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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 001-12673
RIVIERA TOOL COMPANY
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2828870
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5460 EXECUTIVE PARKWAY SE
GRAND RAPIDS, MI 49512
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(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (616) 698-2100
Securities registered pursuant to Section 12(b) of the Act: Common Stock,
no par value
Securities registered pursuant to 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 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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the voting common stock of the Registrant (based
upon the last reported sale price of the Common Stock at that date by the
American Stock Exchange) held by non-affiliates was $9,221,094 as of November
10, 1997.
The number of shares outstanding of the Registrant's common stock as of November
10, 1997 was 1,755,000 shares of common stock without par value.
DOCUMENTS INCORPORATED BY REFERENCE:
Part of Form 10-K Into Which Portions
Document of Documents are Incorporated
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Riviera Tool Company 1997 Annual Parts I, II and IV
Report to Shareholders.
Definitive Proxy Statement for the Part III
1997 Annual Meeting of Shareholders
filed with the Securities and
Exchange Commission, November, 1997.
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RIVIERA TOOL COMPANY
Annual Report on Form 10-K
November 26, 1997
TABLE OF CONTENTS
PART I PAGE
Item 1. Business......................................................... 3
Item 2. Properties....................................................... 7
Item 3. Legal Proceedings................................................ 8
Item 4. Submission of Matters to a Vote of Security Holders.............. 8
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters...................................... 8
Item 6. Selected Financial Data.......................................... 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 9
Item 8. Financial Statements and Supplemental Data....................... 9
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure...........................10
PART III
Item 10. Directors and Executive Officers of the Registrant...............10
Item 11. Executive Compensation...........................................10
Item 12. Security Ownership of Certain Beneficial Owners and Management...10
Item 13. Certain Relationships and Related Transactions...................10
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K - Index................................................... 10-12
SIGNATURES...................................................... 13
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PART I
ITEM 1. BUSINESS
GENERAL
The Company is a leading designer and manufacturer of large scale, complex
stamping die systems used to form sheet metal parts. Most of the stamping die
systems sold by the Company are used in the production of automobile and truck
body parts such as doors, door frames, structural components and bumpers. The
following table sets forth the Company's sales (in millions) and percentage of
total sales by customer in fiscal years 1993, 1994, 1995, 1996 and 1997.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
- ------------------------------------------------------------------------------------------------------------------------------
CUSTOMER 1993 1994 1995 1996 1997
- -------------------------------------------------------- ----------------- ----------------- ---------------- ----------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
---------------- ----------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Chrysler Corporation.................. $8.9 47% $6.9 31% $5.3 24% $4.6 25% $ 8.9 40%
Suppliers of Chrysler Corp. ........... 0 * 0 * 0 * 0 0* .7 3
Ford Motor Company..................... .2 1 1.9 8 1.5 7 2.1 11 3.4 16
Suppliers of Ford Motor Company........ 7.6 40 6.9 31 12.2 55 3.0 17 3.4 16
General Motors Corporation............. 0 0 0 * .2 1 2.3 13 .9 4
Suppliers of General Motors Corporation 0 * 0 * .1 * 1.6 9 1.8 8
Other auto and truck manufacturers
and their suppliers................... 2.2 12 6.7 30 2.9 13 4.7 25 2.8 13
------------------ ----------------- ---------------- ------------------ -----------------
Total Sales(1)......................... $18.9 100% $22.4 100% $22.2 100% $18.3 100% $21.9 100%
================= ================= ================ ================== =================
</TABLE>
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* Less than 1.0% of the Company's total sales.
(1) Sales to Motor Wheel Corporation were $2.7, $2.5, $2.8, $2.0, and $.9
million for fiscal years 1993 through 1997, respectively, and are all
included above. Included in sales to Motor Wheel Corporation sales are die
construction contract underutilization charges of $462,543, $110,744,
$246,011, $72,245 and $0 for fiscal years 1993 through 1997, respectively.
See definitive proxy statement for the 1997 annual meeting of shareholders
filed with the Securities and Exchange Commission, November, 1997,
"Compensation Committee Interlocks and Insider Participation".
INDUSTRY TRENDS
Several significant trends within the North American automotive industry
have had, and are likely to continue to have, an impact on the Company's
business. Over the past several years, the industry has required that its tool
suppliers utilize advanced computer integrated technology. This has required
significant capital investment. In some cases, being unable or unwilling to make
this investment, many independent tooling suppliers have exited the business.
This has decreased the available domestic tooling capacity and has resulted in
fewer qualified suppliers.
The automotive industry's trend towards shorter product life cycles and
introduction of a greater number of vehicle models will create growing demand
for the Company's complex tooling systems. In accordance with this trend,
Chrysler Corporation ("Chrysler"), Ford Motor Company ("Ford") and General
Motors Corporation ("General Motors"), the three largest domestic automobile
manufacturers (the "OEMs"), are forming alliances with select suppliers which
have the technological capability to successfully perform simultaneous
engineering of product and manufacturing processes from concept to completion at
the supplier level and utilizing computer data based design, manufacturing and
validation processes. The OEMs have formed "Platform" teams which provide the
organizational structure for this simultaneous engineering process, and have
included their critical or key suppliers in these teams. This simultaneous
engineering concept allows model changes to be implemented more quickly and
cost-effectively. By involving the ultimate tool and die manufacturer early in
the design process, the OEMs are better able to design-in more cost-effective
manufacturing processes, improve product quality, and avoid costly changes
downstream. Chrysler and Ford are currently operating Platform teams and
management believes that General Motors will implement this concept within the
near future.
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The emphasis on designing and manufacturing more fuel efficient vehicles as
the result of federal Corporate Average Fuel Economy ("C.A.F.E.") regulation has
produced many new vehicle designs. In addition, automobile manufacturers are
utilizing light-weight, high strength steels and aluminum in new model designs
in order to decrease the weight of the vehicle and increase fuel efficiency.
Therefore, suppliers will be required to have the ability to work with these
types of materials in order to remain competitive. The Company has established
an expertise in manufacturing dies used in the production of structural
components made of light-weight, high strength steels and aluminum.
Chrysler, Ford and General Motors have developed "cash accumulation
policies." These policies entail the establishing and maintaining of cash
reserves to fund new model development during industry downturns. These policies
should create increased and more stable demand for the Company's products and
services in the future. As of June 30, 1997, Chrysler had accumulated $8.0
billion, Ford $18.2 billion and General Motors $19.0 billion for such
development during future industry downturns.(1) General Motors stated in its
1996 mid-year Report to Shareholders that this cash accumulation "will enable
us to weather the next industry down cycle without sacrificing any of our
product programs, which is critical for long-term success".(2)
Efforts by OEMs and their suppliers to reduce labor and other manufacturing
costs have resulted in their tending to combine common parts into a single
stamping press and reduce the number of "hits" required to manufacture a part.
In addition, utilization of transfer presses has increased demand for transfer
dies to reduce labor cost at the OEMs and their suppliers. The Company believes
that it is one of only a few North American independent suppliers that have the
capability to both design and produce large complex transfer dies.
Management believes these industry trends will continue with emphasis on
simultaneous engineering and manufacturing processes centered around the
utilization of fully computer integrated technologies. This should increase the
Company's customer relationships with and importance to the OEMs and their tier
one suppliers of sheet metal stamped parts and assemblies.
PRODUCTS AND SERVICES
Dies. The Company's dies are used in the high speed production of sheet
metal stamped parts and assemblies. Production of such parts is a multiple step
process involving a series of dies. Typically, the first die is used to cut the
appropriate size metal blank from a sheet or coil of steel. The next die draws
the metal blank into its primary shape and subsequent dies are used to bend
edges or corners, create flanges, trim off excess metal and pierce assembly
holes. A customer usually orders only one series of dies for each separate part.
Normally, the dies do not require replacement due to usage because the life of
well maintained dies is sufficient to carry production to the point when styling
changes dictate production of new dies. The dies manufactured by the Company
generally include automation features, adding to the complexity of design and
construction. These automation features facilitate rapid introduction and
removal of the work piece or raw material into and out of the die, thereby
increasing production speeds and reducing labor cost. A set of stamping dies
manufactured by the Company generally sells for between $250,000 and $2,000,000
depending upon size and complexity.
Simultaneous Engineering of Product and Process. The OEMs are developing
organizational structures involving internal design and engineering personnel as
well as supplier representatives which they are using to develop new car models.
These organizations are called "Platform" teams. This allows full implementation
of simultaneous engineering -- the application of the product engineering and
process engineering functions simultaneously and early in the process. The
Company utilizes advanced Computer Aided Design/Computer Aided Manufacturing
("CAD/CAM") technology to design and manufacture its complex stamping dies. Due
to this advanced computer capability, the Company is able to work very closely
with its customers and is often assigned to these Platform teams early. Its
process engineering input facilitates the teams' goals of introducing new models
rapidly and efficiently. The Company has invested significantly to ensure that
it remains one of the few domestic tool and die firms with advanced technology
capabilities and is one of only a few independent suppliers capable of receiving
and working directly from complex mathematical data received from its OEM
customers. Although several of its competitors also utilize CAD/CAM technology,
management believes the Company is one of only a few suppliers who have
successfully integrated mathematical data into their on-site design,
manufacturing and validation processes across their product line. Management's
investment in, and
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(1) Source: Chrysler Corporation, Ford Motor Company and General Motors
Corporation Securities and Exchange Commission Form 10Q for the quarter
ended June 30, 1997.
(2) Source: General Motors Corporation, 1996 Midyear Report to Shareholders,
dated September 10, 1996.
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commitment to, advanced technology has solidified its quality reputation with
its customers and helped the Company advance to tier one status.
Prototype Tooling and Parts. With the advent of Platform team and
simultaneous engineering methods, the Company has become responsible for the
design and manufacture of both the prototype tooling, the final production
tooling and specifies the final production process. Prototype tooling and parts
are utilized during the design phase of new models which the automobile
manufacturers use to validate the fit and function of the respective components
and assemblies and the repeatability of the respective production processes. The
parts manufactured from prototype tools are also often used in crash testing.
Typically, prototype tools associated with the primary metal forming
operations are manufactured from an alloy casting or mild steel and subsequently
machined using the mathematical data base and related Computer Numerically
Controlled ("CNC") programs. After machining, the prototype tools are assembled
and tested to validate the integrity and repeatability of the final
manufacturing process. The results of the validation process are incorporated
into the mathematical data base which will then be used to manufacture the final
production tools. After testing the primary forming operations, prototype parts
are manufactured using special means such as computerized laser cutting machines
to trim off excess scrap and to incorporate various slots and holes. These parts
are then sent to the automobile manufacturers for further testing and
evaluation. The results of this testing and evaluation may require the
incorporation of additional design and manufacturing process modifications.
MANUFACTURING
Traditionally, the die manufacturing process was comprised of various manual
steps performed by craftsmen. After being awarded a contract, the Company would
be presented with a wooden model of the part to be produced. From the model,
plaster tooling aids were constructed. The plaster tooling aids were then traced
and cut into steel. The steel was then ground, usually quite extensively, by
hand to fit. Validation was also done by hand by measuring specific points on
the die face and comparing these to the original design blueprints. Today, with
the Company's technology, the design and most of the manufacturing process is
computer-driven, which increases accuracy and reduces the time required to
produce a set of stamping dies. The process starts when the Company is assigned
to a new Platform team and simultaneous engineering begins. An electronic
"model" of the part to be produced is transmitted directly to the Company by
transferring design information electronically ("EDI"), or sent on computer disk
represented as a mathematical database. Company engineers use the mathematical
database to generate computer-aided die designs and die face cutter path
programs. These cutter path programs are used by the tool makers and machinists
to manufacture the inner workings of the tool. Most material is removed and the
cutting is done by CNC machine tools which utilize the computer-generated cutter
path programs. Depending on the complexity of the tool, a prototype may be
manufactured to prove-out the manufacturing process or to provide actual parts
for crash testing and to test fit and function. Finally, after the die is
constructed, it is evaluated statistically for process repeatability and
dimensional validation on the Company's Coordinate Measuring Machine, or CMM.
The Company believes, based upon experience and customer discussions, that it is
one of a very few North American die suppliers and manufacturers that are able
to routinely, and across their product line, completely computer integrate the
mathematical database throughout the entire die design, manufacture and
validation process at their own facilities. During this automated validation
process, the tool is statistically compared to the mathematical database. Having
the optimum size and quantity of tryout presses is an important aspect of the
construction and validation process, and the Company has therefore invested
heavily to ensure its capability in this area.
On average, 10 months elapse from the time the Company is awarded a contract
until the final set of dies is shipped to the customer. The OEMs are facing
growing pressure to reduce the time required to introduce a new car model. For
example, Chrysler has historically needed three years, on average, to introduce
a new model. However, the last small car introduced by Chrysler was introduced
in only 31 months. To meet shorter timeframes, OEMs are relying more heavily on
simultaneous engineering and integrating suppliers more closely into the design
process. This trend helps the Company by requiring more direct relationships
between the OEMs and its suppliers such as the Company.
The steel, castings and other components utilized by the Company in the
manufacturing process are available from many different sources and the Company
is not dependent on any single source.
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MARKETING AND SALES
The Company's marketing emphasis is on Chrysler, Ford and General Motors and
their tier one suppliers. The Company maintains excellent relationships with
Chrysler, Ford and General Motors which directly accounted for about 60% of the
Company's revenues in 1997. For the year ended August 31, 1997, Chrysler, Ford,
General Motors and their tier one suppliers accounted for approximately 85% of
the Company's revenues.
With the growing use of simultaneous engineering, the Company's marketing
goal is to be assigned early to the new model Platforms. As one of only a few
technically proficient suppliers assigned to a Platform, the Company's
opportunity to win business for a new model is greatly enhanced. The Company
works to achieve preferred supplier status with its customers to further
increase its chances of being assigned to new model Platforms.
Sales efforts are conducted primarily by Company's Vice President of Sales,
President, senior management and project management personnel. Frequent contact
is made with the domestic automobile manufacturers and their purchasing agents,
Platform managers and tier one suppliers. When the Company has been assigned to
a new model Platform Team, the Platform Team manager is contacted to determine
those parts and assemblies that will be assigned to various required suppliers.
During the design phase, the Company recommends process and design changes to
improve the cost and quality of the product. Generally, when the Company is
assigned to a Platform Team, orders are obtained directly and without a formal
bid process. The Company maintains a comprehensive computer database with
historical information regarding dies it has previously manufactured. This
assists the Company in quoting prices for dies and enables it to respond to most
quotation requests quickly. If the customer decides to accept the Company's
quotation, a purchase order is issued subject to price adjustments for
engineering changes requested by the customer. Where no Platform Team is
assembled, the Company bids on specific tooling assignments, and bids are
awarded on a competitive basis among a small group of qualified suppliers.
For business done with tier one suppliers, the Company's sales process
follows a more traditional process. The Company typically receives a package or
request for quotation from the tier one supplier and is less involved in the
design process of the part to be manufactured. Bids are generally awarded based
on technological capability, price, quality and past performance.
During 1997, the Company entered into a marketing agreement with Jake
International, an international sales and marketing firm, to serve as the
Company's exclusive sales agent in various international markets. The agreement
provides Jake International exclusive marketing of the Company's services and
products to all automotive companies and suppliers in Brazil and Mexico,
excluding General Motors do Brasil until October 15, 1997. Prior to this
agreement, the Company had done no marketing of the Company's services and
products to automotive companies and suppliers in these markets.
BACKLOG AND SEASONALITY
The Company's backlog of awarded contracts, of which all are believed to be
firm, was approximately $17.0 million and $11.8 million as of October 31, 1997
and 1996, respectively. Of the October 31, 1997 contract backlog, the Company
expects all backlog contracts will be reflected in sales during fiscal years
ended August 31, 1998 and 1999. The Company's sales of stamping dies do not
follow a seasonal pattern; however, the timing of new model introductions and
existing model restyling ("facelifts" and "redos") tooling programs are
dependent on Chrysler, Ford and General Motors and their strategy of
accelerating the introduction of new models.
COMPETITION
Large, complex automotive stamping dies are manufactured primarily by three
supplier groups: a) domestic independent tool and die manufacturers, b) foreign
independent tool and die manufacturers, and c) captive or in-house tool and die
shops owned and operated by the OEMs.
The independent (both domestic and foreign) tool and die manufacturers have
experienced a significant reorganization over the past five years as the
industry has consolidated. Management believes that during this period, the
independent domestic supplier base (those with sales of at least $15 million)
was reduced significantly and that fewer than 6 such independent domestic
suppliers remain today. Management believes that these 6 competitors have begun
to utilize portions of the technology utilized by the Company. Further,
significant barriers to entry reduce competition in the large-scale die market.
The industry is highly capital intensive and
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technically complex. Attracting and retaining employees skilled in the use of
advanced design and manufacturing technology is a multi-year process. Finally, a
new competitor would most likely lack much of the credibility and historical
customer relationships that can take years to develop.
Based upon the responses of 84 sheet metal die manufacturing companies to a
1996 survey by the National Tooling and Machining Association, the annual
domestic independent production of tools and dies exceeds $662,000,000, as
compared to $528,000,000 in a 1995 survey. Of those respondents only 18 reported
average annual sales in excess of $10 million. Based upon the study and the
Company's independent knowledge of its direct competitors, the Company believes
it is among the 6 largest independent suppliers and that no one supplier is
dominant.
Finally, the OEMs maintain in-house, captive tool and die capacity to meet a
portion of their needs. General Motors maintains the largest captive capacity
and, based on estimates from various trade publications, supplies an estimated
75-80% of its own die construction needs. Ford produces approximately 50% and
Chrysler 25% of their own respective needs. Independent suppliers like the
Company tend to have a competitive advantage over the OEMs' in-house die shops
due to the OEMs' higher cost structure.
The Company designs, develops and manufactures custom large scale metal
stamping die systems used in the high speed production of sheet metal stamped
parts and assemblies for the automobile industry. The Company incorporates its
knowledge of integrated computer technologies with the design and manufacture of
metal stamping die systems resulting in solutions that address the specific
manufacturing requirements of its main customers, Chrysler, Ford and General
Motors, the three largest domestic automobile manufacturers, and their tier one
suppliers of sheet metal stamped parts and assemblies.
Management has strategically positioned the Company as one of North
America's most technologically advanced independent suppliers of metal stamping
die systems utilizing a totally computer integrated process for the design,
manufacture and validation of its products. The Company should continue to
benefit from current trends in the global automotive industry which require
continuous quality improvement, simultaneous engineering and development, and
increasing reliance on a select number of suppliers capable of utilizing
computer integrated technology to develop new automobile models. Examples of
parts made from die systems recently developed and manufactured by the Company
include; the Ford Explorer and F-Series truck bumper system, Jeep Wrangler door
panels and wheels, Chrysler Neon and mini-vans structural body components,
Chrysler LH roof panels, Ford Navigator frame systems, Ford HN 80 truck panels,
as well as aluminum body panels for the Paccar semi-tractor vehicle.
By transferring the design information electronically, the Company
communicates directly with the OEMs' design and development centers regarding
specific product and manufacturing information necessary to develop a custom
manufacturing system for each respective part. This digital data base is
incorporated in each phase of the design, manufacture and inspection process for
both the prototype and production tooling systems, ensuring high quality
repeatable processes. Electronically linking the Company to the OEMs' design and
development centers enables significant reductions in product development lead
time and cost.
EMPLOYEES
The Company's work force consists of approximately 140 full-time employees,
of which approximately 34 are salaried managerial and engineering personnel. The
balance are hourly employees engaged in manufacturing and indirect labor
support. Included among these hourly workers are approximately 100 skilled
tradesmen who are either journeymen tool and die makers or machinists. None of
the Company's employees are covered by a collective bargaining agreement. The
Company has not experienced any work stoppages and considers its relations with
its employees to be good. The Company has a discretionary contribution 401K
plan. The Company has no contingent pension liabilities arising from any defined
benefit plan.
ITEM 2. PROPERTIES
The Company's facilities are located in Grand Rapids, Michigan and
consist of approximately 178,000 square feet of space of which 28,000 square
feet is utilized for office, engineering and employee service functions, 98,000
square feet is dedicated to the Company's tooling production and 52,000 square
feet is under a four-year sublease to an unaffiliated tenant. Constructed in
1989, the facility is leased with a lease term of 20 years. The facility lease
provides for annual payments of $934,500 plus an escalation of base rent of 1%
for each of the first ten years and 2% for each of the second ten years. The
Company has a purchase option on the building at the fair market value beginning
in November 1996. The sublease requires annual lease payments of $216,000
commencing August 1, 1994 through July 1, 1996 with annual lease payments of
$224,724 commencing August 1, 1996 through
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July 1, 1998. The sublease has two renewal options for two years each with
annual lease payments of $231,468 and $238,412, respectively. The sublease also
requires the subtenant to pay 33.7% of common operating expenses of the
facility.
ITEM 3. LEGAL PROCEEDINGS
The Company is a plaintiff in an action against Fred Borsini, Herbert Keeler
and Durametallic Corporation, a Delaware corporation, with Kenneth K. Rieth,
Arlene Morris and Riviera Holding Company, a Michigan corporation wholly owned
by Kenneth K. Rieth, as co-plaintiffs, filed July 22, 1994, in the Kent County
Circuit Court, Grand Rapids, Michigan, Case No. 94-2809-CZ. In July of 1992, the
Company contributed machinery, equipment, inventory, work-in-process and
receivables related to the business of building plastic injection molds to a
joint venture that then became known as Leap Technologies, Inc. Defendants in
this action contributed all of the stock of a mold builder then known as Leap
Technologies, Inc. The Company contributed assets valued at $5.4 million, the
new entity assumed debts in the amount of $3.7 million, and the Company received
$1.7 million of preferred stock in the new entity. The Company alleges that the
status of the business contributed by the defendants was fraudulently
represented to it and the defendants are therefore liable to the Company for all
losses sustained as a result of the failure of the venture. The Company is
asking for return of its investment plus the additional damages it incurred in
the process of liquidating the venture. Management believes that approximately
$3,000,000 of damages has been identified, however, the damage evaluation is
incomplete. One defendant has counterclaimed for breach of representations by
the Company without specifying any amount of damages. The Company is not
currently involved in other legal proceedings other than ordinary or routine
proceedings incidental to its operations. In the opinion of management, no
existing proceedings, including the matter involving Leap Technologies, Inc.,
would have a significant effect on the financial condition, results of
operations and cash flows of the Company if determined against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders through the solicitation of
proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock is traded on the American Stock Exchange
("AMEX") under the symbol RTC. The table below sets forth the high and low sales
prices as reported by AMEX since the Company's initial public offering on March
3, 1997.
FISCAL 1997
-----------------------
HIGH LOW
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1st quarter(1)....................... N/A N/A
2nd quarter(1)....................... N/A N/A
3rd quarter.......................... $7.00 $4.75
4th quarter.......................... $6.625 $4.875
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(1) The Company was privately held during the period.
As of October 20, 1997, the Company's common stock was held by 24
holders of record, and approximately 750 beneficial shareholders.
The Company has not historically paid cash dividends on its Common
Stock. The Company, on October 31, 1996, declared a preferential dividend on the
shares of common stock of the Company owned by Riviera Holding Company to pay
income tax payable by Riviera Holding Company as a result of the lapse of
options by Motor Wheel Corporation to purchase common stock owned by Riviera
Holding Company and as a result of the dividend itself. In May, 1997 the Company
paid this dividend of $90,000
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to Riviera Holding Company. The payment of common stock cash dividends is within
the discretion of the Company's Board of Directors, with prior written consent
of its primary lender; however, in view of the potential working capital needs
and in order to finance future growth, it is unlikely that the Company will pay
any cash dividends on its Common Stock in the foreseeable future.
In October, 1997, the Company issued and sold 80,000 shares of 8%
Cumulative Convertible Preferred Stock (the "Preferred Shares") at $100.00 per
share through a private placement under Regulation D of the Securities Act of
1933. With a portion of the proceeds from this sale, the Company exercised its
option to purchase all 730,000 shares of common stock held by Motor Wheel
Corporation. Under such option, the Company repurchased all the Motor Wheel
Corporation shares for $3.0 million or $4.11 per share.
The holders of the 8% Cumulative Convertible Preferred Stock will
possess no voting except where required by law and under the following
circumstances (i) at whatever time or times dividends are not payable for two
consecutive quarterly periods, the holders of the Preferred Shares have the
right to elect one additional director who shall continue until all such
accumulated dividends have been paid in full, or (ii) for so long as the
Preferred Shares remain outstanding, the Company must obtain a vote of the
holders of 66 2/3% of the then outstanding Preferred Shares to issue any class
of stock ranking senior to the Preferred Shares as to dividends or distribution
of assets on liquidation. Cumulative dividends shall be paid at an annual rate
of 8% payable quarterly, in arrears, at a rate of $2.00 per share per quarter,
commencing December 31, 1997. Upon liquidation, the Shares will be entitled to
seniority to the extent of $100 per share plus cumulative dividends to the date
of payment over the Common Stock and any other capital stock not given senior
rights by the holders of the Shares. Of the 80,000 Preferred Shares, 67,500
Preferred Shares will be convertible into Common Stock at any time, and from
time to time, in whole or in part, for the number of shares of Common Stock per
share equal to $100 divided by $6.00. The remaining 12,500 Preferred Shares,
will be convertible into Common Stock at any time, and from time to time, in
whole or in part, for the number of shares of Common Stock per share equal to
$100 divided by $6.7375. All Preferred Shares outstanding will be automatically
converted into Common Stock when the average closing price for the Common Stock
on the American Stock Exchange for 10 consecutive trading days is equal to or
greater than $10 per share. The Company shall not be required to issue
fractional shares in connection with any conversion and a cash payment shall be
made in lieu thereof. The Preferred Shares are not subject to call for
redemption by the Company. The Company has agreed with the initial purchasers of
the Preferred Shares that it will have a registration statement become effective
under the 1933 Act covering the shares of Common Stock issuable upon conversion
of the Preferred Shares by February 6, 1998 and use its best efforts to maintain
such registration after its effective date until October 24, 1999. The Company
must pay a penalty to the initial holders at a rate of 2% per annum of the
liquidation value of the shares held until a registration statement covering the
Common Stock issuable upon conversion of the Preferred Shares is effective.
See note 2 of Notes to Financial Statements of the 1997 Audited Financial
Statements.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this Item 6 is incorporated by reference to
page 22 of the Company's 1997 Annual Report to Shareholders filed as Exhibit 13
hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information required by this Item 7 is incorporated by reference to
pages 25 - 28 of the Company's 1997 Annual Report to Shareholders filed as
Exhibit 13 hereto.
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
The Registrant hereby incorporates the financial statements required by
this Item 8 by reference to Item 14(a)(1) hereof, and the supplementary
financial information required by this Item 8 by reference to page 29 - 46 of
the Company's 1997 Annual Report to Shareholders filed as Exhibit 13 hereto.
9
<PAGE> 10
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The Registrant hereby incorporates the information required by Form
10-K, Items 10-13 by reference to the Registrant's definitive proxy statement
for its 1997 annual meeting of shareholders which was filed with the Commission
prior to November 20, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. Financial Statements - The following financial statements and the
report of independent auditors set forth on pages 29 - 46 of the
Company's 1997 Annual Report to Shareholders filed as Exhibit 13 hereto
are incorporated by reference in this Annual Report on Form 10-K.
Balance Sheets as of August 31, 1997 and 1996
Notes to Financial Statements
For each of the three years in the period ended August 31,
1997:
Statements of Shareholders' Equity
Statement of Operations
Statements of Cash Flows
Report of Independent Auditors
2. Financial Statement Schedules - No such schedules are included because
of the absence of the conditions under which they are required, or
because the information called for is included in the financial
statements or notes thereto.
3. Exhibits
3(a) Amended and Restated Articles of Incorporation of the
Registrant.
3(b) Bylaws of the Registrant (incorporated by reference to
Exhibit 3(b) of the Registrant's Amendment No. 1 to Form
S-1, Registration No. 333-14187, filed January 8, 1997).
4(a) Specimen Common Stock of Registrant (incorporated by
reference to Exhibit 4(a) of the Registrant's Form S-1,
Registration No. 333-14187, filed October 15, 1996).
4(b) Representative's Warrant Agreement (incorporated by
reference to Exhibit 4(b) of the Registrant's Post-effective
Amendment No. 1 to Form S-1, Registration No. 333-14187,
filed March 14, 1997).
10
<PAGE> 11
4(c) Consulting Agreement and Plan of Compensation dated March 4,
1997 between the Registrant and John T. Moran (incorporated
by reference to Exhibit 4(c) of the Registrant's Form S-8,
Registration No. 333-29249, filed June 13, 1997).
4(d) Form of Warrant Agreement (including form of Warrant)
(incorporated by reference to Exhibit 4(d) of the
Registrant's Form S-8, Registration No. 333-29249, filed
June 13, 1997).
9 Shareholder Agreement and related Stock Option Agreement
between Riviera Holding Company and Motor Wheel Corporation
(incorporated by reference to Exhibit 9 of the Registrant's
Amendment No. 1 to Form S-1, Registration No. 333-14187,
filed January 8, 1997).
10(a) 1996 Incentive Stock Option Plan of Registrant.
10(b) Employment Agreement of Kenneth K. Rieth (incorporated by
reference to Exhibit 10(b) of the Registrant's Amendment No.
1 to Form S-1, Registration No. 333-14187, filed January 8,
1997).
10(c) Promissory Note dated March 31, 1994 between Registrant and
Heller Financial, Inc. covering various manufacturing
machinery and equipment (incorporated by reference to
Exhibit 10(c) of the Registrant's Form S-1, Registration No.
333-14187, filed October 15, 1996).
10(d) Promissory Note dated April 1, 1994 between Registrant and
Banc One Equipment Finance, Inc. covering various
manufacturing machinery and equipment (incorporated by
reference to Exhibit 10(d) of the Registrant's Form S-1,
Registration No. 333-14187, filed October 15, 1996).
10(e) Lease Agreement dated November 1, 1988 between Registrant
and Greenbrook Limited Partners/Riviera regarding industrial
facilities at 5460 Executive Parkway SE, Grand Rapids,
Michigan (incorporated by reference to Exhibit 10(e) of the
Registrant's Form S-1, Registration No. 333-14187, filed
October 15, 1996).
10(f) Commitment from LaSalle National Bank (incorporated by
reference to Exhibit 10(f) of the Registrant's Amendment No.
2 to Form S-1, Registration No. 333-14187, filed February
24, 1997).
10(g) NBD Bank Credit Agreement (incorporated by reference to
Exhibit 10(g) of the Registrant's Amendment No. 2 to Form
S-1, Registration No. 333-14187, filed February 24, 1997).
10(h) Assignment of Stock Options between Riviera Holding Company
and Registrant (incorporated by reference to Exhibit 10(h)
of the Registrant's Amendment No. 2 to Form S-1,
Registration No. 333-14187, filed February 24, 1997).
10(i) Loan Agreement, Revolving Loan Note, Term Note and Security
Agreement between Registrant and LaSalle National Bank dated
March 7, 1997 (incorporated by reference to Exhibit 10(i) of
the Registrant's Form 10-Q, filed April 17, 1997).
10(j) Assignment of Life Insurance Policy to NBD Bank dated March
3, 1997 (incorporated by reference to Exhibit 10(j) of the
Registrant's Form 10-Q, filed April 17, 1997).
10(k) Assignment of Claim to NBD Bank dated March 3, 1997
(incorporated by reference to Exhibit 10(k) of the
Registrant's Form 10-Q, filed April 17, 1997).
10(l) Loan Agreement, Revolving Line of Credit Loan Note, Existing
Equipment Term Loan Note, Non-Revolving Equipment Line of
Credit Loan Note, Security Agreement and Assignment of Life
Insurance Policy as Collateral between Registrant and Old
Kent Bank dated June 12, 1997.
11
<PAGE> 12
13 1997 Annual Report to Shareholders.
21 Subsidiaries - None
27 Financial Data Schedule.
(b). No Reports on Form 8-K were filed in 1997.
12
<PAGE> 13
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities
and Exchange Act of 1934 the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: November 26, 1997 RIVIERA TOOL COMPANY
By: /s/ Kenneth K. Rieth
-------------------------------
Kenneth K. Rieth, Principal
Executive Officer
and
By: /s/ Peter C. Canepa
-------------------------------
Peter C. Canepa, Principal
Financial and Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on the 25th day of November, 1997, by the
following persons on behalf of the Company and in the capacities indicated.
Each Director of the Company whose signature appears below hereby
appoints Kenneth K. Rieth and Peter C. Canepa, and each of them individually, as
his attorney-in-fact to sign in his name and on his behalf as a Director of the
Company, and to file with the Commission any and all amendments to this report
on Form 10-K to the same extent and with the same effect as if done personally.
/s/ Leonard H. Wood /s/ Kenneth K. Rieth
- -------------------------- ------------------------------
Leonard H. Wood, Director Kenneth K. Rieth, Director
/s/ John C. Kennedy /s/ John H. Kinstler
- -------------------------- ------------------------------
John C. Kennedy, Director John H. Kinstler, Director
/s/ Thomas H. Highley /s/ Thomas R. Collins
- -------------------------- ------------------------------
Thomas H. Highley, Director Thomas R. Collins, Director
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
Not Applicable.
13
<PAGE> 14
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
3(a) Amended and Restated Articles of Incorporation of the
Registrant
10(a) 1996 Incentive Stock Option Plan of Registrant.
10(l) Loan Agreement, Revolving Life of Credit Loan Note, Existing Equipment
Term Loan Note, Non-Revolving Equipment Line of Credit Loan Note,
Security Agreement and Assignment of Life Insurance Policy as
Collateral between Registrant and Old Kent Bank dated June 12, 1997.
13 1997 Annual Report to Shareholders.
27 Financial Data Schedule.
<PAGE> 1
EXHIBIT 3(A)
AMENDED AND RESTATED ARTICLES OF INCORPORATION
<PAGE> 2
RESTATED ARTICLES OF INCORPORATION
OF
RIVIERA TOOL COMPANY
1. These Restated Articles of Incorporation are executed pursuant to the
provisions of Section 641-651, Act 284, Public Acts of 1972, as amended.
2. The present name of the corporation is Riviera Tool Company. The
previous name of the corporation was Riviera Die & Tool, Inc.
3. The date of filing the original Articles of Incorporation was February
26, 1988.
4. The following Restated Articles of Incorporation supersede the original
Articles of Incorporation, as amended, and shall be the Articles of
Incorporation of the corporation:
ARTICLE I
The name of the corporation is Riviera Tool Company.
ARTICLE II
The purpose or purposes for which the corporation is organized is to
engage in any activity within the purposes for which corporations may be
organized under the Business Corporation Act of Michigan.
ARTICLE III
The total authorized capital stock is 9,798,575 shares of Common stock
without par value and 1,425 shares of 8% Cumulative Preferred stock and 200,000
shares of Preferred Stock other than the 8% Cumulative Preferred stock.
The Board of Directors of the corporation is authorized at any time and
from time to time, to provide for the issuance of shares of Preferred Stock in
one or more series, each with such voting powers, full or limited, or without
voting powers, and with such stated values, designations, preferences and
relative participating conversion, option or other rights, and such
qualifications, limitations or restrictions thereon, as shall be stated in the
resolution or resolutions providing for the issuance thereof adopted by the
Board of Directors; provided that all rights to dividends, liquidation
distributions or other mandatory distributions of any kind shall be junior in
right and time of payment to all shares then outstanding of the 8% Cumulative
Preferred stock.
ARTICLE IV
The preferences, limitations, designations and relative rights of each
class of stock which the corporation is authorized to issue under Article III,
above, are as follows:
4.1. 8% Cumulative Preferred.
4.1.1. Voting. The holders of the 8% Cumulative Preferred stock
shall only possess voting rights with respect to such stock where
voting as a class is required by law to authorize an action.
<PAGE> 3
4.1.2. Dividends. The holders of the 8% Cumulative Preferred
stock shall be entitled to receive, when and as declared by the Board
of Directors, out of the surplus of the corporation, dividends to the extent of
Eight Dollars ($8.00) per share per annum, except as provided below upon
redemption or liquidation. Such dividend shall be cumulative and payable on
the last day of July each year and shall be with respect to the fiscal year
then in process. Such dividend shall be the entire dividend entitlement of the
8% Cumulative Preferred stock.
4.1.3. Redemption. The 8% Cumulative Preferred stock shall be
subject to redemption as set out below. The price of a redemption
hereunder shall be One Hundred Dollars ($100.00) per share plus any cumulative
dividends on the 8% Cumulative Preferred stock remaining unpaid, to which the
holders of the 8% Cumulative Preferred stock are entitled by reason of the
provisions of Paragraph 4.1.2, above. In the event of a redemption on a date
other than July 31, a pro rata portion of the specified dividend shall be paid
based upon a 365 day year commencing August 1. The redemption price shall be
paid in cash.
4.1.3.1. Call. Notice of a call for redemption shall
be given in writing by first-class United States mail,
postage prepaid, to all the holders of record of the 8%
Cumulative Preferred stock addressed to the address
appearing in the stock records of the corporation.
Immediately upon mailing such notice, the corporation shall
deposit the aggregate of the dividends due pursuant to the
provisions above, plus the redemption price in cash, with
any bank or trust company in the City of Grand Rapids, State
of Michigan, as specified in the notice of redemption,
payable to the respective recordholders of the shares to be
redeemed upon endorsement and surrender of their
certificates. Immediately upon the making of such deposit,
said holders shall cease to be stockholders of the
corporation with respect to such shares and shall have no
further interest in or claim against the corporation with
respect to such shares except for the right to receive such
deposit from the specified bank or trust company. The
specified deposit shall not bear interest and any interest
earned thereon shall be returned to the corporation. Any of
such deposit unclaimed at the expiration of one year from
the date of the deposit shall be repaid to the corporation
to be held until claimed.
4.1.3.2. Mandatory. The eight percent (8%) Cumulative
Preferred stock shall be issued with mandatory redemption
dates noted thereon as follows:
July 31, 1995 475 Shares
July 31, 1996 475 Shares
July 31, 1997 475 Shares
Upon presentation to the corporation of the shares so redeemable
endorsed in blank, the corporation shall pay to the holder the
redemption price plus the dividend payable to the date of
redemption. The redemption price and the dividend payable shall
not bear interest beyond the date of the specific redemption date
unless otherwise declared by the Board of Directors of the
corporation.
4.1.4. Liquidation. In the event of the voluntary or involuntary
liquidation of the corporation, before any distribution is made to the
holders of the Common stock, the net assets of the corporation shall be
distributed pro rata to the holders of the 8% Cumulative Preferred stock in an
amount up to One Hundred Dollars ($100.00) per share plus Eight Dollars ($8.00)
per share per year
2
<PAGE> 4
from August 1, 1986 to the date of final distribution less the amount
of all dividends previously paid on such shares. A pro rata portion of the
dividend shall be paid in respect of a short year. Such pro rata portion shall
be based upon the ratio that the number of days in such year prior to such
distribution bears to three hundred sixty-five (365). The preference
distribution specified herein shall be the maximum liquidation distribution
entitlement of the 8% Cumulative Preferred stock.
4.2. Common Stock.
4.2.1. Voting. Except as provided in Paragraph 4.1.1., above, the
holders of the Common stock shall possess the full voting rights of the
capital stock of the corporation and shall be entitled to one vote for each
share of Common stock held.
4.2.2. Dividends.
4.2.2.1. In any calendar year if the preference
dividends have been declared and paid in the full amount per
share as provided in Paragraph 4.1.2., above, the holders of
the Common stock shall be entitled to receive on a per share
basis, the aggregate amount of any additional dividends that
may be declared and paid by the Board of Directors of the
corporation during said calendar year.
4.2.3. Liquidation. In the event of the voluntary or involuntary
liquidation of the corporation, and after the preference distributions as
provided in Paragraph 4.1.4., above, have been made in full, the remaining net
assets of the corporation, if any, shall be distributed pro rata among the
holders of the Common stock according to the number of shares held by each.
4.3 8% Cumulative Convertible Preferred Stock.
4.3.1 Designation and Amount of Issue. The distinctive
designation of the series shall be "8% Cumulative Convertible Preferred
Stock" (hereinafter referred to as this "Series"). The authorized number of
shares which shall constitute this Series shall be 80,000 shares. Each share
of this Series shall be without par value.
4.3.2 Definitions. As used in this Section 4.3:
(1) Business Day. The term "Business Day" means a day in
the City of New York, New York which is not a day on which banking
institutions are authorized by law or regulation to close.
(2) Closing Price. The term "Closing Price" on any day
shall mean the closing sale price regular way on such day or, in case
no such sale takes place on such day, the average of the reported closing
bid and asked prices regular way, in each case on the principal national
securities exchange on which the Common Stock is listed or admitted to
trading, or, if not listed or admitted to trading on any national
securities exchange, the average of the closing bid and asked prices of
the Common Stock on the over-the-counter market on the day in question as
reported by the National Quotation Bureau Incorporated, or a similarly
generally reporting service, or if not so available in such manner as
furnished by any New York Stock Exchange member firm selected from time
to time by the Board of Directors of the Company for that purpose.
3
<PAGE> 5
(3) Common Stock. The term "Common Stock" as used in this
Section 4.3 means the Corporation's Common Stock as the same exists as
of the date this Section 4.3 is first filed with the State of Michigan as
an amendment to the Articles of Incorporation. In the event that at any
time as a result of an adjustment made pursuant to Section 4.3.4(6)(a),
the holder of any share or this Series thereafter surrendered for
conversion shall become entitled to receive any shares of the Corporation
other than shares of its Common Stock, the conversion rate of such other
shares so receivable upon conversion of any share shall be subject to
adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to Common Stock
contained in subparagraphs (a) through (h) of Section 4.3.4(6), and the
provisions of Section 4.3.4(1) through (5) and (7) through (11) with
respect to the Common Stock shall apply on like or similar terms to any
such other shares.
(4) Junior Stock. The term "Junior Stock" shall mean the
Common Stock and any other class or series of stock of the Corporation
ranking junior to this Series in preference and priority as to the right
to receive dividends and distributions and to the right to receive any
assets upon the liquidation, dissolution or winding up of the affairs of
the Corporation.
4.3.3 Dividends.
(1) Rate. The annual rate of dividends payable on each
share of this Series shall be 8% or $8.00 per share.
(2) Payment Date. Dividends shall be payable in cash,
quarterly on the last day of March, June, September and December of
each year, commencing September 30, 1997 (each such date hereinafter
referred to as a "Dividend Payment Date"), except that if such date is
not a Business Day (as hereinafter defined), then such dividend shall be
payable on the next succeeding calendar day which is a Business Day. The
amount of dividends payable on shares of this Series for each full
quarterly dividend period shall be computed by dividing by four the
annual rate per share set forth in Section 4.3.3(1). Dividends payable on
shares of this Series for the initial dividend period and dividends
payable for any period less than a full quarterly period shall be
computed on the basis of a 360-day year of twelve 30-day months.
Dividends shall be payable to holders of record of the shares of this
Series as they appear on the books of the Corporation or on the books of
the transfer agent of the Corporation on such respective dates as may be
fixed by the Board of Directors of the Corporation in advance of the
payment of each particular dividend.
(3) Cumulative Date. Dividends payable on shares of this
Series will be cumulative and shall accumulate from date of original
issue. Accumulations of dividends shall not bear interest.
(4) Preferences. So long as any shares of this Series are
outstanding, no dividend (other than a dividend payable in Junior Stock
shall be declared or paid or set aside for payment, and no other
distribution shall be declared or made, upon the Junior Stock or upon any
other stock of the Corporation ranking on a parity with this Series as to
dividends or upon liquidation, nor shall any Junior Stock nor any other
stock or the Corporation ranking on a parity with this Series as to
dividends or upon liquidation be redeemed, purchased or otherwise
acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any shares of any such
stock)
4
<PAGE> 6
by the Corporation (except by conversion into or exchange for
Junior Stock of the Corporation), unless, in each case, the full
cumulative dividends on all outstanding shares of this Series shall have
been paid or contemporaneously are declared and paid through the last
Dividend Payment Date. Should dividends not be paid in full upon the
shares of this Series and any other preferred stock ranking on a parity
as to dividends with this Series, all dividends declared upon shares of
this Series and any other stock of the Corporation ranking on a parity as
to dividends with this Series shall be declared pro rata, so that the
amount of dividends declared per share on this Series and such other
preferred stock shall in all cases bear to each other the same ratio that
accumulated dividends per share on the shares of this Series and such
other stock bear to each other. Holders of shares of this Series shall
not be entitled to any dividends, whether payable in cash, property or
stock, in excess of full cumulative dividends, as herein provided, on
this Series. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on this Series
which may be in arrears.
4.3.4 Conversion Rights.
(1) Conversion Rate. Each share of this Series will be
convertible into Common Stock at any time for the number of shares of
Common Stock per share of this Series equal to one of the following as
selected pursuant to the subscription agreement of the initial purchaser
of shares of this Series (the "Conversion Rate") which is subject to
adjustment as provided in this Section 4.3.4:
ALTERNATIVE A $100 divided by $6.00; or
ALTERNATIVE B $100 divided by the greater of (i) 110% of the
closing sale price of the Common Stock on the on the
American Stock Exchange (the "AMEX") on the date of
issuance of the Shares (or in the absence of a
sale of Common Stock on the AMEX on such date,
the average of the closing bid and asked prices of
the Common Stock on that date) and (ii) $6.00.
(2) Record Date. If any shares of this Series are surrendered for
conversion subsequent to the record date preceding a Dividend Payment
Date but on or prior to such Dividend Payment Date, the registered holder
of such shares at the close of business on such record date shall be
entitled to receive the dividend payable on such shares on such Dividend
Payment Date notwithstanding the conversion thereof. However, the shares
of this Series so surrendered for conversion subsequent to the record
date and prior to the Dividend Payment Date must be accompanied by
payment of an amount equal to the dividend payment to be received on such
Dividend Payment Date with respect to such shares surrendered for
conversion. Except as provided above, the Corporation shall make no
payment or allowance for unpaid dividends, whether or not in arrears, on
converted shares or for dividends on the shares of Common Stock issued
upon such conversion.
(3) Fractional Shares. The Corporation shall not be required, in
connection with any conversion of shares of this Series, to issue a
fraction of a share of its Common Stock, but in lieu thereof the
Corporation shall, subject to Section 4.3.4(6)(f), make a cash payment
(calculated to the nearest cent) equal to such fraction multiplied by
5
<PAGE> 7
the Closing Price of the Common Stock on the last trading day prior to
the date of conversion.
(4) Surrender and Issuance. Any holder of shares of this Series
electing to convert such shares into Common Stock shall surrender the
certificate or certificates for such shares at the office of the Transfer
Agent therefor (or at such other place as the Corporation may designate
by notice to the holders of shares of this Series) during regular
business hours, duly endorsed to the Corporation or in blank, or
accompanied by instruments of transfer to the Corporation or in blank, in
form satisfactory to the Corporation, and shall give written notice to
the Corporation at such office that such holder elects to convert such
shares of this Series. The Corporation shall, as soon as practicable
(subject to Section 4.3.4(6)(f) hereof) after such deposit of
certificates for shares of this Series, accompanied by the written notice
above prescribed and the payment of cash in the amount, if any, required
by Section 4.3.4(2), issue and deliver at such office to the holder for
whose account such shares were surrendered, or to the holder's nominee,
certificates representing the number of shares of Common Stock and the
cash, if any, to which such holder is entitled upon such conversion.
(5) Conversion Date. Conversion shall be deemed to have been made
as of the date of surrender of certificates for the shares of this Series
to be converted, and the giving of written notice and payment, as
prescribed in Sections 4.3.4(2) and 4.3.4(4); and the person entitled to
receive the Common Stock issuable upon such conversion shall be treated
for all purposes as the record holder of such Common Stock on such date.
The Corporation shall not be required to deliver certificates for shares
of its Common Stock while the stock transfer books for such stock or for
this Series are duly closed for any purpose, but certificates for shares
of Common Stock shall be issued and delivered as soon as practicable
after the opening of such books.
(6) Conversion Rate Adjustment. The conversion rate shall be
adjusted from time to time as follows:
(a) Changes to Common Stock. In case the Corporation shall, at
any time or from time to time while any of the shares of this
Series are outstanding, (i) issue shares of its Common Stock as a
dividend or distribution on the Common Stock, (ii) subdivide its
outstanding shares of Common Stock, or (iii) combine its
outstanding shares of Common Stock into a smaller number of shares,
the conversion price and the conversion rate in effect immediately
prior to such action shall be adjusted so that the holder of any
shares of this Series thereafter surrendered for conversion shall
be entitled to receive the number of shares of capital stock of the
Corporation which such holder would have owned or have been
entitled to receive immediately following such action had such
shares of this Series been converted immediately prior thereto. An
adjustment made pursuant to this Section 4.3.4(6)(a) shall become
effective retroactively to immediately after the opening of
business on the day following the record date in the case of a
dividend and shall become effective immediately after the opening
of business on the day following the effective date in the case of
a subdivision or combination. If, as a result of an adjustment
made pursuant to this Section 4.3.4(6)(a), the holder of any shares
of this Series thereafter surrendered for conversion shall become
entitled to receive shares of two or more classes of capital stock
of the Corporation, the Board of Directors (whose determination
shall be conclusive)
6
<PAGE> 8
shall determine the allocation of the adjusted conversion price
and/or conversion rate between or among shares of such classes of
capital stock.
(b) Issuance of Rights, Options or Warrants. In case the
Corporation shall, at any time or from time to time while any of
the shares of this Series are outstanding, issue rights, options or
warrants to all holders of shares of its Common Stock entitling
them to subscribe for or acquire shares of Common Stock (or
securities convertible into or exchangeable for Common Stock) at a
price per share less than the current Market Price per share of
Common Stock (as defined in Section 4.3.4(6)(d)), at the record
date for the determination of stockholders entitled to receive such
rights, options or warrants, the Conversion Rate shall be adjusted
so that it shall equal the rate determined by multiplying the
conversion rate in effect immediately prior to the date of issuance
of such rights, options or warrants by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding
immediately prior to the date of issuance of such rights, options
or warrants plus the number of additional shares of Common Stock
offered for subscription or purchase, and the denominator of which
shall be the number of shares of Common Stock outstanding
immediately prior to the date of issuance of such rights, options
or warrants plus the number of shares which the aggregate offering
price of the total number of shares so offered would purchase at
such current Market Price (as defined below). For the purposes of
this Section 4.3.4(6)(b), the issuance of rights, options or
warrants to subscribe for or purchase securities convertible into
Common Stock shall be deemed to be the issuance of rights, options
or warrants to purchase the shares of Common Stock into which such
securities are convertible at an aggregate offering price equal to
the aggregate offering price of such securities plus the minimum
aggregate amount (if any) payable upon conversion of such
securities into shares of Common Stock; provided, however, that if
all of the shares of Common Stock subject to such rights, options
or warrants have not been issued when such rights, options or
warrants expire, then the conversion price shall promptly be
readjusted to the conversion price which would then be in effect
had the adjustment upon the issuance of such rights or warrants
been made on the basis of the actual number of shares of Common
Stock issued upon the exercise of such rights, options or warrants.
An adjustment made pursuant to this subsection (6)(b) shall become
effective retroactively immediately after the record date for the
determination of stockholders entitled to receive such rights,
options or warrants.
(c) Distributions of Debt or Assets. In case the Corporation
shall, at any time or from time to time while any of the shares
of this Series are outstanding, distribute to all holders of shares
of its Common Stock evidences of its indebtedness or securities or
assets (excluding cash dividends or dividends payable in shares of
Common Stock) or rights, options or warrants to subscribe for
securities of the Corporation or any of its subsidiaries (excluding
those referred to in Section 4.3.3(6)(b)), then in each such case
the conversion rate shall be adjusted so that it shall equal the
rate determined by multiplying the conversion rate in effect
immediately prior to the date of such distribution by a fraction,
the numerator of which shall be the current Market Price per share
(determined as provided in Section 4.3.4(6)(d)) of the Common Stock
on the record date referred to below, and the denominator of which
shall be such current Market Price per share of the Common Stock
less the then fair market value (as determined by the Board of
Directors of the Corporation, whose determination shall be
conclusive)
7
<PAGE> 9
of the portion of the assets or evidences of indebtedness or
securities or assets so distributed or of such subscription rights,
options or warrants applicable to one share of Common Stock. Such
adjustment shall become effective retroactively immediately after
the record date for the determination of stockholders entitled to
receive such distribution.
(d) Market Price. For the purpose of any computation under
Section 4.3.4(6)(b) and 4.3.4(6)(c), the current Market Price of a
share of Common Stock (the "Market Price") on any date shall be the
average of the daily Closing Price for the ten (10) consecutive
trading days ending on and including the date of determination of
the current Market Price.
(e) Tax Adjustments. The Corporation shall be entitled to
make such additional adjustments in the conversion price, in
addition to those required by subsections 4.3.4(6)(a), 4.3.4(6)(b)
and 4.3.4(6)(c), as shall be necessary in order that any dividend
or distribution in shares of stock, subdivision or combination of
shares of Common Stock, issuance of rights, options or warrants,
evidences of indebtedness or assets (other than cash dividends)
referred to above, shall not be taxable to the stockholders.
(f) Deferral of Issuance of Common. In any case in which
this Section 4.3.4(6) shall require that an adjustment be made
retroactively immediately following a record date, the Corporation
may elect to defer (but only for five (5) Business Days following
the filing of the statement referred to in Section 4.3.4(6)(h))
issuing to the holder of any shares of this Series converted after
such record date (i) the shares of Common Stock and other capital
stock of the Corporation issuable upon such conversion over and
above (ii) the shares of Common Stock and other capital stock of
the Corporation issuable upon such conversion on the basis of the
conversion rate prior to adjustment.
(g) Deferral of Adjustment. Notwithstanding any other
provisions of this Section 4.3.4(6), the Corporation shall not be
required to make any adjustment of the conversion rate unless such
adjustment would require an increase or decrease of at least 1% in
such rate. However, an adjustment not made shall be carried
forward and shall be made at the time of and together with the next
subsequent adjustment which, together with any adjustment or
adjustments so carried forward, shall amount to an increase or
decrease of at least 1% in such rate.
(h) Notice. Whenever an adjustment in the conversion rate is
required, the Corporation shall forthwith place in its files
and with its Transfer Agent, if any, a statement signed by its
Chief Executive Officer, Chief Financial Officer, Chief Operating
Officer or a Senior Vice President and by its Secretary, Assistant
Secretary or Treasurer, stating the adjusted conversion rate
determined as provided herein. Such statements shall set forth in
reasonable detail such facts as shall be necessary to show the
reason and the manner of computing such adjustment. Promptly after
the adjustment of the conversion rate, the Corporation shall mail a
notice thereof to each holder of shares of this Series briefly
stating the facts requiring the adjustment and the manner of
computing it.
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<PAGE> 10
(7) Reclassification/Merger. In case of (a) any reclassification or
change of outstanding shares of Common Stock issuable upon conversion of
shares of this Series (other than as a result of a subdivision or
combination), or (b) any consolidation or merger of the Corporation with
or into one or more other corporations (other than a consolidation or
merger in which the Corporation is the surviving corporation and which
does not result in any reclassification or change of outstanding shares
of Common Stock issuable upon conversion of shares of this Series), or
(c) any sale or conveyance to another corporation or other entity of all
or substantially all of the assets of the Corporation, then the
Corporation, or such successor corporation or other entity, as the case
may be, shall make appropriate provision so that the holder of each share
of this Series then outstanding shall have the right to receive on
conversion the consideration that the holder would have received had the
holder converted immediately prior to such event. The provisions of this
Section 4.3.4(7) shall apply similarly to successive consolidations,
mergers, sales or conveyances.
(8) Status of Converted Shares. Any shares of this Series which
shall at any time have been converted shall, after such conversion, have
the status of authorized but unissued shares of Preferred Stock, without
designation as to series until such shares are once more designated as
part of a particular series by the Board of Directors. The Corporation
shall at all times reserve and keep available out of its authorized but
unissued stock, for the purpose of effecting the conversion of the shares
of this Series, such number of its duly authorized shares of Common Stock
as shall from time to time be sufficient to effect the conversion of all
outstanding shares of this Series.
(9) Registration of Common. If any shares of Common Stock required
to be reserved for purposes of conversion of shares of this Series
hereunder require registration with or approval of any governmental
authority before such shares may be issued upon conversion, the
Corporation shall cause such shares to be duly registered or approved, as
the case may be. The Corporation will file a registration statement
under the Securities Act of 1933 covering the Common Stock issuable upon
conversion of the shares of this Series, not later than 60 days after the
first such shares are issued, on such form of registration statement as
may be available to the Corporation and will use its best efforts to
cause such registration statement to become effective and to keep such
shares covered by an effective registration statement under the
Securities Act of 1933 for a period of not less than two years from the
date such shares are last issued.
(10) Taxes. The Corporation shall pay any and all issue or other
taxes that may be payable in respect of any issue or delivery of shares
of Common Stock on conversion of shares of this Series pursuant hereto.
The Corporation shall not, however, be required to pay any tax which is
payable in respect of any transfer involved in the issue or delivery of
Common Stock in a name other than that in which the shares of this Series
so converted were registered, and no such issue or delivery shall be made
unless and until the person requesting such issue has paid to the
Corporation the amount of such tax, or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(11) Mandatory Conversion. If, on any date, the Market Price
determined as of that date, is equal to or greater than $10, the then
outstanding shares of this Series shall be converted into Common Stock as
though the holders hereof had elected to convert pursuant to this Section
4.3.4. In such event the Corporation shall send a notice of such
conversation by first class mail, postage prepaid, to each holder of
record of the shares of this Series then outstanding at the address
appearing on the stock register
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<PAGE> 11
of the Corporation. Such notice shall specify the trading days and
closing prices used to compute the Market Price used to determine the
need for a mandatory redemption and a date (the "Mandatory Conversion
Date") not less than 30 days after the date of the mailing of the notice
(the "Notice Date") prior to which such shares shall be submitted for
conversion. All shares of this Series outstanding on the Notice Date and
not submitted for conversion hereunder prior to the Notice Date shall be
deemed, for all purposes to have been surrendered and canceled, and
returned to the status of authorized and unissued shares on the Mandatory
Conversion Date, shall cease to accrue dividends thereafter and all
rights of the holders thereof shall cease (except to receive accrued
dividends and the appropriate number of shares of Common Stock). The
holders of such shares shall have issued the Common Stock into which it
such shares are convertible together with payment of accrued dividends
immediately upon the later of the surrender thereof, as provided above,
or the Mandatory Conversion Date. Until actually surrendered, the holder
thereof shall not be entitled to vote as a holder of this Series or as a
holder of Common Stock upon any matter put to a vote of shareholders nor
shall any dividend declared with respect to the Common Stock be paid.
4.3.5 Voting.
(1) Limited Voting Rights. The shares of this Series shall not
have voting rights, except as required by the Michigan Business
Corporation Act and except as follows:
(a) Unpaid Dividend. If and whenever at any time or times
dividends payable on shares of this Series shall have been in
arrears and unpaid in an aggregate amount equal to or exceeding the
amount of dividends payable thereon for two (2) consecutive
quarterly dividend periods, then the holders of shares of this
Series shall have the right to elect by a majority vote of the
shares outstanding one (1) director of the Corporation, such
director to be in addition to the number of directors constituting
the Board of Directors immediately prior to the accrual of such
right, the remaining directors to be elected by the other class or
classes of stock entitled to vote therefor at each meeting of
stockholders held for the purpose of electing directors. So long as
the Corporation's Board of Directors is divided into classes, the
director of the Corporation so elected by the holders of shares of
this Series shall be elected to the class with the longest
remaining term.
(b) Term of Directors. Such voting right may be exercised
initially either at a special meeting of the holders of this
Series having such voting right, called as hereinafter provided,
or at any annual meeting of stockholders held for the purpose of
electing directors, and thereafter at each such annual meeting.
The right of the holders of this Series to vote for the election
of such members of the Board of Directors of the Corporation as
aforesaid shall continue until such time as all dividends
accumulated on the shares of this Series shall have been paid in
full, at which time such voting right of the holders of this
Series shall terminate and, if such voting rights of the holders
of this Series and all other series of Preferred Stock so entitled
shall have terminated, subject to the requirements of the Michigan
Business Corporation Act, the term of the director elected
pursuant to Section 4.3.5(1)(a) shall terminate, subject to
revesting on the basis set forth in Section 4.3.5(1)(a).
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<PAGE> 12
(c) Meeting for Vote. At any time when such voting right
shall have vested in holders of this Series, and if such right
shall not already have been initially exercised, a proper officer
of the Corporation shall, upon the written request of the record
holders of 10% in number of shares of this Series then outstanding,
addressed to the Secretary of the Corporation, call a special
meeting of the holders of this Series. Such meeting shall be held
at the earliest practicable date upon the notice required for
annual meetings of stockholders at the place for holding annual
meetings of stockholders of the Corporation or, if none, at a place
designated by the Board of Directors. If such meeting is not
called by the proper officers of the Corporation within 30 days
after the personal service of such written request upon the
Secretary of the Corporation, or within 35 days after mailing the
same within the United States of America, by registered mail,
addressed to the Secretary of the Corporation at its principal
office (such mailing to be evidenced by the registry receipt issued
by the postal authorities), then the record holders of 10% in
number of shares of this Series then outstanding may designate in
writing one of their number to call such meeting at the expense of
the Corporation, and such meeting may be called by such person so
designated upon the notice required for annual meetings of
stockholders and shall be held at the same place as is elsewhere
provided for in this Section 4.3.5(1)(c) or such other place as is
selected by such designated stockholder. Any holder of this Series
who would be entitled to vote at such meeting shall have access to
the stock books of the Corporation for the purpose of causing a
meeting of stockholders to be called pursuant to the provisions of
this Section 4.3.5(1). Notwithstanding the provisions of this
Section 4.3.5(1), no such special meeting shall be called during a
period within 90 days immediately preceding the date fixed for the
next annual meeting of stockholders.
(d) Quorum. At any meeting held for the purpose of electing
directors at which the holders of this Series shall have the right
to elect a director as provided herein, the presence in person or
by proxy of the holders of a majority of the then outstanding
shares of this Series having such right shall be required and shall
be sufficient to constitute a quorum of such class for the election
of directors by such class. At any such meeting or adjournment
thereof (i) the absence of a quorum of the holders of this Series
shall not prevent the election of directors other than those to be
elected by the holders of this Series, and the absence of a quorum
or quorums of the holders of capital stock entitled to elect such
other directors shall not prevent the election of directors to be
elected by the holders of this Series entitled to elect a director
and (ii) except as otherwise required by law, in the absence of a
quorum of the holders of any class of stock entitled to vote for
the election of directors, a majority of the holders of a class
present in person or by proxy of such class shall have the power to
adjourn the meeting for the election of directors which the holders
of such class are entitled to elect, from time to time, without
notice other than announcement at the meeting, until a quorum is
present.
(e) Vacancy of Director. Any vacancy in the Board of
Directors in respect of a director elected by holders of this
Series pursuant to the voting right created under this Section
4.3.5(1) shall be filled by vote of the holders of this Series
entitled to elect such director or directors at a special
11
<PAGE> 13
meeting called in accordance with the procedures set forth in
Section 4.3.5(1)(c), or, if no such special meeting is called, at
the next annual meeting of stockholders.
(f) Modification of Rights of Holders. So long as any shares
of this Series remain outstanding, the Corporation shall not,
either directly or indirectly, without the affirmative vote at a
meeting or the written consent with or without a meeting of the
holders of at least 66 2/3% of the shares of this Series then
outstanding, (i) amend, alter or repeal any of the provisions of
the Articles of Incorporation relating to this Series or the
Articles of Incorporation, or authorize any reclassification of the
shares of this Series, so as in any such case to affect adversely
the preferences, special rights or privileges or voting power of
the shares of this Series, or (ii) authorize or create any class of
stock ranking senior to the shares of this Series as to dividends
or distribution of assets on liquidation, or create, or issue or
increase the authorized number of shares of any series of the
Corporation's authorized preferred stock ranking prior to the
shares of this Series as to dividends or distributions on
liquidation.
(g) Exercise of Vote. In exercising the voting rights set
forth in this Section 4.3.5(1), each share of this Series entitled
to such voting right shall have equal voting power, notwithstanding
any greater or lesser general voting powers of one or more other
series of Preferred Stock
(2) No Consent. No consent of holders of shares of this Series
shall be required for (i) the creation of any indebtedness of any kind of
the Corporation, (ii) the authorization or issuance of any class of stock
of the Corporation junior to or on a parity to the shares of this Series
as to dividends and upon liquidation, dissolution or winding up of the
Corporation or (iii) subject to Section 4.3.5(1)(f), the issuance of any
shares of Preferred Stock.
4.3.6 Liquidation Rights.
(1) Preference Amount. Upon the dissolution, liquidation or
winding up of the Corporation, whether voluntary or involuntary, the
holders of the shares of this Series shall be entitled to receive out of
the assets of the Corporation available for distribution to stockholders,
before any payment or distribution shall be made on the Common Stock or
on any other class of stock ranking junior to this Series upon
liquidation, liquidating distribution in the amount of $100.00 per share,
plus all accumulated and unpaid dividends to the date of final
liquidation.
(2) Events Not a Liquidation. Neither the sale, lease or exchange
(for cash, shares of stock, securities or other consideration) of all or
substantially all the property and assets of the Corporation nor the
merger or consolidation of the Corporation into or with any other
corporation or the merger or consolidation of any other corporation into
or with the Corporation, shall be deemed to be a dissolution, liquidation
or winding up, voluntary or involuntary, for the purposes of this
Section.
(3) Additional Claims. After the payment to the holders of the
shares of this Series of the full preferential amounts provided for in
this Section, the holders of this Series as such shall have no right or
claim to any of the remaining assets of the Corporation.
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<PAGE> 14
(4) Deficiency. In the event the assets of the Corporation
available for distribution upon any dissolution, liquidation or winding
up of the Corporation, whether voluntary or involuntary, shall be
insufficient to pay the full preferential amounts to which such holders
are entitled pursuant to Section 4.3.6(1), no such distribution shall be
made on account of any shares of any other class or series of Preferred
Stock ranking on a parity with the shares of this Series upon such
dissolution, liquidation or winding up unless proportionate distributive
amounts shall be paid on account of the shares of this Series, ratably,
in proportion to the full distributable amounts for which holders of all
such parity shares are respectively entitled upon such dissolution,
liquidation or winding up.
4.3.7 Priority.
Any stock of any class or series of the Corporation shall be deemed
to rank:
(1) Senior. Senior to the shares of this Series, either as to
dividends or upon liquidation, if the holders of such class or classes
shall be entitled to the receipt of dividends or of amounts distributable
upon dissolution, liquidation or winding up of the Corporation, whether
voluntary or involuntary, as the case may be, in preference or priority
to the holders of shares of this Series;
(2) Parity. On a parity with shares of this Series, either as to
dividends or upon liquidation, whether or not the dividend rates,
Dividend Payment Dates, or redemption or liquidation prices per share or
sinking fund provisions, if any, are different from those of this Series,
if the holders of such stock are entitled to the receipt of dividends or
of amounts distributable upon dissolution, liquidation or winding up of
the Corporation, whether voluntary or involuntary, in proportion to their
respective dividend rates or liquidation prices, without preference or
priority, one over the other, as between the holders of such stock and
the holders of shares of this Series; and
(3) Junior. Junior to shares of this Series, either as to
dividends or upon liquidation, if such class or series shall be Common
Stock or if the holders of shares of this Series shall be entitled to
receipt of dividends or of amounts distributable upon dissolution,
liquidation or winding up of the Corporation, whether voluntary or
involuntary, as the case may be, in preference or priority to the holders
of shares of such class or series.
4.3.8 Redemption. No holders of shares of this Series shall have
any right to have redeemed nor can a holder be required to have redeemed
any shares of this Series unless and until otherwise provided for by an
act of the Corporation and agreed to by such holder.
ARTICLE V
The street and mailing address of the registered office is 5460 Executive
Parkway, S.E., Grand Rapids, Michigan, 49512.
The name of the resident agent at the registered office is Kenneth K.
Rieth.
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<PAGE> 15
ARTICLE VI
The name and address of the incorporator are as follows:
Name Business Address
Stuart F. Cheney 650 Frey Bldg.
Grand Rapids, MI 49503
ARTICLE VII
When a compromise or arrangement or a plan of reorganization of this
corporation is proposed between this corporation and its creditors or any class
of them or between this corporation and its shareholders or any class of them,
a court of equity jurisdiction within the state, on application of this
corporation or of a creditor or shareholder thereof, or on application of a
receiver appointed for the corporation, may order a meeting of the creditors or
class of creditors or of the shareholders or class of shareholders to be
affected by the proposed compromise or arrangement or reorganization, to be
summoned in such manner as the court directs. If a majority in number
representing 3/4 in value of the creditors or class of creditors, or of the
shareholders or class of shareholders to be affected by the proposed compromise
or arrangement or a reorganization, agree to a compromise or arrangement or a
reorganization of this corporation as a consequence of the compromise or
arrangement, the compromise or arrangement and the reorganization, if
sanctioned by the court to which the application has been made, shall be
binding on all the creditors or class of creditors, or on all the shareholders
or class of shareholders and also on this corporation.
ARTICLE VIII
No director of the corporation shall be personally liable to the
corporation or to its shareholders for monetary damages for breach of the
director's fiduciary duty, except for liability (i) for a breach of the
director's duty of loyalty to the corporation or its shareholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
knowing violation of law, (iii) for a violation of Section 551(1) of the
Michigan Business Corporation Act, (iv) for a transaction from which the
director derived an improper personal benefit, or (v) for an act or omission
occurring before the effective date of this Article VIII. Any repeal or
modification of this Article VIII by the shareholders of the corporation shall
not adversely affect any right or protection of a director of the corporation
existing at the time of such repeal or modification.
ARTICLE IX
The corporation shall indemnify its directors and officers in the manner
and to the fullest extent as now or hereafter permitted by law. The
corporation shall indemnify any person who was or is a party, or is threatened
to be made a party, to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he or she is or was a director or officer of the corporation,
or is or was serving another organization or entity (whether for profit or not)
at the corporation's request. Such indemnification shall be to the fullest
extent, and shall be determined in such manner, as now or hereafter permitted
by law.
Notwithstanding the foregoing, the indemnification and advancement of
expenses provided by or granted under the Michigan Business Corporation Act
shall not be considered exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be
entitled under the Articles of Incorporation, Bylaws, insurance or a
contractual agreement.
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<PAGE> 16
ARTICLE X
(1) Any action required or permitted by the Michigan Business Corporation
Act to be taken at an annual or special meeting of shareholders may be taken
without a meeting, without prior notice and without a vote, if consents in
writing, setting forth the action so taken, are signed by the holders of
outstanding shares having not less than the minimum number of votes that would
be necessary to authorize or take action at a meeting at which all shares
entitled to vote on the action were present and voted. The written consents
shall bear the date of signature of each shareholder who signs the consent. No
written consents shall be effective to take the corporate action referred to
unless within 60 days after the record date for determining shareholders
entitled to express consent to or to dissent from a proposal without a meeting,
written consents signed by a sufficient number of shareholders to take the
action are delivered to the corporation. Delivery shall be to the
corporation's registered office, its principal place of business, or an officer
or agent of the corporation having custody of the minutes of the proceedings of
its shareholders. Delivery made to the corporation's registered office shall
be by hand or by certified or registered mail, return receipt requested.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to shareholders who have not
consented in writing.
(2) Any action required or permitted by this act to be taken at an annual
meeting or special meeting of shareholders may be taken without a meeting,
without prior notice, and without a vote, if before or after the action all the
shareholders entitled to vote consent in writing. If the action consented to
would have required filing of a certificate under any other section of this act
if the action had been voted upon by shareholders at the meeting, the
certificate filed under a different section shall state, in lieu of any
statement required by the section concerning a vote of shareholders, that
written consent has been given as provided by this section.
(3) The necessary number of shares as required by statute were voted in
favor of the restated articles.
IN WITNESS WHEREOF, the undersigned has hereunto signed these Articles of
Incorporation on this ____ day of ______________, 1997.
RIVIERA TOOL COMPANY
By:____________________________
Kenneth K. Rieth, President
PREPARED BY:
Stuart F. Cheney
Dickinson Wright Moon et al
200 Ottawa Avenue NW Suite 900
Grand Rapids, MI 49503
(616) 458-1300
15
<PAGE> 1
EXHIBIT 10(A)
1996 INCENTIVE STOCK OPTION PLAN
<PAGE> 2
Per 4/16/97
Board Resolution
RIVIERA TOOL COMPANY
1996 INCENTIVE STOCK OPTION PLAN
Section 1 - Purpose
The RIVIERA TOOL COMPANY 1996 INCENTIVE STOCK OPTION PLAN (hereinafter
called the "Plan") is a plan to provide incentive to certain employees of
Riviera Tool Company and its subsidiaries (hereinafter called the
"Corporation") based upon such employees' individual contributions to the long
term growth and profitability of the Corporation, in order to encourage their
identity with shareholder concerns and their current and continuing interest in
the development and financial success of the Corporation.
Section 2 - Definitions
(a) The term "subsidiaries" shall mean those corporations and partnerships
in which the Corporation owns directly or indirectly a majority equity interest
as defined under generally accepted accounting principles.
(b) The term "Code" shall mean the Internal Revenue Code of 1986, as the
same may be from time to time amended.
(c) The term "Committee" shall mean such committee of the Board of
Directors of the Corporation as shall be established by the Board of Directors,
the members of which shall be "disinterested persons" under Rule 16b-3 of the
Securities and Exchange Commission (or any successor regulation issued under
federal securities laws) and shall be ineligible to participate in the Plan, or
in the absence of an appointed committee all members of the Board of Directors
who are disinterested persons.
(d) The term "company stock" shall mean shares of the common capital stock
of the Corporation available for award or awarded, or subject to options or
rights granted, under the Plan.
(e) The term "market value" shall mean for a share of company stock as of
any date (i) the mean between the highest and lowest sale prices for the
company stock as reflected in the National Association of Securities Dealers
Automated Quotation System (NASDAQ) for that date, or if there is no sale on
such date then on the next preceding date on which a sale has occurred, or (ii)
if there is no public trading market for the company stock, then the value
established by the Committee or the Board of Directors for purposes of the
Plan.
(f) The term "options" shall mean collectively the incentive stock options
available for grant or granted under Section 8 of the Plan.
<PAGE> 3
Per __/__/97
Board Resolution
(g) The term "optionee" means any person to whom an option or right has
been granted or who becomes a holder of an option or right under Section 8 of
the Plan.
Section 3 - Effective Date and Duration
Subject to the approval of the Plan by the shareholders of the
Corporation, the Plan shall be effective upon the effective date of a
registration statement for the Corporation filed with the Securities and
Exchange Commission for the initial public offering of common stock of the
Corporation. The Plan shall continue until it is terminated by the Board of
Directors as provided in Section 10.
Section 4 - Administration
The Committee shall be responsible for the general operation and
administration of the Plan and shall have the authority to interpret the Plan
and to adopt administrative rules and regulations governing its operation. The
Committee may delegate the performance of administrative functions to the
Secretary of the Committee.
Section 5 - Participation, Stock Awards and Option Grants
(a) Each year, the Committee shall designate as participants in the Plan
those officers and employees of the Corporation and those former officers and
employees who have a consulting arrangement with the Corporation that the
Committee determines.
(b) Each year, the Committee may grant stock options that qualify as
"incentive stock options" within the meaning of Section 422 of the Code to each
current and former officer and employee whom it has designated as a participant
for such year. Upon the approval by the Board of Directors of the Corporation
of the individual awards and/or grants, if any, made to executive officers and
of the total of all awards and grants made to all other persons, the
determination of the Committee as to each such award and grant shall become
final.
Section 6 - Shares Reserved Under the Plan
There is hereby reserved for use upon exercise of options to be granted
from time to time under the Plan, an aggregate of 50,000 shares of company
stock may be authorized but unissued shares, treasury shares, shares acquired
in the open market, or any combination of the foregoing, and if acquired in the
open market, shall be acquired by an agent independent of the Corporation. Any
shares
2
<PAGE> 4
Per __/__/97
Board Resolution
of company stock underlying options that are forfeited pursuant to
Section 8(d) of the Plan and, to the extent permissible for purposes of
allowing the Plan to continue to be considered as described under Rule 16b-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), any
shares of company stock that are used for full or partial payment of the
purchase price of shares with respect to which an option is exercised pursuant
to Section 8 of the Plan may thereafter again be awarded or made subject to
grant under the Plan. In the event of any change in the outstanding shares of
the common capital stock of the Corporation by reason of a stock dividend,
stock split, recapitalization, merger, consolidation, combination or exchange
of shares, or other similar change, the Committee may make appropriate
adjustments in the aggregate number of shares of company stock made subject to
options granted or reserved for award or grant under the Plan, in the prices of
options granted, or provide for the substitution of other securities of the
class exchanged for common capital stock of the Corporation in any merger or
consolidation.
Section 7 - Options Granted Under the Plan
(a) Options granted to a participant may not be sold, transferred,
alienated or assigned (other than by will or the laws of descent and
distribution) during the exercise period established with respect to such
shares, but nothing contained in this sentence shall preclude the sale or other
transfer of shares of company stock obtained by the proper exercise of any
option. During the lifetime of an optionee, the option shall be exercisable
only by the optionee personally or by the optionee's legal representative.
(b) The exercise of options by a participant under this Plan shall be
subject to satisfaction of the conditions precedent that the participant
refrain from engaging in any activity that, in the opinion of the Committee, is
competitive with any activity of the Corporation (except that employment at the
request of the Corporation with an entity in which the Corporation has,
directly or indirectly, a substantial ownership interest, or other employment
specifically approved by the Committee, shall not be considered to be an
activity that is competitive with any activity of the Corporation) and from
otherwise acting, either prior to or after termination of employment, in any
manner inimical or in any way contrary to the best interests of the Corporation
and that the participant furnish to the Corporation such information with
respect to the satisfaction of the foregoing conditions precedent as the
Committee shall reasonably request. Any shares of company stock obtained upon
exercise of an option granted under the Plan may be made subject to such other
conditions or restrictions as the Committee deems advisable, including without
limitation, provisions to comply with federal and state securities laws.
(c) Certificates issued for shares of company stock acquired pursuant to
this Plan may bear a legend stating that the shares are issued subject to the
restrictions set forth in the Plan.
3
<PAGE> 5
Per __/__/97
Board Resolution
Section 8 - Grants of Options
(a) Participants eligible to receive grants of options under this Section
8 shall be selected by the Committee from among the officers and employees of
the Corporation and from former officers and employees who have a consulting
arrangement with the Corporation. The Committee may grant more than one option
to any eligible current or former officer or employee.
(b) The Committee shall determine the eligible participants to whom, and
the time or times at which, options will be granted, the number of shares to be
subject to each option, the duration of each option, the time or times within
which the option may be exercised, the cancellation of the option (with the
consent of the holder thereof) and the other conditions of the grant of the
option. The provisions and conditions of the grants of options need not be the
same with respect to each optionee or with respect to each option.
(c) Except as otherwise specifically provided herein, options granted
pursuant to the Plan shall be subject to the following terms and conditions:
(i) Option Price. At the time the Committee approves the grant, the
Committee shall determine the option price which shall be not less than
one hundred percent (100%) of the market value of the company stock on
the date of Committee approval of the grant. With respect to any option
granted to a participant who owns, or is deemed to own, stock possessing
more than ten percent (10%) of the voting rights of the Company's
outstanding capital stock at the date of the grant, the exercise price of
the option must be at least equal to one hundred ten percent (110%) of
the fair market value on the date of the grant of the option and may not
be exercisable more than five (5) years after the date of the grant.
(ii) Payment. The option price shall be paid in full at the time of
exercise. No shares shall be issued until full payment has been
received therefor. Payment may be in cash or, with the prior approval of
and upon the conditions established by the Committee, by delivery of
shares of company stock owned by the optionee; provided, however, that
company stock acquired by the optionee through the exercise of an
incentive stock option may not be used for payment prior to the
expiration of the holding periods prescribed in Section 422(a)(1) of the
Code. If payment is made by the delivery of shares of company stock, the
value of the shares on the day they are delivered shall be the market
value on such day.
(iii) Duration of Options. The duration of options shall be
determined by the Committee, but in no event shall the maximum duration
of an incentive stock option exceed ten (10) years from the date of its
grant.
(iv) Other Terms and Conditions. Options may contain such other
provisions, not inconsistent with the provisions of the Plan, as the
Committee shall determine to be appropriate
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Per __/__/97
Board Resolution
from time to time; provided, however, that no option shall be
exercisable in whole or in part for a period of twelve (12) months from
the date on which the option is granted. Options shall be exercisable in
full or in such cumulative installments as shall be determined by the
Committee on the grant of the option. If an option shall be exercisable
in installments, the Committee may, in its discretion, provide for other
events in which all installments shall become immediately exercisable if
any installment be presently exercisable.
(v) Incentive Stock Options. The Committee may not grant a
participant incentive stock options in the aggregate that are first
exercisable during any one calendar year with respect to company stock
the aggregate market value of which exceeds $100,000, taking into account
all stock option plans of the Corporation.
(d) If the employment of an optionee to whom an incentive stock option has
been granted under the Plan shall be terminated (except as set forth
below) such option may be exercised, to the extent that the option was
exercisable on the date of termination of employment, only until the earlier of
three (3) months after such termination or the original expiration date of the
option; provided, however, that any option held by an optionee whose employment
shall be terminated either (i) for cause or (ii) voluntarily by the optionee
and without the consent of the participating affiliate by which the optionee
was employed (which consent shall be assumed in the case of retirement at
normal retirement age but not in the case of early retirement) shall, to the
extent not theretofore exercised, immediately terminate. If an optionee to whom
an incentive stock option has been granted under the Plan shall become disabled
while employed and such disability results in the termination of employment,
such option may be exercised, to the extent that the option was exercisable on
the date of termination of employment, by either the disabled optionee or such
optionee's legal representative, as the case may be, and the right to exercise
the option shall terminate upon the earlier of the expiration of twelve (12)
months from the date of such termination of employment or the original
expiration date of the option. If an optionee has been granted an option
exercisable in installments, then, notwithstanding the terms specifying the
installments in which the option shall be exercisable, upon the death or
disability of the optionee at any time subsequent to the expiration of the
first year of the term of the option, the option shall be exercisable within
the time period set forth above as to all shares of company stock remaining
subject to the option. For the purposes of this Section 8, the term "disabled"
shall have the meaning contained within Section 22(e)(3) of the Code.
(e) An optionee or a transferee of an option pursuant to Section 7(a)
shall have no rights as a shareholder with respect to any company stock the
subject of either an unexercised or exercised option until the optionee or
transferee shall have become the holder of record of such stock, and no
adjustments shall be made for dividends in cash or other property or other
distributions or rights in respect of such stock for which the record date is
prior to the date on which the optionee or transferee shall have in fact become
the holder of record of the company stock acquired pursuant to the option or
right.
5
<PAGE> 7
Per __/__/97
Board Resolution
Section 9 - General
(a) If, in connection with the exercise of any option hereunder, it is
necessary or desirable, to comply with any law or regulation of any
governmental authority relating to the issuance or sale of securities, that the
participant receiving such shares shall agree that the participant will take
the shares for investment and not with any present intention to resell the same
and that the participant will dispose of such shares only in compliance with
such laws and regulations, the participant shalL upon the request of the
Committee, execute and deliver to the Committee an agreement to such effect
satisfactory to the Committee.
(b) If a participant dies prior to the exercise in full of any option
granted to the participant, the option and any shares issued thereunder shall
be distributed to the participant's designated beneficiary or, in the absence
of a beneficiary designation, to the participant's estate. The designation of a
beneficiary shall be made in writing on a form prescribed by and filed with the
Secretary of the Committee.
(c) Neither the establishment of the Plan nor any provisions of the Plan
or modification thereof shall be held or construed as giving any participant in
the Plan the right to be retained in the service of the Corporation and the
Corporation expressly reserves its right to discharge any such participant
whenever the interests of the Corporation may so require.
(d) Each distribution of company stock under this Plan shall be made
subject to such federal, state and local tax withholding requirements
as apply on the distribution date. For this purpose, the Committee may provide
for the withholding of shares of company stock or allow a participant to tender
back to the Corporation shares of company stock received in such distribution.
(e) Notwithstanding any other provisions in the Plan, in the event of a
Change in Control (as hereinafter defined) all options then outstanding shall
become immediately exercisable. Distribution of all shares of company stock
due because of the exercise of options, shall be made as soon as practicable
within sixty (60) days after the date of the Change in Control. For purposes
of this Plan, a Change in Control shall occur if any "person" or "group" within
the meaning of Section 13(d) and 14(d)(2) of the Exchange Act becomes the
"beneficial owner" as defined in Rule 13d-3 under the Exchange Act of more than
thirty percent (30%) of the then outstanding voting securities of the
Corporation otherwise than through a transaction or transactions arranged by or
consummated with the prior approval of the Corporation's Board of Directors.
Section 10 - Amendment, Suspension and Termination
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<PAGE> 8
Per __/__/97
Board Resolution
The Board of Directors of the Corporation reserves the right at any time
to amend, suspend, or terminate the Plan; provided, however, no such amendment,
suspension or termination shall adversely affect any award or grant then in
effect unless the prior approval of the participant so affected is obtained.
No amendment of the Plan shall, without approval of the shareholders of the
Corporation, (a) increase the aggregate number of shares of company stock which
are reserved for the Plan (except as provided in Section 6), (b) change the
group of eligible employees under the Plan, (c) change the manner of
determining the option price or the amount payable upon exercise of a right or
(d) increase the maximum duration of an option.
Section 11- Governing Law
The Plan and all determinations made and action taken pursuant thereto
shall be governed by the laws of the State of Michigan and construed in
accordance therewith.
7
<PAGE> 1
EXHIBIT 10(L)
LOAN AGREEMENT
This Loan Agreement is made on the 12th day of June, 1997, between OLD
KENT BANK, a Michigan banking corporation (the "Bank"), One Vandenberg Center,
Grand Rapids, Michigan 49503, and RIVIERA TOOL COMPANY, a Michigan corporation
("Borrower"), 5460 Executive Parkway, Grand Rapids, Michigan 49512.
RECITALS:
A. The Borrower has requested the Bank to extend the credit facilities
described below, the proceeds of which will be used by the Borrower in its
business as set forth in this Agreement.
B. The Bank is willing to extend the credit facilities on the terms and
subject to the conditions set forth in this Agreement.
The parties agree as follows:
SECTION 1 - DEFINITIONS
As used in this Agreement, unless the context otherwise requires, the
following terms have the following meanings:
1.1 "Affiliate" means (a) any person, corporation, partnership, limited
partnership or other legal entity who at any time during which any indebtedness
of the Borrower to the Bank under this Agreement remains outstanding owns ten
percent (10%) or more of the Borrower's outstanding capital stock, and (b) any
corporation, partnership, limited partnership or other legal entity of which
the Borrower owns ten percent (10%) or more of the outstanding voting power.
Notwithstanding the foregoing, Motor Wheel Corporation, an Ohio corporation
("Motor Wheel"), shall not be an Affiliate.
1.2 "Agreement" means this Loan Agreement, as now and hereafter amended.
1.3 "Asset Sale" means the sale, transfer or other disposition by the
Borrower outside the ordinary course of the Borrower's business (including,
without limitation, (a) transfer or other disposition by way of merger or
consolidation, (b) sale-leaseback, or (c) a transaction that is the equivalent
of a mortgage or pledge), in any transaction or group of transactions that are
part of a common plan (collectively, a "sale"), of any asset or interest
therein to any person or entity.
1.4 "Business Day" means any day, excluding (a) Saturday, (b) Sunday, and
(c) any day that (i) is a legal holiday under the laws of the State of
Michigan, or (ii) is a day on which
<PAGE> 2
banking institutions located in Michigan are authorized or required by law or
other governmental action to close.
1.5 "Capitalized Lease Obligation" means any obligation of the Borrower to
pay future rentals under a lease which, in accordance with GAAP, is required to
be shown as a liability on the balance sheet of the Borrower.
1.6 "Capital Expenditure" means an expenditure of the Borrower that could
constitute a capital expenditure under GAAP or the Internal Revenue Code of
1986, as amended.
1.7 "Collateral" means all of the real and personal property now or
hereafter serving as security for the obligations of the Borrower to the Bank,
as described in Section 5 below.
1.8 "Contamination" or "Contaminated" means, when used with reference to
any real or personal property, that a Hazardous Substance is present on or in
the property in any amount or level.
1.9 "Current Assets" and "Current Liabilities" mean, at any time, all
assets or liabilities, respectively, that, in accordance with GAAP, should be
classified as current assets or current liabilities, respectively, on a balance
sheet of the Borrower.
1.10 "Debt Service" means, for any period, the current portion of the
Borrower's long-term debt plus interest expense.
1.11 "EBITDA" means, for any period, Borrower's earnings before interest,
taxes, depreciation and amortization.
1.12 "Eligible Accounts Receivable" means the aggregate of the Borrower's
accounts receivable from any source other than: (a) accounts receivable which
remain unpaid for more than 120 days (180 days with written approval from the
Bank) from the earlier of the original invoice date or the date of shipment of
the goods that gave rise to the accounts receivable; (b) accounts receivable
with respect to which the account debtor is an officer, employee or agent of
Borrower; (c) accounts receivable which arise under arrangements known as a
sale and return or guaranteed sale, a sale on consignment, approval, or C.O.D.,
or on such other terms by reason of which the payment by the account debtor may
be conditional; (d) accounts receivable with respect to which the account
debtor is located outside the continental United States or Canada and not
supported by credit insurance or letter of credit; (e) accounts receivable with
respect to which the account debtor is the United States or any department,
agency or instrumentality of the United States, any state of the United States
or any city, town, municipality or division thereof; (f) accounts receivable
with respect to which the account debtor is an Affiliate with the exception of
Hayes Wheels International, Inc.; (g) accounts receivable with respect to which
Borrower is or may
3
<PAGE> 3
become liable to the account debtor thereof for goods or services rendered or
loans made by such account debtor to Borrower; (h) accounts receivable which
are due more than thirty (30) days after the date the invoice is issued (not
due date), i.e., accounts receivable which arise from a "dated invoice"; (i)
accounts receivable with respect to which the Bank reasonably believes the
collateral value thereof to be impaired or with respect to which the Borrower
has received notice of an inability of the account debtor to pay its debts as
they mature; (j) accounts receivable which are not owned by the Borrower or
which are subject to any prior security interest or claim in favor of a person
other than the Bank; and (k) unless otherwise approved by the Bank in writing,
accounts receivable where 25% or more of the total receivable balance remains
unpaid for more than 120 days (180 days with written approval from the Bank)
from the earlier of the original invoice date or the date of shipment of the
goods that gave rise to the account receivable.
1.13 "ERISA" means the Employee Retirement Income Security Act of 1974, as
now and hereafter amended, together with all regulations issued pursuant
thereto.
1.14 "Environmental Laws" means all applicable laws, ordinances, rules,
regulations, and orders that regulate or are intended to protect public health
or the environment, or that establish liability for the investigation, removal,
or clean up of, or damage caused by any Contamination including, without
limitation, any law, ordinance, rule, regulation, or order that regulates, or
prescribes requirements for, air quality, water quality, or the disposition,
transportation, or management of waste materials or toxic substances.
1.15 "Five (5)-Year Treasury Rate" means, with respect to a Loan made
pursuant to this Agreement as to which interest is to be calculated with
reference to the Five (5)-Year Treasury Rate, the yield (as quoted in the Wall
Street Journal or comparable source) on United States Treasury bills, notes or
bonds having maturities of five (5) years (or as nearly so as possible) from
the Interest Rate Determination Date. The Five (5)-Year Treasury Rate, as so
determined, will be fixed when calculating the interest rate on the Loan with
respect to which it applies until the date of maturity of such Loan.
1.16 "Funding Date" means a Business Day on which the Borrower has
requested in accordance with this Agreement that a Loan advance be made
hereunder.
1.17 "GAAP" means generally accepted accounting principles as in existence
on the date of this Agreement, consistently applied.
1.18 "Hazardous Substances" means any substance or waste which is (a)
included in the definition of "hazardous substance" in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 USC Sec.
9601, et seq,; (b) included in the definition of "hazardous substance" in the
Michigan Environmental Response Act, MCLA Sec. 299.601, et seq.; (c) included
in the definition of "hazardous waste" in the Resource Conservation and
4
<PAGE> 4
Recovery Act, 42 USC Sec. 6901, et seq.; or (d) included in the definition of
the same or any similar term found within any local, state or federal law,
statute, rule, or regulation, including, without limitation, asbestos and
polychlorinated biphenyls.
1.19 "Indebtedness" means indebtedness for borrowed money, indebtedness
representing the deferred purchase price of property or services (excluding
indebtedness under normal trade credit for property or services purchased in
the normal course of operations), obligations under notes payable or drafts
accepted representing extensions of credit, indebtedness (whether or not
assumed) secured by mortgages, security interests, or other liens on property
owned by the Borrower, and any Capitalized Lease Obligation; deferred rent
payable under the lease listed on Schedule 7.10 to this Agreement shall not
constitute Indebtedness.
1.20 "Interest Rate Determination Date" means, with respect to a T-Bill
Rate Loan or a T-Bill Rate Advance, the second Business Day prior to the
Funding Date of a T-Bill Rate Loan or a T-Bill Rate Advance.
1.21 "Liabilities" means all Indebtedness that, in accordance with GAAP,
is required to be classified as liabilities on a balance sheet of the Borrower.
1.22 "Loan Documents" means this Agreement, the Notes evidencing the
Borrower's indebtedness to the Bank incurred pursuant to this Agreement, each
and every Security Agreement pursuant to which the Bank holds a lien or
security interest for the Borrower's indebtedness to the Bank incurred pursuant
to this Agreement and each and every other document evidencing, securing or
otherwise relating to the Borrower's indebtedness to the Bank incurred pursuant
to this Agreement, and all amendments or modifications to or replacements of
any of the foregoing.
1.23 "Material Adverse Effect" means any material adverse effect
whatsoever upon (a) the validity, performance, or enforceability of any Loan
Document, (b) the properties, contracts, business operations, profits, or
condition (financial or otherwise) of the Borrower, or (c) the ability of the
Borrower to fulfill its obligations under the Loan Documents.
1.24 "Net Income" means, with respect to the Borrower for any period, the
net income (or loss) of the Borrower for such period taken as a single
accounting period determined in conformity with GAAP; provided that there shall
be excluded therefrom any after-tax gains or losses attributable to Asset Sales
to the extent such gains or losses exceed $250,000 in the aggregate during the
four fiscal quarters immediately preceding the date of measurement.
1.25 "Note" means any form of promissory note executed and delivered by
the Borrower pursuant to this Agreement, together with any renewals,
extensions, or modifications thereof, including without limitation each of the
forms of Promissory Note attached hereto as
5
<PAGE> 5
Exhibits A - C.
1.26 "Ordinary Course" means, with respect to the Borrower, any activity
performed in accordance with the Borrower's historical and customary practices.
1.27 "Permitted Liens" means (a) security interests, mortgages, and liens
in favor of the Bank; (b) liens for taxes not delinquent or, in a jurisdiction
where payment of taxes is deferred during the period of any contest, being
contested in good faith by appropriate proceedings as prescribed by law, with
adequate reserves therefor being set aside on the Borrower's books; (c)
inchoate materialmens', mechanics', workmens', repairmens', or other like liens
arising in the Ordinary Course of business and, in each case, not delinquent;
(d) leases permitted under Section 7.10 of this Agreement; (e) the pledge of
the proceeds of a policy of insurance on the life of Kenneth K. Rieth and
certain proceeds that may recovered from the litigation referred to in Schedule
2.5 to this Agreement made pursuant to the Settlement and Forbearance Agreement
dated March 3, 1997, among the Borrower, Kenneth K. Rieth, individually, and
NBD Bank, N.A. (the "Settlement and Forbearance Agreement"); and (f) liens
securing any Indebtedness of the Borrower to third parties permitted under
Section 7.9(b) of this Agreement, but only to the extent such liens encumber
only the machinery or equipment acquired by the Borrower with the proceeds of
such Indebtedness to third parties.
1.28 "Plan" means an employee pension benefit plan with respect to which
the Borrower or any Affiliate is an "employer" or "party in interest," as those
terms are defined in ERISA.
1.29 "Prime Rate" means the variable rate of interest announced publicly
from time to time by the Bank to be its prime commercial lending rate.
Reference to the Prime Rate will not be affected by the fact that the Bank may
make loans at different rates from time to time with respect to the class of
loans for which the Prime Rate is established. Any interest rate under this
Agreement determined by reference to the Prime Rate shall be fully-floating,
and any change in any of the interest rates chargeable hereunder resulting from
a change in the Prime Rate will become effective on the day on which each
change in the Prime Rate is effective.
1.30 "Prime Rate Advance" means any advance made by the Bank bearing
interest at rates determined by reference to the Prime Rate as provided in
Section 4.
1.31 "Six (6)-Year Treasury Rate" means, with respect to a Loan or Loan
advance made pursuant to this Agreement as to which interest is to be
calculated with reference to the Six (6)-Year Treasury Rate, the yield (as
quoted in the Wall Street Journal or comparable source) on United States
Treasury bills, notes or bonds having maturities of six (6) years (or as nearly
so as possible) from the Interest Rate Determination Date. The Six (6)-Year
Treasury Rate, as so determined, will be fixed when calculating the interest
rate on the Loan or Loan advance with
6
<PAGE> 6
respect to which it applies until the date of maturity of such Loan or Loan
advance.
1.32 "Stockholders' Equity" means, at any time, the sum of the following
accounts set forth in a balance sheet of the Borrower, prepared in accordance
with GAAP: (a) the par or stated value of all outstanding capital stock; (b)
capital surplus; and (c) retained earnings.
1.33 "Tangible Net Worth" means, at any time, Stockholders' Equity, less
the sum of: (a) goodwill, including any amounts, however designated on a
balance sheet of the Borrower, representing the excess of the purchase price
paid for assets or stock acquired over the value assigned thereto on the books
of the Borrower; (b) patents, trademarks, trade names, and copyrights; (c)
loans and advances to, or amounts otherwise due from, the Borrower's
stockholders, directors, officers, or employees or any of them to the extent
the sum of such loans and advances exceeds $50,000; and (d) other intangible
assets.
1.34 "T-Bill Rate Loan" and "T-Bill Rate Advance" mean a Loan or Loan
advance bearing interest at the Five (5)-Year Treasury Rate or the Six (6)-Year
Treasury Rate.
1.35 "To Borrower's Knowledge" means the actual knowledge, after due
inquiry, of Kenneth K. Rieth or Peter C. Canepa, and their respective
successors in office.
1.36 "Work in Process Inventory" means "work in process", as that term is
customarily used in the tool and die industry. In any event, Work in Process
Inventory shall include "Contracts in Process" and shall not include
"Inventories", as such asset categories historically have been identified on
the Borrower's balance sheet.
1.37 "Working Capital" means Current Assets minus Current Liabilities.
SECTION 2 - WARRANTIES AND REPRESENTATIONS
To induce the Bank to enter into this Agreement and to make the Loans, the
Borrower represents and warrants to the Bank that the following statements are
true, correct and accurate both before and after giving effect to the
transactions contemplated by the Loan Documents:
2.1 The Borrower is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Michigan. The Borrower is duly
qualified and authorized to do business, and is in good standing as a foreign
corporation, in all jurisdictions in which the failure to be so qualified or
authorized to do business would have a Material Adverse Effect.
2.2 The Borrower has all requisite corporate power and authority and all
necessary licenses and permits to own and operate its properties and to carry
on its business as now conducted and as it contemplates that business to be
conducted in the future. The Borrower is in
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<PAGE> 7
compliance with all laws, rules, and regulations, the non-compliance with which
would have a Material Adverse Effect.
2.3 All financial statements of the Borrower that have been delivered to
the Bank, including the internally prepared financial statements for the period
ending March 31, 1997, have been prepared in accordance with GAAP and present
fairly the financial position of the Borrower as of the dates indicated, and
the results of its operations for the periods indicated. No changes having a
Material Adverse Effect have occurred since the date of the most recent of such
financial statements. Except as expressly set forth in such financial
statements, the Borrower has no material contingent liability or liability for
taxes, long-term lease or unusual forward or long-term commitment.
2.4 Neither this Agreement nor the financial statements referred to in
Section 2.3 above, nor any other written statement furnished by or on behalf of
the Borrower to the Bank in connection with the negotiation of the Loans
provided for herein, contains any untrue statement of a material fact or omits
a material fact necessary to make the statements contained therein or herein
not misleading. To Borrower's Knowledge, there is no fact that the Borrower
has not disclosed to the Bank in writing that has, or in the future is likely
to have, a Material Adverse Effect.
2.5 Except as disclosed on Schedule 2.5 to this Agreement, there are no
proceedings pending, or to Borrower's Knowledge threatened, before any court,
governmental authority, or arbitration board or tribunal, against or affecting
the Borrower, the outcome of which may reasonably be expected to have a
Material Adverse Effect. The Borrower is not in default with respect to any
order, judgment, or decree of any court, governmental authority, or arbitration
board or tribunal.
2.6 All of the outstanding capital stock of the Borrower is validly
issued, fully paid and nonassessable.
2.7 The Borrower has good and marketable title to all of the assets that
it purports to own, including the assets described in the financial statements
referred to in Section 2.3 hereof, free and clear from all liens, encumbrances,
security interests, claims, charges, and restrictions whatever, except
Permitted Liens. The Borrower owns no real property. All real property leased
by the Borrower is suitable for its current intended purposes and is served by
such utilities and has such access to public roadways and other transportation
structures and systems as are necessary for the proper and efficient use,
operation and maintenance thereof. The Borrower enjoys peaceful and
undisturbed possession under all real property leases to which it is a party,
and all such leases are valid and subsisting and in full force and effect and
no default (nor any event which, with notice or lapse of time or both, would
constitute such a default) has occurred or is continuing under any of such
leases on the part of the Borrower or, to Borrower's Knowledge, on the part of
the landlord. There have been no renewals or extensions of or supplements,
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<PAGE> 8
modifications or amendments to any of such leases except as previously
disclosed in writing to the Bank.
2.8 The Borrower owns and controls all of the patents, trademarks, service
marks, trade names, copyrights, licenses, and rights necessary for the present
and planned future conduct of its business, without any conflict with the right
of any other person, firm, or corporation.
2.9 The Borrower has full corporate power and authority to execute,
deliver, and perform the Loan Documents; the execution, delivery, and
performance of the Loan Documents required to be given hereunder by the
Borrower have been duly authorized by appropriate corporate action of the
Borrower and will not violate the provisions of the articles of incorporation
or bylaws of the Borrower or of any law, rule, judgment, order, agreement, or
instrument to which the Borrower is a party or by which it is bound, or to
which any of its assets are subject, nor do the same require any approval or
consent of any public authority or other third party; and the Loan Documents
have been duly executed and delivered by, and are the valid and binding
obligations of, the parties thereto, enforceable in accordance with their
terms.
2.10 All tax returns required to be filed by the Borrower in any
jurisdiction have been filed, and all taxes, assessments, fees, and other
governmental charges upon the Borrower or upon its assets, income, or
franchises have been paid before the time that those taxes became delinquent.
The Borrower knows of no proposed additional tax assessment against it.
2.11 The Borrower has no investments in the securities of any other
corporation or business entity. The Borrower does not intend to carry or
purchase any "margin security" within the meaning of Regulation U of the Board
of Governors of the Federal Reserve System, 12 C.F.R. Chapter II.
2.12 Attached hereto as Schedule 2.12 is a list of all Plans. No Plan has
been terminated since the effective date of ERISA. No Plan is a
"multi-employer plan" within the meaning of Section 3(37)(A) of ERISA. No
"accumulated deficiency" (within the meaning of Section 412 of ERISA) or
"reportable event" (as defined in Title IV of ERISA) has occurred with respect
to any Plan. Neither the Borrower nor any Affiliate has incurred any material
liability to the Pension Benefit Guaranty Corporation ("PBGC") or otherwise
under ERISA. The PBGC has not started or threatened to institute a proceeding
against the Borrower or any Affiliate under ERISA.
2.13 All of the Borrower's assets, operations and activities are in
compliance with all Environmental Laws; and none of the Borrower's property is
(a) in violation of Environmental Laws, (b) Contaminated by, or the site of,
the disposal or release of any Hazardous Substance; (c) the source of any
Contamination of any adjacent property or of any groundwater or surface water;
or (d) the source of any air emissions in excess of any legal limit now or
hereafter in effect. There
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<PAGE> 9
is no civil, criminal or administrative action, suit, demand, claim, hearing,
notice of violation or deficiency, investigation, proceeding, notice or demand
letter pending or, to Borrower's Knowledge, threatened against the Borrower
under any Environmental Law which could reasonably be expected to result in a
fine, penalty or other cost or expense.
2.14 The execution, delivery and performance by the Borrower of each Loan
Document, the issuance, delivery and performance of the Notes, and the
consummation of the transactions contemplated hereby or related hereto do not
and will not (a) conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any contractual obligation of
the Borrower, (b) result in or require the creation or imposition of any lien
(other than liens in favor of the Bank) upon any of its properties or assets,
or (c) require any approval of stockholders that has not been obtained or any
approval or consent of any person under any actual or purported contractual
obligation of the Borrower.
2.15 The Borrower is not in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in any
actual or purported contractual obligation of the Borrower, and no condition
exists that, with the giving of notice or the lapse of time or both, would
constitute such a default, which default could have a Material Adverse Effect.
SECTION 3 - THE LOANS
3.1 Subject to the terms and conditions of this Agreement and the other
Loan Documents, and so long as there shall not have occurred any Event of
Default as defined in Section 9 hereof, or any event which with the giving of
notice or lapse of time, or both, would constitute an Event of Default, the
Bank shall extend to the Borrower the following loans:
(a) Revolving Line of Credit Loan (the "Revolving L/C Loan")
Loan Maximum: $10,000,000
Availability: At no time shall the outstanding balance of the
Revolving L/C Loan exceed the lesser of (1) the Loan
Maximum, or (2) the sum of (a) 85% of Eligible
Accounts Receivable plus (b) the lesser of
(i) $3,500,000, or (ii) 40% of the Work in Process
Inventory.
Payments: To be repaid in accordance with a Promissory Note
substantially in the form attached to this
Agreement as Exhibit A (the "Revolving L/C Loan
Note"). All payments shall made by automatically
debiting an account maintained by the Borrower at
the Bank and
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specified by the Borrower in writing
to be used for such purpose.
Interest Rate: As set forth in Section 4 below.
Unused Fee: The Borrower shall pay the Bank an annual
fee in an amount equal to one-quarter ( 1/4) of
one (1) percentage point (i.e., 25 basis points)
of the amount by which $10,000,000 exceeds the
average outstanding principal balance of the
Revolving L/C Loan during the twelve (12)-month
period beginning September 1, 1997, and ending
August 31, 1998. For the period beginning on the
date of this Agreement and ending August 31, 1997,
and for the period beginning September 1, 1998, and
ending January 1, 1999 (each such period is
referred to as a "Stub Period"), the Borrower shall
pay the Bank a fee in an amount equal to (1) the
product obtained by multiplying one-quarter ( 1/4)
of one (1) percentage point (i.e., 25 basis points)
by the amount by which $10,000,000 exceeds the
average outstanding principal balance of the
Revolving L/C Loan during the relevant Stub Period
multiplied by (2) a fraction, the numerator of
which shall be equal to the number of days in the
relevant Stub Period and the denominator of which
shall be 360.
Maturity: January 1, 1999.
Purpose: General Working Capital.
(b) Existing Equipment Term Loan (the "Existing Equipment Term Loan")
Loan Maximum: $3,250,000
Payments: To be repaid in accordance with a Promissory Note
substantially in the form attached to this
Agreement as Exhibit B (the "Existing Equipment
Term Loan Note"). All payments shall made by
automatically debiting an account maintained by the
Borrower at the Bank and specified by the Borrower
in writing to be used for such purpose.
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Interest: As set forth in Section 4 below.
Maturity: The fifth anniversary of the date of the Existing
Equipment Term Loan Note.
Purpose: Refinance existing term debt.
(c) Non-Revolving Equipment Line of Credit Loan (the "Non-Revolving
Equipment L/C Loan")
Loan Maximum: $4,000,000.
Payments: To be repaid in accordance with a Promissory Note
substantially in the form attached to this
Agreement as Exhibit C (the "Non-Revolving
Equipment L/C Loan Note"). All payments shall made
by automatically debiting an account maintained by
the Borrower at the Bank and specified by the
Borrower in writing to be used for such purpose.
Interest: As set forth in Section 4 below.
Maturity: As provided in the Non-Revolving Equipment L/C Loan
Note.
Purpose: Finance future equipment purchases.
3.2 The Revolving L/C Loan, the Existing Equipment Term Loan, and the
Non-Revolving Equipment L/C Loan may each be referred to in this Agreement as a
"Loan", and are collectively referred to in this Agreement as the "Loans", and
the Revolving L/C Loan Note, the Existing Equipment Term Loan Note, the
Non-Revolving Equipment L/C Note may each be referred to in this Agreement as a
"Note", and are collectively referred to in this Agreement as the "Notes".
Each of the Loans is subject to the terms and conditions contained in this
Agreement and all of the other Loan Documents.
SECTION 4 - INTEREST RATES AND ADVANCE PROCEDURES
4.1 The Loans shall bear interest through maturity (whether by
acceleration or otherwise) as follows:
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(a) The Revolving L/C Loan shall bear interest at the Prime Rate plus 25
basis points.
(b) The Existing Equipment Term Loan shall bear interest at the Prime Rate
plus 25 basis points; provided, however, that so long as there is no Event of
Default under this Agreement, the Borrower shall have the option to change the
interest rate applicable to the Existing Equipment Loan to the rate of interest
that is equal to the Five (5)-Year Treasury Rate on the Interest Rate
Determination Date plus 275 basis points. The Borrower shall exercise such
right by giving the Bank written notification of the Borrower's election to
change the rate of interest applicable to the Existing Equipment Term Loan; the
change in such applicable rate of interest shall become effective two (2)
Business Days after the delivery of such written notice to the Bank. The Five
(5)-Year Treasury Rate, as determined by the Bank, shall, absent manifest
error, be final, conclusive and binding upon all parties. The Bank shall
promptly give notice thereof (in writing or by telephone confirmed in writing)
to the Borrower. The Borrower shall have no right to change the interest rate
on the Existing Equipment Term Loan from a rate of interest that is based on
the Five (5)-Year Treasury Rate to a rate of interest that is based on the
Prime Rate.
(c) The Non-Revolving Equipment L/C Loan shall bear interest at the Prime
Rate plus 25 basis points; provided, however, that so long as there is no Event
of Default under this Agreement, the Borrower shall have the option to change
the interest rate applicable to the Non-Revolving Equipment L/C Loan, or to any
advance of such Loan, to the rate of interest that is equal to the Six (6)-Year
Treasury Rate on the Interest Rate Determination Date plus 275 basis points.
The Borrower shall exercise such right by giving the Bank written notification
of the Borrower's election to change the rate of interest applicable to the
Non-Revolving Equipment L/C Loan, or to any advance of such Loan; the change in
such applicable rate of interest shall become effective two (2) Business Days
after the delivery of such written notice to the Bank. The Six (6)-Year
Treasury Rate, as determined by the Bank, shall, absent manifest error, be
final, conclusive and binding upon all parties. The Bank shall promptly give
notice thereof (in writing or by telephone confirmed in writing) to the
Borrower The Borrower shall have no right to change the interest rate on the
Non-Revolving Equipment L/C Loan or any advance of such Loan, from a rate of
interest that is based on the Six (6)-Year Treasury Rate to a rate of interest
that is based on the Prime Rate.
4.2 The Borrower shall give the Bank notice of its request for each Loan
advance (each a "Notice of Borrowing") not later than 12:00 noon, Grand Rapids,
Michigan time, on the date such advance is requested to be made. The Notice of
Borrowing shall (a) state whether the advance is requested under the Revolving
L/C Loan, the Existing Equipment Term Loan, or the Non-Revolving Equipment L/C
Loan, and (b) specify, in the case of the Existing Equipment Term Loan and any
advances to be made under the Non-Revolving Equipment L/C Loan, the interest
rate option chosen with respect to such Loan or Loan advance. Subject to the
terms and
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conditions of this Agreement, the proceeds of each such requested advance shall
be made available to the Borrower by depositing the proceeds thereof, in
immediately available funds, in an account maintained and designated by
Borrower at an office of the Bank.
4.3 Except in the case of the initial Loan advances, for which the
applicable basis for determining the rate of interest must have been provided
in writing to the Bank not less than three Business Days prior to such
advances, and subject to the terms and conditions of this Agreement, the
applicable basis for determining the rate of interest with respect to advances
under the Existing Equipment Term Loan and the Non-Revolving Equipment L/C Loan
shall be selected by the Borrower at the time a Notice of Borrowing is given
pursuant to Section 4.2.
4.4 Unless otherwise requested in writing by the Borrower, the interest
rate on all Loans shall be determined with reference to the Prime Rate.
4.5 Notwithstanding anything to the contrary contained in the Loan
Documents, following acceleration or maturity of any Indebtedness evidenced by
a Note, the outstanding principal balance of such Loan will bear interest at
the rate of 300 basis points above the rate that would otherwise be in effect.
4.6 The Borrower may prepay any part of the principal balance of a Prime
Rate Advance at any time, without prior notice to the Bank and without
prepayment penalty or premium. The Borrower may prepay all or any part of the
principal balance of a T-Bill Rate Advance on one (1) Business Day's notice
provided that, in addition to all principal, interest and costs owing at the
time of prepayment, there shall be due and owing from the Borrower a prepayment
premium in an amount equal to:
(a) Five percent (5%) of the principal amount paid, if the T-Bill Rate
Advance is paid more than 48 months prior to its scheduled maturity;
(b) Four percent (4%) of the principal amount paid, if the T-Bill Rate
Advance is paid more than 36 months but less than 49 months prior to its
scheduled maturity;
(c) Three percent (3%) of the principal amount paid, if the T-Bill Rate
Advance is paid more than 24 months but less than 37 months prior to its
scheduled maturity;
(d) Two percent (2%) of the principal amount paid, if the T-Bill Rate
Advance is paid more than 12 months but less than 25 months prior to its
scheduled maturity; and
(e) One percent (1%) of the principal amount paid, if the T-Bill Rate
Advance is paid 12 months, or less, prior to its scheduled maturity.
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Notwithstanding the foregoing, the Borrower shall not be obligated to pay
a prepayment premium if the Indebtedness evidenced by a Note is prepaid after
acceleration by the Bank.
4.7 Any amounts applied to the outstanding principal of a T-Bill Rate
Advance prior to its maturity or acceleration shall be deemed to be a
prepayment of principal to which the prepayment notice and premium provisions
of this Agreement shall apply. Prior to maturity or acceleration of any
Indebtedness under this Agreement, amounts repaid by the Borrower shall be
applied to the outstanding indebtedness under this Agreement as designated by
the Borrower. If, prior to maturity or acceleration of any Indebtedness under
this Agreement, the Borrower fails to designate how Loan repayments should be
applied, the Loan repayments automatically shall be applied first to interest,
then to Prime Rate Advances principal, and then to T-Bill Rate Advances
principal. Any Loan repayments received by the Bank after maturity or
acceleration of any Indebtedness under this Agreement may be applied by the
Bank in any manner determined by the Bank, in its sole discretion.
4.8 Interest on advances shall be computed on the basis of a 360-day year
and the actual number of days elapsed in the period during which it accrues.
In computing interest on any advance, the date of the making of the advance
shall be included and the date payment is received shall be excluded; provided
that if an advance is repaid on the same day on which it is made, one day's
interest shall be paid on that advance.
4.9 The Borrower acknowledges that the Bank shall at no time ever be
obligated pursuant to this Agreement to advance to the Borrower more than (a) a
total of $3,250,000 under the Existing Equipment Term Loan, and (b) a total of
$4,000,000 under the Non-Revolving Equipment L/C Loan, and that the Existing
Equipment Term Loan and the Non-Revolving Equipment L/C Loan are not revolving
Loans. Once repaid, amounts borrowed under the Existing Equipment Term Loan
and the Non-Revolving Equipment L/C Loan may not be reborrowed.
4.10 Subject to the terms and conditions of this Agreement, amounts
borrowed under the Revolving L/C Loan may be repaid and reborrowed.
SECTION 5 - SECURITY
5.1 Without limiting the terms and conditions of any of the Loan
Documents, to secure payment of all obligations and indebtedness of the
Borrower to the Bank under this Agreement and all other indebtedness and
obligations now and hereafter owing by the Borrower to the Bank, the Borrower
shall execute and deliver to the Bank:
(a) security agreements, in form and substance satisfactory to the Bank,
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granting to the Bank valid first security interests in all accounts receivable,
machinery, equipment, inventory, furniture and trade fixtures of the Borrower,
and all additions thereto and substitutions, increments, proceeds and products
thereof;
(b) an assignment of a policy of life insurance on the life of Kenneth
K. Rieth in the amount of $3,000,000 (such life insurance policy shall be
acceptable in form and substance to the Bank and shall be issued by a life
insurance company approved by the Bank); and
(c) all financing statements, assignments, document of title, and other
documents, agreements, and instruments as the Bank may reasonably request in
connection with the creation, perfection and priority of any security described
above.
5.2 To further secure payment of the Loans and all of the Borrower's
liabilities and obligations to the Bank, the Borrower grants to the Bank a
continuing security interest in (a) all securities and other property of the
Borrower in the custody, possession or control of the Bank (other than property
held by the Bank solely in a fiduciary capacity) and (b) all balances of
deposit accounts of the Borrower with the Bank. The Bank shall have the right
at any time after an Event of Default, or any event which with the giving of
notice or lapse of time, or both, would constitute an Event of Default, to
apply its own debt or liability to the Borrower in whole or partial payment of
such Loans or other present or future liabilities, without any requirement of
mutual maturity.
5.3 Any of the Borrower's other property in which the Bank has a security
interest to secure payment of any other debt, whether absolute, contingent,
direct or indirect, including the Borrower's guaranties of the debts of others,
shall also secure payment of and be part of the collateral for the Loans.
SECTION 6 - AFFIRMATIVE COVENANTS
From the date hereof and until the Bank has no further obligation to
extend Loans hereunder and all Loans provided for under this Agreement have
been fully paid, the Borrower shall:
6.1 Furnish to the Bank whatever information, books, and records the Bank
may reasonably request, including at a minimum:
(a) within 90 days after the end of each of the Borrower's fiscal
years, beginning with its fiscal year ending August 31, 1997, an audited
financial report prepared in accordance with GAAP by independent certified
public accountants satisfactory to the Bank, containing the Borrower's balance
sheet as of the end of that year, its related profit and loss, and a statement
of shareholder's equity for that year, its statement of cash flows for that
year, together
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with any management letter prepared by those certified public accountants, and
such comments and financial details as are customarily included in reports of
like character and the unqualified opinion of the certified public accountants
as to the fairness of the statements therein, and together with such written
assurances as the Bank may reasonably request from the Borrower's independent
certified public accountants to confirm the Bank's entitlement to rely upon
such audited financial report and accompanying materials;
(b) within 21 days after the end of each calendar month, beginning with
June 30, 1997, a financial report, the accuracy of which is certified to by the
President or the Chief Financial Officer of the Borrower, prepared in
accordance with GAAP, containing the Borrower's balance sheet as of the end of
such period and its income statement showing the results of its operations for
the portion of its fiscal year then elapsed;
(c) weekly compliance reports in the form attached as Exhibit "D" to
this Agreement, due no later than Monday for the week ending the preceding
Friday, the accuracy of which is certified to by the Chief Financial Officer of
the Borrower;
(d) monthly work in process reports, due no later than the 7th day of
each month for the preceding month, the accuracy of which is certified to by
the Chief Financial Officer of the Borrower; and
(e) within 30 days after the end of each fiscal quarter, beginning with
August 31, 1997, a certificate executed by the Chief Financial Officer of the
Borrower stating whether all of the financial covenants contained in this
Agreement are satisfied, showing the calculations for making such
determinations, and otherwise in a form acceptable to Bank.
6.2 Promptly inform the Bank of any occurrence that is an Event of Default
as defined in Section 9 hereof or that, with the giving of notice or the lapse
of time, or both, would be an Event of Default and of any other occurrence
which has a Material Adverse Effect; grant to the Bank or its representatives
the right to examine its books and records or the Collateral at any reasonable
time or times; maintain complete and accurate books and records of its
transactions in accordance with good accounting practices; and furnish to the
Bank any information that it may reasonably request concerning the Borrower's
financial affairs within 10 days after receipt of a request for that
information.
6.3 Maintain insurance, including, but not limited to, fire and extended
coverage insurance, workers' compensation insurance, and casualty and liability
insurance with responsible insurance companies on such of its properties and
against such risks and in such amounts as is customarily maintained by similar
businesses; furnish to the Bank upon its request the details with respect to
that insurance and satisfactory evidence of that insurance coverage; and,
within 30 days after receipt of a written request from the Bank, obtain any
additional insurance that the Bank may reasonably request. Each insurance
policy required under this Section shall be so written or
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endorsed as to make losses, if any, payable to the Borrower and the Bank as
their respective interests may appear and shall include, where appropriate, a
mortgage clause or endorsement in favor of the Bank in form and substance
satisfactory to the Bank.
6.4 Pay and discharge, as often as the same may become due and payable,
all taxes, assessments and other governmental monetary obligations, of whatever
nature, that may be levied or assessed against it or any of its properties,
unless and to the extent only that in a jurisdiction where payment of taxes and
assessments is abated during the period of any contest, those taxes or
assessments shall be contested in good faith by appropriate proceedings and
that the Borrower shall have set aside on its books adequate reserves with
respect to those taxes and assessments.
6.5 Pay and perform at the time such payment or performance is due, all
indebtedness and obligations owing by it, and pay all claims (including,
without limitation, claims for labor, services, materials and supplies) for
sums which have become due and payable, except any indebtedness, obligation or
claim being contested in good faith by appropriate proceedings and for which
the Borrower shall have set aside on its books adequate reserves with respect
to such indebtedness, obligation or claim.
6.6 Maintain its corporate existence in good standing in the State of
Michigan and its qualification in good standing in every other jurisdiction in
which the failure to be so qualified or authorized to do business would have a
Material Adverse Effect; continue to conduct and operate its business
substantially as presently conducted and operated; and comply with all
governmental laws, rules, regulations, and orders applicable to it, the failure
to comply with which would or may have a Material Adverse Effect.
6.7 Act prudently and in accordance with customary industry standards in
managing or operating its assets, properties, business, and investments; and
keep in good working order and condition, ordinary wear and tear excepted, all
of its assets and properties that are necessary to the conduct of its business.
6.8 Maintain Tangible Net Worth (the applicable amount for each date of
determination being referred to herein as the "Minimum Net Worth") of:
(a) not less than $10,800,000 for the period beginning on the date of
this Agreement and ending on August 30, 1997;
(b) not less than $11,500,000 for the period beginning on August 31,
1997 and ending on August 30, 1998;
(c) not less than $12,250,000 for the period beginning on August 31,
1998 and ending on August 30, 1999; and
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(d) not less than $13,000,000 for the period beginning August 31, 1999
and ending August 30, 2000.
6.9 Maintain Working Capital of not less than $7,500,000.
6.10 Maintain a ratio of total Liabilities to Tangible Net Worth of not
more than 1.3:1.
6.11 Maintain a ratio of EBITDA to Debt Service for the trailing 12-month
period of not less than 1.5:1.
6.12 Maintain all of its commercial deposit accounts with the Bank.
6.13 Comply in all material respects with the requirements of ERISA,
including, without limitation, all provisions regarding minimum funding
requirements and requirements as to plan termination insurance; furnish to the
Bank, upon the Bank's request, a copy of each annual report and annual return,
as well as all schedules and attachments required to be filed with the
Department of Labor or the Internal Revenue Service pursuant to ERISA in
connection with each of its Plans for each Plan year; notify the Bank
immediately of any fact, including, but not limited to, any "reportable event"
(as defined in Title IV of ERISA) arising in connection with any of its Plans,
that might be grounds for termination thereof by the PBGC or for the
appointment by the appropriate United States District Court of a trustee to
administer the Plan, together with a statement, if requested by the Bank, as to
the reason therefor and the action, if any, proposed to be taken with respect
thereto; and furnish to the Bank, upon its request, any additional information
concerning any of its Plans that the Bank may reasonably request.
6.14 Notify the Bank in writing within 10 days after receipt whenever the
Borrower receives written notice of (a) the commencement of formal proceedings
or any investigation by a federal or state environmental agency against the
Borrower regarding the Borrower's compliance with Environmental Laws, or (b)
any other judicial or administrative proceeding or litigation commenced by or
against the Borrower, or (c) any other potential liability or claim regarding
the Borrower's compliance with Environmental Laws, in each case, as a possible
result of which (i) the loss by, or liability of, the Borrower could exceed
$100,000, or (ii) the operations of the Borrower could be materially affected.
6.15 Promptly provide to the Bank copies of any correspondence received by
the Borrower from any governmental authority regarding any alleged violation of
law by the Borrower that could have a Material Adverse Effect.
6.16 At all times preserve, renew and keep in full force and effect the
rights, licenses, permits, franchises, agency agreements, trade names, patents,
trademarks, copyrights, licenses and
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service marks, the loss of which could have a Material Adverse Effect.
6.17 Permit representatives of the Bank, during the Bank's normal business
hours, to enter the Borrower's premises, review the Borrower's business
records, and interview the Borrower's employees as reasonably required by the
Bank to conduct periodic audits of the Borrower's business and the Borrower's
compliance with its obligations under this Agreement.
SECTION 7 - NEGATIVE COVENANTS
From the date hereof and until all Loans provided for under this Agreement
are fully paid and the Bank has no further obligation to extend loans
hereunder, the Borrower agrees that it will not, without the prior written
consent of the Bank, which may not be unreasonably withheld:
7.1 Create or permit to exist any lien, mortgage, pledge, attachment,
garnishment, execution, or other legal process, or encumbrance on any of its
assets to any party, except Permitted Liens.
7.2 Sell, lease, transfer or otherwise dispose of any asset (including,
without limitation, (a) transfer or other disposition by way of merger or
consolidation, (b) sale-leaseback, or (c) a transaction that is the equivalent
of a mortgage or pledge), except in the Ordinary Course of its business as
conducted on the date of this Agreement.
7.3 Guarantee, endorse, assume, or otherwise incur or suffer to exist any
contingent liability in respect of, any obligation of any other person, firm,
or corporation, except (a) by the endorsement of negotiable instruments for
deposit or collection in the Ordinary Course of business, and (b) as disclosed
on Schedule 2.5 to this Agreement and in connection with the Settlement and
Forbearance Agreement (defined in Section 1.27).
7.4 Purchase or otherwise acquire all, or substantially all, of the
assets, obligations, or capital stock of or any other interest in any other
person, firm, or corporation.
7.5 Purchase or acquire any securities of, or make any liens or advances
to, or investments in, any person, firm or corporation, except obligations of
the United States Government, open market commercial paper rated one of the top
two ratings by a rating agency of recognized standing, or certificates of
deposit in insured financial institutions.
7.6 Purchase, retire, redeem, or otherwise acquire any of its shares of
capital stock or declare or pay dividends or make any other distribution of its
assets, by reduction of capital or otherwise; provided, however, that the
Borrower may take the actions described in clauses (a), (b), (c) and (d) below
without the Bank's consent if such actions will not cause the Borrower to be in
breach of any other covenant, term or provision of the Loan Documents: (a)
declare and
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pay stock (i.e., non-cash) dividends; and (b) pay an amount not to exceed
$50,000 in connection with the redemption in July 1997 of the Borrower's 8%
cumulative preferred stock; (c) exercise its option to purchase up to 730,000
shares of the Borrower's issued and outstanding common stock owned by Motor
Wheel pursuant to a Stock Option Agreement dated October 31, 1996, between
Riviera Holding Company and Motor Wheel (the interest of Riviera Holding
Company under such Stock Option Agreement having been assigned to the
Borrower), and pay all sums, not to exceed $3 million, that may be required to
consummate such purchase, but only to the extent that the purchase price for
such stock is paid from equity contributions to the Borrower, in the form of
cash, made after the date of this Agreement for the express purpose of funding
the purchase price of such stock to be acquired from Motor Wheel; and (d) use
not more than $250,000 of the Borrower's operating cash to purchase up to
125,000 shares of the Borrower's issued and outstanding common stock from NBD
Bank; to the extent the purchase price for any such stock acquired by the
Borrower from NBD Bank exceeds $250,000, the Borrower must use equity
contributions to the Borrower, in the form of cash, made after the date of this
Agreement for the express purpose of funding the purchase price of such stock
to be acquired from NBD Bank.
7.7 Subordinate any indebtedness owing to the Borrower by any person,
firm, or corporation to indebtedness of that person, firm, or corporation owing
to any other person, firm, or corporation.
7.8 Engage, directly or indirectly, in any line of business other than the
lines of business presently engaged in by the Borrower or a line of business
related thereto.
7.9 Issue, incur, assume, or permit to remain outstanding any
Indebtedness, other than Indebtedness (a) owing to the Bank, and (b) owing to
others in connection with the Borrower's acquisition of machinery or equipment;
provided, however, that Indebtedness to others shall be permitted under clause
(b) of this Section 7.9 only if (i) such Indebtedness was incurred by the
Borrower after the date of this Agreement, and (ii) prior to incurring such
Indebtedness, the Borrower submitted to the Bank a written description of the
economic terms of the proposed financing transaction and the Bank failed,
within two Business Days after receipt of such written description, to agree to
offer such financing to the Borrower on equivalent or better terms from the
Borrower's perspective, and (iii) the proposed financing transaction thereafter
was consummated on the terms set forth in the written description thereof
submitted by the Borrower to the Bank, and (iv) the incurrence of such
Indebtedness by the Borrower will not cause a breach of any other provision of
this Agreement.
7.10 Use or acquire the use or possession of any real or personal property
from any person under any lease or lease arrangement, except (i) leases or
lease arrangements in existence as of the date of this Agreement and identified
in Schedule 7.10 to this Agreement, (ii) any financing leases authorized in
Section 7.9, and (iii) any other lease which (a) has a term of less
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than 7 years, and (b) provides for less than $250,000 in total payments by the
Borrower during each year of the term thereof. The Borrower shall from time to
time provide to the Bank copies of any leases entered into by the Borrower,
together with any amendments thereto, upon request of the Bank.
7.11 Become a contributing employer with respect to a multi-employer
employee benefit plan within the meaning of Section 3(37)(A) of ERISA (29
U.S.C. Section 1002), as amended, by Section 302 of the Multi-Employer Pension
Plan Amendments Act of 1980; or establish for any of its employees any employee
benefit plan that has, or may in the future incur, any unfunded past service
liability.
7.12 Change its fiscal year or method of accounting except as required by
GAAP, as hereafter modified.
7.13 Change its name without prior written approval from the Bank; except
that the Borrower may change its name if the Borrower has given 60 days' prior
written notice of the name change and has taken such action as the Bank deems
necessary to continue the perfection of the security interests and liens
granted to the Bank under the Loan Documents.
SECTION 8 - APPLICATION OF PROCEEDS
The proceeds of each Loan shall be used by the Borrower solely for the
purpose set forth for such Loan in Section 3, and for no other purpose.
SECTION 9 - EVENTS OF DEFAULT AND REMEDIES
9.1 The following events shall constitute an "Event of Default" under this
Agreement, the occurrence of which shall entitle the Bank to pursue any and all
rights and remedies available to it under this Agreement, the Notes, the other
Loan Documents, and under applicable law. The Bank's rights and remedies are
cumulative and may be exercised concurrently or successively from time to time.
Any action by the Bank against any property or party shall not serve to
release or discharge any other security, property or party in connection with
this transaction. The Events of Default are as follows:
(a) Failure to pay the principal or interest on any loan provided for
under this Agreement when and as the same shall be due and payable, whether by
acceleration or otherwise, provided in each case that such default has not been
cured prior to the expiration of 10 days following the date of personal
delivery or mailing of written notice of such default to the Borrower.
(b) Failure to pay the principal or interest on any other
indebtedness now or
22
<PAGE> 22
hereafter owed by the Borrower to the Bank as the same shall be due and
payable, whether by acceleration or otherwise, provided in each case that such
default has not been cured prior to the expiration of 10 days following the
date of personal delivery or mailing of written notice of such default to the
Borrower.
(c) Failure to observe, perform and comply with any of the Borrower's
obligations under any Loan Document or failure to observe, perform and comply
with any of the Borrower's other obligations under any other document that
evidences, secures or otherwise relates to indebtedness of the Borrower to the
Bank, whether arising under this Agreement or otherwise, and failure to
observe, perform and comply with any and all other agreements between the
Borrower and the Bank to be observed, performed or complied with by the
Borrower; provided that such default has not been cured prior to the expiration
of 20 days following the date of personal delivery or mailing of written notice
of such default.
(d) Failure to pay any Indebtedness or trade debt of the Borrower to any
third party (i) when due upon agreed upon terms, unless a grace period applies
or the Borrower satisfies the conditions described in 9.1(d)(iii) below, (ii)
upon the expiration of an applicable grace period, unless the Borrower
satisfies the conditions described in 9.1(d)(iii), or (iii) provided that the
payment of such Indebtedness or trade debt is being contested in good faith by
appropriate proceedings, and the Borrower shall have set aside on its books
adequate reserves with respect to such Indebtedness or debt, at the time that a
final non-appealable decision is rendered in such proceedings.
(e) The discovery by the Bank of any material inaccuracy in any statement,
assurance, representation, covenant, warranty, term or condition by the
Borrower contained in this Agreement or in any document delivered or to be
delivered by or on behalf of the Borrower pursuant to this Agreement, or in any
other Loan Document, or in any other agreement between the Borrower and the
Bank.
(f) The filing of a petition by or against the Borrower or any other
obligor of any Loan seeking relief under the Federal Bankruptcy Code, 11 U.S.C.
Section 101, et seq., and any amendments thereto (the "Code"), or any similar
law or regulation, whether federal, state or local, not dismissed within 30
days.
(g) The commencement of a proceeding by or against the Borrower or other
obligor of a Loan under any statute or other law providing for an assignment
for the benefit of creditors, the appointment of a receiver, or any other
similar law or regulation, whether federal, state or local, not dismissed
within 30 days.
(h) The garnishment, attachment, levy or other similar action taken by or
on behalf of any creditor of the Borrower or any of its properties which could
have a Material
23
<PAGE> 23
Adverse Effect.
(i) The determination by the Bank or any one of its agents or
representatives that there exists any Hazardous Substances in violation of any
Environmental Laws on, in or under any of the collateral in which the Bank
holds an interest as security for any loan made pursuant to this Agreement.
9.2 Upon the occurrence of any Event of Default set forth in subsections
9.1(a) through 9.1(i) above, at the option of the Bank, the Bank's obligation
to make additional loan advances under this Agreement shall terminate and the
Bank shall have the right to declare all or any part of the unpaid principal
balance of, and accrued interest on, outstanding loans hereunder to be
immediately due and payable, without presentment, demand, or notice of any
kind, all of which are hereby expressly waived by the Borrower.
9.3 Upon the occurrence of any Event of Default set forth in subsections
9.1(a) through 9.1(i) above, the Bank shall have the right to exercise any and
all remedies that it may have for default under any Loan Document or at law or
in equity, and such remedies may be exercised concurrently or separately until
each and every one of the Borrower's obligations under the Loan Documents has
been fully satisfied. In connection with the enforcement of any such remedies
of the Bank, the Bank and its employees, attorneys, agents, and other persons
and entities designated by the Bank, shall have the right, without notice, to
enter the Borrower's plant and other places of business for such purposes as
may be reasonably required to permit the Bank to preserve, protect, take
possession of and/or sell or otherwise dispose of any Collateral, and to store
the Collateral at the Borrower's plant and other places of business, without
charge, for such periods as may be determined by the Bank.
SECTION 10 - CONDITIONS PRECEDENT TO ADVANCES UNDER THE LOANS.
In addition to the other conditions precedent to advances described in
this Agreement, each Loan advance requested under this Agreement shall be
subject to prior satisfaction of the following conditions:
10.1 The representations and warranties contained herein and in the other
Loan Documents shall be true, correct and accurate in all material respects on
and as of the Funding Date of such requested advance.
10.2 No event shall have occurred and be continuing or would result from
the consummation of such borrowing or the application of the proceeds thereof
that would constitute a default, or any circumstance with which the passing of
time or the giving of notice could constitute a default, under this Agreement
or any Loan Document.
24
<PAGE> 24
10.3 The Borrower shall have performed in all material respects all
agreements and satisfied all conditions that this Agreement and each other Loan
Document provides shall be performed by it on or before such Funding Date.
10.4 No order, judgment or decree of any court, arbitrator or governmental
authority shall purport to enjoin or restrain the Bank from making such
advance.
10.5 There shall not be pending or, to Borrower's Knowledge threatened,
any action, suit, proceeding, governmental investigation or arbitration against
or affecting the Borrower or any property of the Borrower (other than as
disclosed in Schedule 2.5 attached hereto), and there shall have occurred no
development in any such action, suit, proceeding, governmental investigation or
arbitration previously disclosed to the Bank pursuant to this Agreement, that,
in the opinion of the Bank, would in any such case, reasonably be expected to
have a Material Adverse Effect upon the Borrower. No injunction or other
restraining order shall have been issued and no hearing to cause an injunction
or other restraining order shall be pending or noticed with respect to any
action, suit or proceeding seeking to enjoin or otherwise prevent the
consummation of, or to recover any damages or obtain relief as a result of,
this Agreement or the making of Loans hereunder.
10.6 Since the date of the most recent financial statements submitted to
the Bank by or on behalf of the Borrower, nothing shall have occurred or become
known which the Bank shall have determined has a Material Adverse Effect upon
the Borrower.
10.7 The Bank shall have received a Notice of Borrowing at the time and in
form required by Section 4.2 above. The furnishing by the Borrower of a Notice
of Borrowing shall be deemed to constitute a representation and warranty of the
Borrower to the effect that all the conditions set forth in this Agreement for
the requested advance are satisfied as of the date of delivery and will be
satisfied on the applicable Funding Date.
SECTION 11 - LIMITATION ON NON-REVOLVING EQUIPMENT L/C LOAN ADVANCES.
Notwithstanding anything to the contrary contained herein or in any of the
other Loan Documents, the Non-Revolving Equipment L/C Loan is subject to the
following additional terms and conditions:
11.1 The principal amount of each Non-Revolving Equipment L/C Loan advance
shall not exceed an amount equal to eighty percent (80%) of the Borrower's
actual cost for the equipment that will be purchased with the proceeds of such
advance (excluding tax, insurance, delivery and set-up charges, the cost of
maintenance contracts, and any other costs not paid or payable by the Borrower
to the equipment manufacturer as a direct cost of acquiring the equipment).
25
<PAGE> 25
11.2 The proceeds of each Non-Revolving Equipment L/C Loan advance shall
be advanced by the Bank to the Borrower only after (i) receipt by the Bank of
such security agreements and financing statements (or supplements or amendments
thereto) covering the equipment, duly executed by the Borrower, (ii) receipt by
the Bank of such other documents as the Bank may reasonably require to create
and perfect its security interest therein, together with such evidence as the
Bank may reasonably require in order to establish the cost of such equipment to
the Borrower and that the equipment is completed and ready for shipment to the
Borrower, and (iii) the Borrower's compliance with the conditions described in
Section 10 above.
SECTION 12 - ACCEPTANCE OF PROCEEDS.
The acceptance of the proceeds of each Loan shall constitute the
representation and warranty by the Borrower to the Bank that all of the
applicable conditions specified herein have been satisfied as of that time,
except for such conditions that have been expressly waived in writing hereunder
by the Bank.
SECTION 13 - MISCELLANEOUS
13.1 The Borrower shall pay all out-of-pocket expenses incurred by the
Bank in connection with making and collecting the Loans and enforcing the Loan
Documents, including, but not limited to, reasonable attorneys' fees relating
to (a) the enforcement, or attempted enforcement, of any provision of any of
the Loan Documents, (b) the collection of any of the Loans, and (c) the
foreclosure of any security interests or other liens given with respect
thereto. Notwithstanding the foregoing, the Borrower shall not be obligated to
pay more than $5,000 in attorneys' fees incurred by the Bank in connection with
making the Loans (as contrasted with collecting the Loans, foreclosing the
liens and security interests securing the Loans, and otherwise enforcing or
attempting to enforce the Loan Documents, as to which the Borrower shall be
obligated to pay all reasonable attorneys' fees and other costs incurred by the
Bank, in addition to reimbursing the Bank for reasonable attorneys' fees, not
to exceed $5,000, in connection with making the Loans).
13.2 The Borrower acknowledges that the Bank has and shall have the right,
upon an Event of Default, or any event which with the giving of notice or lapse
of time, or both, would constitute an Event of Default, to set off any
indebtedness from time to time owing to the Borrower by the Bank, including any
indebtedness represented by any account maintained with the Bank by the
Borrower, against any indebtedness that shall at any time be due and payable by
the Borrower to the Bank.
13.3 Each and every right granted to the Bank hereunder or under any other
document delivered hereunder, or in connection herewith, or allowed it by law
or equity, shall be cumulative
26
<PAGE> 26
and may be exercised from time to time. No failure on the part of the Bank to
exercise, and no delay in exercising, any right shall operate as a waiver
thereof or as a waiver of any other right. No single or partial exercise by
the Bank of any right or remedy shall preclude any other future exercise of it
or the exercise of any other right or remedy. No waiver or indulgence by the
Bank of any default shall be effective unless in writing and signed by the
Bank, nor shall a waiver on one occasion be construed as a bar to or waiver of
that right on any future occasion. This Agreement may not be amended except by
a writing signed by all the parties hereto.
13.4 The relationship between the Borrower and the Bank is solely that of
borrower and lender. The Bank has no fiduciary responsibilities to the
Borrower as a result of this Loan Agreement, the Loan Documents or the
consummation of the transactions contemplated hereby or thereby. The Bank does
not undertake any responsibility to the Borrower to review or inform the
Borrower of any matter in connection with any phase of the Borrower's business
or operations. The Borrower shall rely entirely upon its own judgment with
respect to its business, and any review, inspection, supervision, or
information supplied to the Borrower by the Bank is for the protection of the
Bank and neither the Borrower nor any third party is entitled to rely thereon.
13.5 This Agreement is made in the State of Michigan. The validity of
this Agreement, and the validity of any documents incorporated herein or
executed in connection herewith, and the construction, interpretation and
enforcement thereof, and the rights of the parties thereto, shall be determined
under and construed in accordance with the internal laws of the State of
Michigan, without regard to principles of conflicts of law.
13.6 Any and all notices or other communications required or permitted
under this Agreement shall be in writing, and shall be served either personally
or by certified United States mail with postage thereon full prepaid addressed
to the Borrower as:
Riviera Tool Company
5460 Executive Parkway
Grand Rapids, Michigan 49512
Attention: Kenneth K. Rieth, President
and to the Bank as:
Old Kent Bank
One Vandenberg Center
Grand Rapids, MI 49503
Attention: Gilbert A. Segovia, Vice President
or such other place or places as any party shall designate by written notice
served upon other
27
<PAGE> 27
parties.
13.7 This Agreement shall be binding upon and shall inure to the benefit
of the Borrower and the Bank and their respective successors and assigns;
provided, however, the Borrower may not assign, transfer, hypothecate or
otherwise dispose of its rights hereunder or in connection herewith or any
interest herein (voluntarily, by operation of law, as security, by gift or
otherwise) without the prior written consent of the Bank, which consent may be
withheld in the sole discretion of the Bank. There are no third party
beneficiaries of this Agreement. The Bank may assign, negotiate, pledge or
otherwise hypothecate all or any portion of this Agreement, or grant
participations herein and in the Loan Documents, or in any of its rights or
security hereunder or thereunder, including, without limitation, the
instruments securing the Borrower's obligations hereunder, provided, however,
that the Bank promptly will inform the Borrower of any such assignment,
negotiation, pledge or other hypothecation and of the parties involved
therewith and, provided further, that no such assignment, negotiation, pledge
or other hypothecation by the Bank will relieve the Bank of its obligation
under this Agreement. In connection with any assignment or participation, the
Bank may disclose to the proposed assignee or participant any information that
the Borrower is required to deliver to the Bank pursuant to this Agreement.
Notwithstanding the foregoing, the Bank shall not assign all or any portion of
its right or interest under the Loan Documents to NBD Bank or any person who is
a successor in interest to NBD Bank. The Borrower acknowledges that the Bank
has granted a participation in the Revolving L/C Loan and the Existing
Equipment Term Loan to be made pursuant to this Agreement, and in all related
Loan Documents, to Norwest Bank Minnesota, National Association, and the
Borrower consents thereto.
13.8 The Borrower waives and releases any and all right that it may have
to require that the Bank marshal any of the collateral in which it holds an
interest as security for a loan made pursuant to this Agreement. The Borrower
shall upon the request of the Bank promptly execute and deliver to the Bank a
written statement, in form and substance reasonably satisfactory to the Bank,
identifying all of the collateral in which the Bank holds an interest as
security for a loan made pursuant to this Agreement. The Bank may file or
record such written statements in the appropriate public records as determined
by the Bank in its sole and absolute discretion.
13.9 Upon any change in generally accepted accounting principles that, if
reflected in the financial statements or covenants required or established in
this Agreement, would have a material effect on such statements or covenants,
either party may request that the parties enter into negotiations to amend the
financial covenants or other terms of this Agreement so as to equitably reflect
such changes with the desired result that the criteria for evaluating the
Borrower's financial condition shall be the same after such changes as if the
changes had not been made.
13.10 Should any part, term or provision of this Agreement, or of any
documents
28
<PAGE> 28
incorporated herein or executed in connection herewith, be determined by the
courts to be illegal, unenforceable or in conflict with any law of the State of
Michigan, federal law or any other applicable law, the validity and
enforceability of the remaining portions or provisions of such document(s)
shall not be affected thereby.
13.11 The Borrower shall execute any and all additional or supplemental
documentation, and provide such further assistance and assurances as the Bank
may reasonably require, to give full effect to the terms, conditions and
intentions of this Agreement.
13.12 Time is of the essence with respect to all provisions of this
Agreement.
13.13 The headings in this Agreement have been inserted for convenience
only and shall not affect the meaning or interpretation of this Agreement.
13.14 This Agreement may be executed in one or more counterparts, each of
which shall be considered an original and all of which shall constitute the
same instrument.
13.15 This Agreement contains the entire agreement of the parties hereto
with respect to the subject matter hereof. The parties hereto shall not be
bound by any other different, additional or further agreements or
understandings except as consented to in writing by them.
13.16 The Recitals are incorporated into and form a part of this
Agreement.
13.17 The Bank and the Borrower, after consulting or having had the
opportunity to consult with counsel, knowingly, voluntarily and intentionally
waive any right either of them may have to a trial by jury in any litigation
based upon or arising out of this Agreement or any related instrument or
agreement or any of the transactions contemplated by this Agreement or any
course of conduct, dealing, statements (whether oral or written), or actions of
either of them. Neither the Bank nor the Borrower shall seek to consolidate,
by counterclaim or otherwise, any such action in which a jury trial has been
waived with any other action in which a jury trial cannot be or has not been
waived. These provisions shall not be deemed to have been modified in any
respect or relinquished by either the Bank or Borrower except by a written
instrument executed by both of them.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
29
<PAGE> 29
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
WITNESSES:
/s/ Peter C. Canepa RIVIERA TOOL COMPANY
-------------------
/s/ Stuart F. Cheney By: /s/ Kenneth K. Rieth
-------------------- -----------------------------
Kenneth R. Rieth, President
/s/ Peter C. Canepa OLD KENT BANK
-------------------
/s/ Stuart F. Cheney By: /s/ Gilbert A. Segovia
-------------------- -----------------------------
Gilbert A. Segovia, Vice President
30
<PAGE> 30
THIS NOTE HAS BEEN EXECUTED AND DELIVERED PURSUANT TO A LOAN
AGREEMENT BETWEEN THE BANK AND THE BORROWER. REFERENCE IS MADE TO
SUCH LOAN AGREEMENT FOR, AMONG OTHER THINGS, A STATEMENT OF THE
OCCURRENCES WHICH MAY CONSTITUTE AN EVENT OF DEFAULT UNDER THIS
NOTE.
EXHIBIT A TO LOAN AGREEMENT
REVOLVING LINE OF CREDIT LOAN NOTE
$10,000,000 June 12, 1997
For value received, RIVIERA TOOL COMPANY, a Michigan corporation (the
"Borrower"), promises to pay to the order of OLD KENT BANK, a Michigan banking
corporation (the "Bank"), the principal sum of TEN MILLION AND NO/100 DOLLARS
($10,000,000), or such lesser sum as may have been advanced with respect to the
loan evidenced by this Note by the Bank to the Borrower pursuant to a certain
Loan Agreement dated June 12, 1997 (such Loan Agreement, together with all
amendments, renewals and replacements thereof, if any, is referred to as the
"Loan Agreement"), plus interest on the outstanding principal indebtedness
evidenced hereby from time to time at a rate per annum which, except during
default, is equal to the Prime Rate (as defined in the Loan Agreement) plus 25
basis points from time to time on all principal indebtedness evidenced by this
Note. Interest shall be calculated in accordance with the Loan Agreement.
Following maturity or acceleration of the indebtedness evidenced by this
Note, the interest rate on the entire principal balance of this Note shall be
300 basis points higher than the interest rate otherwise in effect. In
addition, if any payment required hereby is not made within 15 days of its due
date, the Borrower shall be liable for a late payment charge in an amount equal
to five (5%) percent of the monthly payment due, except that in no event shall
the late payment charge exceed $2,000. The late payment charge shall apply
individually to all payments past due, without proration. All such default
interest and late payment charges, if any, shall be paid upon demand by the
holder hereof.
Accrued interest on the outstanding principal balance of the indebtedness
represented by this Note shall be due and payable on the 1st day of each month,
beginning July 1, 1997. The principal balance of the indebtedness represented
by this Note, and all accrued and unpaid interest thereon, shall in any event
be due and payable on January 1, 1999, unless sooner accelerated by the Bank
pursuant to the Loan Agreement. The indebtedness evidenced by this Note may be
prepaid, in whole or in part, at any time without penalty or premium.
<PAGE> 31
All payments hereunder shall be made in lawful money of the United States
of America to the Bank at its principal office in Grand Rapids, Michigan, or at
such other place as the holder hereof may from time to time specify.
Upon the occurrence of an Event of Default under the Loan Agreement that
has not been cured after notice and within the applicable grace period set
forth in the Loan Agreement, the entire principal balance of this Note
remaining at that time unmatured, together with all accrued interest thereon,
shall, at the election of the holder hereof and without notice of such election
and without demand or presentment, become immediately due and payable, anything
contained herein or in any other document or instrument to the contrary
notwithstanding.
Neither the failure of the holder hereof promptly to exercise its right to
declare the outstanding principal and accrued and unpaid interest and other
charges hereunder to be immediately due and payable, nor failure to exercise
any other right or remedy the holder may have for default, nor the acceptance
by the holder of late or partial payments, nor the failure of the holder to
demand strict performance of any obligation of the Borrower hereunder, shall
constitute a waiver of any such rights while such default continues, nor a
waiver of any such rights in connection with any future default on the part of
the Borrower hereunder. Further, acceptance by the holder of partial payments
following due acceleration of the indebtedness evidenced hereby shall not
constitute a waiver by the holder of the acceleration of such indebtedness or
of any other right or remedy otherwise available to the holder in such
circumstance.
The Borrower waives presentment, protest and demand, notice of protest,
demand, dishonor and nonpayment of this Note.
The Borrower agrees to pay all costs incurred by the holder, including
without limitation costs of collection and reasonable attorney's fees, in case
the principal of this Note or any payment of interest thereon is not paid at
the respective due date or maturity thereof, or in case it becomes necessary to
protect the security for this Note, whether suit is brought or not, or in case
of any other default under this Note.
Any payment (including prepayments) upon this Note shall be applied first
to any expenses, charges or fees then due and payable to the Bank in connection
with the indebtedness evidenced hereby or any collateral for such indebtedness,
then to any accrued and unpaid interest hereunder, and then to the unpaid
principal balance.
In no event shall the Borrower be required to make any payment hereunder
which would violate any applicable law regulating or limiting the rate of
interest that the holder of the Note may lawfully charge or collect. In the
event any such payment is made by or for the account of the Borrower, such
payment shall, to the extent it exceeds the maximum payment that the holder
hereof lawfully may charge or collect, be applied toward reduction of the
principal balance hereof.
2
<PAGE> 32
This Note is secured by a first lien on certain of the Borrower's accounts
receivable, machinery, equipment, furniture and fixtures, as set forth in the
Loan Agreement and in one or more Security Agreements between the Bank and the
Borrower dated June 12, 1997, all of which are incorporated herein by
reference.
This Note shall be governed by and enforced and construed in accordance
with the laws of Michigan. The invalidity, illegality or unenforceability of
any one or more of the provisions hereof shall not affect the validity,
legality or enforceability of the remaining provisions hereof, all of which
shall remain in full force and effect.
RIVIERA TOOL COMPANY
By: /s/ Kenneth K. Rieth
----------------------------
Kenneth K. Rieth, President
3
<PAGE> 33
THIS NOTE HAS BEEN EXECUTED AND DELIVERED PURSUANT TO A LOAN
AGREEMENT BETWEEN THE BANK AND THE BORROWER. REFERENCE IS MADE TO
SUCH LOAN AGREEMENT FOR, AMONG OTHER THINGS, A STATEMENT OF THE
OCCURRENCES WHICH MAY CONSTITUTE AN EVENT OF DEFAULT UNDER THIS
NOTE.
EXHIBIT B TO LOAN AGREEMENT
EXISTING EQUIPMENT TERM LOAN NOTE
$3,250,000 June 12, 1997
For value received, RIVIERA TOOL COMPANY, a Michigan corporation (the
"Borrower"), promises to pay to the order of OLD KENT BANK, a Michigan banking
corporation (the "Bank"), the principal sum of THREE MILLION TWO HUNDRED FIFTY
THOUSAND AND NO/100 DOLLARS ($3,250,000), or such lesser sum as may have been
advanced with respect to the loan evidenced by this Note by the Bank to the
Borrower pursuant to a certain Loan Agreement dated June 12, 1997 (such Loan
Agreement, together with all amendments, renewals and replacements thereof, if
any, is referred to as the "Loan Agreement"), plus interest on the outstanding
principal indebtedness evidenced hereby from time to time at a rate per annum
which, except during default, is equal to:
(a) The Prime Rate (as defined in the Loan Agreement) plus 25 basis points
from time to time on all principal indebtedness evidenced by this Note; or
(b) At that fixed rate of interest that is equal to the Five (5)-Year
Treasury Rate (as defined in the Loan Agreement) plus 275 basis points, but
only if the Borrower has so elected pursuant to Section 4.1(b) of the Loan
Agreement.
Following maturity or acceleration of the indebtedness evidenced by this
Note, the interest rate on the entire principal balance of this Note shall be
300 basis points higher than the interest rate otherwise in effect. In
addition, if any payment required hereby is not made within 15 days of its due
date, the Borrower shall be liable for a late payment charge in an amount equal
to five (5%) percent of the monthly payment due, except that in no event shall
the late payment charge exceed $2,000. The late payment charge shall apply
individually to all payments past due, without proration. All such default
interest and late payment charges, if any, shall be paid upon demand by the
holder hereof.
The indebtedness evidenced by this Note, unless sooner prepaid or
accelerated as provided in the Loan Agreement, shall be paid in monthly
installments of principal in the mount of FIFTY-
<PAGE> 34
FOUR THOUSAND ONE HUNDRED SIXTY-SIX AND 67/100 DOLLARS ($54,166.67) each plus
accrued and unpaid interest on the outstanding principal balance of the
indebtedness evidenced by this Note. Such payments of principal and interest
shall be due and payable on the 19th day of each month, beginning July 19,
1997. The principal balance of the indebtedness represented by this Note, and
all accrued and unpaid interest thereon, shall in any event be due and payable
on July 19, 2002, unless sooner accelerated by the Bank pursuant to the Loan
Agreement.
The indebtedness evidenced by this Note may be prepaid in whole or in part
upon notice and with the prepayment premium provided for in Section 4.6 of the
Loan Agreement.
All payments hereunder shall be made in lawful money of the United States
of America to the Bank at its principal office in Grand Rapids, Michigan, or at
such other place as the holder hereof may from time to time specify.
Upon the occurrence of an Event of Default under the Loan Agreement that
has not been cured after notice and within the applicable grace period set
forth in the Loan Agreement, the entire principal balance of this Note
remaining at that time unmatured, together with all accrued interest thereon,
shall, at the election of the holder hereof and without notice of such election
and without demand or presentment, become immediately due and payable, anything
contained herein or in any other document or instrument to the contrary
notwithstanding.
Neither the failure of the holder hereof promptly to exercise its right to
declare the outstanding principal and accrued and unpaid interest and other
charges hereunder to be immediately due and payable, nor failure to exercise
any other right or remedy the holder may have for default, nor the acceptance
by the holder of late or partial payments, nor the failure of the holder to
demand strict performance of any obligation of the Borrower hereunder, shall
constitute a waiver of any such rights while such default continues, nor a
waiver of any such rights in connection with any future default on the part of
the Borrower hereunder. Further, acceptance by the holder of partial payments
following due acceleration of the indebtedness evidenced hereby shall not
constitute a waiver by the holder of the acceleration of such indebtedness or
of any other right or remedy otherwise available to the holder in such
circumstance.
The Borrower waives presentment, protest and demand, notice of protest,
demand, dishonor and nonpayment of this Note.
The Borrower agrees to pay all costs incurred by the holder, including
without limitation costs of collection and reasonable attorney's fees, in case
the principal of this Note or any payment of interest thereon is not paid at
the respective due date or maturity thereof, or in case it becomes necessary to
protect the security for this Note, whether suit is brought or not, or in case
of any other default under this Note.
2
<PAGE> 35
Any payment (including prepayments) upon this Note shall be applied first
to any expenses, charges or fees then due and payable to the Bank in connection
with the indebtedness evidenced hereby or any collateral for such indebtedness,
then to any accrued and unpaid interest hereunder, and then to the unpaid
principal balance.
In no event shall the Borrower be required to make any payment hereunder
which would violate any applicable law regulating or limiting the rate of
interest that the holder of the Note may lawfully charge or collect. In the
event any such payment is made by or for the account of the Borrower, such
payment shall, to the extent it exceeds the maximum payment that the holder
hereof lawfully may charge or collect, be applied toward reduction of the
principal balance hereof.
This Note is secured by a first lien on certain of the Borrower's accounts
receivable, machinery, equipment, furniture and fixtures, as set forth in the
Loan Agreement and in one or more Security Agreements between the Bank and the
Borrower dated June 12, 1997, all of which are incorporated herein by
reference.
This Note shall be governed by and enforced and construed in accordance
with the laws of Michigan. The invalidity, illegality or unenforceability of
any one or more of the provisions hereof shall not affect the validity,
legality or enforceability of the remaining provisions hereof, all of which
shall remain in full force and effect.
RIVIERA TOOL COMPANY
By: /s/ Kenneth K. Rieth
------------------------------
Kenneth K. Rieth, President
3
<PAGE> 36
THIS NOTE HAS BEEN EXECUTED AND DELIVERED PURSUANT TO A LOAN
AGREEMENT BETWEEN THE BANK AND THE BORROWER. REFERENCE IS MADE TO
SUCH LOAN AGREEMENT FOR, AMONG OTHER THINGS, A STATEMENT OF THE
OCCURRENCES WHICH MAY CONSTITUTE AN EVENT OF DEFAULT UNDER THIS
NOTE.
EXHIBIT C TO LOAN AGREEMENT
NON-REVOLVING EQUIPMENT LINE OF CREDIT LOAN NOTE
$4,000,000 June 12, 1997
For value received, RIVIERA TOOL COMPANY, a Michigan corporation (the
"Borrower"), promises to pay to the order of OLD KENT BANK, a Michigan banking
corporation (the "Bank"), the principal sum of FOUR MILLION AND NO/100 DOLLARS
($4,000,000), or such lesser sum as may have been advanced by the Bank to the
Borrower with respect to the loan evidenced by this Note pursuant to a certain
Loan Agreement dated June 12, 1997 (such Loan Agreement, together with all
amendments, renewals and replacements thereof, if any, is referred to as the
"Loan Agreement"), plus interest on the outstanding principal indebtedness
evidenced hereby from time to time at a rate per annum which, except during
default, is equal to:
(a) The Prime Rate (as defined in the Loan Agreement) plus 25 basis points
from time to time on principal indebtedness evidenced by this Note; or
(b) At that fixed rate of interest that is equal to the Six (6)-Year
Treasury Rate (as defined in the Loan Agreement) plus 275 basis points, but
only if the Borrower has so elected pursuant to Section 4.1(c) of the Loan
Agreement.
It is anticipated that the Bank will from time to time make advances of
the indebtedness evidenced hereby pursuant the Loan Agreement. As to each such
advance, the Borrower shall, subject to the Loan Agreement, have the option to
elect whether interest is to accrue on the amount of such advance at the rate
set forth in clause (a) or clause (b) above.
Following maturity or acceleration of the indebtedness evidenced by this
Note, the interest rate on the entire principal balance of this Note shall be
300 basis points higher than the interest rate otherwise in effect. In
addition, if any payment required hereby is not made within 15 days of its due
date, the Borrower shall be liable for a late payment charge in an amount equal
to five (5%) percent of the monthly payment due, except that in no event shall
the late payment charge exceed $2,000. The late payment charge shall apply
individually to all payments past due, without proration. All such default
interest and late payment charges, if any, shall be paid upon demand
<PAGE> 37
by the holder hereof.
The indebtedness evidenced by this Note shall be paid as follows:
(a) Accrued interest at the applicable rate on the outstanding principal
balance of the indebtedness represented by this Note shall be due and payable
on the 1st day of each month, beginning July 1, 1997.
(b) On the ___ day of the first month following the date upon which the
outstanding principal indebtedness evidenced by this Note equals or exceeds
$500,000 (the "First Term-Out Election Date"), the Borrower shall have the
option to begin making payments of principal in an amount equal to the quotient
obtained by dividing the outstanding principal indebtedness evidenced by this
Note on the First Term-Out Election Date by seventy-two (72). The monthly
principal payment as so determined shall be made simultaneously with and in
addition to the interest payment due under clause (a) above. Unless sooner
accelerated by the Bank pursuant to the Loan Agreement, all such principal and
accrued and unpaid interest thereon shall, in any event, be due and payable on
the sixth (6th) anniversary of the First Term-Out Election Date. Promptly
after the Borrower notifies the Bank in writing that the Borrower has elected
to begin making payments of principal as provided in this clause (b), the Bank
shall prepare and the Borrower shall sign an amortization schedule showing the
required monthly principal payments resulting from the Borrower's election
under this clause (b), which election shall be irrevocable.
(c) The difference between the aggregate outstanding principal
indebtedness evidenced by this Note from time to time and any portion of such
indebtedness as to which the Borrower has elected to begin making principal
payments is referred as the "Remaining Principal Balance of this Note". The
Borrower shall have the option, exercisable six months after the First Term-Out
Election Date and at six-month intervals thereafter (each such date is referred
to as a "Subsequent Term-Out Election Date"), provided that the Remaining
Principal Balance of this Note on the Subsequent Term-Out Election Date equals
or exceeds $500,000, to begin making additional payments of principal in an
amount equal to the quotient obtained by dividing the Remaining Principal
Balance of this Note on the Subsequent Term-Out Election Date in question by
seventy-two (72). The monthly principal payment as so determined shall be made
simultaneously with and in addition to the interest payment due under clause
(a) and any principal payment due under clause (b) above. Unless sooner
accelerated by the Bank pursuant to the Loan Agreement, all such principal and
accrued and unpaid interest thereon shall, in any event, be due and payable on
the sixth (6th) anniversary of the Subsequent Term-Out Election Date as of
which the election was made. Promptly after the Borrower notifies the Bank in
writing that the Borrower has elected to begin making payments of principal as
provided in this clause (c), the Bank shall prepare and the Borrower shall sign
an amortization schedule showing the required monthly principal payments
resulting from the Borrower's election under this clause (c), which election
shall be irrevocable.
2
<PAGE> 38
(d) All principal indebtedness represented by this Note (other than such
principal indebtedness as is being repaid on the basis of a written
amortization schedule resulting from an election made by the Borrower pursuant
to clause (b) or (c) above), and all accrued and unpaid interest thereon shall,
in any event, be due and payable on July 1, 2003, unless sooner accelerated by
the Bank pursuant to the Loan Agreement.
The indebtedness evidenced by this Note may be prepaid in whole or in part
upon notice and with the prepayment premium provided for in Section 4.6 of the
Loan Agreement.
All payments hereunder shall be made in lawful money of the United States
of America to the Bank at its principal office in Grand Rapids, Michigan, or at
such other place as the holder hereof may from time to time specify.
Upon the occurrence of an Event of Default under the Loan Agreement that
has not been cured after notice and within the applicable grace period set
forth in the Loan Agreement, the entire principal balance of this Note
remaining at that time unmatured, together with all accrued interest thereon,
shall, at the election of the holder hereof and without notice of such election
and without demand or presentment, become immediately due and payable, anything
contained herein or in any other document or instrument to the contrary
notwithstanding.
Neither the failure of the holder hereof promptly to exercise its right to
declare the outstanding principal and accrued and unpaid interest and other
charges hereunder to be immediately due and payable, nor failure to exercise
any other right or remedy the holder may have for default, nor the acceptance
by the holder of late or partial payments, nor the failure of the holder to
demand strict performance of any obligation of the Borrower hereunder, shall
constitute a waiver of any such rights while such default continues, nor a
waiver of any such rights in connection with any future default on the part of
the Borrower hereunder. Further, acceptance by the holder of partial payments
following due acceleration of the indebtedness evidenced hereby shall not
constitute a waiver by the holder of the acceleration of such indebtedness or
of any other right or remedy otherwise available to the holder in such
circumstance.
The Borrower waives presentment, protest and demand, notice of protest,
demand, dishonor and nonpayment of this Note.
The Borrower agrees to pay all costs incurred by the holder, including
without limitation costs of collection and reasonable attorney's fees, in case
the principal of this Note or any payment of interest thereon is not paid at
the respective due date or maturity thereof, or in case it becomes necessary to
protect the security for this Note, whether suit is brought or not, or in case
of any other default under this Note.
Any payment (including prepayments) upon this Note shall be applied first
to any
3
<PAGE> 39
expenses, charges or fees then due and payable to the Bank in connection
with the indebtedness evidenced hereby or any collateral for such indebtedness,
then to any accrued and unpaid interest hereunder, and then to the unpaid
principal balance.
In no event shall the Borrower be required to make any payment hereunder
which would violate any applicable law regulating or limiting the rate of
interest that the holder of the Note may lawfully charge or collect. In the
event any such payment is made by or for the account of the Borrower, such
payment shall, to the extent it exceeds the maximum payment that the holder
hereof lawfully may charge or collect, be applied toward reduction of the
principal balance hereof.
This Note is secured by a first lien on certain of the Borrower's accounts
receivable, machinery, equipment, furniture and fixtures, as set forth in the
Loan Agreement and in one or more Security Agreements between the Bank and the
Borrower dated June 12, 1997, all of which are incorporated herein by
reference.
This Note shall be governed by and enforced and construed in accordance
with the laws of Michigan. The invalidity, illegality or unenforceability of
any one or more of the provisions hereof shall not affect the validity,
legality or enforceability of the remaining provisions hereof, all of which
shall remain in full force and effect.
RIVIERA TOOL COMPANY
By: /s/ Kenneth K. Rieth
------------------------------
Kenneth K. Rieth, President
4
<PAGE> 40
EXHIBIT D TO LOAN AGREEMENT
Exhibit D consists of compliance reports in the forms attached hereto
as Schedules A, B and C, respectively, which are to be submitted to the Bank on
a weekly basis as required by Section 6.1(c) of the Loan Agreement.
<PAGE> 41
SCHEDULE 2.5
PENDING LITIGATION
Riviera Die & Tool Company, Inc., et al v. Durametallic Corporation, et al.,
Kent County Circuit Court Case No. 94-2809-CZ
<PAGE> 42
SCHEDULE 2.12
EMPLOYEE PENSION BENEFIT PLANS
<PAGE> 43
SCHEDULE 7.10
REAL AND PERSONAL PROPERTY OPERATING LEASES
1. GE Capital Fleet -- Semi-tractor and trailer
2. Fleet Capital Corp. -- two surface grinders
3. Forsythe-McArthur -- computer equipment
4. IBM -- Cadam and Catia software (license and maintenance)
5. Pitney-Bowes Credit Corp. -- postage meter
6. AT+T -- telephone equipment lease
7. Greenbrook Limited Partners/Riviera, a Michigan limited partnership
and Riviera Die & Tool, Inc. Lease Under Agreement 11/1/88
<PAGE> 44
ADDENDUM TO SECURITY AGREEMENT
The provisions of this Addendum to Security Agreement (this "Addendum")
modify, and are a part of, a Security Agreement dated even date herewith (the
"Original Security Agreement") between Riviera Tool Company, a Michigan
corporation, as Debtor, and Old Kent Bank, a Michigan banking corporation, as
Bank.
The parties agree as follows:
1. This Addendum is incorporated into and made a part of the
Original Security Agreement. If there is any conflict between the Original
Security Agreement and this Addendum, this Addendum shall control. Unless
otherwise defined herein, capitalized terms shall have the meanings assigned to
them in the Original Security Agreement. Each reference to "Security
Agreement" or "Agreement" in the Original Security Agreement or this Addendum
means the Original Security Agreement, as modified and supplemented hereby.
2. The indebtedness and obligations now owing or to be owed by
Debtor to Bank and secured by the Collateral, include, without limitation,
the indebtedness and obligations evidenced by the following agreements,
instruments and documents:
(a) Loan Agreement dated June 12, 1997, between Riviera and Old
Kent;
(b) $10,000,000 Revolving Line of Credit Loan Note dated June 12,
1997, from Riviera to Old Kent;
(c) $3,250,000 Existing Equipment Term Loan Note dated June 12,
1997, from Riviera to Old Kent;
(d) $4,000,000 Non-Revolving Equipment Line of Credit Loan Note
dated June 12, 1997, from Riviera to Old Kent;
(e) Security Agreement (Equipment and Fixtures) dated June 12,
1997, from Riviera to Old Kent;
(f) Security Agreement (Accounts, Contract Rights, Chattel Paper,
General Intangibles) dated June 12, 1997, from Riviera to Old
Kent;
(g) Security Agreement (Inventory) dated June 12, 1997, from
Riviera to Old Kent;
(h) UCC-1 Financing Statements relating to the collateral pledged to
Old Kent pursuant to the Security Agreements listed above;
(i) Collateral Assignment of Insurance Policy on the life of
Kenneth K. Rieth;
<PAGE> 45
3. Debtor shall be in default under the Security Agreement
immediately upon the occurrence of any Event of Default, as that phrase is
defined in the Loan Agreement. Upon any such default, in addition to the
remedies contained in the Original Security Agreement, Bank may exercise the
remedies contained in the Loan Agreement.
4. If there is any conflict, or differences in notice, cure,
default or permitted lien provisions, between the Security Agreement and the
Loan Agreement, the Loan Agreement shall control.
This Addendum is entered into by the parties on June 12, 1997.
OLD KENT BANK
By: Gilbert A. Segovia
-----------------------------------
Gilbert A. Segovia, Vice President
RIVIERA TOOL COMPANY
By: Kenneth K. Rieth
-----------------------------------
Kenneth K. Rieth, President
2
<PAGE> 46
Affiliate #___________________
SECURITY AGREEMENT
(Accounts, Contract Rights, Chattel Paper, General Intangibles)
The undersigned ("Debtor") hereby grant(s) to OLD KENT BANK, a Michigan
banking corporation, of 111 Lyon St., N.W., Grand Rapids, MI 49503
("Bank") a continuing security interest in, and hereby transfers and assigns to
Bank, for security, all accounts, contract rights, chattel paper, instruments,
and general intangibles, wherever located, now owned and hereafter acquired by
Debtor, including, but not limited to, all acccounts receivable, notes and
loans receivable, all rights of Debtor to payment for goods sold or leased, or
to be sold or leased or for services rendered, or to be rendered, together with
all rights, title and interest of Debtor, including the right of stoppage in
transit, in and to all goods the sale, delivery, or lease of which by Debtor
gave rise to such rights to payment, and all other obligations to and rights of
Debtor for the payment of money, and all proceeds thereof, and all books,
records and documents at any time evidencing or relating to any of the
foregoing, (collectively called "Collateral"). THIS SECURITY INTEREST SECURES
PAYMENT AND PERFORMANCE OF ALL INDEBTEDNESS AND OBLIGATIONS NOW AND HEREAFTER
OWING BY DEBTOR TO BANK, including all obligations of Debtor under this
Agreement, and all indebtedness and obligations now and hereafter owing to Bank
that are evidenced by any instruments, documents and agreements listed below
that have been executed by another person or persons, including any and all
renewals, extensions and modifications thereof (collectively called the
"Indebtedness"). The indebtedness and obligations now owing by Debtor to Bank
include, BUT ARE NOT NECESSARILY LIMITED TO, the indebtedness and obligations
evidenced by any instruments, documents and agreements listed below.
INSTRUMENT, DOCUMENT PRINCIPAL AMOUNT MAKER
OR AGREEMENT DATE (IF ANY) (IF OTHER THAN DEBTOR)
See Addendum attached
hereto.
This security interest secures all present and future indebtedness and
obligations owing by Debtor to Bank, regardless of whether any such
indebtedness or obligation is (a) not listed above, (b) not presently intended
or contemplated by Debtor or Bank, (c) indirect, contingent or secondary, (d)
unrelated to the Collateral or to any financing of the Collateral by Bank, (e)
of a kind or class that is different from any indebtedness or obligation now
owing by Debtor to Bank, or (f) evidenced by a note or other document that does
not refer to this security interest or this Agreement.
If Debtor is more than one person, the indebtedness includes all
indebtedness and obligations now and hereafter owing to Bank by any one or more
of such persons, regardless of whether the remaining person or persons are not
liable for such indebtedness and obligations or whether any one or more persons
who are not parties to this Agreement are also liable for all or part of such
indebtedness and obligations.
Additional provisions: See Addendum.
---------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE ADDITIONAL PROVISIONS PRINTED ON THE REVERSE SIDE ARE PART OF THIS
AGREEMENT AND ARE INCORPORATED IN THIS AGREEMENT BY REFERENCE.
Executed this 12th day of June, 1997.
OLD KENT BANK NONINDIVIDUAL DEBTOR:
Riviera Tool Company
--------------------------------------
By: Gilbert A. Segovia A Michigan
---------------------- ------------------------------------
Gilbert A. Segovia (State or Organization)
Its Vice President corporation
------------------ ------------------------------------
(Type of Entity)
By: Kenneth K. Rieth
------------------------------------
Its: President
--------------------------------
Taxpayer Ident. No.: 38-2077165
--------------------------------
Individual Debtor(s):
--------------- ---------------------
Social Security No.
<PAGE> 47
ASSIGNMENT OF LIFE INSURANCE POLICY AS COLLATERAL
A. The undersigned ("Assignor") assign(s) and transfer(s) to
OLD KENT BANK of GRAND RAPIDS, MI
---------------------------------------, ------------------------------
("Assignee"), as security, Policy No. U009,869
--------------------------------------
issued by PHOENIX MUTUAL LIFE INSURANCE COMPANY ("Insurer")
-------------------------------------------------------
upon the life of KENNETH K. RIETH
----------------------------------------------------- and
any supplementary contracts issued in connection with the policy (the policy
and the supplementary contracts are called the "Policy") and all claims,
options, privileges, rights, title and interest in and under the Policy
(except as provided in Paragraph C), subject to all the terms and conditions
of the Policy and to all superior liens, if any, that the Insurer may have
against the Policy.
B. Without detracting from the generality of the foregoing, the following
specific rights are included in this Assignment and pass to Assignee:
1. The sole right to collect from Insurer the net proceeds of the Policy
when it becomes a claim by death or maturity;
2. The sole right to surrender the Policy and receive its surrender value
at any time provided by the terms of the Policy and at any other times
as Insurer may allow;
3. The sole right to obtain one or more loans or advances on the Policy,
either from Insurer or from other persons, and to pledge or assign the
Policy as security for those loans or advances;
4. The sole right to collect and receive all distributions or shares of
surplus, dividend deposits or additions to the Policy now or in the
future made or apportioned to it, and to exercise any and all options
contained in the Policy with respect to those distributions, shares,
deposit; or additions but unless and until Assignee shall notify Insurer
in writing to the contrary, the distributions or shares of surplus,
dividend deposits and additions shall continue on the plan
in force at the time of this Assignment; and
5. The sole right to exercise all nonforfeiture rights permitted by the
terms of the Policy or allowed by Insurer and to receive all benefits
and advantages derived from those rights.
C. The following specific rights, so long as the Policy has not been
surrendered, are reserved and excluded from this Assignment and do not
pass to Assignee:
1. The right to collect from Insurer any disability benefit payable in cash
that does not reduce the amount of insurance;
2. The right to designate and change the beneficiary; and
3. The right to elect any optional mode of settlement permitted by the
Policy or allowed by Insurer; but the reservation of these rights shall
not impair the right of the Assignee to surrender the Policy completely
with all its incidents or any other right of the Assignee under this
Assignment, and any designation or change of beneficiary or election of
a mode of settlement shall be made subject to this Assignment and to the
rights of the Assignee under it.
D. THIS ASSIGNMENT IS MADE AND THE POLICY IS TO BE HELD AS COLLATERAL SECURITY
FOR ANY AND ALL INDEBTEDNESS AND OBLIGATIONS NOW OR IN THE FUTURE OWING TO
ASSIGNEE BY ASSIGNOR AND FOR ANY AND ALL INDEBTEDNESS AND OBLIGATIONS NOW OR
IN THE FUTURE OWING TO ASSIGNEE BY Riviera Tool Company
----------------------------------------
("DEBTOR"), regardless of whether any such indebtedness or obligation is
(a) not presently intended or contemplated by Assignee, Assignor or
Debtor, (b) indirect, contingent or secondary, (c) unrelated to the Policy,
(d) of a kind or class that is different from any indebtedness or
obligation now owing to Assignee by Assignor or Debtor, or (e) evidenced
by a note or other document that does not refer to this Assignment
(collectively, the "INDEBTEDNESS").
E. Assignee agrees as follows:
1. Any balance of sums received under this Assignment from Insurer
remaining after payment of the then-existing Indebtedness, matured or
unmatured, shall be returned by Assignee to Insurer, which shall pay the
balance to the persons who would be entitled to it under the terms of
the Policy in this Assignment had not been made;
2. Assignee will not exercise either the right to surrender the Policy or
(except for the purpose of paying premiums) the right to obtain policy
loans from Insurer until there has been default in payment of any of the
Indebtedness or a failure to pay any premium when due; and
3. Upon the request of the undersigned owner of the Policy, Assignee will
send the Policy to Insurer for endorsement of any designation or change
of beneficiary or any election of an optional mode of settlement.
F. Insurer is authorized to recognize the Assignee's claims to rights under
this Assignment without investigating the reason for any action taken by
Assignee or the validity or the amount of the Indebtedness or the existence
of any default in the Indebtedness or the application to be made by Assignee
of any amounts to be paid to Assignee. The sole signature of Assignee shall
be sufficient for the exercise of any rights under the Policy assigned by
this Assignment and the sole receipt of Assignee for any sums received
shall be a full discharge and release to Insurer. Checks for all or any
part of the sums payable under the Policy and assigned in this Assignment
shall be drawn to the exclusive order of Assignee if, when, and in such
amounts as Assignee shall request.
G. Assignee shall be under no obligation to pay any premium or the principal
of or interest on any loans or advances on the Policy, whether or not
obtained by Assignee, or any other charges on the Policy, but any
amounts so paid by the Assignee from its own funds shall become a part
of the Indebtedness secured by this Assignment, payable by Assignor on
demand, together with interest at an annual rate equal to the lesser of (i)
five percent (5%) above the rate of interest announced from time to time by
Assignee as its "prime" rate of interest, or (ii) the highest rate to which
the undersigned could lawfully agree in writing.
H. The exercise of any right, option, privilege or power given in this
Assignment to Assignee shall be at the option of Assignee, but (except as
restricted by Paragraph E (2) above) Assignee may exercise any such right,
option, privilege or power without notice to, or assent by, or affecting the
liability of, or releasing any interest assigned in this Assignment by,
Assignor.
I. If Paragraph D provides that this Assignment secures indebtedness and
obligations owing to Assignee by a third party named in that paragraph
("DEBTOR"), then the Additional Provisions of Assignment set forth on the
reverse side are a part of this Assignment and are incorporated in it by
reference.
J. Notwithstanding the foregoing, the maximum amount of net proceeds of the
Policy that Assignee shall be entitled to receive under this Assignment is
500,000.00. If no amount, zero or the words "No Limit," "None" or
similar words are inserted in the blank space in this paragraph,then
there is no limit on the amount of net proceeds of the Policy that
Assignee may receive under this Assignment.
Kenneth K. Rieth
-------------------------------------
RIVIERA TOOL COMPANY Policy Owner
Signed as of June 13, 1997 . 5460 EXECUTIVE PARKWAY
----------------------- -------------------------------------
GRAND RAPIDS, MI 49512
-------------------------------------
[SIG] Address
- -------------------------------------- -------------------------------------
Witness Policy Beneficiary
[SIG] -------------------------------------
- --------------------------------------
Witness -------------------------------------
<PAGE> 48
ADDITIONAL PROVISIONS OF ASSIGNMENT
K. The effectiveness of this Assignment is not subject to the satisfaction of
any conditions, including, without limitation, the granting of any other
security by any other person, firm, or corporation. Assignee shall not be
obligated at any time to make any disclosure to Assignor concerning
Debtor's financial condition, assets, liabilities, activities, or
operations or the status of the Indebtedness or of any other security for
the Indebtedness. This Assignment does not create any obligation or duty
of Assignee to grant or continue credit to Debtor or to give notice to or
obtain the consent of Assignor before doing so.
L. Assignee in its sole discretion may, without affecting or impairing this
Assignment, apply payments or collections received from any source other
than the policy to the payment of indebtedness other than the Indebtedness,
even though Assignee could have applied those payments to the
Indebtedness. Any payments that Assignee receives from Insurer under this
Assignment shall be applied to the interest on or principal of the
Indebtedness or to other components of the Indebtedness in any manner that
Assignee in its sole discretion shall determine.
M. Assignor waives (a) notice of the acceptance of this Assignment; (b)
presentment, protest, notice, demand, or action with respect to any default
in payment of all or any part of the Indebtedness, and (c) any right to
require Assignee to sue Debtor or any other person obligated with respect
to all or any part of the Indebtedness or to foreclose or realize upon any
security for all or any part of the Indebtedness.
N. The validity and enforceability of this Assignment shall not be impaired or
affected by the invalidity or unenforceability of any of the Indebtedness
or of any guaranty or other security for it or by any act or omission by
Assignee with respect to all or part of the Indebtedness or any agreement
relating to the Indebtedness or with respect to any present or future
guaranty or other security for all or part of the Indebtedness, including,
but not limited to, (a) any extension, modification, renewal, indulgence,
or substitution, (b) any failure or omission to enforce any right, power, or
remedy, (c) any waiver of any right, power, or remedy or of any default, (d)
any release, surrender, compromise, settlement, subordination, or
modification, with or without consideration, or (e) any consent by Assignee
to any sale or transfer of any security; all whether or not Assignor shall
have had notice or knowledge of any act, omission, or circumstance referred
to in this paragraph.
O. This Assignment is independent of any other obligations at any time in
effect with respect to all or any part of the Indebtedness and may be
enforced regardless of the existence, validity, enforcement, or
nonenforcement of any such other obligations.
INDIVIDUAL ACKNOWLEDGEMENT
STATE OF ____________)
:ss.
COUNTY OF ___________)
The Assignment of Life Insurance Policy as Collateral on the
reverse side, including the Additional Provisions on this side, was
acknowledged before me on ________________, 199____, by _________________.
__________________________________
Notary Public
_____________ County, ____________
My commission expires ____________
ACKNOWLEDGEMENT BY ENTITY
STATE OF Michigan )
:ss.
COUNTY OF Kent )
The Assignment of Life Insurance Policy as Collateral on the reverse
side, including the Additional Provisions on this side, was acknowledged before
me on June 12, 1997, by Kenneth K. Rieth the President of Riviera Tool Company,
a Michigan Corporation, on its behalf.
--------------------
(type of entity)
Christine L. Killingsworth
----------------------------------
Notary Public
Kent County, Michigan
My commission expires Feb. 2, 2002
CHRISTINE L. KILLINGSWORTH
Notary Public, Kent County, MI
My Commission Expires Feb. 2, 2002
INSURER'S ACKNOWLEDGMENT, CERTIFICATION AND AGREEMENT
The undersigned Insurer acknowledges having received and filed, at its
home office in ____________________________ on _______________, 199__, the
Assignment of Life Insurance Policy as Collateral on the reverse side. Insurer
certifies to the Assignee named in the Assignment and agrees that (a) the
Policy described in the Assignment is in full force and effect; (b) there are
no other assignments of the Policy on file with the Insurer, except in favor of
Assignee; and (c) Insurer will not cancel the Policy or permit it to lapse
(whether for nonpayment of premiums or otherwise) without giving Assignee at
least 30 days' prior written notice and the opportunity to cure any default in
premium payments or otherwise.
_______________________________________
(Name of Insurer)
By ____________________________________
Authorized Officer
<PAGE> 49
ASSIGNMENT OF LIFE INSURANCE POLICY AS COLLATERAL
A. The undersigned ["Assignor"] assign(s) and transfer(s) to Old Kent Bank
of Grand Rapids, MI ["Assignee"], as security, Policy No. 0011750620 issued
by Jackson National Life Insurance Company ["Insurer"] upon the life of
Kenneth K. Rieth and any supplementary contracts issued in connection with
the policy (the policy and the supplementary contracts are called the
"Policy") and all claims, options, privileges, rights, title and interest in
and under the Policy (except as provided in Paragraph C), subject to all the
terms and conditions of the Policy and to all superior liens, if any, that
the Insurer may have against the Policy.
B. Without detracting from the generality of the foregoing, the following
specific rights are included in this Assignment and pass to Assignee:
1. The sole right to collect from Insurer the net proceeds of the Policy
when it becomes a claim by death or maturity;
2. The sole right to surrender the Policy and receive its surrender value at
any time provided by the terms of the Policy and at any other times as
Insurer may allow:
3. The sole right to obtain one or more loans or advances on the Policy,
either from Insurer or from other persons, and to pledge or assign the
Policy as security for those loans or advances;
4. The sole right to collect and receive all distributions or shares of
surplus, dividend deposits or additions to the Policy now or in the
future made or apportioned to it, and to exercise any and all options
contained in the Policy with respect to those distributions, shares,
deposits or additions; but unless and until Assignee shall notify
Insurer in writing to the contrary, the distributions or shares of
surplus, dividend deposits and additions shall continue on the plan in
force at the time of this Assignment; and
5. The sole right to exercise all nonforfeiture rights permitted by the
terms of the Policy or allowed by Insurer and to receive all benefits and
advantages derived from those rights.
C. The following specific rights, so long as the Policy has not been
surrendered, are reserved and excluded from this Assignment and do not pass
to Assignee:
1. The right to collect from Insurer any disability benefit payable in cash
that does not reduce the amount of insurance;
2. The right to designate and change the beneficiary; and
3. The right to elect any optional mode of settlement permitted by the
Policy or allowed by Insurer; but the reservation of these rights shall
not impair the right of the Assignee to surrender the Policy completely
with all its incidents or any other right of the Assignee under this
Assignment, and any designation or change of beneficiary or election of
a mode of settlement shall be made subject to this Assignment and to
the rights of the Assignee under it.
D. THIS ASSIGNMENT IS MADE AND THE POLICY IS TO BE HELD AS COLLATERAL SECURITY
FOR ANY AND ALL INDEBTEDNESS AND OBLIGATIONS NOW OR IN THE FUTURE OWING TO
ASSIGNEE BY ASSIGNOR AND FOR ANY AND ALL INDEBTEDNESS AND OBLIGATIONS NOW OR
IN THE FUTURE OWING TO ASSIGNEE BY
Riviera Tool Company ("DEBTOR"), regardless of whether any such indebtedness
or obligation is (a) not presently intended or contemplated by Assignee,
Assignor or Debtor, (b) indirect, contingent or secondary, (c) unrelated to
the Policy, (d) of a kind or class that is different from any indebtedness
or obligation now owing to Assignee by Assignor or Debtor, or (e) evidenced
by a note or other document that does not refer to this Assignment
(collectively, the "INDEBTEDNESS").
E. Assignee agrees as follows:
1. Any balance of sums received under this Assignment from Insurer
remaining after payment of the then-existing Indebtedness, matured or
unmatured, shall be returned by Assignee to Insurer, which shall pay the
balance to the persons who would be entitled to it under the terms of
the Policy in this Assignment had not been made;
2. Assignee will not exercise either the right to surrender the Policy or
(except for the purpose of paying premiums) the right to obtain policy
loans from Insurer until there has been default in payment of any of the
Indebtedness or a failure to pay any premium when due; and
3. Upon the request of the undersigned owner of the Policy, Assignee will
send the Policy to Insurer for endorsement of any designation or change
of beneficiary or any election of an optional mode of settlement.
F. Insurer is authorized to recognize the Assignee's claims to rights under
this Assignment without investigating the reason for any action taken by
Assignee or the validity or the amount of the Indebtedness or the existence
of any default in the Indebtedness or the application to be made by Assignee
of any amounts to be paid to Assignee. The sole signature of Assignee shall
be sufficient for the exercise of any rights under the Policy assigned by
this Assignment and the sole receipt of Assignee for any sums received shall
be a full discharge and release to Insurer. Checks for all or any part of
the sums payable under the Policy and assigned in this Assignment shall be
drawn to the exclusive order of Assignee if, when, and in such amounts as
Assignee shall request.
G. Assignee shall be under no obligation to pay any premium or the principal of
or interest on any loans or advances on the Policy, whether or not obtained
by Assignee, or any other charges on the Policy, but any amounts so paid by
the Assignee from its own funds shall become a part of the Indebtedness
secured by this Assignment, payable by Assignor on demand, together with
interest at an annual rate equal to the lesser of (i) five percent (5%)
above the rate of interest announced from time to time by Assignee as its
"prime" rate of interest, or (iii) the highest rate to which the undersigned
could lawfully agree in writing.
H. The exercise of any right, option, privilege or power given in this
Assignment to Assignee shall be at the option of Assignee, but (except as
restricted by Paragraph E (2) above) Assignee may exercise any such right,
option, privilege or power without notice to, or assent by, or affecting the
liability of, or releasing any interest assigned in this Assignment by,
Assignor.
I. If Paragraph D provides that this Assignment secures indebtedness and
obligations owing to Assignee by a third party named in that paragraph
("DEBTOR"), then the Additional Provisions of Assignment set forth on the
reverse side are a part of this Assignment and are incorporated in it by
reference.
J. Notwithstanding the foregoing, the maximum amount of net proceeds of the
Policy that Assignee shall be entitled to receive under this Assignment is
1,000,000.00. If no amount, zero or the words "No Limit," "None" or similar
words are inserted in the blank space in this paragraph, then there is no
limit on the amount of net proceeds of the Policy that Assignee may receive
under this Assignment.
Kenneth K. Rieth
------------------------------------
RIVIERA TOOL COMPANY Policy Owner
Signed as of June 12, 5460 EXECUTIVE PARKWAY
-------------- ------------------------------------
GRAND RAPIDS, MI 49512
------------------------------------
[SIG] Address
-----------------------------------
Witness ------------------------------------
Policy Beneficiary
[SIG]
----------------------------------- ------------------------------------
Witness
------------------------------------
<PAGE> 50
ADDITIONAL PROVISIONS OF ASSIGNMENT
K. The effectiveness of this Assignment is not subject to the satisfaction of
any conditions, including, without limitation, the granting of any other
security by any other person, firm, or corporation. Assignee shall not be
obligated at any time to make any disclosure to Assignor concerning
Debtor's financial condition, assets, liabilities, activities, or
operations or the status of the Indebtedness or of any other security for
the Indebtedness. This Assignment does not create any obligation or duty
of Assignee to grant or continue credit to Debtor or to give notice to or
obtain the consent of Assignor before doing so.
L. Assignee in its sole discretion may, without affecting or impairing this
Assignment, apply payments or collections received from any source other
than the policy to the payment of indebtedness other than the
Indebtedness, even though Assignee could have applied those payments to
the Indebtedness. Any payments that Assignee receives from Insurer under
this Assignment shall be applied to the interest on or principal of the
Indebtedness or to other components of the Indebtedness in any manner that
Assignee in its sole discretion shall determine.
M. Assignor waives (a) notice of the acceptance of this Assignment, (b)
presentment, protest, notice, demand, or action with respect to any
default in payment of all or any part of the Indebtedness, and (c) any
right to require Assignee to sue Debtor or any other person obligated with
respect to all or any part of the Indebtedness or to foreclose or realize
upon any security for all or any part of the Indebtedness.
N. The validity and enforceability of this Assignment shall not be impaired
or affected by the invalidity or unenforceability of any of the
Indebtedness or of any guaranty or other security for it or by any act or
omission by Assignee with respect to all or part of the Indebtedness or
any agreement relating to the Indebtedness or with respect to any present
or future guaranty or other security for all or part of the Indebtedness,
including, but not limited to, (a) any extension, modification, renewal,
indulgence, or substitution, (b) any failure or omission to enforce any
right, power, or remedy, (c) any waiver of any right, power, or remedy or
of any default, (d) any release, surrender, compromise, settlement,
subordination, or modification, with or without consideration, or (e) any
consent by Assignee to any sale or transfer of any security; all whether
or not Assignor shall have had notice or knowledge of any act, omission,
or circumstance referred to in this paragraph.
O. This Assignment is independent of any other obligations at any time in
effect with respect to all or any part of the Indebtedness and may be
enforced regardless of the existence, validity, enforcement, or
nonenforcement of any such other obligations.
INDIVIDUAL ACKNOWLEDGEMENT
STATE OF ____________________)
:ss.
COUNTY OF ___________________)
The Assignment of Life Insurance Policy as Collateral on the reverse side,
including the Additional Provisions on this side, was acknowledged before me on
_______________________, 199_____, by ________________________________.
______________________________________
Notary Public
______________ County,_______________
My commission expires ________________
ACKNOWLEDGEMENT BY ENTITY
STATE OF MICHIGAN )
:ss.
COUNTY OF KENT )
The Assignment of Life Insurance Policy as Collateral on the reverse
side, including the Additional Provisions on this side, was acknowledged
before me on June 12, 1997, by Kenneth K. Rieth the President of Riviera Tool
Company a Michigan Corporation, on its behalf.
--------------------
(type of entity)
Christine L. Killingsworth
-----------------------------------
Notary Public
Kent County, Michigan
My commission expires Feb. 2, 2002
CHRISTINE L. KILLINGSWORTH
Notary Public, Kent County, MI
My Commission Expires Feb. 2, 2002
INSURER'S ACKNOWLEDGEMENT, CERTIFICATION AND AGREEMENT
The undersigned insurer acknowledges having received and filed, at its
home office in ___________________________ on ______________, 199_____, the
Assignment of Life Insurance Policy as Collateral on the reverse side. Insurer
certifies to the Assignee named in the Assignment and agrees that (a) the
Policy described in the Assignment is in full force and effect; (b) there are
no other assignments of the Policy on file with the Insurer, except in favor of
Assignee; and (c) Insurer will not cancel the Policy or permit it to lapse
(whether for nonpayment of premiums or otherwise) without giving Assignee at
least 30 days' prior written notice and the opportunity to cure any default in
premium payments or otherwise.
_____________________________________
(Name of Insurer)
By___________________________________
Authorized Officer
<PAGE> 1
EXHIBIT 13
FINANCIAL OVERVIEW
- -------------------------------------
RIVIERA TOOL COMPANY
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Financial Statements and related Notes contained herein. All
amounts are in thousands, except per share data.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------------------------------------------
1993 1994 1995 1996 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATION DATA:
Sales............................................. $ 18,946 $ 22,425 $ 22,225 $ 18,334 $ 21,960
Gross profit...................................... 1,788 2,749 4,108 3,398 5,128
Income from operations............................ 318 1,635 2,206 2,043 3,424
Interest expense.................................. 856 1,415 1,589 1,670 1,211
Other income...................................... 244 139 106 227 45
Other expense..................................... 2,247 532 160 0 406
Income (loss) before income taxes................. (2,541) (173) 563 600 1,851
Income taxes (benefits)........................... (252) (134) 77 204 667
- ----------------------------------------------------------------------------------------------------------------------
Net income (loss) available for
common shares..................................... $ (2,314) $ (69) $ 450 $ 367 $ 1,178
======================================================================================================================
Net income (loss) per common share................ $ (1.58) $ (.05) $ .31 $ .25 $ .60
======================================================================================================================
Weighted average common shares outstanding........ 1,460 1,460 1,460 1,460 1,969
======================================================================================================================
OTHER DATA:
Depreciation and amortization..................... $ 993 $ 1,214 $ 1,438 $ 1,272 $ 1,298
======================================================================================================================
AS OF AUGUST 31,
----------------------------------------------------------------
1993 1994 1995 1996 1997
- ----------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
Working capital................................... $ (2,727) $ (4,273) $ (3,966) $ (3,669) $ 10,164
Total assets...................................... 22,927 26,439 21,706 22,928 23,091
Current portion of long-term debt
& capital leases................................. 2,935 3,129 2,256 1,336 650
Revolving line of credit.......................... 8,127 9,461 6,866 10,242 4,711
Long-term capital leases & term debt, less
current portion................................ 1,178 2,715 1,830 1,002 3,142
Redeemable preferred stock........................ 80 109 111 139 0
Common stockholder's equity....................... 4,839 4,770 5,220 5,588 11,822
</TABLE>
22
<PAGE> 2
FINANCIAL OVERVIEW
- -------------------------------------
RIVIERA TOOL COMPANY
The following table is derived from the Company's Statement of Operations and
sets forth, for the periods indicated, selected operating data as a percentage
of sales.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31,
----------------------------------------------------------------
1993 1994 1995 1996 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATION DATA:
Net sales....................................................... 100% 100% 100% 100% 100%
Gross margin.................................................... 9 12 18 19 23
Income from continuing operations............................... 2 7 10 11 16
Interest expense................................................ 5 6 8 9 6
Other income.................................................... 1 0 0 1 ---
Other expense................................................... 12 2 --- --- 2
Income (loss) before income taxes............................... (13) (1) 3 3 8
Federal income tax (benefit).................................... (1) (1) 0 1 3
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income (loss)............................................... (12)% ---% 2% 2% 5%
==================================================================================================================================
OTHER DATA:
Depreciation and amortization................................... 5% 5% 6% 7% 6%
==================================================================================================================================
</TABLE>
QUARTERLY FINANCIAL DATA
The following is a condensed summary of quarterly results of operations for
1995, 1996 and 1997 (in thousands, except per share data):
<TABLE>
<CAPTION>
Net Income Weighted Average
Gross Operating Net Per Common Shares
Revenues Profit Income Income Common Share Outstanding
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
1995: First $ 5,456 $ 856 $ 409 $ 26 $ .02 1,460
Second 6,122 1,067 512 120 .09 1,460
Third 5,683 1,144 622 135 .09 1,460
Fourth 4,964 1,041 663 169 .11 1,460
- ----------------------------------------------------------------------------------------------------------------------------------
Total $22,225 $ 4,108 $ 2,206 $ 450 $ .31 1,460
==================================================================================================================================
1996: First $ 4,934 $ 884 $ 463 $ 80 $ .06 1,460
Second 4,629 947 546 120 .08 1,460
Third 4,458 957 505 72 .05 1,460
Fourth 4,313 610 529 95 .07 1,460
- ----------------------------------------------------------------------------------------------------------------------------------
Total $18,334 $ 3,398 $ 2,043 $ 367 $ .25 1,460
==================================================================================================================================
1997: First $ 5,480 $ 1,085 $ 654 $ 172 $ .12 1,460
Second 5,405 1,105 666 157 .11 1,460
Third 5,001 1,085 730 244 .10 2,426
Fourth 6,074 1,853 1,374 605 .24 2,485
- ----------------------------------------------------------------------------------------------------------------------------------
Total $21,960 $ 5,128 $ 3,424 $1,178 $ .60 1,969(1)
==================================================================================================================================
</TABLE>
(1) Represents weighted-average number of common shares outstanding during year
ended August 31, 1997.
24
<PAGE> 3
FINANCIAL OVERVIEW
- -------------------------------------
RIVIERA TOOL COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL OVERVIEW
The Company is a leading designer and manufacturer of large-scale, complex
stamping die systems used to form sheet metal parts. Most of the stamping die
systems sold by the company are used in the high-speed production of automobile
and truck body parts such as doors, door frames, structural components and
bumpers. A majority of the Company's sales are to Chrysler Corporation, Ford
Motor Company, General Motors Corporation and their tier one suppliers. The
Company completed an initial public offering in March, 1997.
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's Financial Statements and the Notes thereto included elsewhere herein.
FISCAL 1997 COMPARED TO FISCAL 1996
Revenue. Total revenue for 1997 increased by 20% from approximately $18.3
million in 1996 to $21.9 million in 1997. This increase is due to the
realization of the 1996 contract backlog during 1997. Additionally, during the
second half of 1997, the Company had adequate financing resources which allowed
the Company to add additional sales contracts. Since March, 1997, the Company
has retained new contracts at an average rate of $3.0 million per month as
compared to an average rate of $2.0 million per month over the same period in
1996.
Cost of Goods Sold. Cost of goods sold increased from $14.9 million in 1996 to
$16.8 million in 1997, an increase of 13%. As a percent of sales, cost of goods
sold decreased from 81.5% for 1996 to 76.6% for 1997. Of the cost of goods
sold, direct costs were $9.6 million, 43.6% of sales, in 1997 as compared to
$8.2 million, 44.7% of sales, in 1996. The largest direct cost decreases were
in the outside prototype tooling and parts expense, $537,000 or 2.9% of sales
in 1996 as compared to $168,500 or .76% of sales, in 1997 and outside pattern
services, $387,000 or 2.1% of sales in 1996 as compared to $236,300 or 1.1% of
sales in 1997. These decreases were due largely to the fact that the
Company outsourced less of this work and maintained increased capacity
internally. The largest direct cost increases were in direct materials, $2.6
million or 14.2% of sales in 1996 as compared to $3.3 million or 15.0% in 1997,
outside machining services, $100,500 or .55% of sales in 1996, as compared to
$321,000 or 1.5% of sales in 1997 and direct labor, $4.2 million or 22.9% of
sales in 1996, as compared to $5.0 million or 22.8% of sales in 1997. These
increases were due to increased sales volume and performing more prototype
tooling work internally in 1997 as compared to outsourcing such work in 1996.
Engineering expense was $1.5 million or 8.2% of sales in 1996 as compared to
$1.6 million or 7.3% of sales in 1997. The decrease in engineering expense as a
percent of sales was due to utilizing the Company's engineering capacity
without adding additional personnel. This utilization, in conjunction with the
20% increase in 1997 revenue, lowered engineering expense as a percent of
sales.
Manufacturing overhead was $5.7 million or 26.0% of sales in 1997 as compared
to $5.2 million or 28.4% of sales in 1996. This decrease, as a percent of
sales, was due to the increase in 1997 revenue which lowered the manufacturing
fixed overhead expense. The increase of $.5 million in 1997 as compared to 1996
was due to a $96,200 increase in payroll tax expense in 1997 as compared to
1996 as a result of the increase in direct labor expense in 1997 over 1996, a
$206,000 increase in depreciation expense in 1997 over 1996, a $90,800 increase
in machinery repairs and maintenance expense in 1997 over 1996 and a $67,000
increase in perishable tooling expense in 1997 over 1996.
Selling and Administrative Expense. Selling and administrative expense
increased from $1.4 million in 1996 to $1.7 million in 1997. As a percent of
sales, selling, and administrative expense increased to 7.8% in 1997 as
compared to 7.4% in 1996. The largest increases were in legal and professional
expense, a $260,000 increase in 1997 over 1996, and public company expense,
$58,000 increase in 1997 over 1996.
25
<PAGE> 4
FINANCIAL OVERVIEW
- -------------------------------------
RIVIERA TOOL COMPANY
Interest Expense. Interest expense decreased from $1.7 million in 1996 to $1.2
million in 1997. As a percent of sales, interest expense decreased from 9.1% in
1996 to 5.5% in 1997. This decrease was due to the decrease in debt for the
third and fourth quarters as a result of the payment of $5.1 million, from the
proceeds of the Company's initial public offering, to the Company's debt. The
remaining debt maintained during the same quarters was carried at an interest
rate of approximately 3.25% lower than during the first two quarters of 1997
and all of 1996.
Other Expense. Other expense during 1997 included $150,000 of bank fees paid
during the first two quarters of 1997 charged by the Company's former primary
lender. The Company also incurred $75,700 in debt prepayment fees, $27,300 in
tax agency penalties and $101,000 in late charges on its facility lease.
FISCAL 1996 COMPARED TO FISCAL 1995
Revenue. Total revenue decreased by 17% from approximately $22.2 million for
1995, to approximately $18.4 million for 1996. This decrease was due to the
timing of contracts in process and the Company's contract backlog.
Contracts-in-process as of August 31, 1996 was approximately $2.2 million
higher than as of August 31, 1995 (an increase of 69%) and the Company's
backlog as of August 31, 1996 was $6.4 million higher than as of August 31,
1995.
Cost of Goods Sold. Cost of goods sold decreased from $18.1 million in 1995 to
$14.9 million in 1996. This was due to the decrease in revenue when comparing
the same periods. As a percentage of total revenue, cost of goods sold remained
consistent at 81.5% for 1996 from 1995.
Selling and Administrative Expense. Selling and administrative expense was
approximately $1.4 million for 1996, a decrease of 26% from approximately $1.9
million for 1995. As a percentage of total revenue, selling, general and
administrative expense decreased from 8.6% in 1995 to 7.4% for 1996. This
decrease was largely due to legal and professional expense (a decrease of
$134,000), amortization expense (a decrease of $47,000), and administrative
salaries (a decrease of $128,000).
Interest Expense. Interest expense was approximately $1.7 million for 1996, an
increase of 6% from approximately $1.6 million for 1995. As a percentage of
total revenue, interest expense increased from 7.2% for 1995 to 9% for 1996.
This was primarily due to the increase in average short-term outstanding debt
of $11.1 million in 1996 as compared to $10.7 million in 1995.
FISCAL 1995 COMPARED TO FISCAL 1994
Revenue. Total revenue decreased by 1% from approximately $22.4 million for
1994, to approximately $22.2 million for 1995. The Company must finance its
construction-in-process and accounts receivable. Due to the nature of this
process, each dollar of annual sales volume requires approximately $.50 of
working capital financing. The inability of the Company to obtain additional
working capital has therefore restricted its ability to increase sales.
Cost of Goods Sold. Cost of goods sold decreased from $19.7 million for
1994 to $18.1 million for 1995. As a percentage of total revenue, cost of goods
sold decreased from 88% for 1994 to 82% for 1995. This decrease was largely due
to the Company subcontracting less of its machining requirements (decrease of
$124,000), outside pattern services (decrease of $327,000) and outside
engineering services (decrease of $290,000).
Selling and Administrative Expense. Selling and administrative expense was
approximately $1.9 million for 1995, an increase of 73% from approximately $1.1
million for 1994. As a percentage of total revenue, selling, general and
administrative expense increased to 9% for 1995 as compared to 5% for 1994,
primarily due to an increase in legal expense ($81,000), State of Michigan
Single Business Tax ($158,000) and during 1994, the Company received final
information on dividends from its workers compensation and health insurance
carrier which resulted in refunds of $102,000 and $159,000, respectively, which
were recorded in 1994 as a reduction to the appropriate expense. For 1995, no
dividends were received from the workers compensation insurance carrier and a
$65,000 refund was received from the Company's health insurance carrier.
26
<PAGE> 5
FINANCIAL OVERVIEW
- -------------------------------------
RIVIERA TOOL COMPANY
Interest Expense. Interest expense was approximately $1.7 million for 1995, an
increase of 24% from approximately $1.4 million for 1994. As a percentage of
total revenue, interest expense increased from 6% for 1994 to 8% for 1995,
primarily due to increased short-term borrowing levels (the average short-term
borrowings outstanding during 1995 was $1.6 million higher than 1994), increase
in the interest rate charged by the Company's primary lender on outstanding
debt (an increase of 2.55%) and the Company incurred additional long-term debt
of $2.5 million in the fourth quarter of 1994 for the acquisition of capital
assets which resulted in an additional $208,000 of interest expense in 1995.
Other Expense. Other expense during 1995 represents bank fees of $160,000 paid
to the Company's primary lender in extending its revolving line of credit and
term debt.
FISCAL 1994 COMPARED TO FISCAL 1993
Revenue. Total revenue increased by 18% from approximately $18.9 million for
1993, to approximately $22.4 million for 1994 primarily due to an increase in
the amount of contracts with Chrysler Corporation and Ford Motor Company.
Cost of Goods Sold. Cost of goods sold increased from $17.2 million for 1993 to
$19.7 million for 1994. As a percentage of total revenue, cost of goods sold
decreased from 91% for 1993 to 88% for 1994. The increase in cost of sales (an
increase in labor of $1.6 million and $1.0 million in direct materials) was
largely due to an increase of 18% in revenue for 1994 over the prior year.
Selling and Administrative Expense. Selling and administrative expense was
approximately $1.1 million for 1994, a decrease of 24% from approximately $1.5
million for 1993. As a percentage of total revenue, selling, general and
administrative expense decreased to 5% in 1994 as compared to 8% for 1993. This
decrease was largely due to dividends received from the Company's workers
compensation and health insurance carriers in 1994 (a total of $261,000 as
compared to $0 in 1993) and a decrease in the State of Michigan Single Business
Tax (a decrease of $173,000 as compared to 1993).
Interest Expense. Interest expense was approximately $1.4 million for 1994, a
increase of 65% from approximately $856,000 for 1993. As a percentage of total
revenue, interest expense increased from 5% for 1993 as compared to 6% for
1994, primarily due to increased borrowing levels necessary to finance growth
in revenue (average outstanding short-term debt increased from $6.3 million in
1993 to $9.1 million in 1994) and an increase in the interest rate (3% per
annum) the Company's primary lender charged on outstanding debt.
Other Expense. In July of 1992, the Company contributed machinery, equipment,
inventory, work-in-process and receivables related to the business of building
plastic injection molds to a joint venture that then became known as Leap
Technologies, Inc. In 1993, Leap Technologies, Inc. was liquidated and the
Company wrote-off its preferred stock in Leap Technologies, Inc. ($1,687,000)
and accounts receivable from the related company ($560,000). During 1994, the
Company absorbed the cost of the unleased Leap Technologies, Inc. facility
space ($532,000) and then leased such space to an unrelated company.
FEDERAL INCOME TAX
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109. A current tax liability or asset is
recognized for the estimated taxes payable or refundable on tax returns for the
year. Deferred tax liabilities or assets are recognized for the estimated
future tax effects of temporary differences between book and tax accounting and
operating loss and tax credit carry forwards. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
As of August 31, 1997, the Company had approximately $1.7 million of net
operating loss carry forwards that expire 2006 through 2009, investment tax
credit carry forwards of approximately $204,900 that expire 1998 through 2003,
and alternative minimum tax credits of approximately $189,300, the use of which
does not expire.
27
<PAGE> 6
FINANCIAL OVERVIEW
RIVIERA TOOL COMPANY
LIQUIDITY AND CAPITAL RESOURCES
The Company's needs for capital have been extensive over the period presented.
Bank borrowings have increased primarily to acquire fixed assets and to finance
the increase in Trade Accounts Receivable and Contracts in Process, as the
Company's customers typically do not make progress payments on tooling
contracts. The Company has financed these needs through internally generated
funds, bank financing, and various capital and operating leases. Cash provided
from (used in) operating activities was $4,991,021 in 1995, ($977,133) in 1996
and $304,954 for 1997. The capital used by operations in 1997, was primarily
due to the decrease in the Company's Accounts Receivable ($453,654), an
increase in Work-in-Process ($1,588,535) and a decrease in Accounts Payable
($1,672,635). The decrease in Accounts Receivable as of August 31, 1997, in
lieu of an increase in sales of approximately $3.6 million, was largely due to
improving its billing and collection procedures. The increase in
Work-in-Process as of August 31, 1997 was due to the decrease in the Company's
progress billings on its Work-in-Process at August 31, 1997 as the contracts
were in an earlier completion stage as compared to Contracts in Process at
August 31, 1996. The decrease in Accounts Payable as of August 31, 1997 was due
to increased cash flow from collection of Accounts Receivable decrease in debt
service requirements and proceeds of the Company's initial public offering.
The Company utilized $575,401, $319,308 and $488,791 of Cash Flows from
Investing Activities in 1995, 1996 and 1997, respectively. For 1995, 1996 and
1997, the most significant items were the acquisition of $585,248, $501,103 and
$792,580 of machinery and equipment, respectively.
Cash flow from Financing Activities in 1995, and the reduction of short-term
debt was a result of the decrease in Accounts Receivable and application of
such proceeds to the revolving line of credit. For 1996, the increase in the
short-term debt resulted from the increase in Contracts in Process and decrease
in Accounts Payable accounts, and the Company incurred $333,325 of initial
public offering costs which have been capitalized. For 1997, the Company
reduced financial institution debt and capital lease obligations (net of
$4,726,990), received proceeds from issuance of 1,010,000 shares of Common
Stock (net of $5,147,127), redeemed 1,425 shares of 8% mandatory redeemable
preferred stock ($142,500) and paid a preferential common stock dividend
($90,000).
The Company's total bank debt as of August 31, 1997, is $7,202,393, of which
$650,000 is short-term and the balance long-term. The Company has a $10.0
million Revolving Line of Credit and a $4.0 million Non-Revolving Equipment
Line of Credit. The interest rate on the financing is prime rate plus .25
percent. The Company believes that the unused portion of this credit line and
the funds generated from operations, will be sufficient to cover anticipated
cash needs through 1998. However, depending on the level of future sales, an
expanded credit line may be necessary to finance increases in trade accounts
receivable and contracts in process. The Company believes it will be able to
obtain such expanded credit line, if required, on generally the same terms as
the existing credit line.
INFLATION
The Company has no long-term, fixed-price contracts. Historically, the Company
has been able to reflect increases in the prices of labor and material in its
selling prices. The Company expects that this will continue to be the case.
28
<PAGE> 7
BALANCE SHEET
RIVIERA TOOL COMPANY
<TABLE>
<CAPTION>
AUGUST 31,
---------------------------
ASSETS NOTE 1996 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CURRENT ASSETS
Cash ........................................................................... $ -- $ --
Accounts receivable:
Trade ..................................................................... 3 4,924,305 4,614,257
Related party ............................................................. 15 344,892 201,286
Costs and estimated gross profit in
excess of billings on contracts in process ................................ 6 5,549,823 7,138,358
Inventories .................................................................... 7 445,473 468,740
Prepaid expenses and other current assets ...................................... 250,210 267,554
- --------------------------------------------------------------------------------------------------------------------------
Total current assets .................................................. 11,514,703 12,690,195
Property, plant and equipment, net ............................................. 8 10,147,146 9,640,330
Perishable tooling ............................................................. 759,258 572,585
Other assets ................................................................... 3 507,325 187,843
- --------------------------------------------------------------------------------------------------------------------------
Total assets .............................................................. $ 22,928,432 $23,090,953
==========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable ............................................................... $ 10,241,503 $ --
Current portion of long-term debt ........................................... 9 926,861 650,000
Current portion of capitalized lease
obligations ............................................................... 13 409,225 --
Accounts payable ............................................................... 2,913,878 1,241,243
Accrued liabilities ............................................................ 692,271 634,924
- --------------------------------------------------------------------------------------------------------------------------
Total current liabilities ................................................. 15,183,738 2,526,167
Capitalized lease obligations .................................................. 13 118,805 --
Long-term debt ................................................................. 9 882,989 7,202,393
Deferred gains ................................................................. 61,540 --
Accrued lease expense .......................................................... 12 558,935 605,660
Deferred tax liability ......................................................... 10 395,700 934,400
Preferred Stock no par value,
$100 mandatory redemption value:
Authorized -- 5,000 shares
Issued and outstanding -- 1,425 shares
at August 31, 1996 ........................................................ 14,
and no shares at August 31, 1997 ....................................... 16 139,072 --
Preferred Stock -- no par value,
Authorized -- 200,000 shares
Issued and outstanding -- none at
August 31, 1996 and 1997 ............................................... 2 -- --
Common Stockholders' Equity
Common stock -- no par value,
Authorized -- 9,798,575 shares
Issued and outstanding -- 1,460,000
shares at August 31, 1996
and 2,485,000 at August 31, 1997 ....................................... 4 4,392,752 9,539,879
Retained earnings ........................................................... 1,194,901 2,282,454
- --------------------------------------------------------------------------------------------------------------------------
Total common stockholders' equity ...................................... 5,587,653 11,822,333
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity ..................................... $ 22,928,432 $23,090,953
==========================================================================================================================
</TABLE>
See Notes to Financial Statements.
29
<PAGE> 8
STATEMENT OF INCOME
RIVIERA TOOL COMPANY
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------------------------------
NOTE 1995 1996 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES
Trade ............................................... 5 $ 19,429,894 $ 16,379,909 $ 21,108,195
Related party ....................................... 15 2,794,829 1,954,184 851,979
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL SALES ............................................ 22,224,723 18,334,093 21,960,174
Cost of sales .......................................... 18,116,301 14,936,514 16,831,905
- -----------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT ........................................... 4,108,422 3,397,579 5,128,269
Selling and administrative expenses .................... 1,902,044 1,354,112 1,703,884
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS ................................. 2,206,378 2,043,467 3,424,385
Other income (expense):
Interest expense .................................... (1,589,447) (1,670,414) (1,211,287)
Other expense ....................................... 20 (160,000) -- (406,368)
Gain on asset sales ................................. 105,632 226,710 44,651
- -----------------------------------------------------------------------------------------------------------------------------------
Total other expense -- net ............................. (1,643,815) (1,443,704) (1,573,004)
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME -- BEFORE TAXES ON INCOME ....................... 562,563 599,763 1,851,381
Income tax expense ..................................... 76,700 204,000 666,600
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME ............................................. 485,863 395,763 1,184,781
Dividends and accretion on preferred stock ............. 16 35,488 28,535 7,228
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME AVAILABLE FOR COMMON SHARES ................. $ 450,375 $ 367,228 $ 1,177,553
===================================================================================================================================
NET INCOME PER COMMON SHARE ............................ $ .31 $ .25 $ .60
===================================================================================================================================
Common shares outstanding .............................. 3,4 1,460,000 1,460,000 1,968,750
===================================================================================================================================
</TABLE>
See Notes to Financial Statements
30
<PAGE> 9
STATEMENT OF COMMON STOCKHOLDERS' EQUITY
RIVIERA TOOL COMPANY
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE -- AUGUST 31, 1994.......................... 1,460,000 $ 4,392,752 $ 377,298 $ 4,770,050
- -----------------------------------------------------------------------------------------------------------------------------
Increase to redeemable preferred stock (Note 16)... -- -- (35,488) (35,488)
Net income.......................................... -- -- 485,863 485,863
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE -- AUGUST 31, 1995.......................... 1,460,000 4,392,752 827,673 5,220,425
- -----------------------------------------------------------------------------------------------------------------------------
Increase to redeemable preferred stock (Note 16)... -- -- (28,535) (28,535)
Net income.......................................... -- -- 395,763 395,763
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE -- AUGUST 31, 1996 ......................... 1,460,000 4,392,752 1,194,901 5,587,653
- -----------------------------------------------------------------------------------------------------------------------------
Increase to redeemable preferred stock (Note 16).... -- -- (7,228) (7,228)
Preferential Common Stock Dividend (Note 17)........ -- -- (90,000) (90,000)
Sale of Common Stock (Note 4) ...................... 1,025,000 5,147,127 -- 5,147,127
Net Income ......................................... -- -- 1,184,781 1,184,781
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE -- AUGUST 31, 1997 ......................... 2,485,000 $ 9,539,879 $ 2,282,454 $ 11,822,333
=============================================================================================================================
</TABLE>
See Notes to Financial Statements.
31
<PAGE> 10
STATEMENT OF CASH FLOWS
RIVIERA TOOL COMPANY
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
------------------------------------------------
1995 1996 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ............................................................... $ 485,863 $ 395,763 $ 1,184,781
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization .......................................... 1,438,403 1,272,366 1,298,200
Loss (gain) on sale of machinery and equipment ......................... 43,170 (77,908) 16,889
Amortization of deferred gain .......................................... (148,802) (148,802) (61,540)
Deferred taxes ......................................................... 75,000 204,000 538,700
Bad debt expense ....................................................... -- 175,000 (75,000)
(Increase) decrease in assets:
Accounts receivable .................................................. 2,763,901 100,214 528,654
Costs and estimated gross profit in
excess of billings on contracts in process .......................... 1,014,107 (2,270,334) (1,588,535)
Inventories........................................................... 165,392 116,237 (23,267)
Perishable tooling ................................................... (131,747) 77,102 186,673
Prepaid expenses and other current assets ............................ 44,446 34,468 (17,344)
Increase (decrease) in liabilities:
Accounts payable ..................................................... (764,847) (1,039,644) (1,672,635)
Accrued lease expense ................................................ 65,413 56,065 46,725
Accrued liabilities .................................................. (59,278) 128,340 (57,347)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities .............................................. 4,991,021 (977,133) 304,954
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of machinery and equipment ............................ 80,000 205,800 25,200
(Increase) decrease in other assets ...................................... (70,153) (24,005) 278,589
Additions to property, plant and equipment ............................... (585,248) (501,103) (792,580)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities .................................. (575,401) (319,308) (488,791)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from (repayments of) short-term debt ........................ (2,594,499) 3,375,333 (10,241,503)
Principal payments under capital lease obligations ....................... (437,408) (493,943) (528,030)
Proceeds from issuance of long-term debt ................................. -- -- 9,904,848
Principal payments on long-term debt ..................................... (1,346,325) (1,254,812) (3,862,305)
Redemption of preferred stock ............................................ -- -- (142,500)
Sale of common stock ..................................................... -- -- 5,147,127
Capitalized refinancing costs ............................................ -- (333,325) --
Common stock dividends paid .............................................. -- -- (90,000)
Preferred stock dividends paid ........................................... (34,200) -- (3,800)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities ................................................. (4,412,432) 1,293,253 183,837
- -------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH ............................................. 3,188 (3,188) --
CASH -- Beginning of period ................................................. -- 3,188 --
- -------------------------------------------------------------------------------------------------------------------------------
CASH -- End of period ....................................................... $ 3,188 $ -- $ --
===============================================================================================================================
</TABLE>
See Notes to Financial Statements.
32
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------
RIVIERA TOOL COMPANY
NOTE 1 - NATURE OF BUSINESS
Nature of Business - The Company designs, develops and manufactures custom
and complex large scale metal stamping die systems used in the high-speed
production of sheet metal stamped parts and assemblies for the automotive
industry. These systems are mainly sold to Chrysler Corporation, Ford Motor
Company and General Motors Corporation and their tier one suppliers of sheet
metal stamped parts and assemblies.
Reporting Entity - In October 1996, the Company executed an agreement and
plan of merger. Under the provisions of the agreement, Riviera Die & Tool, Inc.,
merged with and into Riviera Tool Company, owner of 100% of its Common Stock, as
the survivor corporation. Concurrently with such merger, the By-Laws and
Articles of Incorporation have been amended to provide updated language on
officer and director indemnification and the authorized capital stock of the
Company was amended to increase the availability of unissued shares of common
and preferred stock. The following two classes of preferred stock existed after
the merger:
- - Redeemable Preferred Stock - no par value, authorized 1,425 shares, 1,425
shares issued and outstanding.
- - Non-Redeemable Preferred Stock - no par value, authorized 200,000 shares, no
shares issued and outstanding.
These two entities have been reported on a consolidated basis for more than five
years prior to the merger. Therefore, the merger has no effect on the balance
sheet, statement of income, statement of common stockholders' equity or cash
flows. The stockholders' equity section of this report reflects the impact of
this merger on authorized, issued and outstanding shares of stock.
NOTE 2 - SUBSEQUENT SALE OF 8% CUMULATIVE CONVERTIBLE
PREFERRED STOCK AND PRO-FORMA PRESENTATION
In October, 1997, the Company issued and sold 80,000 shares of 8% Cumulative
Convertible Preferred Stock (the "Preferred Shares") at $100.00 per share. With
a portion of the proceeds from this sale, the Company exercised its option to
purchase and retired all 730,000 shares of common stock held by Motor Wheel
Corporation for $3.0 million or $4.11 per share.
The holders of the 8% Cumulative Convertible Preferred Stock will possess no
voting rights except where required by law and under the following
circumstances (i) at whatever time or times dividends are not payable for two
consecutive quarterly periods, the holders of the Preferred Shares have the
right to elect one additional director who shall continue until all such
accumulated dividends have been paid in full, or (ii) for so long as the
Preferred Shares remain outstanding, the Company must obtain a vote of the
holders of 66 2/3% of the then outstanding Preferred Shares to issue any class
of stock ranking senior to the Preferred Shares as to dividends or distribution
of assets on liquidation. Cumulative dividends shall be paid at an annual rate
of 8% payable quarterly, in arrears, at a rate of $2.00 per share per quarter,
commencing December 31, 1997. Upon liquidation, the Shares will be entitled to
seniority to the extent of $100 per share plus cumulative dividends to the date
of payment over the Common Stock and any other capital stock not given senior
rights by the holders of the Shares. Of the 80,000 Preferred Shares issued,
67,500 preferred shares are convertible into Common Stock at any time, and from
time to time, in whole or in part, for the number of shares of Common Stock per
share equal to $100 divided by $6.00. The remaining 12,500 preferred shares are
convertible into Common Stock at any time, and from time to time, in whole or
in part, for the number of shares of Common Stock per share equal to $100
divided by $6.7375. All Preferred Shares outstanding will be automatically
converted into Common Stock when the average closing price for the Common Stock
on the American Stock Exchange for 10 consecutive trading days is equal to or
greater than $10 per share. The Company shall not be required to issue
fractional shares in connection with any conversion and a cash payment shall be
made in lieu thereof. The Preferred Shares are not subject to call for
redemption by the Company. The Company must register under the 1933 Act the
shares of Common Stock issuable upon conversion of the Preferred Shares by
February 6, 1998.
33
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------
RIVIERA TOOL COMPANY
NOTE 2 - SUBSEQUENT SALE OF 8% CUMULATIVE CONVERTIBLE
PREFERRED STOCK AND PRO-FORMA PRESENTATION - CONTINUED
Had the subsequent sale of the 8% Cumulative Convertible Preferred Stock
occurred prior to August 31, 1997, the balance sheet would have been as follows:
BALANCE SHEET
<TABLE>
<CAPTION>
PRO-FORMA ACTUAL
AUGUST 31, 1997 AUGUST 31,1997
- -----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Total current assets ............................... $12,690,195 $12,690,195
Property, plant and equipment, net ................. 9,640,330 9,640,330
Perishable tooling ................................. 572,585 572,585
Other assets ....................................... 133,107 187,843
- -----------------------------------------------------------------------------------
Total assets .................................. $23,036,217 23,090,953
===================================================================================
LIABILITIES
Total current liabilities .......................... 2,674,067 2,526,167
Long-term debt ..................................... 3,050,838 7,202,393
Other liabilities .................................. 1,540,060 1,540,060
Stockholders' equity:
Common stock .................................... 6,539,879 9,539,879
Convertible preferred stock ..................... 6,948,919 --
Retained earnings ............................... 2,282,454 2,282,454
- -----------------------------------------------------------------------------------
Total shareholders' equity .................... $15,771,252 11,822,333
- -----------------------------------------------------------------------------------
Total liabilities and shareholders' equity .... $23,036,217 23,090,953
===================================================================================
</TABLE>
34
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------
RIVIERA TOOL COMPANY
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
Net Income per Common Share - Net Income per common share is based on net
income available for Common Stockholders divided by the weighted average number
of common shares outstanding during the period. The number of common shares
outstanding has been adjusted to reflect the impact of the merger and
recapitalization as referred to in Reporting Entity in Note 1.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share." The statement establishes standards for computing and
presenting earnings per share (EPS) and simplifies previous standards. This new
statement is not expected to have a material impact as presented.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
Significant Estimates - The most significant estimates made by the Company
are in the determination and recognition of revenue on contracts in process at
year end. Management's best estimate of costs to complete is based on costs
incurred subsequent to year end, engineers' cost projections, experience with
customers or particular die systems and other analyses. Although management's
estimates are not expected to materially change in the near term, the costs the
Company will ultimately incur could differ from the amounts estimated based on
the various factors.
Revenue Recognition - The Company recognizes revenue on time and
material contracts, utilizing the completed-contract method. Revenue is
recognized on all other contracts, utilizing the percentage-of-completion
method. Under the completed-contract method, the contract is considered
complete when all costs except for insignificant items have been incurred and
the project has been approved by the customer. Under the
percentage-of-completion method estimated contract earnings are based on total
estimated contract profits multiplied by the ratio of labor hours incurred to
total estimated labor hours on the contract. Provisions for total estimated
losses on contracts in process are recognized in the period such losses are
determined. Changes in job performance, conditions and estimated profitability
may result in revisions to costs and income and are recognized in the period
such revisions are determined.
Accounts Receivable - As of August 31, 1996 and 1997, the Company reserved
$175,000 and $100,000, respectively, for uncollectible accounts receivable, and
had approximately $765,000 and $0, respectively, of unbilled accounts
receivables.
Inventories -Inventories are recorded at the lower-of-cost (first-in,
first-out method), or market.
Property, Plant and Equipment - Property, plant and equipment are recorded
at cost. Depreciation is computed principally using the straight-line method
over the useful life of the asset for financial reporting purposes and
accelerated methods for tax purposes.
Perishable Tooling - Certain perishable tools are gradually used up over
extended periods of time. These inventory items, which are reported as
non-current assets in the balance sheet, are recorded at cost less a valuation
allowance to reflect the loss in value resulting from gradual use.
Other Assets - Included in other assets are deferred debt issuance costs,
precontract costs and system development costs, that are being amortized over
the related debt term, contract term and technological life of the system,
respectively. Amortization expense for the years ended August 31, 1996 and 1997,
was $43,937 and $40,893, respectively. As of August 31, 1996 costs incurred
totaling $333,325 in connection with the planned public offering of Common Stock
were deferred and classified as other assets. These costs have been charged to
common stock during the year ended August 31, 1997. During the year ended August
31, 1997, costs incurred totaling $54,736 in connection with the sale of 8%
Cumulative Convertible Preferred Stock were deferred and classified as other
assets. These costs will be charged to capital upon the issuance of the 8%
Cumulative Convertible Preferred Stock.
Reclassifications - Certain reclassifications have been made in the 1996
financial statements to conform to the classifications used in 1997.
35
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------
RIVIERA TOOL COMPANY
NOTE 4 - STOCKHOLDERS INVESTMENT
In March, 1997, the Company sold 1,010,000 shares of Common Stock through an
initial public offering on the American Stock Exchange, at a price of $7.00 per
share (the "Offering"). The Company received net proceeds of approximately $5.1
million from the Offering. The net proceeds were used to reduce previously
incurred debt. In June, 1997, the Company sold 15,000 shares of common stock in
connection with a consulting agreement entered into with a financial consultant.
NOTE 5 - SALES TO MAJOR CUSTOMERS
Nature of Business - The nature of the Company's business is such that a
limited number of customers comprise a majority of its business in any given
year, even though the specific customers will differ from year to year. The
following table summarizes the Company's sales to those customers which
represent more than 10% of the annual sales, in the particular year presented,
of the Company (in 000's):
<TABLE>
<CAPTION>
AUGUST 31,
--------------------------------------------------------------------
1995 % 1996 % 1997 %
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Chrysler Corporation ........................ $ 5,291 24% $ 4,622 25% $ 8,890 40%
Ford Motor Company .......................... 1,511 7 2,061 11 3,411 16
General Motors .............................. 225 1 2,297 13 886 4
Mayflower Vehicle Systems ................... 6,211 28 2,678 15 -- --
American Bumper & Manufacturing Co .......... 3,170 14 -- -- -- --
Motor Wheel Corporation ..................... 2,795 13 1,954 11 852 4
Dana-Parish ................................. 2,684 12 984 5 1,293 6
Flex-n-Gate ................................. -- -- -- -- 3,193 15
Others ...................................... 338 1 3,738 20 3,435 15
- ---------------------------------------------------------------------------------------------------------------------
Total Sales .............................. $22,225 100% $18,334 100% $21,960 100%
=====================================================================================================================
</TABLE>
Outstanding accounts receivables from four of these customers represented
approximately 78 percent at August 31, 1996 and three of these customers
represented approximately 76 percent at August 31, 1997.
NOTE 6 - COSTS AND BILLINGS ON CONTRACTS IN PROCESS
Costs and billings on contracts in process are as follows:
<TABLE>
<CAPTION>
AUGUST 31,
-----------------------------------
1996 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Costs incurred on contracts in process
under the percentage-of-completion method ...................................... $10,844,647 $ 9,008,594
Estimated gross profit ......................................................... 900,375 1,325,000
- --------------------------------------------------------------------------------------------------------------------
Total ....................................................................... 11,745,022 10,333,594
Less progress payments received and progress
billings to date ............................................................... 6,353,779 3,208,800
Plus costs incurred on contracts in
process under the completed contract method .................................... 158,580 13,564
- --------------------------------------------------------------------------------------------------------------------
Costs and estimated gross profit in excess of
billings on contracts in process ............................................... $ 5,549,823 $ 7,138,358
====================================================================================================================
</TABLE>
Included in estimated gross profit for 1996 and 1997 are jobs with losses
accrued of $441,301 and $55,629 respectively.
36
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
RIVIERA TOOL COMPANY
NOTE 7 -- INVENTORIES
Inventories consist of the following:
AUGUST 31,
---------------------------
1996 1997
- ------------------------------------------------------------------------------
Raw material stock ......................... $149,006 $256,867
Small tools and supplies ................... 296,467 211,873
- ------------------------------------------------------------------------------
Total ................................... $445,473 $468,740
==============================================================================
NOTE 8 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
AUGUST 31,
------------------------------
1996 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land and leasehold improvements .............................................. $ 1,553,206 $ 1,560,668
Office furniture and fixtures ................................................ 186,909 137,236
Machinery and equipment ...................................................... 14,704,396 14,078,151
Computer equipment and software .............................................. 490,361 1,243,048
Transportation equipment ..................................................... 99,935 115,971
- -------------------------------------------------------------------------------------------------------------------
Total cost ................................................................ 17,034,807 17,135,074
Accumulated depreciation and amortization .................................... 6,887,661 7,494,744
- -------------------------------------------------------------------------------------------------------------------
Net carrying amount ....................................................... $10,147,146 $ 9,640,330
===================================================================================================================
Annual depreciation and amortization expense ................................. $ 1,228,429 $ 1,257,307
===================================================================================================================
</TABLE>
NOTE 9 -- NOTES PAYABLE AND LONG-TERM DEBT
The Company's notes payable and long-term debt consist of the following:
<TABLE>
<CAPTION>
AUGUST 31
--------------------------------
Notes Payable 1996 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revolving bank credit line, collateralized by substantially all assets of the
Company. The agreement provided for borrowings, subject to certain collateral
requirements of up to $10.0 million, and bore interest at 4% above the bank's
prime rate at August 31, 1996 (an effective rate of 12.25%). The agreement was
subject to certain loan covenants discussed below and required a commitment fee
of .375% per annum on the average daily unused portion of the revolving credit
line, and a facility fee of .125% per annum on the revolving
credit line ................................................................................ $10,241,503 $ --
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
RIVIERA TOOL COMPANY
NOTE 9 -- NOTES PAYABLE AND LONG-TERM DEBT -- CONTINUED
<TABLE>
<CAPTION>
LONG-TERM DEBT
<S> <C> <C>
Note payable to bank, payable in monthly installments of $40,000 plus interest
of 4% over the bank's prime rate at August 31, 1996 and 3% above the bank's
prime rate at August 31, 1995, (an effective rate of 12.25%), collateralized by
substantially all assets of the Company. This agreement is subject to certain
covenants discussed below ............................................................... 376,962 --
Note payable to financial institution, payable in monthly
installments of $39,945 including interest at 9.9%, collateralized by specific
assets of the Company ................................................................... 1,088,532 --
Note payable to bank, payable in monthly installments of $15,000 including
interest at 7%, collateralized by specific assets of the Company ........................ 344,356 --
Revolving bank working capital credit line, collaterlized by substantially all
assets of the Company. The agreement provides for borrowing, subject to certain
collateral requirements of up to $10.0 million, and bears interest at .25% above
the bank's prime rate (an effective rate of 8.75%), due January 1,1999. The
Agreement is subject to certain loan covenants and requires a commitment fee of
.25% per annum on the average daily unused portion of
the revolving credit line ............................................................... -- 4,710,726
Note payable to bank, collaterlized by substantially all assets of the Company,
payable in monthly installments of $54,166.67 plus interest of .25% above the
bank's prime rate (an effective rate of 8.75%) due July 1, 2002 ........................ -- 3,141,667
Revolving equipment credit line, collaterlized by specific assets of the
Company. The agreement provides for borrowing up to $4.0 million, in $500,000
increments, and bears interest at .25% above the bank's prime rate (an effective
rate of 8.75%), due in monthly installments over six years from date of
borrowing increment.The Agreement is subject to
certain loan covenants discussed below .................................................. -- --
- -----------------------------------------------------------------------------------------------------------------------
Total long-term debt ........................................................... 1,809,850 7,852,393
Less current portion ........................................................... 926,861 650,000
- -----------------------------------------------------------------------------------------------------------------------
Long-term debt -- net .......................................................... $ 882,989 $7,202,393
=======================================================================================================================
</TABLE>
In connection with the line of credit and notes payable to certain banks as of
August 31, 1996, the Company had agreed to certain covenants. The agreements
required the Company to maintain minimum working capital and net worth of
$200,000 and $6,000,000, respectively, to not let its combined debt-to-equity
ratio exceed 3 to 1, and prohibited the payment of cash dividends. The Company
was not in compliance at August 31, 1996, with these covenants and, therefore,
has reclassified those debt obligations to banks as current liabilities.
As of August 31, 1997, in connection with the lines of credit and note payable
to bank, the Company has agreed to certain covenants. The agreements require the
Company to maintain certain ratios/levels of tangible net worth, working
capital, liabilities to tangible net worth, earnings before interest, taxes,
depreciation and amortization to debt service and prohibit the payment of common
stock cash dividends. The Company was in compliance at August 31, 1997, with all
of these covenants.
Minimum scheduled principal payments on long-term debt to maturity as of
August 31, 1997, are as follows:
<TABLE>
<S> <C>
1998 .................................... $ 650,000
1999 .................................... 5,360,726
2000 .................................... 650,000
2001 .................................... 650,000
2002 .................................... 541,667
- -----------------------------------------------------
Total ............................. $7,852,393
=====================================================
</TABLE>
38
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
RIVIERA TOOL COMPANY
NOTE 10 -- FEDERAL INCOME TAXES
The provision for federal income taxes is as follows:
<TABLE>
<CAPTION>
AUGUST 31,
-----------------------------------
1996 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current expense .............................................................. $ -- $ 127,900
Deferred expense ............................................................. 204,000 538,700
- -----------------------------------------------------------------------------------------------------------------------
Total tax expense ................................................... $ 204,000 $ 666,600
=======================================================================================================================
</TABLE>
The difference between the federal statutory tax rate and the Company's
effective rate was:
<TABLE>
<CAPTION>
AUGUST 31,
---------------------
1996 1997
<S> <C> <C>
Federal statutory tax rate ................................................... 34.0% 34.0%
Increase (reduction) in income taxes relating to:
Effect of recording and changing valuation allowance ................ -- --
Effect of providing for deferred taxes at rates less than
statutory rates and other items ................................. -- 2.0
- ------------------------------------------------------------------------------------------------------------------------------
Effective tax rate .................................................. 34.0% 36.0%
==============================================================================================================================
</TABLE>
The details of the net deferred tax liability are as follows:
<TABLE>
<CAPTION>
AUGUST 31,
--------------------------
1996 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation ........................................................ $(2,137,000) $(2,020,600)
- ---------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Net operating loss carryforward ...................................... 1,438,000 590,900
Investment tax credit carryforward ................................... 246,700 204,900
Alternative minimum tax credit carryforward .......................... 40,000 208,600
Accrued lease expense ................................................ 190,000 205,900
Allowance for doubtful accounts ...................................... -- 34,000
Deferred gains and other items ....................................... 73,300 46,800
- ---------------------------------------------------------------------------------------------------------------------
Total deferred tax assets ........................................... 1,988,000 1,291,100
Valuation allowance recognized for
deferred tax assets ................................................. (246,700) (204,900)
- ---------------------------------------------------------------------------------------------------------------------
Net deferred tax liability .......................................... $ (395,700) $ (934,400)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
RIVIERA TOOL COMPANY
NOTE 10 -- FEDERAL INCOME TAXES -- CONTINUED
The details of the deferred tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
AUGUST 31,
-------------------------------------
1996 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net operating loss carryforward .......................................... $ 199,200 $ 847,100
Accrued lease ............................................................ (19,100) (15,900)
Depreciation ............................................................. (21,000) (116,400)
Deferred compensation .................................................... (5,000) 8,000
Deferred revenue ......................................................... 51,000 20,900
Other items .............................................................. (1,100) (2,400)
Change in valuation allowance ............................................ -- (41,800)
Allowance for doubtful accounts .......................................... -- (134,000)
Investment tax credit .................................................... -- 41,800
Alternative minimum tax credit ........................................... -- (168,600)
- -----------------------------------------------------------------------------------------------------------------------------
Deferred tax expense (reduction) ......................................... $ 204,000 $ 538,700
=============================================================================================================================
</TABLE>
As of August 31, 1997, the Company had the following applicable carryforwards to
be applied against future taxable income:
<TABLE>
<CAPTION>
NET OPERATING
INVESTMENT LOSS
TAX CREDIT CARRYFORWARD
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
1999 .................................................... $ 37,400 $ --
2000 .................................................... 19,600 --
2001 .................................................... 22,400 --
2002 .................................................... 28,000 --
2003 .................................................... 97,500 --
2004 .................................................... -- --
2005 .................................................... -- --
2006 .................................................... -- --
2007 .................................................... -- 1,032,000
2008 .................................................... -- 486,000
2009 .................................................... -- 220,100
- -------------------------------------------------------------------------------------------
Total ................................................ $ 204,900 $1,738,100
===========================================================================================
</TABLE>
The Company also has approximately $189,300 of alternative minimum tax credits
that do not expire.
NOTE 11 -- CASH FLOWS
Cash paid or refunded during the years ended August 31, 1996 and 1997, for
interest and income taxes is summarized as follows:
<TABLE>
<CAPTION>
AUGUST 31,
--------------------------------
1996 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Interest paid ........................ $1,572,292 $1,253,563
Income taxes paid .................... -- 1,871
</TABLE>
40
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
RIVIERA TOOL COMPANY
NOTE 12 -- OPERATING LEASES
The Company has entered into a noncancellable operating lease agreement for
manufacturing and office facilities with a lease term that expires in October
2009. The agreement provides for annual lease payments plus an escalation of the
base rent of 1 percent in each of the first 10 years and 2 percent in each of
the second 10 years. The Company has an option to renew this lease for two
additional 10-year terms at a rate to be negotiated and has an option to acquire
the facility at fair market value, commencing November 1996. The 1997 annual
rent was $977,578. Generally accepted accounting principles require that rent
expense related to this type of lease be recognized ratably over the term of the
lease. The difference between the rent payments made and the amount of expense
recognized has been recorded as accrued lease expense (a liability). For the
years ended August 31, 1996 and 1997, accrued lease expense exceeded cash
payments made by $56,065 and $46,725, respectively.
On May 25, 1994, the Company entered into a sublease agreement with an unrelated
company. The agreement commenced August 1, 1994, and terminates on July 31,
1998. The agreement provides for annual lease payments ranging from $216,000 to
$224,724. The agreement also contains two options to renew the lease for up to
five years, with annual lease payments ranging from $231,468 to $268,332. In
addition, the agreement requires the tenant to pay a pro-rata share (33.7
percent) of the facility's operating costs.
The Company has various operating leases, including the noncancellable operating
lease noted above, for facilities and equipment that expire during the next 15
years. Rent expense under these leases for the year ended August 31, 1995, 1996
and 1997 amounted to $1,117,023, $1,164,855 and $1,134,625, respectively.
The following is a schedule of future minimum rent payments and noncancellable
sublease income required under operating leases that have initial or remaining
noncancellable lease terms in excess of one year as of August 31, 1997:
<TABLE>
<CAPTION>
LEASE SUB-LEASE NET LEASE
PAYMENTS RECEIVABLE PAYMENT
-------------------------------------------------------------------------
<S> <C> <C> <C>
1998 ..................... $ 1,067,330 $ 224,724 $ 842,606
1999 ..................... 1,031,486 -- 1,031,486
2000 ..................... 1,034,180 -- 1,034,180
2001 ..................... 1,052,870 -- 1,052,870
2002 ..................... 1,071,560 -- 1,071,560
2003 and after............ 8,225,158 8,225,158
--------------------------------------------------------------------------
Total minimum payments
required ........... $13,482,584 $ 224,724 $ 13,257,860
==========================================================================
</TABLE>
NOTE 13 -- CAPITAL LEASES
The Company has entered into a number of capital leases. At August 31, 1996,
included in machinery and equipment and accumulated depreciation and
amortization are assets with a total cost of $3,065,770, and accumulated
amortization of $1,068,780, acquired through capital lease transactions.
During 1997, these capital leases were paid out and such assets are included in
machinery and equipment as of August 31, 1997. The following is a schedule of
future minimum lease payments under capital leases together with the present
value of the net minimum lease payments as of August 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1997 $ 439,614 $ ----
1998 119,723 ----
- ------------------------------------------------------------------------------------------------------------
Total minimum lease payments .................................... 559,337 ----
Less amount representing interest ................................... 31,307 ----
- ------------------------------------------------------------------------------------------------------------
Present value of net minimum lease payments ................ 528,030 ----
Less amount representing current portion ............................ 409,225 ----
- ------------------------------------------------------------------------------------------------------------
Noncurrent portion ......................................... $118,805 $ ----
============================================================================================================
</TABLE>
41
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
RIVIERA TOOL COMPANY
NOTE 14 -- RETIREMENT PLANS
The Company has a profit-sharing plan that covers substantially all employees.
The plan includes a 401(k) deferred-compensation option. The Company's policy is
to fund profit-sharing costs accrued on an annual basis. The plan, as
established, allows for discretionary contributions as determined annually by
the Company's Board of Directors. No discretionary contribution was made for the
years ended August 31, 1995, 1996, and 1997.
The Company also matches and contributes up to 15 percent of the employees'
contributions, up to 2% of the employee's annual wage, to the 401(k)
deferred-compensation plan. The Company's contributions to the plan for the
years ended August 31, 1995, 1996 and 1997, amounted to $92,575, $80,438 and
$90,879, respectively.
For the years ended August 31, 1996, the plan owned 100 percent of the Company's
redeemable preferred stock.
NOTE 15 -- RELATED-PARTY TRANSACTIONS
The Company had a contract with a Motor Wheel Corporation which owns 50 percent
of the Company's Common Stock as of August 31, 1995, 1996 and 29.4 percent as of
August 31, 1997. The contract related to the performance of engineering services
and construction of dies to be purchased by the stockholder corporation. The
contract provided that the stockholder corporation was required to purchase not
less than 155,000 hours of work, as defined by the contract, or, if less, 85
percent of its entire domestic consumption. In the event the total hours of work
were less than the required amount, the stockholder corporation paid an
underutilization fee, based on a formula, to the Company. Under the plan of
merger between Riviera Die and Tool, Inc. and Riviera Tool Company dated October
31, 1996, and related shareholders agreement, such contract was terminated
retroactive to December 31, 1995 and no such underutilization fees were received
or recorded for periods thereafter. Sales to the stockholder corporation
(including underutilization fees for periods prior to December 31, 1995) for the
fiscal years ended August 31, 1995, 1996 and 1997, amounted to $2,794,829,
$1,954,184 and $851,979, respectively.
NOTE 16 -- REDEEMABLE PREFERRED STOCK
The Company had no issued and outstanding shares of mandatory redeemable
preferred stock at August 31, 1997. The Company had 1,425 shares issued and
outstanding as of August 31, 1996. The stock bears an $8 per year cumulative
dividend preference over Common Stock of the Company. All outstanding shares of
this stock were owned by the Company's retirement plan. According to the terms
of the redemption agreement, 475 shares of the stock were to be redeemed at $100
per share, plus unpaid dividends on July 31, 1995, 1996, and 1997.
The carrying amount of the preferred stock was being increased by periodic
accretions, using the interest method, so that the carrying amount would equal
the mandatory redemption amount on the redemption date. The carrying amount was
also being increased by unpaid dividends. Increases in the preferred stock were
being effected by charges against retained earnings. The following schedule
summarizes activity in the preferred stock:
<TABLE>
<CAPTION>
AUGUST 31,
---------------------------
1996 1997
- -------------------------------------------------------------------
<S> <C> <C>
Beginning balance .................. $ 110,537 $ 139,072
Accretion .......................... 17,135 7,228
Cumulative dividend preference ..... 11,400 ----
Preferred stock redeemed ........... ---- (142,500)
Dividends paid ..................... ---- (3,800)
- --------------------------------------------------------------------
Ending balance ................ $ 139,072 $ ----
====================================================================
</TABLE>
42
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
RIVIERA TOOL COMPANY
NOTE 17 -- PREFERENTIAL COMMON STOCK DIVIDEND
The Company, on October 31, 1996, declared a preferential dividend on the shares
of common stock of the Company owned by Riviera Holding Company to pay the
income tax payable by Riviera Holding Company as a result of the lapse of
options by Motor Wheel Corporation to purchase common stock owned by Riviera
Holding Company and as a result of the dividend itself. In May, 1997 the Company
paid this $90,000 dividend to Riviera Holding Company.
NOTE 18 -- STOCK OPTION PLAN
The Company's 1996 Stock Option Plan (the "Option Plan") was adopted by the
Board of Directors and approved by the shareholders on October 31, 1996. Under
the Option Plan, 250,000 shares of Common Stock are reserved for issuance and
are intended to qualify as incentive stock options under the Internal Revenue
Code of 1986, as amended. Riviera Holding Company, Kenneth K. Rieth and Motor
Wheel Corporation are not eligible to participate in the Option Plan. During the
year ended August 31, 1997, no stock options were issued under the Option Plan.
NOTE 19 -- LEGAL PROCEEDINGS AND CLAIMS
The Company is a plaintiff and counter-defendant in an action against two
individuals and a corporation, with the owners of the Company and a related
corporation affiliated through common ownership as co-plaintiffs, filed July 22,
1994. In July 1992, the Company contributed machinery, equipment, inventory,
work in process and receivables that were related to the business of building
plastic injection molds to a joint venture that then operated as a mold builder
and injection molder. The Company contributed assets valued at $5.4 million,
assigned debts in the amount of $3.7 million, and received $1.7 million of
preferred stock in the new entity. Defendants in this action contributed all of
the stock of a mold builder then known as Leap Technologies, Inc. In November
1993, the joint venture was liquidated, and the Company's preferred stock in the
entity and receivables from such entity were written off. These write-offs were
reflected in the financial statements for the year ended August 31, 1993. The
Company alleges that the status of the business contributed by the defendants
was fraudulently represented, and the defendants are, therefore, liable to the
Company for all losses sustained as a result of the failure of the venture. The
Company is asking for the return of its investment plus additional damages it
incurred in the process of liquidating the venture. One defendant has
counterclaimed for breach of representations by the Company without specifying
any amount of damages. The Company is not currently involved in other legal
proceedings other than ordinary and routine proceedings incidental to its
operations. In the opinion of management, no existing proceedings, including the
matter involving Leap Technologies, Inc., would have a significant effect on the
financial condition, results of operations and cash flows of the Company if
determined against the Company.
NOTE 20 -- OTHER EXPENSE
The Company incurred bank forebearance fees of $160,000, $0 and $150,000 in
1995, 1996 and 1997, respectively, in conjunction with its then primary lender.
For 1997, the Company incurred $75,771 in prepayment fees, $27,339 in tax agency
penalties, and $101,075 in late charges on the facility lease.
NOTE 21 -- SUBSEQUENT PURCHASE OF EQUIPMENT
Subsequent to August 31, 1997, the Company purchased four (4) 1000 ton stamping
presses for $2,235,000. On October 9, 1997, the Company borrowed $1,200,000 on
its $4,000,000 revolving equipment credit line to finance the purchase of these
presses. The installation cost of these four presses is estimated to be
approximately $800,000.
43
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
RIVIERA TOOL COMPANY
NOTE 22 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
A summary of the methods and significant assumptions used to estimate the fair
value of financial instruments is as follows:
Short-term Financial Instruments - The fair value of short-term financial
instruments, including cash, trade accounts receivable and payable and cost and
earnings in excess of billings on uncompleted contracts, approximates their
carrying amounts in the financial statements due to the short maturity of such
instruments.
Notes Payable and long-term debt - The estimated fair value of the Company's
notes payable and long-term debt approximates its carrying amount because the
interest rate fluctuates with market rates.
44
<PAGE> 23
REPORT OF MANAGEMENT
- -------------------------------------------------------------------------------
RIVIERA TOOL COMPANY
The management of Riviera Tool Company is responsible for the preparation of the
accompanying financial statements in conformity with generally accepted
accounting principles appropriate in the circumstances. Management is also
responsible for the determination of estimates and judgments used in the
financial statements, and the preparation of other financial information
included in this annual report to shareholders. The financial statements have
been audited by Plante & Moran LLP, independent auditors.
The management of the Company is responsible for and maintains an accounting
system and related internal controls that it believes is sufficient to provide
reasonable assurance that assets are safeguarded against unauthorized
acquisition, use or disposition, that transactions are executed and recorded in
accordance with management's authorization and that the financial records are
reliable for preparing financial statements. The concept of reasonable assurance
is based on the recognition that the cost of a system of internal control must
be related to the benefits derived and that the balancing of those factors
requires estimates and judgments. The system is evaluated by the independent
auditors in connection with their annual audit. Management responds to all
significant recommendations of the independent auditors and makes changes to the
systems where appropriate.
The Board of Directors has an Audit Committee of Directors who are not members
of management. The committee meets with management and the independent auditors
in connection with its review of matters relating to the company's annual
financial statements; the Company's system of internal controls; and the
services of the independent auditors. The Committee also periodically meets with
independent auditors, without management present, to discuss appropriate
matters. In addition, the independent auditors have full and free access to meet
with the Committee, with or without management representatives present, to
discuss the results of their audit, the adequacy of internal controls and the
quality of financial reporting.
Kenneth K. Rieth
Kenneth K. Rieth
President and Chief Executive Officer
Peter C. Canepa
Peter C. Canepa
Treasurer and Chief Financial Officer
45
<PAGE> 24
INDEPENDENT AUDITOR'S REPORT
- --------------------------------------------------------------------------------
RIVIERA TOOL COMPANY
Board of Directors and Stockholders
Riviera Tool Company
We have audited the accompanying balance sheet of Riviera Tool Company, as of
August 31, 1996 and 1997, and the related statements of income, common
stockholders' equity and cash flows for the years ended August 31, 1995, 1996
and 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Riviera Tool Company at August
31, 1996 and 1997, and the results of its operations and cash flows for the
years ended August 31, 1995, 1996 and 1997, in conformity with generally
accepted accounting principles.
PLANTE & MORAN, LLP
Plante & Moran, LLP
Grand Rapids, Michigan
October 17, 1997
46
<PAGE> 25
BOARD OF DIRECTORS & OFFICERS
- ------------------------------------------------------------------------------
RIVIERA TOOL COMPANY
BOARD OF DIRECTORS
- ------------------------------------------------------------------------------
THOMAS R. COLLINS
Controller
Automotive Brake Division
Hayes Wheels International, Inc.
THOMAS H. HIGHLEY
Chief Executive Officer and President
The Empire Company, Inc.
JOHN C. KENNEDY
President and Director
Autocam Corporation
JOHN H. KINSTLER
Vice President of Engineering
Fabricated Wheel Division
Hayes Wheels International, Inc.
KENNETH K. RIETH
Chairman of the Board
Chief Executive Officer and President
Riviera Tool Company
LEONARD H. WOOD
Vice President
General Manager
Riviera Tool Company
OFFICERS
- -------------------------------------------------------------------------------
KENNETH K. RIETH
Chairman of the Board
Chief Executive Officer and President
PETER C. CANEPA
Chief Financial Officer
Secretary and Treasurer
LEONARD H. WOOD
Vice President
General Manager
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
ANNUAL MEETING
The annual meeting will be held Wednesday, December 17, 1997, 3:00 p.m. (EST),
at Rembrandt's at Bridgewater, 333 Bridge Street, NW., Grand Rapids, Michigan,
49504.
FORM 10-K AND FINANCIAL INFORMATION A COPY OF THE COMPANY'S ANNUAL REPORT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS AVAILABLE WITHOUT CHARGE TO
SHAREHOLDERS. REQUESTS SHOULD BE ADDRESSED TO RIVIERA TOOL COMPANY, PETE C.
CANEPA, CFO, 5460 PARKWAY, SE., GRAND RAPIDS, MICHIGAN, 49512.
COMMON STOCK
Traded on the American Stock Exchange --
AMEX, under the symbol of RTC.
CORPORATE HEADQUARTERS
Riviera Tool Company
5460 Parkway, SE.,
Grand Rapids, MI 49512 U.S.A.
616.698.2100
47
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 4,915,543
<ALLOWANCES> 100,000
<INVENTORY> 7,607,098
<CURRENT-ASSETS> 12,690,195
<PP&E> 9,640,330
<DEPRECIATION> 7,494,744
<TOTAL-ASSETS> 23,090,953
<CURRENT-LIABILITIES> 2,526,167
<BONDS> 7,202,393
0
0
<COMMON> 9,539,879
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 23,090,953
<SALES> 21,960,174
<TOTAL-REVENUES> 21,960,174
<CGS> 16,831,905
<TOTAL-COSTS> 16,831,905
<OTHER-EXPENSES> 361,717
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,211,287
<INCOME-PRETAX> 1,851,381
<INCOME-TAX> 666,600
<INCOME-CONTINUING> 1,184,781
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,177,553
<EPS-PRIMARY> .60
<EPS-DILUTED> .60
</TABLE>
