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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
-----------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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Commission File Number 33-63274
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CHATWINS GROUP, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 74-2156829
- ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
300 WEYMAN PLAZA, SUITE 340
PITTSBURGH, PENNSYLVANIA 15236
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(Address of principal executive offices, including zip code)
(412) 885-5501
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
The capital stock of the Registrant is not traded in public markets.
Accordingly, the aggregate market value of the voting stock of the Registrant
cannot be determined.
At February 28, 1997, 242,887 shares of common stock, par value $.01 per
share, were outstanding.
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CHATWINS GROUP, INC.
TABLE OF CONTENTS
Page No.
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PART I
Item 1. Business 3
Item 2. Properties 12
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters 13
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 16
Item 8. Financial Statements and Supplementary Data 26
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosures 52
PART III
Item 10. Directors and Executive Officers of the Registrant 52
Item 11. Executive Compensation 54
Item 12. Security Ownership of Certain Beneficial
Owners and Management 58
Item 13. Certain Relationships and Related Transactions 60
PART IV
Item 14. Exhibits, Financial Statements Schedules,
and Reports on Form 8-K 68
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PART I
Item 1. Business.
---------
GENERAL
Chatwins Group, Inc. (referred to herein as the "Company" or
"Registrant"), through its six manufacturing divisions, 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, and
the divisions that produce them, include large, seamless pressure vessels for
highly pressurized gases produced by the CP Industries division (CPI), high
quality steel and aluminum grating produced by the Klemp division (Klemp),
industrial hydraulic and pneumatic cylinders produced by the Hanna division
(Hanna), industrial cranes and large mill equipment produced by the Alliance
Machine Company division (Alliance), cold-rolled steel leaf springs produced
by the Steelcraft division (Steelcraft) and high quality roll formed storage
racks produced by the Auto-Lok division (Auto-Lok). The Company also has a
small oil and gas division (Europa).
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.
RECENT DEVELOPMENTS
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 (Reunion), a publicly traded company, from Parkdale Holdings
Corporation N.V. and purchased 75,000 warrants to purchase shares of Reunion
common stock from P. Dean Gesterkamp, both unrelated parties. The aggregate
purchase price of the common stock consisted of $5.8 million paid in cash and
a $5.8 million promissory note (Parkdale Note). The aggregate purchase of the
warrants consisted of $0.3 million paid in cash and a $0.2 million two-year
promissory note (Gesterkamp Note). The Parkdale Note was subsequently
purchased by Charles E. Bradley Sr. (Mr. Bradley), Reunion's President and
Chief Executive Officer and Chairman of the Board of the Company. The
Gesterkamp Note was subsequently purchased by Mr. Franklin Myers (Mr. Myers),
a director of Reunion.
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
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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.
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 income (loss)
from operations of affiliate.
Contemporaneously with the receipt of $3.7 million in cash from Reunion
during 1996 as discussed above, the Company paid $1.7 million to Mr. Bradley
in partial repayment, including interest, of the Parkdale Note. 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. See "Management's Discussion and Analysis
of Results of Operations" and "Certain Relationships and Related
Transactions."
In December 1995, the Company entered into a joint venture agreement with
China Metallurgical Import & Export Shanghai Company (CMIESC) and Wanggang
Township Economic Development Corporation (Wanggang) to form the Shanghai
Klemp Metal Products Co., Ltd. (Shanghai Klemp). The joint venture will
provide metal grating to the expanding construction industries in China and
nearby countries. During the first quarter of 1996, the Company satisfied its
investment obligation to make contributions of assets, primarily machinery, to
the joint venture with an estimated fair market value totalling approximately
$1.9 million. Shanghai Klemp's manufacturing facilities are located in
Wanggang Township, Pudong New Area, Shanghai. Production began in late
December 1996.
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.
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. 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, as discussed
above, joint venturing with selected international partners. The Company and
Reunion are continuing to explore the opportunities for synergies between
their businesses.
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INVESTMENTS
Reunion - On June 20, 1995, the Company acquired 1,450,000 shares of Reunion
common stock, constituting approximately 38% of the then outstanding common
stock of Reunion. Reunion's common stock is listed for quotation on the
NASDAQ Small-Cap. Market under the symbol "RUNR" 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 the
Company into Reunion, possibly coincident with a redemption of the Senior
Notes (as defined). There is no assurance, however, that either such a merger
or refinancing will occur nor, if either does occur, they will occur at any
particular time. The Company may propose the merger of itself into Reunion
after the third anniversary of its acquisition of the Reunion common stock.
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, as amended, between
the Company and State Street Bank and Trust Company (Indenture) pursuant to
which the Company's $50.0 million principal amount of 13% per annum senior
notes (Senior Notes) are issued and the Company's $25.0 million revolving
credit facility (Revolving Credit Facility) with Congress Financial
Corporation (Congress). There can be no assurance that any proposed
transaction will be consummated.
Mr. Bradley is President, Chief Executive Officer and a director of
Reunion. Thomas L. Cassidy, a director of the Company, is also a director of
Reunion. John G. Poole (Mr. Poole), a director and stockholder of the
Company, is a director of Reunion.
CGII - The Company owns 49% of 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 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 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 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
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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. See "Certain Relationships and Related Transactions - Certain Loans
- - Rostone and CGII."
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 Corporation.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Annual Report on Form 10-K 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.
INDIVIDUAL OPERATING DIVISIONS
CPI - Founded in 1897, 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 compressed natural gas fuel industry, chemical and
petrochemical processing facilities, shipbuilders, NASA, public utilities and
gas transportation companies.
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 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 Klemp de Mexico, the Company's Mexican subsidiary, are
reported as part of the Klemp division.
Alliance - Founded in 1901, 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
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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, 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, 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 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.
Auto-Lok - Founded in 1946, 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.
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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)
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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
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Totals $153,480 $15,111 $83,383
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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 -
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Totals $183,408 $20,883 $83,044
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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 -
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Totals $154,710 $14,877 $86,877
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(1) Excludes Headquarters expenses in the years ended December 31, 1996, 1995
and 1994 of $1,558, $1,952 and $2,052, respectively. See Item 6 for operating
income and a definition of EBITDA.
(2) Excludes Headquarters assets at December 31, 1996, 1995 and 1994 of
$20,370, $24,292 and $8,473, respectively.
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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 remained
relatively constant during 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 1996 were approximately 7% of
total sales. Export sales were primarily made in five areas during 1996 - the
Middle and Far Easts, China, Canada and South America. CPI and Hanna have
recorded sales to companies in the Middle and Far Easts. Alliance, CPI and
Hanna account for sales to South America, while the majority of the divisions
have made sales in Canada. Alliance recorded sales in China.
Backlog - The Company's consolidated backlog at December 31, 1996 and 1995 was
approximately $65.5 million and $45.3 million. 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 45% and 35% of consolidated backlog at December 31, 1996 and
1995, respectively, is expected to ship within 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.
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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.
Marketing and Distribution - The Company markets and distributes its products
in a variety of ways including in-house marketing and sales personnel at all
of its divisions, domestic independent and manufacturers representatives,
domestic and international agents and North American networks of independent
distributors that specialize in a product of the Company's various divisions.
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.
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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.
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
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.
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Item 2. 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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Item 3. Legal Proceedings.
------------------
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.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of 1996.
PART II
Item 5. Market for the Registrant's Common Stock and
--------------------------------------------
Related Stockholder Matters.
----------------------------
The common stock of the Registrant (Common Stock), par value $0.01 (whole
dollars) per share, is not traded in public markets. As of March 26, 1997,
there were eleven holders of record of the Common Stock. The Company has not
paid, and does not expect to pay in the foreseeable future, dividends on the
Common Stock. The Company intends to retain its earnings for the future
operation and expansion of the business. In addition, the Indenture and the
Loan Agreement place restrictions on the Company's ability to declare or pay
dividends 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.
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Item 6. Selected Financial Data.
------------------------
SELECTED HISTORICAL FINANCIAL DATA
(in thousands, including notes hereto,
except for share and per share amounts and ratios)
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> 15
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.
(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.
(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) See Item 14, Exhibit 12.1.
<PAGE>
<PAGE> 16
(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.
(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.
Item 7. 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 1995, the combined operations of the six metal
manufacturing divisions accounted for approximately 85% of the Company's net
sales and approximately 91% of the Company's operating income before corporate
office expenses. In 1996, substantially all of the Company's operations
related to metal products. As discussed below, several changes to the
Company's structure transpired in 1995 and 1996.
On June 20, 1995, the Company acquired 1,450,000 shares of Reunion common
stock constituting approximately 38% of the then outstanding common stock of
Reunion from Parkdale and purchased the Gesterkamp Warrants from P. Dean
Gesterkamp. Subsequent to Reunion's acquisition of Oneida in September 1995
and the merger of Oneida and Rostone 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
<PAGE>
<PAGE> 17
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. 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
income (loss) from operations of affiliate.
On September 14, 1995, the Company, through Chatwins Holdings Inc. (CHI),
sold its holdings of all of the issued and outstanding shares of common stock
and preferred stock of Oneida to Reunion, approximately 38% of the common
stock of which is owned by the Company. See "Liquidity and Capital
Resources."
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. See "Liquidity and Capital Resources."
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 ORC.
In the merger, ORC acquired from CGII all of the issued and outstanding
preferred and common stock of Rostone. See "Liquidity and Capital Resources."
In December 1995, the Company entered into a joint venture agreement with
CMIESC and Wanggang to form Shanghai Klemp. See "Liquidity and Capital
Resources."
During 1996, Klemp de Mexico entered into a joint venture agreement with
Consolidated Fabricators, Inc. to form CFI-Klemp. CFI-Klemp is in the
business of metal fabrications.
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.
<PAGE>
<PAGE> 18
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
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
<PAGE>
<PAGE> 19
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.
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 T.J. Brooks (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.
SGA expenses for 1995 were $21.2 million, compared to $19.7 million for
1994, a net increase of $1.5 million, or 7.7%. The increase in SGA expenses
<PAGE>
<PAGE> 20
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.
Liquidity and Capital Resources
General
The Company manages its liquidity as a consolidated enterprise. The
operating divisions of the Company carry minimal cash balances. Cash
generated from the divisions' operating activities generally is used to repay
previous borrowings under the Revolving Credit Facility, as well as other uses
(e.g. corporate headquarters expenses, debt service, capital expenditures,
etc.). Conversely, cash required for the divisions' operating activities
generally is provided from funds available under the Revolving Credit
Facility. Although the Company operates in relatively mature markets, it
intends to continue to invest in and grow its businesses through selected
capital expenditures as cash generation permits. Management believes that all
required principal and interest payments, as well as capital expenditures,
will be met by cash flows from operations and/or borrowings under the
Revolving Credit Facility, if necessary. While Oneida was a subsidiary of the
<PAGE>
<PAGE> 21
Company, its liquidity was managed separately.
On May 3, 1993, the Company issued an aggregate of $50.0 million
principal amount of Senior Notes (Senior Notes) and 50,000 Warrants (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
Mr. Poole 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).
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, at $.01 per share. The
Warrants expire on May 3, 2003. 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. No Warrants
have been exercised through December 31, 1996.
Prior to March 4, 1994, the Company had a $20.0 million revolving credit
facility with Heller Financial, Inc. On March 4, 1994, the Company refinanced
this facility into the Revolving Credit Facility under which Congress agreed
to make revolving loans to the Company of up to $20.0 million, subject to
compliance with various covenants, representations and warranties, and
contingent upon there being no events of default, all as defined in the Loan
and Security Agreement (Loan Agreement) between Congress and the Company. The
Maximum Credit (as defined in the Loan Agreement) under the Revolving Credit
Facility was temporarily increased to $26 million on June 20, 1995 in
connection with the investment in Reunion common stock, and then fixed at $25
million on October 18, 1995 through the remainder of the term 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
(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
<PAGE>
<PAGE> 22
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 had 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. Additionally, at
December 31, 1996, $0.3 million of this borrowing is secured by the real
property of Klemp's Liberty, MO location.
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. 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.
From April 1, 1994 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 (Oneida Advances), 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 of these advances.
Prior to the sale of Oneida, 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 above advances, this facility provided a primary source of
liquidity to Oneida.
On June 20, 1995, the Company acquired the Reunion common stock. The
purchase price consisted of $5.8 million in cash and the Parkdale Note. On
September 14, 1995, Mr. Bradley purchased the Parkdale Note from Parkdale and
the Company made a partial repayment of the Parkdale Note as required by the
terms thereof equal to the $3.1 million proceeds from the sale of Oneida. In
May 1996, the Company made a partial repayment of the Parkdale Note totalling
$1.7 million, including interest thereon, primarily from the $3.7 million in
cash received by the Company from Reunion in 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
<PAGE>
<PAGE> 23
purchased the Gesterkamp Warrants. The purchase price for the Gesterkamp
Warrants totalled $0.5 million and consisted of $0.3 million paid in cash and
the Gesterkamp Note. Subsequent to its issuance, the Gesterkamp Note was
purchased by Mr. Franklin Myers, a director of Reunion. Pursuant to the terms
of the Gesterkamp Note, the Company made principal repayments of $50,000, plus
interest at 10% per annum, on each of January 6 and June 6, 1996. Such
repayments, plus interest, will continue semi-annually until the Gesterkamp
Note is repaid.
The cash portions of the 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. This
temporary increase was originally scheduled to expire on September 18, 1995.
However, on September 14, 1995, Congress and the Company further amended the
Revolving Credit Facility to extend the expiration date to October 18, 1995.
Subsequent to September 14, 1995, Congress and the Company further amended the
Revolving Credit Facility to increase the Maximum Credit to $25.0 million,
reduce the temporary $4.0 million overadvance availability to $1.5 million,
and extend the expiration date of the temporary overadvance availability to
January 15, 1996. As of December 31, 1995, all borrowings under the temporary
overadvance availability had been repaid by the Company.
On May 1, 1996, the Revolving Credit Facility was amended to provide a
temporary, 97-day increase in the Maximum Credit to $27.5 million from $25.0
million, which included a temporary $2.5 million overadvance availability.
The proceeds from this temporary increase in the Maximum Credit were used for
various purposes, including the Company's May 1, 1996 interest payment on its
Senior Notes. During the temporary, 97-day increase period, the temporary
$2.5 million overadvance availability was required to be reduced in weekly
increments in amounts ranging from $150,000 beginning on May 20, 1996 to
$250,000 ending on August 5, 1996. The Company made repayments pursuant to
the required reductions on May 20 and 27, 1996, totalling $0.3 million.
However, on May 28, 1996, contemporaneously with the receipt of $3.7 million
in cash from Reunion in final repayment of the Oneida advances, 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.
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 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 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
<PAGE>
<PAGE> 24
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. Upon liquidation, these
assets will 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
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.
During 1996, Klemp de Mexico entered into a joint venture agreement with
Consolidated Fabricators, Inc. to form CFI-Klemp. CFI-Klemp is in the
business of metal fabrications.
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 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 $3.8 million in earnings before depreciation, amortization and
gain on sale of business, from $4.0 million for 1994 to $7.8 million for 1995.
<PAGE>
<PAGE> 25
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 an additional equity investment in 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 slightly lower than $5.1 million during 1994.
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.
<PAGE>
<PAGE> 26
Item 8. Financial Statements and Supplementary Data.
--------------------------------------------
INDEX TO FINANCIAL STATEMENTS
Page No.
--------
Chatwins Group, Inc.:
- ---------------------
Report of Independent Accountants 26
Consolidated Balance Sheet as of December 31, 1996 and 1995 27
Consolidated Statement of Income for the years
ended December 31, 1996, 1995 and 1994 28
Consolidated Statement of Cash Flows for the years
ended December 31, 1996, 1995 and 1994 29
Notes to Consolidated Financial Statements 30
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> 27
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> 28
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> 29
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 from 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
======== ======== ========
Supplemental cash flow information:
Interest paid $ 8,938 $ 9,333 $ 8,197
Income taxes paid $ 53 $ 20 $ 533
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE> 30
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> 31
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.
<PAGE>
<PAGE> 32
Revenue Recognition
Sales are recorded primarily as products are shipped and services are
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.
<PAGE>
<PAGE> 33
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
======== ========
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
======== ========
<PAGE>
<PAGE> 34
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. 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.
<PAGE>
<PAGE> 35
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)
======== ========
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
<PAGE>
<PAGE> 36
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.
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
======== ========
<PAGE>
<PAGE> 37
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
======== ========
(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. <PAGE>
<PAGE> 38
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,
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 <PAGE>
<PAGE> 39
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
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.
<PAGE>
<PAGE> 40
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
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.
<PAGE>
<PAGE> 41
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
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.
<PAGE>
<PAGE> 42
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.
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)
=== ===== ====== ======= ======== ===== ========
<PAGE>
<PAGE> 43
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
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
<PAGE>
<PAGE> 44
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-
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
<PAGE>
<PAGE> 45
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.
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> 46
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> 47
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.
<PAGE>
<PAGE> 48
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
======== ======== ========
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> 49
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
future. While the Company believes that the deferred income tax asset will be
<PAGE>
<PAGE> 50
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> 51
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>
<PAGE> 52
Item 9. Changes in and Disagreements With Accountants
---------------------------------------------
on Accounting and Financial Disclosures.
----------------------------------------
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
---------------------------------------------------
The following sets forth the names and ages of the Company's directors
and executive officers and certain executive officers of its operating
divisions and the positions they hold.
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 Stanwich Partners, Inc. (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 exploration and
development, NAB Asset Corporation (NAB), a diversified financial services
holding 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.,
the corporate predecessor of the Company's CPI division, with SPI in 1986, Mr.
<PAGE>
<PAGE> 53
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 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.
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
Company's corporate office beginning in November 1993 and at CPI from February
1993 to November 1993. Mr. Bradley was employed by Metalsource, a company
<PAGE>
<PAGE> 54
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.
Item 11. Executive Compensation.
-----------------------
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)
<PAGE>
<PAGE> 55
(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
"Executive Compensation - Executive Employment Agreements."
(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
<PAGE>
<PAGE> 56
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
Performance Unit Plans (PUPs) were established by the Company for certain
management employees of 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 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 in cash out of the
proceeds of the sale of the Senior Notes 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 Registrant" 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 $819,900 of the initial cash payment,
$521,784 of the May 1994 principal payment, $298,116 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 <PAGE>
<PAGE> 57
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 applicable 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 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.
<PAGE>
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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
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.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
---------------------------------------------------------------
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) outstanding (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 of 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.
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<PAGE> 59
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%
========= ======= ====== =======
- ---------------------------------------------------------------------------
(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 shared voting and
dispositive power with respect thereto.
<PAGE>
<PAGE> 60
(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.
Item 13. 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
Alan S. Wippman.....................................25,000
<PAGE>
<PAGE> 61
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,
1996.
Acquisition and Disposition of Oneida
On March 31, 1994, the Company purchased (i) the then issued and
outstanding common stock of Oneida (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
(together the Oneida Preferred Stock). 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
<PAGE>
<PAGE> 62
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
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.
Prior to the acquisition of Oneida by the Company, OPC had pledged all of
its shares of Oneida capital stock to Signal Capital Corporation (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% 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 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. Mr. Cassidy is
also a director of Reunion and the Company.
Between March 31, 1994 when the Company acquired Oneida and August 31,
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
<PAGE>
<PAGE> 63
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," which follows.
Since its disposition, 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, 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
Reunion. The Gesterkamp Note bears interest at 10% per annum. 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. The Gesterkamp Note is secured by the Gesterkamp
Warrants.
<PAGE>
<PAGE> 64
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
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
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<PAGE> 65
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.
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
<PAGE>
<PAGE> 66
thereon at 13.5% per annum.
On December 22, 1995, Rostone and Oneida entered into a merger agreement
(Merger Agreement) whereby Rostone was subsequently merged into Oneida, which
is owned by Reunion, and, as the surviving corporation, Oneida's name was
changed to Oneida Rostone Corp. (ORC). In the merger, ORC 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. Upon liquidation, these
assets will 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 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 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
<PAGE>
<PAGE> 67
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.
Bradley Guarantees
The Availability C Component of the Revolving Credit Facility is
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 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
investment in Reunion common stock. The guarantee 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 investment in 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.
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
were part of the liabilities of Oneida upon its sale to Reunion.<PAGE>
<PAGE> 68
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.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
----------------------------------------------------------------
(a) Financial Statements
1. The following financial statements are included in this
Annual Report on Form 10-K as part of Part II, Item 8, and are incorporated by
reference herein:
Page No.
--------
Report of Independent Accountants 26
Consolidated Balance Sheet as of December 31, 1996 and 1995 27
Consolidated Statement of Income for the years
ended December 31, 1996, 1995 and 1994 28
Consolidated Statement of Cash Flows for the years
ended December 31, 1996, 1995 and 1994 29
Notes to Consolidated Financial Statements 30
(b) Reports on Form 8-K
None filed by the Registrant during 1996.
<PAGE>
<PAGE> 69
(c) Exhibits
The following exhibits are filed herewith in accordance with
Item 601 of Regulation S-K:
Exhibit No. Exhibit Description
- ----------- -------------------
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:
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
<PAGE>
<PAGE> 70
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.
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.
<PAGE>
<PAGE> 71
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.
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.
<PAGE>
<PAGE> 72
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.
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.
<PAGE>
<PAGE> 73
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 Amendment 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.
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.
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.
<PAGE>
<PAGE> 74
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.
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.
<PAGE>
<PAGE> 75
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.
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 Contract dated December 6, 1995 by and among
China Metallurgical Import & Export Shanghai Company,
Wang Gang Township Economic Development Corporation
and Chatwins Group, Inc.
<PAGE>
<PAGE> 76
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 Corp. 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.
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.
<PAGE>
<PAGE> 77
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.
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 Statement of Computation of per Share Earnings.
12.1 Statement of Computation of Ratios.
21.1 Subsidiaries of Chatwins Group, Inc.
27 Financial Data Schedule
_________________________
*Document dated June 20, 1995, pursuant to a letter agreement.
<PAGE>
<PAGE> 78
(a) Previously filed as an Exhibit to the Company's Registration Statement on
Form S-1 (No. 33-63274) as filed on July 30, 1993.
(b) This Exhibit was not included in the Company's Annual Report on Form 10-K
dated March 29, 1994 (Form 10-K) 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
dated March 29, 1994 for the year ended December 31, 1993.
(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
dated March 29, 1995 for the year ended December 31, 1994.
(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
dated March 26, 1996 for the year ended December 31, 1995.
(n) Incorporated by reference from the Company's 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's Quarterly Report on Form 10-
Q dated November 13, 1996 for the quarterly period ended September 30, 1996.
<PAGE>
<PAGE> 79
SIGNATURES
Pursuant to the requirements Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly
authorized, on this 26th day of March, 1997.
CHATWINS GROUP, INC.
By: /s/ Joseph C. Lawyer
----------------------
Joseph C. Lawyer
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed by the following persons in the
capacities and on this 26th of March, 1997.
Signature Title
- --------- -----
/s/ Charles E. Bradley Chairman of the Board and Director
- ---------------------------
Charles E. Bradley
/s/ Joseph C. Lawyer President, Chief Executive Officer
- --------------------------- and Director
Joseph C. Lawyer
/s/ Thomas L. Cassidy Director
- ---------------------------
Thomas L. Cassidy
/s/ John G. Poole Director
- ---------------------------
John G. Poole
/s/ Charles E. Bradley, Jr. Director
- ---------------------------
Charles E. Bradley, Jr.
/s/ John M. Froehlich Vice President, Chief Financial Officer
- --------------------------- and Treasurer (chief financial and
John M. Froehlich accounting officer)
<PAGE>
<PAGE> 80
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
and Stockholders of
Chatwins Group, Inc.
Our audits of the consolidated financial statements referred to in our report
dated March 26, 1997, appearing on page 26 of this Annual Report on Form 10-K
of Chatwins Group, Inc., and its subsidiaries, also included an audit of the
Financial Statement Schedule below. In our opinion, this Financial Statement
Schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
PRICE WATERHOUSE LLP
Pittsburgh, Pennsylvania
March 26, 1997
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 434 725 - 794 (3) 365
Accrued self insurance 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 442 344 - 352 (3) 434
Accrued self insurance 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 446 283 - 287 (3) 442
Accrued self insurance 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> 81
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
2.1(a) - Corporate Organization
2.1(c) - No Conflicts
2.1(d) - Capitalization
2.1(f) - Broker's or Finder's Fees
2.1(g) - Investments
2.1(h) - Financial Statements
2.1(i) - Absence of Certain
Changes or Events
2.1(j) - Management and Employees
2.1(k)(i) - Land
2.1(d)(ii) - Permitted Owned Real
Property Exceptions
2.1(k)(iii) - Leased Real Property
2.1(k)(iv) - Real Property Permits
2.1(k)(v) - Loan Documents
2.1(k)(vi) - Assessed Valuation
2.1(k)(vii) - Encroachments
2.1(l) - Liens of Equipment, Etc.
2.1(m) - Condition of Assets
2.1(n) - Insurance
2.1(o) - Trademarks and Patents
2.1(p) - Contracts
2.1(p)(vi) - Employment Agreements
<PAGE>
<PAGE> 82
2.1(p)(viii) - Contracts for Services
2.1(p)(ix) - Environmental Matters
2.1(p)(xi) - Union Contracts
2.1(p)(xii) - Employee Benefits/Policy
2.1(p)(xiii) - Open Sales Order
Exceeding $50,000
2.1(q) - Compliance with Contracts
2.1(r) - Litigation
2.1(s) - Compliance with Laws
2.1(t) - Benefit Plans
2.1(u) - Licenses
2.1(v) - Transactions with Affiliates
2.1(x) - Depositories
2.1(y) - Employment-Related Matters
2.1(z) - Tax Matters
2.1(aa) - Customers and Suppliers
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> 83
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> 84
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. 4.9
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> 85
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> 86
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 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> 87
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
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
10.10(a) Consulting Agreement, dated and
effective as of March 31, 1993, between
Chatwins Group, Inc. and Stanwich
Partners, Inc. 10.10
<PAGE>
<PAGE> 88
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
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
<PAGE>
<PAGE> 89
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 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> 90
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 Contract 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 Corp. 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> 91
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> 92
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 Statement of Computation of
per Share Earnings. 94
12.1 Statement of Computation of Ratios. 95
<PAGE>
<PAGE> 93
21.1 Subsidiaries of Chatwins Group, Inc. 96
27 Financial Data Schedule 97
_________________________
* Document dated June 20, 1995 pursuant to a letter agreement.
(a) Previously filed as an Exhibit to the Company's Registration Statement on
Form S-1 (No. 33-63274) filed on July 30, 1993.
(b) This Exhibit was not included in the Company's Annual Report on Form 10-K
dated March 29, 1994 (Form 10-K) 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
dated March 29, 1994 for the year ended December 31, 1993.
(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
dated March 29, 1995 for the year ended December 31, 1994.
(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
dated March 26, 1996 for the year ended December 31, 1995.
(n) Incorporated by reference from the Company's 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's Quarterly Report on Form 10-
Q dated November 13, 1996 for the quarterly period ended September 30, 1996.
<PAGE>
<PAGE>
<PAGE> 94
CHATWINS GROUP, INC.
COMPUTATION OF PER SHARE EARNINGS
(In thousands, except share and per share information)
YEAR ENDED DECEMBER 31,
-------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
EARNINGS:
Income before equity loss from
affiliate, extraordinary items
and cumulative effect of change
in accounting principle $ 1,933 $ 813 $ 1,422 $ 4,612 $ 220
Dividends paid or accreted to
preferred stock (780) (575) (450) (456) (456)
------- ------- ------- ------- -------
Earnings applicable to
common stock $ 1,153 $ 238 $ 972 $ 4,156 $ (236)
Equity loss from continuing
operatons of affiliate (485) (1,589) (90) (132) (155)
Equity loss from discontinued
operations of affiliate - - - - (301)
Extraordinary items - (1,171) (201) - -
Cumulative effect of change in
accounting principle - (200) - - -
------- ------- ------- ------- -------
Net earnings applicable
to common stock $ 668 $(2,722) $ 681 $ 4,024 $ (692)
======= ======= ======= ======= =======
COMMON SHARES OUTSTANDING:
Average equivalent outstanding 283,996 304,655 293,242 292,887 292,887
======= ======= ======= ======= =======
EARNINGS PER COMMON SHARE:
Income before equity loss from
affiliate, extraordinary items
and cumulative effect of change
in accounting principle $ 4.06 $ 0.78 $ 3.31 $ 14.19 $ (0.80)
Continuing operations of
affiliate (1.71) (5.21) (0.31) (0.45) (0.53)
Discontinued operations of
affiliate - - - - (1.03)
Extraordinary items - (3.84) (0.68) - -
Cumulative effect - (0.66) - - -
------- ------- ------- ------- -------
EARNINGS PER COMMON SHARE $ 2.35 $ (8.93) $ 2.32 $ 13.74 $ (2.36)
======= ======= ======= ======= =======
<PAGE>
<PAGE> 95
CHATWINS GROUP, INC.
RATIO OF EARNINGS TO FIXED CHARGES
(In thousands, except ratios and interest factor)
YEAR ENDED DECEMBER 31,
-------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
EARNINGS:
Income before income taxes,
equity loss, extraordinary
item and cumulative effect of
change in accounting principle $ 3,299 $ 1,383 $ 1,810 $ 5,646 $ 363
Interest expense 4,045 5,784 8,123 9,236 8,927
Equity in loss of affiliate (3) (485) (1,589) (90) - -
Amortization of debt issuance
expense 344 395 444 564 632
Interest portion of rent
expense (1) 367 317 378 348 469
------- ------- ------- ------- -------
Earnings $ 7,570 $ 6,290 $10,665 $15,794 $10,391
======= ======= ======= ======= =======
FIXED CHARGES:
Interest expense $ 4,045 $ 5,784 $ 8,123 $ 9,236 $ 8,927
Amortization of debt issuance
expense 344 395 444 564 632
Interest portion of rent
expense (1) 367 317 378 348 469
------- ------- ------- ------- -------
Fixed charges $ 4,756 $ 6,496 $ 8,945 $10,148 $10,028
======= ======= ======= ======= =======
RATIO (2) 1.59 - 1.19 1.56 1.04
======= ======= ======= ======= =======
(1) - Interest portion of rent expense is calculated as follows:
Rent expense $ 1,102 $ 953 $ 1,135 $ 1,044 $ 1,407
Portion deemed representative
of interest 33.3% 33.3% 33.3% 33.3% 33.3%
------- ------- ------- ------- -------
Interest portion of rent expense $ 367 $ 317 $ 378 $ 348 $ 469
======= ======= ======= ======= =======
(2) - Additional income from continuing operations of $206 would be necessary
to attain a ratio of earnings to fixed charges of 1.00 for the year ended
December 31, 1993.
(3) - Equity in loss of affiliate relates to the Company's 49% investment in
CGII. The Company indirectly services CGII's debt as its debt is owed to the
Company. Accordingly, the Company's share of CGII's results are deducted from
earnings for the purpose of determining the ratio of earnings to fixed
charges.
<PAGE>
<PAGE> 96
SUBSIDIARIES
1. CGI Sales Corporation (a wholly-owned subsidiary of Chatwins Group, Inc.
and a Barbados corporation).
2. Klemp de Mexico S.A. de C.V. (a majority-owned subsidiary of Chatwins
Group, Inc. and a Mexican corporation).
3. Shanghai Klemp Metal Products Co., Ltd. (a majority-owned joint venture of
(i) Chatwins Group, Inc., (ii) a Chinese state-owned trade enterprise and
(iii) an independently owned Chinese corporation).
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
This schedule contains summary financial information extracted from the
registrant's financial statements included in the Form 10-K for the year-end
indicated below and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 356
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<ALLOWANCES> 922
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0
7,570
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<SALES> 153,480
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<NET-INCOME> (236)
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<EPS-DILUTED> (2.36)
</TABLE>
