<PAGE>
<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 March 31, 1997
--------------
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
--------
CHATWINS GROUP, INC.
------------------------------------------------------
(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 April 30, 1997, 292,887 shares of common stock, par value $.01 per share,
were outstanding.
Exhibit index is on page 14.
Page 1 of 22 pages.
==============================================================================
<PAGE>
<PAGE> 2
CHATWINS GROUP, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet at
March 31, 1997 and December 31, 1996 3
Condensed Consolidated Statement of Income for the
three months ended March 31, 1997 and 1996 4
Condensed Consolidated Statement of Cash Flows for
the three months ended March 31, 1997 and 1996 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 12
(b) Reports on Form 8-K 12
SIGNATURES 13
<PAGE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CHATWINS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
AT MARCH 31, 1997 AND DECEMBER 31, 1996
(in thousands)
At March 31, At December 31,
1997 1996
----------- --------------
(unaudited)
ASSETS:
Cash and cash equivalents $ 224 $ 356
Receivables, net 30,374 26,405
Inventories, net (note 2) 20,490 19,106
Other current assets 3,742 3,512
-------- --------
Total current assets 54,830 49,379
Property, plant and equipment, net 30,331 29,734
Investments, net 12,564 12,452
Goodwill, net 4,887 4,849
Other assets, net 6,188 6,165
-------- --------
Total assets $108,800 $102,579
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current maturities of debt $ 909 $ 767
Trade payables 16,361 12,879
Amount due to related party 50 579
Other current liabilities 11,254 8,863
-------- --------
Total current liabilities 28,574 23,088
Revolving Credit Facility 23,899 23,629
Senior notes due 2003, net 49,882 49,876
Other long-term debt 823 870
Other liabilities 4,374 4,316
-------- --------
Total liabilities 107,552 101,779
Commitments and contingent liabilities (note 5) - -
Minority interests 1,115 1,125
Redeemable preferred stock 7,684 7,570
Warrant value 210 210
Stockholders' equity (note 3) (7,761) (8,105)
-------- --------
Total liabilities and stockholders' equity $108,800 $102,579
======== ========
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<PAGE> 4
CHATWINS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(in thousands, except share and per share information)
(unaudited)
Three Months Ended
March 31,
1997 1996
------- -------
Net sales $42,642 $39,046
Cost of sales 34,325 31,380
------- -------
Gross profit 8,317 7,666
Selling, general & administrative 5,241 5,164
Other expense, net 222 280
------- -------
Operating profit 2,854 2,222
Interest expense, net 2,406 2,407
Minority interests (54) -
------- -------
Income (loss) before income taxes
and equity loss from affiliate 502 (185)
Provision for (benefit from) income taxes 111 (15)
------- -------
Income (loss) before equity in operations of affiliate 391 (170)
Equity income (loss) from operations of affiliate 67 (134)
------- -------
Net income (loss) $ 458 $ (304)
======= =======
Earnings (loss) applicable to common stock $ 344 $ (418)
======= =======
Earnings (loss) per common share $ 1.17 $ (1.43)
======= =======
Average equivalent common shares outstanding 292,887 292,887
======= =======
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<PAGE> 5
CHATWINS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(in thousands)
(unaudited)
Three Months Ended
March 31,
1997 1996
------- -------
Cash flow from operating activities:
Net income (loss) $ 458 $ (304)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 845 801
Amortization 221 252
Minority share of losses (54) -
Equity (income) loss from operations of affiliate (67) 134
Changes in assets and liabilities, net of
the purchase of a business:
Decrease (increase) in receivables (3,969) 1,895
Increase in inventories (1,386) (1,199)
Increase (decrease) in trade payables 3,482 (2,152)
Net change in other assets and liabilities 2,081 2,115
------- -------
Cash provided by operating activities 1,611 1,542
------- -------
Cash flow from investing activities:
Capital expenditures (1,388) (1,017)
------- -------
Cash used in investing activities (1,388) (1,017)
------- -------
Cash flow from financing activities:
Repayments of debt (48) (48)
Repayments to related parties (577) (50)
Net borrowings (repayments) under revolving
credit facilities 270 (681)
------- -------
Cash provided by (used in) financing activities (355) (779)
------- -------
Net decrease in cash and cash equivalents (132) (254)
Cash and cash equivalents, beginning of year 356 357
------- -------
Cash and cash equivalents, end of period $ 224 $ 103
======= =======
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<PAGE> 6
CHATWINS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
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 month
period ended March 31, 1997 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, 1996.
NOTE 2: INVENTORIES
Inventories are comprised of the following (in thousands):
At March 31, At December 31,
1997 1996
----------- --------------
(unaudited)
Raw materials $11,364 $ 9,886
Work-in-process 6,339 7,059
Finished goods 3,594 2,959
------- -------
Total inventories 21,297 19,904
Less: LIFO reserves (807) (798)
------- -------
Inventories, net $20,490 $19,106
======= =======
<PAGE>
<PAGE> 7
NOTE 3: STOCKHOLDERS' EQUITY
The following represents a reconciliation of the change in stockholders'
equity for the three month period ended March 31, 1997 (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
------ ----- ------- ------- -------- ------ --------
At January 1,
1997 $ 3 $(500) $1,664 $(1,001) $ (7,583) $(688) $ (8,105)
Activity
(unaudited):
Net income - - - - 458 - 458
Preferred stock
accretions - - - - (114) - (114)
Translation
adjustment - - - - - - -
--- ----- ------ ------- -------- ----- --------
At March 31,
1997 $ 3 $(500) $1,664 $(1,001) $ (7,239) $(688) $ (7,761)
=== ===== ====== ======= ======== ===== ========
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 (loss) before income
taxes has been adjusted for dividends earned on preferred stock for the three
month periods ended March 31, 1997 and 1996 of $114,000 in each.
In March 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." SFAS
No. 128 requires the presentation of both a "basic" and "diluted" earnings per
share for entities with "complex capital structures" as defined in SFAS No.
129, "Disclosure of Information About Capital Structure," also issued in March
1997. Both statements are effective for financial statements for periods
ended after December 15, 1997. Earlier adoption of SFAS No. 128 is not
permitted. SFAS No. 128 requires restatement of all prior-period earnings per
share data. Management does not expect the adoption of SFAS No. 128 to have a
significant impact on the earnings per share disclosures of the Company and
believes that there will be no change in the Company's disclosures regarding
its capital structure as a result of SFAS No. 129.
NOTE 4: RELATED PARTY TRANSACTIONS
The Company has a consulting agreement with Stanwich Partners, Inc. under
which $75,000 was expensed in each quarter ended March 31, 1997 and 1996.
During the first quarter of 1997, the Company made payments totalling
$0.5 million to Mr. Bradley in final repayment of the Parkdale Note, including
interest thereon.
On January 6, 1997, the Company made the third of four principal
repayments of $50,000 each, plus interest, of the Gesterkamp Note. 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 the opinion of management, settlement of these various
litigation matters and other contingent matters will not have any material
effect on the Company's financial position. The Company does not have any
adverse commitments at March 31, 1997.
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
During 1996 and the first quarter of 1997, the Company's organizational
structure included six divisions that design, manufacture and market metal
products, two majority-owned foreign joint ventures which manufacture and
fabricate metal grating, an oil and gas division and an equity investment in
Reunion Industries, Inc. (Reunion). During 1996 and the first quarter of
1997, substantially all of the Company's operations related to metal products.
On June 20, 1995, the Company acquired 1,450,000 shares of Reunion common
stock constituting approximately 38% of the then outstanding common stock of
Reunion. Reunion acquired Oneida from the Company in September 1995. Reunion
also merged Oneida with Rostone in February 1996 (see below), resulting in
Oneida Rostone Corporation (ORC). As a result, Reunion is primarily engaged
in the manufacture of high volume, precision plastics products, providing
engineered plastics services and compounding and molding thermoset polyester
resins. Reunion also has wine grape agricultural operations in Napa County,
California, which it classified as a discontinued operation during the fourth
quarter of 1996. 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 month periods ended March 31,
1997 and 1996 as equity income (loss) from operations of affiliate.
The Company owns 49% of CGI Investment Corporation (CGII), which owned
100% of the outstanding preferred stock and fully diluted common stock of
Rostone, Inc. (Rostone). The merger agreement between Rostone and Oneida
provided 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. Rostone did not achieve the specified level of earnings before interest
and taxes for the payment of deferred merger proceeds in 1997. Since
Rostone's preferred stock was previously 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 to the Company until the debt and related interest is
paid in full. The amount due the Company related to this loan was $1.6
million at March 31, 1997. Any merger proceeds in excess of the amount due
the Company will be payable to CGII and allocated among CGII's remaining
creditors, one of which is the Company. Under the terms of ORC's loan
facility with Congress Financial Corporation (Congress), deferred merger
proceeds to be paid in 1998, if any, may only be made from equity
contributions Reunion may provide to ORC.
<PAGE>
<PAGE> 9
On April 16, 1997, Reunion announced that the employees of Rostone, a
division of ORC, which had been working under a collective bargaining
agreement which expired on March 2, 1997, went on strike effective April 15,
1997 citing differences over wage increases and other benefits. On May 15,
1997, Reunion announced that the employees of Rostone ratified a new three-
year labor contract, ending the four-week strike. The effects of the strike,
if any, on Rostone's ability to achieve the specified level of earnings before
interest and taxes in 1997 for the payment of deferred merger proceeds in 1998
can not be determined as of the date of this filing.
CGII's 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 $0.7 million at March 31, 1997. The Company is entitled to
any proceeds from the liquidation of these assets to the extent that the
Company's December 1993 loan is not paid in full. Any remaining proceeds
would be allocated among CGII's remaining creditors, one of which is the
Company. Under the equity method of accounting, the total carrying value of
the Company's investment in and loans to CGII at March 31, 1997 was $0.9
million.
This Quarterly Report on Form 10-Q contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1993, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
including statements regarding, among other things, growth strategies and
penetrations of new markets, mergers and joint ventures and transactions with
affiliates. These forward-looking statements are based largely on the
Company's expectations and are subject to a number of risks and uncertainties,
certain of which are beyond the Company's control. Actual outcomes could
differ from these forward-looking statements as a result of, among other
things, adverse economic conditions, competition, demand for the Company's and
competitors' products and financing difficulties. In light of these risks and
uncertainties, there can be no assurance that actual outcomes will equal the
forward-looking statements. Furthermore, the Company undertakes no obligation
to publicly update or revise any forward-looking statement whether as a result
of new information, future events or otherwise.
Results of Operations
Three Months Ended March 31, 1997 Compared to
Three Months Ended March 31, 1996
Net sales for the first quarter of 1997 totalled $42.6 million, compared
to $39.0 million for the first quarter of 1996. Sales for the first quarter
of 1997 increased $3.6 million, or 9%, over the first quarter of 1996. Sales
increased at all significant divisions of the Company except for Alliance,
which remained even with last year's first quarter, and Klemp, which decreased
$0.6 million. Sales increased $1.8 million at CPI, $1.4 million at Auto-Lok
and $1.1 million at Hanna. The increase in sales at CPI was primarily due to
an increase in orders from and shipments to one of CPI's largest customers.
The increases at Auto-Lok and Hanna are primarily due to a general increase in
demand for their products, which has resulted in higher levels of orders and
shipments. Sales at Klemp during the first quarter of 1997 were affected by a
softening in the markets it serves.
Gross profit for the first quarter of 1997 was $8.3 million, compared to
$7.7 million for the first quarter of 1996. First quarter 1997 gross profit
<PAGE>
<PAGE> 10
increased over $0.6 million, or 8.5%. Gross profit margin was almost
unchanged at 19.5% in the first quarter of 1997, compared to 19.6% in the
comparable 1996 period. Gross profit during the first quarter of 1997
compared to 1996 improved at the Company's CPI, Hanna and Auto-Lok divisions,
remained unchanged at Alliance and decreased at Klemp. The increases in gross
profit at CPI, Hanna and Auto-Lok were due to their higher volumes in the
first quarter of 1997 while Klemp's gross profit was affected by its volume
decrease. Gross profit margins improved significantly at CPI and Hanna due to
the efficiencies of their increased volumes. Auto-Lok's profit margin was
negatively affected by manufacturing inefficiencies caused by equipment
problems. Klemp's profit margin was affected by the underabsorption of
expenses from the decrease in volume.
Selling, general and administrative (SGA) expenses for the first quarter
of 1997 were just over $5.2 million, compared to just under $5.2 million for
the first quarter of 1996. However, SGA expenses as a percentage of sales
decreased to 12.3% for the first quarter of 1997 compared to 13.2% in the
first quarter of 1996. The decrease in SGA as a percentage of sales was
primarily due to the increased domestic and international marketing efforts in
1996 which have leveled off in the first quarter of 1997.
Other expense for the first quarter of 1997 was $0.2 million, compared to
$0.3 million for the first quarter of 1996, a net decrease of $0.1 million.
There were no individually significant or offsetting items in either of the
first quarters of 1997 or 1996.
Interest expense, net, for the first quarter of 1997 was $2.4 million,
which was equal to interest expense, net, for the first quarter of 1996. A
slightly higher level of interest expense under the Revolving Credit Facility
in the first quarter of 1997 compared to 1996 was offset by a lower level of
interest expense on related party indebtedness. The increase in interest
expense on the Revolving Credit Facility was primarily due to a .25% increase
in the prime lending rate (as defined) and a slightly higher level of
borrowings. The decrease in interest expense on related party indebtedness
was due to the full repayment of the Parkdale Note and repayments made on the
Gesterkamp Note.
Minority interests of almost $0.1 million represent losses during the
first quarter of 1997 allocated to the minority ownerships of the Company's
CFI-Klemp and Shanghai Klemp joint ventures. Minority interests are
calculated based on the percentage of minority ownership.
There was a tax provision of $0.1 million in the first quarter of 1997,
compared to a slight tax benefit in the first quarter of 1996. The tax
provision in the first quarter of 1997 was attributable to the pre-tax income
while the tax benefit in the first quarter of 1996 was attributable to the
pre-tax loss.
The equity income in the first quarter of 1997 and the equity loss for the
first quarter of 1996 relates to the Company's June 1995 investment in Reunion
and represents the Company's proportionate share of Reunion's results for each
quarter.
The classification of Mexico as a highly-inflationary economy effective
January 1, 1997 pursuant to paragraph 11 of SFAS No. 52, "Foreign Currency
Translation" had an insignificant impact on the Company's result of operation
for the first quarter of 1997.
<PAGE>
<PAGE> 11
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 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 or other financing or refinancing arrangements, if
necessary.
The Company has the Revolving Credit Facility with Congress, which is
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 initially set at $20.0 million, temporarily increased to
$26 million on June 20, 1995 in connection with the Company's investment in
Reunion common stock, fixed at $25 million on October 18, 1995, temporarily
increased to $27.5 million on May 1, 1996 and pursuant to a May 1, 1997
amendment as discussed below, fixed at $28.0 million. At March 31, 1997, 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 March 31, 1997 totalled $23.9 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 expires on June 30, 1998 and is renewable annually
thereafter.
On May 1, 1997, Congress and the Company amended the Revolving Credit
Facility to provide for an increase in the Maximum Credit to $28.0 million
from $25.0 million. The proceeds from this increase in the Maximum Credit
were used for various purposes, including the Company's May 1, 1997 semi-
annual interest payment on its $50.0 million of 13% per annum senior notes.
At December 31, 1996, the Company had net operating loss carryforwards
for tax reporting purposes of approximately $8.0 million, of which $2.0
million expires between 1998 and 2005 with the remainder thereafter, including
approximately $5.0 million in 2008. 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 have prompted management to leave on its books at December 31, 1996, a
valuation reserve for a portion of such future benefits, in accordance with
SFAS No. 109, "Accounting for Income Taxes."
<PAGE>
<PAGE> 12
Operating Activities
Operating activities provided $1.6 million of cash during the first
quarter of 1997, compared to cash provided of $1.5 million in the first
quarter of 1996, an increase of $0.1 million. An increase in income before
depreciation, amortization, minority interests and equity income (loss) of
$0.5 million in the first quarter of 1997 compared to 1996 was partially
offset by an increase of $0.4 million in cash used during the first quarter of
1997 compared to 1996 to fund increases in net working capital (defined as
receivables, inventories and trade payables for cash flow purposes).
Investing Activities
Investing activities used $1.4 million of cash during the first quarter
of 1997, compared to cash used of $1.0 million during the first quarter of
1996, an increase in cash used of $0.4 million, all related to an increase in
capital expenditures during the first quarter of 1997 compared to the first
quarter of 1996.
Financing Activities
Financing activities during the first quarter of 1997 used almost $0.4
million in cash, compared to $0.8 million of cash used from financing
activities during the first quarter of 1996, a decrease in cash used of $0.4
million. This decrease in cash used is primarily the result of an increase of
$0.3 million in the level of net borrowings under the Revolving Credit
Facility during the first quarter of 1997 compared to a decrease of $0.7
million in the first quarter of 1996, partially offset by a $0.5 million
increase in repayments of related party indebtedness.
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
----------- -------------------
4.26 Fourth Amended and Restated Availability A
Promissory Note dated May 1, 1997 between
Chatwins Group, Inc. and Congress Financial
Corporation.
4.43 Amendment No. 7 to Loan and Security
Agreement dated May 1, 1997 between
Chatwins Group, Inc. and Congress Financial
Corporation.
27 Financial Data Schedule.
(b) Reports on Form 8-K - None.
<PAGE>
<PAGE> 13
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: May 15, 1997 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> 14
EXHIBIT INDEX
Exhibit No. Exhibit Description Page No.
----------- ------------------- --------
4.26 Fourth Amended and Restated Availability 15
A Promissory Note dated May 1, 1997
between Chatwins Group, Inc. and
Congress Financial Corporation.
4.43 Amendment No. 7 to Loan and Security 19
Agreement dated May 1, 1997 between
Chatwins Group, Inc. and Congress
Financial Corporation.
27 Financial Data Schedule 22
<PAGE>
<PAGE> 15
FOURTH AMENDED AND RESTATED
AVAILABILITY A
PROMISSORY NOTE
$28,000,000 New York, New York
As of May 1, 1997
FOR VALUE RECEIVED, CHATWINS GROUP, INC., a Delaware corporation
("Debtor"), hereby unconditionally promises to pay to the order of CONGRESS
FINANCIAL CORPORATION, a California corporation ("Payee"), at the offices of
Payee at 1133 Avenue of the Americas, New York, New York 10036, or at such
other place as Payee or any holder hereof may from time to time designate, on
June 30, 1998 or such later date to which the term of the Loan Agreement (as
defined below) is extended as provided therein, the lesser of: (i) (A) the
principal sum of TWENTY-EIGHT MILLION DOLLARS ($28,000,000) minus (B) the sum
of the outstanding balances of the B Note and C Note (each as defined in the
Loan Agreement; such sum, the "Availability B and C Outstanding") or (ii) the
aggregate unpaid principal amount of advances on a revolving basis
(hereinafter collectively referred to as "A Advances" and individually
referred to as an "A Advance") made or deemed made under the Availability A
Component (as defined in and pursuant to the Loan and Security Agreement,
dated March 4, 1994, between Debtor and Payee, as amended by Amendment No. 1
to Loan and Security Agreement, dated June 20, 1995, between Debtor and Payee,
Amendment No. 2 to Loan and Security Agreement, dated September 14, 1995,
between Debtor and Payee, Amendment No. 3 to Loan and Security Agreement,
dated October 18, 1995, between Debtor and Payee, Amendment No. 4 to Loan and
Security Agreement, dated as of December 29, 1995, between Debtor and Payee,
Amendment No. 5 to Loan and Security Agreement, dated May 1, 1996, between
Debtor and Payee, Amendment No. 6 to Loan and Security Agreement, dated
November 1, 1996, between Debtor and Payee, and Amendment No. 7 to Loan and
Security Agreement, dated as of the date hereof, between Debtor and Payee
("Amendment No. 7 to Loan Agreement"), or as may hereafter be amended,
modified, supplemented, renewed, extended, restated or replaced, collectively,
the "Loan Agreement"), in lawful money of the United States and in immediately
available funds.
Debtor hereby further promises to pay interest to the order of Payee from
the date hereof on the unpaid principal balance hereof at the Interest Rate
(as hereinafter defined). Such interest shall be paid in like money at the
times and in the manner provided in Section 3.1 of the Loan Agreement.
For purposes hereof, (a) the term "Interest Rate" shall mean a rate of
one and one-half (1.5%) percent per annum in excess of the Prime Rate (as
hereinafter defined); provided, that, at Payee's option, the Interest Rate
shall mean a rate of three and one-half (3.5%) percent per annum in excess of
the Prime Rate upon and after and during the continuance of an Event of
Default, or an event or existence of a condition which, with notice or passage
of time or both, would constitute an Event of Default, or upon and after
termination or non-renewal of the Loan Agreement, or if there are A Advances
outstanding at any time in excess of the amounts permitted under the Loan
Agreement, provided, that if notice is required to be given under Section
3.1(a) of the Loan Agreement, such excess amount(s) remain outstanding at the
expiration of the thirty (30) day period following such notice, (b) the term
"Prime Rate" shall mean the prime interest rate from time to time publicly
announced by CoreStates Bank, N.A., or its successor, at its office in
<PAGE>
<PAGE> 16
Philadelphia, Pennsylvania, whether or not such announced rate is the best
rate available at such bank, and (c) the term "Event of Default" shall mean an
Event of Default as such term is defined in the Loan Agreement. Unless
otherwise defined herein, all capitalized terms used herein shall have the
meanings assigned thereto in the Loan Agreement.
The Interest Rate payable hereunder shall increase or decrease by an
amount equal to each increase or decrease, respectively, in the Prime Rate,
effective on the first day of the month after any change in the Prime Rate,
based on the Prime Rate in effect on the last day of the month in which any
such change occurs. Interest shall be calculated on the basis of a three
hundred sixty (360) day year and actual days elapsed. In no event shall the
interest charged hereunder exceed the maximum permitted under the laws of the
State of New York or other applicable law.
This Note is issued pursuant to the terms and provisions of Amendment No.
7 to Loan Agreement in order to (a) evidence the unpaid principal balance of
the Third Amended and Restated Availability A Promissory Note, dated May 1,
1996, by Debtor to Payee in the original principal amount of $27,500,000 (the
"Existing Note"), (b) evidence existing and future A Advances and (c) to amend
and restate in its entirety and, as so amended and restated, to substitute
for, the Existing Note as evidence of the Availability A Component. The
indebtedness of Debtor to Payee evidenced hereby shall be deemed to constitute
the unpaid principal balance of the indebtedness heretofore evidenced by the
Existing Note, plus the unpaid principal balance of any future A Advances
under the Availability A Component, and shall be repayable, together with
interest accrued and accruing, and other sums in accordance with the terms
hereof and the Loan Agreement. Debtor hereby acknowledges that Debtor is, as
of the date hereof, indebted to Payee in the principal amount hereof, together
with interest through the date hereof, under the Existing Note and accruing
hereunder from and after the date hereof, without offset, defense or
counterclaim of any kind, nature or description whatsoever. Neither the
amendment and restatement contained herein nor Payee's acceptance of this Note
or other actions contemplated by the Loan Agreement or of any of the other
Financing Agreements shall, in any manner, be construed to constitute payment
of, or impair, limit or extinguish the indebtedness by the Existing Note or
constitute a novation with respect thereto and the liens and security
interests securing such indebtedness shall not in any manner be impaired,
limited, terminated, waived or released hereby.
The aggregate principal amount of the Availability A Component shall not
exceed at any one time outstanding the difference between the Maximum Credit
(as defined in the Loan Agreement) and the Availability B and C Outstanding.
The actual amounts due and owing from time to time evidenced hereby shall be
as set forth in the books and records of Payee as to receipts and
disbursements in respect of the Advances, which amounts as so set forth shall
be conclusive and binding upon Debtor, absent manifest error. It is
contemplated that there may be times when no indebtedness is owing hereunder;
but notwithstanding any such occurrence or occurrences, this Note shall remain
valid and shall be in full force and effect as to the Advances made subsequent
to each such occurrence.
This Note is secured by the Collateral (other than the Real Property)
described in the Loan Agreement and any agreements, documents and instruments
now or at any time hereafter executed and/or delivered in connection therewith
or related thereto (the foregoing, as the same now exist or may hereafter be
amended, modified, supplemented, renewed, extended, restated or replaced being
<PAGE>
<PAGE> 17
collectively referred to herein as the "Financing Agreements") and is entitled
to all of the rights and benefits thereof and of the other Financing
Agreements. Payment of the A Advances, prior to an Event of Default or
termination or non-renewal of the Financing Agreements shall be made at such
time or times and in such amount or amounts as provided in the Loan Agreement.
At any time any payment is due hereunder, at its option, Payee may charge the
amount thereof to any account of Debtor maintained by Payee.
If any payment of principal or interest is not made when due hereunder,
or if any other Event of Default shall occur for any reason, or if the Loan
Agreement shall be terminated or not renewed for any reason whatsoever, then
and in any such event, in addition to all rights and remedies of Payee under
the Financing Agreements, applicable law or otherwise, all such rights and
remedies being cumulative, not exclusive, and enforceable alternatively,
successively and concurrently, Payee may, at its option, declare any or all of
Debtor's obligations, liabilities and indebtedness owing to Payee under the
Loan Agreement and the other Financing Agreements (the "Obligations"),
including, without limitation, all amounts owing under this Note, to be due
and payable, whereupon the then unpaid balance hereof, together with all
interest accrued thereon, shall forthwith become due and payable, together
with interest accruing thereafter at the then applicable Interest Rate stated
above until the indebtedness evidenced by this Note is paid in full, plus the
costs and expenses of collection hereof, including, but not limited to,
reasonable attorneys' fees and legal expenses.
Debtor (i) waives diligence, demand, presentment, protest and notice of
any kind, (ii) agrees that it will not be necessary for Payee to first
institute suit in order to enforce payment of this Note and (iii) consents to
any one or more extensions or postponements of time of payment, release,
surrender or substitution of collateral security, or forbearance or other
indulgence, without notice or consent. The pleading of any statute of
limitations as a defense to any demand against Debtor is expressly hereby
waived by Debtor. Upon any Event of Default or termination or non-renewal of
the Loan Agreement, Payee shall have the right, but not the obligation to
setoff against this Note all money owed by Payee to Debtor.
Payee shall not be required to resort to any Collateral for payment, but
may proceed against Debtor and any guarantors or endorsers hereof in such
order and manner as Payee may choose. None of the rights of Payee shall be
waived or diminished by any failure or delay in the exercise thereof.
The validity, interpretation and enforcement of this Note and the other
Financing Agreements and any dispute arising in connection herewith or
therewith shall be governed by the internal laws of the State of New York
(without giving effect to principles of conflicts of law).
Debtor irrevocably consents and submits to the non-exclusive jurisdiction
of the Supreme Court of the State of New York located in New York County and
the United States District Court for the Southern District of New York and
waives any objection based on venue or forum non conveniens with respect to
any action instituted therein arising under this Note or any of the other
Financing Agreements or in any way connected with or related or incidental to
the dealings of Debtor and Payee in respect of this Note or any of the other
Financing Agreements or the transactions related hereto or thereto, in each
case whether now existing or hereafter arising, and whether in contract, tort,
equity or otherwise, and agrees that any dispute arising out of the
relationship between Debtor and Payee or the conduct of such persons in
<PAGE>
<PAGE> 18
connection with this Note or otherwise shall be heard only in the courts
described above (except that Payee shall have the right to bring any action or
proceeding against Debtor or its property in the courts of any other
jurisdiction which Payee deems necessary or appropriate in order to realize on
the Collateral securing this Note or to otherwise enforce its rights against
Debtor or its property).
Debtor hereby waives personal service of any and all process upon it and
consents that all such service of process may be made by certified mail
(return receipt requested) directed to it and service so made shall be deemed
to be completed five (5) days after the same shall have been so deposited in
the U.S. mails, or, at Payee's option, by service upon Debtor in any other
manner provided under the rules of any such courts. Within thirty (30) days
after such service, Debtor shall appear and respond to such process, failing
which Debtor shall be deemed in default and judgment may be entered by Payee
against Debtor for the amount of the claim and other relief requested.
DEBTOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS NOTE OR (ii) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS BETWEEN DEBTOR AND
PAYEE IN RESPECT OF THIS NOTE OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE
TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. DEBTOR
AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY.
The execution and delivery of this Note has been authorized by the Board
of Directors and by any necessary vote or consent of the stockholders of
Debtor. Debtor hereby authorizes Payee to complete this Note in any
particulars according to the terms of the loan evidenced hereby.
This Note shall be binding upon the successors and assigns of Debtor and
inure to the benefit of Payee and its successors, endorsees and assigns.
Whenever used herein, the term "Debtor" shall be deemed to include its
successors and assigns and the term "Payee" shall be deemed to include its
successors, endorsees and assigns. If any term or provision of this Note
shall be held invalid, illegal or unenforceable, the validity of all other
terms and provisions hereof shall in no way be affected thereby.
CHATWINS GROUP, INC.
By:_______________________________
[Corporate Seal] Title:____________________________
<PAGE>
<PAGE> 19
As of May 1, 1997
Chatwins Group, Inc.
300 Weyman Plaza
Suite 340
Pittsburgh, Pennsylvania 15236
Re: Amendment No. 7 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, Amendment No. 5 to Loan and Security Agreement, dated May
1, 1996, between Lender and Borrower, and Amendment No. 6 to Loan and Security
Agreement, dated November 1, 1996, 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 establish the Maximum Credit in the
amount of $28,000,000 and increase the amount of the sublimit to $8,000,000
with respect to Advances under the Availability A Component against the Value
of Eligible Inventory consisting of finished goods and raw materials and the
Value of Eligible Work-in-Process. Lender is willing to so establish the
Maximum Credit and to so increase the Availability A Component sublimit in
respect of Eligible Inventory consisting of finished goods and raw materials
and Eligible Work-in-Process to the extent set forth herein and subject to the
terms and conditions set forth herein.
1. Amendment to Definition. Section 1.40 of the Loan Agreement is
hereby deleted in its entirety and replaced with the following, effective as
of the date hereof:
"1.40 "Maximum Credit" shall mean the amount of
$28,000,000."
2. Sublimit on Inventory regarding Availability A Component.
Section 2.2(a)(ii)(B) of the Loan Agreement is hereby amended, effective as of
the date hereof, by deleting the amount "$7,000,000" and substituting the
amount "$8,000,000" in its place.
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
<PAGE>
<PAGE> 20
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, a Fourth Amended and Restated Availability A
Promissory Note by Borrower payable to the order of Lender in the original
principal amount of up to $28,000,000, duly authorized, executed and delivered
by Borrower;
(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 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
<PAGE>
<PAGE> 21
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.
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 224
<SECURITIES> 0
<RECEIVABLES> 31,404
<ALLOWANCES> 1,030
<INVENTORY> 20,490
<CURRENT-ASSETS> 54,830
<PP&E> 50,871
<DEPRECIATION> 20,540
<TOTAL-ASSETS> 108,800
<CURRENT-LIABILITIES> 28,574
<BONDS> 49,882
0
7,684
<COMMON> 3
<OTHER-SE> (7,764)
<TOTAL-LIABILITY-AND-EQUITY> 108,800
<SALES> 42,642
<TOTAL-REVENUES> 42,642
<CGS> 34,325
<TOTAL-COSTS> 34,325
<OTHER-EXPENSES> 5,463
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,406
<INCOME-PRETAX> 502
<INCOME-TAX> 111
<INCOME-CONTINUING> 458
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 458
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 1.17
</TABLE>
