000, plus interest at 10% per annum, on each of
January 6 and June 6, 1996. Such repayments, plus interest, will continue
semi-annually until the Gesterkamp Note is repaid.
The cash portions of the Chatwins Acquisition were funded with borrowings
under the Revolving Credit Facility. To accommodate the additional
borrowings, the Revolving Credit Facility was amended to provide a temporary,
90-day increase in the Maximum Credit to $26.0 million from $20.0 million,
which included a temporary $4.0 million overadvance availability. This
temporary increase was originally scheduled to expire on September 18, 1995.
However, on September 14, 1995, Congress and the Company further amended the
Revolving Credit Facility to extend the expiration date to October 18, 1995.
Subsequent to September 14, 1995, Congress and the Company further amended the
Revolving Credit Facility to increase the Maximum Credit to $25.0 million,
reduce the temporary $4.0 million overadvance availability to $1.5 million,
and extend the expiration date of the temporary overadvance availability to
January 15, 1996. As of December 31, 1995, all borrowings under the temporary
<PAGE>
<PAGE>14
overadvance availability had been repaid by the Company.
On May 1, 1996, the Revolving Credit Facility was amended to provide a
temporary, 97-day increase in the Maximum Credit to $27.5 million from $25.0
million, which included a temporary $2.5 million overadvance availability.
The proceeds from this temporary increase in the Maximum Credit were used for
various purposes, including the Company's May 1, 1996 interest payment on its
senior notes. During the temporary, 97-day increase period, the temporary
$2.5 million overadvance availability was required to be reduced in weekly
increments in amounts ranging from $150,000 beginning on May 20, 1996 to
$250,000 ending on August 5, 1996. The Company made repayments pursuant to
the required reductions on May 20 and 27, 1996, totalling $0.3 million.
However, on May 28, 1996, contemporaneously with the receipt of $3.7 million
in cash from Reunion in final repayment of the Oneida Advances, as required,
the Company repaid $2.0 million of the temporary $2.5 million overadvance
availability and, by June 10, 1996, all amounts borrowed under the temporary
$2.5 million overadvance availability had been repaid by the Company.
Additionally, as part of this amendment, the expiration date of the Loan
Agreement was extended to June 30, 1998 and is renewable annually thereafter.
On November 1, 1996, the Revolving Credit Facility was amended to provide
a temporary, 120-day $2.5 million overadvance availability. The Maximum
Credit remains at $25.0 million. The proceeds from this temporary overadvance
were used for various purposes, including the Company's November 1, 1996
interest payment on its senior notes. Beginning on January 31, 1997 and
continuing weekly thereafter, the temporary $2.5 million overadvance
availability is required to be reduced in $0.5 million increments until
repaid.
The Company owns 49% of CGII, which owned 100% of the outstanding
preferred stock and approximately 94% of the fully diluted common stock of
Rostone. On February 2, 1996, CGII acquired the minority interest in
Rostone's common stock it did not already own. On December 22, 1995, Rostone
and Oneida entered into the Merger Agreement whereby Rostone was subsequently
merged into Oneida, which is owned by Reunion, and, as the surviving
corporation, Oneida's name was changed to ORC. In the merger, ORC acquired
from CGII all of the issued and outstanding preferred and common stock of
Rostone. The Merger Agreement provides for the payment of merger proceeds of
up to $4.0 million ($2.0 million in 1997 and $2.0 million in 1998) to CGII
contingent upon Rostone's achieving specified levels of earnings before
interest and taxes in 1996 and 1997. However, under the terms of ORC's loan
facility with Congress, all such payments may only be made from equity
contributions Reunion may provide to ORC.
Since Rostone's preferred stock was pledged by CGII to the Company to
secure the Company's December 1993 loan of $1.35 million to CGII, any merger
proceeds will be paid first to the Company until the debt and related interest
is paid in full. The amount due the Company related to this loan was $1.7
million at September 30, 1996. Any merger proceeds in excess of the amount
due the Company will be payable to CGII and allocated among CGII's unsecured
creditors, one of which is the Company.
CGII's other primary assets remaining after the sale of Rostone are two
notes receivable from affiliates of the Company and a minimal amount of cash,
the sum of which total $0.6 million. The Company is entitled to any proceeds
from these assets.
<PAGE>
<PAGE>15
Under the equity method of accounting, the carrying value of the
Company's investment in CGII at September 30, 1996 was $0.9 million.
In December 1995, the Company entered into a joint venture agreement with
CMIESC and Wanggang to form Shanghai Klemp. Shanghai Klemp's manufacturing
facilities are located in Wanggang Township, Pudong New Area, Shanghai.
Production is expected to begin during 1996. The joint venture will
manufacture metal grating to supply the expanding construction industries in
China and nearby countries. During the first quarter of 1996, the Company
satisfied its investment obligation to make contributions of assets, primarily
machinery, to the joint venture with an estimated fair market value totalling
approximately $1.9 million.
At December 31, 1995, the Company had net operating loss carryforwards
for tax reporting purposes of approximately $6.7 million, which are scheduled
to expire beginning in 2005. The ultimate realization of this benefit depends
on the Company's ability to generate sufficient taxable income in the future.
While the Company believes that the benefit of such net operating losses will
be fully or partially realized by future operating results, prior losses and a
desire to be conservative prompted management to leave on its books at
December 31, 1995, a valuation reserve for a portion of such future benefits,
in accordance with Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes."
Operating Activities
Operating activities provided approximately $4.4 million of cash during
each of the first nine months of 1996 and 1995. In general, a $2.7 million
decrease in income before depreciation, amortization, equity earnings and the
gain on sale of Oneida in September 1995, was offset by a $2.8 million
increase in cash provided from changes in assets and liabilities in each
period, primarily due to $0.5 million of cash used to fund an increase in net
working capital (defined as receivables, inventories and trade payables)
during the first nine months of 1996 as compared to $3.3 million of cash used
to fund an increase in net working capital in the first nine months of 1995.
Investing Activities
Investing activities provided $0.3 million of cash during the first nine
months of 1996, compared to cash used of $7.9 million during the first nine
months of 1995, an increase in cash provided of $8.2 million. This increase
in cash provided is the result of $6.7 million of cash used in June 1995 for
the Chatwins Acquisition which did not recur in the 1996 first nine months,
the receipt of $3.7 million of cash received by the Company in 1996 from the
repayment of the remaining portion of the Oneida Advances, including interest,
by Reunion, and a $1.1 million decrease in the level of capital expenditures.
These increases were partially offset by almost $0.2 million of cash used in
the first nine months of 1996 to satisfy the cash portion of the Company's
investment obligation in the Shanghai Klemp joint venture as well as $3.1
million of cash received in September 1995 from the sale of Oneida which did
not recur in 1996.
Financing Activities
Financing activities during the first nine months of 1996 used $4.6
million in cash, compared to $3.3 million of cash provided from financing
activities during the first nine months of 1995, an increase in cash used of <PAGE>
<PAGE>16
$7.9 million. This increase in cash used is primarily the result of a
decrease of $2.3 million in the level of net borrowings under the Revolving
Credit Facility during the first nine months of 1996 compared to an increase
of $8.1 million in the first nine months of 1995. Offsetting this decrease in
cash provided under the Revolving Credit Facility was a $2.5 million decrease
in the level of debt repayments and payments to related parties. The 1996
first nine months included payments totalling $2.2 million to Mr. Bradley in
partial repayment of the Parkdale Note and payments totalling $0.1 million to
Mr. Franklin Myers in partial repayment of the Gesterkamp Note.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are filed herewith in accordance
with Item 601 of Regulation S-K:
Exhibit No. Exhibit Description
----------- -------------------
4.25 Amendment No. 6 to Loan and Security
Agreement dated November 1, 1996 between
Chatwins Group, Inc. and Congress
Financial Corporation
10.37 Employment Agreement, dated as of August 1,
1996, between Chatwins Group, Inc. and
Joseph C. Lawyer
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
<PAGE>
<PAGE>17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
Date: November 13, 1996 CHATWINS GROUP, INC.
----------------- (Registrant)
By: /s/ Joseph C. Lawyer
-------------------------------
Joseph C. Lawyer
President and Chief
Executive Officer
By: /s/ John M. Froehlich
-------------------------------
John M. Froehlich
Vice President, Chief Financial
Officer and Treasurer
(chief financial and accounting officer)
<PAGE>
<PAGE>18
EXHIBIT INDEX
Exhibit No. Exhibit Description Page No.
----------- ------------------- --------
4.25 Amendment No. 6 to Loan and Security 19
Agreement dated November 1, 1996
between Chatwins Group, Inc. and
Congress Financial Corporation
10.37 Employment Agreement, dated as of 23
August 1, 1996, between Chatwins
Group, Inc. and Joseph C. Lawyer
27 Financial Data Schedule 31
<PAGE>
<PAGE>19
Chatwins Group, Inc.
300 Weyman Plaza
Suite 340
Pittsburgh, Pennsylvania 15236
November 1, 1996
Re: Amendment No. 6 to Loan and Security Agreement
Gentlemen:
Reference is made to the-Loan and Security Agreement, dated March 4, 1994
(the "Loan Agreement"), by and between Congress Financial Corporation
("Lender") and Chatwins Group, Inc. ("Borrower"), as amended by Amendment No.
1 to Loan and Security -Agreement, dated June 20, 1995, between Lender and
Borrower, Amendment No. 2 to Loan and Security.Agreement, dated September 14,
1995, between Lender and Borrower, Amendment No. 3 to Loan and Security
Agreement, dated October.18,-1995,-between Lender and Borrower, Amendment No.
4 to Loan and Security Agreement, dated as of December 29, 1995, between
Lender and Borrower, and Amendment No. 5 to Loan and Security Agreement, dated
May 1, 1996, between Lender and Borrower ("Amendment No. 5"), together with
all other agreements, documents, supplements and instruments now or at any
time hereafter executed and/or delivered by Borrower or any other person, with
to or in favor of Lender in connection therewith (all of the foregoing,
together with this Amendment and the agreements and instruments delivered
hereunder, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, collectively, the
"Financing Agreements"). All capitalized terms used herein and not otherwise
defined herein shall have the meanings given to them in the Loan Agreement.
Borrower has requested that Lender provide up to $2,500,000 of temporary
additional loan availability. Lender is willing to provide such temporary
additional availability to the extent set forth herein and subject to the
terms and conditions set forth herein.
1. Definitions.
(a) Additional Definition. As used herein or in any of the other
Financing Agreements, the term "Temporary Availability A Period" shall mean
the period commencing on November 1, 1996 and ending on February 28, 1997, and
the Loan Agreement shall be deemed and is hereby amended to include such
definition.
(b) Amendment to Definition. As used herein, or in any of the
other Financing Agreements, the term "Additional Availability A Advances"
shall have the meaning given in Section 2 of this Amendment and the meaning of
such term set forth in Amendment No. 5 shall cease to be applicable for any
purpose in respect of the Financing Agreements.
2. Additional Availability A Advances.
(a) Subject to the terms and conditions contained herein and all
of the terms and conditions of the Loan Agreement as amended hereby, Lender
agrees to make or permit to remain outstanding during the Temporary
Availability A Period, additional Advances under the Availability A Component
in the aggregate principal amount of $2,500,000 at any one time outstanding in
excess of the amount of Advances otherwise determined by Lender to be <PAGE>
<PAGE>20
available to Borrower under the Availability A Component pursuant to Section
2.2 of the Loan Agreement (such additional Advances, the "Additional
Availability A Advances") less the cumulative total of all Reductions (as
defined below) hereunder through and including the time of determination. The
Additional Availability A Advances (i) shall constitute part of and shall be
deemed made under the Availability A Component for all purposes under the
Financing Agreements, and as such shall constitute part of the obligations,
except that such Advances shall not be deemed made pursuant to Section 2.2 of
the Loan Agreement for purposes of calculating the maximum amount of
Availability A Advances outstanding or available at any time, (ii) shall be
subject, without limitation, to the terms and conditions set forth herein and
in the Loan Agreement and the other Financing Agreements, (iii) shall be
repaid, on or prior to the expiration of the Temporary Availability A Period,
without notice or demand by Lender, together with interest and other amounts
due thereon, in accordance with the provisions of this Amendment, the Loan
Agreement as amended hereby and the other Financing Agreements, and (iv) shall
be secured by all of the Collateral.
(b) During the Temporary Availability A Period, and for so long
thereafter as any Additional Availability A Advances remain outstanding, no
portion of the temporary additional loan availability provided hereunder for
Additional Availability A Advances shall be included under Section 1.29(a)(i)
of the Loan Agreement in determining Excess Availability and the Maximum
Credit shall remain at $25,000,000 for purposes of Section 1.29(a)(ii) of the
Loan Agreement. All outstanding Additional Availability A Advances shall be
included as outstanding Obligations under Section 1.29(b)(i) of the Loan
Agreement in determining Excess Availability at any time.
(c) During the Temporary Availability A Period, the maximum amount
of Additional Availability A Advances shall be reduced on the close of
business on each of the dates set forth below (each, a "Reduction Date") by
the respective amount of the reduction (each, a "Reduction") indicated on the
table below:
Amount of
Reduction on Each
Reduction Dates Reduction Date
January 31, 1997 $500,000
February 7, 1997 $500,000
February 14, 1997 $500,000
February 21, 1997 $500,000
February 28, 1997 $500,000
In addition to, and not in limitation of, the Obligation of Borrower to make
other payments in respect of Availability A Advances, Borrower shall repay the
outstanding Obligations in respect of the Availability A Component that remain
outstanding on any day in excess of the maximum amount of Availability A
Advances permitted to remain outstanding after giving effect to -the
cumulative total of all scheduled Reductions that are provided for hereunder
as of and through such day.
(d) Each of the scheduled Reductions set forth in 2(c) hereof
shall constitute a reduction of the maximum amount of Additional Availability
A Advances. The amount of Additional Availability A Advances repaid pursuant
to such scheduled Reductions may not thereafter be reborrowed.
<PAGE>
<PAGE>21
3. Amendment Fee. In addition to all other fees, charges, interest and
expenses payable by Borrower to Lender under the Financing Agreements,
Borrower shall pay to Lender a fee for entering into this Amendment in the
amount of $25,000, which amount is fully earned and payable as of the date
hereof and may be charged directly to Borrower's loan account maintained by
Lender in respect of the Availability A Component.
4. Additional Representations, Warranties and Covenants. Borrower
represents, warrants and covenants with and to Lender as follows, which
representations, warranties and covenants are continuing and shall survive the
execution and delivery hereof, and the truth and accuracy of, or compliance
with each, together with the representations, warranties and covenants in the
other Financing Agreements, being a continuing condition of the making of any
and all Advances by Lender to Borrower:
(a) No Event of Default or act, condition or event which with
notice or passage of time or both would constitute an Event of Default exists
or has occurred as of the date of this Amendment (after giving effect to the
amendments made pursuant to this Amendment).
(b) This Amendment and each other agreement or instrument to be
executed and delivered by Borrower hereunder has been duly executed and
delivered by Borrower and is in full force and effect as of the date hereof,
and the agreements and obligations of Borrower contained herein and therein
constitute legal, valid and binding obligations of Borrower enforceable
against Borrower in accordance with their terms.
5. Conditions to Effectiveness of Amendment. The effectiveness of the
amendments and waivers pursuant to this Amendment shall be subject to the
satisfaction of each of the following conditions precedent:
(a) Lender shall have received an executed original or executed
original counterparts of this Amendment (as the case may be) duly authorized,
executed and delivered by the respective party or parties hereto;
(b) Lender shall have received, in form and substance satisfactory
to Lender, an original Supplemental Limited Guarantee with respect to
$2,500,000 in the principal amount of the Advances under the Availability A
Component, plus interest thereon and collection expenses (including reasonable
attorneys' fees and legal expenses), duly authorized, executed and delivered
by Bradley;
(c) All requisite corporate action and proceedings in connection
with this Amendment and the documents and agreements to be delivered hereunder
shall be in form and substance satisfactory to Lender, and Lender shall have
received all information and copies of all documents, including, without
limitation, records of requisite corporate action and proceedings which Lender
may have reasonably requested in connection therewith, such documents where
requested by Lender or its counsel to be certified by appropriate corporate
officers or governmental authorities; and
(d) no Event of Default shall exist or have occurred and no event
or condition shall have occurred or exist which with notice or passage of time
or both would constitute an Event of Default.
6. Effect of this Amendment. This Amendment and the instruments and
agreements delivered pursuant hereto constitute the entire agreement of the <PAGE>
<PAGE>22
parties with respect to the subject matter hereof and thereof, and supersede
all prior oral or written communications, memoranda, proposals, negotiations,
discussions, term sheets and commitments with respect to the subject matter
hereof and thereof. Except as expressly amended pursuant hereto, no other
changes or modifications to the Financing Agreements or any waivers of or
consents under any provisions thereof are intended or implied, and in all
other respects the Financing Agreements are hereby specifically ratified,
restated and confirmed by all parties hereto as of the effective date hereof.
To the extent of conflict between the terms of this Amendment and the other
Financing Agreements, the terms of this Amendment shall control. The Loan
Agreement, as heretofore amended, and this Amendment shall be read and
construed as one agreement.
7. Further Assurances. Borrower shall execute and deliver such
additional documents and take such additional action as may be reasonably
requested by Lender to effectuate the provisions and purposes of this
Amendment.
8. Governing Law. The rights and obligations hereunder of each of the
parties hereto shall be governed by and interpreted and determined in
accordance with the internal laws of the State of New York (without giving
effect to principles of conflicts of laws).
9. Binding Effect. This Amendment shall be binding upon and inure to
the benefit of each of the parties hereto and their respective successors and
assigns.
10. Counterparts. This Amendment may be executed in any number of
counterparts, but all of such counterparts shall together constitute but one
and the same agreement. In making proof of this Amendment, it shall not be
necessary to produce or account for more than one counterpart thereof signed
by each of the parties hereto.
Please sign in the space provided below and return a counterpart of this
Amendment, whereupon this Amendment, as so agreed to and accepted, shall
become a binding agreement between Borrower and Lender.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
By:__________________________________
Title:_______________________________
AGREED TO AND ACCEPTED:
CHATWINS GROUP, INC.
By:____________________________
Title:_________________________
CONSENTED TO:
_______________________________
CHARLES E. BRADLEY, SR.
<PAGE>
<PAGE>23
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of August 1 , 1996 between Chatwins
Group, Inc., a Delaware corporation (the "Company") and Joseph C. Lawyer
individual residing at 135 Rock Haven Lane, Pittsburgh, PA 15228 (the
"Employee").1 This Agreement supersedes and replaces the Employment Agreement
dated February 1, 1993 between the Company and Joseph C. Lawyer.
W I T N E S S E T H :
WHEREAS, the Company wishes to employ the Employee as one of its
principal executives; and
WHEREAS, the Employee is willing to accept such employment upon the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the promises and mutual covenants
contained herein, the Company and the Employee agree as follows:
Section 1. Terms of Employment.
The Company hereby employs the Employee, the Employee agrees to be
employed by the Company, on the terms and conditions contained herein, for a
period commencing on the date hereof and terminating on July 31, 1999 (the
"Employment Term"). Either party shall give written notice to the other not
less than six (6) months prior to the expiration of the initial Employment
term or any subsequent extension thereof, of its or his intention not to
renew. Upon timely receipt of notice of intention not to renew, this contract
shall terminate on the next July 31 subsequent to receipt of notice of
intention not to renew. If no such notice is given, this contract shall be
renewed for an additional year.
Section 2. Duties.
(a) The Employee is hereby appointed to serve as the Company's
President and Chief Executive Officer, and shall perform the services and
duties for the Company set forth in the Company's By-laws with respect to such
position.
Further, it is the intention of the parties hereto that, subject to the
approval of the shareholders of the Company, the Employee shall serve as a
director of the Company, and shall be nominated to such directorship at the
next meeting of shareholders after the date of this Agreement. While the
Employee serves as a director of the Company, he shall be included as an
insured party under any policy of directors' liability insurance maintained by
the Company, and shall receive, in addition to the compensation provided for
in Section 3 hereof, such directors' fees as may be paid to other employees of
the Company holding directorships.
(b) The Employee agrees to devote his entire time, energy and skill
during regular business hours to promote the business and affairs of the
Company.
Section 3. Compensation.
(a) Base Compensation. For services rendered by the Employee under
this Agreement, the Company shall pay the Employee during the Employment Term <PAGE>
<PAGE>24
an annual salary (the "Base Salary") equal to $328,187. The Base Salary shall
be increased to $360,000 on January 1, 1997 and to $395,000 on January 1,
1998, or such greater amount as the Board of Directors, in its sole
discretion, may determine. Effective on January 1, 1999 the Board of
Directors shall determine the amount of the salary increase for 1999 over the
Base Salary in effect at the time. The Base Salary shall be payable at such
intervals and otherwise in such manner as is consistent with the Company's
normal practices for remuneration of executives.
(b) Bonus Compensation.
(i) For purposes of this Section 3(b), the following terms shall
have the following meanings:
EBIT means for any fiscal year the sum of (A) the actual income
from continuing operations before interest and tax of the Company for such
year (excluding the revenues, expenses, costs of acquisition and other results
of operations of all business units acquired by the Company after the
beginning of such year and not included in the calculation of BEBIT for such
year) determined in accordance with generally accepted accounting principles
and consistent with the financial statements of the Company for such year
certified by independent auditors plus (B) the aggregate amount of consulting
fees to Stanwich Partners, Inc. ("Stanwich") charged to the Company in such
year;
BEBIT means for any fiscal year the sum of (A) projected income
from continuing operations before interest and tax of the company for such
year plus (B) projected Stanwich consulting fees payable by the Company for
such year, both as set forth in the budget prepared by management of the
Company, and approved by the Board of Directors, in accordance with procedures
established by the Board of Directors.
(ii) In addition to the Base Salary, the Company shall pay to the
Employee, if earned, an annual amount (the "Bonus Compensation") which will be
payable if EBIT for any fiscal year equals or exceeds BEBIT for such fiscal
year and will be the sum of:
(A) Thirty percent (30%) of Base Salary, and in addition to, and
not in place of, the following,
(B) An amount equal to five percent (5%) of Base Salary should
EBIT exceed BEBIT by up to two percent (2%), and in addition to, and not in
place of, the following,
(C) An amount equal to six percent (6%) of Base Salary should
EBIT exceed BEBIT by two percent (2%), but less than five percent (5%), and in
addition to, and not in place of, the following,
(D) An amount equal to seven percent (7%) of Base Salary should
EBIT exceed BEBIT by five percent (5%) but less than ten percent (10%) and in
addition to, and not in place of, the following,
(E) An amount equal to eight percent (8%) of Base Salary should
EBIT exceed BEBIT by ten percent (10%) but less than fifteen percent (15%) and
in addition to, and not in place of, the following,
(F) An amount equal to nine percent (9%) of Base Salary should <PAGE>
<PAGE>25
EBIT exceed BEBIT by fifteen percent (15%) or more.
The Company shall pay the Employee Fifty percent (50%) of Bonus
Compensation in cash not more than sixty (60) days subsequent to year end.
The remaining fifty percent (50%) shall be paid prior to December 31, of the
year following, provided the Employee has not voluntarily resigned without
good reason or been terminated for cause under Section 5(a) below prior to
the end of the Employment Term.
(iii) Should the Employee resign voluntarily without good reason
or be terminated for cause under Section 5(a) below then (A) the employee
shall forfeit and be deemed to have waived his entitlement to any portion of
the Bonus Compensation earned with respect to any completed fiscal year but
not yet paid and (B) the Employee shall have no entitlement to any Bonus
Compensation in respect of the then current incomplete fiscal year.
(iv) Should the Employee's employment cease for any other reason
specified in Section 5 then (A) in all such events any portion of the Bonus
Compensation earned with respect to any completed fiscal year but not yet paid
shall be paid to the Employee within seven (7) days following cessation of
employment and (B) in the case of cessation of employment pursuant to Section
5(b), (c) and (g) (but not Sections 5(d) - (f) ) the Employee shall be
entitled to receive the pro rata portion of his Bonus Compensation that would
have been earned in respect of the then current fiscal year had such cessation
of employment not occurred, such pro rata portion to be based on the
percentage of the fiscal year that the Employee was employed and such Bonus
Compensation to be payable not more than sixty (60) days subsequent to the end
of such fiscal year.
(v) The aggregate amount of Bonus Compensation payable
hereunder shall in no event exceed sixty five percent (65%) of the Base Salary
in effect on the last day of the fiscal year in respect of which such Bonus
Compensation is calculated.
Section 4. Other Benefits.
During the Employment Term the Company will provide the following
benefits to the Employee.
(a) The Employee will be entitled to participate in any present and
future medical, life, or disability insurance, pension or retirement plan
adopted by the Company for the benefit of senior employees of the Company,
such participation to be on terms and conditions at least equivalent to terms
and conditions customarily provided to full time executive officers of the
Company. The Employee shall enjoy such vacation, holiday or similar rights
and privileges as are customarily provided to full time executive officers of
the Company.
(b) The Company will pay, or reimburse the Employee for, up to $600.00
per month for automobile lease payments.
(c) The Company will obtain and pay the premiums on a $1,000,000 life
insurance policy for the Employee; provided that the Employee is insurable and
cooperates with the Company in obtaining and keeping in effect such policy,
including submitting to such medical examination and taking such other actions
as may be required by the life insurance company; and provided further that <PAGE>
<PAGE>26
the Company shall not be obligated to pay premiums in excess of $6,000 per
year; and provided further that if a $1,000,000 policy is not available within
the premium limitation set forth above, then the Company shall obtain and pay
the premiums for a life insurance policy providing coverage in such amount as
is available within such premium limitation in satisfaction of the Company's
obligations under this Section. The owner of such policy shall be determined
by the Company. The beneficiaries of such policy shall be designated by the
Employee.
The Company shall also maintain a split dollar life insurance
policy on the life of the Employee in the amount of $1,500,000 with an annual
premium not to exceed $45,000. The ownership of such policy shall be
determined by the Employee. The beneficiaries of such policy shall be
determined by the Employee. The Employee shall pay to the Company the economic
benefit amount of the split dollar insurance cost. In the event of the
Employee's resignation upon a change of control as defined in Section 5(f) the
Company shall continue to fund the premiums for the life of the Employee . In
all other cases, upon the termination or expiration of the Employment Term,
the Employee shall be solely responsible to continue the policy at his sole
expense or cause or permit the policy to terminate.
(d) The Company will reimburse all reasonable business expenses
incurred by the Employee in the course of and in connection with his
employment by the Company, upon submission of appropriate documentation.
(e) The Company will pay, or reimburse the Employee for, reasonable
membership fees in the South Hills Country Club and the Duquesne Club or such
other two (2), but not more than two (2) Clubs Employee may designate.
Section 5. Termination.
The Employment Term shall terminate upon any of the following
occurrences:
(a) Termination for Cause. The Company may terminate this Agreement
for cause at any time upon 30 days prior written notice, and thereby cancel
all further rights and obligations of the parties hereto, except those set
forth in Sections 6 and 7 hereof. For the purpose of this Agreement, "cause"
shall mean (i) the conviction of the Employee of a felony under state or
federal criminal laws; (ii) the determination of the Board of Directors that
the Employee has become unable as a result of alcohol or drug use to carry out
the responsibilities of his employment; or (iii) the willful failure of the
Employee, in the sole judgment of the Board of Directors, to perform his
obligations under this Agreement or to carry out the reasonable instructions
of the Board of Directors, but only when such conduct continues for a period
of thirty (30) days following receipt by Employee of written notice from the
Board of Directors that it is considering termination for cause pursuant to
this provision and specifically setting forth the conduct of the Employee
which the Board of Directors considers a basis for Employee's termination for
cause.
(b) Termination Upon Disability. If, during the term of this
Agreement, the Employee shall become incapable of fulfilling his obligations
hereunder because of injury or physical or mental illness, and such incapacity
shall exist or reasonably may be expected upon competent medical opinion to
exist for more than six months in the aggregate during any period of twelve
consecutive months, the Company may, upon at least thirty days prior written <PAGE>
<PAGE>27
notice to the Employee, terminate all further rights and obligations of the
parties hereto, except (i) those set forth in Sections 3(b)(iv), 6 and 7
hereof and (ii) payment of the Base Salary for a period of not less than one
year after the end of such thirty day notice period.
(c) Termination by Death. If the Employee shall die during the
Employment Term, this Agreement and all rights and obligations hereunder shall
terminate immediately; except that the Company shall pay to the Employee's
estate an amount equal to the Base Salary at the rate then in effect for a
period of not less than one year after the date of the Employee's death and
the Employee's estate shall be paid any amounts owing under Section 3 (b)(iv).
(d) Termination Without Cause. The Company may terminate this
Agreement without cause at any time during the Employment Term upon 30 days
written notice to the Employee. In the event of such termination without
cause, the Employee shall continue to be entitled to receive (i) any accrued
but unpaid Bonus Compensation owing under Section 3 (b)(iv) and (ii) for the
balance of the Employment Term or one and one half (1 1/2) years, whichever is
greater, the Base Salary (at the rate then in effect without reference to any
future increases), plus health and life insurance coverage in the Company's
group plan as provided in Section 4(a), plus life insurance as provided in
section 4(c); provided, however, that any continuation of salary provided for
herein shall be reduced dollar for dollar by any salary received by the
Employee from any other employment during such continuation period. After
such termination without cause, the Employee shall continue to be bound by the
provisions of Section 6 and 7(b) hereof.
(e) Resignation with Good Reason. The Company shall, at all times
during the term of this Agreement, provide Employee with all of the rights,
responsibilities, perquisites and allow Employee to discharge all of the
duties of President and Chief Executive Officer. If, during the term of this
Agreement, Company shall reduce or attempt to reduce the rights,
responsibilities, perquisites or duties of Employee generally, including, but
not limited to (i) removal of Employee from his current position of President
and Chief Executive Officer to some lesser position, or (ii) cause Employee to
relocate his home or business location from Pittsburgh, Pennsylvania, absent
Employee's written consent, or (iii) cause Employee to report to a person or
entity other than the Company's Board of Directors, or (iv) take such other
action which can be reasonably be interpreted to have the effect of materially
reducing Employee's position as contemplated by this Agreement, then Employee
may tender his resignation for good reason. Upon Employee's resignation for
good reason, Company shall pay Employee as if he had been discharged without
cause (as provided in Section 5(d) above) and Employee shall have no further
obligation to perform duties for Company. After such resignation for good
reason, Employee shall continue to be bound by the provisions of Section 6 and
Section 7(b) hereof.
(f) Resignation Upon Change of Control. For purposes of this
Agreement, a "change of control of the Company" shall be deemed to have
occurred if (i) any person or entity becomes the "beneficial owner", directly
or indirectly of securities of the Company representing fifty percent (50%) or
more of the combined voting power of the Company, and such person or entity
was not the beneficial owner of such fifty percent (50%) or more on the date
of execution of this Agreement; or (ii) a majority of stockholders of the
Company approve a merger or consolidation of the Company with another company,
where such shareholders, by the terms of the merger or consolidation shall,
directly or indirectly, hold beneficial ownership and voting control of less <PAGE>
<PAGE>28
than fifty-one percent (51%) of the surviving company; or (iii) the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition of all or substantially
all of the assets of the Company or (iv) the Board of Directors adopts a
resolution to the effect that, for purposes of this Agreement, a change of
control of the Company has occurred, then upon such change of control,
Employee shall have a one-time ninety day (90) option within which Employee
may accept employment and continue under the terms of this Agreement or such
other terms as may be offered or tender his resignation due to change of
control, whereupon the Employee shall have no obligation to perform duties for
Company or its successors, but Employee shall continue to be bound by the
provisions of Section 6 and Section 7(b) hereof. If the change of control is
pursuant to a vote of the Board of Directors and shareholders and the Employee
elects to tender his resignation pursuant to the preceding sentence, then the
provisions of 5(d) above will apply.
This Section 5(f) shall not apply to a change of control due to a
merger of the Company with Reunion Industries, Inc. or to equity transfers to
heirs or legatees or to others for the purpose of estate planning.
(g) Non Renewal by Company. The Company shall give written notice of
non renewal at least six (6) months prior to the expiration of the initial
term which shall occur on July 31, 1999 or six (6) months prior to the
expiration of any succeeding renewal or extension thereof. In the event of
such non renewal by Company, the Company shall continue to employ the Employee
for the balance of the Employment Term, during which period Employee shall
continue to be obligated to provide services hereunder and Company shall pay
Employee as if he had been Terminated Without Cause on the date his employment
terminates due to non renewal by Company (as provided in Section 5(d) above)
and Employee shall have no further obligation to perform duties for the
Company, but Employee shall continue to be bound by the provisions of Section
6 and Section 7(b) hereof.
Section 6. Confidentiality.
The Employee will not (a) during or after the Employment Term, directly
or indirectly, reveal or disclose to any person, firm or corporation any
confidential information or trade secrets whatever relating to the business of
the Company, including particularly the names of any of its customers; and (b)
for a period of three years after the termination of the Employment Term,
solicit, interface with or endeavor to entice away from the Company any
customer of the Company.
Section 7. Non Competition.
The Employee will not, during the Employment Term and for a period of three
years after termination of his employment hereunder, (a) directly or
indirectly, own, manage, join or control, or participate in the ownership,
management, operation or control of, or provide consulting or advisory
services to any business, firm, corporation, partnership, proprietorship or
other entity which is conducting any business which directly and to a material
extent competes with the business of the Company, and (b) shall not solicit
employment of any of the employees, consultants, agents or independent
contractors of the Company (and, for the purposes of the preceding sentence,
the terms "employees," "consultants," "agents" and "independent contractors"
shall include any persons with such status at any time during the six (6)
months preceding any solicitation in question).
<PAGE>
<PAGE>29
The foregoing provisions shall not apply to investments in shares of
stock traded on a national securities exchange or on the national
over-the-counter market which shall have an aggregate market value, at the
time of acquisition, of less than $500,000 and constitute less than two
percent of the outstanding shares of such stock.
Section 8. Remedies.
If the Employee commits a breach, or threatens to commit a breach, of any
of the provisions of Section 6 or 7, the Company shall have (i) the right to
have such provisions specifically enforced by any court having equity
jurisdiction, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury to the Company and that money
damages will not provide adequate remedy to the Company and (ii) the right to
require the Employee to account for and pay over to the Company all
compensation or profits derived or received by the Employee as a result of any
breach of any of the provisions of Section 6 or 7, and the Employee hereby
agrees to account for any pay over such compensation or profits to the
Company. The invalidity of any provision of Section 6 or 7 shall not affect
the validity of any other provision hereof, and each provision shall be
enforced to the extent permitted by law.
Section 9. Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of the
Company and its successors and assigns and shall be binding upon and inure to
the benefit of the Employee and his executors and administrators.
Section 10. Waiver of Breach.
The waiver of the Company or the Employee of a breach of any provision of
this Agreement by the other party shall not be construed as a waiver of any
subsequent breach of the same provision or of any provision in this Agreement.
Section 11. Notices.
All notices, requests, demands and other communications submitted
hereunder, shall be in writing and shall be deemed to have duly given if
delivered by hand or by express service or if mailed by first class,
registered mail, return receipt requested, postage and registry fees prepaid,
and addressed, if to the Employee, to the address set forth in the first
paragraph hereof, and if to the Company to 300 Weyman Plaza, Suite 340,
Pittsburgh, PA 15236, Attention: Chairman, or at such other address as
either party shall furnish to the other.
Section 12. Miscellaneous.
This Agreement shall be governed by, and construed in accordance with,
the laws of the Commonwealth of Pennsylvania. This Agreement incorporates the
entire understanding of the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements relating to such subject matter.
This Agreement may not be modified or amended, or any term or provision hereof
waived or discharged, except by a written instrument signed by the party
against which such amendment, modification, waiver or discharge is sought to
be enforced. The headings of this Agreement are for the purpose of reference
only and shall not limit or otherwise affect the meaning hereof.
<PAGE>
<PAGE>30
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
Attest: Chatwins Group, Inc.
_______________________________ By _____________________________
Name: Title:
Attest: Employee
_______________________________ ________________________________
Name: Joseph C. Lawyer
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
This schedule contains summary financial information extracted from the
registrant's financial statements included in the Form 10-Q for the period-end
indicated below and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 460
<SECURITIES> 0
<RECEIVABLES> 25,471
<ALLOWANCES> 659
<INVENTORY> 20,829
<CURRENT-ASSETS> 49,596
<PP&E> 48,001
<DEPRECIATION> 19,004
<TOTAL-ASSETS> 102,543
<CURRENT-LIABILITIES> 24,570
<BONDS> 49,870
0
7,456
<COMMON> 3
<OTHER-SE> (6,820)
<TOTAL-LIABILITY-AND-EQUITY> 102,543
<SALES> 114,526
<TOTAL-REVENUES> 114,526
<CGS> 91,405
<TOTAL-COSTS> 91,405
<OTHER-EXPENSES> 15,856
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,158
<INCOME-PRETAX> 107
<INCOME-TAX> 13
<INCOME-CONTINUING> (126)
<DISCONTINUED> 428
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 302
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
