-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S3x14NNtB75xsClBYLiNEPfLA2Pt7fN90TYN9sfH3gb1q/3/+DosXSUBsi4/gOhM Tnz5qtX1qMUISAduXeAA0g== 0000906275-96-000018.txt : 19961115 0000906275-96-000018.hdr.sgml : 19961115 ACCESSION NUMBER: 0000906275-96-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHATWINS GROUP INC CENTRAL INDEX KEY: 0000906275 STANDARD INDUSTRIAL CLASSIFICATION: PREFABRICATED METAL BUILDINGS & COMPONENTS [3448] IRS NUMBER: 742156829 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-63274 FILM NUMBER: 96661811 BUSINESS ADDRESS: STREET 1: 300 WEYMAN PLAZA STREET 2: STE 340 CITY: PITTSBURGH STATE: PA ZIP: 15236 BUSINESS PHONE: 4128855501 MAIL ADDRESS: STREET 1: 300 WEYMAN PLAZA STREET 2: SUITE 340 CITY: PITTSBURGH STATE: PA ZIP: 15236 10-Q 1 09/30/96 FORM 10-Q 1======================================================================= UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549-1004 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - ----- EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 ------------------ OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - ----- EXCHANGE ACT OF 1934 For the transition period from to ---------- ---------- Commission File Number 33-63274 -------- CHATWINS GROUP, INC. ------------------------------------------------------ (Exact name of Registrant as specified in its charter) DELAWARE 74-2156829 - ------------------------ ------------------------------------ (State of Incorporation) (I.R.S. Employer Identification No.) 300 WEYMAN PLAZA, SUITE 340 PITTSBURGH, PENNSYLVANIA 15236 ------------------------------------------------------------ (Address of principal executive offices, including zip code) (412) 885-5501 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- At October 31, 1996, 242,887 shares of common stock, par value $.01 per share, were outstanding. Exhibit index is on page 18. Page 1 of 31 pages. ============================================================================== 2 CHATWINS GROUP, INC. INDEX Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheet at September 30, 1996 and December 31, 1995 3 Condensed Consolidated Statement of Income for the three and nine months ended September 30, 1996 and 1995 4 Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 1996 and 1995 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 16 (b) Reports on Form 8-K 16 SIGNATURES 17 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements
CHATWINS GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 (in thousands) At September 30, At December 31, 1996 1995 ----------- -------------- (unaudited) ASSETS: Cash and cash equivalents $ 460 $ 357 Receivables, net 24,812 29,958 Inventories, net (note 2) 20,829 19,487 Other current assets 3,495 4,556 -------- -------- Total current assets 49,596 54,358 Property, plant and equipment, net 28,997 26,385 Amounts due from related parties - 3,523 Investments, net 13,447 13,209 Goodwill, net 4,915 5,015 Other assets, net 5,588 4,846 -------- -------- Total assets $102,543 $107,336 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY: Current maturities of debt $ 504 $ 148 Trade payables 11,913 16,175 Amount due to related parties 956 2,924 Other current liabilities 11,197 9,179 -------- -------- Total current liabilities 24,570 28,426 Revolving Credit Facility 20,857 23,147 Senior notes due 2003, net 49,870 49,852 Other long-term debt 870 1,018 Other liabilities 4,613 4,713 -------- -------- Total liabilities 100,780 107,156 Commitments and contingent liabilities (note 5) - - Minority interests 1,124 - Redeemable preferred stock 7,456 7,114 Warrant value 210 210 Stockholders' equity (note 3) (7,027) (7,144) -------- -------- Total liabilities and stockholders' equity $102,543 $107,336 ======== ======== See accompanying notes to condensed consolidated financial statements.
4
CHATWINS GROUP, INC. CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (in thousands, except share and per share information)(unaudited) Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 ------- ------- -------- -------- Net sales $36,560 $44,305 $114,526 $138,553 Cost of sales 29,367 35,456 91,405 110,439 ------- ------- -------- -------- Gross profit 7,193 8,849 23,121 28,114 Selling, general & administrative 4,931 5,550 15,159 16,311 Other expense (income), net 122 (1,075) 697 (393) ------- ------- -------- -------- Operating profit 2,140 4,374 7,265 12,196 Interest expense, net 2,400 2,633 7,158 7,448 ------- ------- -------- -------- Income before income taxes and equity in income of affiliate (260) 1,741 107 4,748 Provision for income taxes (52) 265 13 957 ------- ------- -------- -------- Income before equity in income of affiliate (208) 1,476 94 3,791 Equity loss from continuing operations of affiliate (20) (220) (220) (220) Equity income from discontinued operations of affiliate - - 428 - ------- ------- -------- -------- Net income (loss) $ (228) $ 1,256 $ 302 $ 3,571 ======= ======= ======== ======== Earnings applicable to common stock $ (342) $ 1,142 $ (40) $ 3,229 ======= ======= ======== ======== Earnings (loss) per common share: Before equity in income of affiliate $ (1.10) $ 4.65 $ (0.85) $ 11.77 Continuing operations of affiliate (0.07) (0.75) (0.75) (0.75) Discontinued operations of affiliate - - 1.46 - ------- ------- -------- -------- Earnings (loss) per common share $ (1.17) $ 3.90 $ (0.14) $ 11.02 ======= ======= ======== ======== Average equivalent common shares outstanding 292,887 292,887 292,887 292,887 ======= ======= ======== ======== See accompanying notes to condensed consolidated financial statements.
5
CHATWINS GROUP, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (in thousands)(unaudited) Nine Months Ended September 30, 1996 1995* ------- ------- Cash flow from operating activities: Net income $ 302 $ 3,571 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,379 2,555 Amortization 750 804 Gain on sale of business - (1,190) Equity income (loss) from affiliate (208) 220 Changes in assets, liabilities and minority interests 1,199 (1,609) ------- ------- Cash provided by operating activities 4,422 4,351 ------- ------- Cash flow from investing activities: Receipts from related parties 3,664 - Proceeds from sale of business - 3,107 Investment in joint venture (150) - Equity investment - (6,671) Capital expenditures (3,175) (4,295) ------- ------- Cash provided by (used in) investing activities 339 (7,859) ------- ------- Cash flow from financing activities: Repayments of debt (48) (1,750) Repayments to related parties (2,320) (3,107) Net borrowings (repayments) under revolver (2,290) 8,124 ------- ------- Cash provided by (used in) financing activities (4,658) 3,267 ------- ------- Net increase (decrease) in cash and cash equivalents 103 (241) Cash and cash equivalents, beginning of year 357 445 ------- ------- Cash and cash equivalents, end of period $ 460 $ 204 ======= ======= Noncash investing and financing activities: Equity investment and related increases in note payable and other long-term debt $ - $ 6,000 ======= ======= * Certain amounts have been reclassified for comparative purposes. See accompanying notes to condensed consolidated financial statements.
6 CHATWINS GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 NOTE 1: BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair statement of the results of operations have been included. The results of operations for the three and nine month periods ended September 30, 1996 are not necessarily indicative of the results of operations for the full year. When reading the financial information contained in this Quarterly Report, reference should be made to the financial statements, schedules and notes contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. NOTE 2: INVENTORIES Inventories are comprised of the following (in thousands): At September 30, At December 31, 1996 1995* --------------- -------------- (unaudited) Raw materials $ 9,746 $10,918 Work-in-process 9,069 6,876 Finished goods 2,929 2,608 ------- ------- Total inventories 21,744 20,402 Less: LIFO reserves (915) (915) ------- ------- Inventories, net $20,829 $19,487 ======= ======= * Certain amounts have been reclassified for comparative purposes.
7 NOTE 3: STOCKHOLDERS' EQUITY The following represents a reconciliation of the change in stockholders' equity for the nine month period ended September 30, 1996 (in thousands): Par Capital Accum- Value in ulated of Trea- Excess Notes Accum- Trans- Common sury of Par Receiv- ulated lation Stock Stock Value able Deficit Adjmt. Total ------ ----- ------- ------- -------- ------ -------- At January 1, 1996 $ 3 $(500) $1,664 $(1,001) $ (6,891) $(419) $ (7,144) Activity (unaudited): Net income - - - - 302 - 302 Preferred stock accretions - - - - (342) - (342) Translation adjustment - - - - - 157 157 --- ----- ------ ------- -------- ----- -------- At September 30, 1996 $ 3 $(500) $1,664 $(1,001) $ (6,931) $(262) $ (7,027) === ===== ====== ======= ======== ===== ========
Earnings per share amounts are based on the weighted average equivalent number of shares of common stock outstanding during the period. In calculating earnings (loss) per common share, income before income taxes has been adjusted for dividends earned on preferred stock for the three and nine month periods ended September 30, 1996 and 1995 of $114,000 and $342,000, respectively. NOTE 4: RELATED PARTY TRANSACTIONS The Company has a consulting agreement with Stanwich Partners, Inc. under which $75,000 and $225,000 were recorded as expense in each of the three and nine month periods ended September 30, 1996 and 1995, respectively. In May 1996, Reunion Industries, Inc. (Reunion) paid the Company $3.7 million in cash in final repayment, including interest, of the Oneida Advances (as defined herein). The Company holds 38% of the outstanding common stock of Reunion. Charles E. Bradley, Sr. (Mr. Bradley), Chairman of the Board of the Company, is Reunion's President and Chief Executive Officer. Contemporaneously with the $3.7 million cash payment received from Reunion, the Company paid $1.7 million to Mr. Bradley in partial repayment, including interest, of the Parkdale Note (as defined herein). During 1996, the Company made payments totalling $2.2 million to Mr. Bradley in partial repayment of the Parkdale Note, including interest thereon. On January 6 and June 6, 1996, the Company made principal repayments of $50,000 each, plus interest, of the Gesterkamp Note (as defined herein). The Gesterkamp Note is owned by Mr. Franklin Myers, a director of Reunion. 8 NOTE 5: COMMITMENTS AND CONTINGENT LIABILITIES The Company is involved in various litigation matters in the ordinary course of business. In management's opinion, settlement of these and other contingent matters will have no material effect on the Company's financial position. The Company has no adverse commitments at September 30, 1996. PART I. FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General Through September 14, 1995, the Company's organizational structure included six divisions that design, manufacture and market metal products, a wholly-owned subsidiary that manufactured high volume, precision plastic products and provided engineered plastic services, an oil and gas division and an equity investment in Reunion Industries, Inc. (Reunion), formerly Reunion Resources Company. In 1995, the combined operations of the six metal manufacturing divisions accounted for approximately 85% of the Company's net sales and approximately 91% of the Company's operating income before corporate office expenses. As discussed below, several significant changes to the Company's structure transpired in 1995. On June 20, 1995, the Company acquired 1,450,000 shares (Reunion Common Stock), or approximately 38%, of the issued and outstanding shares of common stock of Reunion from Parkdale Holdings Corporation N.V. (Parkdale), and purchased 75,000 warrants to purchase shares of Reunion common stock from P. Dean Gesterkamp (Gesterkamp Warrants) (such transactions collectively referred to herein as the "Chatwins Acquisition"). The aggregate purchase price consisted of $5.8 million paid in cash and a $5.8 million promissory note issued to Parkdale (Parkdale Note), and $0.3 million paid in cash and a $0.2 million two-year promissory note issued to P. Dean Gesterkamp (Gesterkamp Note). Subsequent to its acquisition of Oneida Molded Plastics Corp. (Oneida) on September 14, 1995 (see below), Reunion is primarily engaged in the manufacture of high volume, precision plastics products and providing engineered plastics services. Additionally, with the merger of Oneida and Rostone, Inc. (Rostone) (see below), Reunion also compounds and molds thermoset polyester resins. Reunion also has real estate development and wine grape agricultural operations in Napa County, California. Reunion was also engaged in producing and selling crude oil and natural gas in the United States until May 24, 1996, when Reunion sold substantially all of its oil and gas assets to a Houston-based corporation for approximately $8.0 million in cash and a $2.2 million note. Of the $8.0 million in cash proceeds, Reunion used approximately $5.1 million to pay in full related-party indebtedness, which included $1.4 million owed to Charles E. Bradley, Sr. (Mr. Bradley), Reuniuon's President and Chief Executive Officer and Chairman of the Board of the Company, and $3.7 million owed to the Company as a result of the acquisition of Oneida by Reunion. The Company's investment in Reunion is being accounted for under the equity method of accounting. The Company's proportional share of Reunion's operating results is included in the accompanying condensed consolidated statement of income for the three and nine month periods ended September 30, 1996 as equity income (loss) from operations of affiliate. See "Results of Operations" and "Liquidity and Capital Resources." 9 On September 14, 1995 (Sale Date), the Company, through its wholly-owned subsidiary, Chatwins Holdings, Inc. (CHI), sold its holdings of all of the issued and outstanding shares of common stock and preferred stock of Oneida to Reunion, 38% of the common stock of which is owned by the Company. Oneida was a wholly-owned subsidiary of the Company which manufactured high volume, precision plastic products and provided engineered plastic services. The total purchase price received by the Company was $3.1 million in cash. Through August 31, 1995, the Company had made advances to Oneida totalling $4.9 million (Oneida Advances). The liabilities of Oneida upon its sale to Reunion included the Oneida Advances. In November 1995, the Company received $1.6 million in cash from Reunion in partial repayment, including interest from September 1, 1995, of the Oneida Advances. In May 1996, Reunion paid the Company $3.7 million in cash in final repayment, including interest from November 1995, of the Oneida Advances. See below and "Liquidity and Capital Resources." The Company owns 49% of a holding company, CGI Investment Corporation (CGII), which owned 100% of the outstanding preferred stock and approximately 94% of the fully diluted common stock of Rostone. On February 2, 1996, CGII acquired the minority interest in Rostone's common stock it did not already own. Rostone compounds and molds thermoplastic polyester resin (bulk and sheet molding compound) primarily for the electrical distribution market and business machine market. On December 22, 1995, Rostone and Oneida entered into a merger agreement (Merger Agreement) whereby Rostone was subsequently merged into Oneida, which is owned by Reunion, and, as the surviving corporation, Oneida's name was changed to Oneida Rostone Corp. (ORC). In the merger, ORC purchased all of the issued and outstanding preferred and common stock of Rostone. See "Liquidity and Capital Resources." In December 1995, the Company entered into a joint venture agreement with China Metallurgical Import & Export Shanghai Company (CMIESC) and Wanggang Township Economic Development Corporation (Wanggang) to form the Shanghai Klemp Metal Products Co., Ltd. (Shanghai Klemp). The joint venture will provide metal grating to the expanding construction industries in China and nearby countries. See "Liquidity and Capital Resources." During 1996, the Company's Mexican subsidiary, Klemp de Mexico, entered into a joint venture agreement with Consolidated Fabricators, Inc., a Massachusetts company, to form CFI-Klemp de Mexico (CFI), a Mexican corporation. CFI is in the business of metal fabrications. See "Results of Operations." Results of Operations Nine Months Ended September 30, 1996 Compared to Nine Months Ended September 30, 1995 Net sales for the first nine months of 1996 totalled $114.5 million, compared to $138.6 million for the first nine months of 1995. Sales for the first nine months of 1995 included $26.2 million from Oneida, which was sold in September 1995. Excluding Oneida's sales, sales for the first nine months of 1996 increased $2.2 million, or 2%, over the first nine months of 1995. The increase in sales is primarily due to $1.9 million of increased sales at each of CPI and Hanna and a $1.5 million increase at the Company's Mexican subsidiary offset by decreases of $2.5 million at Auto-Lok and $0.8 millon at 10 Alliance. The increase at CPI is primarily due to increased international marketing efforts, which has resulted in a continued expansion into foreign markets. The increase at Hanna is also due to increased marketing efforts resulting in higher volumes while the increase at the Mexican subsidiary is primarily due to a slightly improved Mexican economy as well as the consolidation during 1996 of Klemp de Mexico's 50.1% investment in CFI. The decrease in sales at Auto-Lok and Alliance was primarily due to a soft markets and competition which held down orders in the first seven months of 1996. Orders increased in August 1996 at Auto-Lok and Alliance, and consolidated orders for the month of September 1996 totalled $27.2 million, the highest order level in Company history, resulting in a total-Company backlog at September 30, 1996 of $57.9 million, its highest level since month-end September 1995. Gross profit for the first nine months of 1996 was $23.1 million, compared to $28.1 million for the first nine months of 1995. Gross profit for the first nine months of 1995 included $4.6 million from Oneida. Excluding Oneida's year-to-date 1995 gross profit, year-to-date 1996 gross profit decreased $0.4 million, or nearly 2%. Profit margin decreased to 20.2% in the first nine months of 1996, compared to 20.9% in the comparable 1995 period, excluding the gross profit and sales of Oneida. Gross profit in the first nine months of 1996 compared to the first nine months of 1995 improved at the CPI and Klemp divisions and the Company's Klemp de Mexico subsidiary. Profit margin increased at Klemp, but either remained flat or decreased at the other divisions of the Company. The improvements in gross profit and margin at Klemp were primarily due to productivity efficiencies resulting in higher favorable variances in the first nine months of 1996. The increases in gross profit at CPI and Klemp de Mexico were primarily due to higher volumes. The decreases at Auto-Lok were primarily due to lower volume as a result of a softening in the markets for Auto-Lok's products. The decreases at Alliance were primarily due to a decline in third quarter volume as well as a change in product mix from higher margin fabrication sales to lower margin engineered products caused by a change in customer demand. The decreases at Steelcraft were primarily due to unfavorable labor and overhead variances. Hanna's profit margin was affected by competitive pressures in the hydraulic cylinder industry which resulted in sales price compression and a change in product mix to lower margin specialty cylinders caused by a change in customer demand, in addition to manufacturing inefficiencies caused by the harsh weather conditions in the midwest during the first quarter of 1996. Selling, general and administrative (SGA) expenses for the first nine months of 1996 were $15.2 million, compared to $16.3 million for the first nine months of 1995. SGA expenses for the first nine months of 1995 included $2.5 million from Oneida. Excluding Oneida's SGA expenses, year-to-date 1996 SGA expenses increased $1.4 million compared to year-to-date 1995. SGA expenses as a percentage of sales, excluding the SGA expenses and sales of Oneida, increased to 13% in the first nine months of 1996 compared to 12% in the 1995 first nine months. The increase in SGA expenses primarily relates to additional expenses incurred in connection with increased marketing and sales efforts, both domestically and internationally. Other expense for the first nine months of 1996 was $0.7 million, compared to other income of $0.4 million for the first nine months of 1995. Other income for the first nine months of 1995 included a $1.2 million gain on the sale of Oneida. Excluding this gain, the first nine months of 1995 had other expenses totalling $0.8 million. Other expenses for the first nine months of 1995 included approximately $0.2 million related to the devaluation 11 of the Mexican Peso during 1995, which resulted in foreign currency transaction losses at the Company's Mexican subsidiary. Such losses did not recur in the first nine months of 1996. Interest expense, net, for the first nine months of 1996 was $7.2 million, which was approximately $0.3 million less than interest expense, net, for the first nine months of 1995. Interest expense for the first nine months of 1995 included $0.6 million related to Oneida. Excluding Oneida's interest expense, year-to-date 1996 interest expense increased $0.3 million over year- to-date 1995. The increase is primarily due to a higher level of debt during the first nine months of 1996 as a result of the Chatwins Acquisition. There was a tax provision of less than $0.1 million in the first nine months of 1996, compared to a tax provision of almost $1.0 million in the first nine months of 1995. The tax provisions were attributable to the pre- tax incomes in each period. The equity losses from continuing operations of affiliate of $0.2 million in each of the first nine months of 1996 and 1995 relate to the Company's June 1995 investment in Reunion and represents the Company's proportionate share of Reunion's results from such periods. The equity income from discontinued operations of affiliate of $0.4 million in the first nine months of 1996 relates to the Company's June 1995 investment in Reunion and represents the Company's proportionate share of Reunion's results from discontinued operations for its first nine months of 1996. Three Months Ended September 30, 1996 Compared to Three Months Ended September 30, 1995 Net sales for the third quarter of 1996 totalled $36.6 million, compared to $44.3 million for the third quarter of 1995. Sales for the third quarter of 1995 included $8.0 million from Oneida, which was sold in September 1995. Excluding Oneida's sales, sales for the third quarter of 1996 increased $0.3 million compared to the third quarter of 1995. Increases of $1.5 million at CPI, $0.6 million at Hanna and $0.4 million at Klemp de Mexico, were partially offset by decreases of $1.2 million at Auto-Lok and $1.0 million at Alliance. The increase in sales at CPI is the result of continued expansion into foreign markets while the increase at Hanna is due to domestic marketing efforts. The increase at the Mexican subsidiary is primarily due to the consolidation of CFI. Auto-Lok and Alliance continued to be negatively affected during the third quarter by a the lower order levels during the first half of 1996. Gross profit for the third quarter of 1996 was $7.2 million, compared to $8.8 million for the third quarter of 1995. Gross profit for the third quarter of 1995 included $1.5 million from Oneida. Excluding Oneida's third quarter 1995 gross profit, third quarter 1996 gross profit decreased $0.2 million. Gross profit margin decreased to 19.7% in the third quarter of 1996, compared to 20.3% in the comparable 1995 period, excluding the gross profit and sales of Oneida. In general, an increase in gross profit of $0.3 million at CPI was more than offset by a decrease at Auto-Lok of $0.4 million, with the remaining divisions of the Company experiencing a slight increase or decrease. Divisional gross margins either remained flat or decreased when compared to the third quarter of 1995 with the most notable decrease at Auto- Lok. The declines at Auto-Lok were primarily due to lower volume as a result 12 of a softening in the markets for Auto-Lok's products. SGA expenses for the third quarter of 1996 were $4.9 million, compared to $5.6 million for the third quarter of 1995. SGA expenses for the third quarter of 1995 included $0.8 million from Oneida. Excluding Oneida's SGA expenses, third quarter 1996 SGA expenses increased $0.1 million compared to third quarter 1995. SGA expenses as a percentage of sales, excluding the SGA expenses and sales of Oneida, were 13% in the third quarters of 1996 and 1995. Other expense for the third quarter of 1996 was $0.1 million, compared to other income of $1.1 million for the third quarter of 1995. Other income for the third quarter of 1995 includes the $1.2 million gain from the sale of Oneida in September 1995. Excluding this gain, there was no significant change in other expenses for the third quarter of 1996 compared to the third quarter of 1995. Interest expense, net, for the third quarter of 1996 was $2.4 million, compared to $2.6 million for the third quarter of 1995. Interest expense for the third quarter of 1995 included $0.2 million related to Oneida. Excluding Oneida's interest expense, third quarter 1996 interest expense did not change compared to third quarter 1995. There was a tax benefit of $0.1 million in the third quarter of 1996, compared to a tax provision of $0.3 million in the third quarter of 1995. The tax provisions were attributable to the pre-tax results in each period. The equity losses from continuing operations of affiliate of less than $0.1 million in the third quarter of 1996 and of $0.2 million in the third quarter of 1995 relate to the Company's June 1995 investment in Reunion and represent the Company's proportionate share of Reunion's results from continuing operations for these periods. Liquidity and Capital Resources General The Company manages its liquidity as a consolidated enterprise. The operating divisions of the Company carry minimal cash balances. Cash generated from the divisions' operating activities generally is used to repay previous borrowings under the Revolving Credit Facility (as defined in the Loan Agreement), as well as other uses (e.g. corporate headquarters expenses, debt service, capital expenditures, etc.). Conversely, cash required for the divisions' operating activities generally is provided from funds available under the Revolving Credit Facility. Although the Company operates in relatively mature markets, it intends to continue to invest in and grow its businesses through selected capital expenditures as cash generation permits. Management believes that all required principal and interest payments, as well as capital expenditures, will be met by cash flows from operations and/or borrowings under the Revolving Credit Facility, if necessary. While Oneida was a subsidiary of the Company, its liquidity was managed separately. Prior to its sale, Oneida had a $5.0 million credit facility with Congress Financial Corporation (Congress). This facility consisted of a term loan and a revolving loan. In addition to advances to Oneida from the Company, this facility provided a primary source of liquidity to Oneida. Prior to March 4, 1994, the Company had a $20.0 million revolving credit 13 facility with Heller Financial, Inc. On March 4, 1994, the Company refinanced this facility into the Revolving Credit Facility under which Congress agreed to make revolving loans to the Company of up to $20.0 million, subject to compliance with various covenants, representations and warranties, and contingent upon there being no events of default, all as defined in the Loan and Security Agreement (Loan Agreement) between Congress and the Company. The Maximum Credit (as defined in the Loan Agreement) under the Revolving Credit Facility was temporarily increased to $26 million on June 20, 1995 in connection with the Chatwins Acquisition, and then fixed at $25 million on October 18, 1995 through the remainder of the term of the Loan Agreement. At September 30, 1996, the Company was in compliance with all covenants and there were no events of default under the Revolving Credit Facility. Borrowings outstanding under the Revolving Credit Facility at September 30, 1996 totalled $20.9 million. Borrowings under the Revolving Credit Facility bear interest at an annual rate of the Philadelphia National Bank Prime Rate plus 1.5%. The facility also contains an unused line fee of 0.5% and a $5,000 monthly servicing fee. The Loan Agreement was originally scheduled to expire on March 4, 1997 but has been extended to June 30, 1998 and is renewable annually thereafter. The Company and Congress have made various amendments to the Revolving Credit Facility, discussions of which follow. On June 20, 1995, the Company acquired the Reunion Common Stock in the Chatwins Acquisition. The purchase price consisted of $5.8 million in cash and the Parkdale Note. On September 14, 1995, Mr. Bradley purchased the Parkdale Note from Parkdale and the Company made a partial repayment of the Parkdale Note as required by the terms thereof equal to the $3.1 million proceeds from the sale of Oneida. In May 1996, the Company made a partial repayment of the Parkdale Note totalling $1.7 million, including interest thereon, primarily from the $3.7 million in cash received by the Company from Reunion in full payment of the Oneida Advances. As discussed below, the remainder of the proceeds were paid to Congress. In a letter agreement dated June 18, 1996, the Company and Mr. Bradley agreed to extend the maturity date of the Parkdale Note to December 31, 1996. In connection with the purchase of the Reunion Common Stock, the Company purchased the Gesterkamp Warrants. The purchase price for the Gesterkamp Warrants totalled $0.5 million and consisted of $0.3 million paid in cash and the Gesterkamp Note. Subsequent to its issuance, the Gesterkamp Note was purchased by Mr. Franklin Myers, a director of Reunion. Pursuant to the terms of the Gesterkamp Note, the Company made principal repayments of $50,000, plus interest at 10% per annum, on each of January 6 and June 6, 1996. Such repayments, plus interest, will continue semi-annually until the Gesterkamp Note is repaid. The cash portions of the Chatwins Acquisition were funded with borrowings under the Revolving Credit Facility. To accommodate the additional borrowings, the Revolving Credit Facility was amended to provide a temporary, 90-day increase in the Maximum Credit to $26.0 million from $20.0 million, which included a temporary $4.0 million overadvance availability. This temporary increase was originally scheduled to expire on September 18, 1995. However, on September 14, 1995, Congress and the Company further amended the Revolving Credit Facility to extend the expiration date to October 18, 1995. Subsequent to September 14, 1995, Congress and the Company further amended the Revolving Credit Facility to increase the Maximum Credit to $25.0 million, reduce the temporary $4.0 million overadvance availability to $1.5 million, and extend the expiration date of the temporary overadvance availability to January 15, 1996. As of December 31, 1995, all borrowings under the temporary 14 overadvance availability had been repaid by the Company. On May 1, 1996, the Revolving Credit Facility was amended to provide a temporary, 97-day increase in the Maximum Credit to $27.5 million from $25.0 million, which included a temporary $2.5 million overadvance availability. The proceeds from this temporary increase in the Maximum Credit were used for various purposes, including the Company's May 1, 1996 interest payment on its senior notes. During the temporary, 97-day increase period, the temporary $2.5 million overadvance availability was required to be reduced in weekly increments in amounts ranging from $150,000 beginning on May 20, 1996 to $250,000 ending on August 5, 1996. The Company made repayments pursuant to the required reductions on May 20 and 27, 1996, totalling $0.3 million. However, on May 28, 1996, contemporaneously with the receipt of $3.7 million in cash from Reunion in final repayment of the Oneida Advances, as required, the Company repaid $2.0 million of the temporary $2.5 million overadvance availability and, by June 10, 1996, all amounts borrowed under the temporary $2.5 million overadvance availability had been repaid by the Company. Additionally, as part of this amendment, the expiration date of the Loan Agreement was extended to June 30, 1998 and is renewable annually thereafter. On November 1, 1996, the Revolving Credit Facility was amended to provide a temporary, 120-day $2.5 million overadvance availability. The Maximum Credit remains at $25.0 million. The proceeds from this temporary overadvance were used for various purposes, including the Company's November 1, 1996 interest payment on its senior notes. Beginning on January 31, 1997 and continuing weekly thereafter, the temporary $2.5 million overadvance availability is required to be reduced in $0.5 million increments until repaid. The Company owns 49% of CGII, which owned 100% of the outstanding preferred stock and approximately 94% of the fully diluted common stock of Rostone. On February 2, 1996, CGII acquired the minority interest in Rostone's common stock it did not already own. On December 22, 1995, Rostone and Oneida entered into the Merger Agreement whereby Rostone was subsequently merged into Oneida, which is owned by Reunion, and, as the surviving corporation, Oneida's name was changed to ORC. In the merger, ORC acquired from CGII all of the issued and outstanding preferred and common stock of Rostone. The Merger Agreement provides for the payment of merger proceeds of up to $4.0 million ($2.0 million in 1997 and $2.0 million in 1998) to CGII contingent upon Rostone's achieving specified levels of earnings before interest and taxes in 1996 and 1997. However, under the terms of ORC's loan facility with Congress, all such payments may only be made from equity contributions Reunion may provide to ORC. Since Rostone's preferred stock was pledged by CGII to the Company to secure the Company's December 1993 loan of $1.35 million to CGII, any merger proceeds will be paid first to the Company until the debt and related interest is paid in full. The amount due the Company related to this loan was $1.7 million at September 30, 1996. Any merger proceeds in excess of the amount due the Company will be payable to CGII and allocated among CGII's unsecured creditors, one of which is the Company. CGII's other primary assets remaining after the sale of Rostone are two notes receivable from affiliates of the Company and a minimal amount of cash, the sum of which total $0.6 million. The Company is entitled to any proceeds from these assets. 15 Under the equity method of accounting, the carrying value of the Company's investment in CGII at September 30, 1996 was $0.9 million. In December 1995, the Company entered into a joint venture agreement with CMIESC and Wanggang to form Shanghai Klemp. Shanghai Klemp's manufacturing facilities are located in Wanggang Township, Pudong New Area, Shanghai. Production is expected to begin during 1996. The joint venture will manufacture metal grating to supply the expanding construction industries in China and nearby countries. During the first quarter of 1996, the Company satisfied its investment obligation to make contributions of assets, primarily machinery, to the joint venture with an estimated fair market value totalling approximately $1.9 million. At December 31, 1995, the Company had net operating loss carryforwards for tax reporting purposes of approximately $6.7 million, which are scheduled to expire beginning in 2005. The ultimate realization of this benefit depends on the Company's ability to generate sufficient taxable income in the future. While the Company believes that the benefit of such net operating losses will be fully or partially realized by future operating results, prior losses and a desire to be conservative prompted management to leave on its books at December 31, 1995, a valuation reserve for a portion of such future benefits, in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Operating Activities Operating activities provided approximately $4.4 million of cash during each of the first nine months of 1996 and 1995. In general, a $2.7 million decrease in income before depreciation, amortization, equity earnings and the gain on sale of Oneida in September 1995, was offset by a $2.8 million increase in cash provided from changes in assets and liabilities in each period, primarily due to $0.5 million of cash used to fund an increase in net working capital (defined as receivables, inventories and trade payables) during the first nine months of 1996 as compared to $3.3 million of cash used to fund an increase in net working capital in the first nine months of 1995. Investing Activities Investing activities provided $0.3 million of cash during the first nine months of 1996, compared to cash used of $7.9 million during the first nine months of 1995, an increase in cash provided of $8.2 million. This increase in cash provided is the result of $6.7 million of cash used in June 1995 for the Chatwins Acquisition which did not recur in the 1996 first nine months, the receipt of $3.7 million of cash received by the Company in 1996 from the repayment of the remaining portion of the Oneida Advances, including interest, by Reunion, and a $1.1 million decrease in the level of capital expenditures. These increases were partially offset by almost $0.2 million of cash used in the first nine months of 1996 to satisfy the cash portion of the Company's investment obligation in the Shanghai Klemp joint venture as well as $3.1 million of cash received in September 1995 from the sale of Oneida which did not recur in 1996. Financing Activities Financing activities during the first nine months of 1996 used $4.6 million in cash, compared to $3.3 million of cash provided from financing activities during the first nine months of 1995, an increase in cash used of 16 $7.9 million. This increase in cash used is primarily the result of a decrease of $2.3 million in the level of net borrowings under the Revolving Credit Facility during the first nine months of 1996 compared to an increase of $8.1 million in the first nine months of 1995. Offsetting this decrease in cash provided under the Revolving Credit Facility was a $2.5 million decrease in the level of debt repayments and payments to related parties. The 1996 first nine months included payments totalling $2.2 million to Mr. Bradley in partial repayment of the Parkdale Note and payments totalling $0.1 million to Mr. Franklin Myers in partial repayment of the Gesterkamp Note. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits The following exhibits are filed herewith in accordance with Item 601 of Regulation S-K: Exhibit No. Exhibit Description ----------- ------------------- 4.25 Amendment No. 6 to Loan and Security Agreement dated November 1, 1996 between Chatwins Group, Inc. and Congress Financial Corporation 10.37 Employment Agreement, dated as of August 1, 1996, between Chatwins Group, Inc. and Joseph C. Lawyer 27 Financial Data Schedule (b) Reports on Form 8-K None. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized. Date: November 13, 1996 CHATWINS GROUP, INC. ----------------- (Registrant) By: /s/ Joseph C. Lawyer ------------------------------- Joseph C. Lawyer President and Chief Executive Officer By: /s/ John M. Froehlich ------------------------------- John M. Froehlich Vice President, Chief Financial Officer and Treasurer (chief financial and accounting officer) 18 EXHIBIT INDEX Exhibit No. Exhibit Description Page No. ----------- ------------------- -------- 4.25 Amendment No. 6 to Loan and Security 19 Agreement dated November 1, 1996 between Chatwins Group, Inc. and Congress Financial Corporation 10.37 Employment Agreement, dated as of 23 August 1, 1996, between Chatwins Group, Inc. and Joseph C. Lawyer 27 Financial Data Schedule 31 EX-4.25 2 EXHIBIT 4.25 19 Chatwins Group, Inc. 300 Weyman Plaza Suite 340 Pittsburgh, Pennsylvania 15236 November 1, 1996 Re: Amendment No. 6 to Loan and Security Agreement Gentlemen: Reference is made to the-Loan and Security Agreement, dated March 4, 1994 (the "Loan Agreement"), by and between Congress Financial Corporation ("Lender") and Chatwins Group, Inc. ("Borrower"), as amended by Amendment No. 1 to Loan and Security -Agreement, dated June 20, 1995, between Lender and Borrower, Amendment No. 2 to Loan and Security.Agreement, dated September 14, 1995, between Lender and Borrower, Amendment No. 3 to Loan and Security Agreement, dated October.18,-1995,-between Lender and Borrower, Amendment No. 4 to Loan and Security Agreement, dated as of December 29, 1995, between Lender and Borrower, and Amendment No. 5 to Loan and Security Agreement, dated May 1, 1996, between Lender and Borrower ("Amendment No. 5"), together with all other agreements, documents, supplements and instruments now or at any time hereafter executed and/or delivered by Borrower or any other person, with to or in favor of Lender in connection therewith (all of the foregoing, together with this Amendment and the agreements and instruments delivered hereunder, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced, collectively, the "Financing Agreements"). All capitalized terms used herein and not otherwise defined herein shall have the meanings given to them in the Loan Agreement. Borrower has requested that Lender provide up to $2,500,000 of temporary additional loan availability. Lender is willing to provide such temporary additional availability to the extent set forth herein and subject to the terms and conditions set forth herein. 1. Definitions. (a) Additional Definition. As used herein or in any of the other Financing Agreements, the term "Temporary Availability A Period" shall mean the period commencing on November 1, 1996 and ending on February 28, 1997, and the Loan Agreement shall be deemed and is hereby amended to include such definition. (b) Amendment to Definition. As used herein, or in any of the other Financing Agreements, the term "Additional Availability A Advances" shall have the meaning given in Section 2 of this Amendment and the meaning of such term set forth in Amendment No. 5 shall cease to be applicable for any purpose in respect of the Financing Agreements. 2. Additional Availability A Advances. (a) Subject to the terms and conditions contained herein and all of the terms and conditions of the Loan Agreement as amended hereby, Lender agrees to make or permit to remain outstanding during the Temporary Availability A Period, additional Advances under the Availability A Component in the aggregate principal amount of $2,500,000 at any one time outstanding in excess of the amount of Advances otherwise determined by Lender to be 20 available to Borrower under the Availability A Component pursuant to Section 2.2 of the Loan Agreement (such additional Advances, the "Additional Availability A Advances") less the cumulative total of all Reductions (as defined below) hereunder through and including the time of determination. The Additional Availability A Advances (i) shall constitute part of and shall be deemed made under the Availability A Component for all purposes under the Financing Agreements, and as such shall constitute part of the obligations, except that such Advances shall not be deemed made pursuant to Section 2.2 of the Loan Agreement for purposes of calculating the maximum amount of Availability A Advances outstanding or available at any time, (ii) shall be subject, without limitation, to the terms and conditions set forth herein and in the Loan Agreement and the other Financing Agreements, (iii) shall be repaid, on or prior to the expiration of the Temporary Availability A Period, without notice or demand by Lender, together with interest and other amounts due thereon, in accordance with the provisions of this Amendment, the Loan Agreement as amended hereby and the other Financing Agreements, and (iv) shall be secured by all of the Collateral. (b) During the Temporary Availability A Period, and for so long thereafter as any Additional Availability A Advances remain outstanding, no portion of the temporary additional loan availability provided hereunder for Additional Availability A Advances shall be included under Section 1.29(a)(i) of the Loan Agreement in determining Excess Availability and the Maximum Credit shall remain at $25,000,000 for purposes of Section 1.29(a)(ii) of the Loan Agreement. All outstanding Additional Availability A Advances shall be included as outstanding Obligations under Section 1.29(b)(i) of the Loan Agreement in determining Excess Availability at any time. (c) During the Temporary Availability A Period, the maximum amount of Additional Availability A Advances shall be reduced on the close of business on each of the dates set forth below (each, a "Reduction Date") by the respective amount of the reduction (each, a "Reduction") indicated on the table below: Amount of Reduction on Each Reduction Dates Reduction Date January 31, 1997 $500,000 February 7, 1997 $500,000 February 14, 1997 $500,000 February 21, 1997 $500,000 February 28, 1997 $500,000 In addition to, and not in limitation of, the Obligation of Borrower to make other payments in respect of Availability A Advances, Borrower shall repay the outstanding Obligations in respect of the Availability A Component that remain outstanding on any day in excess of the maximum amount of Availability A Advances permitted to remain outstanding after giving effect to -the cumulative total of all scheduled Reductions that are provided for hereunder as of and through such day. (d) Each of the scheduled Reductions set forth in 2(c) hereof shall constitute a reduction of the maximum amount of Additional Availability A Advances. The amount of Additional Availability A Advances repaid pursuant to such scheduled Reductions may not thereafter be reborrowed. 21 3. Amendment Fee. In addition to all other fees, charges, interest and expenses payable by Borrower to Lender under the Financing Agreements, Borrower shall pay to Lender a fee for entering into this Amendment in the amount of $25,000, which amount is fully earned and payable as of the date hereof and may be charged directly to Borrower's loan account maintained by Lender in respect of the Availability A Component. 4. Additional Representations, Warranties and Covenants. Borrower represents, warrants and covenants with and to Lender as follows, which representations, warranties and covenants are continuing and shall survive the execution and delivery hereof, and the truth and accuracy of, or compliance with each, together with the representations, warranties and covenants in the other Financing Agreements, being a continuing condition of the making of any and all Advances by Lender to Borrower: (a) No Event of Default or act, condition or event which with notice or passage of time or both would constitute an Event of Default exists or has occurred as of the date of this Amendment (after giving effect to the amendments made pursuant to this Amendment). (b) This Amendment and each other agreement or instrument to be executed and delivered by Borrower hereunder has been duly executed and delivered by Borrower and is in full force and effect as of the date hereof, and the agreements and obligations of Borrower contained herein and therein constitute legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their terms. 5. Conditions to Effectiveness of Amendment. The effectiveness of the amendments and waivers pursuant to this Amendment shall be subject to the satisfaction of each of the following conditions precedent: (a) Lender shall have received an executed original or executed original counterparts of this Amendment (as the case may be) duly authorized, executed and delivered by the respective party or parties hereto; (b) Lender shall have received, in form and substance satisfactory to Lender, an original Supplemental Limited Guarantee with respect to $2,500,000 in the principal amount of the Advances under the Availability A Component, plus interest thereon and collection expenses (including reasonable attorneys' fees and legal expenses), duly authorized, executed and delivered by Bradley; (c) All requisite corporate action and proceedings in connection with this Amendment and the documents and agreements to be delivered hereunder shall be in form and substance satisfactory to Lender, and Lender shall have received all information and copies of all documents, including, without limitation, records of requisite corporate action and proceedings which Lender may have reasonably requested in connection therewith, such documents where requested by Lender or its counsel to be certified by appropriate corporate officers or governmental authorities; and (d) no Event of Default shall exist or have occurred and no event or condition shall have occurred or exist which with notice or passage of time or both would constitute an Event of Default. 6. Effect of this Amendment. This Amendment and the instruments and agreements delivered pursuant hereto constitute the entire agreement of the 22 parties with respect to the subject matter hereof and thereof, and supersede all prior oral or written communications, memoranda, proposals, negotiations, discussions, term sheets and commitments with respect to the subject matter hereof and thereof. Except as expressly amended pursuant hereto, no other changes or modifications to the Financing Agreements or any waivers of or consents under any provisions thereof are intended or implied, and in all other respects the Financing Agreements are hereby specifically ratified, restated and confirmed by all parties hereto as of the effective date hereof. To the extent of conflict between the terms of this Amendment and the other Financing Agreements, the terms of this Amendment shall control. The Loan Agreement, as heretofore amended, and this Amendment shall be read and construed as one agreement. 7. Further Assurances. Borrower shall execute and deliver such additional documents and take such additional action as may be reasonably requested by Lender to effectuate the provisions and purposes of this Amendment. 8. Governing Law. The rights and obligations hereunder of each of the parties hereto shall be governed by and interpreted and determined in accordance with the internal laws of the State of New York (without giving effect to principles of conflicts of laws). 9. Binding Effect. This Amendment shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns. 10. Counterparts. This Amendment may be executed in any number of counterparts, but all of such counterparts shall together constitute but one and the same agreement. In making proof of this Amendment, it shall not be necessary to produce or account for more than one counterpart thereof signed by each of the parties hereto. Please sign in the space provided below and return a counterpart of this Amendment, whereupon this Amendment, as so agreed to and accepted, shall become a binding agreement between Borrower and Lender. Very truly yours, CONGRESS FINANCIAL CORPORATION By:__________________________________ Title:_______________________________ AGREED TO AND ACCEPTED: CHATWINS GROUP, INC. By:____________________________ Title:_________________________ CONSENTED TO: _______________________________ CHARLES E. BRADLEY, SR. EX-10.37 3 EXHIBIT 10.37 23 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, dated as of August 1 , 1996 between Chatwins Group, Inc., a Delaware corporation (the "Company") and Joseph C. Lawyer individual residing at 135 Rock Haven Lane, Pittsburgh, PA 15228 (the "Employee").1 This Agreement supersedes and replaces the Employment Agreement dated February 1, 1993 between the Company and Joseph C. Lawyer. W I T N E S S E T H : WHEREAS, the Company wishes to employ the Employee as one of its principal executives; and WHEREAS, the Employee is willing to accept such employment upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein, the Company and the Employee agree as follows: Section 1. Terms of Employment. The Company hereby employs the Employee, the Employee agrees to be employed by the Company, on the terms and conditions contained herein, for a period commencing on the date hereof and terminating on July 31, 1999 (the "Employment Term"). Either party shall give written notice to the other not less than six (6) months prior to the expiration of the initial Employment term or any subsequent extension thereof, of its or his intention not to renew. Upon timely receipt of notice of intention not to renew, this contract shall terminate on the next July 31 subsequent to receipt of notice of intention not to renew. If no such notice is given, this contract shall be renewed for an additional year. Section 2. Duties. (a) The Employee is hereby appointed to serve as the Company's President and Chief Executive Officer, and shall perform the services and duties for the Company set forth in the Company's By-laws with respect to such position. Further, it is the intention of the parties hereto that, subject to the approval of the shareholders of the Company, the Employee shall serve as a director of the Company, and shall be nominated to such directorship at the next meeting of shareholders after the date of this Agreement. While the Employee serves as a director of the Company, he shall be included as an insured party under any policy of directors' liability insurance maintained by the Company, and shall receive, in addition to the compensation provided for in Section 3 hereof, such directors' fees as may be paid to other employees of the Company holding directorships. (b) The Employee agrees to devote his entire time, energy and skill during regular business hours to promote the business and affairs of the Company. Section 3. Compensation. (a) Base Compensation. For services rendered by the Employee under this Agreement, the Company shall pay the Employee during the Employment Term 24 an annual salary (the "Base Salary") equal to $328,187. The Base Salary shall be increased to $360,000 on January 1, 1997 and to $395,000 on January 1, 1998, or such greater amount as the Board of Directors, in its sole discretion, may determine. Effective on January 1, 1999 the Board of Directors shall determine the amount of the salary increase for 1999 over the Base Salary in effect at the time. The Base Salary shall be payable at such intervals and otherwise in such manner as is consistent with the Company's normal practices for remuneration of executives. (b) Bonus Compensation. (i) For purposes of this Section 3(b), the following terms shall have the following meanings: EBIT means for any fiscal year the sum of (A) the actual income from continuing operations before interest and tax of the Company for such year (excluding the revenues, expenses, costs of acquisition and other results of operations of all business units acquired by the Company after the beginning of such year and not included in the calculation of BEBIT for such year) determined in accordance with generally accepted accounting principles and consistent with the financial statements of the Company for such year certified by independent auditors plus (B) the aggregate amount of consulting fees to Stanwich Partners, Inc. ("Stanwich") charged to the Company in such year; BEBIT means for any fiscal year the sum of (A) projected income from continuing operations before interest and tax of the company for such year plus (B) projected Stanwich consulting fees payable by the Company for such year, both as set forth in the budget prepared by management of the Company, and approved by the Board of Directors, in accordance with procedures established by the Board of Directors. (ii) In addition to the Base Salary, the Company shall pay to the Employee, if earned, an annual amount (the "Bonus Compensation") which will be payable if EBIT for any fiscal year equals or exceeds BEBIT for such fiscal year and will be the sum of: (A) Thirty percent (30%) of Base Salary, and in addition to, and not in place of, the following, (B) An amount equal to five percent (5%) of Base Salary should EBIT exceed BEBIT by up to two percent (2%), and in addition to, and not in place of, the following, (C) An amount equal to six percent (6%) of Base Salary should EBIT exceed BEBIT by two percent (2%), but less than five percent (5%), and in addition to, and not in place of, the following, (D) An amount equal to seven percent (7%) of Base Salary should EBIT exceed BEBIT by five percent (5%) but less than ten percent (10%) and in addition to, and not in place of, the following, (E) An amount equal to eight percent (8%) of Base Salary should EBIT exceed BEBIT by ten percent (10%) but less than fifteen percent (15%) and in addition to, and not in place of, the following, (F) An amount equal to nine percent (9%) of Base Salary should 25 EBIT exceed BEBIT by fifteen percent (15%) or more. The Company shall pay the Employee Fifty percent (50%) of Bonus Compensation in cash not more than sixty (60) days subsequent to year end. The remaining fifty percent (50%) shall be paid prior to December 31, of the year following, provided the Employee has not voluntarily resigned without good reason or been terminated for cause under Section 5(a) below prior to the end of the Employment Term. (iii) Should the Employee resign voluntarily without good reason or be terminated for cause under Section 5(a) below then (A) the employee shall forfeit and be deemed to have waived his entitlement to any portion of the Bonus Compensation earned with respect to any completed fiscal year but not yet paid and (B) the Employee shall have no entitlement to any Bonus Compensation in respect of the then current incomplete fiscal year. (iv) Should the Employee's employment cease for any other reason specified in Section 5 then (A) in all such events any portion of the Bonus Compensation earned with respect to any completed fiscal year but not yet paid shall be paid to the Employee within seven (7) days following cessation of employment and (B) in the case of cessation of employment pursuant to Section 5(b), (c) and (g) (but not Sections 5(d) - (f) ) the Employee shall be entitled to receive the pro rata portion of his Bonus Compensation that would have been earned in respect of the then current fiscal year had such cessation of employment not occurred, such pro rata portion to be based on the percentage of the fiscal year that the Employee was employed and such Bonus Compensation to be payable not more than sixty (60) days subsequent to the end of such fiscal year. (v) The aggregate amount of Bonus Compensation payable hereunder shall in no event exceed sixty five percent (65%) of the Base Salary in effect on the last day of the fiscal year in respect of which such Bonus Compensation is calculated. Section 4. Other Benefits. During the Employment Term the Company will provide the following benefits to the Employee. (a) The Employee will be entitled to participate in any present and future medical, life, or disability insurance, pension or retirement plan adopted by the Company for the benefit of senior employees of the Company, such participation to be on terms and conditions at least equivalent to terms and conditions customarily provided to full time executive officers of the Company. The Employee shall enjoy such vacation, holiday or similar rights and privileges as are customarily provided to full time executive officers of the Company. (b) The Company will pay, or reimburse the Employee for, up to $600.00 per month for automobile lease payments. (c) The Company will obtain and pay the premiums on a $1,000,000 life insurance policy for the Employee; provided that the Employee is insurable and cooperates with the Company in obtaining and keeping in effect such policy, including submitting to such medical examination and taking such other actions as may be required by the life insurance company; and provided further that 26 the Company shall not be obligated to pay premiums in excess of $6,000 per year; and provided further that if a $1,000,000 policy is not available within the premium limitation set forth above, then the Company shall obtain and pay the premiums for a life insurance policy providing coverage in such amount as is available within such premium limitation in satisfaction of the Company's obligations under this Section. The owner of such policy shall be determined by the Company. The beneficiaries of such policy shall be designated by the Employee. The Company shall also maintain a split dollar life insurance policy on the life of the Employee in the amount of $1,500,000 with an annual premium not to exceed $45,000. The ownership of such policy shall be determined by the Employee. The beneficiaries of such policy shall be determined by the Employee. The Employee shall pay to the Company the economic benefit amount of the split dollar insurance cost. In the event of the Employee's resignation upon a change of control as defined in Section 5(f) the Company shall continue to fund the premiums for the life of the Employee . In all other cases, upon the termination or expiration of the Employment Term, the Employee shall be solely responsible to continue the policy at his sole expense or cause or permit the policy to terminate. (d) The Company will reimburse all reasonable business expenses incurred by the Employee in the course of and in connection with his employment by the Company, upon submission of appropriate documentation. (e) The Company will pay, or reimburse the Employee for, reasonable membership fees in the South Hills Country Club and the Duquesne Club or such other two (2), but not more than two (2) Clubs Employee may designate. Section 5. Termination. The Employment Term shall terminate upon any of the following occurrences: (a) Termination for Cause. The Company may terminate this Agreement for cause at any time upon 30 days prior written notice, and thereby cancel all further rights and obligations of the parties hereto, except those set forth in Sections 6 and 7 hereof. For the purpose of this Agreement, "cause" shall mean (i) the conviction of the Employee of a felony under state or federal criminal laws; (ii) the determination of the Board of Directors that the Employee has become unable as a result of alcohol or drug use to carry out the responsibilities of his employment; or (iii) the willful failure of the Employee, in the sole judgment of the Board of Directors, to perform his obligations under this Agreement or to carry out the reasonable instructions of the Board of Directors, but only when such conduct continues for a period of thirty (30) days following receipt by Employee of written notice from the Board of Directors that it is considering termination for cause pursuant to this provision and specifically setting forth the conduct of the Employee which the Board of Directors considers a basis for Employee's termination for cause. (b) Termination Upon Disability. If, during the term of this Agreement, the Employee shall become incapable of fulfilling his obligations hereunder because of injury or physical or mental illness, and such incapacity shall exist or reasonably may be expected upon competent medical opinion to exist for more than six months in the aggregate during any period of twelve consecutive months, the Company may, upon at least thirty days prior written 27 notice to the Employee, terminate all further rights and obligations of the parties hereto, except (i) those set forth in Sections 3(b)(iv), 6 and 7 hereof and (ii) payment of the Base Salary for a period of not less than one year after the end of such thirty day notice period. (c) Termination by Death. If the Employee shall die during the Employment Term, this Agreement and all rights and obligations hereunder shall terminate immediately; except that the Company shall pay to the Employee's estate an amount equal to the Base Salary at the rate then in effect for a period of not less than one year after the date of the Employee's death and the Employee's estate shall be paid any amounts owing under Section 3 (b)(iv). (d) Termination Without Cause. The Company may terminate this Agreement without cause at any time during the Employment Term upon 30 days written notice to the Employee. In the event of such termination without cause, the Employee shall continue to be entitled to receive (i) any accrued but unpaid Bonus Compensation owing under Section 3 (b)(iv) and (ii) for the balance of the Employment Term or one and one half (1 1/2) years, whichever is greater, the Base Salary (at the rate then in effect without reference to any future increases), plus health and life insurance coverage in the Company's group plan as provided in Section 4(a), plus life insurance as provided in section 4(c); provided, however, that any continuation of salary provided for herein shall be reduced dollar for dollar by any salary received by the Employee from any other employment during such continuation period. After such termination without cause, the Employee shall continue to be bound by the provisions of Section 6 and 7(b) hereof. (e) Resignation with Good Reason. The Company shall, at all times during the term of this Agreement, provide Employee with all of the rights, responsibilities, perquisites and allow Employee to discharge all of the duties of President and Chief Executive Officer. If, during the term of this Agreement, Company shall reduce or attempt to reduce the rights, responsibilities, perquisites or duties of Employee generally, including, but not limited to (i) removal of Employee from his current position of President and Chief Executive Officer to some lesser position, or (ii) cause Employee to relocate his home or business location from Pittsburgh, Pennsylvania, absent Employee's written consent, or (iii) cause Employee to report to a person or entity other than the Company's Board of Directors, or (iv) take such other action which can be reasonably be interpreted to have the effect of materially reducing Employee's position as contemplated by this Agreement, then Employee may tender his resignation for good reason. Upon Employee's resignation for good reason, Company shall pay Employee as if he had been discharged without cause (as provided in Section 5(d) above) and Employee shall have no further obligation to perform duties for Company. After such resignation for good reason, Employee shall continue to be bound by the provisions of Section 6 and Section 7(b) hereof. (f) Resignation Upon Change of Control. For purposes of this Agreement, a "change of control of the Company" shall be deemed to have occurred if (i) any person or entity becomes the "beneficial owner", directly or indirectly of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company, and such person or entity was not the beneficial owner of such fifty percent (50%) or more on the date of execution of this Agreement; or (ii) a majority of stockholders of the Company approve a merger or consolidation of the Company with another company, where such shareholders, by the terms of the merger or consolidation shall, directly or indirectly, hold beneficial ownership and voting control of less 28 than fifty-one percent (51%) of the surviving company; or (iii) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition of all or substantially all of the assets of the Company or (iv) the Board of Directors adopts a resolution to the effect that, for purposes of this Agreement, a change of control of the Company has occurred, then upon such change of control, Employee shall have a one-time ninety day (90) option within which Employee may accept employment and continue under the terms of this Agreement or such other terms as may be offered or tender his resignation due to change of control, whereupon the Employee shall have no obligation to perform duties for Company or its successors, but Employee shall continue to be bound by the provisions of Section 6 and Section 7(b) hereof. If the change of control is pursuant to a vote of the Board of Directors and shareholders and the Employee elects to tender his resignation pursuant to the preceding sentence, then the provisions of 5(d) above will apply. This Section 5(f) shall not apply to a change of control due to a merger of the Company with Reunion Industries, Inc. or to equity transfers to heirs or legatees or to others for the purpose of estate planning. (g) Non Renewal by Company. The Company shall give written notice of non renewal at least six (6) months prior to the expiration of the initial term which shall occur on July 31, 1999 or six (6) months prior to the expiration of any succeeding renewal or extension thereof. In the event of such non renewal by Company, the Company shall continue to employ the Employee for the balance of the Employment Term, during which period Employee shall continue to be obligated to provide services hereunder and Company shall pay Employee as if he had been Terminated Without Cause on the date his employment terminates due to non renewal by Company (as provided in Section 5(d) above) and Employee shall have no further obligation to perform duties for the Company, but Employee shall continue to be bound by the provisions of Section 6 and Section 7(b) hereof. Section 6. Confidentiality. The Employee will not (a) during or after the Employment Term, directly or indirectly, reveal or disclose to any person, firm or corporation any confidential information or trade secrets whatever relating to the business of the Company, including particularly the names of any of its customers; and (b) for a period of three years after the termination of the Employment Term, solicit, interface with or endeavor to entice away from the Company any customer of the Company. Section 7. Non Competition. The Employee will not, during the Employment Term and for a period of three years after termination of his employment hereunder, (a) directly or indirectly, own, manage, join or control, or participate in the ownership, management, operation or control of, or provide consulting or advisory services to any business, firm, corporation, partnership, proprietorship or other entity which is conducting any business which directly and to a material extent competes with the business of the Company, and (b) shall not solicit employment of any of the employees, consultants, agents or independent contractors of the Company (and, for the purposes of the preceding sentence, the terms "employees," "consultants," "agents" and "independent contractors" shall include any persons with such status at any time during the six (6) months preceding any solicitation in question). 29 The foregoing provisions shall not apply to investments in shares of stock traded on a national securities exchange or on the national over-the-counter market which shall have an aggregate market value, at the time of acquisition, of less than $500,000 and constitute less than two percent of the outstanding shares of such stock. Section 8. Remedies. If the Employee commits a breach, or threatens to commit a breach, of any of the provisions of Section 6 or 7, the Company shall have (i) the right to have such provisions specifically enforced by any court having equity jurisdiction, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and that money damages will not provide adequate remedy to the Company and (ii) the right to require the Employee to account for and pay over to the Company all compensation or profits derived or received by the Employee as a result of any breach of any of the provisions of Section 6 or 7, and the Employee hereby agrees to account for any pay over such compensation or profits to the Company. The invalidity of any provision of Section 6 or 7 shall not affect the validity of any other provision hereof, and each provision shall be enforced to the extent permitted by law. Section 9. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns and shall be binding upon and inure to the benefit of the Employee and his executors and administrators. Section 10. Waiver of Breach. The waiver of the Company or the Employee of a breach of any provision of this Agreement by the other party shall not be construed as a waiver of any subsequent breach of the same provision or of any provision in this Agreement. Section 11. Notices. All notices, requests, demands and other communications submitted hereunder, shall be in writing and shall be deemed to have duly given if delivered by hand or by express service or if mailed by first class, registered mail, return receipt requested, postage and registry fees prepaid, and addressed, if to the Employee, to the address set forth in the first paragraph hereof, and if to the Company to 300 Weyman Plaza, Suite 340, Pittsburgh, PA 15236, Attention: Chairman, or at such other address as either party shall furnish to the other. Section 12. Miscellaneous. This Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Pennsylvania. This Agreement incorporates the entire understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior agreements relating to such subject matter. This Agreement may not be modified or amended, or any term or provision hereof waived or discharged, except by a written instrument signed by the party against which such amendment, modification, waiver or discharge is sought to be enforced. The headings of this Agreement are for the purpose of reference only and shall not limit or otherwise affect the meaning hereof. 30 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. Attest: Chatwins Group, Inc. _______________________________ By _____________________________ Name: Title: Attest: Employee _______________________________ ________________________________ Name: Joseph C. Lawyer EX-27 4 EXHIBIT 27
5 This schedule contains summary financial information extracted from the registrant's financial statements included in the Form 10-Q for the period-end indicated below and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 460 0 25,471 659 20,829 49,596 48,001 19,004 102,543 24,570 49,870 0 7,456 3 (6,820) 102,543 114,526 114,526 91,405 91,405 15,856 0 7,158 107 13 (126) 428 0 0 302 (0.14) (0.14)
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