<PAGE>
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As filed with the Securities and Exchange Commission on April 14, 1997.
Registration No. 33-63274
SECURITIES AND EXCHANGE COMMISSION, Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 5 TO FORM S-1 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
CHATWINS GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 3446 74-2156829
- ---------------- ---- ----------------
(State or other (Primary Standard (I.R.S. Employer
jurisdiction Industrial Classification Identification
or incorporation Code Number) Number)
or organization)
300 Weyman Plaza, Suite 340
Pittsburgh, Pennsylvania 15236
(412) 885-5501
-------------------------------------------------------------
(Address, including ZIP Code, and telephone number, including
area code, of registrant's principal executive offices)
Copies to:
Joseph C. Lawyer Ann F. Chamberlain
President and Chief Executive Officer Richards & O'Neil, LLP
300 Weyman Plaza, Suite 340 885 Third Avenue
Pittsburgh, Pennsylvania 15236 New York, New York 10022-4802
(412) 885-5501 (212) 207-1200
- -------------------------------------
(Name, address, including ZIP Code,
and telephone number, including
area code, of agent for service)
Approximate date of commencement of proposed sale to the public: From
time to time and as soon as practicable after this Registration Statement
becomes effective.
If any of the securities being registered on this Form are being offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 check the following box.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. _____
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. _____
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. _____
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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CHATWINS GROUP, INC.
Cross-Reference Sheet
(Pursuant to Rule 404(a) and Item 501(b) of Regulation S-K)
Form S-1 Item and Caption Location or Prospectus Caption
- ------------------------------------------- ------------------------------
1. Forepart of Registration Statement Outside Front Cover Page
and Outside Front Cover Page
of Prospectus
2. Inside Front and Outside Back Inside Front Cover Page;
Cover Pages of Prospectus Outside Back Cover Page
3. Summary Information, Risk Factors Prospectus Summary; Risk
and Ratio of Earnings to Factors; The Company; Selected
Fixed Charges Historical Financial Data
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Not Applicable
6. Dilution Not Applicable
7. Selling Security Holders Selling Stockholders
8. Plan of Distribution Plan of Distribution
9. Description of Securities to Description of Warrants;
be Registered Description of Capital
Stock
10. Interests of Named Experts Legal Matters; Experts
and Counsel
11. Information with Respect Outside Front Cover Page;
to the Registrant Prospectus Summary; Risk
Factors; The Company; Use of
Proceeds; Dividend Policy;
Capitalization; Selected
Historical Financial Data;
Management's Discussion and
Analysis of Financial Condition
and Results of Operations;
Management; Security Ownership
of Management and Certain
Beneficial Owners; Certain
Relationships and Related
Transactions; Shares Eligible
for Future Sales; Business;
Financial Statements
12. Disclosure of Commission Position Undertakings
on Indemnification for Securities
Act Liabilities
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<PAGE> 1
PROSPECTUS
CHATWINS GROUP, INC.
This Prospectus relates to certain securities of Chatwins Group, Inc., a
Delaware corporation (Company), which may be offered from time to time by the
Company and the Selling Stockholders named herein (Selling Stockholders). The
securities of the Company offered hereby (Securities) are (i) 50,000 warrants
(Warrants), each of which entitles the holder thereof to purchase one share of
the Common Stock, par value $.01 per share (Common Stock), of the Company, at
an exercise price of $0.01 per share and (ii) 50,000 shares of the Common
Stock issuable upon exercise of the Warrants (Warrant Shares) and such number
of Warrant Shares which may become issuable pursuant to the anti-dilution
provisions relating to the Warrants. See "Description of Warrants - Anti-
Dilution Adjustments." The Company will receive no proceeds from the sale of
the Securities by the Selling Stockholders, but will incur certain expenses,
estimated at $342,100 in connection with this offering. See "Selling
Stockholders." The Company will receive an aggregate of $500 if and when all
of the Warrants are exercised. See "Use of Proceeds."
The Warrants were issued pursuant to a Warrant Agreement, dated as of May
1, 1993 (Warrant Agreement), between the Company and The First National Bank
of Boston, which has been replaced by State Street Bank and Trust Company, as
warrant agent (in such capacity, the "Warrant Agent"). The Warrants were
issued in a transaction (Offering) pursuant to which the Company issued 50,000
Units (Units) consisting of an aggregate of $50.0 million principal amount of
its 13% Senior Notes due 2003 (Old Notes) and 50,000 Warrants. The Warrants
and the Old Notes were sold by the Company to Bear, Stearns & Co. Inc. (Bear
Stearns) as the initial purchaser on May 3, 1993 (Closing Date) pursuant to a
Purchase Agreement, dated April 22, 1993 (Purchase Agreement), between the
Company and Bear Stearns. Bear Stearns subsequently resold the Warrants and
the Old Notes in reliance on Rule 144A and other available exemptions under
the Securities Act of 1933, as amended (Securities Act). The Company and Bear
Stearns also entered into an Exchange and Registration Rights Agreement, dated
as of May 1, 1993 (Exchange and Registration Rights Agreement), pursuant to
which the Company granted certain exchange and registration rights for the
benefit of the holders of the Warrants, the Warrant Shares and the Old Notes.
The filing of the Registration Statement (as defined) of which this Prospectus
is a part is intended to satisfy certain of the Company's obligations under
the Exchange and Registration Rights Agreement with respect to the Warrants
and the Warrant Shares. See "Description of Warrants."
(continued on next page)
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SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN RISKS THAT SHOULD BE CONSIDERED
IN CONNECTION WITH AN INVESTMENT IN THE SECURITIES OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------------------------
The date of this Prospectus is April 11, 1997.
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The Warrants are not exercisable except in connection with certain
Trigger Events, including an Initial Public Offering, a Disposition, a Non-
Surviving Combination and a Change of Control (in each case, as defined) or if
the Company is prohibited from consummating a Repurchase Offer (as defined).
If no transaction constituting a Trigger Event is consummated on or before the
fifth anniversary of the closing of the sale of the Units to Bear Stearns
(Closing) or in certain other limited circumstances, the Company is required
to offer to purchase the Warrants on the terms set forth in the Warrant
Agreement. The Repurchase Price (as defined) to be paid for the Warrants
pursuant to any Repurchase Offer shall be the fair market value of the Warrant
Shares on the Valuation Date (as defined) as determined by an Independent (as
defined) nationally recognized banking firm with assets in excess of $1.0
billion selected by the Independent members of the Board of Directors of the
Company. The Warrants will expire on the tenth anniversary of the Closing.
The Warrants offered hereby will entitle the holders thereof to purchase in
the aggregate 50,000 shares of Common Stock, or approximately 17% of the
Company's outstanding Common Stock on a fully diluted basis. See "Description
of Warrants" and "Description of Capital Stock."
In accordance with the Exchange and Registration Rights Agreement, the
Company filed a registration statement (Exchange Offer Registration Statement)
on Form S-4 under the Securities Act (Registration Number 33-63272), with
respect to an offer to exchange $1,000 in principal amount of its 13% Senior
Exchange Notes due 2003 (New Notes and, together with the Old Notes, the
"Senior Notes"), which have been registered under the Securities Act, for each
$1,000 in principal amount of its outstanding Old Notes (Exchange Offer). The
Exchange Offer Registration Statement was declared effective on July 30, 1993.
The Company will sell the Warrant Shares only to the registered holders
of the Warrants, in accordance with the terms thereof, if and when such
holders exercise the Warrants. The Selling Stockholders may from time to time
sell all or a portion of the Securities in negotiated transactions or
otherwise, at prices then prevailing or related to the then current market
price or at negotiated prices. The Selling Stockholders may sell the
Securities directly or through brokers or dealers, or in a distribution by one
or more underwriters on a firm commitment or best efforts basis. The Selling
Stockholders and any broker-dealers participating in the distribution of the
Securities may be deemed to be "underwriters" within the meaning of the
Securities Act, and any profit on the sale of the Securities by the Selling
Stockholders and any commissions received by any such broker-dealer may be
deemed to be underwriting commissions under the Securities Act. See "Risk
Factors - Lack of Public Market" and "Plan of Distribution."
Except as provided below, the Warrants were issued originally as a single
warrant in global form that represented all of the outstanding Warrants
(Global Warrant) in order to deposit it with, or on behalf of, The Depository
Trust Company, New York, New York (DTC), as the initial depositary with
respect to the Warrants (in such capacity, the "Depositary"). The Global
Warrant is registered in the name of Cede & Co., as nominee of DTC, and
beneficial interests in the Global Warrant are shown on, and transfers thereof
are effected only through, records maintained by the Depositary and its
participants. The use of the Global Warrant to represent the Warrants permits
the Depositary's participants, and anyone holding a beneficial interest in a
Warrant registered in the name of such a participant, to transfer interests in
the Warrants electronically in accordance with the Depositary's established
procedures without the need to transfer a physical certificate.
Notwithstanding the foregoing, Warrants that were sold to any purchaser that
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was not a "Qualified Institutional Buyer" under Rule 144A under the Securities
Act (a "Qualified Institutional Buyer") received Warrants in certificated form
and are not, and will not be, able to trade such Warrants through the
Depositary unless such Warrants are resold to a Qualified Institutional Buyer.
Warrants in certificated form will be issued in exchange for a holder's
proportionate interest in the Global Warrant only as set forth in the Warrant
Agreement. See "Description of Warrants - Form of Warrants."
The Securities have not been registered for sale by the Company or the
Selling Stockholders under the securities laws of any state as of the date of
this Prospectus. Selling Stockholders, brokers or dealers effecting
transactions in the Securities should confirm the registration thereof under
the securities laws of the states in which such transactions occur or the
existence of any exemption from registration.
No dealer, salesman or other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, regarding the Company or the offering made by this Prospectus and,
if given or made, such information or representations must not be relied upon
as having been authorized by the Company or by any other person. All
information contained in this Prospectus is as of the date of this Prospectus.
Neither the delivery of this Prospectus nor any sale or distribution and
resale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date
hereof. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Securities
covered by this Prospectus, nor does it constitute an offer to or solicitation
of any person in any jurisdiction in which such offer or solicitation may not
be lawfully made.
AVAILABLE INFORMATION
The Company has filed a registration statement on Form S-1 (together with
any amendments thereto, the "Registration Statement") with the Commission
under the Securities Act with respect to the Warrants and the Warrant Shares.
This Prospectus, which constitutes a part of the Registration Statement, omits
certain information contained in the Registration Statement and reference is
made to the Registration Statement and the exhibits and schedules thereto for
further information with respect to the Company and the Warrants and the
Warrant Shares offered hereby. This Prospectus contains summaries of the
material terms and provisions of certain documents and in each instance
reference is made to the copy of such document filed as an exhibit to the
Registration Statement. Each such summary is qualified in its entirety by
such reference.
The Registration Statement (including the exhibits and schedules thereto)
and the periodic reports and other information filed by the Company with the
Commission may be inspected without charge at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission located at 7 World
Trade Center, 13th Floor, New York, New York 10048, and Suite 1400,
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such materials may be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and its
public reference facilities in New York, New York, and Chicago, Illinois, at
prescribed rates. The Commission maintains a web site that contains
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<PAGE> 4
reports, proxy and other information statements regarding registrants that
file electronically with the Commission. The internet address of such site is
http://www.sec.gov.
The Company has agreed that until the tenth anniversary of the Closing
the Company will file with the Commission and distribute to holders of the
Warrants and the Warrant Shares, such annual and quarterly reports and such
information, documents and other reports (or copies of such portions of any of
the foregoing as the Commission may by rules and regulations prescribe) which
are specified in Sections 13 and 15(d) of the Securities and Exchange Act of
1934, as amended (Exchange Act) (whether or not the Company's duty so to file
is suspended). The Company will also make such reports available to
prospective purchasers of the Warrants and the Warrant Shares and to
securities analysts and broker-dealers upon their request. In addition, the
Company has agreed to furnish to holders of the Warrants and the Warrant
Shares and prospective purchasers thereof designated by the initial purchaser
of the Warrants, upon their request, the information required to be delivered
pursuant to Rule 144A(d)(4) under the Securities Act until such time as the
Registration Statement of which this Prospectus is a part has remained
effective for a period of three years following the last exercise of a
Warrant.
This Prospectus incorporates documents by reference which are not
presented herein or delivered herewith. The Company will provide without
charge to each person, including any beneficial owner, to whom this Prospectus
is delivered, upon written or oral request of such person, a copy of any or
all documents that have been incorporated by reference in this Prospectus (not
including exhibits to the information that is incorporated by reference unless
such exhibits are specifically incorporated by reference into the documents
that this Prospectus incorporates). Requests for such copies should be
directed to Russell S. Carolus, Vice President and Secretary, Chatwins Group,
Inc., 300 Weyman Plaza, Suite 340, Pittsburgh, Pennsylvania 15236; Telephone:
(412) 885-5501.
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TABLE OF CONTENTS
Page
----
Available Information 3
Prospectus Summary 6
Risk Factors 12
The Company 15
Use of Proceeds 17
Dividend Policy 17
Capitalization 18
Selected Historical Financial Data 19
Management's Discussion and Analysis of Financial
Condition and Results of Operations 22
Business 38
Management 56
Security Ownership of Management and Certain Beneficial Owners 65
Certain Relationships and Related Transactions 67
Description of Revolving Credit Facility 76
Description of Warrants 78
Description of Senior Notes 85
Certain Federal Income Tax Consequences 101
Shares Eligible for Future Sale 103
Selling Stockholders 104
Plan of Distribution 105
Description of Capital Stock 105
Legal Matters 107
Experts 107
Index to Financial Statements F-1
<PAGE>
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Except
as otherwise specified, all share and per share information with respect to
the Common Stock gives effect to a 2.45 to 1.0 stock split that the Company
effected on April 22, 1993 (Recapitalization).
The Company
The Company designs, manufactures and markets a broad range of fabricated
and machined industrial parts and products, primarily for sale to original
equipment manufacturers in a variety of industries. The Company's principal
fabricated and machined products include large, seamless pressure vessels for
highly pressurized gases, high quality steel and aluminum grating, industrial
hydraulic and pneumatic cylinders, industrial cranes, large mill equipment,
cold-rolled steel leaf springs and high quality roll formed and
structural storage racks. In 1996, substantially all of the Company's
operations related to metal products. The Company also has a
small non-manufacturing division which invests in oil and gas participations
and holds a minority voting interest in Reunion Industries, Inc.
(Reunion) . Unless otherwise specified, all references herein to
the "Company" include Chatwins Group, Inc. and its divisions and direct and
indirect subsidiaries.
The Company emphasizes internal development of products, enhancement of
manufacturing capabilities, market development and cost control. As a result
of this strategy, the Company has maintained stable cash flows from
operations. Although its manufacturing divisions share common characteristics
as basic metal fabrication concerns, the Company believes that the variety of
market niches served by these divisions lessens the impact of adverse economic
conditions on the Company.
The Company believes that it will be able to take advantage of the
construction and rebuilding of electric utility, water and wastewater
treatment plants that is expected to result from the compliance standards
imposed by federal environmental laws and regulations such as those imposed
under the Clean Air, Clean Water and Safe Drinking Water Acts. In addition,
the Company believes that greater infrastructure spending will increase demand
for the Company's industrial grating products for use in roads, bridges and
industrial plant construction and rebuilding.
The Company's strategy is the establishment of large market share
positions in well established niche markets. In this regard, the Company
intends to continue to consider acquisitions that enhance its existing
capabilities and profitability, or that are otherwise compatible with its
strategies and management expertise. See, however, "Description of Senior
Notes - Certain Covenants - Limitation on Investments." Since 1989, the
Company has consummated nine such acquisitions. Additionally, the Company has
undertaken efforts to expand export and international sales by
exploring the potential for increased marketing of certain products in
targeted foreign countries and joint venturing with selected international
partners. The Company and Reunion are continuing to explore the opportunities
for synergies between their businesses. See "The Company" and "Business -
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Individual Operating Divisions" for more detailed descriptions of the
Company's operating divisions and their respective market niches. See also
"Business - Investments - Reunion."
Issuance of the Warrants
The Warrants were issued in the Offering, pursuant to which the Company
issued 50,000 Units consisting of an aggregate of $50.0 million principal
amount of the Old Notes and 50,000 Warrants to purchase an aggregate of 50,000
shares of Common Stock or approximately 17% of the outstanding Common Stock on
a fully diluted basis. See "Description of Warrants." The Warrants and the
Old Notes were sold on the Closing Date by the Company to Bear Stearns as the
initial purchaser pursuant to the Purchase Agreement. Bear Stearns
subsequently resold the Warrants and the Old Notes in reliance on Rule 144A
and other available exemptions under the Securities Act. The Company and Bear
Stearns also entered into the Exchange and Registration Rights Agreement,
pursuant to which the Company granted certain registration rights with respect
to the Old Notes and agreed, with respect to the Warrants, to file a shelf
registration statement with respect to all of the Warrants and the Warrant
Shares, and use its best efforts to keep such shelf registration statement
continuously effective for so long as any of the Warrants remain outstanding
and for a period of three years following the date on which the last Warrant
is exercised or such other period that will terminate when all of such
Warrants and Warrant Shares covered by such shelf registration statement have
been sold pursuant to the terms of such shelf registration statement. The
Company filed the Registration Statement of which this Prospectus is a part in
accordance with these requirements of the Exchange and Registration Rights
Agreement. See "Description of Warrants."
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Description of the Securities
Issuer Chatwins Group, Inc.
Securities Being Registered 50,000 Warrants, each of which entitles
the holder thereof to purchase one share
of the Common Stock for a purchase price
of $.01 per share, 50,000 shares of the
Common Stock issuable upon exercise of
the Warrants and such number of Warrant
Shares which may become issuable
pursuant to the anti-dilution provisions
relating to the Warrants. The Warrants
expire on the tenth anniversary of the
Closing Date. The Warrants entitle the
holders thereof to purchase an aggregate
of 50,000 shares of Common Stock, or
approximately 17% of the Company's
outstanding Common Stock on a fully
diluted basis.
Exercise and Purchase of Warrants The Warrants are not exercisable except
in connection with certain Trigger
Events, including an Initial Public
Offering, a Disposition, a Non-Surviving
Combination and a Change of Control or
if the Company is prohibited from
consummating a Repurchase Offer. If no
transaction constituting a Trigger Event
is consummated on or before the fifth
anniversary of the Closing Date or in
certain other limited circumstances, the
Company will be required to offer to
purchase the Warrants on the terms and
conditions set forth in the Warrant
Agreement. See "Description of
Warrants."
Anti-Dilution The number of Warrant Shares issuable
upon exercise of a Warrant are subject
to certain anti-dilution adjustments.
See "Description of Warrants -
Anti-Dilution Adjustments."
Certain Covenants The Warrant Agreement requires the
Company to comply with the covenants and
other agreements and all terms and
conditions of the Indenture, dated as of
May 1, 1993 as amended by the First
Supplemental Indenture and Waiver of
Covenants and the Second Supplemental
Indenture (Indenture), between the
Company and The First National Bank of
Boston, which has been replaced by State
Street Bank and Trust Company, as
trustee (in such capacity, the
"Trustee"), pursuant to which the Senior
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Notes were issued. The Indenture
restricts, among other things, the
repurchase of the Warrants, the
incurrence of additional indebtedness,
the incurrence of liens, the payment of
dividends and distributions, the use of
proceeds from certain assets sales,
transactions with affiliates, the making
of loans and investments and the merger,
consolidation or transfer of all or
substantially all of the assets of the
Company, and requires, among other
things, the maintenance of EBITDA (as
defined). See "Description of Senior
Notes - Certain Covenants" and
"Description of Warrants - Repurchase
Offer" and "-Compliance with Indenture."
The Company's revolving credit facility
(Revolving Credit Facility) with
Congress Financial Corporation
(Congress) restricts the repurchase of
the Warrants in certain circumstances.
See "Description of Warrants -
Repurchase Offer."
Fees and Expenses All expenses incident to the Company's
compliance with the Exchange and
Registration Rights Agreement will be
borne by the Company. See "Description
of Warrants - Fees and Expenses."
Certain Federal Income
Tax Consequences For a discussion of certain federal
income tax consequences, see "Certain
Federal Income Tax Consequences."
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SUMMARY HISTORICAL FINANCIAL DATA
(In thousands, including notes hereto, except for share
and per share amounts and ratios)
The summary historical financial data set forth below are derived from
the consolidated financial statements of the Company. For additional
information, see the financial statements of the Company, including the notes
thereto, contained elsewhere in this Prospectus.
Year Ended December 31, 1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
EARNINGS DATA(1):
Net sales $153,480 $183,408 $154,710 $111,457 $107,601
Cost of sales 123,384 146,386 124,856 89,165 84,201
-------- -------- -------- -------- --------
Gross profit 30,096 37,022 29,854 22,292 23,400
Selling, general and
administrative expenses(2) 19,899 21,169 19,653 14,141 14,868
Other (income) expense, net 275 407 (176) 589 844
-------- -------- -------- -------- --------
Operating profit 9,922 15,446 10,377 7,562 7,688
Interest expense, net(3) 9,559 9,800 8,567 6,179 4,389
-------- -------- -------- -------- --------
Income before income taxes
from continuing operations 363 5,646 1,810 1,383 3,299
Provision for income taxes(4) 143 1,034 388 570 1,366
-------- -------- -------- -------- --------
Income from continuing
operations $ 220 $ 4,612 $ 1,422 $ 813 $ 1,933
======== ======== ======== ======== ========
Income (loss) from continuing
operations applicable to
common stock(5) $ (236) $ 4,156 $ 972 $ 238 $ 1,153
======== ======== ======== ======== ========
Average equivalent common
shares outstanding 292,887 292,887 293,242 304,655 283,996
======== ======== ======== ======== ========
Income (loss) from continuing
operations per common share $ (0.80) $ 14.19 $ 3.31 $ 0.78 $ 4.06
======== ======== ======== ======== ========
Ratio of earnings to
fixed charges(6) 1.04x 1.56x 1.19x - 1.59x
======== ======== ======== ======== ========
OPERATING AND OTHER DATA:
EBITDA(7) $ 13,553 $ 18,931 $ 12,825 $ 11,949 $ 12,588
======== ======== ======== ======== ========
Cash flow from (used in)
operating activities 3,761 2,472 (1,432) 4,071 4,403
======== ======== ======== ======== ========
Cash flow from (used in)
investing activities (1,190) (6,866) (4,321) (5,004) (2,739)
======== ======== ======== ======== ========
Cash flow from (used in)
financing activities (2,303) 4,725 5,271 1,703 (1,803)
======== ======== ======== ======== ========
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Depreciation and amortization(8) 3,631 3,974 3,900 3,392 3,300
======== ======== ======== ======== ========
Capital expenditures 4,704 4,852 5,085 1,682 2,882
======== ======== ======== ======== ========
Ratio of EBITDA to interest
expense(7) 1.52x 2.05x 1.58x 2.07x 3.11x
======== ======== ======== ======== ========
(1) The Company holds a minority voting interest in Reunion which it accounts
for under the equity method. On September 14, 1995, the Company sold Oneida
(as defined) to Reunion. Such transaction was treated as the disposal of a
portion of a line of business with Oneida's historical operating results and
resulting gain on sale classified within continuing operations through
September 14, 1995. See "Certain Relationships and Related Transactions -
Acquisition and Disposition of Oneida."
(2) Includes Performance Unit Plans (PUPs) expense related to plans that were
terminated concurrently with the issuance and sale of the Senior Notes. Such
expenses for the years 1992 and 1993 were $1,600 and $995, respectively. See
"Management - Performance Unit Plans."
(3) Includes amortization of debt issuance expenses of the following amounts
for the following years: 1996: $632; 1995: $564; 1994: $444; 1993: $395 and
1992: $344.
(4) See Note 17 to the consolidated financial statements of the Company for
the year ended December 31, 1996. Due primarily to the use of net operating
loss carryforwards, the Company's actual cash payments, net of refunds,
relating to state and federal income taxes for the years ended December 31,
1992 through December 31, 1996 have been approximately $297, $72, $533, $20
and $53, respectively.
(5) In determining income (loss) from continuing operations applicable to
common stock, income from continuing operations is reduced by accretions of
dividends on preferred stock as follows: 1996: $456; 1995: $456; 1994: $450;
1993: $575 and 1992: $780.
(6) Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1996 dated March 26, 1997 and filed with the
Commission on March 27, 1997.
(7) EBITDA is calculated as follows:
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
Income from continuing
operations $ 363 $ 5,646 $ 1,810 $ 1,383 $ 3,299
Interest expense, net 9,559 9,800 8,567 6,179 4,389
Depreciation and amortization(8) 3,631 3,974 3,900 3,392 3,300
Gain on sale of business - (1,190) (1,452) - -
Loss on notes receivable - 701 - - -
PUPs expense(2) - - - 995 1,600
-------- -------- -------- -------- --------
EBITDA $ 13,553 $ 18,931 $ 12,825 $ 11,949 $ 12,588
======== ======== ======== ======== ========
The Company has included EBITDA and the ratio of EBITDA to interest expense in
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<PAGE> 12
the Summary Historical Financial Data due to the close relationship of these
line items to the Company's financial covenants benefitting the Senior Notes.
See "Description of Senior Notes - Certain Covenants - Maintenance of EBITDA."
(8) Excludes amortization of debt issuance expenses. See footnote (3) above.
RISK FACTORS
In addition to the other information and financial data set forth
elsewhere in this Prospectus, the following information should be considered
carefully by prospective investors in evaluating the Company and its business.
Substantial Indebtedness; Restrictions Imposed by the Terms of the
Company's Indebtedness. The Company has substantial indebtedness in relation
to its total capitalization. At December 31, 1996, the Company had
approximately $75.1 million of indebtedness and its long-term
indebtedness as a percentage of its total capitalization was approximately
100%. See "Capitalization" and "Selected Historical Financial Data."
This substantial indebtedness poses substantial risks to holders of the
Warrants and the Warrant Shares. The Company might not have sufficient
liquidity or financing available to pay the principal and interest on the
Senior Notes and to repurchase the Warrants pursuant to a Repurchase Offer.
Such indebtedness may also adversely affect the Company's ability to finance
its future operations and capital needs, may limit its ability to pursue other
business opportunities and may make its results of operations more susceptible
to adverse economic conditions.
The terms of the Indenture governing the Senior Notes and the terms of
the Revolving Credit Facility include significant restrictive financial and
operating covenants. The Revolving Credit Facility and the Indenture restrict
the ability of the Company to consummate a Repurchase Offer in certain
circumstances. The ability of the Company to repurchase the Warrants and make
payments of principal and interest on its indebtedness and to comply with
these restrictive covenants is also dependent upon its future business
performance, which is subject to financial, economic, competitive, regulatory
and other factors, many of which are beyond the Company's control. Failure to
comply with such covenants could lead to an acceleration of such indebtedness.
In addition, since the Revolving Credit Facility is secured by the Company's
inventory, accounts receivable and certain related property, these assets
would be applied to repayment of amounts owing under the Revolving Credit
Facility. In such a case, there can be no assurance that the Company would
have sufficient resources to repay the principal and interest on the Senior
Notes. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources," "Description of
Revolving Credit Facility" and "Description of Senior Notes - Certain
Covenants."
Competition. Many of the Company's products are sold in highly
competitive markets both in the U.S. and internationally. The Company
competes with a significant number of companies of varying sizes, including
divisions or subsidiaries of larger companies. A number of these competitors
have financial and other resources that are substantially greater than those
of the Company. Competitive pressures or other factors could cause the
Company's products to lose market share or result in significant price erosion
<PAGE>
<PAGE> 13
which would have a material adverse effect on the Company's results of
operations. See "Business - Individual Operating Divisions" and "Business -
General Aspects Applicable to the Divisions - Competition."
Tax Considerations. The Company had an aggregate of approximately $18.5
million of net operating loss carryforwards, generated prior to 1986, at the
time of its acquisition by Stanwich Partners, Inc. (SPI) in December 1986. As
of December 31, 1996, such loss carryforwards had been fully utilized. A
number of complex provisions of the Internal Revenue Code of 1986, as amended
(IRC), are designed to limit the ability of a taxpayer such as the Company to
enjoy the tax benefits associated with net operating loss carryforwards. The
Company's utilization of these net operating loss carryforwards has not been
audited by the Internal Revenue Service (IRS) and could be subject to
challenge. Although the Company believes its tax treatment of these loss
carryforwards is proper, there can be no assurance that the Company's position
would prevail if challenged. A successful challenge would adversely affect
the Company's cash flow and consequently its ability to repay the Senior Notes
and repurchase the Warrants.
Environmental Compliance. The Company's production facilities are
subject to numerous environmental laws and regulations concerning, among other
things, emissions to the air, discharges to the land, surface water, and
subsurface strata and water, the generation, handling, storage, transportation
and treatment of waste byproducts, and health and safety matters. The Company
believes that its businesses, operations and facilities are being operated in
substantial compliance with applicable environmental and health and safety
laws and regulations. Compliance with existing federal, state and local
environmental laws and regulations is not expected to have a material adverse
effect upon the earnings or competitive position of the Company. However, the
Company cannot predict the effect, if any, of unknown adverse environmental
conditions, environmental laws and regulations that may be enacted in the
future, or of changes in the enforcement of existing laws and regulations
which are subject to extensive regulatory discretion. See "Business - General
Aspects Applicable to the Divisions - Environmental."
Lack of Public Market. As of April 11, 1997, there was one registered
holder of the Warrants and no registered holders of the Warrant Shares. As of
April 11, 1997, DTC, the registered holder, held Warrants for 19 of its
participants. There has previously been only a limited secondary market for
the Warrants and no public market for the Warrants and the Warrant Shares.
Although the Company has agreed to cause the Warrants and the Warrant Shares
to be listed on each securities exchange, including NASDAQ, on which similar
securities issued by the Company are listed, if requested by the holders of a
majority of the Warrants or the Warrant Shares that have not been distributed
to the public in accordance with an effective registration statement or
pursuant to Rule 144 (or any similar rule) under the Securities Act, in
accordance with the Exchange and Registration Rights Agreement, the Company
currently has no listed securities and has no present intention to apply for
the listing of any securities similar to the Warrants or the Warrant Shares.
The Warrants are currently eligible for trading in the Private Offerings,
Resales and Trading through Automatic Linkages (PORTAL) market. In connection
with the Offering, Bear Stearns advised the Company that it intended to make a
market in the Warrants; however, it is not obligated to do so and any market
making may be discontinued by Bear Stearns at any time. Therefore, there can
be no assurance that an active market for the Warrants or the Warrant Shares
will develop.
<PAGE>
<PAGE> 14
If a trading market develops for the Warrants or the Warrant Shares,
future trading prices will depend on many factors, including, among other
things, the Company's results of operations and the market for similar
securities.
Ranking of Warrants. In the event a bankruptcy or reorganization case
is commenced by or against the Company, a bankruptcy court may hold that
unexercised Warrants are executory contracts which may be subject to rejection
by the Company with approval of the bankruptcy court. In such case, the
claims of the holders of the Warrants would be subject to disallowance by the
bankruptcy court, and the holders of the Warrants may, even if sufficient
funds are available, receive a lesser amount as a result of any such
bankruptcy case than they would be entitled to if they had previously
exercised their Warrants prior to the commencement of such case.
Forward-Looking Statements and Associated Risks. This Prospectus
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.
THE COMPANY
The Company designs, manufactures and markets a broad range of fabricated
and machined industrial parts and products, primarily for sale to original
equipment manufacturers in a variety of industries. The Company's principal
fabricated and machined products include large, seamless pressure vessels for
highly pressurized gases, high quality steel and aluminum grating, industrial
hydraulic and pneumatic cylinders, industrial cranes, large mill equipment,
cold-rolled steel leaf springs and high quality roll formed and
structural storage racks. In 1996, substantially all of the Company's
operations related to metal products. The Company's six manufacturing
divisions in 1995 accounted for approximately 85% of the Company's net sales
and approximately 91% of the Company's operating income before corporate
office expenses. The Company also has a small non-manufacturing division
which invests in oil and gas participations.
The Company emphasizes internal development of products, enhancement of
manufacturing capabilities, market development and cost control. As a result
of this strategy, the Company has maintained stable cash flows from
operations. Although its manufacturing divisions share common characteristics
as basic metal fabrication concerns, the Company believes that the variety of
market niches served by these divisions lessens the impact of adverse economic
conditions on the Company.
<PAGE>
<PAGE> 15
The operations of the Company are conducted through its seven divisions.
See "Business - Individual Operating Divisions" for a more detailed
description of the Company's businesses. See "Business - Investments -
Reunion" for a discussion of the Company's investment in Reunion.
CPI - Founded in 1897, the CP Industries division (CPI), the former
Christy Park division of USX Corporation, specializes in manufacturing large,
seamless pressure vessels for the above ground storage and transportation of
highly pressurized gases such as natural gas, hydrogen, nitrogen, oxygen and
helium. These pressure vessels are provided to customers such as industrial
gas producers and suppliers, the Alternative Fueled Vehicle (AFV) compressed
natural gas fuel industry, chemical and petrochemical processing facilities,
shipbuilders, NASA, public utilities and gas transportation companies.
Klemp - Founded in 1901, the Klemp division (Klemp) is a highly
diversified manufacturer of metal grating products. Klemp manufactures
quality steel and aluminum bar grating products in a variety of sizes,
configurations and finishes, and also custom fabricates bar grating products
for specialized applications. Klemp products are sold for use in many
industrial applications where a combination of strength, light weight, access
and a free flow of air, heat, water or light is desired. Its products are
used in water and wastewater treatment plants, railroad tank cars, petroleum
storage facilities, aircraft, mines, roads, bridge decks and general
manufacturing facilities. For financial reporting purposes, operations of
the Company's two international subsidiaries, are reported as part of the
Klemp division. See "Business - Klemp."
Alliance - Founded in 1901, The Alliance Machine Company division
(Alliance) designs, engineers and manufactures cranes used in a wide range of
steel and aluminum mill applications and large special purpose cranes used in
marine and aerospace applications and heavy industrial plants. Alliance also
manufactures lighter duty cranes for various industrial applications, coke
oven machinery and other large steel-related fabrications . In recent
years, Alliance has expanded and diversified its engineering and manufacturing
capabilities to offer a variety of equipment and related engineering,
fabrication, maintenance and repair services.
Hanna - Founded in 1901, the Hanna division (Hanna) designs and
manufactures a broad line of hydraulic and pneumatic cylinders, actuators,
accumulators and manifolds. These products are used in a wide variety of
industrial and mobile machinery and equipment requiring the application of
force in a controlled and repetitive process. Hanna's specialty is custom
cylinders in both small quantities packaged by its distributors with valves,
pumps and controls as complete fluid power systems and large quantities sold
directly to equipment manufacturers.
Steelcraft - Founded in 1972, the Steelcraft division (Steelcraft)
manufactures and sells cold-rolled steel leaf springs. Its principal
customers are manufacturers of trailers for boats, small utility vehicles and
golf carts and makers of recreational vehicle and agricultural trailers.
Europa - The Company was originally incorporated as Europa Petroleum,
Inc. in 1980. The Europa division (Europa) continues the Company's original
oil and gas business, holding interests in a small number of leases for oil
and gas properties, investing in low-risk gas exploration and managing a
portfolio of oil and gas participations.
<PAGE>
<PAGE> 16
Auto-Lok - Founded in 1946, the Auto-Lok division (Auto-Lok) manufactures
high quality roll formed storage racks for industrial and commercial handling
systems and general storage applications. In addition, Auto-Lok participates
on larger contracts in the sale of total material handling systems through
purchasing and reselling related components such as decking and carton flow
devices, and subcontracting of rack erection. In early 1997, Auto-Lok
began producing its new structural rack product line for heavy-duty industrial
and commercial storage applications.
The Company anticipates an increase in demand for certain of its products
as a result of the compliance standards imposed by various federal
environmental laws and regulations. The Energy Policy Act, for example,
provides incentives and compliance requirements that will greatly increase the
number of vehicles powered by alternative fuels by the year 2000. Compressed
natural gas is already widely used as an alternative fuel in vehicle fleets,
buses and government vehicles. The Company believes that CPI is positioned to
benefit from both the increased use of compressed natural gas as an
alternative fuel by pursuing the expanding refueling station market and the
rapidly growing economies of developing countries . The Company believes
that Klemp will be able to take advantage of the construction and rebuilding
of electric utility, water and wastewater treatment plants that is expected to
result from the compliance standards imposed by federal environmental laws and
regulations such as those imposed under the Clean Air, Clean Water and Safe
Drinking Water Acts. In addition, the Company believes that greater
infrastructure spending will increase demand for Klemp's industrial grating
products for use in roads, bridges and industrial plant construction and
rebuilding.
The Company's strategy is the establishment of large market share
positions in well established niche markets. In this regard, the Company
intends to continue to consider acquisitions that enhance its existing
capabilities and profitability, or that are otherwise compatible with its
strategies and management expertise. See, however, "Description of Senior
Notes - Certain Covenants - Limitation on Investments." Since 1989, the
Company has consummated nine such acquisitions. Additionally, the Company has
undertaken efforts to expand export and international sales by
exploring the potential for increased marketing of certain products in
targeted foreign countries and joint venturing with selected international
partners. The Company and Reunion are continuing to explore the opportunities
for synergies between their businesses. See "Business - Investments -
Reunion."
The executive offices of the Company (Headquarters) are located at 300
Weyman Plaza, Suite 340, Pittsburgh, Pennsylvania 15236; its telephone number
is (412) 885-5501.
USE OF PROCEEDS
The Company will receive an aggregate of $500 if and when all of the
Warrants are exercised. The net proceeds of such exercise received by the
Company, if any, will be used for general working capital purposes. The
Company will receive no proceeds from the sale of the Securities by the
Selling Stockholders.
<PAGE>
<PAGE> 17
DIVIDEND POLICY
The Company has never paid cash dividends on the Common Stock and does
not intend to pay cash dividends in the foreseeable future. The Company
intends to retain its earnings for the future operation and expansion of its
business. In addition, the Indenture and Revolving Credit Facility restrict
the Company's ability to declare or pay any dividend on, or make any
distribution in respect of, the Company's capital stock, or purchase, redeem
or otherwise acquire or retire for value any shares of the Company's capital
stock. See "Description of Revolving Credit Facility" and "Description of
Senior Notes."
<PAGE>
<PAGE> 18
CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 1996. This table should be read in conjunction with the
respective financial statements of the Company contained elsewhere in this
Prospectus.
At December 31, 1996
(in thousands)
--------------------
Long-term indebtedness (1):
Revolving credit facility $23,629
Senior notes due 2003, net of unamortized discount 49,876
Other 1,637
-------
Total 75,142
Redeemable preferred stock:
Class D Series A, par value $.01 per share; 3,000 shares
authorized; 2,249 shares outstanding 3,916
Class D Series B, par value $.01 per share; 800 shares
authorized; 800 shares outstanding 1,491
Class D Series C, par value $.01 per share; 2,500 shares
authorized; 1,510 shares outstanding 2,163
-------
Total 7,570
-------
Warrants 210
Stockholders' equity:
Common stock, par value $.01 per share; 400,000 shares
authorized; 242,887.365 shares outstanding 3
Capital in excess of par value 1,664
Notes receivable from stockholders (1,001)
Treasury stock-41,109.040 shares (500)
Accumulated translation adjustment (688)
Accumulated deficit (2) (7,583)
-------
Total stockholders' equity (8,105)
-------
Total capitalization $74,817
=======
(1) Includes current maturities of long-term debt.
(2) Stockholders' equity has been reduced by accretions for redemption value
of and dividends on preferred stock of $13.5 million as of December 31, 1996.
<PAGE>
<PAGE> 19
SELECTED HISTORICAL FINANCIAL DATA
(In thousands, including notes hereto, except for share
and per share amounts and ratios)
The selected historical financial data set forth below are derived from
the consolidated financial statements of the Company. For additional
information, see the financial statements of the Company, including the notes
thereto, contained elsewhere in this Prospectus.
Year Ended December 31, 1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
EARNINGS DATA(1):
Net sales $153,480 $183,408 $154,710 $111,457 $107,601
Cost of sales 123,384 146,386 124,856 89,165 84,201
-------- -------- -------- -------- --------
Gross profit 30,096 37,022 29,854 22,292 23,400
Selling, general and
administrative expenses(2) 19,899 21,169 19,653 14,141 14,868
Other (income) expense, net 275 407 (176) 589 844
-------- -------- -------- -------- --------
Operating profit 9,922 15,446 10,377 7,562 7,688
Interest expense, net(3) 9,559 9,800 8,567 6,179 4,389
-------- -------- -------- -------- --------
Income before income taxes
from continuing operations 363 5,646 1,810 1,383 3,299
Provision for income taxes(4) 143 1,034 388 570 1,366
-------- -------- -------- -------- --------
Income from continuing
operations $ 220 $ 4,612 $ 1,422 $ 813 $ 1,933
======== ======== ======== ======== ========
Income (loss) from continuing
operations applicable to
common stock(5) $ (236) $ 4,156 $ 972 $ 238 $ 1,153
======== ======== ======== ======== ========
Average equivalent common
shares outstanding 292,887 292,887 293,242 304,655 283,996
======== ======== ======== ======== ========
Income (loss) from continuing
operations per common share $ (0.80) $ 14.19 $ 3.31 $ 0.78 $ 4.06
======== ======== ======== ======== ========
Ratio of earnings to
fixed charges(6) 1.04x 1.56x 1.19x - 1.59x
======== ======== ======== ======== ========
OPERATING AND OTHER DATA:
EBITDA(7) $ 13,553 $ 18,931 $ 12,825 $ 11,949 $ 12,588
======== ======== ======== ======== ========
Cash flow from (used in)
operating activities 3,761 2,472 (1,432) 4,071 4,403
======== ======== ======== ======== ========
Cash flow from (used in)
investing activities (1,190) (6,866) (4,321) (5,004) (2,739)
======== ======== ======== ======== ========
Cash flow from (used in)
financing activities (2,303) 4,725 5,271 1,703 (1,803)
======== ======== ======== ======== ========
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<PAGE> 20
Depreciation and amortization(8) 3,631 3,974 3,900 3,392 3,300
======== ======== ======== ======== ========
Capital expenditures 4,704 4,852 5,085 1,682 2,882
======== ======== ======== ======== ========
Ratio of EBITDA to interest
expense(7) 1.52x 2.05x 1.58x 2.07x 3.11x
======== ======== ======== ======== ========
At December 31, 1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
BALANCE SHEET DATA:
Working capital $ 26,291 $ 25,832 $ 20,741 $ 19,117 $ 17,679
======== ======== ======== ======== ========
Total assets 102,579 107,336 95,350 72,644 69,645
======== ======== ======== ======== ========
Total long-term debt 74,375 73,917 66,141 55,943 41,921
======== ======== ======== ======== ========
Redeemable preferred stock 7,570 7,114 6,658 6,208 10,001
======== ======== ======== ======== ========
Stockholders' equity(9) (8,105) (7,144) (10,749) (11,430) (8,918)
======== ======== ======== ======== ========
(1) The Company holds a minority voting interest in Reunion which it accounts
for under the equity method. On September 14, 1995, the Company sold Oneida
to Reunion. Such transaction was treated as the disposal of a portion of a
line of business with Oneida's historical operating results and resulting gain
on sale classified within continuing operations through September 14, 1995.
See "Certain Relationships and Related Transactions - Acquisition and
Disposition of Oneida."
(2) Includes PUPs expense related to plans that were terminated concurrently
with the issuance and sale of the Senior Notes. Such expenses for the years
1992 and 1993 were $1,600 and $995, respectively. See "Management -
Performance Unit Plans."
(3) Includes amortization of debt issuance expenses of the following amounts
for the following years: 1996: $632; 1995: $564; 1994: $444; 1993: $395 and
1992: $344.
(4) See Note 17 to the consolidated financial statements of the Company for
the year ended December 31, 1996. Due primarily to the use of net operating
loss carryforwards, the Company's actual cash payments, net of refunds,
relating to state and federal income taxes for the years ended December 31,
1992 through December 31, 1996 have been approximately $297, $72, $533, $20
and $53, respectively.
(5) In determining income (loss) from continuing operations applicable to
common stock, income from continuing operations is reduced by accretions of
dividends on preferred stock as follows: 1996: $456; 1995: $456; 1994: $450;
1993: $575 and 1992: $780.
(6) Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1996 dated March 26, 1997 and filed with the
Commission on March 27, 1997.
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<PAGE> 21
(7) EBITDA is calculated as follows:
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
Income from continuing
operations $ 363 $ 5,646 $ 1,810 $ 1,383 $ 3,299
Interest expense, net 9,559 9,800 8,567 6,179 4,389
Depreciation and amortization(8) 3,631 3,974 3,900 3,392 3,300
Gain on sale of business - (1,190) (1,452) - -
Loss on notes receivable - 701 - - -
PUPs expense(2) - - - 995 1,600
-------- -------- -------- -------- --------
EBITDA $ 13,553 $ 18,931 $ 12,825 $ 11,949 $ 12,588
======== ======== ======== ======== ========
The Company has included EBITDA and the ratio of EBITDA to interest expense in
the Selected Historical Financial Data due to the close relationship of these
line items to the Company's financial covenants benefitting the Senior Notes.
See "Description of Senior Notes - Certain Covenants - Maintenance of EBITDA."
(8) Excludes amortization of debt issuance expenses. See footnote (3) above.
(9) Stockholders' equity has been reduced by accretions for redemption value
of and dividends on preferred stock of $13.5 million through 1996.
<PAGE>
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Through September 14, 1995, the date Oneida was sold, the Company's
organizational structure included six divisions that design, manufacture and
market metal products, a wholly-owned subsidiary that manufactures high
volume, precision plastic products and provides engineered plastic services,
an oil and gas division and an equity investment in an oil, gas and real
estate development company. In 1994, the combined operations of the six metal
manufacturing divisions accounted for approximately 82% of the Company's net
sales and approximately 88% of the Company's operating income before corporate
office expenses. In 1995, such 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. In 1996,
substantially all of the Company's operations related to metal products.
As discussed below, several significant changes to the Company's structure
have transpired.
Effective April 1, 1994, the Company acquired all of the issued and
outstanding shares of capital stock of Oneida, a manufacturer of plastic
products, and, on August 29, 1994, the Company acquired all of the issued and
outstanding shares of T.J. Brooks Company (Brooks), a welded hydraulic
cylinder manufacturer. Brooks was immediately merged into the Company and
became part of the operations of the Hanna division. Both of these
acquisitions were accounted for by the purchase method of accounting and,
accordingly, the results of operations of these acquisitions have been
included in the results of operations of the Company from the dates of such
acquisitions.
On September 30, 1994, the Company sold a portion of a line of its metal
products business by selling substantially all of the assets of Ipsen, its
heat treating division. The Company recorded a pre-tax gain on the sale of
Ipsen of $1.45 million as part of other income in the accompanying
consolidated statement of income for the year ended December 31, 1994.
On June 20, 1995, the Company acquired 1,450,000 shares, or approximately
38% of the then outstanding common stock of Reunion (Reunion Common
Stock) 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"). Subsequent to its acquisition of 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 (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. During the fourth quarter of 1996,
Reunion classified its agricultural operations as discontinued operations.
Reunion was also engaged in producing and selling crude oil and natural gas in
the United States until May 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) and $3.7 million owed to the Company as a result of the acquisition
<PAGE>
<PAGE> 23
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 consolidated statement of income for the years ended December 31,
1996 and 1995 as equity loss from operations of affiliate. See "Liquidity and
Capital Resources."
On September 14, 1995 (Sale Date), the Company, through its wholly-owned
subsidiary, Chatwins Holdings, Inc. (CHI), sold all of the issued and
outstanding shares of common stock (Oneida Common Stock) and preferred stock
(Oneida Preferred Stock) of Oneida to Reunion. See "Liquidity and Capital
Resources."
The Company considered Oneida to be a segment of a business as defined in
APB Opinion No. 30, "Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." The Company holds a minority
voting interest in Reunion which, as discussed above, purchased Oneida from
the Company. Accordingly, Oneida's historical operating results and the pre-
tax gain on sale are included as part of the Company's continuing operations,
pursuant to the Securities and Exchange Commission's Staff Accounting Bulletin
(SAB) No. 93, "Accounting and Disclosures Related to Discontinued Operations."
As Oneida was sold to an affiliate, the Company reduced the carrying value of
its investment in the Reunion Common Stock by approximately $0.7 million,
which represented 38% of the pre-tax gain of approximately $1.9 million from
the sale of Oneida. The remaining pre-tax gain of $1.2 million was recorded
as part of other income in the accompanying consolidated statement of income
for the year ended December 31, 1995. For the 1995 period ended on the Sale
Date, Oneida had income before income taxes of $1.3 million. For the nine
month period ended December 31, 1994, Oneida had income before income taxes of
$35,000.
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). 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 Corporation (ORC). In the merger, ORC acquired from
CGII all of the issued and outstanding preferred and common stock of Rostone.
The Merger Agreement 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 level of earnings
before interest and taxes in 1996 as specified in the Merger Agreement for the
payment of deferred merger proceeds in 1997. Under the terms of ORC's loan
facility with Congress, deferred merger proceeds to be paid in 1998, if any,
may only be made from equity contributions Reunion may provide to ORC.
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. As such,
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
<PAGE>
<PAGE> 24
$1.6 million at December 31, 1996. 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.
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 December 31, 1996. 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. See "Certain Relationships and Related Transactions -
Certain Loans - Rostone and CGII."
In December 1995, the Company entered into a joint venture agreement with
China Metallurgical Import & Export Shanghai Company (CMIESC), a state-owned
foreign trade enterprise, and Wanggang Township Economic Development
Corporation (Wanggang), an independently owned industrial development
corporation, to form 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. During the first quarter of 1996
the Company satisfied its obligation to make contributions of assets,
primarily machinery, to the joint venture with an estimated fair market value
totalling approximately $1.9 million. Shanghai Klemp's manufacturing
facilities are located in Wanggang Township, Pudong New Area, Shanghai.
Production began in late 1996 and its results were insignificant.
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-Klemp), a Mexican
corporation. CFI-Klemp is in the business of metal fabrications. CFI-Klemp
had no income or loss for 1996.
Pursuant to paragraph 11 of Statement of Financial Accounting Standards
No. 52, "Foreign Currency Translation," a highly inflationary economy is one
that has cumulative inflation of approximately 100% or more over a three-year
period. During 1996, the three-year cumulative inflation rate in Mexico
exceeded 100%. Accordingly and pursuant to the conclusion reached by the
International Practices Task Force of the American Institute of Certified
Public Accountants, effective January 1, 1997, the functional currency for the
financial statements of Klemp de Mexico will change from the Mexican Peso to
the U.S. dollar.
The Company's products and services are sold primarily to customers in
the U.S. for use in a variety of industries. Consequently, its businesses are
generally affected by the levels of industrial activity and economic
conditions in the U.S. Overall industrial growth, levels of capital spending
and interest rates are among the factors that affect the demand for the
Company's products and services.
Results of Operations
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net sales for 1996 totaled $153.5 million, compared to $183.4 million for
1995 (including $26.2 million from Oneida, which was sold on September 14,
1995). Excluding the sales of Oneida, net sales decreased $3.7 million, or
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2%. Sales increased at the Company's CPI, Hanna and Klemp divisions but
decreased at Auto-Lok and Alliance. By division, sales increased $3.9 million
at CPI, $2.1 million at Hanna and $0.4 million at Klemp. Sales decreased $6.8
million, or 29%, at Auto-Lok and $3.4 million at Alliance. The increases in
sales at CPI and Hanna are primarily due to an increase in demand for their
products as a result of increased marketing efforts, with CPI experiencing
increased sales both domestically and in direct and indirect export sales.
The decrease in sales at Auto-Lok and Alliance was primarily due to soft
markets for their products and the resulting increase in competition which
held down orders through nearly the first eight months of 1996. Orders began
to increase in August 1996 at both Auto-Lok and Alliance, with consolidated
orders for the last four months of 1996 totalling $72 million, which included
a total of $35 million at Alliance and Auto-Lok, the highest level over a four
month period in Company history, resulting in a total-Company backlog at year-
end 1996 of $66 million, its highest level since month-end August 1995.
Gross profit for 1996 was $30.1 million, compared to $37.0 million for
1995. Gross profit for 1995 included $4.6 million from Oneida. Excluding
Oneida's 1995 gross profit, 1996 gross profit decreased $2.3 million. Profit
margin decreased to 19.6% in 1996, compared to 20.6% in 1995, excluding the
gross profit and sales of Oneida. Gross profit in 1996 compared to 1995
improved at CPI but decreased at the other divisions of the Company. The
improvements in gross profit and margin at CPI were primarily due to the
efficiencies of higher volume. 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 volume
during the second half of 1996 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 and fourth quarters of 1996.
Selling, general and administrative (SGA) expenses for 1996 were $19.9
million, compared to $21.2 million for 1995. SGA expenses for 1995 included
$2.5 million from Oneida. Excluding Oneida's SGA expenses, year-to-date 1996
SGA expenses increased $1.2 million compared to 1995. SGA expenses as a
percentage of sales, excluding the SGA expenses and sales of Oneida, increased
to 13% in 1996 compared to 12% in 1995. 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 1996 was $0.3 million, compared to other expense of
$0.4 million for 1995, which included other expenses of Oneida of $0.2
million. Other expense for 1995 included a $1.2 million gain on the sale of
Oneida and a $0.7 million loss on the settlement of notes receivable from an
affiliated company. Excluding Oneida's other expenses of $0.2 million, the
$0.7 million settlement loss on affiliated notes receivable and the $1.2
million gain on the sale of Oneida, 1995 had other expenses of $0.7 million
compared to $0.3 million for 1996. Other expenses for 1995 included
approximately $0.3 million related to the devaluation 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 1996.
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<PAGE> 26
Interest expense, net, for 1996 was $9.6 million, which was approximately
$0.2 million less than interest expense, net, for 1995. Interest expense for
1995 included $0.6 million related to Oneida. Excluding Oneida's interest
expense, 1996 interest expense increased $0.4 million over 1995. The increase
is primarily due to a higher level of debt during the first nine months of
1996 as a result of the investment in Reunion common stock.
There was a tax provision of $0.1 million in 1996, compared to a tax
provision of $1.0 million in 1995. The tax provisions were attributable to
the pre-tax incomes in each period.
The equity loss from continuing operations of affiliate of approximately
$0.2 million in each 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 loss from discontinued operations of affiliate of $0.3 million
in 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 1996. Included in the $0.3 million was an income
of $0.2 million related to Reunion's oil and gas discontinued operations which
was more than fully offset by a loss of $0.5 million related to Reunion's
agricultural discontinued operations.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net sales for 1995 totaled $183.4 million, compared to $154.7 million for
1994 (including $5.2 million from Ipsen, which was sold on September 30,
1994), a net increase of $28.7 million, or 18.5%. Sales increased at all
significant divisions of the Company with the exception of a $0.7 million
decrease at Alliance. By division, sales increased $9.9 million at Hanna,
$8.2 million at Auto-Lok, $6.7 million at Klemp, $5.7 million at CPI and $3.0
million at Oneida, which was owned by the Company for approximately nine
months in both 1995 and 1994. The significant increase in sales at Hanna was
primarily due to the addition of Brooks, which contributed $12.5 million in
sales in 1995, compared to $3.5 million in the 1994 post-acquisition period.
The remaining increase at Hanna and increases at the other divisions of the
Company primarily reflect increased marketing efforts resulting in higher
orders, backlog and sales. Steelcraft's sales during 1995 were at about their
same level as in 1994. The decrease in sales at Alliance was the result of a
31% decrease in orders during 1994 compared to 1993, causing a lower backlog
at year-end 1994. However, Alliance's orders during 1995 increased over 40%
from their 1994 level.
Gross profit for 1995 was $37.0 million, compared to $29.9 million for
1994, a net increase of $7.1 million, or 24.0%. Gross profit margin increased
to 20.2% in 1995, compared to 19.3% in 1994. Gross profit improved at all
divisions during 1995 compared to 1994 and, except for Hanna, gross profit
margin also increased at all divisions. The improvements primarily reflect
higher levels of sales volumes in 1995 over 1994 without corresponding
increases in various production-related fixed costs. Also contributing to the
percentage increases were cost reductions from cost control initiatives and
sales price increases. Hanna's gross profit margin was reduced by the
addition of Brooks, whose product lines generally produce lower margins than
Hanna's historical product lines.
SGA expenses for 1995 were $21.2 million, compared to $19.7 million for
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<PAGE> 27
1994, a net increase of $1.5 million, or 7.7%. The increase in SGA expenses
primarily relates to additional expenses incurred from increased marketing and
sales efforts, both domestically and internationally, which have resulted in
the increased sales volumes.
Other expense for 1995 was $0.4 million, compared to other income of $0.2
million for 1994, a net decrease of $0.6 million. Included in other
income/expense for 1995 and 1994 are $1.2 million and $1.45 million,
respectively, of non-recurring gains from the sales of businesses. Oneida was
sold in the third quarter of 1995 and Ipsen was sold in the third quarter of
1994. Excluding these gains, other expense for 1995 totalled $1.6 million,
compared to other expense of $1.3 million for 1994, a net increase of $0.3
million. The primary reason for this increase was the devaluation of the
Mexican Peso during 1995, which resulted in approximately $0.3 million in
foreign currency transaction losses at the Company's Mexican subsidiary.
Equity in loss of affiliate was $0.1 million in both 1995 and 1994. The
equity loss in 1995 relates solely to the Company's June 1995 investment in
Reunion and represents the Company's proportionate share of Reunion's results
for 1995, while the equity loss in 1994 related to the Company's investment in
CGII. There was no income or loss on the Company's investment in CGII during
1995.
Interest expense, net, for 1995 was $9.8 million, compared to $8.6
million for 1994, a net increase of $1.2 million, or 14.4%. The increase is
primarily due to a higher level of debt during 1995 as a result of the
issuance of the Parkdale and Gesterkamp Notes in June 1995 to fund a portion
of the purchase price of the Reunion Common Stock and Gesterkamp Warrants and
a higher level of average borrowings under the Company's Revolving Credit
Facility with Congress to fund the remaining portion of the purchase price of
the Reunion Common Stock and Gesterkamp Warrants, an increase in the average
level of net working capital resulting from the higher sales volume in 1995
compared to 1994, as well as a higher average level of capital expenditures in
1995 compared to 1994.
The provision for income taxes increased $0.6 million, to $1.0 million in
1995, for an effective tax rate of 18.3%, compared to $0.4 million in 1994,
for an effective tax rate of 22.6%. The increase in the provision for income
taxes was primarily the result of the higher level of pre-tax income in 1995
compared to 1994. The decrease in the effective tax rate was primarily due to
the higher pre-tax income in 1995 which resulted in the reversal of $1.3
million of the valuation allowance for deferred tax assets.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Net sales for 1994 were $154.7 million, up from the $111.5 million of net
sales in 1993. Sales at CPI in 1994 were down $3.4 million from 1993
primarily due to the completion in 1993 of a major contract with NASA and the
reduction in U.S. defense spending associated with Navy shipbuilding. The
decline in sales at CPI was more than offset by increases in net sales of the
Company's grating, crane and cylinder products plus the addition of a plastic
products subsidiary. Grating sales at the Klemp division increased by $10.6
million primarily as the result of the acquisition of Arrowhead Grating &
Metalworks (Arrowhead) in December 1993. Crane and large fabrication sales at
Alliance increased $8.7 million as a result of an improving market trend at
the end of 1993. Cylinder product sales at Hanna increased $4.1 million with
$3.5 million of this increase resulting from the acquisition of Brooks in 1994
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<PAGE> 28
and the remaining $0.6 million increase resulting from an improved market for
the Hanna cylinders. The acquisition of Oneida in March 1994 contributed
$23.2 million to the net sales.
Gross profit of $29.9 million in 1994 is up from the $22.3 million of
gross profit generated in 1993, while gross margin declined to 19.3% in 1994
from 20.0% in 1993. The increase in gross profit is primarily the result of
the increased sales volume. The gross margin decline is primarily
attributable to the Oneida plastic business, which historically sells at a
lower margin than the average of the divisions.
Selling, general and administrative expenses in 1994 of $19.7 million are
up by $5.6 million from the 1993 level of $14.1 million. The main reasons for
this increase are the additional selling, general and administrative expenses
associated with the Company's acquisitions of Oneida and Brooks in 1994 and
Arrowhead at the end of 1993, as well as the additional expenses of the
Company's newly established subsidiary in Mexico. These added expenses in
1994 totalled approximately $4.5 million. The remaining increase is
attributable to increased marketing efforts at most divisions and the costs of
independent consultants at both Alliance and CPI, offset by a reduction of
$1.0 million in PUPs expense. The PUPs were terminated in 1993.
Other income in 1994 increased to $0.2 million, up from $0.6 million of
other expense in 1993. The primary reason for this increase was a gain of
$1.4 million from the sale of substantially all of the assets of the Company's
commercial heat treating division, offset by increased expenses from the
Company's 1994 acquisitions and a gain on the sale of oil and gas properties
in 1993 that was not repeated in 1994.
Loss on equity investment decreased to $0.1 million in 1994 from a loss
of $1.0 million net of taxes in 1993. The improvement in 1994 reflects not
only an improvement in the underlying consolidated operations of CGII but also
the fact that the 1993 loss included equity losses attributable to the 1992
operations of CGII. Such losses were not recognized until 1993 since the
Company's investment in CGII had been reduced to $0 at December 31, 1992 under
the equity method of accounting.
Interest expense, net for 1994 was $8.6 million, up from $6.2 million in
1993. This increase of $2.4 million reflects approximately $1.0 million
related to the inclusion of the Senior Notes for all of 1994, $0.5 million of
additional interest expense resulting from Oneida's debt, approximately $0.4
million related to the additional interest associated with the Company's
increased borrowings for its 1994 acquisitions and the remainder attributable
to higher interest rates in 1994 over 1993.
The provision for income taxes increased to $0.4 million in 1994 from a
benefit of $0.1 million in 1993 primarily as a result of increased profits in
1994.
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
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<PAGE> 29
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. While Oneida was a subsidiary of the Company,
its liquidity was managed separately.
On May 3, 1993, the Company issued an aggregate of $50.0 million
principal amount of Senior Notes and 50,000 Warrants to purchase 50,000 shares
of Common Stock. The Senior Notes bear interest at a rate equal to 13% per
annum. Interest on the Senior Notes is payable semiannually in arrears on May
1 and November 1 of each year. The Senior Notes mature on May 1, 2003. The
Senior Notes are redeemable at the option of the Company in whole or in part
at any time on or after May 1, 1998. The Company is required to redeem $12.5
million principal amount of the Senior Notes on each of May 1, 2000, May 1,
2001 and May 1, 2002, at a redemption price of 100% of the principal amount
thereof, plus interest accrued thereon to the redemption date. The Company is
required to offer to purchase $25 million in principal amount of the Senior
Notes (being 50% of the principal amount of the Senior Notes originally
issued) on each of June 1, 1999 and June 1, 2000 at a purchase price of 100%
of the principal amount, plus accrued interest on the principal amount
purchased to the purchase date. The Senior Notes are senior obligations of
the Company, ranking senior in right of payment to all current and future
subordinated indebtedness of the Company and pari passu in right of payment to
all current and future senior indebtedness of the Company, subject, however,
to the security interests in certain assets granted to Congress pursuant to
the Revolving Credit Facility. The Company's obligations under the Senior
Notes are secured by a pledge by Mr. Bradley and John G. Poole (Mr. Poole),
both directors and stockholders of the Company, of an aggregate of
approximately 60% of the outstanding shares of the Common Stock of the Company
pursuant to the Securities Pledge Agreement (as defined below). See
"Description of Senior Notes."
The Warrants entitle the holders thereof to purchase an aggregate of
50,000 shares of common stock, or approximately 17 percent of the Company's
outstanding common stock on a fully diluted basis, at $.01 per share. The
Warrants expire on May 3, 2003. The Warrants are not exercisable except in
connection with certain Trigger Events, including an Initial Public Offering,
a Disposition, a Non-Surviving Combination and a Change of Control, or if the
Company is prohibited from consummating a Repurchase Offer. No Warrants were
exercisable through December 31, 1996. See "Description of Warrants" and
"Business - Investments - Reunion."
Prior to March 4, 1994, the Company had a $20.0 million revolving credit
facility with Heller Financial, Inc. (Heller). 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 Loan
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<PAGE> 30
Facility was temporarily increased to $26 million on June 20, 1995 in
connection with the Chatwins Acquisition, and fixed at $25 million on
October 18, 1995 through the remainder of the Loan Agreement. At December 31,
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 December 31, 1996 totalled $23.6 million.
The Revolving Credit Facility consists of three availability components
(Availability A Component, Availability B Component and the Availability C
Component) under which Congress makes advances to the Company. Availability
under the Revolving Credit Facility with respect to the Availability A
Component is determined by reference to a borrowing base consisting of (i) 85%
of the Net Amount of Eligible Accounts (as defined in the Loan Agreement) plus
(ii) the lesser of (A) the sum of (1) 50% of the Value of the Eligible
Inventory (as defined in the Loan Agreement) consisting of finished goods or
raw materials, plus (2) 10% of the Value of Eligible Work-in-Process (as
defined in the Loan Agreement) or (B) $7 million, less (iii) under certain
circumstances, availability reserves established by Congress. Additionally,
the total advanced under the Availability A Component is limited by the
Maximum Credit, less amounts outstanding under Availability B and C
Components. The Availability B and C Components were fully drawn in 1994 and
are being repaid according to a monthly amortization schedule which, once
repaid, may not be reborrowed. Additionally, as part of the availability
under the Revolving Credit Facility, Congress will provide letter of credit
accommodations of up to $4.0 million. At December 31, 1996, the Company
has a total of $0.6 million of letters of credit outstanding. 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. At
December 31, 1996, borrowings outstanding under the Revolving Credit Facility
included $22.6 million under the Availability A Component, $0.3 million under
the Availability B Component and $0.7 million under the Availability C
Component. The Company and Congress made various amendments to the
Revolving Credit Facility, discussions of which follow.
The Revolving Credit Facility is secured by a lien in favor of Congress
on the Company's inventory, accounts receivable and certain related property,
such as documents, instruments, books and records, to the extent necessary to
permit foreclosure on the inventory and accounts receivable. Subsequent to
the Refinancing, the Company has borrowed approximately $1.4 million under the
Revolving Credit Facility to repay the industrial revenue bonds of BKO
Industries, Inc., which was at that time a wholly-owned subsidiary of the
Company (Industrial Revenue Bonds). At December 31, 1996, $0.3 million of
this borrowing is secured by the same real property that secured the
Industrial Revenue Bonds that were repaid.
The Loan Agreement contains certain events of default, including the
failure by the Company's current majority stockholder to own or control more
than 50% of the outstanding shares of the Company, and other covenants
customary for loans of this type. See "Description of Revolving Credit
Facility." The Company believes that on balance the covenants contained in
the Revolving Credit Facility are less restrictive than those contained in the
Heller revolving credit facility that was refinanced.
Effective April 1, 1994, the Company acquired all of the issued and
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<PAGE> 31
outstanding shares of capital stock of Oneida for an aggregate cash
consideration of $251. See "Certain Relationships and Related Transactions -
Acquisition and Disposition of Oneida." At December 31, 1994, Oneida had
negative net worth of approximately $5.6 million. The acquisition of Oneida
was funded from the working capital of the Company.
Immediately after the Company acquired Oneida, the Company loaned Oneida
$1 million (Initial Advance) and agreed to lend Oneida $1.1 million during the
remainder of 1994 (Future Advances) (the Initial Advance and the Future
Advances are hereinafter referred to as the "Oneida Advances"). Such Future
Advances were subsequently increased during 1994 and 1995 so that as of
December 31, 1994, the Company had made Oneida Advances totalling $3.5 million
and as of August 31, 1995 had made Oneida Advances totalling $4.9 million
(each including interest and charges). On September 14, 1995, the Company
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. The total purchase price received by the Company was
$3.1 million in cash. The liabilities of Oneida upon its sale to Reunion
included the Oneida Advances. Subsequent to the Sale Date, the Company
received cash payments of $1.6 million in 1995 and $3.7 million in 1996, each
including interest at 10% per annum in full repayment of the Oneida
Advances. See "Certain Relationships and Related Transactions - Certain
Loans - Rostone and CGII."
Prior to the Oneida Disposition, Oneida had a $5.0 million credit
facility with Congress. This facility consisted of a term loan and a
revolving loan. In addition to the Oneida Advances, this facility provided a
primary source of liquidity to Oneida.
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 a $5.8 million promissory note initially payable to Parkdale (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
Oneida Disposition. 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 final payment of the Oneida advances. The remainder of the proceeds were
paid to Congress. During 1996, the Company made payments totalling $2.6
million to Mr. Bradley in partial repayment, including interest, of the
Parkdale Note. At December 31, 1996, the Company's liability to Mr. Bradley
under the Parkdale Note was $0.5 million, including interest, which was repaid
in full in January 1997. 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 in cash and a $0.2 million promissory note (Gesterkamp Note).
Subsequent to its issuance, the Gesterkamp Note was purchased by Mr.
Franklin Myers (Mr. 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. At December
31, 1996, the Company's liability to Mr. Myers under the Gesterkamp Note was
$100,000, $50,000 of which, plus interest, was paid on January 6, 1997. The
final principal repayment of $50,000, plus interest, is due on June 6,
1997. The Gesterkamp Note is secured by the Gesterkamp Warrants. See
"Business - Investments - Reunion" and "Certain Relationships and Related
Transactions - The Parkdale and Gesterkamp Notes."
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The cash portions of the above transactions 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 under the
Availability A Component (Additional Availability A Advances). 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
Additional Availability A Advances from $4.0 million to $1.5 million, and
extend the expiration date of the Additional Availability A Advances to
January 15, 1996. As of December 31, 1995, the Additional Availability A
Advances had been repaid by the Company. The Availability A Component was
secured by a pledge of the Reunion Common Stock and the various agreements
executed in connection with the acquisition of the Reunion Stock
(collectively, the "Reunion Transaction Collateral") up to a maximum amount of
$5.8 million, the amount borrowed from Congress to acquire the Reunion Common
Stock, as well as by most of the other assets of the Company that secure other
borrowings under the Revolving Credit Facility. The Company, having repaid
the $5.8 million by December 31, 1995, was released from the lien on the
Reunion Transaction Collateral.
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, 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 was required to be reduced in $0.5 million increments until fully
reduced. As of the end of February 1997, this overadvance had been fully
reduced. As of the date of this prospectus, the Company is in the initial
stages of arranging an increase in the Maximum Credit for various purposes,
including the May 1, 1997 interest payment on the Senior Notes.
The Company owns 49% of CGII, which owned 100% of the outstanding
preferred stock and fully diluted common stock of Rostone. On December 22,
1995, Rostone and Oneida entered into the Merger Agreement whereby Rostone was
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<PAGE> 33
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 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
level of earnings before interest and taxes in 1996 as specified in the Merger
Agreement for the payment of deferred merger proceeds in 1997. Under the
terms of ORC's loan facility with Congress, deferred merger proceeds to be
paid in 1998, if any, may only be made from equity contributions Reunion may
provide to ORC.
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. As such,
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 December 31, 1996. 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.
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 December 31, 1996. 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. See "Certain Relationships and Related Transactions -
Certain Loans - Rostone and CGII."
Under the equity method of accounting, the carrying value of this
investment at December 31, 1996 was $0.9 million.
In December 1995, the Company entered into a joint venture agreement with
CMIESC and Wanggang to form Shanghai Klemp. The joint venture will provide
metal grating to the expanding construction industries in China and nearby
countries. During the first quarter of 1996 the Company satisfied its
obligation to make contributions of assets, primarily machinery, to the joint
venture with an estimated fair market value totalling approximately $1.9
million. Production began in late December 1996 and its results were
insignificant.
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, a Mexican corporation. CFI-Klemp is
in the business of metal fabrications. CFI-Klemp had no income or loss for
1996.
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 has prompted management to leave on its books at
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December 31, 1996, 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 $3.8 million of cash during 1996, compared
to $2.5 million in 1995, an increase in cash provided of $1.3 million. This
increase in cash provided by operating activities is primarily the result of a
decrease in net working capital (considered to be receivables, inventories and
trade payables) of $5.0 million, primarily due to improved asset management
resulting in lower levels of receivables and inventories during 1996,
partially offset by a $3.6 million decrease in earnings before depreciation,
amortization and gain on sale of business.
Operating activities provided $2.5 million of cash during 1995, compared
to cash used of $1.4 million in 1994, an increase in cash provided of $3.9
million. This increase in cash provided is primarily the result of an
increase of $3.5 million in earnings before depreciation, amortization and
gain on sale of business, from $4.0 million for 1994 to $7.8 million for 1995.
Operating activities used $1.4 million of cash during 1994 compared to
cash provided of $4.1 million in 1993, a decrease of $5.5 million. This
decrease is primarily the result of the funding of increases in accounts
receivable and inventories totalling $3.8 million in 1994 as a result of the
significant increase in sales, compared to cash provided from decreases in
accounts receivables and inventories totalling $4.1 million during 1993. This
$7.9 million decrease in cash was partially offset by a $2.3 million increase
in income before depreciation, amortization and debt extinguishment costs.
Investing Activities
Investing activities used $1.2 million of cash during 1996, compared to
cash used of $6.9 million during 1995, a decrease in cash used of $5.7
million. This decrease in cash used is primarily the result of the Company's
purchase of the Reunion Common Stock and the Gesterkamp Warrants in June 1995,
which included $6.7 million of cash, compared to the $0.2 million in cash used
to make an equity investment in Shanghai Klemp during 1996. Additionally, the
Company received $3.7 million in cash from Reunion in final repayment of the
Oneida Advances during 1996, compared to $1.6 million of such repayments
received during 1995. These increases in cash from investing activities were
partially offset by a decrease as a result of the $3.1 million of cash
received in 1995 from the sale of Oneida which did not recur in 1996. Capital
expenditures in 1996 and 1995 were almost equal at approximately $4.8
million.
Investing activities used $6.9 million of cash during 1995, compared to
cash used of $4.3 million during 1994, an increase in cash used of $2.6
million. This increase in cash used is primarily the result of the Company's
purchase of the Reunion Common Stock and the Gesterkamp Warrants in June 1995,
which included $6.7 million of cash, compared to the $5.6 million in cash used
to acquire Oneida and Brooks and make a loan to CGII during 1994.
Additionally, cash provided from the sale of Oneida during September 1995
totalled $3.1 million, compared to $6.1 million of cash provided from the sale
of Ipsen in September 1994. These decreases were partially offset by the $1.6
million in cash received from Oneida in partial repayment of the Oneida
Advances. Finally, capital expenditures during 1995 of $4.9 million were
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<PAGE> 35
slightly lower than $5.1 million during 1994.
Investing activities used $4.3 million in cash during 1994 compared to
cash used of $5.0 million in 1993, a decrease in cash used of $0.7 million.
This decrease in cash used for investing activities is primarily the result of
$6.1 million of cash provided by the sale of Ipsen in 1994 partially offset by
an increase in capital expenditures during 1994 of $3.4 million, a net
increase in cash used to purchase businesses and make equity investments of
$0.7 million and a decrease in cash from sales of property of $0.8 million,
offset by $6.1 million of cash provided by the sale of Ipsen in 1994.
Additionally, during 1993, the Company received cash payments from related
companies totalling $0.5 million.
Financing Activities
Financing activities during 1996 used $2.3 million in cash, compared to
$4.7 million of cash provided from financing activities during 1995, a
decrease in cash from financing activities of $7.0 million. This is primarily
the result of an increase of $0.5 million in the level of net borrowings under
the Revolving Credit Facility compared to an increase of $9.6 million in 1995.
This $9.1 million decrease in the level of net borrowings under the Revolving
Credit Facility was partially offset by a $1.7 million decrease in required
debt payments during 1996 compared to 1995 and a decrease of $0.4 million in
repayments to related parties related to the Company's obligation under the
Parkdale and Gesterkamp notes.
Financing activities during 1995 provided $4.7 million in cash, compared
to $5.3 million of cash provided from financing activities during 1994, a
decrease in cash provided of $0.6 million. This decrease in cash provided is
primarily the result of a decrease of $2.2 million in the level of net
borrowings under the Revolving Credit Facility and an increase of $1.8 million
in repayments to related parties, partially offset by a $3.5 million decrease
in repayments required on maturing debt.
Financing activities provided $5.3 million of cash during 1994 compared
to $1.7 million provided in 1993. During 1993, the Company generated cash
proceeds of $48.7 million from the issuance of its 13% Senior Notes due 2003,
$9.6 million of which was used to retire other debt and redeem Preferred Stock
(as defined below), and $39.1 million of which was used to repay borrowings
under the Company's prior revolving credit facility with Heller. Accordingly,
there was no net cash generated from these transactions. After giving effect
to these transactions, the Company made principal repayments of debt during
1994 totalling $5.3 million compared to $20.4 million in 1993 and had net
borrowings under line-of-credit agreements totalling $11.2 million in 1994
compared to $22.4 million in 1993. Additionally, the Company made cash
payments to related companies totalling $1.3 million and made a purchase of
treasury stock of $0.5 million during 1993.
BUSINESS
General
The Company designs, manufactures and markets a broad range of fabricated
and machined industrial parts and products, primarily for sales to original
equipment manufacturers in a variety of industries. The Company's principal
fabricated and machined products include large, seamless pressure vessels for
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<PAGE> 36
highly pressurized gases, high quality steel and aluminum grating, industrial
hydraulic and pneumatic cylinders, industrial cranes, large mill equipment,
cold-rolled steel leaf springs and high quality roll formed and
structural storage racks. In 1996, substantially all of the Company's
operations related to metal products. In 1995, the Company's six
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. The Company also has a small non-manufacturing division
which invests in oil and gas participations. Until the Oneida Disposition in
September 1995 the Company also manufactured high volume, precision plastics
products and provided engineered plastics services. The Company also operated
a heat treating service business until divestiture of its Ipsen division
assets in September 1994.
The Company emphasizes internal development of products, enhancement of
manufacturing capabilities, market development and cost control. As a result
of this strategy, the Company has maintained stable cash flows from
operations. Although its manufacturing divisions share common characteristics
as basic metal fabrication concerns, the Company believes that the variety of
market niches served by these divisions lessens the impact of adverse economic
conditions on the Company.
History
The Company was incorporated on September 15, 1980 in Delaware as Europa
Petroleum, Inc. On December 31, 1986, SPI acquired 100% of the common stock
of Europa Petroleum, Inc. The Company's current operational structure was
established in May 1988 by Europa Petroleum, Inc.'s acquisition of four
businesses, currently the Company's Klemp, Hanna, Steelcraft and CPI
divisions, that had been acquired by SPI in 1986. The Company's name was
changed to Chatwins Group, Inc. in connection with these acquisitions.
The Company has subsequently acquired nine businesses, two of which
remain divisions of the Company, four of which were folded into existing
divisions of the Company and three of which were later divested. The Company
acquired the stock of Shields Rubber Corporation in July 1988 for
approximately $1.6 million and divested its assets, excluding indebtedness, in
December 1991 for approximately $6 million. The Company acquired Ipsen in
March 1989 for $7.2 million and divested its Assets on September 30, 1994 for
$6.2 million in cash and the assumption of $.6 million of liabilities by the
purchaser. The Company acquired Alliance in June 1989 for an aggregate of
$5.2 million in cash and assumed liabilities and Chicago Fluid Power
Corporation (CFP) in December 1990 for approximately $1.9 million. CFP became
part of Hanna. The Allmark crane product line was acquired in July 1992 for
approximately $80,000 and was incorporated into the Alliance division. On May
3, 1993, the Company exercised its option to acquire all of the outstanding
equity of Auto-Lok, Inc. in exchange for forgiving a loan, in the original
principal amount of $850,000, made by the Company in November 1990 to Auto-Lok
Holdings, Inc. (Auto-Lok Holdings), a holding company that was formed by
Stanwich Oil & Gas, Inc. (SOG), an affiliate of the Company, to acquire Auto-
Lok. The Company merged Auto-Lok with and into the Company on May 4, 1993.
Auto-Lok is now operated as a division of the Company. On December 1, 1993,
the Company purchased all of the issued and outstanding capital stock of BKO
and its wholly-owned operating subsidiary, Arrowhead Grating and Metalworks,
Inc. (Arrowhead), for approximately $2.2 million and the repayment of
approximately $1.4 million of debt. Effective January 1, 1994, Arrowhead was
merged with and into the Company and became part of Klemp. On March 31, 1994,
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<PAGE> 37
the Company acquired all of the issued and outstanding shares of capital stock
of Oneida for an aggregate cash consideration of $251 and divested this stock
to Reunion in September 1995 for approximately $3.1 million in cash. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" and "Certain Relationships and
Related Transactions - Acquisition and Disposition of Oneida." On August 29,
1994, the Company purchased all of the issued and outstanding shares of
capital stock (Brooks Shares) of Brooks for approximately $5.3 million.
Brooks designs, manufactures and markets welded hydraulic cylinders.
Immediately following the acquisition of the Brooks Shares on August 29, 1994
the Company merged Brooks with and into the Company and began reporting Brooks
as part of the Company's Hanna division. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
In 1993, the Company entered into a joint venture with a Mexican company
for the purpose of manufacturing, selling and distributing metal bar grating.
This affiliate, Acervalco-Klemp, S.A. de C.V., was 49% owned by the Company.
During May 1994, the Company increased its ownership in Acervalco-Klemp, S.A.
de C.V., to 85% and has consolidated the results since such date. In January
1995, the subsidiary's name was changed to Klemp de Mexico.
During 1996, Klemp de Mexico entered into a joint venture agreement with
Consolidated Fabricators, Inc., a Massachusetts company, to form CFI-Klemp, a
Mexican corporation. CFI-Klemp is in the business of metal fabrications. As
Klemp de Mexico has a 50.1% interest in CFI-Klemp, CFI-Klemp is consolidated
with Klemp de Mexico for financial reporting purposes.
In December 1995, with approval from the Chinese government, the Company
entered into a joint venture agreement with CMIESC and Wanggang to form
Shanghai Klemp. As the Company has a 65% interest in Shanghai Klemp, Shanghai
Klemp is consolidated for financial reporting purposes.
Strategy
The Company's strategy is the establishment of large market share
positions in well established niche markets. In this regard, the Company
intends to continue to consider acquisitions that enhance its existing
capabilities and profitability, or that are otherwise compatible with its
strategies and management expertise. See, however, "Description of Senior
Notes - Certain Covenants - Limitation on Investments." Since 1989, the
Company has consummated nine such acquisitions. Additionally, the Company has
undertaken efforts to expand export and international sales by
exploring the potential for increased marketing of certain products in
targeted foreign countries and joint venturing with selected international
partners. The Company and Reunion are continuing to explore the opportunities
for synergies between their businesses. See "Business - Investments -
Reunion."
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<PAGE> 38
Investments
Reunion
On June 20, 1995 the Company acquired the Reunion Common Stock,
constituting approximately 38% of the then outstanding common stock of Reunion
from Parkdale and purchased the Gesterkamp Warrants from P. Dean Gesterkamp.
The aggregate purchase price paid for the Reunion Common Stock and the
Gesterkamp Warrants consisted of $6.1 million in cash, the $5.8 million
principal amount Parkdale Note and the $0.2 million principal amount
Gesterkamp Note. Mr. Bradley subsequently purchased the Parkdale Note. Mr.
Myers, a director of Reunion, subsequently purchased the Gesterkamp Note. See
"Certain Relationships and Related Transactions - The Parkdale and Gesterkamp
Notes." To finance the cash portion of the acquisition of the Reunion Common
Stock and the Gesterkamp Warrants, the Company borrowed funds under its
Revolving Credit Facility with Congress.
Subsequent to its acquisition of Oneida on September 14, 1995, 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, Reunion also compounds and molds thermoset
polyester resins. Reunion also has real estate development and wine grape
agricultural operations in Napa County, California. During the fourth quarter
of 1996, Reunion classified its agricultural operations as discontinued
operations. Reunion was also engaged in producing and selling crude oil and
natural gas in the United States until May 1996, when Reunion sold
substantially all of its oil and gas assets to a Houston-based
corporation.
See "Certain Relationships and Related Transactions - Acquisition and
Disposition of Oneida." Reunion's common stock is listed for quotation on the
NASDAQ Small-Cap. Market under the symbol "RUNI" and on the Pacific Stock
Exchange under the symbol "RUN".
The Company's representatives have proposed and intend to propose
appropriate investment transactions to the Reunion Board of Directors.
Over the longer-term, the Company and Reunion are considering the merger of
itself into Reunion, possibly coincident with a redemption of the Senior
Notes. There is no assurance, however, that either such a merger or
refinancing will occur nor, if either does occur, that they will occur at any
particular time. Such a merger would be a Non-Surviving Combination entitling
the Warrantholders to exercise their Warrants prior to the consummation of the
merger. Warrants not timely exercised would lapse. See "Description of
Warrants - Trigger Events" and "Description of Warrants - Bring Along
Rights." Each of the transactions that the Company's representatives have
proposed or may propose to Reunion will be subject to approvals by the Board
of Directors of Reunion and, where appropriate, the Company and compliance
with the Company's and Reunion's operative documents, including, in the case
of the Company, with the covenants in the Company's Indenture and Revolving
Credit Facility. There can be no assurance that any proposed transaction will
be consummated.
Mr. Bradley is Chairman of the Board and a director of the Company and
President, Chief Executive Officer and a director of Reunion; Thomas L.
Cassidy, a director of the Company, is also a director of Reunion. Mr. Poole,
a director and stockholder of the Company, is a director of Reunion.
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CGII
The Company owns 49% of a holding company, CGII, which owned 100% of the
outstanding preferred stock and fully diluted common stock of Rostone.
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 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 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 level of earnings before interest and taxes in 1996 as
specified in the Merger Agreement for payment of deferred merger proceeds in
1997. Under the terms of ORC's loan facility with Congress, deferred merger
proceeds to be paid in 1998, if any, may only be made from equity
contributions Reunion may provide to ORC.
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. As such,
any merger proceeds will be paid to Chatwins until the debt and related
interest is paid in full. The amount due the Company related to this loan was
$1.6 million at December 31, 1996. Any merger proceeds in excess of the
amount due the Company in repayment of this loan will be payable to CGII and
allocated among CGII's remaining creditors, one of which is the Company.
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 December 31, 1996. 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. See "Certain Relationships and Related Transactions -
Certain Loans - Rostone and CGII."
Under the equity method of accounting, the carrying value of this
investment at December 31, 1996 was $0.9 million.
CGI Sales
The Company also has a wholly-owned subsidiary, CGI Sales Corporation
(CGI Sales), which is a Barbados corporation that functions as the Company's
foreign sales corporation. In 1996, approximately $5.0 million of the
Company's sales passed-through CGI Sales.
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Individual Operating Divisions
The following chart sets forth net sales, EBITDA (as defined), and total
assets by division and subsidiary and in total for the Company, at and for the
years ended December 31, 1996, 1995 and 1994 (in thousands, including notes
hereto, unless otherwise indicated):
Total
Net Sales EBITDA(1) Assets(2)
-------------- --------- ---------
At and for the year ended
December 31, 1996:
CPI $ 25,107 $ 5,377 $16,236
Klemp 49,643 4,350 27,454
Alliance 28,091 1,546 12,662
Hanna 29,617 3,127 15,972
Steelcraft 4,010 771 1,766
Europa 148 94 1,433
Auto-Lok 16,864 (154) 7,860
-------- ------- -------
Totals $153,480 $15,111 $83,383
======== ======= =======
At and for the year ended
December 31, 1995:
CPI $ 21,191 $ 4,096 $14,633
Klemp 49,203 4,842 25,165
Alliance 31,448 2,400 13,080
Hanna 27,541 3,872 17,388
Steelcraft 3,949 878 1,873
Europa 224 101 1,367
Auto-Lok 23,626 2,190 9,538
Oneida (to September 14, 1995) 26,226 2,504 -
-------- ------- -------
Totals $183,408 $20,883 $83,044
======== ======= =======
At and for the year ended
December 31, 1994:
CPI $ 15,517 $ 2,520 $12,362
Klemp 41,521 3,979 23,176
Alliance 32,185 1,452 10,038
Hanna 17,594 2,802 15,063
Steelcraft 3,899 879 1,744
Europa 202 46 1,344
Auto-Lok 15,435 801 7,194
Oneida (from April 1, 1994) 23,195 1,142 15,956
Ipsen (to September 30, 1994) 5,162 1,256 -
-------- ------- -------
Totals $154,710 $14,877 $86,877
======== ======= =======
(1) Excludes Headquarters expenses in the years ended December 31, 1996,
1995 and 1994 of $1,558, $1,952 and $2,053, respectively. See "Selected
Historical Financial Data" for operating income and a definition of EBITDA.
(2) Excludes Headquarters assets at December 31, 1996, 1995 and 1994 of
$19,196, $24,292 and $8,473, respectively.
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CPI
The former Christy Park division of USX Corporation, CPI has been in
operation in the same facility in McKeesport, Pennsylvania since 1897. CPI
specializes in manufacturing large, seamless pressure vessels for the storage
and transportation of highly pressurized gases such as natural gas, hydrogen,
nitrogen, oxygen and helium. These pressure vessels are provided individually
or in fabricated assemblies to customers such as industrial gas producers and
suppliers, the AFV compressed natural gas fuel industry, chemical and
petrochemical processing facilities, shipbuilders, NASA, public utilities and
gas transportation companies. Vessels are manufactured to the standards of
the American Society of Mechanical Engineers (ASME), the Department of
Transportation (DOT), the Department of the Navy and other governmental
authorities.
The domestic markets served by CPI are mature markets in which CPI enjoys
a competitive advantage because of its dominant position. The industrial gas
market tends to follow the general U.S. economy and grows with the gross
domestic product. The U.S. Navy market is dependent on defense spending and
has declined in recent years from historical levels. The AFV compressed
natural gas refueling station market is the least mature and continues to
develop slowly.
International markets served by CPI are immature compared to those of the
industrial base of the U.S. However, the rapidly growing economies of
developing countries provide a steady demand for CPI's products and
engineering expertise.
CPI markets its products to industrial gas transportation companies,
public utilities, chemical refineries, distribution companies, gas producers,
mining companies, the AFV natural gas fuel industry and a variety of other
industrial customers that store compressed gases.
CPI also manufactures pressure vessels for a variety of special uses in
accordance with specifications established by the U.S. Government and foreign
regulatory authorities. The U.S. Navy purchases pressure vessels produced to
U.S. Navy specifications for use in both the building of new ships and the
reconditioning of active naval vessels. CPI has historically been the primary
source of all pressure vessels used on U.S. Navy submarines and most of its
surface ships. The percentage of orders received relating to U.S. Navy work
was approximately 50% of the total orders booked at CPI during the period from
1986 to 1989. Since that time, this percentage has significantly decreased.
The decrease in U.S. Navy orders has been more than offset by increased
business in other markets. Direct sales into foreign markets increased in
1996 and an increase in CPI's domestic sales was influenced by an increase in
its customers' participation in foreign markets as well.
CPI markets its products, both domestically and abroad, through its in-
house marketing and sales group. Because of the technical nature of CPI's
products, the sales group includes individuals with expertise in engineering,
product design and development. CPI additionally engages domestic
manufacturer's representatives and also international agents for the Far East,
Canada and South America.
The Company believes that the entry of new competitors into the markets
served by CPI is discouraged by the limited size of these markets and the
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<PAGE> 42
magnitude of initial capital requirements. The primary competition to the
large, seamless pressure vessels manufactured by CPI comes from substitute
products or technologies, such as cryogenic or welded vessels. Welded
vessels, although not perfect substitutes for seamless vessels, are sometimes
used for larger volume, lower pressure applications. Cryogenic technology
allows for the containment of large volumes of liquefied gases. Both welded
and cryogenic vessels serve certain market niches that, in most cases, do not
overlap with CPI's markets. Both the cryogenic and welded vessel markets are
mature, and the Company believes that participants have settled into their
respective market niches.
The Company's strategy for CPI is to continue to benefit from continued
international marketing efforts. Orders for export totalled $9.0 million in
1996, up $1.8 million from 1995.
Klemp
Founded in 1901, Klemp is a highly diversified manufacturer of metal
grating products. Klemp manufactures quality steel and aluminum bar grating
products in a variety of sizes, configurations and finishes, and also custom
fabricates bar grating products for specialized applications. Klemp also
markets fiberglass grating products produced under a private labeling
agreement. Klemp products are sold for use in many industrial applications
where a combination of strength, light weight, access and a free flow of air,
heat, water or light is desired. Its products are used in water and
wastewater treatment plants, railroad tank cars, petroleum storage facilities,
aircraft, mines, roads, bridge decks and general manufacturing facilities.
Klemp is headquartered in Chicago, Illinois and has integrated facilities
in Chicago, Illinois; Orem, Utah; Liberty, Missouri; and Dayton, Texas and
fabrication facilities in Dallas, Texas and Atlanta, Georgia . These
six manufacturing facilities are strategically located to provide
distribution of Klemp products nationwide.
Klemp's principal customers are steel service centers, steel fabricators,
original equipment manufacturers, smaller grating manufacturers and industrial
contractors. The major competitor of Klemp is the IKG-Borden Division of
Harsco Corporation. Klemp's engineering strength and flexible manufacturing
processes allow it to focus on value-added, specialized products with higher
margins for those users requiring optimum service and shorter lead times.
On December 1, 1993, the Company purchased all of the issued and
outstanding shares of capital stock of BKO and its wholly-owned operating
subsidiary, Arrowhead, for approximately $2.2 million and the repayment of
approximately $1.4 million of debt. Arrowhead designs, manufactures and
markets a broad range of grating products. Effective January 1, 1994,
Arrowhead was merged with and into the Company and became part of Klemp.
The Company has made substantial capital investment in the Klemp
division. During 1991 and 1992, these investments included the purchase of
the plant facility in Dayton, Texas and the addition of new press welding
equipment and a new aluminum grating line at the Chicago, Illinois facility.
Press welding capacity at Chicago was expanded by more than 50%. Klemp also
increased its non-welded pressure lock grating manufacturing capacity at its
Orem, Utah facility to accommodate an increase in sales. In August 1994,
Klemp purchased property adjacent to its Orem, Utah operation and completed a
facility expansion in early July 1995.
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Klemp has an in-house sales organization that sells directly to customers
within a 300 to 500 mile radius of each of its manufacturing facilities.
Independent sales representatives serve customers outside of these areas.
Klemp also sells its products to distributors, primarily steel service
centers, that sell Klemp products nationwide.
The Company's strategy for Klemp is to utilize its extensive experience
in engineering and manufacturing to provide flexible, fast response and
quality products to customers in the higher margin market niches while, at the
same time, expand and more fully utilize its wide geographical manufacturing
base to pursue selectively high-volume stock panel grating business. Klemp
also intends to continue to pursue international business.
In August 1993, Klemp entered into a joint venture agreement (Joint
Venture Agreement) with Ferretera Sabe, S.A. to form Acervalco Klemp, S.A. de
C.V. (Acervalco Klemp) to function as Klemp's exclusive distributor in Mexico
and for the purpose of fabricating and marketing grating products in Mexico.
During May 1994, Klemp acquired a controlling interest in Acervalco Klemp and
the Joint Venture Agreement was terminated. Acervalco Klemp was renamed Klemp
de Mexico in January 1995. Efforts by Klemp de Mexico are directed toward
market penetration in the Mexico City area, using products from Klemp's
facilities in Dayton, Texas and Chicago, Illinois. Klemp de Mexico expects
to begin production of steel grating panels during 1997 using a grating forge
welder leased from the Klemp division.
During 1996, Klemp de Mexico entered into a joint venture agreement with
Consolidated Fabricators, Inc., a Massachusetts company, to form CFI-Klemp, a
Mexican corporation. CFI-Klemp is in the business of metal fabrications.
In December 1995, the Company entered into a joint venture agreement with
CMIESC and Wanggang to form Klemp China. The joint venture will provide metal
grating to the expanding construction industries in China and nearby
countries. Klemp China's manufacturing facilities are located in Wanggang
Township, Pudong New Area, Shanghai. Production began in late December 1996.
Additionally, Klemp intends to explore export opportunities through its
relationships with U.S.-based multinational engineering and construction firms
involved in third world infrastructure development projects.
Alliance
Alliance, founded in 1901 in Alliance, Ohio to design and build steel
mill cranes for Carnegie Steel, has supplied cranes and other equipment for
virtually every major steel company in the U.S. and in many foreign countries
as well. Alliance designs, engineers and manufactures cranes used in a wide
range of steel and aluminum mill applications and large special purpose cranes
used in marine and aerospace applications and heavy industrial plants.
Alliance also manufactures both lighter duty cranes for various industrial
applications and coke oven machinery. Alliance acquired the drawings and
expertise of a former manufacturer of lighter-duty cranes made to the less
stringent specifications of the Crane Manufacturer's Association to provide
entry to non-steel related crane customers under the Allmark trade name. In
recent years, Alliance has expanded and diversified its engineering and
manufacturing capabilities to offer a variety of equipment such as bloom and
billet handling equipment, walking beam tables, mill runout tables, oxygen
lances, tundishes and tundish dumpers, ladle rotators, ladle turrets, quench
tanks, looper towers, transfer cars, tundish cars, tire presses and die cast
presses, as well as related engineering, fabrication, maintenance and repair
<PAGE>
<PAGE> 44
services. The division manufactures, tests, repairs and rebuilds products
ranging from simple fabrications to elaborate machines requiring extensive
electrical and hydraulic circuitry.
Alliance owns a 383,865 square foot plant in Alliance, Ohio that the
Company believes is one of the largest facilities in the U.S. for large, high
quality fabrication, machining and assembly, thus placing the division in a
strong position to supply machinery for various industries needing large,
custom designed, fabricated equipment. For example, Alliance manufactured the
gantry crane at Vandenberg Air Force Base designed to upright the space
shuttle for NASA.
Alliance's market is primarily North America and it sells to this market
through its in-house sales force. Alliance has operated in a somewhat
cyclical market based on the steel industry with a high dependence on crane
sales. Alliance has historically had customers that have accounted for more
than 10% of its net sales in certain calendar years. This occurs principally
because of the large contract nature of Alliance's business and commonly
occurs for different customers from one year to the next. During the period
from 1982 to 1987, approximately 95% of Alliance's sales were of crane and
coke oven machinery. Over the past nine years, Alliance has
diversified its product lines away from primarily crane sales to a sales mix
of approximately 60% cranes and approximately 40% fabricated metal products.
In the American Institute of Steel Engineers (AISE) steel mill crane
market, Alliance competes mainly with P&H, a division of Harnischfeger
Corporation. In the lighter crane market, Alliance competes not only with P&H
but also with Crane Manufacturing Company, KONE Holdings, Inc. and Whiting
Corporation. In the specialty equipment market, its competition is a number
of large and medium size companies that vary with the equipment, including
E.W. Bliss Company, Steel Equipment Specialists, Inc., West Homestead
Engineering and Machine Co., Krasny-Kaplan Corporation and Production Experts,
Inc.
The Company's strategy for Alliance is to diversify the division away
from its historically high dependence on AISE cranes and the steel industry by
identifying non-steel industry market opportunities compatible with Alliance's
capabilities.
Hanna
Founded in 1901, Hanna designs and manufactures a broad line of hydraulic
and pneumatic cylinders, actuators, accumulators and manifolds at its original
facility in Chicago, Illinois and at its T.J. Brooks division in Milwaukee,
Wisconsin acquired in August, 1994. These products are used in a wide variety
of industrial and mobile machinery and equipment requiring the application of
force in a controlled and repetitive process. Hanna's specialty is custom
cylinders in both small quantities packaged by its distributors with valves,
pumps and controls as complete fluid power systems and large quantities sold
directly to equipment manufacturers.
On the basis of its reputation for high quality and its ability to
customize, Hanna has established a niche in the production of specialized
cylinders which offer precise fluid power control. Hanna's 20 product lines
appeal to both the low-volume, specialized end of the market and the higher-
volume product used by mobile equipment manufacturers. Hanna's markets are
delineated between original equipment manufacturers and users of after-market
<PAGE>
<PAGE> 45
or replacement cylinders. The original equipment manufacturer market
represents approximately 80% of Hanna's sales and the after-market the
remaining 20%.
Hanna approaches its industrial markets primarily through a North
American network of 43 independent distributors that specialize in fluid power
products and service both original equipment manufacturers and after-market
customers. Mobile products are sold directly to original equipment
manufacturers.
Hanna competes with both integrated manufacturers and independent
suppliers in the production of fluid power systems. The Company believes that
three of its competitors share approximately 50% of the market. The Company
believes that Hanna's share of this market is approximately 4%. Foreign
competition is virtually non-existent because of stringent delivery
requirements.
The Company intends to explore complementary relationships afforded by
acquisitions to increase Hanna's overall share of the cylinder market.
Steelcraft
Founded in 1972, Steelcraft manufactures and sells steel leaf springs.
Its principal customers are manufacturers of trailers for boats, small utility
vehicles and golf carts and makers of recreational vehicle and agricultural
trailers. Steelcraft is located in Miami, Oklahoma.
Sales to the marine, recreational vehicle and agriculture/construction
markets constitute approximately 60%, 30% and 10%, respectively, of
Steelcraft's sales.
Steelcraft markets its products through direct solicitation, trade show
exhibitions and telephone and mail contacts.
Competition stems from foreign suppliers who market their products
primarily through large distributors. The domestic market, including domestic
representatives of foreign suppliers, is highly fragmented.
The Company's strategy for Steelcraft is to increase its domestic market
and customer base by maintaining an inventory position which allows quick
response to the marketplace. Steelcraft intends to build on its current
customer base through competitive pricing and delivery policies.
Ipsen
Prior to the Company's sale of Ipsen on September 30, 1994, Ipsen
provided quality heat treating services to the metals industry in the greater
Chicago and Rockford, Illinois and Milwaukee, Wisconsin metropolitan areas.
Ipsen utilized state-of-the-art atmosphere, vacuum and induction processes to
improve the strength, flexibility, wear and corrosion resistance of metal
products. Ipsen serviced a large number of customers in the fabricated metal
products, nonelectrical industrial machinery and transportation equipment
industries.
Europa
The Company was originally incorporated as Europa Petroleum, Inc. in
<PAGE>
<PAGE> 46
1980. The Europa division continues the Company's original oil and gas
business. Europa is located at the Company's Headquarters in Pittsburgh,
Pennsylvania and is managed by members of the Headquarters staff.
Europa has interests in approximately 70 domestic oil and gas properties
located in Pennsylvania, Ohio, Wyoming, Texas, Oklahoma, West Virginia,
Kentucky and Louisiana. Europa invests in new exploratory and development
projects in geographic areas near the Company's fabrication facilities,
primarily in Pennsylvania and Ohio. The projects targeted are low-risk, long-
life natural gas wells with the potential for steady and consistent
production.
The Company intends, subject to the limitations imposed by (i) the
Indenture and (ii) the Loan Agreement to continue to invest in low-risk oil
and natural gas properties through Europa with the intention of producing
modest growth in Europa's cash flow. See "Description of Senior Notes -
Certain Covenants" and "Description of Revolving Credit Facility."
Auto-Lok
Founded in 1946, Auto-Lok manufactures high quality roll formed storage
racks at its facility in Acworth, Georgia for industrial and commercial
material handling systems and general storage applications. In addition to
manufacturing and selling racks, Auto-Lok participates on larger contracts in
the sale of total material handling systems through purchasing and reselling
related components such as decking and carton flow devices, and subcontracting
of rack erection. In early 1997, Auto-Lok began producing its new
structural rack product line for heavy-duty industrial and commercial storage
applications.
Auto-Lok's customer orders range from several hundred to several million
dollars. The larger projects are for major distribution facilities and
usually involve material handling consultants that design integrated warehouse
systems which include racking as a component. Auto-Lok's reputation as a
manufacturer of quality racks and its design experience result in national
participation in this segment of the industry. Smaller jobs are usually
direct purchases by retailers, goods distributors and material handling
component distributors who stock standard rack components for quick shipment.
Auto-Lok is well positioned near Atlanta to participate in this market segment
throughout the southeastern, mid-Atlantic and midwestern areas of the United
States. Auto-Lok markets its products through its own six-member sales force
plus agents in selected geographic areas.
A recent development in the rack market has been the trend toward
bringing the warehouse into the showroom. This form of merchandising is now
prevalent throughout the country in such commercial enterprises as home
improvement centers, discount warehouse clubs and sporting goods stores.
Auto-Lok continues to benefit from this growing market segment because of the
high quality and attractive finish of its standard product.
The Company intends to position Auto-Lok to balance larger contracts on a
selective basis with the quick turnaround segment of the market to participate
across a broader market spectrum. Auto-Lok's relocation in March 1995 to a
larger leased facility, built to the Company's specifications, and the
addition of certain new machinery and equipment have significantly upgraded
operations. These expenditures have opened the market to Auto-Lok for both
the large volume jobs and the higher quality demanded by "front room" <PAGE>
<PAGE> 47
applications that have significantly increased in recent years.
Oneida
Oneida manufactures high volume, injection molded precision plastic
products and provides engineered plastics services such as hot stamping,
welding, printing, painting and assembly of such products. Oneida's principal
products consist of specially designed and manufactured components for printer
and copier machines, microwave ovens, camera parts, computer parts and
consumer electronics and telecommunications equipment. The Company sold
Oneida to Reunion on September 14, 1995. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - General" and "-
Liquidity and Capital Resources," and "Certain Relationships and Related
Transactions - Acquisition and Disposition of Oneida."
General Aspects Applicable to the Divisions
Raw Materials
The major raw materials used by the Company in its fabricated, cold-
rolled and machined products manufacturing divisions include steel hot-rolled
bands, structural bars, stainless steel coils, welded and seamless steel
tubing and pipe, steel alloy bars, steel plates, brass tubing and bars and
aluminum extrusions, all of which are supplied by various domestic sources.
Prices for most of these raw materials used by the Company increased
moderately during 1994 and remained relatively constant during 1995 and 1996.
There can be no assurance that prices for these and other raw materials used
by the Company will not increase in the future.
Competition
Most of the Company's products are sold in highly competitive markets
both in the U.S. and internationally. The Company competes with a significant
number of companies of varying sizes, including divisions or subsidiaries of
larger companies, on the basis of price, service, quality and the ability to
supply customers in a timely manner. A number of the Company's competitors
have financial and other resources that are substantially greater than those
of the Company. Competitive pressures or other factors could cause the
Company's products to lose market share or result in significant price erosion
which would have a material effect on the Company's results of operations.
Export Sales
The Company's export sales for the years 1994, 1995 (excluding sales of
Oneida) and 1996 were approximately 7%, 6% and 7% of total sales,
respectively. Export sales were primarily made in three areas during 1994,
1995 and 1996 - the Far East, Canada and South/Latin America. The Company
also recorded sales in the Middle East and China during 1996. CPI, Alliance
and Hanna have recorded sales to companies in the Far East. Klemp, Alliance,
CPI and Hanna account for sales to South/Latin America, while the majority of
the divisions have made sales in Canada. During 1996, CPI and Hanna recorded
sales in the Middle East and Alliance recorded sales in China.
Backlog
The Company's consolidated backlog believed firm at December 31, 1995 and
<PAGE>
<PAGE> 48
December 31, 1996 were approximately $45.3 million and $65.5 million,
respectively. Except for Alliance, all backlog orders at December 31, 1996
are expected to ship within a year. Due to the nature of its business,
Alliance's backlog, which represented approximately 35% and 45% of
consolidated backlog at December 31, 1995 and 1996, respectively, is expected
to ship within one to two years.
Research and Development
The Company operates in relatively mature markets and the majority of its
research and development work is related to improving the quality and
performance of its existing products, meeting design requirements and
specifications of its customers that require customized products and
developing greater production efficiencies. To meet these objectives, the
Company has engineering departments at all of its major manufacturing
divisions.
Major Customers
During 1996, no customer accounted for more than 10% of the net sales of
the Company. Individual divisions of the Company have had customers in
certain calendar years that have accounted for in excess of 10% of that
division's net sales. This occurs principally at CPI, Alliance, the Brooks
operation of Hanna and Auto-Lok due to the large contract nature of their
businesses, and commonly occurs for different customers from one year to the
next.
Patents and Trademarks
The Company owns a number of patents and trademarks that are registered
in the United States Patent and Trademark Office and internationally. The
Company does not believe that any of its registered trademarks or patents are
material to the Company's business or that such business is dependent on any
trademark or patent.
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<PAGE> 49
Properties
The Company has a total of 97.3 acres and 1,837,875 square feet being
used for ongoing operations throughout the United States. All locations are
both manufacturing and administrative facilities except for Headquarters in
Pittsburgh, PA, which is administrative:
Lease
Square Land Expiration
Division Location Feet Acres Title Date
- -------- -------- ------- ----- ----- ----------
CPI McKeesport, PA 635,950 37.0 Owned -
Klemp Chicago, IL 196,461 7.6 Owned -
Orem, UT 90,000 5.0 Owned -
Dayton, TX 41,250 7.8 Owned -
Dallas, TX 21,600 - Leased 1/31/02
Liberty, MO 55,551 5.7 Owned -
Atlanta, GA 12,000 - Leased 5/31/99
Alliance Alliance, OH 383,865 14.8 Owned -
Hanna Chicago, IL 85,283 2.7 Owned -
Milwaukee, WI 48,000 3.2 Owned -
Steelcraft Miami, OK 39,120 13.5 Owned -
Headquarters Pittsburgh, PA 5,895 - Leased 8/31/01
Auto-Lok Acworth, GA 222,900 - Leased 3/13/05
The Company believes that all of its facilities have been in operation
for a sufficient period of time to demonstrate their suitability for their
individual purposes. The production capacities of the Company's facilities
are believed by the Company to be sufficient for the Company's anticipated
future needs.
In addition to the property listed above, the Company owns 92.7 acres of
farm land adjacent to its former Ipsen facility, in Boone County, IL, which
were retained by the Company after the Ipsen sale.
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<PAGE> 50
Employees
As of December 31, 1996, the Company had a total of 1,112 people in
manufacturing and administrative jobs. The Company believes its relations
with its employees are good. The Company has not experienced a strike at any
of its divisions. A breakdown by location and function follows.
General and
Division Location Manufacturing Administrative Total
- -------- -------- ----------------- ----------------- -----
Union Non-Union Union Non-Union
----- --------- ----- ---------
CPI McKeesport, PA 84(1) 8(2) 26 118
Klemp Chicago, IL 77(3) 30 107
Orem, UT 106 21 127
Dayton, TX 57 18 75
Liberty, MO 43(4) 7 17 67
Dallas, TX 11 3 14
Atlanta, GA 2 2 4
Alliance Alliance, OH 142(5) 82 224
Hanna Chicago, IL 63 47 110
Milwaukee, WI 62 22 84
Steelcraft Miami, OK 29 5 34
Headquarters Pittsburgh, PA 13 13
Auto-Lok Acworth, GA 101 34 135
--- --- - --- -----
Totals 346 438 8 320 1,112
=== === = === =====
_____________________________
(1) United Steelworkers of America - Contract expires May 31, 2001.
(2) United Steelworkers of America - Contract expires May 31, 2001.
(3) International Association of Bridge, Structural and Ornamental Iron
Workers - Contract expires April 30, 1998.
(4) International Union of Operating Engineers - Contract Expires October
31, 1997.
(5) United Steelworkers of America - Contract expires June 14, 1999.
Insurance
The Company maintains general liability, product liability, property,
workers' compensation, and other insurance in amounts and on terms that it
believes are customary for companies similarly situated.
<PAGE>
<PAGE> 51
Litigation
In June 1993, the U.S. Customs Service (Customs) made a demand on the
Company's former industrial rubber distribution division for $612,948.30 in
marking duties pursuant to 19 U.S.C. Sec. 1592. The duties are claimed on
importations of "unmarked" hose products from 1982 to 1986. Following the
Company's initial response raising various arguments in defense, Customs
responded in January 1997 by reducing its demand to $370,968.00. Should
the claim not be resolved, Customs threatens suit in the International Court
of Claims. The Company continues to believe there are facts which
raise a number of procedural and substantive defenses to this claim, which
will be vigorously defended. There is no applicable insurance coverage.
In addition to the aforementioned Customs claim, the Company is involved
in other various legal proceedings not related to product liability claims and
believes that none of these individually or in the aggregate will have a
material effect on the financial condition or results of operations of the
Company.
Environmental
Since 1988, the Company has followed procedures and maintained strict
policies designed to protect the environmental welfare of its employees and
the communities surrounding its various locations.
As a part of a refinancing by the Company in 1990, environmental audits
were performed at the Company's various locations by independent environmental
engineering companies. Recommendations contained in those audits were
implemented by the Company. Each facility is monitored as part of the
Company's internal environmental and hazardous materials management program.
All underground storage tanks have been removed as a part of this program.
The Company has also completed a compliance program for polychlorinated
biphenyls and to remove or encapsulate asbestos at all of its facilities. A
policy of seeking substitutes for hazardous materials has been established and
many potentially hazardous substances have been replaced by environmentally
safe items. The Company's employees have been trained to work properly with
potentially hazardous substances and to read and understand Material Safety
Data Sheets.
In September 1988, U.S. Metalsource Corp. (Metalsource), the owner of the
Ipsen facility prior to the Company, removed substantial quantities of solvent
contaminated soil from the Ipsen facility to a licensed landfill. While
almost all of the contaminated soil was removed, isolated areas could not be
removed due to building safety concerns. A residual groundwater contamination
problem remains. Alco Standard Corporation (Alco), the owner of the Ipsen
facility during the time when the vast majority of the contamination occurred,
has agreed to perform, pay for and assume direct responsibility and liability
for, and hold the Company harmless in respect of, the remediation of the
remaining contamination including an ongoing groundwater remediation plan
which has been approved by the Illinois Environmental Protection Agency.
Concurrent with its sale of the Ipsen assets, the Company assigned to the
purchaser the Company's rights to this agreement with Alco. The Company also
covenanted with the purchaser to complete or cause to be completed the
remediation of the remaining contamination if Alco should fail to honor its
agreement. As of December 31, 1996, Alco was continuing to perform under the <PAGE>
<PAGE> 52
approved groundwater remediation plan.
As a result of these efforts, the Company believes that its business,
operations and facilities are being operated in substantial compliance with
applicable environmental and health and safety laws and regulations. In
addition, the Company is aware of no environmental claims that have been or
could be asserted against the Company, other than those claims that the
Company believes have been resolved or are the subject of indemnification
agreements with former owners of the Company's properties. See "Risk Factors
- - Environmental Compliance."
MANAGEMENT
Directors and Executive Officers of the Company
Name Age Position
- ---- --- --------
Charles E. Bradley 67 Chairman of the Board and Director
Joseph C. Lawyer 51 President, Chief Executive Officer and Director
Thomas L. Cassidy 68 Director
John G. Poole 54 Director
Charles E. Bradley, Jr. 37 Director
John M. Froehlich 54 Vice President, Chief Financial Officer
and Treasurer
Russell S. Carolus 46 Vice President and Secretary
Jack T. Croushore 51 Vice President and Division President - CPI
Christopher Sause 47 Vice President and Division President - Alliance
Gerald W. McClure 55 Vice President and Division President - Klemp
Alan S. Wippman 54 Vice President and Division President - Steelcraft
Robert L. Rakstang 50 Vice President and Division President - Hanna
Kimball J. Bradley 31 Vice President and Division President - Auto-Lok
Thomas J. Vogel 46 Division President - Europa
Charles E. Bradley has been a Director of the Company since shortly after
its acquisition by SPI, a company engaged in consulting services within the
field of financial planning and reporting, in 1986 and Chairman of the Board
since 1988. Mr. Bradley is the father of Charles E. Bradley, Jr. and
Kimball J. Bradley. Mr. Bradley was a co-founder of SPI in 1982 and has
served as its President since that time. Mr. Bradley is a director of
DeVlieg-Bullard, Inc. (DBI), a machine tools parts and services company,
General Housewares Corp., a manufacturer and distributor of housewares,
Consumer Portfolio Services, Inc. (CPS), engaged in the business of
purchasing, selling and servicing retail automobile installment sales
contracts, Zydeco Energy Corporation, engaged in oil and gas exlporation and
development, NAB Asset Corporation (NAB), a diversified financial services
company, and Audits and Surveys Worldwide, Inc., an international marketing
research firm. Mr. Bradley is currently the Chairman of the Board of DBI,
President and acting Chief Financial Officer and a director of Sanitas, Inc.,
a currently inactive company, a director, President and acting Chief Financial
Officer of Texon Energy Corporation (Texon), a plastics manufacturer holding
company, and a director, President and Chief Executive Officer of Reunion.
Joseph C. Lawyer has been President, Chief Executive Officer and a
director of the Company since 1988. Prior to purchasing CP Industries, Inc.,
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<PAGE> 53
the corporate predecessor of the Company's CPI division, with SPI in 1986, Mr.
Lawyer was General Manager of USX's Specialty Steel Products division, where
he was employed for over 17 years. Mr. Lawyer has been a director of
Respironics, Inc., a company engaged in design, manufacture and sale of home
and hospital respiratory medical products, since November 16, 1994.
Thomas L. Cassidy was elected a director of the Company as of March 1,
1993. Mr. Cassidy has been a Managing Director of Trust Company of the West
since 1984. He is also a Senior Partner in TCW Capital. He is a director of
Reunion, DBI and Spartech Corporation, a plastics manufacturing company.
John G. Poole has been a director of the Company since 1988. Mr. Poole
was a co-founder of SPI in 1982 and has served as its Vice President since
that time. Mr. Poole is a director of Reunion since April 1996, DBI, CPS and
Sanitas, Inc.
Charles E. Bradley, Jr. was elected a director of the Company on
September 22, 1993. Mr. Bradley has been the President and a director of CPS,
since CPS' formation in March 1991. In January 1992, Mr. Bradley was
appointed to the additional office of Chief Executive Officer of CPS. From
January 1991 through March 1992, Mr. Bradley also was an employee of SPI.
From April 1989 to November 1990, he served as Chief Operating Officer of
Barnard and Company, a private investment firm. Mr. Bradley is the son of
Charles E. Bradley and the brother of Kimball J. Bradley. Mr. Bradley, Jr. is
also a director of NAB.
John M. Froehlich has been a Vice President of the Company since 1989 and
its Chief Financial Officer and Treasurer since 1988. Mr. Froehlich was
Assistant Treasurer and Director of Accounting for Incom International, Inc.
from 1975 to 1988.
Russell S. Carolus has been a Vice President of the Company since 1989
and its Secretary since 1988. Mr. Carolus was Director of Business
Development and Acquisitions for CP Industries, Inc. from 1986 to 1988.
Jack T. Croushore has been a Vice President of the Company since 1989 and
Division President of CPI since 1988. Mr. Croushore was Executive Vice
President and Chief Operating Officer of CP Industries, Inc. and its
predecessor division of USX Corporation from 1984 to 1988.
Christopher Sause has been a Vice President of the Company since 1990 and
Division President of Alliance since 1989. Mr. Sause was President and Chief
Operating Officer and co-owner of The Alliance Machine Company prior to its
acquisition by the Company in 1989. Prior to joining The Alliance Machine
Company in 1987, Mr. Sause was employed by the Fordees Corporation, where he
served as head of Production Control, Plant Superintendent and Vice President
of Sales and Manufacturing.
Gerald W. McClure has been a Vice President of the Company since 1992 and
Division President of Klemp since May 1991. Mr. McClure was associated with
The Lamp Group, a leveraged buyout investment group from 1990 to 1991, was
President of Chapman Products, Inc. from 1988 to 1990 and General Manager of
the Linac division of ITW from 1984 to 1988.
Alan S. Wippman has been Division President of Steelcraft since 1986 and
a Vice President of the Company since 1988. Mr. Wippman has been with
Steelcraft for over 19 years.
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<PAGE> 54
Robert L. Rakstang has been a Vice President of the Company since January
1995 and Division President of Hanna since 1991. In the course of his 20
years with Hanna, he has served as Production Manager, Materials Manager, Vice
President of Sales and Marketing and Vice President of Operations.
Kimball J. Bradley has been a Vice President of the Company since
January 1996 and Division President of Auto-Lok since November 1995 after
having served as acting President of Auto-Lok beginning in August 1995. Prior
to assuming that position, Mr. Bradley managed various special projects at the
CGI corporate office beginning in November 1993 and at CPI from February 1993
to November 1993. Mr. Bradley was employed by Metalsource, a company engaged
in the steel service center business, from 1990 to 1993, completing the
executive training program and holding various sales and purchasing positions.
Mr. Bradley is the son of Charles E. Bradley, Sr. and the brother of Charles
E. Bradley, Jr.
Thomas J. Vogel has been Division President of Europa since 1991. Mr.
Vogel has also been the Manager of Risk, Insurance and Benefits for the
Company since 1987.
The directors of the Company are elected to serve until their respective
successors have been elected and qualified or until their earlier death,
resignation or removal in the manner specified by the Company's by-laws. The
officers of the Company are elected to hold their respective offices until the
first meeting of the Board of Directors after the next annual meeting of the
Company's stockholders and until their respective successors have been
elected, or until their earlier death, resignation or removal in the manner
specified by the Company's by-laws.
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<PAGE> 55
Compensation of Directors and Executive Officers
The following table sets forth a summary of the compensation paid or
accrued by the Company in the fiscal years ended December 31, 1996, 1995 and
1994 to its Chief Executive Officer and its four other most highly compensated
executive officers (collectively, the "Named Executive Officers") (in whole
dollars, including notes hereto):
Year Ended December 31,
1996 1995 1994
-------- -------- --------
Joseph C. Lawyer, President and Chief
Executive Officer:
Annual compensation - salary $354,144 $330,763 $314,211
Annual compensation - bonus - 187,441 75,000
All other compensation 52,277(1) 52,027(1) 52,033(1)
Jack T. Croushore, Vice President and
Division President - CPI:
Annual compensation - salary $162,720 $157,380 $150,804
Annual compensation - bonus 187,890 207,585 47,451
All other compensation 12,990(2) 12,703(2) 12,660(2)
Gerald W. McClure, Vice President and
Division President - Klemp:
Annual compensation - salary $162,288 $156,804 $140,000
Annual compensation - bonus 54,042 92,030 50,000
All other compensation 12,250(3) 12,000(3) 11,220(3)
Christopher Sause, Vice President and
Division President - Alliance:
Annual compensation - salary $154,104 $148,887 $142,476
Annual compensation - bonus - 62,979 10,686
All other compensation 15,110(4) 14,012(4) 13,498(4)
John M. Froehlich, Vice President, Chief
Financial Officer and Treasurer:
Annual compensation - salary $132,960 $128,456 $116,778
Annual compensation - bonus 20,043 100,000 74,085
All other compensation 11,398(5) 10,277(5) 9,342(5)
(1) Includes 401(k) matching payments of 4,750, $4,500 and $4,500 in 1996,
1995 and 1994, respectively; premiums paid by the Company for life insurance
for the benefit of the employee of $40,027, $40,027 and $40,033 in 1996, 1995
and 1994, respectively; and payments under the Chatwins Group, Inc. Money
Purchase Pension Plan $7,500 in each of 1996, 1995 and 1994. Regarding the
premiums paid by the Company for life insurance, the employee has agreed with
the Company that if the policy proceeds are insufficient to reimburse the
Company for the full amount of premiums paid, the employee will pay the
shortfall to the Company. The policy has a face value of $1.5 million. See
"Compensation of Directors and Executive Officers - Executive Employment
Agreements."
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<PAGE> 56
(2) Includes 401(k) matching payments of $4,750, $4,500 and $4,500 in 1996,
1995 and 1994, respectively; premiums paid by the Company for life insurance
for the benefit of the employee of $740, $703 and $660 in 1996, 1995 and 1994,
respectively; and payments under the Chatwins Group, Inc. Money Purchase
Pension Plan of $7,500 in each of 1996, 1995 and 1994.
(3) Includes 401(k) matching payments of $4,750, $4,500 and $4,200 in 1996,
1995 and 1994, respectively; and payments under the Chatwins Group, Inc. Money
Purchase Pension Plan of $7,500, $7,500 and $7,000 in 1996, 1995 and 1994,
respectively.
(4) Includes 401(k) matching payments of $4,750, $4,467 and $4,274 in 1996,
1995 and 1994, respectively; premiums paid by the Company for life insurance
for the benefit of the employee of $2,860, $2,100 and $2,100 in 1996, 1995 and
1994, respectively and payments under the Chatwins Group, Inc. Money Purchase
Pension Plan of $7,500, $7,445 and $7,124 in 1996, 1995 and 1994,
respectively.
(5) Includes 401(k) matching payments of $4,750, $3,854 and $3,503 in 1996,
1995 and 1994, respectively; and payments under the Chatwins Group, Inc. Money
Purchase Pension Plan of $6,648, $6,423 and $5,839 in 1996, 1995 and 1994,
respectively.
Executive Employment Agreements
The Company entered into an Employment Agreement, dated as of August 1,
1996 (Lawyer Employment Agreement), with Joseph C. Lawyer to serve as
President and Chief Executive Officer of the Company. The Lawyer Employment
Agreement expires on July 31, 1999. The Lawyer Employment Agreement replaced
an earlier agreement between Mr. Lawyer and the Company that expired on July
31, 1996. Pursuant to the Lawyer Employment Agreement, Mr. Lawyer receives
(i) an annual base salary, which was established at $354,144 for 1996 and has
been established at $360,000 for 1997 and $395,000 for 1998, (ii) an annual
bonus of up to 65% of his base salary based on the Company's performance
relative to its annual projections, (iii) a $600 per month automobile
allowance, (iv) two club memberships, (v) a $1.0 million life insurance policy
and a $1.5 million split-dollar life insurance policy, and (vi) coverage under
the Company's other fringe benefit plans for executive officers. The annual
base salary for 1999 shall be determined by the Board of Directors on January
1, 1999. In the event that the Lawyer Employment Agreement is terminated
due to Mr. Lawyer's death or disability, the Company will continue to pay the
base salary for not less than a one year period. In the event that the
Company otherwise terminates the Lawyer Employment Agreement without cause or
in the event that Mr. Lawyer resigns with good reason or following a change of
control approved by the Company's Board of Directors and stockholders (other
than a change of control resulting from a foreclosure or bankruptcy of one or
more stockholders of the Company or the threat of such an action), Mr. Lawyer
will be entitled to receive his base salary (subject to a dollar-for-dollar
reduction for any salary received from other employment), health coverage and
life insurance coverage for one and one-half years or for the balance of the
term of the Lawyer Employment Agreement, whichever is greater.
Performance Unit Plans
PUPs were established by the Company for certain management employees of
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its Klemp, Steelcraft, Hanna and CPI divisions and its Alliance division on
May 12, 1988 and June 30, 1989, respectively. A PUP was also established by
Auto-Lok on November 13, 1990 for certain management employees (Auto-Lok PUP).
The Company terminated the PUPs, including the Auto-Lok PUP, in connection
with the sale of the Units. The Company entered into agreements with all of
the participants in the PUPs to redeem all of the outstanding performance
units for an aggregate payment of approximately $5.5 million, approximately
$2.75 million of which was paid in cash out of the proceeds of the sale of the
Units with the balance paid in two year subordinated notes of the Company
bearing interest at the prime rate of The First National Bank of Chicago. In
May 1994, the Company paid the participants approximately $1.75 million in
principal and $.17 million in interest pursuant to the terms of the two year
subordinated notes. In June 1995, the Company paid the participants
approximately $1.0 million in principal and $89,000 in interest in final
satisfaction of the two year subordinated notes. The executive officers
listed in "Directors and Executive Officers of the Company" received an
aggregate of approximately $1.4 million of the initial cash payment, $.89
million of the May 1994 principal payment, $.49 million of the June 1995
principal payment, $.11 million of the May 1994 interest payment and $.04
million of the June 1995 interest payment. The Named Executive Officers
received $.82 million of the initial cash payment, $.52 million of the May
1994 principal payment, $.30 million of the June 1995 principal payment,
$50,271 of the May 1994 interest payment and $26,590 of the June 1995 interest
payment.
Long Term Incentive Plan
On June 29, 1994, the Board of Directors of the Company adopted the
Chatwins Group, Inc. Long Term Incentive Plan (LTIP) effective as of January
1, 1994. The LTIP is an unfunded, noncontributory incentive compensation plan
designed to provide a long term incentive to certain key management executives
of the Company (Participants) to enhance the value of the Company. The LTIP
terminates by its terms on December 31, 2002, but may be terminated by the
Board of Directors of the Company at any time. The Company may grant a total
of 100 incentive units (Incentive Units) pursuant to the LTIP. An Incentive
Unit equals one percent of the product of the Equity Pool (as defined in the
LTIP) multiplied by the Equity Factor (as defined in the LTIP). The Equity
Pool means the equity value of the Company at a Valuation Date (as defined in
the LTIP) which is determined by subtracting the Company's total indebtedness
for borrowed money from the product of the Company's EBIT (as defined in the
LTIP) multiplied by five. The Equity Factor equals 5% but may be increased or
decreased by the Board of Directors of the Company.
Incentive Units granted to a Participant vest as follows: (i) 20% upon
the completion of one year of service to the Company following the date the
Incentive Units were allocated (Allocation Date); (ii) 50% upon completion of
two years of service following the Allocation Date; and (iii) 100% upon
completion of three years of service following the Allocation Date. A
Participant may exchange his vested Incentive Units as follows: (a) one-third
of such Incentive Units at any time on or after the third anniversary date of
the Allocation Date; (b) two-thirds of such Incentive Units at any time on or
after the fourth anniversary date of the Allocation Date; and (c) all of such
Incentive Units on or after the fifth anniversary of the Allocation Date.
Payments pursuant to the LTIP shall be one-half in cash and one-half in a one-
year note bearing interest at the Prime Rate. If the Company has sold shares
of Common Stock in a public offering, the Company may offer to exchange vested
Incentive Units for shares of Common Stock. As of December 31, 1996 there
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were 82 Incentive Units granted to certain executives of the Company,
including 49 Incentive Units to the Named Executive Officers. At
December 31, 1996, the Incentive Units had no value.
Pension Plan
Effective September 1, 1986, and pursuant to the acquisition of
substantially all of the operating assets of the Christy Park facility of USX
Corporation, CP Industries, Inc., the corporate predecessor-in-interest of the
Company's CPI division, adopted the Pension Plan for Salaried Employees of CP
Industries, Inc. (Salaried Pension Plan). The Salaried Pension Plan was
frozen (i.e., accrual of further benefits ceased) effective August 31, 1989.
Notice to terminate the Salaried Pension Plan was filed by the Company with
the Internal Revenue Service and the Pension Benefits Guaranty Corporation in
early 1995. Termination approval was granted by these entities in July 1995.
The Salaried Pension Plan assets were distributed on October 16, 1995, at the
participants' election, either in a lump sum payment or through the purchase
of an annuity from an insurance company. Lump sum payments made to Mr. Lawyer
and Mr. Croushore were $128,615 and $70,352, respectively.
Compensation of Directors
Charles E. Bradley is entitled to receive a stipend as Chairman of the
Board at a rate of $100,000 per year. The Company paid Mr. Bradley's $100,000
stipend in 1996. As of June 29, 1994, the Company and Mr. Bradley agreed to a
split dollar life insurance arrangement (Bradley Arrangement). Pursuant to
the Bradley Arrangement, the Company agreed to maintain three universal type
life policies on Mr. Bradley and his wife. The Company will be reimbursed for
the premiums it pays for such policies from either the death benefit of the
policies or their cash surrender value. Mr. Bradley has agreed with the
Company that if the policy proceeds are insufficient to reimburse the Company
for the full amount of premiums paid, Mr. Bradley will pay the shortfall to
the Company. The annual premiums paid by the Company totalled $348,134 in
1996. John G. Poole is entitled to receive a stipend as liaison with the
Company's outside directors of $42,000 per year. The Company paid Mr. Poole's
$42,000 stipend in 1996. As of December 12, 1995, the Company and Mr. Poole
agreed to a split dollar life insurance arrangement (Poole Arrangement).
Pursuant to the Poole Arrangement, the Company agreed to maintain two
universal type life policies on Mr. Poole. The Company will be reimbursed for
the premiums it pays for such policies from either the death benefit of the
policies or their cash surrender value. Mr. Poole has agreed with the Company
that if the policy proceeds are insufficient to reimburse the Company for the
full amount of premiums paid, Mr. Poole will pay the shortfall to the Company.
The annual premiums paid by the Company totalled $111,793 in 1996. The
Company pays Thomas L. Cassidy and, for the period during 1996 he was a
director of the Company, James A. O'Donnell at the rate of $1,000 per
month and $1,000 for each meeting of the Board of Directors plus all
reasonable out-of-pocket expenses incurred in attending such meetings. The
other directors of the Company are not currently compensated for services they
provide to the Company as directors, but all directors are reimbursed for
reasonable out-of-pocket expenses incurred in attending meetings of the Board
of Directors.
Compensation Committee Interlocks and Insider Participation
In January of 1994, 1995, 1996 and 1997, Charles E. Bradley, Chairman of
the Board, and Joseph C. Lawyer, President and Chief Executive Officer of the
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Company, participated in deliberations of the Company's Board of Directors
concerning executive officer compensation for 1994, 1995, 1996 and 1997,
respectively. No other officer or employee of the Company participated in
such deliberations regarding executive officer compensation for these years.
See "Certain Relationships and Related Transactions" for a discussion of
Mr. Bradley's relationship to Reunion, the Company's investment in Reunion,
and the transactions which transpired between the Company and Reunion
during 1995 and 1996 .
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SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN
BENEFICIAL OWNERS
As of March 26, 1997, the Company had (i) 242,887.4 shares of Common
Stock outstanding, (ii) 2,249.0 shares of Class D Series A Preferred Stock,
par value $.01 per share (Class D Series A Preferred Stock) outstanding, (iii)
800.0 shares of Class D Series B Preferred Stock, par value $.01 per share
(Class D Series B Preferred Stock) outstanding and (iv) 1,510.0 shares of
Class D Series C Preferred Stock, par value $.01 per share (Class D Series C
Preferred Stock) (the preferred stock described in clauses (ii)-(iv) being
herein referred to as the "Preferred Stock"). The following table sets forth
information, as of March 26, 1997, as to the beneficial and percentage
ownership of each class of the Company's capital stock by (i) each person
owning beneficially more than five percent of the outstanding shares of each
class of the Company's outstanding capital stock, (ii) each director and Named
Executive Officer of the Company and (iii) all directors and officers of the
Company as a group. Except as otherwise indicated in the notes to the
following table, each stockholder has sole voting and investment power with
respect to the shares shown to be beneficially owned by such stockholder.
Beneficial Shares and Percentage Ownership
--------------------------------------------
Preferred Stock - Class D
------------------------------
Common Stock Series A Series B Series C
------------ -------- -------- --------
Charles E. Bradley 162,946.6(1) 2,249.0(2) 800.0(2) 1,510.0(3)
c/o Stanwich Partners, Inc. ========= ======= ====== =======
One Stamford Landing 67.1% 100.0% 100.0% 100.0%
62 Southfield Ave. ========= ======= ====== =======
Stamford CT 06902
- ---------------------------------------------------------------------------
John G. Poole 54,407.0(1)(4) 2,249.0(2) 800.0(2) 1,510.0(3)
c/o Stanwich Partners, Inc. ========= ======= ====== =======
One Stamford Landing 22.4% 100.0% 100.0% 100.0%
62 Southfield Ave. ========= ======= ====== =======
Stamford CT 06902
- ---------------------------------------------------------------------------
Joseph C. Lawyer 17,984.0 - - -
c/o Chatwins Group, Inc. ========= ======= ====== =======
300 Weyman Plaza, Suite 340 7.4% - - -
Pittsburgh PA 15236 ========= ======= ====== =======
- ---------------------------------------------------------------------------
Jack T. Croushore 4,045.4 - - -
c/o Chatwins Group, Inc. ========= ======= ====== =======
300 Weyman Plaza, Suite 340 1.7% - - -
Pittsburgh PA 15236 ========= ======= ====== =======
- ---------------------------------------------------------------------------
All directors 239,383.0 2,249.0 800.0 1,510.0
and officers ========= ======= ====== =======
as a group 98.6% 100.0% 100.0% 100.0%
========= ======= ====== =======
- ---------------------------------------------------------------------------
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(1) Pursuant to the Securities Pledge Agreement, dated as of May 1, 1993
(Securities Pledge Agreement), Mr. Bradley pledged 127,799 shares of Common
Stock to the Collateral Agent (as defined therein) for the benefit of the
holders of the Senior Notes and Mr. Poole pledged 17,040 shares of Common
Stock to secure the Company's obligations under the Indenture and the Senior
Notes.
(2) Held of record by KSB Acquisition Corp., the former owner of the
corporate predecessor-in-interest to the Klemp and Steelcraft divisions of the
Company, of which Messrs. Bradley and Poole are the sole executive officers
and directors. Pursuant to Rule 13d-3, Messrs. Bradley and Poole would be
deemed to be the beneficial owners of these shares, with shared voting and
dispositive power with respect thereto.
(3) Held of record by Hanna Investment Corp., the former owner of the
corporate predecessor-in-interest to the Hanna division of the Company, of
which Messrs. Bradley and Poole are the sole executive officers and Mr. Poole
is the sole director. Pursuant to Rule 13d-3, Messrs. Bradley and Poole
would be deemed to be the beneficial owners of these shares, with sole voting
and dispositive power with respect thereto.
(4) Includes 42,949.2 shares held of record by John Grier Poole Family
Limited Partnership, established by Mr. Poole in 1995 for estate planning
purposes, and of which Mr. Poole owns 1% and is the sole general partner.
Pursuant to Rule 13d-3, Mr. Poole would be deemed to be the beneficial owner
of these shares, with sole voting and dispositive power with respect thereto.
Also includes 11,457.8 shares as to which Mr. Poole has voting rights, but no
dispositive rights. Pursuant to Rule 13d-3, Mr. Poole would be deemed to be
the beneficial owner of these shares, with sole voting power with respect
thereto.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
General
Since the Offering, all transactions between the Company and its
affiliated entities, executive officers, directors or stockholders have been
on terms which are no less favorable to the Company than the Company could
obtain from non-affiliated parties as required by the terms of the Indenture
and the Loan Agreement.
Ownership of Senior Notes by Management
As of March 26, 1997, certain of the Company's executive officers and
directors own Senior Notes of the Company, which were purchased in open market
transactions, as shown in the following table.
Name Principal Amount
Charles E. Bradley $2,000,000
Thomas L. Cassidy 350,000
Jack T. Croushore 20,000
John M. Froehlich 55,000
Joseph C. Lawyer 60,000
Gerald W. McClure 25,000
John G. Poole 2,000,000
Allan S. Wippman 25,000
SPI Consulting Agreement
The Company has entered into a consulting agreement with SPI, dated and
effective as of March 31, 1993, as amended by an amendment, dated as of April
16, 1993 (as so amended, the "Consulting Agreement"). Under the Consulting
Agreement, the Company retains SPI to render consulting services within the
field of financial planning and reporting. The Consulting Agreement will
expire on March 31, 1998, unless terminated earlier by SPI on 30 days' notice.
The Consulting Agreement provides for the payment of an annual consulting fee
to SPI of $300,000, and the reimbursement of any reasonable and necessary out-
of-pocket expenses incurred by SPI in connection with its performance under
the Consulting Agreement. The Consulting Agreement provides that SPI's right
to receive consulting fees is subordinated to the right of the holders of the
Senior Notes to receive payments of principal and interest on the Senior
Notes.
Consulting fees expensed by the Company to SPI were $300,000 in 1996 in
accordance with the Consulting Agreement. All consulting fees owed to SPI by
the Company under the Consulting Agreement were paid in full at December 31,
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1996. The Company paid to SPI transaction fees of $64,000 in 1994 in
connection with its services provided in negotiating and structuring of the
acquisitions of Brooks.
Acquisition of Alliance
Prior to the Company's acquisition of Alliance on June 30, 1989, Mr.
Sause had borrowed $96,000 from Alliance. The loan was evidenced by his
interest free demand note dated June 26, 1989. This note was included in the
assets acquired by the Company in the Alliance acquisition. The Company offset
a portion of its obligation to make quarterly non-competition payments to Mr.
Sause against Mr. Sause's obligation to repay the Company the principal
balance under this note. The note was repaid in full on March 31, 1994.
Acquisition and Disposition of Oneida
On March 31, 1994, the Company purchased (i) the Oneida Common Stock for
$1.00 from Oneida Products Corp. (OPC), a wholly-owned subsidiary of Oneida
Products Acquisition Corp. (OPAC), (ii) 16,016 shares of Oneida Preferred
Stock for $160.16 from SPI, and (iii) 8,984 shares of Oneida Preferred Stock
for $89.84 from SOG. Messrs. Bradley and Poole are officers, directors and
controlling stockholders of SPI and SOG. Mr. Bradley is the President, acting
Chief Financial Officer, a
director and a stockholder of Texon, the sole stockholder of OPAC. SPI is the
holder of an out-of-the-money and currently exercisable warrant to purchase
from Texon 1,480,000 newly issued shares of common stock of Texon,
representing approximately 13.7% of the issued and outstanding shares of
common stock of Texon after the exercise of such warrant.
Immediately prior to the acquisition, Oneida assumed $2,500,000 of
liabilities (Assumed Liabilities) of OPAC, as consideration for OPAC's
authorizing the acquisition. The Assumed Liabilities included (i) $1,993,367
of liabilities of OPAC to SPI (SPI Assumed Liabilities), (ii) $40,166
outstanding under two Promissory Notes, each issued on June 17, 1988 by OPAC
to David N. Harrington and each in the original principal amount of $30,000
and bearing interest at 9% per annum and (iii) $466,467 outstanding under
three Subordinated Promissory Notes, each issued on January 25, 1991 by OPAC
to a former owner of Oneida, in the respective original principal amounts of
$270,000, $350,000 and $515,000 and each bearing no interest. At all relevant
times, Mr. Harrington was an executive officer and director of Oneida. In
connection with the assumption of the Assumed Liabilities, (a) SPI exchanged
$1,601,600 of the SPI Assumed Liabilities for 16,016 shares of Oneida
Preferred Stock, which SPI then sold to the Company for $160.16 as described
in the preceding paragraph, and (b) SOG exchanged $898,400 of indebtedness
outstanding under a Subordinated Promissory Note issued by Oneida to SOG on
May 31, 1990 in the original principal amount of $750,000 bearing interest at
12% per annum and a Subordinated Promissory Note issued by Oneida to SOG on
May 10, 1991 in the original principal amount of $9,000 bearing interest at
12% per annum for 8,984 shares of Oneida Preferred Stock, which SOG then sold
to the Company for $89.84 as described in the preceding paragraph. As further
consideration for OPAC's approval of the acquisition, Oneida cancelled
intercompany receivables relating to the payment of legal and accounting fees
and taxes from Texon and its subsidiaries of approximately $865,000.
The portion of SPI Assumed Liabilities that was not exchanged for shares
of Oneida Preferred Stock consists of (i) $273,400 outstanding under a
Subordinated Promissory Note (SPI Subordinated Note) issued by OPAC to SPI on
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<PAGE> 64
June 17, 1988 in the original principal amount of $500,000 bearing interest at
10% per annum and (ii) a $118,367 transaction fee (SPI Transaction Fee) owed
by OPAC to SPI for investment banking services rendered by SPI in connection
with OPAC's acquisition of OPC in June 1988. Oneida did not assume OPAC's
obligation to pay interest on the SPI Subordinated Note. With the consent of
Congress, Oneida paid SPI $45,000 in October 1994 as partial payment of the
SPI Transaction Fee, leaving a balance of $73,367 at December 31, 1994. As of
August 31, 1995, there were no amounts outstanding under the SPI Subordinated
Note or the SPI Transaction Fee.
In April 1990, SOG pledged to Signal certain shares of DBI stock which
SOG owned in support of certain loans from Signal Capital Corporation (Signal)
to Oneida then in place in exchange for a credit support fee from Oneida to
SOG of $75,000 annually. SOG subsequently agreed to suspend this credit
support fee as of December 31, 1993. Accrued fees of $277,000 at that time
were reduced by forgiveness of $76,000 interest due SOG. In November and
December 1994, Oneida paid SOG an aggregate of $201,000 in full satisfaction
of credit support fees due.
Prior to the acquisition of Oneida by the Company, OPC had pledged all of
its shares of Oneida capital stock to Signal to secure OPC's indebtedness to
Signal of approximately $28.7 million (OPC Signal Debt). As consideration for
its consent to the acquisition and the release of the pledge, Signal entered
into the Deferred Payments Agreement on March 30, 1994 with Oneida and the
Company which provided that Oneida would pay Signal (i) 50 percent of Oneida's
EBT (as defined in the Deferred Payments Agreement) in excess of $750,000 per
year for the five fiscal years ending December 31, 1994 through December 31,
1998, subject to certain conditions, and (ii) 20% of the net proceeds which
Oneida received from any sale of shares of its capital stock in any
underwritten public offering of such shares prior to December 31, 1998.
Signal was obligated to apply these payments by Oneida to the reduction of the
OPC Signal Debt. As of August 18, 1995, Oneida had incurred no payment
obligations to Signal under the Deferred Payments Agreement. Mr. Bradley had
guaranteed the payment of the OPC Signal Debt. On August 18, 1995, Mr.
Bradley settled in full all claims of Signal against him. The Deferred
Payments Agreement was terminated as part of that settlement.
On the Sale Date, September 14, 1995, the Company, through its wholly-
owned subsidiary, CHI, sold its Oneida Common Stock and Oneida Preferred Stock
in the Oneida Disposition to Reunion, 38% of the common stock of which is
owned by the Company. The Company had contributed all of the Oneida Common
Stock and Oneida Preferred Stock to CHI on June 2, 1995. The total purchase
price paid by Reunion for the Oneida Common Stock and Oneida Preferred Stock
was $3,107,484 in cash. The purchase price was determined based on Oneida's
financial position and results of operations at and for the six-month period
ended June 30, 1995. The Oneida Disposition was unanimously approved by the
Board of Directors of the Company after considering the opinion from Jefferies
& Co. as to the fairness of the sale to the Company from a financial point of
view, in accordance with the requirements of the Indenture. One hundred
percent of the $3,107,484 proceeds from the Oneida Disposition were applied to
repay a portion of the Company's obligations under the Parkdale Note, then
held by Mr. Bradley, as required by the terms thereof. See "The Parkdale and
Gesterkamp Notes." Mr. Bradley is Chairman and a director of the Company and
President, Chief Executive Officer and a director of Reunion. Messrs. Cassidy
and Poole are also directors of Reunion and the Company.
Between March 31, 1994 when the Company acquired Oneida and August 31,
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<PAGE> 65
1995, the Company had made advances to Oneida, including interest, fees and
charges thereon totalling $4,932,940. The Oneida Advances were funded from
the Company's working capital and amounts available under its Revolving Credit
Facility. The liabilities of Oneida upon the Oneida Disposition included the
Oneida Advances. The stock purchase agreement between CHI and Reunion (Stock
Purchase Agreement), required Reunion to cause Oneida to repay the Oneida
Advances on or before the second anniversary of the Sale Date, including
interest thereon from September 1, 1995 at 10% per annum. The Company
received cash payments of $1.6 million in 1995 and $3.7 million in 1996, each
including interest at 10% per annum, in full repayment of these advances.
As a condition precedent to the consummation of the merger of Rostone and
Oneida on February 2, 1996, Congress, a lender to both the Company and Oneida,
required the Company to subordinate its right to repayment of the Oneida
Advances to the prior payment of Oneida's indebtedness to Congress, except to
the extent provided in the subordination agreement executed by the Company on
February 2, 1996. See "Certain Loans - Rostone and CGII," which follows.
Since the Sale Date, Oneida has continued to obtain its property,
casualty, and product and general liability insurance coverage through the
Company . The rate was $21,000 per month for the first three months of
1996 and $27,500 per month for the remainder of the year, which represented
the cost of such insurance to the Company.
The Parkdale and Gesterkamp Notes
As part of the aggregate purchase price paid to Parkdale for the Reunion
Common Stock in the Chatwins Acquisition, the Company issued the Parkdale Note
to Parkdale, which bears interest at 10% per annum and which was originally
due on September 18, 1995 in the original principal amount of $5,800,000. The
Parkdale Note was guaranteed by Mr. Bradley and secured by a pledge of 100% of
the stock of CHI (Pledge). In a letter agreement dated September 14, 1995
(Letter Agreement), Parkdale informed the Company of its desire to sell the
Parkdale Note to Mr. Bradley. In connection with this proposed sale and as
part of the Letter Agreement, the Company and Parkdale amended the terms of
the Parkdale Note to extend its maturity date to December 31, 1995. Also as
part of the Letter Agreement, the Company and Parkdale terminated the
Pledge. On September 14, 1995, Mr. Bradley purchased the Parkdale Note from
Parkdale for $5,946,192, being the principal thereof and accrued interest
thereon through September 14, 1995, less the portion of said interest Mr.
Bradley was required to withhold and remit to the Internal Revenue Service
under U.S. tax laws. Contemporaneously with Mr. Bradley's purchase of the
Parkdale Note and as required by the terms thereof, the Company made a partial
repayment of the Parkdale Note totalling $3,107,484, being 100% of the
proceeds of the Oneida Disposition described above. During 1996, the
Company made further payments of the Parkdale Note totalling $2,619,609,
including interest, and the Company and Mr. Bradley agreed to further
amendments of the Parkdale Note, extending its maturity date until December
31, 1996. At December 31, 1996, the amount still owed by the Company under
the Parkdale Note was $473,196 and in January 1997, which was within the 45-
day grace period from the maturity date as stipulated in the original note
agreement, the Company paid Mr. Bradley $475,306, including interest, in final
repayment of the Parkdale Note.
In connection with the purchase of the Reunion Common Stock, the Company
purchased the Gesterkamp Warrants. The purchase price for the Gesterkamp
Warrants totalled $483,000 and consisted of $283,000 paid in cash and the
Gesterkamp Note in the original principal amount of $200,000. Subsequent to
its issuance, the Gesterkamp Note was purchased by Mr. Myers, a director of
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Reunion. The Gesterkamp Note bears interest at 10% per annum. Pursuant
its terms, on January 6 and June 6, 1996, the Company made principal
repayments of $50,000 each, plus interest, to Mr. Myers in partial repayment
of the Gesterkamp Note. At December 31, 1996, the Company's liability to Mr.
Myers under the Gesterkamp Note totalled $100,000, $50,000 of which, plus
interest, was paid on January 6, 1997. The Gesterkamp Note is secured by
the Gesterkamp Warrants.
Certain Loans
Robinson
The Company had outstanding loans to Robinson Incorporated (Robinson), a
corporation controlled by Charles E. Bradley, John G. Poole, Joseph C. Lawyer
and Jack T. Croushore. Robinson is an oil and gas company operating in
Oklahoma. The aggregate amount of such loans and the largest principal amount
ever outstanding under such loans was $800,000. The Company advanced $500,000
of these funds to Robinson on April 19, 1990 and an additional $300,000 on
August 15, 1990, in connection with Robinson's acquisition of the assets of
the Chapter 11 bankruptcy estates of Robinson Brothers Drilling Inc. and
Robinson Brothers Drilling Company. The loans were evidenced by two notes
bearing interest at the prime rate of Chemical Bank plus 2%. The entire
principal and accrued interest on the notes was payable on demand at any time
between March 31 and April 19 of each year. In 1992 and 1993, the Company
demanded and received $59,700 and $51,200, respectively, in payment of
interest due for all of 1990 and a portion of 1991. In December 1995, the
Company agreed to settle in full the two notes receivable from Robinson for
the cash payment of $58,000 plus warrants to purchase up to 50% of the common
stock of Robinson at any time in the future. As a result of this agreement,
the Company recognized a $701,000 loss on the settlement of these notes which
is included in other expense in the 1995 income statement.
Rostone and CGII
In April 1990, the Company purchased from CGII 490 shares (49%) of the
common stock of CGII for $490 and SPI acquired from CGII 510 shares (51%) for
$510. CGII in turn borrowed $3.0 million (CGII-TCW Loan) from TCW Placements
Fund III (together with certain other Trust Company of the West investment
funds, "TCW"), which was used by CGII to acquire 100% of the outstanding
preferred stock and approximately 80% of the fully diluted common stock of
Rostone for an aggregate purchase price of approximately $2.9 million. On
February 2, 1996, CGII acquired the minority equity 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.
To induce TCW to lend $3.0 million to CGII (i) the Company issued TCW
warrants to acquire 4,707 shares of Common Stock, (ii) TCW was given the right
to acquire all the outstanding CGII equity from the Company and SPI at a price
of $1.00 per share, (iii) Messrs. Bradley and Poole and another of their
affiliated companies guaranteed CGII's obligations to TCW and secured these
obligations with pledges of certain of their assets, including all of the
Class E Preferred Stock of the Company, (iv) the Company executed a
subordinated guaranty of CGII's $3.0 million debt obligation to TCW and (v)
the Company and SPI granted each other cross-call options on their shares of
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CGII's equity.
As part of the Company's 1990 refinancing of its indebtedness and
repayment of its outstanding obligations to TCW, the Company's participation
in the April 1990 CGII transaction was restructured as follows: (i) the
Company loaned CGII $1.5 million evidenced by a note bearing interest, payable
monthly, at the prime rate of the First National Bank of Chicago plus 1.5%
(9.75% at December 31, 1996) (CGII-Chatwins Note One); (ii) CGII used the $1.5
million loan from the Company to repay a portion of its indebtedness to TCW;
(iii) the Company's warrants were returned by TCW and cancelled and were
replaced by warrants issued by CGII to purchase 112 shares of CGII's common
stock; (iv) the Company's subordinated guaranty in favor of TCW was
terminated; and (v) the cross-call option was amended to provide that (a) the
Company has the right to acquire (Chatwins Call) SPI's 510 shares in CGII for
$510 until such time as the CGII-Chatwins Note One is paid in full, subject to
TCW's prior right to acquire such equity for $1.00 per share until such time
as CGII's remaining obligations to TCW are paid in full, and (b) if the CGII-
Chatwins Note One shall be paid in full prior to the Company's exercise of its
right to acquire SPI's fifty-one percent (51%) interest in CGII, then SPI
shall have the right for five years to acquire (for $440) 440 of the Company's
490 shares in CGII commencing after the Chatwins Call has terminated and
expired (without having been exercised). As of the date hereof, the cross-
call option is still in effect.
On May 3, 1993, Messrs. Bradley and Poole applied $76,480 and $505,140,
respectively, of the proceeds they received for the redemption of the
Company's Preferred Stock, receiving notes from CGII in exchange, to reduce
the CGII-TCW Loan in accordance with the guarantees made by Messrs. Bradley
and Poole for the benefit of TCW, thus reducing TCW's exposure under the CGII-
TCW Loan. In connection with this payment, TCW agreed to subordinate its
rights to repayment by CGII with respect to the remaining amounts outstanding
under the CGII-TCW Loan to the Company's right to repayment of the CGII-
Chatwins Note One.
In December 1993, the Company loaned an additional $1,350,000 to CGII
evidenced by a note having a maturity of two years and bearing interest,
payable annually, at a rate of 10% (CGII-Chatwins Note Two). The proceeds of
the CGII-Chatwins Note Two were used to pay TCW $1.2 million in full and final
satisfaction of the CGII-TCW Loan and prepay to the Company interest of
$150,000 on the CGII-Chatwins Note Two. Rostone's preferred stock was
previously pledged by CGII to the Company to secure the CGII-Chatwins Note
Two. However, as discussed below, on December 22, 1995, Rostone and Oneida
entered into a merger agreement whereby Rostone was subsequently merged into
Oneida and Oneida's name was changed to Oneida Rostone Corp. (ORC), which
acquired from CGII all of the issued and outstanding preferred and common
stock of Rostone.
The largest principal amount ever outstanding under the CGII-Chatwins
Note One was $1.5 million. The CGII-Chatwins Note One is in default both as
to the payment of interest and the repayment of principal. Under the terms of
the CGII-Chatwins Note One, from April 16, 1991 CGII became obligated to pay,
in addition to said interest and principal, an amount which when combined
therewith would yield the Company a 25% internal rate of return on the $1.5
million loan. As of December 31, 1996, an aggregate of $6,172,963 was due
to the Company under the CGII-Chatwins Note One and $1,606,500 under the CGII-
Chatwins Note Two.
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In February 1994, the Company loaned $299,000 to CGII evidenced by a
demand promissory note bearing interest at an annual rate of 7.5% payable with
the repayment of principal. As of December 31, 1996, an aggregate of
$363,940 principal and interest was outstanding under this loan from the
Company to CGII.
On May 19, 1995, the Company became obligated to Krause Maffei
Corporation for $1,022,944 for the production of three plastic injection
molding machines which the Company intended to purchase and lease to Rostone
for $19,500 per month for 60 months. The equipment was delivered to Rostone
in June 1995. In November 1995, Mr. Bradley agreed to become a co-venturer
in the purchase and lease of the equipment to Rostone by paying to the
equipment manufacturer the $439,684 balance due thereon. In April 1996,
Rostone purchased the equipment and the Company received $602,702 from Rostone
which represented the amount paid by the Company to the manufacturer plus
interest thereon at 13.5% per annum.
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
Oneida Rostone Corp. (ORC). In the merger, ORC acquired from CGII all of the
issued and outstanding preferred and common stock of Rostone, including the
preferred and common stock of Rostone held by CGII. The Merger Agreement
provided for the payment of deferred 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 level of earnings before
interest and taxes in 1996 as specified in the Merger Agreement for the
payment of deferred merger proceeds in 1997. Under the terms of ORC's loan
facility with Congress, deferred merger proceeds to be paid in 1998, if any,
may only be made from equity contributions Reunion may provide to ORC.
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. As such, 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 December 31, 1996. 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.
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 December 31, 1996. 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 carrying value of this
investment at December 31, 1996 was $0.9 million.
Stockholder Notes
In January 1988, Mr. Bradley, Mr. Poole and two former stockholders of
the Company subscribed for Preferred Stock preferred stock in the Company in
consideration of their payment of an aggregate of $57,500 in cash and their
personal interest free demand notes, dated January 15, 1988, payable to the
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Company in the aggregate principal amount of $1,092,500 (Stockholder Notes).
The class of preferred stock acquired by them was converted into Common Stock
in connection with the May 1988 merger that combined most of the Company's
business lines as divisions of the Company. At the time the Stockholder Notes
were executed, the Company and Messrs. Bradley and Poole and such other former
stockholders had an unwritten understanding that payment on the Stockholder
Notes would not be demanded until such time as the Company was sold or funds
for the repayment of the Stockholder Notes were distributed to them as
dividends on their shares of Common Stock.
At the time of the May 1988 merger, Messrs. Bradley, Poole and one of the
former stockholders granted the Company the option to acquire from them an
aggregate of 9,175.5 shares of Common Stock at their original cost of $10 per
share, as follows: Mr. Bradley granted the Company an option to purchase
6,422.85 shares; Mr. Poole granted the Company an option to purchase 2,064.49
shares; and the former stockholder granted the Company an option to purchase
688.16 shares. As part of the December 1990 refinancing, the Company
exercised its option in full and paid for said shares by reducing the amounts
due under the respective Stockholder Notes to the amounts currently
outstanding as set forth below.
In September 1993, the Company purchased all the shares of Common Stock
owned by the obligors of the Stockholders Notes other than Messrs. Bradley and
Poole. In connection with the Company's purchase of such shares, Messrs.
Bradley and Poole assumed the obligations of such former stockholders under
their respective Stockholder Notes. The amount outstanding at December 31,
1996 under (i) Mr. Bradley's Stockholder Note was $643,166, (ii) Mr. Poole's
Stockholder Note was $206,704, and (iii) the two other Stockholder Notes
assumed by Messrs. Bradley and Poole was $150,874.
Other Affiliated Indebtedness
As a condition to Congress making overadvances under Oneida's loan
facility with Congress (Oneida Credit Facility), Mr. Bradley loaned Oneida
$300,000 between December 1992 and April 1993 (Bradley Loans). The Bradley
Loans were subordinate to Oneida's obligations to Congress and initially bore
interest at the prime rate plus 3.5%. On December 31, 1993, the Bradley Loans
became non-interest bearing. In June and July 1994, Oneida, with the consent
of Congress, repaid the Bradley Loans in full, making principal and interest
payments aggregating $326,201. In December 1993, Mr. Bradley also loaned
Oneida $200,000 at no interest, payable in monthly installments of $25,000
beginning in December 1993. Oneida repaid this loan in June 1994.
As a condition to Congress making overadvances under the Oneida Credit
Facility, SPI loaned Oneida $100,000 pursuant to a Promissory Note issued by
Oneida on March 3, 1992 to SPI in the original principal amount of $60,000 and
bearing interest at 12% per annum and a Promissory Note issued by Oneida on
April 27, 1992 to SPI in the original principal amount of $40,000 and bearing
interest at 12% per annum (collectively, the "SPI Notes"). The SPI Notes were
payable on June 1, 1992. In June 1994 with the consent of Congress, Oneida
paid SPI approximately $121,000 in principal and interest in full satisfaction
of the SPI Notes.
Bradley Guarantees
The Availability C Component of the Revolving Credit Facility is
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guaranteed by Mr. Bradley. Mr. Poole has agreed with Mr. Bradley to assume
one third of this guarantee. In consideration of this guarantee, the Company
agreed to pay Mr. Bradley and Mr. Poole a total guarantee fee equal to 5% per
annum on the outstanding principal amount of the Advances (as defined in the
Loan Agreement) under the Availability C Component. During 1994 the Company
paid guarantee fees to Mr. Bradley and Mr. Poole of $31,575 and $15,786,
respectively. During 1995 the Company paid guarantee fees to Mr. Bradley and
Mr. Poole of $45,641 and $22,820, respectively. During 1996, the Company
paid guarantee fees to Mr. Bradley and Mr. Poole of $31,289 and $15,644,
respectively. In addition, Mr. Bradley guaranteed $4 million of
borrowings under the Loan Agreement that the Company incurred in connection
with the Chatwins Acquisition of the Reunion Common Stock. The Loan Agreement
was amended on October 18, 1995, to provide, among other things, that the
amount of this supplemental guarantee be reduced to $1.5 million. No fees
were payable by the Company to Mr. Bradley in connection with this guarantee.
As of December 31, 1995, the balance of the Company's borrowings under the
Revolving Credit Facility related to the Chatwins Acquisition of the Reunion
Common Stock had been repaid and the other conditions to Mr. Bradley's
supplemental guarantee were satisfied, thereby releasing Mr. Bradley from any
obligations thereunder. The Loan Agreement was amended on May 1, 1996 and
November 1, 1996 each to provide temporary additional loan availability of up
to $2.5 million (see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources"). In
each amendment, Mr. Bradley supplementally guaranteed amounts borrowed under
the temporary additional loan availability. As of the date of this
Prospectus, the Company had repaid all amounts borrowed under these temporary
additional loan availabilities and Mr. Bradley was released from any
obligations under the supplemental guarantees. No fees were paid to Mr.
Bradley in connection with these guarantees.
On August 12, 1991, Mr. Bradley agreed to guarantee up to $2 million
under the Oneida Credit Facility. In connection with this guarantee, Oneida
entered into a Subordinated Guaranty Fee Agreement (Subordinated Guaranty Fee
Agreement) with Mr. Bradley. Pursuant to the Subordinated Guaranty Fee
Agreement, Oneida agreed to pay Mr. Bradley a guarantee fee equal to 5% of the
lesser of $2,000,000 or the actual outstanding principal balance under the
Oneida Credit Facility from time to time. 40% of the guarantee fee was
payable in equal monthly installments commencing on August 31, 1991 and 60% of
the guarantee fee was payable on the date that both the Oneida Credit Facility
and the OPC Signal Debt were fully paid. Mr. Bradley agreed to subordinate
payment of the guarantee fee to the payment of the obligations under the
Oneida Credit Facility. With the consent of Congress, Oneida paid Mr. Bradley
$240,533 of accrued guarantee fees during 1994. During the 1995 period ended
on September 14, 1995, no further payments under the Subordinated Guaranty Fee
Agreement had been made and any amounts owing thereunder were part of the
liabilities of Oneida upon its sale to Reunion.
On March 31, 1994 in connection with the Company's acquisition of Oneida,
Mr. Bradley and SPI agreed to guarantee the obligations of Oneida pursuant to
the promissory note issued by Oneida on March 31, 1994 to GE in the original
principal amount of $687,500 (GE Note). The GE Note bore interest at 7% and
matured on June 30, 1995. Oneida repaid the note through monthly principal
and interest payments. Oneida agreed to pay Mr. Bradley a guarantee fee of
2.5% per annum on the outstanding balance of the GE Note. With the consent of
Congress, Oneida paid Mr. Bradley $5,000 of these accrued guarantee fees in
1994. During the 1995 period ended on September 14, 1995, no further payments
under this guaranty agreement had been made and any amounts owing thereunder
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were part of the liabilities of Oneida upon its sale to Reunion.
CPS Leasing, Inc.
In February 1997, the Company entered into an operating lease agreement with
CPS Leasing, Inc., a company owned 80% by CPS and 20% by Mr. Bradley Jr., to
lease a machining center for Alliance with a cost of $143,600. The terms of
the lease include sixty monthly payments aggregating $161,006 and an option to
purchase the equipment at fair market value at the end of the lease term. In
March 1997, the Company received a commitment from CPS Leasing to enter into
an operating lease of a computer system for Hanna with a cost of $61,667. The
terms of the proposed lease include thirty-six monthly payments aggregating
$62,830 and an option to purchase the system at fair market value at the end
of the lease term. The Company has entered and intends to continue to enter
into various operating leases in the course of its normal operations. Such
future leases may involve CPS Leasing.
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DESCRIPTION OF REVOLVING CREDIT FACILITY
On March 4, 1994, the Company refinanced its existing revolving credit
facility of up to $20 million with Heller. Pursuant to the Refinancing, the
Company entered into the Loan Agreement with Congress, which provides that
Congress may make revolving loans to the Company of up to $20 million. On
June 20, 1995, the Company amended the Loan Agreement to increase the maximum
permitted revolving loans to $26 million temporarily to permit the Company to
consummate the acquisition of the Reunion Common Stock. The maximum borrowing
amount was fixed at $25 million pursuant to a further amendment consummated on
October 18, 1995. 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 amendments to the Loan Agreement through the date hereof are
referred to collectively as the "Amendments".
The Revolving Credit Facility consists of the Availability A Component,
the Availability B Component and the Availability C Component. The
Availability A Component provides that Congress may make Advances (as defined
in the Loan Agreement) to the Company up to an amount equal to the sum of (i)
85% of the Net Amount of Eligible Accounts (as defined in the Loan Agreement),
plus (ii) the lesser of (A) the sum of (1) 50% of the Value (as defined in the
Loan Agreement) of the Eligible Inventory (as defined in the Loan Agreement)
consisting of finished goods or raw materials plus (2) 10% of the Value of
Eligible Work-in-Process (as defined in the Loan Agreement) or (b) $7 million,
less (iii) certain availability reserves. The Availability B Component
provides for a single Advance of $800,000 which was drawn on April 1, 1994 to
refinance the Industrial Revenue Bonds. The Availability C Component provides
that Congress may make Advances of up to $1.5 million to the Company, all of
which were drawn in 1994. The Advances under the Availability B Component and
the Availability C Component are being repaid according to a monthly
amortization schedule which, once repaid, may not be reborrowed. The
Revolving Credit Facility bears interest at the rate of 1.5% per annum in
excess of the prime rate of the Philadelphia National Bank, incorporated as
CoresStates Bank, N.A. (Prime Rate) (9.75% at December 31, 1996), subject to a
default interest rate of 3.5% per annum in excess of the Prime Rate. Under
the Revolving Credit Facility, Congress will arrange or issue letters of
credit on behalf of the company in an aggregate amount not to exceed $4.0
million. Congress reserves the undrawn face amount of all letters of credit
against availability under the Availability A Component. At December 31,
1996, the Company had approximately (i) $22.6 million outstanding under the
Availability A Component, (ii) $0.3 million outstanding under the Availability
B Component and (iii) $0.7 million outstanding under the Availability C
Component.
Pursuant to the Amendments Congress temporarily extended the Additional
Availability A Advances. The proceeds of the Additional Availability A
Advances were used to acquire the Company's 38% investment in Reunion.
The
Amendments further provide that upon the sale of Rostone, up to $3.5 million
of any proceeds received by the Company in repayment of the indebtedness owed
the Company by Rostone and/or CGII (see "Certain Relationships and Related
Transactions - Certain Loans - Rostone and CGII") be remitted to Congress to
be applied against the Availability A Component, including any Additional
Availability A Advances which may then be outstanding. The Additional
Availability A Advances were repaid by December 31, 1995.
The Advances outstanding under the Availability A Component and the
Availability C Component are secured by a lien in favor of Congress on the
Company's inventory, accounts receivable and certain related property, such as
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documents, instruments, trademarks, patents, books and records, to the extent
necessary to permit foreclosure on the inventory and accounts receivable
(collectively, the "Collateral"). The Advance under the Availability B
Component is secured by a lien in favor of Congress on the Collateral and all
now owned and hereafter acquired real property of the Company located in
Liberty, Missouri. The Availability C Component is guaranteed by Charles E.
Bradley. See "Certain Relationships and Related Transactions - Bradley
Guarantees."
The Revolving Credit Facility contains covenants customary for loans of
this type, including the following: (i) a limitation on mergers,
consolidations and the sale, lease or transfer of certain assets of the
Company; (ii) a limitation on liquidation or dissolution; (iii) a limitation
on the incurrence of liens by the Company with respect to its assets or
properties, except for certain permitted liens; (iv) a limitation on the
incurrence of Indebtedness (as defined in the Indenture) by the Company,
except for the Obligations (as defined in the Loan Agreement) under the
Revolving Credit Facility and Indebtedness permitted under the Indenture; (v)
a limitation on loans to and investments in any person, except for certain
investments specifically enumerated in the Revolving Credit Facility; (vi) a
limitation on the declaration or payment of dividends and the redemption of
the capital stock of the Company; and (vii) a limitation on transaction with
affiliates.
The Revolving Credit Facility contains certain customary Events of
Default (as defined therein). In addition, the Revolving Credit Facility
provides that either the revocation, termination or failure to perform the
terms and conditions of the Bradley Guarantee or the failure of Mr. Bradley to
own and control more than 50% of the voting power of all voting securities of
the Company will be an Event of Default. Upon the occurrence of an Event of
Default, Congress has the right to cease making Advances under the Revolving
Credit Facility and to declare all or any portion of the amounts outstanding
under the Revolving Credit Facility immediately due and payable, together with
accrued interest thereon.
The Revolving Credit Facility provides that the Company may not
repurchase the Warrants unless (i) prior to such repurchases the Company has
and will have Excess Availability (as defined in the Loan Agreement) of at
least $3 million, (ii) no Event of Default, and no event or condition which,
with notice or passage of time or both would constitute an Event of Default,
shall exist or have occurred and be continuing or would exist or occur after
give effect to such repurchase and (iii) such repurchase shall not result in
the dissolution or liquidation of the Company.
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DESCRIPTION OF WARRANTS
General
The Company issued 50,000 Warrants, each to purchase one share of Common
Stock at an exercise price of $0.01 per share, pursuant to the Warrant
Agreement between the Company and the Warrant Agent. The Warrants will expire
on the tenth anniversary of the Closing Date. The Warrants entitle the
holders thereof to purchase an aggregate of 50,000 shares of Common Stock, or
approximately 17% of the Company's outstanding Common Stock on a fully diluted
basis. The following is a summary of the material terms and provisions of the
Warrants and the Warrant Agreement. Reference is made to the copies of the
form of Warrant and the Warrant Agreement filed as exhibits to the
Registration Statement of which this Prospectus is a part. Such summary is
qualified in its entirety by such reference.
Form of Warrants
Upon issuance, except as provided below, the Warrants were represented by
a single Global Warrant. The Global Warrant representing the Warrants was
deposited with, or on behalf of, the Depositary. The Global Warrant is
registered in the name of Cede & Co., as nominee of DTC, and beneficial
interests in the Global Warrant are shown on, and transfers thereof are
effected only through, records maintained by the Depositary and its
participants. The use of the Global Warrant to represent the Warrants permits
the Depositary's participants, and anyone holding a beneficial interest in a
Warrant registered in the name of such a participant, to transfer interests in
the Warrants electronically in accordance with the Depositary's established
procedures without the need to transfer a physical certificate.
Notwithstanding the foregoing, any purchaser that was not a Qualified
Institutional Buyer received the Warrants in certificated form, and are not,
and will not be, able to trade such securities through the Depositary until
the Warrants are resold to a Qualified Institutional Buyer. Beneficial
interests in the Global Warrant representing the Warrants are shown on, and
transfers thereof will be effected only through, records maintained by the
Depositary and its participants. Warrants in certificated form will be issued
in exchange for a holder's proportionate interest in the Global Warrant only
as set forth in the Warrant Agreement.
Trigger Events
The Warrants are not exercisable except (i) in connection with an Initial
Public Offering, a Disposition, a Non-Surviving Combination and a Change of
Control, or (ii) upon the inability of the Company to make or consummate a
Repurchase Offer as further provided below. An "Initial Public Offering" is
defined as the first offer and sale to the public by the Company or any
holders of shares of any class of equity securities of the Company or any
security exchangeable for or convertible into any equity security of the
Company pursuant to a registration statement (other than pursuant to the
Registration Statement of which this Prospectus is a part) that has been
declared effective by the Commission. A "Disposition" is defined as (a) the
merger, consolidation or other business combination in which the Company is
the surviving entity and the Company's stockholders receive cash or non-cash
consideration in exchange for or in respect of their shares of capital stock
or (b) the sale, lease, conveyance, transfer or other disposition (other than
to the Company or any of its wholly-owned direct or indirect domestic
subsidiaries) in any single transaction or series of related transactions
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(including a sale and leaseback transaction) of all or substantially all of
the assets of the Company. A "Non-Surviving Combination" is defined as the
merger, consolidation or other business combination with one or more other
entities in a transaction in which the Company is not the surviving entity. A
"Change of Control" has the meaning set forth in the Indenture.
If the Warrants shall become exercisable, then the holders of the
Warrants will be entitled to exercise all or a portion of their Warrants at
any time prior to the tenth anniversary of the Closing at which time all
unexercised Warrants will expire, subject to earlier expiration where the
holders of the Warrants have a Bring Along Right. The Company shall obtain,
prior to the consummation of a Disposition where the holders of the Warrants
do not have a Bring Along Right (as defined), an opinion by an Independent
nationally recognized investment banking firm with assets in excess of $1.0
billion that such transaction is fair from a financial point of view.
Bring Along Right
If the Company or its stockholders shall have entered into a binding
agreement to effect (i) a Non-Surviving Combination, (ii) a Change of Control
involving a sale of 100% of the Common Stock of the Company or (iii) a
Disposition involving the sale of all of the Company's assets, the Company
shall deliver notice (Bring Along Notice) to the Warrant Agent and each holder
of the Warrants, at least 35 days prior to the closing of such transaction,
setting forth the relevant terms thereof and such holder's right (Bring Along
Right) to exercise the Warrants within a 30 day period commencing on the date
of such notice (Bring Along Period). Exercise of the Warrants following the
delivery of a Bring Along Notice will constitute agreement by such holder to
the Disposition, Non-Surviving Combination or sale of 100% of the Common
Stock, including such holder's agreement to sell the Warrant Shares received
upon exercise of the Warrants, for the same price and on the same terms as the
other stockholders of the Company. Any Warrant that is not exercised during
the Bring Along Period shall expire at the end of the Bring Along Period.
Repurchase Offer
If (i) none of the Trigger Events shall have occurred prior to the fifth
anniversary of the Closing, (ii) the Company consummates a Disposition where
the holders of the Warrants do not have Bring Along Rights, or (iii) a Change
of Control occurs where the holders of the Warrants do not have Bring Along
Rights (collectively, the "Repurchase Events"), the Company shall, subject to
the last paragraph of this section, offer to repurchase all outstanding
Warrants (Repurchase Offer). The Company will give notice (Repurchase Notice)
of the Repurchase Offer to the Warrant Agent and to each holder of the
Warrants within 30 days of such date. In a Repurchase Offer, the Company
shall offer (a) to purchase for cash in the amount of the Repurchase Price (as
defined) all outstanding Warrants (Complete Repurchase) on a date not more
than 30 days after the date the Repurchase Notice is mailed (Repurchase Date),
or (b) only in the case of a repurchase due to the failure of any of the
Trigger Events to occur prior to the fifth anniversary of the Closing, to
purchase all outstanding Warrants for the Repurchase Price, payable one-half
in cash on the Repurchase Date and one-half by delivery of a note (an
"Installment Note"), bearing interest per annum at prime, with all principal
and interest due on the first anniversary of such date (Installment
Repurchase). In the case of a Complete Repurchase, the Company shall, subject
to the last paragraph of this section, deposit with the Warrant Agent funds
sufficient to purchase all or a portion of the Warrants from each holder that
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has elected to have Warrants repurchased and who has surrendered such Warrants
in accordance with the terms of the Warrant Agreement, and such holder will
thereupon and thereafter have the right only to receive payment for the
Warrants so surrendered. In the case of an Installment Repurchase, the
Company shall, subject to the last paragraph of this section, deposit with the
Warrant Agent the Installment Notes and funds sufficient to pay the cash
portion of the Repurchase Price for all or a portion of the Warrants from each
holder that has elected to have Warrants repurchased and who has surrendered
such Warrants in accordance with the terms of the Warrant Agreement, and such
holder will thereupon and thereafter have the right only to receive payment
for the Warrants so surrendered. Neither the Board of Directors of the
Company nor the Warrant Agent may waive the Company's obligation to purchase
its Warrants as a result of a Repurchase Event.
As used herein, a "Change of Control" means (i) an event or series of
events by which any Person or other entity or group of Persons or other
entities acting in concert as a partnership or other group (a "Group of
Persons") (other than SPI or any of its Affiliates as of the Issue Date)
shall, as a result of a tender or exchange offer, open market purchases,
privately negotiated purchases, merger, consolidation or otherwise, have
become the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act), of 50% or more of the Voting Power (as defined in the Warrant
Agreement) of the Company; (ii) the Company is merged with or into another
corporation with the effect that immediately after such transaction the
stockholders of the Company immediately prior to such transaction hold less
than a majority of the combined Voting Power of the Person surviving such
transaction; or (iii) the direct or indirect, sale, lease, exchange or other
transfer of all or substantially all of the assets of the Company to any
Person or Group of Persons. SPI and its Affiliates, including Charles E.
Bradley and John G. Poole, beneficially owned more than 76% of the combined
Voting Power of the Company as of the Issue Date. As a result, SPI and its
Affiliates are excluded from Change of Control events described in clause (i)
above to prevent an automatic Change of Control upon the transfer of Voting
Stock (as defined in the Warrant Agreement) among SPI and such Affiliates.
For purposes of clause (iii) of the foregoing definition, under New York law,
the governing law of the Warrant Agreement, there is no commonly accepted
measure of what would constitute "the direct or indirect sale, lease,
exchange, or other transfer of `all or substantially all' of the assets" of
the Company. As a result, the Holders of the Warrants and the Company may not
agree that a particular sale, lease, exchange or other transfer involves "all
or substantially all" of the Company's assets. The Holders of the Warrants
therefore may have the burden of proof on this issue in any action brought to
require the Company to make an offer to purchase their Warrants. The
definition of a "Change of Control" is generally dependent on the acquisition
of a Voting Power majority or "all or substantially all" of the Company's
assets. Mergers, recapitalizations, reorganizations, restructurings and other
similar transactions which do not result in such an acquisition of Voting
Power or assets will not constitute a Change of Control, although any such
transaction would be subject to the Company's other covenant obligations under
the Warrant Agreement. See "Description of Warrants - Compliance with
Indenture" and "Description of Senior Notes - Certain Covenants."
The price to be paid for the Warrants pursuant to any Repurchase Offer
(Repurchase Price) shall be determined as of a date (Valuation Date) not more
than 10 days prior to the date of mailing of the Repurchase Notice for such
Repurchase Offer. The Repurchase Price shall be the fair market value of the
Warrant Shares on the Valuation Date as determined by an Independent
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nationally recognized investment banking firm with assets in excess of $1.0
billion selected by the Independent members of the Board of Directors of the
Company. As used herein, "Independent" means an investment banking firm or
person (as the case may be) (i) that does not then have, and for the ten years
immediately preceding such time has not had (and, in the case of the
nationally recognized investment banking firm, whose directors, officers,
employees and affiliates do not then have, and for the ten years immediately
preceding such time have not had) a direct or indirect interest in the Company
or any of its subsidiaries or affiliates or any successor to any of them, and
(ii) that is not then, and for the ten years immediately preceding such time
was not (and, in the case of the nationally recognized investment banking
firm, whose directors, officers, employees or affiliates are not then, and for
the ten years immediately preceding such time were not), an employee,
consultant, advisor, director, officer or affiliate (other than, in the case
of an Independent director of the Company, as a director) of the Company, any
of its subsidiaries or affiliates or any successor to any of them.
The selected Independent nationally recognized investment banking firm
shall use one or more valuation methods that it, in its best professional
judgment, determines to be most appropriate, without giving effect to any
discount for any lack of liquidity of the Warrants, the Warrant Shares or the
Common Stock, the fact that the Company may have no class of equity securities
registered under the Exchange Act or the fact that a substantial amount of
equity of the Company is held by a limited number of stockholders who may
control the Company.
Notwithstanding the foregoing, if the Company is prohibited under the
terms of any agreement governing outstanding indebtedness of the Company, any
other agreement, the terms of any preferred stock of the Company or applicable
law from making a Repurchase Offer when required to do so or from repurchasing
the Warrants on the Repurchase Date, then the obligation of the Company to
repurchase the Warrants shall lapse and the Warrants will continue to be or
will become, as the case may be, immediately exercisable. The Revolving
Credit Facility and the Indenture restrict the ability of the Company to
consummate a Repurchase Offer in certain circumstances. See "Description of
Revolving Credit Facility" and "Description of Senior Notes - Certain
Covenants."
The Company's ability to make a Repurchase Offer upon the occurrence of a
Repurchase Event will be dependent on its future operating results, its
financial condition and resources at the time of such a Repurchase Event, as
well as the number of holders who have elected to have Warrants purchased
following such a Repurchase Event. The Company's obligations under (i) the
Availability A Component and the Availability C Component of the Loan
Agreement with Congress are secured by the Collateral and (ii) the
Availability B Component of the Loan Agreement are secured by the Collateral
and certain real property, and consequently would have priority of payment
over the purchase of the Warrants with respect to such pledged collateral.
The maximum amount that the Company may have outstanding under the Revolving
Credit Facility is $25.0 million, subject to certain conditions. At December
31, 1996, the Company had approximately (i) $22.6 million outstanding under
the Availability A Component, (ii) $0.3 million outstanding under the
Availability B Component and (iii) $0.7 million outstanding under the
Availability C Component. See "Description of Revolving Credit Facility." In
addition, upon a Change of Control the Company may be required to offer to
purchase all of the outstanding Senior Notes. See "Description of Senior
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Notes - Change of Control." Accordingly, there can be no assurance that the
Company will have the financial ability to repurchase the Warrants upon a
Repurchase Event.
Liquidation of the Company
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, each holder of the Warrants shall be entitled to
share, with respect to the Warrant Shares issuable upon exercise of his
Warrants, equally and ratably in any cash or non-cash distributions payable to
holders of any class of Common Stock of the Company payable upon the exercise
of such Warrants. Holders of the Warrants will not be entitled to receive
payment of any such distribution until the surrender to the Warrant Agent of
their Warrants in accordance with the terms and provisions of the Warrant
Agreement.
Cash Dividends
If the Company makes any cash dividend on, or any other cash distribution
in respect of, its Common Stock, it shall pay each holder of the Warrants an
amount in cash equal to the amount such holder would have received if such
holder had been the record holder of the Warrant Shares issuable upon exercise
of his Warrants immediately prior to the record date for such dividend or
distribution.
Anti-Dilution Adjustments
The number of Warrant Shares issuable upon exercise of a Warrant will be
adjusted upon the occurrence of certain events, including, without limitation
(i) the payment of a dividend on, or the making of any distribution in respect
of, capital stock of the Company in (a) shares of the Company's capital stock
(including Common Stock), (b) options, warrants or rights to purchase, or
securities convertible into or exchangeable or exercisable for, shares of
Common Stock or other securities or property of the Company at an exercise
price below fair market value, or (c) certain evidences of indebtedness of the
Company or its Subsidiaries or any assets of the Company or (ii) the issuance
of Common Stock or securities convertible into or exchangeable for shares of
Common Stock at a price below fair market value. An adjustment will also be
made in the event of a combination, subdivision or reclassification of the
Common Stock. Adjustments will be made whenever and as often as any specified
event requires an adjustment to occur.
Amendment
From time to time, the Company and the Warrant Agent, without the consent
of the holders of the Warrants, may amend or supplement the Warrant Agreement
for certain purposes, including curing defects or inconsistencies or making
any change that does not materially adversely affect the rights of any holder
of the Warrants. Any amendment or supplement to the Warrant Agreement that
has a material adverse effect on the interests of the holders of the Warrants
shall require the written consent of the holders of a majority of the then
outstanding Warrants. The consent of each holder of the Warrants affected
shall be required for any amendment pursuant to which the exercise price would
be increased or the number of shares of Common Stock purchasable upon exercise
of the Warrants would be decreased (other than pursuant to adjustments
provided in the Warrant Agreement) or for any change in the Trigger Events (or
rights or obligations upon the occurrence of any such Trigger Event) in a
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manner adverse to any holder of the Warrants.
Reports
Under the Exchange and Registration Rights Agreement, the Company has
agreed to timely file with the Commission all reports to be filed pursuant to
Section 13 or 15(d) of the Exchange Act (whether or not the Company's duty so
to file is suspended). The Company will file with the Warrant Agent, to be
provided to the holders of the Warrants within 15 days after it files them
with the Commission, copies of its annual and quarterly reports and of the
information, documents and reports which the Company or any Subsidiary is
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act. To the extent that the Company is not subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company will file
with the Commission and provide to the Warrant Agent, to be provided to the
holders of the Warrants and the Warrant Shares, such annual and quarterly
reports and such information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may by rules and
regulations prescribe) which are specified in Sections 13 and 15(d) of the
Exchange Act. The Company will also make such reports available to
prospective purchasers of the Warrants and Warrant Shares, securities analysts
and broker-dealers upon their request. In addition, the Company has agreed to
furnish to holders of the Warrants and the Warrant Shares and prospective
purchasers of the Warrants and Warrant Shares designated by the initial
purchaser of the Warrants, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act until such time
as the Registration Statement of which this Prospectus is a part has remained
effective for a period of three years following the last exercise of a
Warrant.
Compliance with Indenture
The Warrant Agreement obligates the Company to comply with its covenants
and other agreements and all terms and conditions of the Indenture. The
Company shall be deemed to have complied therewith to the extent any such
covenant or agreement has been waived by the holders of the Senior Notes or
the Trustee in accordance with the Indenture. See "Description of Senior
Notes."
Fees and Expenses
All expenses incident to the Company's consummation of this offering and
compliance with the Exchange and Registration Rights Agreement will be borne
by the Company, including without limitation: (i) all registration and filing
fees and expenses (including filings made with the National Association of
Securities Dealers, Inc., if any), (ii) fees and expenses of compliance with
federal securities or state or other jurisdiction's "blue sky" laws, (iii)
expenses of printing (including, without limitation, printing certificates for
the Warrants and Warrant Shares in a form eligible for deposit with DTC and/or
certificated form, as the case may be, and prospectuses), (iv) fees and
disbursements of counsel for the Company, and (v) fees and disbursements of
all independent certified public accountants of the Company (including the
expenses of any special audit and "cold comfort" letters required by or
incident to such performance).
The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
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<PAGE> 80
performing legal or accounting duties), the expense of any annual audit,
rating agency fees and the fees and expenses of any person, including special
experts, retained by the Company.
The Company will also reimburse the holders of the Warrants and the
Warrant Shares tendered pursuant to this offering for the reasonable fees and
disbursements of not more than one counsel chosen by the holders of a majority
of the Warrants and the Warrant Shares, or more than one, if, in the
reasonable judgment of counsel for the holders of the Warrants and the Warrant
Shares, in a suit involving this offering, there may be one or more legal
defenses available to one holder that are different from or additional to
those available to the other holders.
Notwithstanding the foregoing, the holders of the Warrants and the
Warrant Shares will pay all registration expenses to the extent required by
applicable law, and all underwriting discounts and commissions attributable to
the sale of the Warrants and the Warrant Shares and the fees and disbursements
of any counsel or other advisors or experts retained by such holders
(severally or jointly), other than such counsel as provided above. The
Company will pay the Warrant Agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith. The expenses to be incurred in connection with this
offering to be paid by the Company are estimated in the aggregate to be
approximately $342,100 .
Miscellaneous
A holder of a Warrant will not be entitled to any of the rights of a
holder of capital stock of the Company, including, without limitation, the
right to vote at or receive notice of meetings of the stockholders of the
Company, except as specifically set forth in the Warrant Agreement.
DESCRIPTION OF SENIOR NOTES
The Company issued an aggregate of $50.0 million principal amount of Old
Notes in the Offering. The Company filed the Exchange Offer Registration
Statement to effect the exchange of the New Notes for the Old Notes as
required by the terms of the Exchange and Registration Rights Agreement. The
Old Notes and the New Notes were issued under the Indenture between the
Company and the Trustee.
The following is a summary of the material terms and provisions of the
Senior Notes, including the New Notes. Reference is made to the copies of the
Indenture, forms of Senior Note, the First Supplemental Indenture and Waiver
of Covenants and the Second Supplemental Indenture amending the Indenture
filed as exhibits to the Registration Statement of which this Prospectus is a
part. Such summary is qualified in its entirety by such reference. The
Senior Notes are subject to the terms of the Indenture. Definitions relating
to certain capitalized terms are set forth under "Certain Definitions" and
throughout this description. Capitalized terms that are used but not
otherwise defined herein have the meanings assigned to them in the Indenture
and such definitions are incorporated herein by reference.
General
The Senior Notes are limited in aggregate principal amount to $50.0
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<PAGE> 81
million. The Senior Notes are senior obligations of the Company, ranking
senior in right of payment to all current and future subordinated indebtedness
of the Company and pari passu in right of payment to all current and future
senior indebtedness of the Company, including indebtedness incurred pursuant
to the Revolving Credit Facility. At December 31, 1996, the Company had
outstanding approximately $75.1 million of Indebtedness. The Senior Notes
ranked pari passu in right of payment with approximately $25.1 million of such
Indebtedness. The Company had no subordinated indebtedness at December 31,
1996. Pursuant to the Securities Pledge Agreement, the Company's obligations
under the Indenture and the Senior Notes are secured by a pledge by the
Pledgors of an aggregate of 144,839 shares of the Common Stock of the Company
constituting approximately 60% of the outstanding shares of the Company's
Common Stock. The Company's obligations under (i) the Availability A
Component and the Availability C Component of the Loan Agreement with Congress
are secured by the Collateral and (ii) the Availability B Component of the
Loan Agreement are secured by the Collateral and certain real property.
Consequently, these secured obligations have priority of payment over the
Senior Notes with respect to such pledged collateral. See "Description of
Revolving Credit Facility" and "Description of Senior Notes - Securities
Pledge Agreement."
Maturity, Interest and Principal
The Senior Notes will mature on May 1, 2003. Interest on the Senior
Notes accrues at the rate of 13% per annum. Interest is payable semi-annually
in arrears on May 1 and November 1 in each year (each, an "Interest Payment
Date"), commencing November 1, 1993. Interest on the Senior Notes accrues
from the most recent date to which interest has been paid. Interest will be
paid to holders of record of Senior Notes at the close of business on the
April 15 or October 15 immediately preceding the relevant Interest Payment
Date. Interest will be computed on the basis of a 360-day year of twelve 30-
day months.
Currently, the Trustee is acting as paying agent and registrar of the
Senior Notes. The Company may change any paying agent and registrar without
notice.
Optional Redemption
The Senior Notes are not redeemable at the option of the Company prior to
May 1, 1998. Thereafter, the Senior Notes will be subject to redemption, at
the option of the Company, either in whole or in part, upon not less than 30
nor more than 60 days' prior notice mailed to each holder of Senior Notes to
be redeemed at the address appearing in the register of the Senior Notes, at
any time or from time to time at the following redemption prices (expressed as
percentages of principal amount), in each case together with accrued and
unpaid interest on the principal amount redeemed to the date fixed for
redemption if redeemed during the 12-month period beginning May 1 of each of
the years indicated below:
Year Redemption Price
1998 106.50%
1999 104.33%
2000 102.17%
2001 and thereafter 100.00%
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If less than all of the Senior Notes are to be redeemed, the Trustee will
select the Senior Notes to be redeemed pro rata, by lot or by such other
method that complies with applicable legal requirements and the requirements
of any exchange on which the Senior Notes are listed that the Trustee
considers fair and appropriate. The Trustee may select for redemption
portions of the principal of Senior Notes that have a denomination larger than
$1,000. Senior Notes and portions thereof will be redeemed in the amount of
$1,000 or integral multiples of $1,000. The Trustee will make the selection
from Senior Notes outstanding and not previously called for redemption.
Mandatory Redemption and Repurchase
The Company is required to redeem $12.5 million in principal amount of
the Senior Notes (being 25% of the principal amount of the Senior Notes
originally issued) on each of May 1, 2000, May 1, 2001 and May 1, 2002, at a
redemption price of 100% of principal amount, plus accrued interest on the
principal amount redeemed to the redemption date. Such redemptions are
calculated to retire prior to maturity 75% of the principal amount of the
Senior Notes originally issued. The Company is required to offer to purchase
$25 million in principal amount of the Senior Notes (being 50% of the
principal amount of the Senior Notes originally issued) on each of June 1,
1999 and June 1, 2000 at a purchase price of 100% of the principal amount,
plus accrued interest on the principal amount purchased to the purchase date.
If more than $25 million of the principal amount of the Senior Notes are
tendered to the Company for purchase in either year, the Trustee will select
the Senior Notes to be purchased pro rata, by lot or such other method that
complies with applicable legal requirements and the requirements of any
exchange on which the Senior Notes are listed that the Trustee considers fair
and appropriate. The procedures governing the conducting of the mandatory
repurchase offer are set forth in Sections 3.02, 3.05, 3.09 and 3.10 of the
Indenture.
The Company is entitled to satisfy all or any portion of the mandatory
redemption payment or the mandatory repurchase offer for any year by
delivering to the Trustee for cancellation Senior Notes acquired or redeemed
by the Company and which have not been used as a credit against or acquired
pursuant to (i) any prior mandatory redemption or repurchase offer or (ii) the
obligation to offer to repurchase Senior Notes upon the occurrence of a Change
of Control or with the Excess Proceeds of Asset Sales.
On June 20, 1995, the Company agreed with a holder of Senior Notes for
the benefit of all holders that after the Company has replenished the cash it
expended to purchase the Reunion Common Stock (whether from the sale of Oneida
and CGII or otherwise), the Company will make an announcement of its intention
to repurchase up to $10 million of Senior Notes over a one-year period
simultaneously with its repurchase of the first $500,000 of Senior Notes. All
of the Company's repurchases of Senior Notes (including the first) will be at
prevailing market prices (if below par), and subject to cash availability, the
consent of the Company's revolving lender and the needs of the Company's
business. As of the date hereof, the Company has not replenished the cash it
expended to purchase the Reunion Common Stock and has made no announcement of
its intention to repurchase Senior Notes.
Change of Control
In the event that a Change of Control has occurred, each holder of Senior
Notes will have the right, subject to the terms and conditions of the
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Indenture, to require that the Company purchase all or a portion of such
holder's Senior Notes at a purchase price in cash equal to 101% of the
principal amount thereof, plus accrued and unpaid interest on the principal
amount purchased, to the Change of Control Payment Date (as defined). Neither
the Board of Directors of the Company nor the Trustee may waive the Company's
obligation to purchase its Senior Notes as a result of a Change of Control.
The procedures governing the conducting of the offer by the Company to
repurchase the Senior Notes upon a Change of Control are set forth in Section
4.17 of the Indenture.
As used herein, a "Change of Control" means (i) an event or series of
events by which a Group of Persons (other than SPI or any of its Affiliates as
of the Issue Date) shall, as a result of a tender or exchange offer, open
market purchases, privately negotiated purchases, merger, consolidation or
otherwise, have become the beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act), of 50% or more of the Voting Power of the Company,
(ii) the Company is merged with or into another corporation with the effect
that immediately after such transaction the stockholders of the Company
immediately prior to such transaction hold less than a majority of the
combined Voting Power of the Person surviving such transaction, or (iii) the
direct or indirect, sale, lease, exchange or other transfer of all or
substantially all of the assets of the Company to any Person or Group of
Persons. SPI and its Affiliates, including Charles E. Bradley and John G.
Poole, beneficially owned more than 76% of the combined Voting Power of the
Company as of the Issue Date. Accordingly, SPI and its Affiliates are
excluded from the Change of Control events described in clause (i) above to
prevent a Change of Control from being deemed to have occurred merely by the
reallocation of the existing control block among such persons and entities.
For purposes of clause (iii) of the foregoing definition, under New York law,
the governing law of the Indenture, there is no commonly accepted measure of
what would constitute "the direct or indirect sale, lease, exchange, or other
transfer of `all or substantially all' of the assets" of the Company. As a
result, the Holders of the Senior Notes and the Company may not agree that a
particular sale, lease, exchange or other transfer involves "all or
substantially all" of the Company's assets. The Holders of the Senior Notes
therefore may have the burden of proof on this issue in any action brought to
require the Company to make an offer to purchase their Senior Notes. The
definition of a "Change of Control" is generally dependent on the acquisition
of a Voting Power majority by persons or entities other than SPI and its
Affiliates or any acquisition of "all or substantially all" of the Company's
assets. Mergers, recapitalizations, reorganizations, restructurings and other
similar transactions that do not result in such an acquisition of Voting Power
or assets will not constitute a Change of Control, although any such
transaction would be subject to the Company's other covenant obligations under
the Indenture. See "Description of Senior Notes - Certain Covenants."
The existence of the right of a holder of Senior Notes to require the
Company to purchase its Senior Notes as a result of a Change of Control may
deter a third party from acquiring the Company in a transaction which would
constitute a Change of Control.
Ability to Repurchase the Senior Notes
The Company's ability to purchase the Senior Notes prior to maturity
voluntarily or pursuant to the mandatory redemption and repurchase provisions
described above will be dependent on its future operating results, its
financial condition and resources at the time, as well as the aggregate
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principal amount of Senior Notes to be redeemed or repurchased. The Revolving
Credit Facility expires in 1998 and must be renewed or refinanced prior to
such date. Moreover, the Company's Revolving Credit Facility provides that
the failure by Mr. Bradley to own and control more than 50% of the voting
power of all voting securities of the Company is an Event of Default, giving
Congress the right to cease making additional loans under the Revolving Credit
Facility and to declare all or any portion of the amounts outstanding under
the Revolving Credit Facility immediately due and payable, together with
accrued interest thereon. The Company's obligations under (i) the
Availability A Component and the Availability C Component of the Loan
Agreement are secured by the Collateral and (ii) the Availability B Component
of the Loan Agreement are secured by the Collateral and certain real property.
Consequently, these secured obligations would have priority of payment over
the Senior Notes with respect to such pledged collateral. The maximum amount
that the Company may have outstanding under the Revolving Credit Facility is
$25 million, subject to certain conditions. At December 31, 1996, the Company
had approximately (i) $23.6 million outstanding under the Revolving Credit
Facility, and (ii) $0.6 million of guarantees by Congress supporting
outstanding letters of credit reserved against the Revolving Credit Facility.
See "Description of Revolving Credit Facility." In addition, the occurrence of
a Change of Control which does not provide Bring Along Rights to the holders
of the Warrants will, subject to certain conditions, trigger the Company's
obligation to purchase the Warrants at their fair market value. See
"Description of Capital Stock - Warrants." Accordingly, there can be no
assurance that the Company will have the financial ability to purchase the
Senior Notes prior to maturity voluntarily or pursuant to the mandatory
redemption and repurchase provisions described above.
Securities Pledge Agreement
The Company's obligations under the Indenture and the Senior Notes are
secured by a pledge of certain shares of Common Stock owned by the Pledgors
pursuant to the Securities Pledge Agreement among the Pledgors, the Company
and the Collateral Agent. Under the Securities Pledge Agreement, Mr. Bradley
pledged 127,799 shares of Common Stock and Mr. Poole pledged 17,040 shares of
Common Stock, constituting approximately 53% and 7%, respectively, of the
outstanding Common Stock to the Collateral Agent for the benefit of the
holders of the Senior Notes.
Certain Covenants
The Indenture contains, among others, the following covenants:
Limitation on Incurrence of Indebtedness
Subject to the provisions of the next sentence hereof, the Company will
not, and will not permit any of its Subsidiaries to, directly or indirectly,
create, incur, assume, guarantee or otherwise become directly or indirectly
liable for the payment of any Indebtedness (including Acquired Indebtedness)
other than Permitted Indebtedness. The Company may create, incur, assume,
guarantee or otherwise become directly or indirectly liable for the payment of
Indebtedness (in addition to Permitted Indebtedness) if, after giving pro
forma effect to the incurrence of such Indebtedness, the Consolidated Interest
Coverage Ratio for the four full fiscal quarters immediately preceding the
incurrence of such Indebtedness, taken as one period and calculated on the
assumption that such Indebtedness had been incurred (and the proceeds thereof
were used to repay Indebtedness, if applicable) on the first day of such four
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fiscal quarter period and, in the case of Acquired Indebtedness, on the
assumption that the related acquisition (whether by means of purchase, merger,
amalgamation or otherwise) also had occurred on such date with the appropriate
adjustments (including the inclusion of the Net Income of the acquired Person)
with respect to such acquisition being included in such pro forma calculation,
would have been greater than or equal to (i) 2.0 to 1.0 for the period from
the Issue Date through and including April 30, 1996, (ii) 2.25 to 1.0 for the
period from May 1, 1996 through and including April 30, 1999, and (iii) 2.50
to 1.0 thereafter; provided, that in no event may the Company at any time
incur Indebtedness which is subordinated by its express terms in right of
payment to any Indebtedness of the Company unless the Senior Notes constitute
senior Indebtedness or such other terms as denote priority status under the
terms of such subordinated Indebtedness.
Limitation on Restricted Payments
The Company will not, and will cause each of its Subsidiaries not to,
directly or indirectly, (a) declare or pay any dividend on, or make any
distribution in respect of, the Company's Capital Stock, (b) purchase, redeem
or otherwise acquire or retire for value any shares of the Company's Capital
Stock, (c) make any loan, advance or other Investment in any of its
Subsidiaries or Affiliates other than as permitted under clause (iv), (v),
(vi) or (vii) of the "Limitation on Investments" covenant, or (d) purchase,
redeem or otherwise acquire or retire for value, prior to a scheduled
mandatory sinking fund payment date or maturity date, any Indebtedness of the
Company which ranks subordinated in right of payment to the Senior Notes (each
such declaration, distribution, purchase, redemption, acquisition, retirement,
loan, advance or other Investment being referred to as a "Restricted Payment")
if, at the time of such action, or after giving effect to such Restricted
Payment, (i) an Event of Default or a Default shall have occurred and be
continuing; (ii) the aggregate amount of all Restricted Payments declared or
made beginning on the Issue Date shall exceed the sum of (A) 50% of the
Company's Consolidated Net Income accrued on a cumulative basis through the
last fiscal quarter ending prior to the date of such proposed Restricted
Payment (or if the Company's Consolidated Net Income shall be a deficit, minus
100% of such deficit) plus (B) the aggregate net proceeds, including cash and
the fair market value of property other than cash (such value to be determined
in good faith by the Board of Directors of the Company, whose determination
shall be conclusive and evidenced by a board resolution filed with the
Trustee) received by the Company (other than from a Subsidiary) after the
Issue Date from the issuance and sale of either Capital Stock, other than
Disqualified Capital Stock, or Indebtedness that is convertible into Capital
Stock other than Disqualified Capital Stock, to the extent such Indebtedness
is converted into Capital Stock other than Disqualified Capital Stock; or
(iii) the Company could not incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the "Limitation on the Incurrence of
Indebtedness" covenant.
Notwithstanding any of the foregoing restrictions, if no Default or Event
of Default shall have occurred and be continuing as a consequence thereof,
such provisions will not prevent (A) any dividend or other distribution on
shares of Capital Stock payable solely in shares of Capital Stock (other than
Disqualified Capital Stock); (B) any dividend or other distribution payable
from a Subsidiary to the Company or to any domestic wholly-owned Subsidiary of
the Company; (C) the payment of any dividend within 60 days after the date of
declaration, if at the date of declaration, such payment would comply with
such provisions; (D) the Company from using not in excess of $500,000 in the
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aggregate to purchase its Common Stock from holders of such Common Stock who
in each case own less than 8.0% of such Common Stock provided that at each
such purchase date the Company could incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to the "Limitation on Incurrence
of Indebtedness" covenant; and (E) the Company from repurchasing the Warrants
pursuant to the Warrant Agreement. For purposes of determining the amount of
Restricted Payments that may be paid, the payments made pursuant to clauses
(A), (B), (D) and (E) shall not count as Restricted Payments and the payments
made pursuant to clause (C) shall count as Restricted Payments.
Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries
The Company will not, and will not permit any Subsidiary to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective
any consensual encumbrance or restriction of any kind on the ability of any
Subsidiary to (a) pay dividends or make any other distribution in respect of
its Capital Stock, or any other ownership interest or participation in, or
measured by, its profits, owned by the Company, (b) pay any Indebtedness owed
to the Company or any Subsidiary, (c) make loans or advances to the Company or
any Subsidiary, (d) transfer any of its property or assets to the Company or
any Subsidiary, (e) except as set forth in the Revolving Credit Facility,
grant Liens or security interests on its assets in favor of the holders of the
Senior Notes, or (f) guarantee the Senior Notes or any renewals or
refinancings thereof, except for such encumbrances or restrictions existing as
of the Issue Date.
Limitation on Investments
The Company will not, and will not permit any Subsidiary to, make any
Investment other than (i) Permitted Investments, (ii) Investments made as
Restricted Payments in compliance with the "Limitation on Restricted Payments"
covenant, (iii) Investments in a domestic company or the purchase of assets
located in the United States where (a) such company is engaged in or such
assets are employed in a similar line of business as that of the Company and
(b) the Company and/or a Subsidiary purchases the entire interest in such
company or assets, (iv) Investments in a domestic, wholly-owned Subsidiary,
(v) Investments in oil and gas properties and lease participations not
exceeding in any fiscal year of the Company the sum of (a) the net cash flow
received by the Company from such properties and participations during such
year and (b) $250,000 (with any portion of such $250,000 not used in any year
to be added to the amount that may be so invested in subsequent years), (vi)
Investments in the form of loans to Unrestricted Subsidiaries not exceeding
$2.0 million in the aggregate outstanding, provided that on the date of each
such loan the Company could incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the "Limitation on Incurrence of
Indebtedness" covenant or (vii) Investments in a company organized under the
laws of the United Mexican States or the Peoples Republic of China or the
purchase of assets located in the United Mexican States or the Peoples
Republic of China where (a) such company is engaged in or such assets are
employed in a similar line of business as that of the Company, (b) the Company
or its Subsidiary purchases all or a part of the interest in such company or
assets, and (c) such Investments will not exceed $3.0 million in the aggregate
outstanding at any time, provided that on the date of each such Investment the
Company could incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the "Limitation on Incurrence of Indebtedness"
covenant. On June 20, 1995, the Company agreed with one holder of Senior
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Notes for the benefit of all holders that the Company would not use its excess
cash flow for acquisitions until $10 million in Senior Notes had been
purchased by it or an Affiliate.
Limitation on Liens
The Company will not, and will not permit any Subsidiary to, directly or
indirectly, create, incur, assume or suffer to exist any Lien (other than
Permitted Liens) upon any of their respective assets now owned or hereafter
acquired unless the Senior Notes are equally and ratably secured by the Liens
covering such assets; provided that if such Indebtedness secured by such Lien
is subordinated in right of payment to the Senior Notes, the Lien securing
such Indebtedness will be subordinated and junior to the Lien securing the
Senior Notes, with the same relative priority as such subordinated
indebtedness will have with respect to the Senior Notes.
Limitation on Sale and Leaseback Transactions
The Company will not, and will not permit any of its Subsidiaries to,
enter into any Sale and Leaseback Transaction; provided that the Company or
any Subsidiary may enter into a Sale and Leaseback Transaction if (a)(i) the
Company or such Subsidiary could have incurred Indebtedness in an amount equal
to the Attributable Debt relating to such Sale and Leaseback Transaction
pursuant to the "Limitation on Incurrence of Indebtedness" covenant or
(ii) the Sale and Leaseback Transaction relates to the Company's Klemp
division property located in Chicago, Illinois and (b) the net cash proceeds
received by the Company or any such Subsidiary from such Sale and Leaseback
Transaction are at least equal to the fair market value of such property as
determined in good faith by the Board of Directors of the Company, whose
determination shall be conclusive and evidenced by a board resolution filed
with the Trustee.
Limitation on Transactions with Affiliates
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly enter into any transaction or series of related
transactions (including, without limitation, the sale, purchase, exchange or
lease of assets, property or services) with any Affiliate unless (a) each such
transaction and any series of related transactions is fair to the Company or
such Subsidiary and on terms that are no less favorable to the Company or such
Subsidiary, as the case may be, than would be available in a comparable
transaction with an unrelated third party and (b)(i) with respect to a
transaction or series of related transactions involving aggregate payments in
excess of $300,000, the Board of Directors of the Company shall approve by
unanimous resolution certifying that such transaction or series of
transactions comply with clause (a) above, and (ii) with respect to a
transaction or series of related transactions involving aggregate payments
equal to or greater than $3.0 million, the Company receives a written opinion
of a nationally recognized investment bank with total assets in excess of $1.0
billion that such transaction or series of transactions is fair to the Company
or such Subsidiary, as the case may be, from a financial point of view. The
foregoing shall not prevent the Company from paying consulting fees to SPI
pursuant to the Consulting Agreement so long as (a) the Consolidated Interest
Coverage Ratio for the four full fiscal quarters immediately preceding such
payment was greater than or equal to 1.5 to 1.0 and (b)(1) until April 30,
1996 such payments do not exceed $300,000 in any year or (2) after April 30,
1996, such payments may exceed $300,000 but only if the Consolidated Interest
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Coverage Ratio for the four full fiscal quarters immediately preceding such
payment was greater than or equal to 2.0 to 1.0 and the Board of Directors of
the Company shall approve by unanimous resolution certifying that such payment
complies with clause (a) of the preceding sentence. Notwithstanding the
foregoing, the Company shall not be entitled to pay consulting fees to SPI
during any period when the Company is in default in the payment of principal
or interest on the Senior Notes.
Limitation on Asset Sales
The Company will not, and will not permit any Subsidiary to, directly or
indirectly, make any Asset Sale unless (i) the Company or such Subsidiary, as
the case may be, receives consideration at the time of such Asset Sale at
least equal to the fair market value for the shares or assets sold or
otherwise disposed of as determined by the Board of Directors of the Company
and (ii) at least 75% of such consideration consists of cash. Within 180 days
of the closing of any Asset Sale, the Company may apply the Net Cash Proceeds
from such Asset Sale to the permanent reduction of Indebtedness outstanding
under the Revolving Credit Facility in accordance with its terms or to an
investment in properties and assets (in the same line of business) that
replace the properties or assets that were the subject of such Asset Sale.
For purposes of the foregoing, "Net Cash Proceeds" means the aggregate
amount of cash (including any other consideration that is converted into cash)
received by the Company or any of its Subsidiaries in respect of such an Asset
Sale, less the sum of (a) all fees, commissions and other expenses incurred in
connection with such Asset Sale, including the amount of income taxes required
to be paid by the Company or any of its Subsidiaries in connection therewith
and (b) the aggregate amount of cash so received which is used to retire any
existing Indebtedness of the Company or any of its Subsidiaries which is
required to be repaid in connection therewith. If at any time any funds are
received by or for the account of the Company or any of its Subsidiaries upon
the sale, conversion, collection or other liquidation of any noncash
consideration received in respect of an Asset Sale, such funds shall, when
received, constitute Net Cash Proceeds and shall, within 180 days after the
receipt of such funds, be applied as provided in the preceding paragraph or as
provided in the succeeding paragraph.
Any Net Cash Proceeds from any Asset Sale that are not applied or
invested as provided in the second preceding paragraph constitute "Excess
Proceeds". When the aggregate amount of Excess Proceeds from one or more
Asset Sales exceeds $5.0 million, the Company shall offer to purchase from all
holders of the Senior Notes the maximum principal amount of Senior Notes that
may be purchased out of the Excess Proceeds, at an offer price in cash in an
amount equal to 100% of the principal amount thereof plus accrued interest, if
any, to the date fixed for the closing of such offer, in accordance with the
provisions set forth in the Indenture. To the extent that the aggregate
principal amount of Senior Notes tendered pursuant to an offer plus accrued
interest thereon is less than the Excess Proceeds, the Company may use such
deficiency, or a portion thereof, for general corporate purposes. If the
aggregate principal amount of Senior Notes plus accrued interest thereon
surrendered by holders thereof exceeds the amount of Excess Proceeds, the
Company shall select the Senior Notes to be purchased on a pro rata basis.
Upon completion of such offer to purchase, the amount of Excess Proceeds shall
be reset at zero.
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Notwithstanding the foregoing, the Company will not, and will not permit
any Subsidiary to, directly or indirectly, make any Asset Sale of any of the
Capital Stock of a Subsidiary, except pursuant to an Asset Sale of all of the
Capital Stock of such Subsidiary.
The Company will comply with any tender offer rules under the Exchange
Act which may then be applicable, including Rule 14e-1 thereunder, in
connection with any offer required to be made by the Company to repurchase the
Senior Notes with the Excess Proceeds of Asset Sales.
Maintenance of EBITDA
The Company shall maintain EBITDA in an amount greater than or equal to
$7.2 million at the end of each fiscal quarter, commencing with the fiscal
quarter ending June 30, 1993. "EBITDA" shall mean the sum of Consolidated Net
Income, Consolidated Interest Expense, Consolidated Income Tax Expense,
Consolidated Depreciation Expense and Consolidated Amortization Expense, in
each case for the Company and its Subsidiaries on a consolidated basis for the
four full fiscal quarters immediately preceding the date of determination.
Unrestricted Subsidiary
The Company shall deliver to the Trustee, within 90 days following the
end of each fiscal year, an Officers' Certificate certifying that all
obligations and liabilities of each Unrestricted Subsidiary have been and
continue to be without any recourse to the Company and that each such
Unrestricted Subsidiary continues to be an Unrestricted Subsidiary in all
respects. The Company may, at any time after the repayment in full in cash of
any Investment in an Unrestricted Subsidiary, deliver to the Trustee a
resolution of its Board of Directors designating that such Unrestricted
Subsidiary shall cease to have such status, which designation shall be
effective upon receipt so long as, after giving effect to such designation, no
Event of Default or Default shall occur as a result thereof.
Material Agreements
Neither the Company nor any of its Subsidiaries shall amend, modify or
change in any material way the terms of the subordination provisions of the
Consulting Agreement or the terms of any agreement or instrument governing
Indebtedness which is subordinated in right of payment to the Senior Notes or
the terms of any of its preferred stock, if such proposed amendments,
modifications or changes, individually or in the aggregate, are adverse in any
material respect to the interests of the holders of the Senior Notes.
Merger, Consolidation or Sale of Assets
The Indenture provides that the Company may not consolidate with or merge
into any Person or permit any other Person to consolidate with or merge into
the Company, or transfer, sell, convey or lease or otherwise dispose of all or
substantially all of its assets (whether in one transaction or a series of
related transactions) to, any Person, and shall not permit any of its
Subsidiaries to enter into any such transaction or series of transactions if
such transaction or series of transactions, in the aggregate, would result in
a sale, assignment, transfer, lease or other disposition of all or
substantially all of the properties and assets of the Company and its
Subsidiaries on a consolidated basis to any other Person, unless (a) the
Company shall be the continuing Person or the Person (if other than the
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Company) formed by such consolidation or merger, or to which the sale, lease,
transfer or conveyance shall have been made, is a corporation organized and
existing under the laws of the United States, any State thereof or the
District of Columbia, (b) the successor or transferee (if other than the
Company) assumes, by supplemental indenture, all of the obligations of the
Company under the Senior Notes and the Indenture and assumes all of the
Company's obligations under the Purchase Agreement, the Exchange and
Registration Rights Agreement and the Securities Pledge Agreement, (c) the
Consolidated Net Worth of the Company or such successor or transferee
immediately after the transaction is not less than the Company's Consolidated
Net Worth immediately prior to the transaction, (d) immediately after giving
effect to such transaction, the Company or such successor or transferee would
be permitted to incur at least $1.00 of Indebtedness pursuant to the
"Limitation on Incurrence of Indebtedness" covenant (other than Permitted
Indebtedness) and (e) immediately prior to and after giving effect to such
transaction, no Event of Default or Default shall have occurred and be
continuing.
Events of Default
The following are Events of Default under the Indenture: (a) failure to
pay the principal of or premium, if any, on the Senior Notes when due whether
at maturity, upon redemption, or otherwise; (b) failure to pay any interest on
the Senior Notes when due, whether at maturity, upon redemption, or otherwise,
continued for 30 days; (c) failure to perform any other covenant in the
Indenture, continued for 30 days after written notice of the Trustee or
holders of at least 25% of the aggregate principal amount of the Senior Notes
outstanding; (d) a default by the Company or any Subsidiary (i) in the payment
of any principal of or interest on any Indebtedness, the principal amount of
which, individually or in the aggregate, exceeds $1.0 million, when due after
giving effect to any applicable grace periods (whether such Indebtedness
exists as of the Issue Date or is thereafter created) or (ii) on any
Indebtedness where the default or defaults, individually or in the aggregate,
exceed $1.0 million, which default or defaults shall have resulted in such
Indebtedness becoming or being declared due and payable prior to the date on
which it would otherwise have become due and payable; (e) failure by the
Company or any of its Subsidiaries to pay final judgments or orders
aggregating in excess of $1.0 million, and either (i) the commencement by any
creditor of any enforcement proceeding upon any such judgment or order or (ii)
such judgment or order remaining unstayed for 45 days; (f) certain events of
bankruptcy, insolvency or reorganization of the Company or any of its
Subsidiaries; (g) the Securities Pledge Agreement shall be held to be
unenforceable or invalid or shall cease to be in full force and effect, or a
Pledgor or any person acting on behalf of a Pledgor, shall deny or disaffirm
such Pledgor's obligations under the Securities Pledge Agreement, or the
enforceability of the Collateral Agent's or the holders of the Senior Notes'
security interest in any of the Pledged Collateral shall be successfully
contested by either of the Pledgors or any other Person; and (h) default in
the performance or breach of the terms set forth under "Merger, Consolidation
or Sale of Assets" or "Change of Control."
If an Event of Default (other than certain events with respect to
bankruptcy, insolvency and reorganization of the Company) shall occur and be
continuing, either the Trustee or the holders of at least 25% of the aggregate
principal amount of the Senior Notes outstanding, by written notice as
provided in the Indenture, may declare the principal amount of the Senior
Notes to be due and payable immediately. If an Event of Default with respect
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to certain events of bankruptcy, insolvency and reorganization of the Company
occurs and is continuing, then the principal of all the Senior Notes shall
automatically be immediately due and payable without any act on the part of
the Trustee or any holder of the Senior Notes. However, at any time after a
declaration of acceleration with respect to the Senior Notes has been made,
but before a judgment or decree based on such acceleration has been obtained,
the holders of a majority of the aggregate principal amount of the Senior
Notes may, under certain circumstances, rescind and annul such declaration.
Certain Definitions
"Acquired Indebtedness" means, with respect to any specified Person,
Indebtedness of any other Person (i) existing at the time such other Person
merged with or into or became a Subsidiary of such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Subsidiary of such specified Person
or (ii) assumed by such Person in connection with its acquisition of assets
owned by such other Person.
"Affiliate" of a Person means any other Person, directly or indirectly,
controlling, controlled by, or under direct or indirect common control with
such Person. For purposes of this definition, "control," when used with
respect to any Person, means the power to direct or cause the direction of the
management and policies of such Person, directly or indirectly, whether
through ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the
foregoing. Notwithstanding the foregoing, "Affiliate" shall not include any
domestic wholly-owned Subsidiary of the Company.
"Asset Sale" by any Person means any transfer, conveyance, sale, lease or
other disposition by such Person or any of its Subsidiaries (including a Sale
and Leaseback Transaction) of (a) shares of Capital Stock (other than
directors' qualifying shares) or other ownership interests of a Subsidiary of
such Person, (b) substantially all of the assets of such Person or any of its
Subsidiaries representing a division or line of business or (c) other assets
or rights of such Person or any of its Subsidiaries, whether owned on the
Issue Date or thereafter acquired, in one or more related transactions;
provided however that Asset Sales will not include (a) sales of surplus, worn
out or obsolete equipment not exceeding $250,000 in any year and sales of
inventory in the ordinary course of business, and (b) the issuance by the
Company of shares of its Capital Stock.
"Attributable Debt" means, with respect to a Sale and Leaseback
Transaction, as at the time of determination, the greater of (a) the fair
market value of the property subject to such Sale and Leaseback Transaction
(as set forth in a resolution of the Board of Directors of the Company filed
with the Trustee) and (b) the present value (discounted at the interest rate
borne by the Senior Notes, compounded annually) of the total obligations of
the lessee for rental payments during the remaining term of the lease included
in such Sale and Leaseback Transaction (including any period for which such
lease has been extended).
"Auto-Lok" means Auto-Lok, Inc., a Delaware corporation.
"Capital Lease Obligation" of any Person means the obligation to pay rent
or other payment amounts under a lease of (or other Indebtedness arrangements
conveying the right to use) real or personal property of such Person which is
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required to be classified and accounted for as a capital lease or a liability
on the face of a balance sheet of such Person in accordance with generally
accepted accounting principles.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock,
including each class of common stock and preferred stock of such Person and
any warrants, options or other rights to acquire such stock.
"Consolidated Amortization Expense" means, with respect to a Person for
any period, the amortization expense of such Person and its Subsidiaries for
such period, determined on a consolidated basis in accordance with generally
accepted accounting principles.
"Consolidated Depreciation Expense" means, with respect to a Person for
any period, the depreciation expense of such Person and its Subsidiaries for
such period, determined on a consolidated basis in accordance with generally
accepted accounting principles.
"Consolidated Income Tax Expense" means, with respect to a Person for any
period, the aggregate of the income tax expense of such Person and its
Subsidiaries for such period, determined on a consolidated basis in accordance
with generally accepted accounting principles.
"Consolidated Interest Coverage Ratio" means the ratio of (i) the sum of
Consolidated Net Income, Consolidated Interest Expense, Consolidated Income
Tax Expense, Consolidated Depreciation Expense and Consolidated Amortization
Expense, in each case, for such period, of the Company and its Subsidiaries on
a consolidated basis, to (ii) the sum of pro forma Consolidated Interest
Expense and cash dividends paid on preferred stock of such Person and its
Subsidiaries (after tax), in each case for the preceding four full fiscal
quarters; provided, that in calculating Consolidated Net Income and in
calculating Consolidated Interest Expense and cash dividends on a pro forma
basis, any Indebtedness bearing a floating interest rate shall be computed as
if the rate in effect on the date of computation has been the applicable rate
for the entire period.
"Consolidated Interest Expense" means, with respect to a Person for any
period, the interest expense of such Person and its Subsidiaries for such
period, determined on a consolidated basis in accordance with generally
accepted accounting principles, excluding, however, (i) any interest
attributable to the Warrants and any original issue discount applicable to
such Person associated with the Units and (ii) accruals or charges made in
respect of the amortization or write-off of deferred financing charges and
original issue discount in respect of Indebtedness outstanding on or prior to
the Issue Date.
"Consolidated Net Income" means, with respect to a Person for any period,
the Net Income of such Person and its Subsidiaries, for such period determined
on a consolidated basis in accordance with generally accepted accounting
principles, excluding, without duplication, (i) net gains or losses in respect
of dispositions of assets other than in the ordinary course of business; (ii)
any gains or losses from currency exchange transactions not in the ordinary
course of business consistent with past practice; (iii) any gains (but not
losses) attributable to any extraordinary items not covered by clause (i)
above; (iv) except to the extent otherwise provided in the "Limitation of
Incurrence of Indebtedness" covenant, the Net Income (if positive) of any
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Person acquired in a pooling of interests transaction for any period prior to
the date of such transaction; (v) the Net Income of any Person accounted for
by the equity method of accounting, except to the extent of the amount of
dividends or distributions paid to the referent Person; (vi) the Net Income of
any Subsidiary to the extent such Net Income has any restrictions or
encumbrances on making dividends or distributions to the Company; (vii) the
cumulative effects of accounting changes; (viii) losses in the form and to the
extent of expenses, charges or accruals associated with the PUPs; and (ix)
losses in the form and to the extent of accruals or charges made in respect of
the amortization or write-off of deferred financing charges in respect of
Indebtedness outstanding on or prior to the Issue Date.
"Consolidated Net Worth" means, with respect to any Person, the
stockholders' equity of such Person and its Subsidiaries, determined on a
consolidated basis in accordance with generally accepted accounting
principles.
"Consulting Agreement" means the Consulting Agreement, dated as of March
31, 1993, as amended on April 16, 1993, by and between the Company and SPI, as
further amended or modified from time to time.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Capital Stock" means, with respect to any Person, any
Capital Stock of such Person that, by its terms (or by the terms of any
security into which it is convertible or for which it is exercisable,
redeemable or exchangeable), matures, or is mandatorily redeemable, pursuant
to a sinking fund obligation or otherwise, or is redeemable at the option of
the Holder thereof, in whole or in part, on or prior to the maturity of the
Senior Notes.
"generally accepted accounting principles" means generally accepted
accounting principles as such principles are in effect in the United States on
the Issue Date.
"Hedging Obligations" means for any Person, the obligations of such
Person under (i) interest rate swap agreements, interest rate cap agreements
and interest rate collar agreements, and (ii) other agreements or arrangements
designed to protect such Person against fluctuations in interest rates.
"Heller" means Heller Financial, Inc.
"Indebtedness" of any Person means, without duplication, (a) any
liability, contingent or otherwise, of such Person (i) for borrowed money or
for the deferred purchase price of property or services (other than, in the
case of any such deferred purchase price, trade payables, on normal trade
terms, incurred in the ordinary course of business), or under any
reimbursement obligation relating to a letter of credit, bankers' acceptance
or note purchase facility or under any Hedging Obligation, (ii) evidenced by a
bond, note, debenture or similar instrument (including a purchase money
obligation), (iii) relating to a Capital Lease Obligation of such Person, (iv)
secured by any Lien on any property owned by such Person, whether or not such
liabilities have been assumed, or (v) to purchase, redeem, retire, defray or
otherwise acquire for value any Disqualified Capital Stock of such Person, (b)
preferred stock of any Subsidiary of such Person (other than preferred stock
held by such Person or any of its Subsidiaries), (c) any liability of others
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described in clause (a) that the Person has guaranteed, that is recourse to
such Person or that is otherwise its legal liability, and (d) any amendment,
supplement, modification, deferral, renewal, extension or refunding of any
liability of the types referred to in clauses (a), (b) and (c) above.
"Investments" of any Person means all investments in other Persons in the
form of loans, advances or capital contributions (excluding travel and similar
advances to officers and employees made in the ordinary course of business),
purchases (or other acquisitions for consideration) of Indebtedness, Capital
Stock or other securities and all other items that are or would be classified
as investments (including, without limitation, purchases of assets outside the
ordinary course of business) on a balance sheet prepared in accordance with
generally accepted accounting principles.
"Issue Date" means the date of original issue of the Old Notes.
"Lien" means any mortgage, lien, pledge, charge, security interest or
other encumbrance of any kind, whether or not filed, recorded or otherwise
perfected under applicable law (including any conditional sale or other title
retention agreement, any lease in the nature thereof, any option or other
agreement to sell or give any security interest in and filing of or other
agreement to give any financing statement under the Uniform Commercial Code
(or equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to a Person for any period, net income
(loss) of such Person and its Subsidiaries for such period, determined on a
consolidated basis in accordance with generally accepted accounting
principles.
"Permitted Indebtedness" means (i) Indebtedness incurred by the Company
under the Revolving Credit Facility, provided, that at no time may such
Indebtedness incurred by the Company exceed the amount equal to the sum of (a)
70% of the book value of the Company's inventory on such date and (b) 80% of
the book value of the Company's accounts receivable on such date, less (c) the
aggregate amount of all net cash proceeds applied to permanently reduce
Indebtedness outstanding under the Revolving Credit Facility pursuant to the
Revolving Credit Facility or the "Limitation on Asset Sales" covenant, (ii)
Indebtedness incurred by the Company under Hedging Obligations entered into
with respect to and incurred by the Company in a notional amount not exceeding
the Indebtedness permitted to be incurred pursuant to clause (i) above, (iii)
Indebtedness existing on the Issue Date, (iv) Indebtedness incurred by the
Company in respect of performance and surety bonds incurred in the ordinary
course of business not exceeding $4.0 million outstanding at any one time, (v)
intercompany Indebtedness between the Company and its wholly-owned domestic
Subsidiaries or between any such Subsidiaries, and (vi) any Refinancing
Indebtedness.
"Permitted Investments" means purchases of (a) marketable obligations of
or obligations guaranteed by the United States of America or issued by any
agency thereof and backed by the full faith and credit of the United States of
America in each case with final maturities of one year or less, (b) marketable
direct obligations issued by any state of the United States of America or any
political subdivision thereof having the highest rating obtainable from either
Moody's Investors Service, Inc. or Standard & Poor's Corporation and having a
final maturity of one year or less, (c) commercial paper having a rating of at
least A-1 or P-1 of Moody's Investors Service, Inc. or Standard & Poor's
Corporation, respectively, (d) certificates of deposit with final maturities
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of one year or less issued by United States commercial banks of recognized
standing with capital, surplus and undivided profits aggregating in excess of
$100 million, and (e) shares of money market funds that have assets in excess
of $100 million and that invest solely in Permitted Investments of the kind
described in clauses (a) through (d) above.
"Permitted Liens" means (i) Liens for taxes, assessments and governmental
charges not yet delinquent or being contested in good faith and for which
adequate reserves have been established to the extent required by generally
accepted accounting principles, (ii) landlord's, carrier's, warehousemen's,
storage, mechanics', workmen's, materialmen's, operator's or similar Liens
arising in the ordinary course of business, (iii) easements, rights-of-way,
restrictions and other similar easements, licenses, restrictions on the use of
properties or minor imperfections of title that in the aggregate, are not
material in amount, and that do not in any case materially detract from the
properties subject thereto or materially interfere with the ordinary conduct
of business of the Company, (iv) judgment and attachment Liens not giving rise
to an Event of Default that are currently being contested in good faith by
appropriate proceedings, and for which adequate reserves have been made to the
extent required by generally accepted accounting principles, (v)(a) Liens upon
any property of any Person existing at the time of acquisition thereof by the
Company, (b) Liens upon any property of a Person existing at the time such
Person is merged or consolidated with the Company or any Subsidiary or
existing at the time of the sale or transfer of any such property of such
Person to the Company or any Subsidiary, or (c) Liens upon any property of a
Person existing at the time such Person becomes a Subsidiary; provided that in
each such case such Lien has not been created in contemplation of such sale,
merger, consolidation, transfer or acquisition, (vi) Liens existing on the
Issue Date, (vii) Liens upon real or tangible personal property acquired after
the Issue Date, provided (A) any such Lien is created solely for the purpose
of securing Indebtedness representing, or incurred to finance, refinance or
refund, the cost (including the cost of construction) of the item of property
subject thereto, (B) the principal amount of the Indebtedness secured by such
Lien does not exceed 100% of such costs, (C) such Lien does not extend to or
cover any other property other than such item of property and any improvements
on such item, (D) the incurrence of such Indebtedness is permitted by the
"Limitation on Incurrence of Indebtedness" covenant and (E) the aggregate
amount of such Liens at any time outstanding does not exceed $3.0 million,
(viii) Liens upon the property of any Person incurred in connection with
completing purchase orders from other Persons who make progress payments in
respect of such orders pending completion, and (ix) Liens securing any
extensions, refinancings, renewals or replacements of any of the above
described obligations, provided that such extension, refinancing, renewal or
replacement does not provide for more extensive Liens or Liens with terms
which are less favorable to the holders of the Senior Notes.
"Person" means any individual, corporation, partnership, joint venture,
trust, estate, unincorporated organization or government or any agency or
political subdivision thereof.
"PUPs" means the performance unit plans of the Company which were
terminated simultaneously with the sale of the Old Notes.
"Refinancing Indebtedness" means Indebtedness incurred by the Company or
any Subsidiary to substantially concurrently repay, refund or refinance any
Permitted Indebtedness of the Company or any Subsidiary or any other
Indebtedness incurred by the Company or any Subsidiary pursuant to the
<PAGE>
<PAGE> 96
"Limitation on Incurrence of Indebtedness" covenant, to the extent (i) the
principal amount of such Refinancing Indebtedness does not exceed the
principal or accreted amount of the Indebtedness so repaid, refunded or
refinanced, (ii) the Refinancing Indebtedness ranks no more favorably in right
of payment with respect to the Senior Notes than the Indebtedness so repaid,
refunded or refinanced, and (iii) the Refinancing Indebtedness has a Weighted
Average Life to Maturity and stated maturity equal to, or greater than, and
has no fixed mandatory redemption or sinking fund requirement in an amount
greater than or at a time prior to the amounts set forth in, the Indebtedness
so repaid, refunded or refinanced; provided, however, that Refinancing
Indebtedness shall not include Indebtedness incurred by a Subsidiary to repay,
refund or refinance Indebtedness of the Company or another Subsidiary.
"Revolving Credit Facility" means the revolving credit facility provided
for under the Amended and Restated Credit Agreement, dated as of May 3, 1993,
by and between the Company and Heller, as such agreement may be amended,
modified, refinanced or refunded from time to time.
"Sale and Leaseback Transaction" means any transaction by which the
Company or any of its Subsidiaries, directly or indirectly, becomes liable as
a lessee or as a guarantor or other surety with respect to any lease of any
property (whether real or personal or mixed) whether now owned or hereafter
acquired which the Company or any of its Subsidiaries has sold or transferred
or is to sell or transfer to any other Person.
"Subsidiary" means any corporation or other entity of which securities or
other ownership interests having ordinary voting power to elect a majority of
the Board of Directors or their equivalents of such Person shall, at the time
as of which any determination is being made, be owned by the Company, either
directly or through Subsidiaries, other than an Unrestricted Subsidiary.
"Unrestricted Subsidiary" means a Subsidiary or Affiliate of the Company
in which the Company shall make an Investment in the form of a loan, or an
Investment solely in the form of loans, advances or capital contributions, or
purchases of Indebtedness, capital stock or other securities pursuant to
clause (vii) of the "Limitations on Investments" covenant, in either case that
is identified by the Company in writing to the Trustee to be an Unrestricted
Subsidiary and (a) no portion of the Indebtedness or any other obligation
(contingent or otherwise) of which (i) is guaranteed by the Company or any
other Subsidiary of the Company, (ii) is recourse to or obligates the Company
or any other Subsidiary of the Company in any way or (iii) subjects any
property or asset of the Company or any other Subsidiary of the Company,
directly or indirectly, contingently or otherwise, to satisfaction thereof,
(b) with which the Company or any other Subsidiary of the Company has no
contract, agreement, arrangement, understanding or is subject to no obligation
of any kind, whether written or oral, other than (A) a transaction on terms no
less favorable to the Company or any other Subsidiary of the Company than
those which might be obtained at the time from Persons who are not Affiliates
of the Company and (B) a take-or-pay contract, and (c) with which neither the
Company nor any other Subsidiary of the Company has any obligation (i) to
subscribe for additional shares of Capital Stock, or other equity interest
therein, or (ii) to maintain or preserve such Subsidiary's financial condition
or to cause such Subsidiary to achieve certain levels of operating results.
"Voting Power" of any Person means the aggregate number of votes of all
classes of Capital Stock of such Person which ordinarily has voting power for
the election of the Board of Directors or their equivalents of such Person.
<PAGE>
<PAGE> 97
"Warrant Agreement" means that certain Warrant Agreement, dated as of May
1, 1993, by and between the Company and The First National Bank of Boston, as
warrant agent, as such agreement may be amended, modified or supplemented from
time to time.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the
then outstanding principal amount of such Indebtedness into (b) the total of
the product obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Richards & O'Neil, LLP, counsel to the Company, has advised the Company
that the following discussion is its opinion of the material federal income
tax consequences to individuals who are citizens or residents of the United
States of the ownership and disposition of the Warrants under current law
except for statements of fact included in such discussion, as to which no
opinion is expressed. A ruling from the IRS on the matters discussed below
has not been requested. An opinion of counsel represents only such counsel's
best legal judgment and does not bind the IRS or the courts. Thus, no
assurance can be provided that the opinions and statements set forth herein
would be sustained by a court if contested by the IRS. The costs of any
contest with the IRS will be borne directly or indirectly by each holder or
prospective holder. Moreover, there can be no assurance that any of the
opinions or statements made below will not be significantly modified by future
legislative or administrative changes or court decisions. Any such
modifications may or may not be retroactively applied.
The following discussion is based upon laws, including the IRC,
regulations, rulings and judicial decisions in effect as of the date hereof,
all of which are subject to change (possibly on a retroactive basis). The
following discussion does not consider all aspects of federal income taxation
that may be relevant to a holder's particular circumstances or to certain
types of holders subject to special treatment under the federal income tax
laws (for example, dealers in securities, tax-exempt organizations, insurance
companies, and foreign taxpayers), and does not discuss the consequences to a
holder under state, local, or foreign tax laws.
EACH PROSPECTIVE HOLDER OF THE WARRANTS OR THE WARRANT SHARES SHOULD CONSULT
HIS, HER OR ITS OWN TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX
CONSEQUENCES TO HIM, HER OR IT RELATING TO THE WARRANTS OR THE WARRANT SHARES
INCLUDING, THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN
TAX LAWS AND OF CHANGES IN APPLICABLE TAX LAWS.
Sale, Exchange, Exercise or Lapse of the Warrants
Because the Warrants were offered as part of the Units, including the Old
Notes, the "issue price" of a Unit, which is the amount paid by the first
buyer of a Unit (not including the original purchaser or any other
organization generally acting in the capacity of underwriter or placement
agent), is required to be allocated between the Warrant and the Old Note that
<PAGE>
<PAGE> 98
comprised the Unit in proportion to their relative fair market values. An
initial holder's tax basis in a Warrant will be equal to the portion of the
issue price of a Unit determined by the Company to be allocable to the
Warrant.
Upon the sale or exchange of a Warrant, a holder will recognize taxable
gain or loss equal to the difference between (i) the amount of cash and the
fair market value of property received and (ii) the holder's tax basis, as
determined above, in the Warrant. Provided the Warrant is a capital asset in
the hands of the holder and had been held for more than one year, any gain or
loss recognized by the holder will generally be a long-term capital gain or
loss.
Generally, a holder will not recognize a gain or loss upon the exercise
of a Warrant (except to the extent of cash or the fair market value of
property received in lieu of fractional shares). A holder's tax basis in the
Warrant Shares received upon the exercise of a Warrant will equal the sum of
the holder's tax basis in the exercised Warrant and the cash paid upon
exercise. The holding period for the Warrant Shares received upon the
exercise of the Warrant will begin on the date of exercise and will not
include the period during which the Warrant was held.
The lapse or expiration without exercise of a Warrant should result in a
loss to the holder of the Warrant equal to the holder's tax basis in the
Warrant. Such loss will generally be a capital loss provided that the Warrant
is a capital asset in the hands of the holder. The loss will be long-term if
the Warrant was held for more than one year.
Adjustments Under the Warrants
Pursuant to the terms of the Warrants, the number of Warrant Shares
purchasable upon exercise of the Warrants is subject to adjustment from time
to time upon the occurrence of certain events. Under Section 305 of the IRC,
a change in conversion ratio or any transaction having a similar effect on the
interests of the holders of the Warrants may be treated as a distribution with
respect to any holder whose proportionate interest in the earnings and profits
of the Company is increased by such change or transaction. Thus, under
certain future circumstances that may or may not occur, such an adjustment
pursuant to the terms of the Warrants may be treated as a taxable distribution
to the holders of the Warrants, to the extent of the Company's current or
accumulated earnings and profits, without regard to whether such holders
receive any cash or other property.
SHARES ELIGIBLE FOR FUTURE SALE
As of April 11, 1997, the Company had 242,887.365 shares of Common Stock
outstanding. If all outstanding warrants of the Company were exercised, the
Company would have 292,887.365 shares of Common Stock outstanding. Of these
shares, 45,465 shares of Common Stock issuable on exercise of the Warrants
will be freely tradeable in the public market without restriction by persons
other than affiliates of the Company. The 242,887.365 shares of Common Stock
outstanding were acquired in transactions other than pursuant to an effective
registration statement under the Securities Act and are "restricted stock"
within the meaning of Rule 144 under the Securities Act. Consequently, such
shares may not be resold unless they are registered under the Securities Act
or resold pursuant to an applicable exemption from registration, such as Rule
144.
<PAGE>
<PAGE> 99
SELLING STOCKHOLDERS
This Prospectus relates to the sale from time to time by the Selling
Stockholders of up to (i) 50,000 Warrants of the Company to acquire an
aggregate of 50,000 Warrant Shares, and (ii) 50,000 Warrant Shares. In
connection with the Offering, the Selling Stockholders obtained the right to
have the offer and sale of the Securities registered under the Securities Act
in an offering under Rule 415. None of the Selling Stockholders are
affiliated with the Company or have had any position, office or other material
relationship with the Company or any of its predecessors or affiliates,
although beneficial owners of 4,535 Warrants who hold their Warrants through
Selling Stockholders are executive officers or directors of the Company.
The following table, based on information provided by DTC, the registered
holder of the Warrants, to the Company, sets forth the Securities beneficially
owned by each Selling Stockholder as of April 8, 1997, which Securities may be
offered for sale by the Selling Stockholders from time to time:
Shares of
Selling Stockholder Warrants Common Stock
- ------------------- -------- ------------
Bear Stearns, Inc. 6,370 6,370
Boston Safe Deposit & Trust Company 500 500
U.S. Trust Company 100 100
Charles Schwab & Co., Inc. 235 235
Wood Gundy, Corp. 400 400
Cowen & Co. 20 20
Jefferies & Company, Inc. 188 188
Edward D. Jones & Co. 25 25
Lehman Brothers 1,750 1,750
Lewco Securities Corporation 1,000 1,000
Morgan Stanley & Co, Incorporated. 19,440 19,440
Northern Trust Company - Trust 125 125
Paine Webber, Inc. 120 120
Philadelphia Depository Trust Company 1,710 1,710
Prudential Securities Incorporated 72 72
Smith Barney, Inc. 25 25
SSB Custodian 17,850 17,850
Southwest Securities, Inc. 50 50
Wheat, First Securities, Inc. 20 20
------ ------
Total 50,000 50,000
====== ======
<PAGE>
<PAGE> 100
PLAN OF DISTRIBUTION
The Company will sell the Warrant Shares only to the registered holders
of the Warrants, in accordance with the terms thereof, if and when such
holders exercise the Warrants.
All or a portion of the Securities may be sold from time to time in
negotiated transactions or otherwise, at prices then prevailing or related to
the then current market price or at negotiated prices. The Securities may be
sold directly or through brokers or dealers, or in a distribution by one or
more underwriters on a firm commitment or best efforts basis. The methods by
which the Securities may be sold include (i) a block trade (which may involve
crosses) in which the broker or dealer so engaged will attempt to sell the
securities as agent but may position and resell a portion of the block as
principal to facilitate the transaction, (ii) purchases by a broker or dealer
as principal and resale by such broker or dealer for its account pursuant to
this Prospectus, (iii) ordinary brokerage transactions and transactions in
which the broker solicits purchasers, and (iv) privately negotiated
transactions. The Selling Stockholders and any broker-dealers participating
in the distribution of the Securities may be deemed to be "underwriters"
within the meaning of the Securities Act and any profit on the sale of the
Securities by the Selling Stockholders and any commissions received by any
such broker-dealers may be deemed to be underwriting commissions under the
Securities Act. The Securities have not been registered for sale by the
Company or the Selling Stockholders under the securities laws of any state as
of the date of this Prospectus. Selling Stockholders, brokers or dealers
effecting transactions in the Securities should confirm the registration
thereof under the securities laws of the states in which such transactions
occur or the existence of any exemption from registration. See "Risk Factors
- - Lack of Public Market."
There can be no assurance that the Selling Stockholders will sell any or
all of the Securities offered by them.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of (i) 400,000
shares of Common Stock, par value $.01 per share, of which 242,887.365 shares
are issued and outstanding; (ii) 2,249 shares of Class D Series A Preferred
Stock, par value $.01 per share, of which 2,249 shares are issued and
outstanding; (iii) 800 shares of Class D Series B Preferred Stock, par value
$.01 per share, of which 800 shares are issued and outstanding; and (iv) 1,510
shares of Class D Series C Preferred Stock, par value $.01 per share, of which
1,510 are issued and outstanding. Fifty thousand shares of Common Stock are
reserved for issuance upon the exercise of the Warrants.
Common Stock
Subject to the prior rights of the holders of all classes and series of
the Preferred Stock, holders of the Common Stock are entitled to receive
ratably such dividends as may from time to time be declared by the Board of
Directors of the Company. Holders of the Common Stock are entitled to one
vote per share on all matters on which the holders of Common Stock are
entitled to vote. Because holders of the Common Stock do not have cumulative
voting rights, the holders of a plurality of the shares of the Common Stock
represented at a meeting can elect each director of the Company. In the event
<PAGE>
<PAGE> 101
of the liquidation, dissolution or winding up of the Company, holders of
Common Stock would be entitled to share ratably in all assets of the Company
available for distribution to the holders of the Common Stock. There are no
preemptive rights to purchase shares of the Common Stock under the Restated
Certificate of Incorporation or the by-laws of the Company. To date, the
Company has not paid dividends on its Common Stock. In addition, the
Revolving Credit Facility and the Indenture contain restrictions on the
payment of such dividends. See "Dividend Policy," "Description of Revolving
Credit Facility" and "Description of Senior Notes." As of March 26, 1997,
there were eleven holders of record of the Common Stock. See "Security
Ownership of Management and Certain Beneficial Owners." Upon the effectiveness
of the Registration Statement and the Exchange Offer Registration Statement,
the Amended and Restated Stockholders Agreement, dated as of December 12,
1990, among the Company and the holders of all of its issued and outstanding
shares of Common Stock terminated. Certain stockholders of the Company are
considering entering into a new stockholders agreement, the terms of which
have not yet been determined.
Preferred Stock
Holders of the Company's Preferred Stock are each entitled to receive
dividends at the rate of $100 per share per year. Dividends on the Preferred
Stock are cumulative and are payable when, if and as declared by the Board of
Directors. Holders of the Preferred Stock have no voting rights except as
otherwise provided by law. The shares of the Preferred Stock are not
convertible. In the event of the voluntary or involuntary liquidation,
dissolution or winding up of the Company, each holder of the Preferred Stock
is entitled to receive, prior to any distribution being made to holders of
Common Stock, an amount equal to $1,000 per share of Preferred Stock plus all
accumulated but unpaid dividends thereon or, if the Company has insufficient
assets to pay the full amount due upon such a liquidation, dissolution or
winding up, a ratable portion of such amount. Subject, among other things, to
the terms of any indebtedness owed by the Company to any lender from time to
time (i) the Company has the option to redeem any or all of the shares of any
class or series of the Preferred Stock, and (ii) each holder of the Preferred
Stock has the right to require the Company to redeem all, but not less than
all, of the shares of Preferred Stock held by such holder, in each case on a
ratable basis among the shares of all classes and series being simultaneously
redeemed and at a redemption price equal to $1,000 per share plus all
accumulated but unpaid dividends thereon. In the event that the Company
elects to redeem any outstanding shares of Preferred Stock, it may pay the
redemption price (a) in the case of the Class D Series A Preferred Stock and
the Class D Series B Preferred Stock, either in cash or one-half in cash and
one-half in the form of a two-year negotiable promissory note, payable in
equal annual installments and bearing interest (payable monthly in arrears) at
the prime or reference rate per annum of a New York money center bank selected
by the Company, and (b) in the case of the Class D Series C Preferred Stock,
either in cash or in the form of a two-year negotiable promissory note,
payable in equal annual installments and bearing interest (payable monthly in
arrears) at a rate of 10% per annum. As of March 26, 1997 there was one
holder of record of the Class D Series A Preferred Stock, one holder of record
of the Class D Series B Preferred Stock, and one holder of record of the Class
D Series C Preferred Stock. See "Security Ownership of Management and Certain
Beneficial Owners."
<PAGE>
<PAGE> 102
Warrants
The Company issued 50,000 Warrants to purchase Common Stock at an
exercise price of $0.01 per share on May 3, 1993 pursuant to the Warrant
Agreement between the Company and the Warrant Agent. See "Description of
Warrants."
LEGAL MATTERS
The validity of the Warrants and the Warrant Shares have been passed upon
for the Company by Richards & O'Neil, LLP, New York, New York.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1996 and 1995 and for each of the three years in the period ended December 31,
1996, included in this Prospectus have been so included in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
<PAGE>
<PAGE> F-1
INDEX TO FINANCIAL STATEMENTS
Page
-
- ---
Chatwins Group, Inc.:
Report of Independent Accountants
F-2
Consolidated Balance Sheet as of December 31, 1996 and 1995
F-3
Consolidated Statement of Income for the
Years Ended December 31, 1996, 1995 and 1994
F-4
Consolidated Statement of Cash Flows for the
Years Ended December 31, 1996, 1995 and 1994
F-5
Notes to Consolidated Financial Statements, December 31, 1996
F-6
<PAGE>
<PAGE> F-2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Chatwins Group, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income and of cash flows present fairly, in all
material respects, the financial position of Chatwins Group, Inc. and its
subsidiaries (Chatwins) at December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
Chatwins' management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Pittsburgh, Pennsylvania
March 26, 1997
<PAGE>
<PAGE> F-3
CHATWINS GROUP, INC.
CONSOLIDATED BALANCE SHEET
(in thousands)
At December 31,
1996 1995
-------- --------
ASSETS:
Cash and equivalents (note 1) $ 356 $ 357
Receivables, net (note 1) 26,405 29,958
Inventories (notes 1 and 2) 19,106 19,487
Other current assets 3,512 4,556
-------- --------
Total current assets 49,379 54,358
Property, plant and equipment, net (note 3) 29,734 26,385
Amounts due from related parties (note 13) - 3,523
Investments, net (note 4) 12,452 13,209
Goodwill, net (note 1) 4,849 5,015
Other assets, net (note 5) 6,165 4,846
-------- --------
Total assets $102,579 $107,336
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current maturities of debt (note 7) $ 767 $ 48
Trade payables 12,879 16,175
Amount due to related parties (note 13) 579 3,124
Other current liabilities (note 6) 8,863 9,179
-------- --------
Total current liabilities 23,088 28,526
Long-term debt (note 7) 74,375 73,917
Other liabilities (note 8) 4,316 4,713
-------- --------
Total liabilities 101,779 107,156
-------- --------
Commitments and contingent liabilities (note 20) - -
Minority interests (note 9) 1,125 -
Redeemable preferred stock (note 10) 7,570 7,114
Warrant value (note 7) 210 210
Stockholders' equity (note 11):
Common stock (400,000 shares authorized,
242,887 shares outstanding) 3 3
Capital in excess of par value 1,664 1,664
Treasury stock (500) (500)
Notes receivable from stockholders (1,001) (1,001)
Accumulated translation adjustments (note 1) (688) (419)
Accumulated deficit (7,583) (6,891)
-------- --------
Total stockholders' equity (8,105) (7,144)
-------- --------
Total liabilities and stockholders' equity $102,579 $107,336
======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE> F-4
CHATWINS GROUP, INC.
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except share and per share data)
Year Ended December 31,
1996 1995 1994
-------- -------- --------
Net sales $153,480 $183,408 $154,710
Cost of sales 123,384 146,386 124,856
-------- -------- --------
Gross profit 30,096 37,022 29,854
Selling, general and administrative 19,899 21,169 19,653
Other (income) expense, net 275 407 (176)
-------- -------- --------
Operating profit 9,922 15,446 10,377
Interest expense, net 9,559 9,800 8,567
-------- -------- --------
Income before income taxes, equity loss
from affiliate and extraordinary item 363 5,646 1,810
Provision for income taxes 143 1,034 388
-------- -------- --------
Income before equity loss from affiliate
and extraordinary item 220 4,612 1,422
Equity loss from continuing operations
of affiliate (155) (132) (90)
Equity loss from discontinued operations
of affiliate (301) - -
-------- -------- --------
Income (loss) before extraordinary item (236) 4,480 1,332
Extraordinary item:
Cost of debt extinguishment, net of
income tax benefit of $104 (note 7) - - (201)
-------- -------- --------
Net income (loss) $ (236) $ 4,480 $ 1,131
======== ======== ========
Earnings applicable to common stock $ (692) $ 4,024 $ 681
======== ======== ========
Earnings per common share:
Income before equity loss from affiliate
and extraordinary item $ (0.80) $ 14.19 $ 3.31
Continuing operations of affiliate (0.53) (0.45) (0.30)
Discontinued operations of affiliate (1.03) - -
Extraordinary item, net of taxes - - (.69)
-------- -------- --------
Earnings per common share $ (2.36) $ 13.74 $ 2.32
======== ======== ========
Average equivalent common
shares outstanding 292,887 292,887 293,242
======== ======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE> F-5
CHATWINS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Year Ended December 31,
1996 1995 1994
-------- -------- --------
Cash flow from operating activities:
Net income (loss) $ (236) $ 4,480 $ 1,131
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 3,279 3,359 3,230
Amortization 984 1,179 1,114
Debt extinguishment costs - - 305
Gain on sale of business - (1,190) (1,452)
Equity in net loss of affiliate 456 132 90
Changes in assets and liabilities, net of
the purchase of a business:
Decrease (increase) in receivables 3,553 (8,164) (3,267)
Decrease (increase) in inventories 381 (3,511) (508)
Increase in other current assets 1,044 (1,763) (1,087)
Increase (decrease) in trade payables
and other current liabilities (3,612) 7,913 480
Net change in other assets and liabilities (2,088) 37 (1,468)
-------- -------- --------
Cash provided by (used in) operating activities 3,761 2,472 (1,432)
-------- -------- --------
Cash flow from investing activities:
Proceeds from sale of business - 3,107 6,130
Receipts from related parties 3,664 1,550 -
Proceeds from sales of assets - - 263
Investment in Shanghai Klemp (150) - -
Equity investment - (6,671) (299)
Capital expenditures (4,704) (4,852) (5,085)
Acquisition of business - - (5,330)
-------- -------- --------
Cash used in investing activities (1,190) (6,866) (4,321)
-------- -------- --------
Cash flow from financing activities:
Repayments of debt (48) (1,750) (5,281)
Repayments to related parties (2,737) (3,107) (1,274)
Gross revolving credit facilities borrowings 159,449 183,456 150,818
Gross revolving credit facilities repayments (158,967) (173,874) (138,992)
-------- -------- --------
Cash provided by (used in) financing activities (2,303) 4,725 5,271
-------- -------- --------
Effect of exchange rate changes on cash (269) (419) -
-------- -------- --------
Net decrease in cash and equivalents (1) (88) (482)
Cash and equivalents, beginning of year 357 445 927
-------- -------- --------
Cash and equivalents, end of year $ 356 $ 357 $ 445
======== ======== ========
Interest paid $ 8,938 $ 9,333 $ 8,197
======== ======== ========
Income taxes paid $ 53 $ 20 $ 533
======== ======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE> F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Summary of Significant Accounting Policies
Nature of Business
Chatwins Group, Inc. (Company), is composed of six divisions and two
foreign subsidiaries that design, manufacture and market metal products and an
oil and gas division. Until its sale in September 1995, the Company also had
a subsidiary that manufactured high volume, precision plastics products and
provided engineered plastics services. The Company's principal products
include large, seamless pressure vessels for highly pressurized gases; high
quality steel and aluminum grating; industrial hydraulic and pneumatic
cylinders; high quality, roll-formed storage racks; industrial cranes; large
mill equipment; and cold-rolled steel leaf springs. The Company's metals
manufacturing divisions accounted for substantially all of the Company's net
sales in 1996. See notes 11 and 18.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its majority- and wholly-owned subsidiaries. All significant intercompany
transactions have been eliminated. Certain prior-year amounts may have been
reclassified for comparative purposes.
Investments in other companies over which the Company does not have
control, generally less than a 50% equity interest, and in which the Company
has the ability to exercise significant influence over operating or financial
policies are accounted for by the equity method. See note 4.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates that
affect the reported amounts of assets, liabilities, revenues, expenses, and
disclosures of contingencies during the reporting period, which in the normal
course of business are subsequently adjusted to actual results.
Cash and Equivalents
Cash and equivalents consist of demand deposit accounts and other cash
equivalents with maturities of 3 months or less.
Accounts Receivable
Accounts receivable are net of $922,000 and $733,000 in allowance for
doubtful accounts at December 31, 1996 and 1995, respectively. The Company
has no concentration of credit risks and generally does not require collateral
or other security from its customers.
Inventories
Inventories are stated at the lower of cost or market, with cost being
determined on the "last-in, first-out" (LIFO) method of inventory valuation
for approximately 77% and 85% of total inventories at December 31, 1996 and
1995, respectively, and on the "first-in, first-out" (FIFO) method for the
remaining inventories.
<PAGE>
<PAGE> F-7
Property, Plant and Equipment
Properties for the manufacturing businesses are stated at cost and
depreciated over their estimated useful lives using the straight-line method
for financial statement purposes. Additions, betterments and replacements are
capitalized, while expenditures for repairs and maintenance are charged to
income. As units of property are sold or retired, the related cost and
accumulated depreciation are removed from the accounts, and any resulting gain
or loss is recognized in income.
Oil and gas properties are accounted for by the full-cost method whereby
all exploration and development costs are capitalized. Depreciation and
depletion are provided based on a unit-of-production method. Dispositions of
properties are treated as reductions of the cost pool and no gain or loss is
recognized subject to certain limitations.
Goodwill
The excess of the purchase consideration over the fair value of the
assets acquired is being amortized generally over 20 years using the
straight-line method. Accumulated amortization of goodwill at December 31,
1996 and 1995, is $1,434,000 and $1,170,000, respectively.
Other Assets
Other assets primarily include capitalized debt issuance costs on
presently outstanding debt, which are being amortized ratably to interest
expense over the term of the related debt agreements, the cash surrender value
of life insurance policies and patents.
Foreign Currency Translation
At December 31, 1996, the Company had two majority-owned, consolidated
foreign subsidiaries; Klemp de Mexico and Shanghai Klemp Metal Products Co.,
Ltd. (Shanghai Klemp). The financial statements of Klemp de Mexico are
measured using the Mexican Peso and Shanghai Klemp's are measured using the
Chinese Renminbi. The assets and liabilities are translated generally at the
exchange rate in effect at the end of a period. Income statement amounts are
translated generally at the average rate of exchange prevailing during each
month in the reporting period. Translation adjustments arising from
differences in exchange rates from period to period are included in
accumulated translation adjustments in stockholders' equity. Transaction
gains and losses resulting from foreign currency transactions are included in
income currently. Shanghai Klemp began minimal operations in late December
1996 and its results were insignificant. See notes 4 and 11.
Pursuant to paragraph 11 of Statement of Financial Accounting Standards
No. 52, "Foreign Currency Translation," a highly inflationary economy is one
that has cumulative inflation of approximately 100% or more over a three-year
period. During 1996, the three-year cumulative inflation rate in Mexico
exceeded 100%. Accordingly and pursuant to the conclusion reached by the
International Practices Task Force of the American Institute of Certified
Public Accountants, effective January 1, 1997, the functional currency for the
financial statements of Klemp de Mexico will change from the Mexican Peso to
the U.S. dollar.
Revenue Recognition
Sales are recorded primarily as products are shipped and services are
<PAGE>
<PAGE> F-8
rendered. The percentage-of-completion method of accounting is used at one
division for orders in excess of $100,000 with long cycle times. Under this
method, income is recognized as work on contracts progresses. The percentage
of work completed is determined principally by comparing the accumulated costs
to date with management's current estimate of costs at contract completion.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance. If estimates indicate a loss, the
Company provides currently for the total amount of the estimated loss.
Earnings Per Share
Earnings per share amounts are based on the weighted average number of
common shares outstanding during the year and include the effects of assumed
conversion of the warrants discussed in Note 7. Income (loss) before equity
income (loss) of affiliate and extraordinary item has been adjusted for
dividends earned on preferred stock for the years ended December 31, 1996,
1995 and 1994, of $456,000, $456,000 and $450,000, respectively, in
calculating earnings per common share.
Fair Market Value Disclosure
Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures
About Fair Value of Financial Instruments," requires disclosure of the fair
value of certain items, including debt and investments. The Company believes
that the amounts disclosed for such amounts in the consolidated balance sheet
do not differ significantly from fair value as defined in SFAS 107. The
carrying value of cash and cash equivalents approximates fair value because of
the short maturity of those instruments. The carrying value of amounts due
from related parties and other investments (see note 4), insofar as it was
practical to determine, was deemed to approximate fair value based on current
market conditions, as well as the relationship of the parties. The carrying
value of debt approximates fair value based on the Company's incremental
borrowing rate. The carrying value of redeemable preferred stock approximates
fair value based on the accretion of such amounts to liquidation value. The
carrying value of the warrants is based on estimates received from outside
investment bankers regarding the overall value of the Company at the time of
the issuance of the $50 million principal amount of 13% Senior Notes due 2003
(Senior Notes) (see note 7), which value is deemed to still approximate
current market value.
Note 2: Inventories
Inventories are comprised of the following (in thousands):
At December 31,
1996 1995
-------- --------
Raw material $ 9,886 $ 10,918
Work-in-process 7,059 6,876
Finished goods 2,959 2,608
-------- --------
Gross inventories 19,904 20,402
Less: LIFO reserves (798) (915)
-------- --------
Inventories $ 19,106 $ 19,487
======== ========
<PAGE>
<PAGE> F-9
The following long-term contract amounts are included in accounts
receivable at December 31, 1996 and 1995 (in thousands):
At December 31,
1996 1995
-------- --------
Uncompleted contract costs over related billings $ 1,761 $ 3,213
Uncompleted contract billings over related costs (926) (185)
-------- --------
$ 835 $ 3,028
======== ========
Note 3: Property, Plant and Equipment
Property, plant and equipment is comprised of the following (in thousands):
At December 31,
1996 1995
-------- --------
Land $ 2,038 $ 2,038
Oil and gas properties 1,686 1,586
Buildings and improvements 11,755 10,788
Machinery and equipment 27,392 23,331
Furniture and fixtures 4,918 4,430
Construction-in-progress 1,702 843
-------- --------
Property, plant and equipment 49,491 43,016
Less: Accumulated depreciation and depletion (19,757) (16,631)
-------- --------
Property, plant and equipment, net $ 29,734 $ 26,385
======== ========
Note 4: Investments
Investments are comprised of the following (in thousands):
At December 31,
1996 1995
-------- --------
Reunion common stock $ 11,032 $ 11,789
Warrants to purchase Reunion common stock 483 483
CGII common stock and notes receivable 937 937
-------- --------
Investments $ 12,452 $ 13,209
======== ========
Reunion Industries, Inc.
On June 20, 1995, the Company acquired 1,450,000 shares, or approximately
38%, of the then issued and outstanding shares of common stock of Reunion
Industries, Inc. (Reunion) from Parkdale Holdings Corporation N.V. (Parkdale),
and purchased 75,000 warrants to purchase shares of Reunion common stock from
P. Dean Gesterkamp. <PAGE>
<PAGE> F-10
The aggregate purchase price consisted of $5.8 million paid in cash and a $5.8
million promissory note (Parkdale Note) issued to Parkdale, 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 Reunion's acquisition of Oneida
Molded Plastics Corp. (Oneida), the Company's former plastics division, in
September 1995 and the merger of Oneida and Rostone, Inc. (Rostone), a former
subsidiary of CGI Investment Corp. (CGII), which is 49%-owned by the Company,
in February 1996, 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 real
estate development and wine grape agricultural operations in Napa County,
California. During the fourth quarter of 1996, Reunion classified its
agricultural operations as discontinued operations. Reunion was also engaged
in producing and selling crude oil and natural gas in the United States until
May 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 Mr. Bradley and $3.7 million owed to the Company
as a result of the acquisition of Oneida by Reunion. See note 13.
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 for 1996 and 1995 is included in the accompanying
consolidated statement of income for the years ended December 31, 1996 and
1995 as equity income (loss) from operations of affiliate. The Company
reduced the carrying value its equity investment in the Reunion common stock
by approximately $0.7 million, which represented 38% of the pre-tax gain of
approximately $1.9 million from the sale of Oneida in 1995. See note 12 for a
discussion of the disposition of Oneida.
Certain summarized financial information related to Reunion as of and for
the year ended December 31, 1996 and 1995 is set forth in the following table
(in thousands):
1996 1995
-------- --------
Current assets $ 25,285 $ 10,125
======== ========
Other assets $ 49,891 $ 41,810
======== ========
Current liabilities $ 26,747 $ 12,115
======== ========
Other liabilities $ 19,485 $ 8,566
======== ========
Shareholders' equity $ 28,944 $ 31,254
======== ========
Net sales $ 60,305 $ 10,855
======== ========
Operating income (loss) $ 1,449 $ (3,016)
======== ========
Loss from continuing operations $ (965) $ (3,282)
======== ========
Loss from discontinued operations $ (1,317) $(10,688)
======== ========
Net loss $ (2,282) $(13,970)
======== ========
<PAGE>
<PAGE> F-11
CGI Investment Corp.
In April 1990, the Company acquired a 49% interest in CGI Investment
Corp. (CGII), a company controlled by Stanwich Partners, Inc. (SPI). The
principals of SPI are also the majority owners of the Company. Since April
1990, the Company has made loans to CGII of $1.5 million, $1.35 million and
$299,000. These loans are evidenced by notes and bear interest at various
rates. As of December 31, 1996, none of the principal or accrued interest
thereon has been repaid under these obligations. The Company has fully
reserved for all interest receivable related to these loans and portions of
the principal amounts of the loans. At December 31, 1996, the net carrying
value of amounts due the Company related to these loans and the investment in
CGII's common stock totalled $0.9 million.
Prior to December 22, 1995, CGII owned 100% of the outstanding preferred
stock and fully diluted common stock of Rostone. 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 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 acquired from CGII all of the issued and
outstanding preferred and common stock of Rostone. The merger agreement
provided for the payment of deferred 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 level of earnings before interest
and taxes in 1996 as specified in the merger agreement for the payment of
deferred merger proceeds in 1997. Under the terms of ORC's loan facility with
Congress, deferred merger proceeds to be paid in 1998, if any, may only be
made from equity contributions Reunion may provide to ORC.
Rostone's preferred stock was previously pledged by CGII to the Company
to secure the Company's loan of $1.35 million to CGII. As such, any merger
proceeds will be paid to Chatwins until the debt and related interest is paid
in full. The amount due the Company related to this loan was $1.6 million at
December 31, 1996. 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.
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 December 31, 1996. Upon liquidation, these
assets will be allocated among CGII's remaining creditors, one of which is the
Company.
<PAGE>
<PAGE> F-12
Note 5: Other Assets
Other assets consist of the following (in thousands):
At December 31,
1996 1995
-------- --------
Deferred financing costs (net of accumulated
amortization of $1,798 and $1,190) $ 2,441 $ 2,960
Cash surrender value of life insurance policies 1,440 947
Patents (net of accumulated amortization
of $304 and $253) 231 282
Other 2,053 657
-------- --------
Total other assets $ 6,165 $ 4,846
======== ========
Note 6: Other Current Liabilities
Other current liabilities consist of the following (in thousands):
At December 31,
1996 1995
-------- --------
Accrued wages and benefits $ 3,523 $ 4,123
Accrued pension costs (note 14) 327 310
Accrued postretirement benefits (note 15) 842 681
Accrued interest 1,089 1,100
Other 3,082 2,965
-------- --------
Total other current liabilities $ 8,863 $ 9,179
======== ========
Note 7: Long-Term Debt
Long-term debt consists of the following (in thousands):
At December 31,
1996 1995
-------- --------
13% Senior Notes due May 1, 2003 (net of
unamortized discount of $124 and $148)(1) $49,876 $ 49,852
Revolving Credit Facility(2) 23,629 23,147
Note payable due May 1, 2001(3) 680 680
Other 957 286
-------- --------
Total long-term debt 75,142 73,965
Current maturities (767) (48)
-------- --------
Total long-term debt, less current maturities $ 74,375 $ 73,917
======== ========
<PAGE>
<PAGE> F-13
(1) - On May 3, 1993, the Company issued an aggregate of $50.0 million
principal amount of Senior Notes and 50,000 Warrants (Warrants) to purchase
50,000 shares of the Company's common stock (Common Stock). The Senior Notes
bear interest at a rate equal to 13% per annum. Interest on the Senior Notes
is payable semiannually in arrears on May 1 and November 1 of each year. The
Senior Notes mature on May 1, 2003. The Senior Notes are redeemable at the
option of the Company in whole or in part at any time on or after May 1, 1998.
The Company is required to redeem $12.5 million principal amount of the Senior
Notes on each of May 1, 2000, May 1, 2001 and May 1, 2002, at a redemption
price of 100% of the principal amount thereof, plus interest accrued thereon
to the redemption date. The Company is required to offer to purchase $25
million in principal amount of the Senior Notes (being 50% of the principal
amount of the Senior Notes originally issued) on each of June 1, 1999 and
June 1, 2000 at a purchase price of 100% of the principal amount, plus accrued
interest on the principal amount purchased to the purchase date. The Senior
Notes are senior obligations of the Company, ranking senior in right of
payment to all current and future subordinated indebtedness of the Company and
pari passu in right of payment to all current and future senior indebtedness
of the Company, subject, however, to the security interests in certain assets
granted to Congress Financial Corporation (Congress) pursuant to the Company's
$25.0 million revolving credit facility (Revolving Credit Facility). The
Company's obligations under the Senior Notes are secured by a pledge by
Charles E. Bradley, Sr. (Mr. Bradley) and John G. Poole (Mr. Poole), both
directors and stockholders of the Company, of an aggregate of approximately
60% of the outstanding shares of the Common Stock of the Company pursuant to a
securities pledge agreement dated May 1, 1993 (Securities Pledge Agreement).
At December 31, 1996, an aggregate of $4.5 million of these notes were owned
by various executive officers and directors of the Company, which were
purchased in open market transactions.
Each Warrant is entitled to purchase one share of the Company's common
stock at an exercise price of $.01 per share. The Warrants expire on May 3,
2003. The Warrants entitle the holders thereof to purchase an aggregate of
50,000 shares of common stock, or approximately 17% of the Company's
outstanding common stock on a fully diluted basis. The Warrants are not
exercisable except upon the occurrence of certain trigger events, including an
initial public offering, a failure to offer to repurchase the Warrants on May
3, 1998 for their fair market value or certain changes in ownership control.
The Company has valued the Warrants at an aggregate balance of $210,000 based
on estimates received from investment bankers regarding the overall value of
the Company. No Warrants have been exercised through December 31, 1996.
(2) - The Company's Revolving Credit Facility is with Congress. Prior to
March 4, 1994, the Company had a $20.0 million revolving credit facility with
Heller Financial, Inc. (Heller). 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
Agreement between Congress and the Company. The Maximum Credit (as defined in
the Loan Agreement) under the Revolving Credit Facility was temporarily
increased to $26.0 million on June 20, 1995 in connection with the investment
in Reunion common stock (see note 4), and permanently fixed at $25.0 million
on October 18, 1995. 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, <PAGE>
<PAGE> F-14
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, 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 was required to be reduced in $0.5 million increments until fully
reduced. As of the end of February 1997, this overadvance had been fully
reduced.
At December 31, 1996 the Company was in compliance with all covenants and
there were no events of default under the Revolving Credit Facility.
The Revolving Credit Facility consists of three availability components
(the "Availability A Component", the "Availability B Component" and the
"Availability C Component") under which Congress makes advances to the
Company. Availability under the Revolving Credit Facility with respect to the
Availability A Component is determined by reference to a borrowing base
consisting of (i) 85% of the Net Amount of Eligible Accounts (as defined in
the Loan Agreement) plus (ii) the lesser of (A) the sum of (1) 50% of the
Value of the Eligible Inventory (as defined in the Loan Agreement) consisting
of finished goods or raw materials, plus (2) 10% of the Value of Eligible
Work-in-Process (as defined in the Loan Agreement) or (B) $7 million, less
(iii) under certain circumstances, availability reserves established by
Congress. Additionally, the total advanced under the Availability A Component
is limited by the Maximum Credit, less amounts outstanding under Availability
B and C Components. The Availability B and C Components were fully drawn in
1994 and are being repaid according to a monthly amortization schedule which,
once repaid, may not be reborrowed.
The Loan Agreement expires on June 30, 1998 and is renewable annually
thereafter. As part of the availability under the Revolving Credit Facility,
Congress will provide letter of credit accommodations of up to $4.0 million.
At December 31, 1996, $0.6 million of such letter of credit accommodations
were outstanding. The Revolving Credit Facility bears interest at the Prime
Rate (as defined in the Loan Agreement) plus 1.5% per annum, and also includes
a 0.5% line of credit fee on the average unused portion. During 1996, the
effective interest rate for borrowings under the Revolving Credit Facility was
approximately 10.2%. At December 31, 1996, the interest rate for borrowings
under the Revolving Credit Facility, including the line of credit fee, was
10.3%. At December 31, 1996, borrowings outstanding under the Revolving
Credit Facility included $22.6 million under the Availability A Component,
$0.3 million under the Availability B Component and $0.7 million under the
Availability C Component.
The Revolving Credit Facility is secured by a lien in favor of Congress
on the Company's inventory, accounts receivable and certain related property,
such as documents, instruments, books and records, to the extent necessary to <PAGE>
<PAGE> F-15
permit foreclosure on the inventory and accounts receivable.
(3) - Note payable due May 1, 2001 represents a loan agreement related to an
industrial development revenue bond issue by Orem City, Utah. Interest is
payable quarterly at 62% of the prevailing prime rate. During 1996, the
effective interest rate under this note payable was 5.1%
Aggregate maturities of long-term debt for the next five years are as
follows (in thousands)(excludes borrowings under the Revolving Credit
Facility):
Year ended December 31,
Total 1997 1998 1999 2000 2001
- ------- ------- ------- ------- ------- -------
$51,513 $ 767 $ 48 $25,048 $25,048 $ 602
======= ======= ======= ======= ======= =======
Note 8: Other Liabilities
Other liabilities consist of the following (in thousands):
At December 31,
1996 1995
-------- --------
Deferred income tax liability (note 17) $ 1,568 $ 1,674
Negative goodwill 1,392 1,508
Other 1,356 1,531
-------- --------
Total other liabilities $ 4,316 $ 4,713
======== ========
Negative goodwill is being amortized to income on a straight-line basis
over a 15-year period.
Note 9: Minority Interests
Klemp de Mexico
In 1993, the Company entered into a joint venture with a Mexican company
for the purpose of manufacturing, selling and distributing metal bar grating.
This affiliate, Acervalco-Klemp, S.A. de C.V., was 49% owned by the Company.
During May 1994, the Company increased its ownership in Acervalco-Klemp, S.A.
de C.V., to 85% and has consolidated the results since such date. In January
1995, the subsidiary's name was changed to Klemp de Mexico.
During 1996, Klemp de Mexico entered into a joint venture agreement with
Consolidated Fabricators, Inc., a Massachusetts company, to form CFI-Klemp de
Mexico (CFI-Klemp), a Mexican corporation. CFI-Klemp is in the business of
metal fabrications. As Klemp de Mexico has a 50.1% interest in CFI-Klemp,
CFI-Klemp is consolidated with Klemp de Mexico for financial reporting
purposes.
Total sales related to Klemp de Mexico included in the Company's
consolidated statement of income for the years ended December 31, 1996 and
1995, approximated $3 million and $1.3 million, respectively. Klemp de
Mexico's sales for 1996 included approximately $0.7 million related to CFI-
Klemp. Income before taxes related to Klemp de Mexico for the years ended
December 31, 1996 and 1995 totalled approximately $0.1 million and $0.6
<PAGE>
<PAGE> F-16
million, respectively. CFI-Klemp had no income or loss for 1996.
The devaluation of the Mexican Peso during 1995 resulted in foreign
currency transaction losses of $241,000 which are included in the Company's
consolidated statement of income for the year ended December 31, 1995.
Shanghai Klemp
In December 1995, with approval from the Chinese government, the Company
entered into a joint venture agreement with CMIESC and Wanggang to form
Shanghai Klemp. As the Company has a 65% interest in Shanghai Klemp, Shanghai
Klemp is consolidated for financial reporting purposes.
CMIESC is a state-owned foreign trade enterprise which trades in steel
and equipment used in the manufacture of steel products. Wanggang is an
independently owned, industrial development corporation focusing on economic
growth in the Pudong New Area of Shanghai. The purpose of Shanghai Klemp will
be to expand Klemp's presence as an international grating company and to
benefit from the current and expected future growth and economic development
in East Asia by providing metal grating to the expanding construction
industries of China and nearby countries. During 1996, the Company satisfied
its obligation to make contributions of assets, primarily machinery, to the
joint venture with an estimated fair market value totalling approximately $1.9
million, which included $150,000 in cash. Shanghai Klemp's manufacturing
facilities are located in Wanggang Township, Pudong New Area, Shanghai.
Production began in late December 1996 and its results were insignificant.
Note 10: Redeemable Preferred Stock
The Company has one class of preferred stock, which has a par value of
$.01 per share and contains redemption privileges and obligations. The
outstanding preferred stock activity consisted of (in thousands):
Class D
--------------------------------
Series A Series B Series C Total
-------- -------- -------- --------
Balance at January 1, 1994 $ 3,247 $ 1,251 $ 1,710 $ 6,208
Accretions 219 80 151 450
-------- -------- -------- --------
Balance at December 31, 1994 3,466 1,331 1,861 6,658
Accretions 225 80 151 456
-------- -------- -------- --------
Balance at December 31, 1995 3,691 1,411 2,012 7,114
Accretions 225 80 151 456
-------- -------- -------- --------
Balance at December 31, 1996 $ 3,916 $ 1,491 $ 2,163 $ 7,570
======== ======== ======== ========
The Class D preferred stock is entitled to receive preferential and
cumulative dividends at an annual rate of $100 per share. In liquidation,
Class D preferred stock is entitled to a preference in the amount of $1,000
per share plus an amount equal to the dividends accumulated but unpaid to the
date of final payment or dissolution and is not entitled to vote, except as
may be required by law. The Company has the option to redeem any or all of
<PAGE>
<PAGE> F-17
the shares of Class D preferred stock, and the holders have the option to
require the Company to redeem all (but not less than all) of the shares. The
redemption price is $1,000 per share plus an amount equal to the dividends
accumulated but unpaid on the date of the redemption.
The authorized, issued and outstanding preferred stock at December 31,
1996, 1995 and 1994 consisted of 2,249 shares of Class D, Series A; 800 shares
of Class D, Series B; and 1,510 shares of Class D, Series C.
The Company is not permitted to reissue any shares of its preferred stock
that have been redeemed, and all such shares redeemed shall cease to be a part
of the authorized shares of the Company. Additionally, the Indenture places
restrictions on dividend payments and redemptions of shares. Such payments
and redemptions are limited to approximately 50% of net income, as defined,
from the issuance date of the Senior Notes, provided that the Company meets an
interest coverage ratio (as defined) of at least 2 to 1 for the four full
fiscal quarters immediately preceding any proposed payments prior to May 1,
1996, a ratio of 2.25 to 1 for proposed payments from May 1, 1996, to May 1,
1999, and a ratio of 2.5 to 1 for proposed payments thereafter. The Company's
interest coverage ratio for 1996 was 1.52 to 1.
Redeemable preferred stocks are being accreted by a charge against
retained earnings for the accumulated but unpaid dividends on such stock. At
December 31, 1996 and 1995, dividends in arrears were $3,011,000 and
$2,555,000, respectively.
Note 11: Stockholders' Equity
In September 1993, 38,412 shares of common stock were acquired by the
Company from two stockholders for $500,000. In February 1994, the Company
acquired 2,697 shares of its common stock from one stockholder of the Company
for $.01 per share. Such reacquired stock is being held as treasury stock.
The majority of the Company's stock is owned by one of the principals of
SPI. Such principal has pledged approximately 53% of the total outstanding
shares of the Company to the Senior Notes collateral agent for the benefit of
the holders of the Senior Notes.
During 1995, the devaluation of the Mexican Peso resulted in an
accumulated translation adjustment loss. At December 31, 1996 and 1995, the
accumulated translation adjustment, which is shown as a separate component of
stockholders' equity, totalled $688,000 and $419,000, respectively.
<PAGE>
<PAGE> F-18
The following represents all activity in stockholders' equity for the
3-year period ended December 31, 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
------ ----- ------- ------- -------- ------ --------
At January 1,
1994 $ 3 $(500) $1,664 $(1,001) $(11,596) $ - $(11,430)
Activity:
Net income - - - - 1,131 - 1,131
Preferred stock
accretions - - - - (450) - (450)
--- ----- ------ ------- -------- ----- --------
At December 31,
1994 $ 3 $(500) $1,664 $(1,001) $(10,915) - $(10,749)
Activity:
Net income - - - - 4,480 - 4,480
Preferred stock
accretions - - - - (456) - (456)
Translation
adjustment - - - - - (419) (419)
--- ----- ------ ------- -------- ----- --------
At December 31,
1995 $ 3 $(500) $1,664 $(1,001) $ (6,891) (419) $ (7,144)
Activity:
Net loss - - - - (236) - (236)
Preferred stock
accretions - - - - (456) - (456)
Translation
adjustment - - - - - (269) (269)
--- ----- ------ ------- -------- ----- --------
At December 31,
1996 $ 3 $(500) $1,664 $(1,001) $ (7,583) $(688) $ (8,105)
=== ===== ====== ======= ======== ===== ========
Note 12: Divestiture
Oneida Molded Plastics Corporation
On September 14, 1995 (Sale Date), the Company, through Chatwins
Holdings, Inc. (CHI), sold its holdings of all of the issued and outstanding
common and preferred stock of Oneida to Reunion (Oneida Disposition), 38% of
the common stock of which is owned by the Company (see note 4). The total
purchase price received was $3.1 million in cash. See note 13 for a
discussion of the use of the proceeds from the Oneida Disposition.
From April 1, 1994, the date Oneida was acquired by the Company, to
September 15, 1995, the period during which Oneida was a wholly-owned
subsidiary of the Company, the Company made advances to Oneida totalling $4.9
million, including interest and certain charges. The liabilities of Oneida
upon its sale to Reunion included these advances. Subsequent to the sale of
Oneida, the Company received cash payments of $1.6 million in 1995 and $3.7
million in 1996, each including interest at 10% per annum, in full repayment
<PAGE>
<PAGE> F-19
of these advances.
The Company considered Oneida to be a segment of a business as defined in
APB 30, "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." The Company holds a minority
voting interest in Reunion which, as discussed above, purchased Oneida from
the Company. Accordingly, Oneida's historical operating results and the pre-
tax gain on sale are included as part of the Company's continuing operations,
pursuant to SAB 93. As Oneida was sold to an affiliate, the Company reduced
the carrying value of its investment in Reunion by approximately $0.7 million,
which represents 38% of the pre-tax gain of approximately $1.9 million from
the sale of Oneida. The remaining pre-tax gain of $1.2 million was recorded
as part of other income in the accompanying consolidated statement of income
for the year ended December 31, 1995. For the 1995 period ended on September
14, 1995, Oneida had income before income taxes of $1.3 million. For the nine
month period ended December 31, 1994, Oneida had income before income taxes of
$35,000.
Note 13: Other Related-Party Transactions
The Company has maintained various consulting agreements with SPI under
which $300,000 was recorded as expense during each of the years ended December
31, 1996, 1995 and 1994, respectively. The current consulting agreement
expires on March 31, 1998, unless terminated by SPI with 30 days' notice.
Under the consulting agreement, the Company retains SPI to render consulting
services in the field of financial planning and reporting. Annual payments
are permitted on this agreement as long as the Company meets an interest
coverage ratio of at least 1.5 to 1 for the prior 4 full fiscal quarters. All
amounts owed to SPI from the Company have been paid in full at December 31,
1996 and 1995.
During 1990, the Company loaned $0.8 million to Robinson Inc. (Robinson),
a company in the oil and gas business that is controlled by certain
stockholders of the Company. The loan was evidenced by two notes receivable
totaling $0.8 million and each bore interest at 2 percentage points above the
prime rate of a major U.S. bank. Through December 1995, the Company received
$111,000 in payment of interest on the loan, of which $40,000 was used to
partially reserve the loan principal. In December 1995, the Company agreed to
settle in full the two notes receivable from Robinson for the cash payment of
$58,000 plus warrants to purchase up to 50% of the common stock of Robinson at
any time in the future. As a result of this agreement, the Company recognized
a $0.7 million loss on the settlement of these notes which is included in
other expense in the consolidated statement of income for 1995.
Since its acquisition and through its disposition, Oneida maintained two
related-party agreements which accrued guaranty fees payable to one of the
principals of SPI and the majority stockholder of the Company. During the
1995 period ended on September 14, 1995, Oneida accrued approximately $68,000
of fees related to the related-party agreements and made payments of amounts
due to related parties totaling $350,000.
From April 1, 1994, the date Oneida was acquired by the Company, to
September 15, 1995, the period during which Oneida was a wholly-owned
subsidiary of the Company, the Company made advances to Oneida totalling $4.9
million, including interest and certain charges. The liabilities of Oneida
upon its sale to Reunion, an affiliate of the Company, included these
advances. Subsequent to the sale of Oneida, the Company received in 1995 a
cash payment of $1.6 million, including interest at 10% per annum. In May
1996, Reunion sold substantially all of its oil and gas assets to a Houston-
<PAGE>
<PAGE> F-20
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 Mr. Bradley and $3.7 million to the Company, including interest at 10%
per annum, in full repayment of the above advances.
As part of the aggregate purchase price paid to Parkdale for the Reunion
common stock, the Company issued the Parkdale Note to Parkdale, which bears
interest at 10% per annum, in the original principal amount of $5.8 million.
On September 14, 1995, Mr. Bradley purchased the Parkdale Note.
Contemporaneously with Mr. Bradley's purchase of the Parkdale Note and as
required by the terms thereof, the Company made a partial repayment of the
Parkdale Note totalling $3.1 million, representing the cash proceeds received
by the Company from the sale of Oneida. During 1996, the Company made
payments totalling $2.6 million to Mr. Bradley in partial repayment, including
interest, of the Parkdale Note. At December 31, 1996, the Company's liability
to Mr. Bradley under the Parkdale Note totalled $0.5 million, including
interest, which was repaid in full in January 1997.
On January 6 and June 6, 1996, the Company made principal repayments of
$50,000 each, plus interest, to Mr. Myers in partial repayment of the
Gesterkamp Note. At December 31, 1996, the Company's liability to Mr. Myers
under the Gesterkamp Note totalled $100,000. Mr. Myers is a director of
Reunion.
Note 14: Pensions
The Company and its subsidiaries have various retirement plans that cover
substantially all of their employees. Prior to 1995, these included two
noncontributory, defined benefit plans that covered salary and collective
bargaining employees at one division and one noncontributory, defined benefit
plan that covered all employees at the Company's former Oneida subsidiary.
During 1995, the Company terminated the noncontributory defined benefit plan
covering salary employees by making lump-sum cash payments to the plan
participants in exchange for their rights to receive specified pension
benefits. An approximate $200,000 loss was recognized on the termination of
this plan. Additionally, in 1995, the Company sold all the assets and
liabilities of its Oneida subsidiary. See Note 12. Benefits under the one
remaining noncontributory, defined benefit plan are based solely on continuous
years of service and are not affected by changes in compensation rates.
The Company's funding policy provides that payments to the pension trusts
be at least equal to the minimum funding requirements of the Employee
Retirement Income Security Act of 1974. Assets of these plans are invested
principally in fixed income and equity securities. The Company participates
in a separate multiemployer defined benefit pension plan covering certain
employees at one division and has defined contribution plans covering most of
its other employees. The Company's policy with respect to these plans is to
fund the amounts accrued.
<PAGE>
<PAGE> F-21
Net periodic pension cost is as follows (in thousands):
Year Ended December 31,
1996 1995 1994
-------- -------- --------
Service cost $ 93 $ 71 $ 208
Interest cost on projected benefit obligation 107 195 191
Amortization of unrecognized net obligation 12 128 3
Amortization of unrecognized net loss 9 4 4
-------- -------- --------
221 398 406
-------- -------- --------
Return on plan assets:
Actual return on plan assets (122) (328) (25)
Unrecognized (return) loss on plan assets 43 59 (115)
-------- -------- --------
Recognized return on plan assets (79) (269) (140)
-------- -------- --------
Defined contribution plan expense 1,104 1,035 937
Multiemployer plan expense 17 11 6
-------- -------- --------
Net periodic pension costs $ 1,263 $ 1,175 $ 1,209
======== ======== ========
The following table sets forth the funded status of the defined benefit
plans (in thousands):
At December 31,
1996 1995
-------- --------
Actuarial present value of
accumulated benefit obligation:
Vested $ 1,775 $ 1,586
Nonvested 25 23
-------- --------
Accumulated benefit obligation 1,800 1,609
Effect of projected future compensation levels - -
-------- --------
Projected benefit obligation for
service rendered to date 1,800 1,609
Plan assets at fair value (1,104) (953)
-------- --------
Projected benefit obligation in excess
of plan assets 696 656
Unrecognized prior service costs (84) (21)
Unrecognized net loss (212) (239)
Unrecognized transition obligation, net (73) (86)
-------- --------
Accrued pension cost $ 327 $ 310
======== ========
<PAGE>
<PAGE> F-22
Assumptions used to develop the net periodic pension costs for the
defined benefit plans are as follows:
Year Ended December 31,
1996 1995 1994
-------- -------- --------
Discount rate 7.0% 7.0% 7.5%
======== ======== ========
Expected rate of return on plan assets 8.0% 8.0% 8.0%
======== ======== ========
Note 15: Postretirement Benefits
The Company provides healthcare and life insurance benefits for certain
retired employees. The Company has only one operating division that offers
such healthcare benefits, and such benefits are provided for the most part
through comprehensive hospital, surgical and major medical benefit provisions
subject to various cost-sharing features. Life insurance benefits are
provided to certain nonunion beneficiaries based on either the employee's
annual base salary at retirement or a fixed schedule, depending on applicable
negotiated terms. Life insurance benefits are provided to certain union
beneficiaries based on fixed amounts negotiated in labor contracts. The
majority of the employees eligible for healthcare benefits upon retirement are
former employees of USX Corporation, and such benefits earned prior to 1987
are the responsibility of that corporation. Except for certain life insurance
benefits paid from reserves held by insurance carriers, benefits have not been
prefunded.
A summary table reconciling the funded status of the plans with the
amount shown in the financial statements follows (in thousands):
At December 31,
1996 1995
-------- --------
Accumulated postretirement benefit obligation:
Active employees $ 947 $ 1,054
Retirees 416 286
-------- --------
Total 1,363 1,340
Unrecognized net gain 260 215
Transition obligation, net of amortization (781) (874)
-------- --------
Accrued postretirement benefit obligation $ 842 $ 681
======== ========
The components of net periodic postretirement benefit cost for the years
ended December 31, 1996, 1995 and 1994, are as follows (in thousands):
Year Ended December 31,
1996 1995 1994
-------- -------- --------
Service cost $ 60 $ 101 $ 117
Interest cost 90 104 96
Amortization of net gain (10) (2) -
Amortization of transition obligation 53 51 49
-------- -------- --------
Net periodic postretirement benefit cost $ 193 $ 254 $ 262
======== ======== ========
<PAGE>
<PAGE> F-23
Assumptions used to develop the net periodic postretirement benefit costs
are as follows:
Year Ended December 31,
1996 1995 1994
-------- -------- --------
Discount rate 8.0% 8.0% 8.0%
Healthcare cost trend rate 8.0% 8.0% 8.0%
The assumed weighted average healthcare cost trend rate is 8% for years
1993 through 1998, 7% for the next 3-year period, 6% for the next 5-year
period and 5% thereafter. The 8% healthcare cost trend rate for years 1993 to
1998 is applicable to the Company since it approximates the assumptions being
used by the U.S. Steel Group of USX Corporation. USX Corporation administers
the plans and bills the Company for its share of the postretirement costs
related to the Company's retirees covered by the plans. A one percentage
point increase in the assumed healthcare cost trend rates for each future year
would increase the accumulated postretirement benefit obligation at December
31, 1996, by approximately $159,000 and increase projected 1997 net periodic
cost by approximately $24,000.
Note 16: Leases
Minimum rental commitments under all noncancellable operating and capital
leases, the majority of which are operating leases related to real property,
in effect at December 31, 1996, were as follows (in thousands):
Year ended December 31,
Total 1997 1998 1999 2000 2001 After 2001
- ------- ------ ------ ------ ------ ------ ----------
$12,847 $1,926 $1,905 $1,622 $1,344 $1,151 $4,899
======= ====== ====== ====== ====== ====== ======
Operating lease rental expense for the years ended December 31, 1996,
1995 and 1994, amounted to $1,407,000, $1,254,000 and $1,135,000,
respectively.
Note 17: Income Taxes
The tax provision comprises the following amounts (in thousands):
Year Ended December 31,
1996 1995 1994
-------- -------- --------
Current:
Federal $ 16 $ 137 $ 44
State and local 9 219 72
-------- -------- --------
Total 25 356 116
-------- -------- --------
Deferred:
Federal 118 678 272
-------- -------- --------
Total 118 678 272
-------- -------- --------
Total tax provision $ 143 $ 1,034 $ 388
======== ======== ========
<PAGE>
<PAGE> F-24
The Company's effective income tax rate, reflected in the accompanying
consolidated statement of income, differs from the statutory rate due to the
following (in thousands):
Year Ended December 31,
1996 1995 1994
-------- -------- --------
Computed amount at statutory rate (34%) $ 123 $ 1,920 $ 615
Net change in valuation allowance - (1,300) (200)
State and local income taxes 9 219 70
Goodwill 51 70 33
Foreign sales corporation dividends (52) (44) (34)
Other - net 12 169 (96)
-------- -------- --------
Total tax provision $ 143 $ 1,034 $ 388
======== ======== ========
Components of consolidated income taxes consist of the following (in
thousands):
Year Ended December 31,
1996 1995 1994
-------- -------- --------
Income from continuing operations $ 143 $ 1,034 $ 388
Equity loss from affiliate (303) (88) -
Cost of debt extinguishment - - (104)
-------- -------- --------
Total consolidated tax provision (benefit) $ (160) $ 946 $ 284
======== ======== ========
At December 31, 1996, the Company had net operating loss carryforwards
for tax return 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 availability of these carryforwards
may be subject to limitations imposed by the Internal Revenue Code.
<PAGE>
<PAGE> F-25
Temporary differences and carryforwards that gave rise to significant
portions of deferred tax assets and liabilities are as follows (in thousands):
At December 31,
1996 1995
-------- --------
Depreciation $ (3,564) $ (3,539)
Inventory basis differences (1,285) (1,285)
Other (886) (715)
-------- --------
Deferred tax liabilities (5,735) (5,539)
-------- --------
Loss carryforwards 3,124 2,465
Book reserves 2,980 3,410
Deferred compensation 226 318
Tax credit carryforwards 622 680
Unicap adjustments 227 274
Other 773 424
-------- --------
Deferred tax assets 7,952 7,571
Less: Valuation allowance (1,000) (1,000)
-------- --------
Deferred tax assets, net 6,952 6,571
-------- --------
Deferred taxes, net asset $ 1,217 $ 1,032
======== ========
The current and noncurrent classifications of the deferred tax balances
are as follows (in thousands):
At December 31,
1996 1995
-------- --------
Current:
Deferred tax assets $ 4,682 $ 4,639
Deferred tax liabilities (1,308) (1,320)
Less: Valuation allowance (589) (613)
-------- --------
Current deferred taxes, net asset 2,785 2,706
-------- --------
Noncurrent:
Deferred tax assets 3,270 2,932
Deferred tax liabilities (4,427) (4,219)
Less: Valuation allowance (411) (387)
-------- --------
Noncurrent deferred taxes, net liability (1,568) (1,674)
-------- --------
Deferred taxes, net asset $ 1,217 $ 1,032
======== ========
SFAS 109 requires a valuation allowance where it is "more likely than not
that some portion or all of the deferred tax assets will not be realized." It
further states that "forming a conclusion that a valuation allowance is not
needed is difficult when there is negative evidence such as cumulative losses
in recent years." The ultimate realization of this deferred income tax asset
depends on the Company's ability to generate sufficient taxable income in the <PAGE>
<PAGE> F-26
future. While the Company believes that the deferred income tax asset will be
fully or partially realized by future operating results, prior losses has
prompted management to leave a valuation allowance on its books at December
31, 1996.
If the Company achieves sufficient profitability, the valuation allowance
will be reduced through a credit to income tax expense, thereby increasing
stockholders' equity.
Note 18: Management Agreements
In order to focus attention on the goal of building value over the long
term, the Company had offered certain management employees participation in
Performance Unit Plans (PUPs). Under these PUPs, management was assigned
units that, beginning in May 1993, could be exchanged for cash and notes equal
to a specified formula based on the income of the applicable division.
Because the Company believed that most of the performance units granted
under the PUPs would have been put to the Company by management employees
promptly upon becoming eligible to do so in 1993 and 1994 and because the PUPs
lacked the flexibility necessary to reward management employees who joined the
Company after the PUPs were established, the Company terminated the PUPs in
connection with the issuance of the Senior Notes. The Company entered into
agreements with all of the participants in the PUPs to redeem all of the
outstanding performance units for an aggregate payment of approximately $5.5
million, approximately $2.75 million of which was paid out of the proceeds of
the issuance of the Senior Notes, with the balance to be paid in subordinated
notes of the Company. As a result of these agreements, additional PUPs
expense of $1.0 million was recognized within selling, general and
administrative expenses during 1993.
In June 1995, the Company paid the participants approximately $1.0
million in principal and $89,000 in interest in final satisfaction of the two
year subordinated notes. See note 7.
Note 19: Segment Information
Prior to 1994, the Company operated principally as a manufacturer of
metal products. With the March 31, 1994, acquisition of Oneida, a plastics
company, the Company became significantly involved in nonmetal-related
products. As a result, the Company had two significant segments during 1995
and 1994 in which it conducted business. With the September 1995 disposition
of Oneida, the Company operated principally as a manufacturer of metal
products during 1996. Financial information by segment, as of and for the
years ended December 31, 1995 and 1994, is summarized as follows:
As of and for the year Metal Plastic Corporate
ended December 31, 1995: Products Products and other Total
- -------------------------- -------- -------- --------- ---------
Net sales $156,958 $ 26,226 $ 224 $183,408
======== ======== ======== ========
Operating profit (loss) $ 15,986 $ 2,150 $ (2,690) $ 15,446
======== ======== ======== ========
Identifiable assets $ 81,677 $ - $ 25,659 $107,336
======== ======== ======== ========
Capital expenditures $ 4,420 $ 188 $ 244 $ 4,852
======== ======== ======== ========
Depreciation/amortization $ 3,274 $ 572 $ 692 $ 4,538
======== ======== ======== ========
<PAGE>
<PAGE> F-27
As of and for the year Metal Plastic Corporate
ended December 31, 1994: Products Products and other Total
- -------------------------- -------- -------- --------- ---------
Net sales $131,313 $ 23,195 $ 202 $154,710
======== ======== ======== ========
Operating profit (loss) $ 10,395 $ 611 $ (629) $ 10,377
======== ======== ======== ========
Identifiable assets $ 69,577 $ 15,956 $ 9,817 $ 95,350
======== ======== ======== ========
Capital expenditures $ 4,084 $ 427 $ 574 $ 5,085
======== ======== ======== ========
Depreciation/amortization $ 3,301 $ 531 $ 512 $ 4,344
======== ======== ======== ========
Corporate and other's operating loss is primarily comprised of
administrative expenses and includes a gain of approximately $1.2 million for
the year ended December 31, 1995 related to the sale of Oneida (see note 12)
and $1.45 million related to the sale of Ipsen for the year ended December 31,
1994.
Identifiable assets by segment are those assets that are used in the
applicable operations of each segment. Corporate assets as of December 31,
1995 are principally the Company's investment in Reunion (see note 4), the
Oneida Advances (see note 12), deferred financing costs and deferred income
tax assets.
Note 20: 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 and
other contingent matters will not have any material effect on the Company's
financial position, results of operations or liquidity. The Company does not
have any adverse commitments at December 31, 1996.
<PAGE>
==============================================================================
No dealer, salesperson, or other CHATWINS GROUP, INC.
individual has been authorized to
give any information or make any 50,000 WARRANTS TO PURCHASE
representation other than those COMMON STOCK
contained in this prospectus in
connection with the offering covered 50,000 SHARES OF COMMON STOCK
by the Prospectus. If given or made,
such information or representation
must not be relied upon as having
been authorized by the Company.
This Prospectus does not constitute
an offer to sell or a solicitation
of an offer to buy any of the securities
covered hereby in any jurisdiction in ----------
which or to any person to whom it is PROSPECTUS
unlawful to make such offer or ----------
solicitation. Neither the delivery of dated April 11, 1997
this Prospectus nor any sale made
hereunder shall, under any circumstances,
create an implication that there has
not been any change in the facts set
forth in this Prospectus or in the
affairs of the Company since the date hereof.
==============================================================================<PAGE>
<PAGE> II-1
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The estimated expenses in connection with this offering are:
SEC registration fee $
100
Accounting fees and expenses
50,000
Legal fees and expenses
142,000
Printing costs
118,000
Blue Sky fees and expenses
15,000
Miscellaneous
17,000
-------
- -
Total
$342,100
========
Item 14. Indemnification of Directors and Officers
Section 145 of the General Corporation Law of the State of Delaware
(DGCL) grants each corporation organized thereunder, such as the Registrant,
the power to indemnify its directors and officers against liabilities for
certain of their acts. Section 7.1 of the Registrant's By-Laws provides for
indemnification of directors and officers of the Registrant to the extent
permitted by Section 145 of the DGCL. Section 145 permits a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to a threatened, pending or completed administrative, investigative, civil or
criminal action, suit or proceeding (other than an action by or in the right
of the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement he actually and reasonably incurred in connection with such
an action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation (and, in the case of a criminal action or proceeding, had no
reason to believe his conduct was unlawful). In the case of an action or suit
by or in the right of the corporation, he may not be indemnified in respect of
any claim, issue or matter as to which he was adjudged liable to the
corporation unless and only to the extent that the court in which such action
or suit was brought determines that he is fairly and reasonably entitled to
indemnity for such expenses as the court shall deem proper. Payment may be
made in advance of the final disposition of an administrative, investigative,
civil or criminal action, suit or proceeding if the officer or director agrees
to repay to the corporation such amount in the event it is determined that he
was not entitled to it. Indemnification against expenses (including attorneys'
<PAGE>
<PAGE> II-2
fees) actually and reasonably incurred must be given under Section 145 to the
extent an officer, director, employee or agent is successful on the merits or
otherwise in defense in any action described above.
In addition, Section 145 permits a corporation to purchase and maintain
insurance on behalf of any officer, director, employee or agent of the
corporation or any person serving at the request of the corporation as an
officer, director, employee or agent of another corporation serving as
described above whether or not the corporation would have the power to
indemnify him against such liability under Section 145. The Registrant does
not maintain any directors and officers liability insurance.
In accordance with Section 145 of the DGCL, the Registrant entered into
indemnity agreements with Mr. Bradley (Bradley Indemnity Agreement) and
certain other officers and directors of the Registrant (Officers and Directors
Indemnity Agreements, and collectively with the Bradley Indemnity Agreement,
the "Indemnity Agreements"). Pursuant to the Indemnity Agreements, the
Registrant agreed to indemnify and hold harmless Mr. Bradley, the executive
officers and directors of the Registrant named therein (each an "Employee")
and their respective estates, heirs and legal representatives (each an
"Indemnified Party") if any of them is or was a party, or is or was threatened
to be made a party, to any threatened, pending or completed action, claim,
litigation, suit or proceeding, (each an "Action") (other than an Action by or
in the right of the Registrant) by reason of the fact that the Employee is or
was a director, officer, employee or agent of the Registrant or of an
affiliate of the Registrant against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such Action (collectively, "Indemnified
Amounts") if the Employee acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Registrant and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. Pursuant to the Indemnity Agreements, the
Registrant also agreed to indemnify and hold harmless each Indemnified Party
if any of them is or was a party, or is or was threatened to be made a party,
to any threatened, pending or completed Action by or in the right of the
Registrant by reason of the fact that the Employee is or was a director,
officer, employee or agent of the Registrant or of an affiliate of the
Registrant against Indemnified Amounts if the Employee acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the Registrant, provided, however, with respect to the
indemnification provided by the Registrant for Actions by or in the right of
the Registrant, the Registrant is not obligated to provide any indemnification
in respect of any claim, issue or matter as to which (i) the Employee has been
adjudged to be liable to the Registrant unless and only to the extent that the
Court of Chancery of the State of Delaware or the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
the Employee is fairly and reasonably entitled to indemnity for such
Indemnified Amounts which the Court of Chancery of the State of Delaware or
such other court shall deem proper or (ii) the Registrant determines that the
Employee has not met the standard of conduct set forth in the Indemnity
Agreements. If a determination is made pursuant to clause (ii) of the
preceding sentence, such determination must be affirmed by the Court of
Chancery of the State of Delaware in the case of Mr. Bradley or by an
arbitration board in the case of any other Employee if such Indemnified Party
requests an affirmation.
<PAGE>
<PAGE> II-3
Section 102(b)(7) of the DGCL permits a provision in the certificate of
incorporation of each corporation organized thereunder, such as the
Registrant, eliminating or limiting, with certain exceptions, the personal
liability of a director to the corporation or its stockholders for monetary
damages for certain breaches of fiduciary duty as a director. Article Seventh
of the Restated Certificate of Incorporation of the Registrant eliminates the
liability of directors except to the extent that such liability arises (i)
from a breach of the director's duty of loyalty to the Registrant or its
stockholders, (ii) as a result of acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL (relating to directors' liability for unlawful payment
of dividends or unlawful stock purchases or redemptions) or (iv) any
transaction from which the director derived an improper personal benefit. The
foregoing statements are subject to the detailed provisions of Section
102(b)(7) of the DGCL, Article Seventh of the Restated Certificate of
Incorporation of the Registrant and Section 7-1 of the By-Laws of the
Registrant, as applicable.
Item 15. Recent Sales of Unregistered Securities
50,000 Units consisting of an aggregate of $50.0 million principal amount
of 13% Senior Notes due 2003 and 50,000 Warrants to purchase an aggregate of
50,000 shares of Common Stock, par value $.01 per share (Common Stock) of the
Company, or approximately 17% of the Company's outstanding Common Stock on a
fully diluted basis, were sold by the Company to Bear, Stearns & Co. Inc. as
the initial purchaser on May 3, 1993, pursuant to a Purchase Agreement, dated
April 22, 1993, between the Company and Bear, Stearns & Co. Inc. for an
aggregate of $50.0 million, less aggregate underwriting commissions and
discounts equal to $1,750,000. The sale of the Units to Bear, Stearns & Co.,
Inc. was exempt from registration under Section 4(2) of the Securities Act.
Item 16. Exhibits and Financial Statement Schedules
(A) The following exhibits are filed as part of this Registration Statement:
Exhibit
Number Exhibit
2.1(a) Loan and Pledge Agreement, dated as of November 13, 1990, made by
Auto-Lok Holdings, Inc. to Chatwins Group, Inc.
2.2(a) Notice of Exercise, dated April 27, 1993, from Chatwins Group,
Inc. to Auto-Lok Holdings, Inc.
2.3(a) Certificate of Ownership and Merger merging Auto-Lok, Inc. with
and into Chatwins Group, Inc. filed with the Secretary of State
of the State of Delaware on and effective as of May 4, 1993.
2.4(e) Stock Purchase Agreement, dated as of December 1, 1993,
among Chatwins Group, Inc., BKO Industries, Inc. and
William J. Kral.
2.5(b) Schedules attached to Stock Purchase Agreement, dated as
of December 1, 1993, among Chatwins Group, Inc.,
BKO Industries, Inc. and William J. Kral:
<PAGE>
<PAGE> II-4
Schedule 2.1(a) - Corporate Organization
Schedule 2.1(c) - No Conflicts
Schedule 2.1(d) - Capitalization
Schedule 2.1(f) - Broker's or Finder's Fees
Schedule 2.1(g) - Investments
Schedule 2.1(h) - Financial Statements
Schedule 2.1(i) - Absence of Certain Changes or Events
Schedule 2.1(j) - Management and Employees
Schedule 2.1(k)(i) - Land
Schedule 2.1(d)(ii) - Permitted Owned Real Property Exceptions
Schedule 2.1(k)(iii) - Leased Real Property
Schedule 2.1(k)(iv) - Real Property Permits
Schedule 2.1(k)(v) - Loan Documents
Schedule 2.1(k)(vi) - Assessed Valuation
Schedule 2.1(k)(vii) - Encroachments
Schedule 2.1(l) - Liens of Equipment, Etc.
Schedule 2.1(m) - Condition of Assets
Schedule 2.1(n) - Insurance
Schedule 2.1(o) - Trademarks and Patents
Schedule 2.1(p) - Contracts
Schedule 2.1(p)(vi) - Employment Agreements
Schedule 2.1(p)(viii) - Contracts for Services
Schedule 2.1(p)(ix) - Environmental Matters
Schedule 2.1(p)(xi) - Union Contracts
Schedule 2.1(p)(xii) - Employee Benefits/Policy
Schedule 2.1(p)(xiii) - Open Sales Order Exceeding $50,000
Schedule 2.1(q) - Compliance with Contracts
Schedule 2.1(r) - Litigation
Schedule 2.1(s) - Compliance with Laws
Schedule 2.1(t) - Benefit Plans
Schedule 2.1(u) - Licenses
Schedule 2.1(v) - Transactions with Affiliates
Schedule 2.1(x) - Depositories
Schedule 2.1(y) - Employment-Related Matters
Schedule 2.1(z) - Tax Matters
Schedule 2.1(aa) - Customers and Suppliers
Schedule 2.1(ab) - Environmental Matters
2.6(e) Plan and Agreement of Merger, dated December 20, 1993, merging
Arrowhead Grating & Metalworks, Inc. with and into Chatwins
Group, Inc. filed with the Secretary of State of the State
of Delaware.
2.7(e) Articles of Merger of Arrowhead Grating & Metalworks, Inc.,
dated December 20, 1993, filed with the Secretary of
State of the State of Missouri.
2.8(d) Stock Purchase Agreement, dated March 31, 1994, between
Chatwins Group, Inc. and Oneida Products Corp.
2.9(d) Stock Purchase Agreement, dated March 31, 1994, between
Chatwins Group, Inc. and Stanwich Partners, Inc.
2.10(d) Stock Purchase Agreement, dated March 31, 1994, between
Chatwins Group, Inc. and Stanwich Oil & Gas, Inc.
<PAGE>
<PAGE> II-5
2.11(f) Stock Purchase Agreement, dated August 25, 1994, among
Chatwins Group, Inc., Melody Brooks Dill, T.J. Brooks,
Jonathan C. Dill and Melody Brooks Dill as Trustees of
The Jonathan Brooks Dill 1992 Trust and Melody Brooks
Dill as custodian for Jonathan B. Dill under the Wisconsin
Uniform Transfers to Minors Act.
2.12(f) Asset Purchase Agreement, dated September 30, 1994,
between Chatwins Group, Inc. and F P M, L.P., a
Delaware limited partnership.
2.13(i) Stock Purchase Agreement, dated June 20, 1995, between
Chatwins Group, Inc. and Parkdale Holdings Corporation, N.V.
2.14(j) Stock Purchase Agreement, dated September 14, 1995,
between Chatwins Holdings, Inc. and Reunion Resources Company.
3.1(a) Restated Certificate of Incorporation of Chatwins Group, Inc.
3.2(a) Certificate of Retirement of Class E Preferred Stock filed
with the Secretary of State of the State of Delaware on
and effective as of May 3, 1993.
3.3(a) By-laws of Chatwins Group, Inc.
4.1(e) Loan and Security Agreement dated March 4, 1994, by and
between Congress Financial Corporation and Chatwins Group, Inc.
4.2(a) Specimen Share Certificate representing Chatwins Group,
Inc.'s Common Stock, par value $0.01 per share.
4.3(a) Purchase Agreement, dated April 22, 1993, by and between
Chatwins Group, Inc. and Bear, Stearns & Co. Inc.
4.4(a) Indenture, dated as of May 1, 1993, by and between Chatwins
Group, Inc. and The First National Bank of Boston, as trustee.
4.5(a) Global Note No. 1, dated as of May 3, 1993, issued by
Chatwins Group, Inc. to The Depository Trust Company
and registered in the name of Cede & Co. in the principal
amount of $49,000,000.
4.6(a) Senior Note No. 2, dated May 3, 1993, issued by Chatwins
Group, Inc. to Streamview & Co. in the principal amount
of $1,000,000.
4.7(a) Form of Certificated Senior Notes issued pursuant to
the Indenture, dated May 1, 1993, by and between
Chatwins Group, Inc. and The First National Bank of Boston.
4.8(a) Warrant Agreement, dated as of May 1, 1993, by and
between Chatwins Group, Inc. and The First National
Bank of Boston, as warrant agent.
4.9(a) Global Warrant No. 1, dated as of May 3, 1993, issued
by Chatwins Group,Inc. to The Depository Trust Company
and registered in the name of Cede & Co. for 49,000 Warrants.
<PAGE>
<PAGE> II-6
4.10(a) Warrant No. 2, dated May 3, 1993, issued by Chatwins
Group, Inc. to Streamview & Co. for 1,000 Warrants.
4.11(a) Form of Certificated Warrants issued pursuant to the
Warrant Agreement, by and between Chatwins Group, Inc.
and The First National Bank of Boston, as warrant agent.
4.12(a) Exchange and Registration Rights Agreement, dated as of
May 1, 1993, by and between Chatwins Group, Inc. and
Bear, Stearns & Co. Inc.
4.13(e) Availability A Component Note, dated March 4, 1994,
issued by Chatwins Group, Inc. to Congress Financial
Corporation, in the principal amount of $20,000,000.
4.14(e) Availability C Component Note, dated March 4, 1994,
issued by Chatwins Group, Inc. to Congress Financial
Corporation, in the principal amount of $1,000,000.
4.15(a) Loan Agreement, dated as of May 1, 1981, by and between
Orem City, Utah and Klemp Corporation relating to
$680,000 Orem City, Utah Industrial Development Revenue
Bonds, Series A (Klemp Corporation Project).
4.16(a) Promissory Note, dated May 5, 1981, from Klemp
Corporation to Orem City, Utah in the principal amount of
$680,000 due May 1, 2001.
4.17(a) Promissory Note, dated June 30, 1989, issued by Alli
Acquisition Corp. to the Pension Benefit Guaranty
Corporation, with guarantee of Chatwins Group, Inc.
annexed thereto.
4.18(a) Note Payment Agreement, dated as of June 26, 1989, between Alli
Acquisition Corp. and the Pension Benefit Guaranty Corporation.
4.19(c) Availability B Component Note, dated April 1, 1994, issued
by Chatwins Group, Inc. to Congress Financial Corporation,
in the principal amount of $800,000.
4.20(a) Non-Negotiable Promissory Note, dated January 9, 1989, issued by
Chatwins Group, Inc. to John P. Nasci in the principal amount of
$600,000.
4.21(a) Form of Promissory Note, dated May 3, 1993, issued by
Chatwins Group, Inc. to certain management employees
in connection with termination of Chatwins Group,
Inc.'s performance unit plans.
4.22(a) Form of Senior Exchange Note to be issued pursuant the
Indenture, dated May 1, 1993, by and between Chatwins
Group, Inc. and The First National Bank of Boston, as trustee.
4.23(l) Amendment No. 5 to Loan and Security Agreement dated
May 1, 1996 between Chatwins Group, Inc. and Congress
Financial Corporation.
<PAGE>
<PAGE> II-7
4.24(l) Third Amended and Restated Availability A Promissory
Note by Chatwins Group, Inc. payable to Congress
Financial Corporation in the principal amount of $27,500,000.
4.25(o) Amendment No. 6 to Loan and Security Agreement dated
November 1, 1996 between Chatwins Group, Inc. and
Congress Financial Corporation.
4.26 Intentionally Left Blank.
4.27(i) Promissory Note of Chatwins Group, Inc. in the principal amount of
$5,800,000 issued to Parkdale Holdings Corporation, N.V.
4.28(i) Guaranty, dated June 20, 1995, from Charles E. Bradley, Sr.
to and in favor of Parkdale Holdings Corporation, N.V.
4.29(i) Promissory Note of Chatwins Group, Inc. in the principal amount of
$200,000 issued to P. Dean Gesterkamp.
4.30(i) Amendment No. 1 to Loan and Security Agreement and Consent,
dated June 20, 1995, between Congress Financial Corporation
and Chatwins Group, Inc.
4.31(i) Amended and Restated Availability A Promissory Note by
Chatwins Group, Inc., payable to Congress Financial
Corporation in the principal amount of $26,000,000.
4.32(i) First Supplemental Indenture and Waiver of Covenants of Indenture
between The First National Bank of Boston as trustee and Chatwins
Group, Inc.
4.33(i) Second Supplemental Indenture between Chatwins Group, Inc. and the
Trustee.
4.34(i) Allonge to Senior Note.
4.35(j) Amendment No. 2 to Loan and Security Agreement, dated
September 14, 1995, between Chatwins Group, Inc. and
Congress Financial Corporation.
4.36(j) Allonge dated September 14, 1995 to Promissory Note of
Chatwins Group, Inc. in the principal amount of $5,800,000
issued to Parkdale Holdings Corporation, N.V.
4.37(k) Amendment No. 3 to Loan and Security Agreement dated October
18, 1995 between Chatwins Group, Inc. and Congress Financial
Corporation.
4.38(k) Second Amended and Restated Availability A Promissory Note dated
October 18, 1995 between Chatwins Group, Inc. and Congress
Financial Corporation.
4.39(m) Amendment No. 4 to Loan and Security Agreement dated December
29, 1995 between Chatwins Group, Inc. and Congress Financial
Corporation.
<PAGE>
<PAGE> II-8
4.40(m) Second Allonge dated January 31, 1996 to Promissory Note of
Chatwins Group, Inc. in the amount of $5,800,000 issued
to Parkdale Holdings Corporation, N.V., purchased by
Charles E. Bradley, Sr.
4.41(m) Subordination Agreement dated February 2, 1996 between Chatwins
Group, Inc. and Congress Financial Corporation.
4.42(m) Notification Letter dated October 26, 1995 regarding purchase of
Gesterkamp Note by Franklin Myers.
5.1(a) Opinion of Richards & O'Neil.
8.1(a) Opinion of Richards & O'Neil (regarding certain tax matters).
10.1(a) Securities Pledge Agreement, dated May 1, 1993, among Chatwins
Group, Inc., Charles E. Bradley, John G. Poole and The First
National Bank of Boston.
10.2(e) Guarantee, dated March 4, 1994, from Charles E. Bradley to
Congress Financial Corporation.
10.3 Intentionally Left Blank.
10.4(e) Agreement, dated as of September 2, 1993, among Chatwins Group,
Inc., Lawrence A. Siebert, Charles E. Bradley and John G. Poole.
10.5(e) Agreement, dated as of September 2, 1993, among Chatwins Group,
Inc., John S. Hall, Charles E. Bradley and John G. Poole.
10.6(h) Collective Bargaining Agreement, dated March 6, 1995, by and
between Arrowhead Grating & Metalworks, Inc. and International
Union of Operating Engineers Local No. 6-6A-6B.
10.7(n) Agreement, dated June 1, 1996, between CP Industries, Inc. and
United Steelworkers of America on behalf of Local #1514-01.
10.8(n) Agreement, dated June 1, 1996, between CP Industries, Inc. and
United Steelworkers of America on behalf of Local #1514.
10.9(a) Agreement, effective May 1, 1992, between Shopmen's Local Union
No. 473 of the International Association of Bridge, Structural
and Ornamental Iron Workers (Affiliated AFL-CIO) and Klemp
Corporation.
10.10(a) Consulting Agreement, dated and effective as of March 31, 1993,
between Chatwins Group, Inc. and Stanwich Partners, Inc.
10.11(a) Amendment No. 1 to Consulting Agreement, dated as of April 16,
1993, between Chatwins Group, Inc. and Stanwich Partners, Inc.
10.12 -
10.15 Intentionally Left Blank.
10.16(a) Asset Purchase Agreement, dated as of June 26, 1989, among The
Alliance Machine Company, Alli Acquisition Corp., George S.
Hofmeister and Christopher Sause.
<PAGE>
<PAGE> II-9
10.17(a) Amendment to Asset Purchase Agreement, dated June 30, 1989, among
The Alliance Machine Company, George S. Hofmeister, Christopher
Sause and Alli Acquisition Corp.
10.18(a) Letter Agreement, dated June 30, 1989, among Alli Acquisition,
George S. Hofmeister and Christopher Sause.
10.19(a) Reimbursement and Loan Agreement, dated April 19, 1990 between
Robinson Incorporated and Chatwins Group, Inc.
10.20(a) Amended and Restated Promissory Note, dated April 19, 1990, issued
by Robinson Incorporated to Chatwins Group, Inc., in the original
principal amount of $500,000.
10.21(a) Amended and Restated Promissory Note, dated August 15, 1990,
issued by Robinson Incorporated to Chatwins Group, Inc., in the
original principal amount of $300,000.
10.22(a) Option Agreement, dated December 12, 1990, between Stanwich
Partners, Inc. and Chatwins Group, Inc.
10.23(a) Promissory Note, dated December 12, 1990, issued by CGI Investment
Corp. to Chatwins Group, Inc., in the original principal amount of
$1,500,000.
10.24(a) Letter regarding Release of Security Interest, Subordination and
Payment Instructions, dated May 3, 1993, from TCW Capital and TCW
Special Placement Fund III.
10.25(a) Letter Agreement, dated December 12, 1990, among Chatwins Group,
Inc., CGI Investment Corp., Stanwich Partners, Inc., Lawrence A.
Siebert, John G. Poole, Charles E. Bradley, TCW Special Placements
Fund II, TCW Capital, TCW Special Placements Fund III and TCW
Capital.
10.26(a) Letter Agreement dated April 16, 1990, among Chatwins Group, Inc.,
CGI Investment Corp., Lawrence A. Siebert, John G. Poole, Charles
E. Bradley, Stanwich Partners, Inc. and TCW Special Placements
Fund III.
10.27(a) Promissory Note, dated January 15, 1988, issued by John G. Poole
to Chatwins Group, Inc. in the original principal amount of
$227,349.25.
10.28(a) Promissory Note, dated January 15, 1988, issued by Lawrence A.
Siebert to Chatwins Group, Inc. in the original principal amount
of $75,819.50.
10.29(a) Promissory Note, dated January 15, 1988, issued by John S. Hall to
Chatwins Group, Inc. in the original principal amount of
$81,937.50.
10.30(a) Promissory Note, dated January 15, 1988, issued by Charles E.
Bradley to Chatwins Group, Inc. in the original principal amount
of $707,394.
<PAGE>
<PAGE> II-10
10.31(a) Noncompetition Agreement, dated December 27, 1991, by and between
Chatwins Group, Inc. and Lewis, Goetz and Company, Inc.
10.32 Intentionally Left Blank.
10.33(c) Lease Agreement, dated as of May 31, 1994, by and between RTF
Properties, L.P. and Chatwins Group, Inc.
10.34(m) Joint Venture Agreement dated November 27, 1995 between Chatwins
Group, Inc. and Charles E. Bradley, Sr. regarding Purchase and
Lease of Certain Manufacturing Equipment.
10.35(c) Letter Agreement, dated June 8, 1994, between Klemp Corporation
Division of Chatwins Group, Inc. and Ferretera Sabe, S.A.
terminating the Joint Venture Agreement, dated August 25, 1993, by
and between Klemp Corporation Division of Chatwins Group, Inc.
and Ferretera Sabe, S.A.
10.36(m) Equipment Lease Agreement dated July 1, 1995 between Chatwins
Group, Inc. and Rostone Corporation.
10.37(o) Employment Agreement, dated as of August 1, 1996, between Chatwins
Group, Inc. and Joseph C. Lawyer.
10.38(m) Joint Venture Agreement dated December 6, 1995 by and among China
Metallurgical Import & Export Shanghai Company, Wang Gang Township
Economic Development Corporation and Chatwins Group, Inc.
10.39(a) Export Related Services Agreement, dated March 20, 1991, by and
between CGI Sales Corporation and Chatwins Group, Inc.
10.40(a) Foreign Trade Commission, Sale Lease and Services Agreement, dated
March 20, 1991 by and between CGI Sales Corporation and Chatwins
Group, Inc.
10.41(e) Employment Agreement, dated as of December 1, 1993, by and between
Chatwins Group, Inc. and William J. Kral.
10.42 Intentionally Left Blank.
10.43(m) Subordinated Promissory Note dated September 1, 1995 issued by
Oneida Molded Plastics Corporation to Chatwins Group, Inc.
10.44(n) Agreement, dated June 14, 1996, between The Alliance Machine
Company and Local Union No. 2361 United Steelworkers of America
AFL-CIO.
10.45 -
10.49 Intentionally Left Blank.
10.50(m) Letter Agreement dated January 31, 1996 between Chatwins Group,
Inc. and Charles E. Bradley, Sr. extending the maturity date of
the Parkdale Note to June 30, 1996.
10.51(n) Letter Agreement dated June 18, 1996 between Chatwins Group, Inc.
and Charles E, Bradley, Sr. extending the maturity date of the
Parkdale Note to December 31, 1996.
<PAGE>
<PAGE> II-11
10.52(n) Joint Venture Agreement by and among Klemp de Mexico, S.A. de C.V.
and Consolidated Fabricators, Inc.
10.53(n) Second Amendment dated March 25, 1996 to Lease Agreement dated
May 31, 1994 between RTF Properties. L.P. and Chatwins Group, Inc.
10.54(n) Third Amendment dated June 10, 1996 to Lease Agreement dated
May 31, 1994 between RTF Properties. L.P. and Chatwins Group, Inc.
10.55 -
10.61 Intentionally Left Blank.
10.62(c) Chatwins Group, Inc. Long Term Incentive Plan, effective
January 1, 1994.
10.63(g) Indemnity Agreement, dated as of June 29, 1994, between
Chatwins Group, Inc. and Charles E. Bradley.
10.64(g) Form of Indemnity Agreement, between Chatwins Group, Inc. and
each of Charles E. Bradley, Jr., Thomas L. Cassidy, Joseph C.
Lawyer, James A. O'Donnell and John G. Poole.
10.65(g) Form of Indemnity Agreement, between Chatwins Group, Inc. and
each of Russell S. Carolus and John M. Froehlich.
10.66(A)(f) Employment Agreement, dated August 29, 1994, by and between
T.J. Brooks Company, a Wisconsin corporation and Jonathan C. Dill.
10.66(B)(i) Stock Pledge Agreement, dated June 20, 1995, between Chatwins
Group, Inc. and Parkdale Holdings Corporation N.V.
10.67(i) Escrow Agreement, dated June 20, 1995, among Chatwins Group, Inc.,
Parkdale Holdings Corporation, N.V., Franklin Myers and
IBJ Schroder.
10.68*(i) Irrevocable Proxy, dated June 20, 1995, between Chatwins Group,
Inc. and Parkdale Holdings Corporation, N.V.
10.69*(i) Irrevocable Proxy, dated June 20, 1995, between Chatwins Group,
Inc. and Franklin Myers.
10.70(i) Letter Agreement, dated June 20, 1995, between Chatwins Group,
Inc. and P. Dean Gesterkamp.
10.71*(i) Security Agreement, dated June 20, 1995, between Chatwins Group,
Inc. and P. Dean Gesterkamp.
10.72(i) Letter from Chatwins Group, Inc. to Wertheim Schroder Investment
Services.
10.73(i) Letter Agreement, dated June 20, 1995, between Chatwins Group,
Inc. and Franklin Myers.
10.74(i) Pledge and Security Agreement, dated June 20, 1995, between
Congress Financial Corporation and Chatwins Group, Inc.
<PAGE>
<PAGE> II-12
10.75(i) Collateral Assignment in favor of Congress Financial Corporation
executed by Chatwins Group, Inc.
10.76(i) Amendment No. 1 of the Securities Pledge Agreement among Chatwins
Group, Inc., Charles E. Bradley, Sr., John G. Poole and The
First National Bank of Boston as collateral agent.
10.77(j) Letter Agreement, dated September 4, 1995, between Chatwins Group,
Inc. and Parkdale Holdings Corporation, N.V.
10.78(j) Side Indemnity Letter Agreement, dated September 14, 1995, between
Chatwins Group, Inc. and Reunion Resources Company.
11.1(p) Statement of Computation of per Share Earnings.
12.1(p) Statement of Computation of Ratios.
21.1(p) Subsidiaries of Chatwins Group, Inc.
23.1 Consent of Price Waterhouse LLP.
23.4(a) Consent of Richards & O'Neil (included in Exhibit 5.1).
27(p) Financial Data Schedule.
_________________________
* Document dated June 20, 1995 pursuant to a letter agreement.
(a) Previously filed as an Exhibit to this Registration Statement.
(b) This Exhibit was not included in the Company's Annual Report on Form 10-
K for the year ended December 31, 1993 dated March 29, 1994 since it did not
contain information which was material. The Company agrees to furnish
supplementally this Exhibit to the Securities and Exchange Commission
(Commission) upon request.
(c) Previously filed as an Exhibit to Post-effective Amendment No. 1 to this
Registration Statement.
(d) Incorporated by reference from the Company's Current Report on Form 8-K
dated April 13, 1994 and filed with the Commission on April 14, 1994.
(e) Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1993 dated March 29, 1994 and filed with the
Commission on March 30, 1994.
(f) Incorporated by reference from the Company's Quarterly Report on Form
10-Q dated November 11, 1994 for the quarterly period ended September 30,
1994.
(g) Incorporated by reference from the Company's Quarterly Report on Form
10-Q dated August 12, 1994 for the quarterly period ended June 30, 1994.
(h) Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1994 dated March 29, 1995 and filed with the
<PAGE>
<PAGE> II-13
Commission on March 30, 1995.
(i) Incorporated by reference from the Company's Current Report on Form 8-K
dated June 30, 1995 and filed with the Commission on July 3, 1995.
(j) Incorporated by reference from the Company's Current Report on Form 8-K
dated September 28, 1995 and filed with the Commission on September 29, 1995.
(k) Incorporated by reference from the Company's Quarterly Report on Form
10-Q dated November 14, 1995 for the quarterly period ended September 30,
1995.
(l) Incorporated by reference from the Company's Quarterly Report on Form
10-Q dated May 2, 1996 for the quarterly period ended March 31, 1996.
(m) Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1995 dated March 26, 1996 and filed with the
Commission on March 29, 1996.
(n) Incorporated by reference from the Company' Quarterly Report on Form
10-Q dated August 12, 1996 for the quarterly period ended June 30, 1996.
(o) Incorporated by reference from the Company' Quarterly Report on Form
10-Q dated November 13, 1996 for the quarterly period ended September 30,
1996.
(p) Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1996 dated March 26, 1997 and filed with the
Commission on March 27, 1997.
(B) Financial Statement Schedules
The following financial statement schedules should be read in conjunction
with the financial statements included in the Prospectus:
Page
----
II. Chatwins Group, Inc. Valuation and Qualifying Accounts S-1
All other schedules are omitted as the required information is
inapplicable or the information is presented in the financial statements or
the related notes.
Item 17. Undertakings
(a) The undersigned Registrant hereby undertakes:
(i) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(A) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(B) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
<PAGE>
<PAGE> II-14
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective registration
statement; and
(C) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(ii) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(iii) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
<PAGE>
<PAGE> II-15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Post-Effective Amendment No. 5 to Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Pittsburgh, Commonwealth of Pennsylvania, on April
11, 1997.
CHATWINS GROUP, INC.
By: /s/ Joseph C. Lawyer
----------------------
Joseph C. Lawyer
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 5 to Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Charles E. Bradley Chairman of the Board April 11, 1997
- --------------------------- and Director
Charles E. Bradley
/s/ Joseph C. Lawyer President, Chief Executive April 11, 1997
- --------------------------- Officer and Director
Joseph C. Lawyer
/s/ Thomas L. Cassidy Director April 11, 1997
- ---------------------------
Thomas L. Cassidy
/s/ John G. Poole Director April 11, 1997
- ---------------------------
John G. Poole
/s/ Charles E. Bradley, Jr. Director April 11, 1997
- ---------------------------
Charles E. Bradley, Jr.
/s/ John M. Froehlich Vice President, Chief April 11, 1997
- --------------------------- Financial Officer
John M. Froehlich and Treasurer (chief financial
and accounting officer)
<PAGE>
<PAGE> II-16
CHATWINS GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
(dollars in thousands)
Charged to
Beginning Costs and Ending
Balance Expenses Other Deductions Balance
--------- ---------- ------- ---------- -------
Year ended
December 31, 1996:
Allowance for doubtful
accounts $ 733 $ 449 $ - $ 260 (2) $ 922
Product warranty
reserves 434 725 - 794 (3) 365
Accrued self insurance
reserves 1,255 1,804 - 1,892 (4) 1,167
Year ended
December 31, 1995:
Allowance for doubtful
accounts $ 812 $ 226 $(249)(5) $ 56 (2) $ 733
Product warranty
reserves 442 344 - 352 (3) 434
Accrued self insurance
reserves 1,322 1,629 (120)(5) 1,576 (4) 1,255
Year ended
December 31, 1994:
Allowance for doubtful
accounts $ 613 $ 453 $ 174 (1) $ 428 (2) $ 812
Product warranty
reserves 446 283 - 287 (3) 442
Accrued self insurance
reserves 1,356 1,622 188 (1) 1,844 (4) 1,322
_________________________
(1) Purchase accounting adjustment for purchase of Oneida.
(2) Uncollectible accounts written off, net of recoveries.
(3) Product warranty claims honored during the year.
(4) Self insurance payments made during the year.
(5) Disposition of Oneida.
<PAGE>
<PAGE> E-1
EXHIBIT INDEX
Exhibit No.
in Document
Sequential Incorporated
Exhibit No. Exhibit Page by Reference
- ----------- ------- ---------- ------------
2.1(a) Loan and Pledge Agreement, dated
as of November 13, 1990, made by
Auto-Lok Holdings, Inc. to Chatwins
Group, Inc. 2.1
2.2(a) Notice of Exercise, dated April 27,
1993, from Chatwins Group, Inc.
to Auto-Lok Holdings, Inc. 2.2
2.3(a) Certificate of Ownership and Merger
merging Auto-Lok, Inc. with and into
Chatwins Group, Inc. filed with the
Secretary of State of the State of
Delaware on and effective as of
May 4, 1993. 2.3
2.4(e) Stock Purchase Agreement, dated
as of December 1, 1993, among
Chatwins Group, Inc., BKO Industries,
Inc. and William J. Kral. 2.4
2.5(b) Schedules attached to Stock Purchase
Agreement, dated as of December 1,
1993, among Chatwins Group, Inc., BKO
Industries, Inc. and William J. Kral: 2.5
Schedule 2.1(a) - Corporate Organization
Schedule 2.1(c) - No Conflicts
Schedule 2.1(d) - Capitalization
Schedule 2.1(f) - Broker's or Finder's Fees
Schedule 2.1(g) - Investments
Schedule 2.1(h) - Financial Statements
Schedule 2.1(i) - Absence of Certain
Changes or Events
Schedule 2.1(j) - Management and Employees
Schedule 2.1(k)(i) - Land
Schedule 2.1(d)(ii) - Permitted Owned Real
Property Exceptions
Schedule 2.1(k)(iii) - Leased Real Property
Schedule 2.1(k)(iv) - Real Property Permits
Schedule 2.1(k)(v) - Loan Documents
Schedule 2.1(k)(vi) - Assessed Valuation
Schedule 2.1(k)(vii) - Encroachments
Schedule 2.1(l) - Liens of Equipment, Etc.
Schedule 2.1(m) - Condition of Assets
Schedule 2.1(n) - Insurance
Schedule 2.1(o) - Trademarks and Patents
Schedule 2.1(p) - Contracts
Schedule 2.1(p)(vi) - Employment Agreements
<PAGE>
<PAGE> E-2
Schedule 2.1(p)(viii) - Contracts for Services
Schedule 2.1(p)(ix) - Environmental Matters
Schedule 2.1(p)(xi) - Union Contracts
Schedule 2.1(p)(xii) - Employee Benefits/Policy
Schedule 2.1(p)(xiii) - Open Sales Order
Exceeding $50,000
Schedule 2.1(q) - Compliance with Contracts
Schedule 2.1(r) - Litigation
Schedule 2.1(s) - Compliance with Laws
Schedule 2.1(t) - Benefit Plans
Schedule 2.1(u) - Licenses
Schedule 2.1(v) - Transactions with Affiliates
Schedule 2.1(x) - Depositories
Schedule 2.1(y) - Employment-Related Matters
Schedule 2.1(z) - Tax Matters
Schedule 2.1(aa) - Customers and Suppliers
Schedule 2.1(ab) - Environmental Matters
2.6(e) Plan and Agreement of Merger, dated
December 20, 1993, merging Arrowhead
Grating & Metalworks, Inc. with and
into Chatwins Group, Inc. filed with
the Secretary of State of the State
of Delaware. 2.6
2.7(e) Articles of Merger of Arrowhead Grating
& Metalworks, Inc., dated December 20,
1993, filed with the Secretary of State
of the State of Missouri. 2.7
2.8(d) Stock Purchase Agreement, dated March
31, 1994, between Chatwins Group, Inc.
and Oneida Products Corp. 2.8
2.9(d) Stock Purchase Agreement, dated March
31, 1994, between Chatwins Group, Inc.
and Stanwich Partners, Inc. 2.9
2.10(d) Stock Purchase Agreement, dated March
31, 1994, between Chatwins Group, Inc.
and Stanwich Oil & Gas, Inc. 2.10
2.11(f) Stock Purchase Agreement, dated
August 25, 1994, among Chatwins Group,
Inc., Melody Brooks Dill, T.J. Brooks,
Jonathan C. Dill and Melody Brooks Dill
as Trustees of The Jonathan Brooks Dill
1992 Trust and Melody Brooks Dill as
custodian for Jonathan B. Dill under
the Wisconsin Uniform Transfers to
Minors Act. 2.11
2.12(f) Asset Purchase Agreement, dated
September 30, 1994, between Chatwins
Group, Inc. and F P M, L.P., a Delaware
limited partnership. 2.12
<PAGE>
<PAGE> E-3
2.13(i) Stock Purchase Agreement, dated June 20,
1995, between Chatwins Group, Inc. and
Parkdale Holdings Corporation, N.V. 2.13
2.14(j) Stock Purchase Agreement, dated
September 14, 1995, between Chatwins
Holdings, Inc. and Reunion Resources
Company. 2.14
3.1(a) Restated Certificate of Incorporation
of Chatwins Group, Inc. 3.1
3.2(a) Certificate of Retirement of Class E
Preferred Stock filed with the
Secretary of State of the State of
Delaware effective as of May 3, 1993. 3.2
3.3(a) By-laws of Chatwins Group, Inc. 3.3
4.1(e) Loan and Security Agreement dated
March 4, 1994, by and between Congress
Financial Corporation and Chatwins
Group, Inc. 4.1
4.2(a) Specimen Share Certificate representing
Chatwins Group, Inc.'s Common Stock,
par value $0.01 per share. 4.2
4.3(a) Purchase Agreement, dated April 22,
1993, by and between Chatwins Group,
Inc. and Bear, Stearns & Co. Inc. 4.3
4.4(a) Indenture, dated as of May 1, 1993,
by and between Chatwins Group, Inc.
and The First National Bank of Boston,
as trustee. 4.4
4.5(a) Global Note No. 1, dated as of May 3,
1993, issued by Chatwins Group, Inc.
to The Depository Trust Company and
registered in the name of Cede & Co.
in the principal amount of $49,000,000. 4.5
4.6(a) Senior Note No. 2, dated May 3, 1993,
issued by Chatwins Group, Inc. to
Streamview & Co. in the principal
amount of $1,000,000. 4.6
4.7(a) Form of Certificated Senior Notes
issued pursuant to the Indenture,
dated May 1, 1993, by and between
Chatwins Group, Inc. and The First
National Bank of Boston. 4.7
<PAGE>
<PAGE> E-4
4.8(a) Warrant Agreement, dated as of May 1,
1993, by and between Chatwins Group,
Inc. and The First National Bank of
Boston, as warrant agent. 4.8
4.9(a) Global Warrant No. 1, dated as of
May 3, 1993, issued by Chatwins Group,
Inc. to The Depository Trust Company
and registered in the name of
Cede & Co. for 49,000 Warrants.
4.10(a) Warrant No. 2, dated May 3, 1993,
issued by Chatwins Group, Inc. to
Streamview & Co. for 1,000 Warrants. 4.10
4.11(a) Form of Certificated Warrants issued
pursuant to the Warrant Agreement, by
and between Chatwins Group, Inc. and
The First National Bank of Boston,
as warrant agent. 4.11
4.12(a) Exchange and Registration Rights
Agreement, dated as of May 1, 1993,
by and between Chatwins Group, Inc.
and Bear, Stearns & Co. Inc. 4.12
4.13(e) Availability A Component Note, dated
March 4, 1994, issued by Chatwins
Group, Inc. to Congress Financial
Corporation, in the principal amount
of $20,000,000. 4.13
4.14(e) Availability C Component Note, dated
March 4, 1994, issued by Chatwins
Group, Inc. to Congress Financial
Corporation, in the principal amount
of $1,000,000. 4.14
4.15(a) Loan Agreement, dated as of May 1,
1981, by and between Orem City, Utah
and Klemp Corporation relating to
$680,000 Orem City, Utah Industrial
Development Revenue Bonds, Series A
(Klemp Corporation Project). 4.15
4.16(a) Promissory Note, dated May 5, 1981,
from Klemp Corporation to Orem City,
Utah in the principal amount of
$680,000 due May 1, 2001. 4.16
4.17(a) Promissory Note, dated June 30, 1989,
issued by Alli Acquisition Corp. to
the Pension Benefit Guaranty
Corporation, with guarantee of Chatwins
Group, Inc. annexed thereto. 4.17
<PAGE>
<PAGE> E-5
4.18(a) Note Payment Agreement, dated as of
June 26, 1989, between Alli Acquisition
Corp. and the Pension Benefit Guaranty
Corporation. 4.18
4.19(c) Availability B Component Note, dated
April 1, 1994, issued by Chatwins
Group, Inc. to Congress Financial
Corporation, in the principal amount
of $800,000. 4.19
4.20(a) Non-Negotiable Promissory Note, dated
January 9, 1989, issued by Chatwins
Group, Inc. to John P. Nasci in the
principal amount of $600,000. 4.20
4.21(a) Form of Promissory Note, dated May 3,
1993, issued by Chatwins Group, Inc.
to certain management employees in
connection with termination of Chatwins
Group, Inc.'s performance unit plans. 4.21
4.22(a) Form of Senior Exchange Note to be
issued pursuant the Indenture, dated
May 1, 1993, by and between Chatwins
Group, Inc. and The First National
Bank of Boston, as trustee. 4.22
4.23(l) Amendment No. 5 to Loan and Security
Agreement dated May 1, 1996 between
Chatwins Group, Inc. and Congress
Financial Corporation. 4.23
4.24(l) Third Amended and Restated
Availability A Promissory Note by
Chatwins Group, Inc. payable to Congress
Financial Corporation in the principal
amount of $27,500,000. 4.24
4.25(o) Amendment No. 6 to Loan and Security
Agreement dated November 1, 1996
between Chatwins Group, Inc. and
Congress Financial Corporation. 4.25
4.26 Intentionally Left Blank.
4.27(i) Promissory Note of Chatwins Group,
Inc. in the principal amount of
$5,800,000 issued to Parkdale
Holdings Corporation, N.V. 4.27
4.28(i) Guaranty, dated June 20, 1995, from
Charles E. Bradley, Sr. to and in favor
of Parkdale Holdings Corporation, N.V. 4.28
<PAGE>
<PAGE> E-6
4.29(i) Promissory Note of Chatwins Group, Inc.
in the principal amount of $200,000
issued to P. Dean Gesterkamp. 4.29
4.30(i) Amendment No. 1 to Loan and Security
Agreement and Consent, dated June 20,
1995, between Congress Financial
Corporation and Chatwins Group, Inc. 4.30
4.31(i) Amended and Restated Availability A
Promissory Note by Chatwins Group,
Inc., payable to Congress Financial
Corporation in the principal amount
of $26,000,000. 4.31
4.32(i) First Supplemental Indenture and Waiver
of Covenants of Indenture between The
First National Bank of Boston as trustee
and Chatwins Group, Inc. 4.32
4.33(i) Second Supplemental Indenture between
Chatwins Group, Inc. and the Trustee. 4.33
4.34(i) Allonge to Senior Note. 4.34
4.35(j) Amendment No. 2 to Loan and Security
Agreement, dated September 14, 1995,
between Chatwins Group, Inc. and
Congress Financial Corporation. 4.35
4.36(j) Allonge dated September 14, 1995 to
Promissory Note of Chatwins Group, Inc.
in the principal amount of $5,800,000
issued to Parkdale Holdings
Corporation, N.V. 4.36
4.37(k) Amendment No. 3 to Loan and Security
Agreement dated October 18, 1995
between Chatwins Group, Inc. and
Congress Financial Corporation. 4.37
4.38(k) Second Amended and Restated
Availability A Promissory Note dated
October 18, 1995 between Chatwins Group,
Inc. and Congress Financial Corporation. 4.38
4.39(m) Amendment No. 4 to Loan and Security
Agreement dated December 29, 1995
between Chatwins Group, Inc. and
Congress Financial Corporation. 4.39
4.40(m) Second Allonge dated January 31, 1996
to Promissory Note of Chatwins Group,
Inc. in the amount of $5,800,000 issued
to Parkdale Holdings Corporation, N.V.,
purchased by Charles E. Bradley, Sr. 4.40
<PAGE>
<PAGE> E-7
4.41(m) Subordination Agreement dated February
2, 1996 between Chatwins Group, Inc.
and Congress Financial Corporation. 4.41
4.42(m) Notification Letter dated October 26,
1995 regarding purchase of Gesterkamp
Note by Franklin Myers. 4.42
5.1(a) Opinion of Richards & O'Neil. 5.1
8.1(a) Opinion of Richards & O'Neil
(regarding certain tax matters). 8.1
10.1(a) Securities Pledge Agreement, dated May
1, 1993, among Chatwins Group, Inc.,
Charles E. Bradley, John G. Poole and
The First National Bank of Boston. 10.1
10.2(e) Guarantee, dated March 4, 1994, from
Charles E. Bradley to Congress
Financial Corporation. 10.2
10.3 Intentionally Left Blank.
10.4(e) Agreement, dated as of September 2,
1993, among Chatwins Group, Inc.,
Lawrence A. Siebert, Charles E. Bradley
and John G. Poole. 10.4
10.5(e) Agreement, dated as of September 2,
1993, among Chatwins Group, Inc.,
John S. Hall, Charles E. Bradley
and John G. Poole. 10.5
10.6(h) Collective Bargaining Agreement,
dated March 6, 1995, by and between
Arrowhead Grating & Metalworks, Inc.
and International Union of Operating
Engineers Local No. 6-6A-6B. 10.6
10.7(n) Agreement, dated June 1, 1996, between
CP Industries, Inc. and United
Steelworkers of America on behalf
of Local #1514-01. 10.7
10.8(n) Agreement, dated June 1, 1996, between
CP Industries, Inc. and United
Steelworkers of America on behalf
of Local #1514. 10.8
10.9(a) Agreement, effective May 1, 1992,
between Shopmen's Local Union No. 473
of the International Association of
Bridge, Structural and Ornamental Iron
Workers (Affiliated AFL-CIO) and
Klemp Corporation. 10.9
<PAGE>
<PAGE> E-8
10.10(a) Consulting Agreement, dated and
effective as of March 31, 1993, between
Chatwins Group, Inc. and Stanwich
Partners, Inc. 10.10
10.11(a) Amendment No. 1 to Consulting
Agreement, dated as of April 16, 1993,
between Chatwins Group, Inc. and
Stanwich Partners, Inc. 10.11
10.12 -
10.15 Intentionally Left Blank.
10.16(a) Asset Purchase Agreement, dated as of
June 26, 1989, among The Alliance
Machine Company, Alli Acquisition
Corp., George S. Hofmeister and
Christopher Sause. 10.16
10.17(a) Amendment to Asset Purchase Agreement,
dated June 30, 1989, among The Alliance
Machine Company, George S. Hofmeister,
Christopher Sause and Alli
Acquisition Corp. 10.17
10.18(a) Letter Agreement, dated June 30, 1989,
among Alli Acquisition, George S.
Hofmeister and Christopher Sause. 10.18
10.19(a) Reimbursement and Loan Agreement, dated
April 19, 1990 between Robinson
Incorporated and Chatwins Group, Inc. 10.19
10.20(a) Amended and Restated Promissory Note,
dated April 19, 1990, issued by
Robinson Incorporated to Chatwins
Group, Inc., in the original principal
amount of $500,000. 10.20
10.21(a) Amended and Restated Promissory Note,
dated August 15, 1990, issued by
Robinson Incorporated to Chatwins
Group, Inc., in the original principal
amount of $300,000. 10.21
10.22(a) Option Agreement, dated December 12,
1990, between Stanwich Partners, Inc.
and Chatwins Group, Inc. 10.22
10.23(a) Promissory Note, dated December 12,
1990, issued by CGI Investment Corp. to
Chatwins Group, Inc., in the original
principal amount of $1,500,000. 10.23
<PAGE>
<PAGE> E-9
10.24(a) Letter regarding Release of Security
Interest, Subordination and Payment
Instructions, dated May 3, 1993, from
TCW Capital and TCW Special Placement
Fund III. 10.24
10.25(a) Letter Agreement, dated December 12,
1990, among Chatwins Group, Inc., CGI
Investment Corp., Stanwich Partners,
Inc., Lawrence A. Siebert, John G.
Poole, Charles E. Bradley, TCW Special
Placements Fund II, TCW Capital,
TCW Special Placements Fund III
and TCW Capital. 10.25
10.26(a) Letter Agreement dated April 16, 1990,
among Chatwins Group, Inc., CGI
Investment Corp., Lawrence A. Siebert,
John G. Poole, Charles E. Bradley,
Stanwich Partners, Inc. and TCW Special
Placements Fund III. 10.26
10.27(a) Promissory Note, dated January 15, 1988,
issued by John G. Poole to Chatwins
Group, Inc. in the original principal
amount of $227,349.25. 10.27
10.28(a) Promissory Note, dated January 15, 1988,
issued by Lawrence A. Siebert to Chatwins
Group, Inc. in the original principal
amount of $75,819.50. 10.28
10.29(a) Promissory Note, dated January 15, 1988,
issued by John S. Hall to Chatwins Group,
Inc. in the original principal amount
of $81,937.50. 10.29
10.30(a) Promissory Note, dated January 15, 1988,
issued by Charles E. Bradley to Chatwins
Group, Inc. in the original principal
amount of $707,394. 10.30
10.31(a) Noncompetition Agreement, dated December
27, 1991, by and between Chatwins Group,
Inc. and Lewis, Goetz and Company, Inc. 10.31
10.32 Intentionally Left Blank.
10.33(c) Lease Agreement, dated as of May 31, 1994,
by and between RTF Properties, L.P.
and Chatwins Group, Inc. 10.33
10.34(m) Joint Venture Agreement dated November
27, 1995 between Chatwins Group, Inc.
and Charles E. Bradley, Sr. regarding
Purchase and Lease of Certain
Manufacturing Equipment. 10.34
<PAGE>
<PAGE> E-10
10.35(c) Letter Agreement, dated June 8, 1994,
between Klemp Corporation Division of
Chatwins Group, Inc. and Ferretera
Sabe, S.A. terminating the Joint
Venture Agreement, dated August 25,
1993, by and between Klemp Corporation
Division of Chatwins Group, Inc.
and Ferretera Sabe, S.A. 10.35
10.36(m) Equipment Lease Agreement dated July
1, 1995 between Chatwins Group, Inc.
and Rostone Corporation. 10.36
10.37(o) Employment Agreement, dated as of
August 1, 1996, between Chatwins
Group, Inc. and Joseph C. Lawyer. 10.37
10.38(m) Joint Venture Agreement dated December
6, 1995 by and among China
Metallurgical Import & Export Shanghai
Company, Wang Gang Township Economic
Development Corporation and
Chatwins Group, Inc. 10.38
10.39(a) Export Related Services Agreement,
dated March 20, 1991, by and between
CGI Sales Corporation and Chatwins
Group, Inc. 10.39
10.40(a) Foreign Trade Commission, Sale Lease
and Services Agreement, dated March 20,
1991 by and between CGI Sales
Corporation and Chatwins Group, Inc. 10.40
10.41(e) Employment Agreement, dated as of
December 1, 1993, by and between
Chatwins Group, Inc. and William J. Kral. 10.41
10.42 Intentionally Left Blank.
10.43(m) Subordinated Promissory Note dated
September 1, 1995 issued by Oneida
Molded Plastics Corporation to Chatwins
Group, Inc. 10.43
10.44(n) Agreement, dated June 14, 1996, between
The Alliance Machine Company and Local
Union No. 2361 United Steelworkers of
America AFL-CIO. 10.44
10.45 -
10.49 Intentionally Left Blank.
<PAGE>
<PAGE> E-11
10.50(m) Letter Agreement dated January 31, 1996
between Chatwins Group, Inc. and
Charles E. Bradley, Sr. extending the
maturity date of the Parkdale Note
to June 30, 1996. 10.50
10.51(n) Letter Agreement dated June 18, 1996
between Chatwins Group, Inc. and
Charles E, Bradley, Sr. extending the
maturity date of the Parkdale Note
to December 31, 1996. 10.51
10.52(n) Joint Venture Agreement by and among
Klemp de Mexico, S.A. de C.V. and
Consolidated Fabricators, Inc. 10.52
10.53(n) Second Amendment dated March 25, 1996
to Lease Agreement dated May 31, 1994
between RTF Properties. L.P. and
Chatwins Group, Inc. 10.53
10.54(n) Third Amendment dated June 10, 1996
to Lease Agreement dated May 31, 1994
between RTF Properties. L.P. and
Chatwins Group, Inc. 10.54
10.55 -
10.61 Intentionally Left Blank.
10.62(c) Chatwins Group, Inc. Long Term
Incentive Plan, effective
January 1, 1994. 10.62
10.63(g) Indemnity Agreement, dated as of June
29, 1994, between Chatwins Group, Inc.
and Charles E. Bradley. 10.63
10.64(g) Form of Indemnity Agreement, between
Chatwins Group, Inc. and each of
Charles E. Bradley, Jr., Thomas L.
Cassidy, Joseph C. Lawyer, James A.
O'Donnell and John G. Poole. 10.64
10.65(g) Form of Indemnity Agreement, between
Chatwins Group, Inc. and each of
Russell S. Carolus and John M. Froehlich. 10.65
10.66(A)(f) Employment Agreement, dated August 29,
1994, by and between T.J. Brooks
Company, a Wisconsin corporation
and Jonathan C. Dill. 10.66
10.66(B)(i) Stock Pledge Agreement, dated June 20,
1995, between Chatwins Group, Inc. and
Parkdale Holdings Corporation N.V. 10.66
<PAGE>
<PAGE> E-12
10.67(i) Escrow Agreement, dated June 20, 1995,
among Chatwins Group, Inc., Parkdale
Holdings Corporation, N.V., Franklin
Myers and IBJ Schroder. 10.67
10.68*(i) Irrevocable Proxy, dated June 20,
1995, between Chatwins Group, Inc.
and Parkdale Holdings Corporation, N.V. 10.68
10.69*(i) Irrevocable Proxy, dated June 20, 1995,
between Chatwins Group, Inc. and
Franklin Myers. 10.69
10.70(i) Letter Agreement, dated June 20, 1995,
between Chatwins Group, Inc. and
P. Dean Gesterkamp. 10.70
10.71*(i) Security Agreement, dated June 20, 1995,
between Chatwins Group, Inc. and
P. Dean Gesterkamp. 10.71
10.72(i) Letter from Chatwins Group, Inc. to
Wertheim Schroder Investment Services. 10.72
10.73(i) Letter Agreement, dated June 20, 1995,
between Chatwins Group, Inc. and
Franklin Myers. 10.73
10.74(i) Pledge and Security Agreement, dated
June 20, 1995, between Congress
Financial Corporation and Chatwins
Group, Inc. 10.74
10.75(i) Collateral Assignment in favor of
Congress Financial Corporation
executed by Chatwins Group, Inc. 10.75
10.76(i) Amendment No. 1 of the Securities
Pledge Agreement among Chatwins
Group, Inc., Charles E. Bradley, Sr.,
John G. Poole and The First National
Bank of Boston as collateral agent. 10.76
10.77(j) Letter Agreement, dated September 4,
1995, between Chatwins Group, Inc.
and Parkdale Holdings Corporation, N.V. 10.77
10.78(j) Side Indemnity Letter Agreement,
dated September 14, 1995, between
Chatwins Group, Inc. and Reunion
Resources Company. 10.78
11.1(p) Statement of Computation of
per Share Earnings. 11.1
12.1(p) Statement of Computation of Ratios. 12.1
<PAGE>
<PAGE> E-13
21.1(p) Subsidiaries of Chatwins Group, Inc. 21.1
23.1 Consent of Price Waterhouse LLP. E-15
23.2 Intentionally Left Blank.
23.3 Intentionally Left Blank.
23.4(a) Consent of Richards & O'Neil
(included in Exhibit 5.1). 23.4
24.1 Intentionally Left Blank.
27(p) Financial Data Schedule.
* Document dated June 20, 1995 pursuant to a letter agreement.
(a) Previously filed as an Exhibit to this Registration Statement.
(b) This Exhibit was not included in the Company's Annual Report on Form 10-
K for the year ended December 31, 1993 dated March 29, 1994 since it did not
contain information which was material. The Company agrees to furnish
supplementally this Exhibit to the Commission upon request.
(c) Previously filed as an Exhibit to Post-effective Amendment No. 1 to this
Registration Statement.
(d) Incorporated by reference from the Company's Current Report on Form 8-K
dated April 13, 1994 and filed with the Commission on April 14, 1994.
(e) Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1993 dated March 29, 1994 and filed with the
Commission on March 30, 1994.
(f) Incorporated by reference from the Company's Quarterly Report on Form
10-Q dated November 11, 1994 for the quarterly period ended September 30,
1994.
(g) Incorporated by reference from the Company's Quarterly Report on Form
10-Q dated August 12, 1994 for the quarterly period ended June 30, 1994.
(h) Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1994 dated March 29, 1995 and filed with the
Commission on March 30, 1995.
(i) Incorporated by reference from the Company's Current Report on Form 8-K
dated June 30, 1995 and filed with the Commission on July 3, 1995.
(j) Incorporated by reference from the Company's Current Report on Form 8-K
dated September 28, 1995 and filed with the Commission on September 29, 1995.
(k) Incorporated by reference from the Company's Quarterly Report on Form
10-Q dated November 14, 1995 for the quarterly period ended September 30,
1995.
(l) Incorporated by reference from the Company's Quarterly Report on Form
10-Q dated May 2, 1996 for the quarterly period ended March 31, 1996.
<PAGE>
<PAGE> E-14
(m) Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1995 dated March 26, 1996 and filed with the
Commission on March 29, 1996.
(n) Incorporated by reference from the Company' Quarterly Report on Form
10-Q dated August 12, 1996 for the quarterly period ended June 30, 1996.
(o) Incorporated by reference from the Company' Quarterly Report on Form
10-Q dated November 13, 1996 for the quarterly period ended September 30,
1996.
(p) Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1996 dated March 26, 1997 and filed with the
Commission on March 27, 1997.
<PAGE>
<PAGE>
<PAGE> E-15
Consent of Independent Accountants
We hereby consent to the use in the Prospectus constituting part of this Post
Effective Amendment to the Registration Statement on Form S-1 of our report
dated March 26, 1997, relating to the financial statements of Chatwins Group,
inc. and its subsidiaries, which appears in such Prospectus. We also consent
to the application of such report to the Financial Statement Schedule for the
three years ended December 31, 1996, listed under Item 16(B) of this
Registration Statement when such schedule is read in conjunction with the
financial statements referred to in our report. The audits referred to in
such report also included this schedule. We also consent to the reference to
us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Pittsburgh, Pennsylvania
April 11, 1997
