<PAGE> 1
Pursuant to Rule 424(b)(1)
Registration No. 333-14187
PROSPECTUS
RIVIERA LOGO
RIVIERA TOOL COMPANY
1,010,000 SHARES
COMMON STOCK
------------------------
Prior to this offering (this "Offering"), there has been no market for the
common stock (the "Common Stock") of Riviera Tool Company ("Riviera" or the
"Company") and there can be no assurance that such a market will develop or, if
developed, that it will be sustained. See "Underwriting" with respect to the
method used in determining the initial public offering price. The Common Stock
has been approved for quotation subject to notice of issuance on the American
Stock Exchange under the symbol "RTC."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
============================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------------------
Per Share....................................... $7.00 $.70 $6.30
- ------------------------------------------------------------------------------------------------------------
Total(3)........................................ $7,070,000 $707,000 $6,363,000
============================================================================================================
</TABLE>
(1) Excludes a non-accountable expense allowance payable to National Securities
Corporation as representative (the "Representative") of the several
underwriters (the "Underwriters") equal to 3% of the total Price to Public.
The Company will sell five-year warrants to the Representative (the
"Representative's Warrants") entitling the Representative to purchase up to
101,000 shares of Common Stock. The Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting the expenses of this Offering which are payable by the
Company estimated at $639,437, which includes the nonaccountable expense
allowance payable to the Representative.
(3) The Company has granted the Underwriters a 45-day option to purchase up to
151,500 additional shares of Common Stock to cover over-allotments. If this
option is exercised in full, the total Price to Public, Underwriters'
Discounts and Commissions, and Net Proceeds to the Company will be
$8,130,500, $813,050, and $7,317,450, respectively. See "Underwriting."
------------------------
The shares of Common Stock are being offered by the Underwriters subject to
prior sales when, as, and if delivered to and accepted by them and subject to
their right to reject any order in whole or in part. It is expected that
delivery of the shares will be made against payment at the offices of National
Securities Corporation, 1001 Fourth Avenue, Seattle, Washington 98154, on or
about March 7, 1997.
NATIONAL SECURITIES CORPORATION
The date of this Prospectus is March 4, 1997.
<PAGE> 2
From the simplest
die to the most
complicated parts
assembly, Riviera's
single-source
capability covers
every aspect of
die production
from concept
to completion.
[PHOTO]
[PHOTO]
[PHOTO]
Process development and engineering
are
critical stages in every project.
Riviera's
computer-integrated design and
manufacturing
systems ensure the accurate and
efficient
completion of these important
phases.
Located minutes away from I-96 and Kent
County
International Airport in Grand Rapids,
Michigan, the
Company's 180,000 square foot facility
features a unique layout that
facilitates the seamless flow of ideas,
data,
and die production.
[RIVIERA LOGO]
- --------------------------------------------------------------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK
EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.
2
<PAGE> 3
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements included elsewhere in this Prospectus.
Unless the context indicates otherwise, Riviera Tool Company, dba Riviera Die &
Tool, Inc, is referred to as the "Company" or "Riviera." Except as otherwise
noted, all information in this Prospectus assumes no exercise of the
Underwriters' over-allotment option. Investors should carefully consider the
information set forth under the heading, "Risk Factors."
THE COMPANY
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 Corporation
("Chrysler"), Ford Motor Company ("Ford") and General Motors Corporation
("General Motors"), the three largest domestic automobile manufacturers (the
"OEMs"), 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 bumper system for the Ford Explorer and F-Series trucks, door panels
and wheels for the Jeep Wrangler, structural body components for the Chrysler
Neon and mini-vans, as well as body panels for semi-tractor vehicles.
The Company maintains "Preferred Supplier" status with Chrysler and Ford.
The Company has been awarded Chrysler's PentaStar quality award, the highest
quality award for a single plant supplier and Ford's Q-1 supplier award, an
award that has historically been given to suppliers who manufacture parts and
assemblies, rather than suppliers of tooling and equipment. The Company was the
first tool and die supplier to be awarded the Q-1 status by Ford.
By transferring design information electronically ("EDI"), 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. The Company intends to use a portion of the proceeds of this
Offering to enhance its technical capabilities and competitive position by
acquiring advanced 3-dimensional design software known generally as "relational
data based software" and integrating it with high-speed precision machining
centers. Relational data base software systems can significantly reduce design
lead time and the high-speed precision machining centers are designed to nearly
double the through-put capacity of each machine on a semi-automated basis at
approximately half the cost of traditional computerized machining centers.
The Company has adopted a strategy that includes (i) single source program
management from concept to completion which involves the coordination of design,
manufacture of prototype and final dies, tryout and final inspection, all at a
single location; (ii) accomplishing each of the foregoing using the same
electronic data; (iii) simultaneous engineering of product and process, see
"Business -- Products and Services;" and (iv) maintaining ongoing continuous
improvement programs enabling it to improve its products and services in
response to technological advances and the changing requirements of its
customers.
The Company was originally acquired by the purchase of the assets of an
existing tool and die business on December 19, 1967 and was incorporated in its
present form in 1988 under the laws of the State of Michigan
3
<PAGE> 4
to provide an investment vehicle for Motor Wheel Corporation, an Ohio
corporation, which currently owns 50% of the Company's common stock. Since that
time the business has been operating as the wholly-owned and only subsidiary of
the Company. Prior to this Offering the operating subsidiary was merged into the
Company, which now operates the business. Since the financial statements for the
business have been audited and reported on a consolidated basis since 1988, this
merger had no effect on the substance of the financial statements of the
business. See Note 1 of Notes to Financial Statements -- Nature of Business and
Significant Accounting Policies -- Reporting Entity. Its executive offices and
manufacturing facility are located at 5460 Executive Parkway, Grand Rapids,
Michigan 49512, and its telephone number is (616) 698-2100.
4
<PAGE> 5
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 1,010,000 shares(1)
Common Stock to be outstanding after the
Offering................................... 2,470,000 shares(1)
Use of Proceeds.............................. Reduction of financial institution debt, to
acquire fixed assets, retirement of all
outstanding 8% Cumulative Preferred Stock,
and for general working capital purposes. See
"Use of Proceeds."
AMEX Proposed Symbol......................... "RTC"
</TABLE>
- -------------------------
(1) Assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting."
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED AUGUST 31, NOVEMBER 30,
----------------------------------------------- ---------------
1992 1993 1994 1995 1996 1995 1996
---- ---- ---- ---- ---- ---- ----
(IN 000'S EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATION DATA:
Sales................................ $13,207 $18,946 $22,425 $22,225 $18,334 $4,934 $5,480
Gross Profit......................... 1,160 1,788 2,749 4,108 3,398 884 1,085
Income (loss) from Operations........ (311) 318 1,635 2,206 2,043 463 654
Interest Expense..................... 780 856 1,415 1,749 1,670 367 403
Other Income......................... 265 244 139 106 227 37 15
Other Expense(1)..................... 0 2,247 532 0 0 0 0
Income (loss) before income taxes.... (826) (2,541) (173) 563 600 133 267
Income Taxes (Benefits).............. (312) (252) (134) 77 204 45 91
------- ------- ------- ------- ------- ------ ------
Net Income (loss) available for
common shares...................... $ (536) $(2,314) $ (69) $ 450 $ 367 $ 80 $ 172
======= ======= ======= ======= ======= ====== ======
Net Income (loss) per common
share(2)........................... $(.37) $(1.58) $(.05) $.31 $.25 $.06 $.12
======= ======= ======= ======= ======= ====== ======
Supplementary Net Income (loss) per
common share, as adjusted(3)....... $.34 $.12
======= ======
OTHER DATA :
Depreciation & amortization.......... 991 993 1,214 1,438 1,272 313 322
======= ======= ======= ======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
AS OF AUGUST 31, AS OF NOVEMBER 30, 1996
----------------------------------------------- ---------------------------
1992 1993 1994 1995 1996 ACTUAL AS ADJUSTED(3)(4)
---- ---- ---- ---- ---- ------ -----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital
(Deficiency)............... $ 421 $(2,727) $(4,273) $(3,966) $(3,669) $(3,463) $ 6,940
Total Assets................. 20,824 22,927 26,439 21,706 22,928 22,154 22,154
Current Portion of Long-Term
Debt & Capital Leases...... 796 2,935 3,129 2,256 1,336 1,258 650
Revolving Line of Credit..... 5,110 8,127 9,461 6,866 10,242 9,796 2,908
Long-term Capital Leases &
Term Debt, less current
portion.................... 3,173 1,178 2,715 1,830 1,002 738 2,600
Redeemable Preferred Stock... 54 80 109 111 139 91 --
Common Stockholder's
Equity..................... 7,153 4,839 4,770 5,220 5,588 5,760 11,484
</TABLE>
- -------------------------
(1) Other Expense includes the following: For 1993, amount represents loss from
related company as a write-off of $1,687,000 of preferred stock in related
company and write-off of receivable from such entity of $560,000. For 1994,
amount represents $532,000 in costs associated with vacant facility space
formerly leased to the related company. See "Business -- Legal Proceedings."
(2) Based upon Common Stock outstanding of 1,460,000 shares.
(3) See Note 18 of Notes to Financial Statements.
(4) Adjusted to give effect to the sale by the Company of 1,010,000 shares of
Common Stock offered hereby at an initial public offering price of $7.00 per
share, less applicable underwriting discounts and commissions and estimated
offering expenses payable by the Company and the effect of restructuring its
bank debt. See "Risk Factors -- Debt Covenant Violations."
5
<PAGE> 6
RISK FACTORS
A prospective investor should consider, together with the other information
set forth in this Prospectus, the following:
RELIANCE UPON MAJOR CUSTOMERS
Approximately 25% of the Company's sales during fiscal 1996 and 24% in
fiscal 1995 were made directly to Chrysler Corporation. In addition,
approximately 11% of the Company's sales during fiscal 1996 and 7% during fiscal
1995 were made directly to Ford Motor Company. Ford suppliers represented
approximately 17% and 55% of the Company's sales during fiscal 1996 and 1995,
respectively. General Motors represented approximately 13% of the Company's
sales during fiscal 1996 and 1% during fiscal 1995. For the three months ended
November 30, 1996, Chrysler, Ford, General Motors and their tier one suppliers
accounted for approximately 50%, 35% and 8% of the Company's revenues,
respectively. See "Business -- General."
The loss of the Company's relationship with these customers, or a
significant reduction of their minimum tooling purchases, or a reduction in new
product development due to economic conditions, could have a material adverse
effect upon the Company.
The Company is directly dependent on its customers who directly produce the
end use product. As a result, if the end use producers (Chrysler, Ford and
General Motors) experience difficulties in such critical areas as style, quality
or global competition, the demand for such end use producer's product may be
adversely affected, which may in turn adversely affect the Company.
GENERAL FACTORS: ECONOMIC CLIMATE, INTERNATIONAL MONETARY CYCLES, CHANGING
FACILITIES,
INTER-INDUSTRY DEPENDENCE, AVAILABLE FINANCING
The revenue and value of manufacturing concerns, such as the Company, in
general, may be adversely affected by a number of factors, including: (a) the
international, national, regional and local economic climate -- in particular,
manufacturing intended for large ticket durable consumer goods, which directly
contributes to or adversely affects the work loads of manufacturing concerns
supplying product that will contribute to or be incorporated into end use
consumer products. (b) international monetary cycles -- manufacturing concerns
produce products that contribute to or are otherwise incorporated into retail
consumer end use products that will directly or indirectly be competing on a
global basis. Where price becomes an issue, monetary cycles may contribute to or
detract from competitive positioning. (c) the need to periodically repair,
replace, upgrade and expand existing production capabilities may not prove to be
a profitable endeavor. (d) the dependence on other industries -- manufacturing
concerns that do not produce an end product but contribute to an end product
produced by another manufacturing concern are subject to both the trends of the
end user and the buying practices of the manufacturer that assembles into a
merchantable product. (e) manufacturing concern values are affected by factors
such as changes in interest rates and the availability of financing in capital
- --intensive industries, and in addition, manufacturing concerns do not typically
receive progress payments from their customers.
VOTING CONTROL
Following completion of this Offering, Riviera Holding Company (owned 100%
by Kenneth K. Rieth), a Michigan corporation and Motor Wheel Corporation, an
Ohio corporation located in Lansing, Michigan, will have approximately 24.5% and
29.6, respectively, of the voting power and ownership of the Company (assuming
no exercise of the Underwriters' over-allotment option). Together they will have
effective voting control of the Company, and will be able to elect or remove all
of the Company's Directors, will exercise significant control over the other
affairs of the Company and will be able to block any proposal put to a vote of
the shareholders including proposals which require a supermajority. These two
shareholders have entered into a formal voting agreement. See "Principal
Shareholders."
6
<PAGE> 7
DEPENDENCE ON EXISTING MANAGEMENT
Kenneth K. Rieth and a few key employees have been primarily responsible
for the development of most of the Company's products, processes and business
methods. The loss or interruption of the continued full-time services of any of
them could have a material adverse effect on the Company. The Company maintains
"Key-man" life insurance policies on Kenneth K. Rieth, President, C.E.O. and
Director, and Leonard H. Wood, Vice President, General Manager and Director, for
$2,500,000 and $500,000, respectively. The Company has pledged $1,000,000 of
this insurance on Kenneth K. Rieth to NBD Bank in connection with replacing that
bank as its primary commercial lender. See "Management" and "Management --
Certain Transactions."
COMPETITION AND MARKET CONSOLIDATION
The tooling systems industry is highly competitive, and there can be no
assurance that the Company will be able to compete successfully in the future.
The Company's largest customers, Chrysler and Ford, both have internal die
construction capability; however, the Company believes that such capacity is
insufficient in relationship to their total requirements. The Company believes
that the automobile industry has been going through a tooling systems supplier
consolidation and that there are now fewer quality oriented, full service die
systems suppliers. There is no assurance that the Company will continue to
qualify as a supplier to any of the automobile manufacturers. The loss of any
such qualification would have a material adverse effect on the Company. In
addition, the Company faces competition from foreign manufacturers, particularly
from Japan.
IMMEDIATE AND SUBSTANTIAL DILUTION
After giving effect to the sale by the Company of the 1,010,000 shares of
Common Stock being offered hereby at a public offering price of $7.00 per share
(assuming no exercise of the Underwriters' over-allotment option and application
of the net proceeds therefrom), there will be an immediate increase in the
Company's net tangible book value of $.71 per share and an immediate dilution of
$2.35 per share to investors who purchase Common Stock pursuant to this
Offering. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
The 1,335,000 shares of Common Stock held by Riviera Holding Company, owned
100% by Kenneth K. Rieth, Motor Wheel Corporation and 125,000 shares owned by
NBD Bank after the date of this Prospectus will be eligible for sale in
accordance with Rule 144 under the Securities Act of 1933, as amended, 90 days
following the date of this Prospectus. Under Rule 144, shareholders who have
held fully-paid shares for at least two years may sell them without registration
under certain conditions. The sale of a significant portion of these shares in
the open market could have a material adverse effect on the market price of the
Common Stock. However, Riviera Holding Company and Motor Wheel Corporation have
agreed with the Representative that they will not sell or otherwise dispose of
any Common Stock for two years from the date of this Prospectus without the
consent of the Representative. NBD Bank has agreed with the Representative that
it will not sell or otherwise dispose of any Common Stock for one year from the
date of this Prospectus without the consent of the Representative. See "Shares
Eligible for Future Sale" and "Underwriting."
Riviera Holding Company and Motor Wheel have executed a written
Shareholders Agreement (the "Shareholders Agreement") dated October 31, 1996.
Pursuant to the Shareholders Agreement, Motor Wheel has granted Riviera Holding
Company an option to purchase all shares of stock of the Company held by Motor
Wheel. The purchase price under this option is $3.0 million or $4.11 per share.
This option will lapse on October 31, 1997. Riviera Holding Company has agreed
to assign certain of its rights pursuant to this option to the Company. See
"Principal Shareholders -- Shareholders Agreement" and "Shares Eligible for
Future Sale."
PREFERRED STOCK
The Board of Directors of the Company is authorized to issue, without any
further action on the part of the Company's shareholders, up to 200,000 shares
of preferred stock (the "Preferred Stock") in one or more series with such
designations, preferences, limitations and other rights, including voting
rights, as are
7
<PAGE> 8
determined by the Board of Directors from time to time. The issuance of such
shares of preferred stock could result in the dilution of the voting power of
the shares on Common Stock purchased in this Offering and could have a dilutive
effect on earnings per share. See "Description of Capital Stock."
ABSENCE OF PRIOR MARKET FOR COMMON STOCK
There has been no public market for the Common Stock of the Company prior
to this Offering. There can be no assurance that an active public market for the
shares will develop or be sustained after this Offering or that the market price
of the Common Stock will not decline below the initial public offering price.
The initial public offering price of the Common Stock offered hereby was
determined by negotiations between the Company and the Representative and may
not be indicative of the market price of the Common Stock in the future. See
"Underwriting." The trading price of the Company's Common Stock in the future
could be subject to wide fluctuations in response to quarterly variations in
operating results of the Company or its competitors, changes in analysts'
estimates of the Company's financial performance, regulatory developments,
general industry conditions, worldwide economic and financial conditions, and
other factors. During certain periods, the stock markets have experienced
extreme price and volume fluctuations. In addition, securities sold in initial
public offerings have been especially susceptible to price volatility. These
broad market fluctuations and other factors may adversely affect the market
price of the Company's Common Stock.
DEBT COVENANT VIOLATIONS
In connection with the Company's revolving line of credit and notes payable
to bank the Company has agreed to certain covenants. The agreements require the
Company to maintain working capital and net worth at specified levels, do not
permit the debt-to-equity ratio to exceed a specified amount, and prohibit the
payment of cash dividends. The Company presently is not in compliance with
certain of these covenants. As a consequence the bank could (but to date has
chosen not to) pursue collection of all amounts due which could result in the
liquidation of the Company. After application of the proceeds of this Offering,
the Company expects to be in compliance with all such covenants then applicable.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
1,010,000 shares of Common Stock offered hereby at a public offering price of
$7.00 per share are 5,723,500 ($6,646,200 if the Underwriters' over-allotment
option is exercised in full). The Company intends to apply the net proceeds to
reduce financial institution debt which was incurred for fixed asset acquisition
(approximately $1,557,119) and repay working capital borrowed for its sales
growth (approximately $4,166,381). The unused credit on the Company's revolving
line of credit available to the Company may be used to acquire additional fixed
assets, retire all outstanding 8% cumulative preferred stock and for working
capital and other general corporate purposes, including accommodating growth and
future production through the addition of plant and equipment acquisitions and
payment of a preferential dividend previously declared (see "Dividend Policy").
As of the date of this Prospectus, there are no agreements or understandings
with respect to specific acquisitions. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources." The fixed asset acquisition debt bears interest at the annual
interest rate of 12.25% ($256,962 due February 28, 1997), 9.9% ($995,019 due
March 1, 1999) and 7.0% ($305,138 due September 1, 1998). The working capital
borrowing ($9,795,585) bears annual interest at the rate of prime plus 4% and is
due February 28, 1997. Upon completion of this Offering and application of the
proceeds therefrom, the Company intends to restructure its bank debt into a $8.0
million revolving line of credit, of which approximately $2,500,000 will be
drawn upon closing, and a $3.25 million, 5 year term loan bearing annual
interest at the rate of prime plus 1%. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources." The Company believes that this line of credit, the lower cost of
such funds and internally generated cash flow will be sufficient to cover
anticipated cash needs through 1997.
8
<PAGE> 9
DILUTION
As of November 30, 1996, the net tangible book value per share of Common
Stock of the Company was $3.94. "Net tangible book value per share" represents
the book value of the Company's tangible assets less the amount of its
liabilities, divided by the number of shares of Common Stock outstanding. Upon
completion of this Offering, 2,470,000 shares of Common Stock will be
outstanding with a pro forma net tangible book value per share of $4.65. As a
result of this Offering, there will be an immediate dilution to new investors of
approximately $2.35 per share. "Dilution" represents the difference between the
price per share paid by new investors in this Offering and the pro forma net
tangible book value per share as of November 30, 1996, after giving effect to
this Offering. The following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $7.00
Net tangible book value per share before this Offering.... $3.94
Increase in net tangible book value per share attributable
to new investors....................................... 0.71
Pro forma net tangible book value per share after this
Offering.................................................. 4.65
-----
Dilution per share to new investors......................... $2.35
=====
</TABLE>
The following table summarizes, as of the completion of this Offering, the
differences between the effective cash contributions paid by the existing
shareholders of the Company and the new investors with respect to the number of
shares purchased from the Company, the total consideration paid, and the average
price per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- -----------------------------------
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders....................... 1,460,000 59.0% $ 4,693,150 39.9% $3.21
New investors(1)............................ 1,010,000 41.0% 7,070,000 60.1% 7.00
--------- ----- ----------- ----- -----
Total................................ 2,470,000 100.0% $11,763,150 100.0%
========= ===== =========== =====
</TABLE>
- -------------------------
(1) Assumes the sale of 1,010,000 shares of Common Stock at an initial public
offering price of $7.00 per share.
DIVIDEND POLICY
The Company has never paid dividends on its common stock and currently
intends to retain future earnings in order to provide funds for the operation
and expansion of its business and, accordingly, does not anticipate paying cash
dividends in the foreseeable future. Furthermore, the Company's current lending
arrangement with its principal commercial lender prohibits the payment of common
stock dividends without the consent of the lender and the Company anticipates
that any future lending facilities will include similar restrictions. Such
restrictions could limit the Company's ability to pay common stock dividends in
the future.
Pursuant to the Shareholder Agreement dated October 31, 1996 between Motor
Wheel and Riviera Holding Company, the Company has declared a preferential
dividend of approximately $170,000 on the shares of Common Stock of the Company
owned by Riviera Holding to pay the income tax payable by Riviera Holding
Company as a result of the lapse of options by Motor Wheel to purchase common
stock owned by Riviera Holding Company and as a result of the dividend itself.
This dividend has been consented to by all directors and both existing
shareholders of the Company. The dividend cannot be paid until consented to by
the Company's primary commercial lender. The Company expects to receive such
consent upon completion of this Offering.
9
<PAGE> 10
CAPITALIZATION
The following table sets forth the actual short-term debt and
capitalization of the Company at November 30, 1996. Also set forth is such data,
pro forma, to give effect to the sale by the Company of the 1,010,000 shares of
Common Stock offered hereby and the application of the estimated net proceeds
therefrom.
<TABLE>
<CAPTION>
NOVEMBER 30, 1996
-------------------------
ACTUAL AS ADJUSTED(1)
------ --------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Notes Payable and Capital Leases -- Current(2).............. $11,053 $ 650
======= =======
Long-term Debt Obligations, less current portions(2)........ $ 738 $ 5,508
Long-term Capital Leases, less current portions(2).......... -- --
Preferred Stock, no par value, 200,000 shares authorized and
none outstanding.......................................... -- --
8% Cumulative Preferred Stock, $5 par value, $100
redemption value -- 950 shares authorized and
outstanding............................................... 91 --
Common Stockholder's Equity:
Common Stock, no par value --
9,798,575 shares authorized, 1,460,000 shares outstanding,
2,470,000 as adjusted..................................... 4,393 10,117
Retained Earnings........................................... 1,367 1,367
------- -------
Total Stockholder's Equity........................... 5,760 11,484
------- -------
Total Capitalization........................................ $ 6,589 $16,992
======= =======
</TABLE>
- -------------------------
(1) Assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting."
(2) See Notes 5 and 10 of Notes to Financial Statements.
10
<PAGE> 11
SELECTED FINANCIAL DATA
The following selected financial data for each of the five fiscal years in
the period ended August 31, 1996 is derived from financial statements which have
been audited by Plante & Moran LLP, independent public accountants, and should
be read in conjunction with the Financial Statements and Notes thereto included
elsewhere herein. The Statement of Operation Data for the three months ended
November 30, 1996 and 1995, and the Balance Sheet Data at November 30, 1996, are
derived from unaudited financial statements of the Company that include all
adjustments, consisting of only normal recurring adjustments, that the Company
considers necessary for a fair presentation of its results of operations for
such periods. The results of operations for the three months ended November 30,
1996 are not necessarily indicative of results to be expected for the entire
year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED AUGUST 31, NOVEMBER 30,
----------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1995 1996
---- ---- ---- ---- ---- ---- ----
(IN 000'S EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATION DATA:
Sales.................................. $13,207 $18,946 $22,425 $22,225 $18,334 $4,934 $5,480
Gross Profit........................... 1,160 1,788 2,749 4,108 3,398 884 1,085
Income (loss) from Operations.......... (311) 318 1,635 2,206 2,043 463 654
Interest Expense....................... 780 856 1,415 1,749 1,670 367 403
Other Income........................... 265 244 139 106 227 37 15
Other Expense(1)....................... 0 2,247 532 0 0 0 0
Income (loss) before income taxes...... (826) (2,541) (173) 563 600 133 267
Income Taxes (Benefits)................ (312) (252) (134) 77 204 45 91
------- ------- ------- ------- ------- ------ ------
Net Income (Loss) available for common
shares............................... $ (536) $(2,314) $ (69) $ 450 $ 367 $ 80 $ 172
======= ======= ======= ======= ======= ====== ======
Net Income (loss) per common
share(2)............................. $(.37) $(1.58) $(.05) $.31 $.25 $.06 $.12
======= ======= ======= ======= ======= ====== ======
Supplementary Net Income (loss) per
common share, as adjusted(3)......... $.34 $.12
======= ======
OTHER DATA:
Depreciation & amortization............ 991 993 1,214 1,438 1,272 313 322
======= ======= ======= ======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
AS OF AUGUST 31, AS OF NOVEMBER 30, 1996
----------------------------------------------- ---------------------------
1992 1993 1994 1995 1996 ACTUAL AS ADJUSTED(3)(4)
---- ---- ---- ---- ---- ------ -----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital (Deficiency)..... $ 421 $(2,727) $(4,273) $(3,966) $(3,669) $(3,463) $ 6,940
Total Assets..................... 20,824 22,927 26,439 21,706 22,928 22,154 22,154
Current Portion of Long-term Debt
& Capital Leases............... 796 2,935 3,129 2,256 1,336 1,258 650
Revolving Line of Credit......... 5,110 8,127 9,461 6,866 10,242 9,796 2,908
Long-term Capital Leases & Term
Debt, less current portion..... 3,173 1,178 2,715 1,830 1,002 738 2,600
Redeemable Preferred Stock....... 54 80 109 111 139 91 --
Common Stockholder's Equity...... 7,153 4,839 4,770 5,220 5,588 5,760 11,484
</TABLE>
- -------------------------
(1) Other Expense includes the following: For 1993, amount represents loss from
related company as a write-off of $1,687,000 of preferred stock in related
company and write-off of receivable from such entity of $560,000. For 1994,
amount represents $532,000 in costs associated with vacant facility space
formerly leased to a related company. See "Business -- Legal Proceedings."
(2) Based upon Common Stock outstanding of 1,460,000 shares.
(3) See Note 18 of Notes to Financial Statements.
(4) Adjusted to give effect to the sale by the Company of 1,010,000 shares of
Common Stock offered hereby at an initial price of $7.00 per share, less
applicable underwriting discounts and commissions and estimated offering
expenses payable by the Company and the effect of restructuring its bank
debt. See "Risk Factors -- Debt Covenant Violations."
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the components of
the Company's statements of operations as a percentage of sales.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEAR ENDED AUGUST 31, NOVEMBER 30,
------------------------------------------------ ---------------
1992 1993 1994 1995 1996 1995 1996
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATION DATA:
Net Sales............................. 100% 100% 100% 100% 100% 100% 100%
Gross Margin.......................... 9 9 12 18 19 18 20
Income from Continuing Operations..... (2) 2 7 10 11 9 12
Interest Expense...................... 6 5 6 8 9 7 7
Other Income.......................... 2 1 1 1 1 1 --
Other Expense......................... -- 12 2 -- -- -- --
Income (loss) before income taxes..... (6) (13) -- 3 3 3 5
Federal Income Tax (Benefit).......... (2) (1) -- 1 1 1 2
--- --- --- --- --- --- ---
Net Income (Loss)..................... (4)% (12)% --% 2% 2% 2% 3%
=== === === === === === ===
OTHER DATA:
Depreciation and Amortization......... 8% 5% 5% 6% 7% 6% 6%
</TABLE>
COMPARISON OF THREE MONTHS ENDED NOVEMBER 30, 1996 AND NOVEMBER 30, 1995
Revenue. Total Revenue increased by 11% from approximately $4.9 million for
the quarter ended November 30, 1995, to approximately $5.5 million for the
quarter ended November 30, 1996. This increase was due to the timing of
contracts in process in the comparative periods. As of November 30, 1995 the
Company's contracts in process was $5.2 million as compared to $4.9 million as
of November 30, 1996 which resulted in the increase in revenue during the
quarter ended November 30, 1996.
Cost of Goods Sold. Cost of goods sold decreased from 82% of total revenue
for the quarter ended November 30, 1995 to 80% for the quarter ended November
30, 1996. This decrease was largely due to lower direct labor expense (28% of
total revenue for the quarter ended November 30, 1995 as compared to 23% of
total revenue for the quarter ended November 30, 1996).
Selling, General and Administrative Expense. Selling, general and
administrative expense was approximately $422,000 for the quarter ended November
30, 1995 as compared to $430,000 for the quarter ended November 30, 1996. As a
percentage of total revenue, selling, general and administrative expense
decreased to 7% for the quarter ended November 30, 1996 as compared to 8% for
the quarter ended November 30, 1995.
Interest Expense. Interest expense was approximately $367,000 for the
quarter ended November 30, 1995 as compared to $403,000 for the quarter ended
November 30, 1996. This increase was due to the higher revolving line of credit
balance during these comparative periods ($9.8 million as of November 30, 1996
as compared to $9.2 million as of November 30, 1995).
COMPARISON OF FISCAL YEARS ENDED AUGUST 31, 1996 AND AUGUST 31, 1995
Revenue. Total revenue decreased by 17% from approximately $22.2 million
for the year ended August 31, 1995 ("Fiscal 1995"), to approximately $18.4
million for the year ended August 31, 1996 ("Fiscal 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
12
<PAGE> 13
(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. This backlog will reasonably be
reflected in revenue during 1997.
Cost of Goods Sold. Cost of goods sold decreased from $18.1 million in
Fiscal 1995 to $14.9 million in Fiscal 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 Fiscal 1996 from Fiscal 1995.
Selling, General and Administrative Expense. Selling, general and
administrative expense was approximately $1.3 million for Fiscal 1996, a
decrease of 32% from approximately $1.9 million for Fiscal 1995. As a percentage
of total revenue, selling, general and administrative expense decreased from
8.8% in 1995 to 7.0% for Fiscal 1996. This decrease was largely due to legal and
professional (a decrease of $134,000), amortization (a decrease of $47,000), and
administrative salaries (a decrease of $128,000).
Interest Expense. Interest expense was approximately $1.7 million for
Fiscal 1996, a decrease of 5% from approximately $1.8 million for Fiscal 1995.
As a percentage of total revenue, interest expense increased from 8% for Fiscal
1995 to 9% for Fiscal 1996. This was primarily due to the increase in average
short-term outstanding debt of $11.1 million in Fiscal 1996 as compared to $10.7
million in Fiscal 1995.
COMPARISON OF FISCAL YEARS ENDED AUGUST 31, 1995 AND AUGUST 31, 1994
Revenue. Total revenue decreased by 1% from approximately $22.4 million for
the year ended August 31, 1994 ("Fiscal 1994"), to approximately $22.2 million
for the year ended August 31, 1995 ("Fiscal 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
Fiscal 1994 to $18.1 million for the year ended August 31, 1995. As a percentage
of total revenue, cost of goods sold decreased from 88% for the year ended
August 31, 1994 to 82% for the year ended August 31, 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, General and Administrative Expense. Selling, general and
administrative expense was approximately $1.9 million for Fiscal 1995, an
increase of 73% from approximately $1.1 million for Fiscal 1994. As a percentage
of total revenue, selling, general and administrative expense increased to 9%
for Fiscal 1995 as compared to 5% for Fiscal 1994, primarily due to an increase
in legal expense ($81,000), State of Michigan Single Business Tax ($158,000) and
during Fiscal 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 Fiscal 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.
Interest Expense. Interest expense was approximately $1.7 million for
Fiscal 1995, an increase of 24% from approximately $1.4 million for Fiscal 1994.
As a percentage of total revenue, interest expense increased from 6% for Fiscal
1994 to 8% for Fiscal 1995, primarily due to increased short-term borrowing
levels (the average short-term borrowings outstanding during Fiscal 1995 was
$1.6 million higher than Fiscal 1994), increase in the interest rate charged by
the Company's primary lender on outstanding debt (an increase of 2.55%) bank
fees of $173,000 paid to its primary lender in extending its revolving line of
credit and term debt, 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 Fiscal 1995.
13
<PAGE> 14
COMPARISON OF FISCAL YEARS ENDED AUGUST 31, 1994 AND AUGUST 31, 1993
Revenue. Total revenue increased by 18% from approximately $18.9 million
for the year ended August 31, 1993, to approximately $22.4 million for the year
ended August 31, 1994 primarily due to increase in amount of contracts with
Chrysler Corporation and Ford Motor Company.
Cost of Goods Sold. Cost of goods sold increased from $17.2 million for the
year ended August 31, 1993 to $19.7 million for the year ended August 31, 1994.
As a percentage of total revenue, cost of goods sold decreased from 91% for the
year ended August 31, 1993 to 88% for the year ended August 31, 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 the
year ended August 31, 1994 over the prior year.
Selling, General and Administrative Expense. Selling, general and
administrative expense was approximately $1.1 million for the year ended August
31, 1994, a decrease of 23% from approximately $1.5 million for the year ended
August 31, 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 the
year ended August 31, 1994, a increase of 65% from approximately $856,000 for
the year ended August 31, 1993. As a percentage of total revenue, interest
expense increased from 5% for the year ended August 31, 1993 as compared to 6%
for the year ended August 31, 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. The Company contributed assets valued at $5.4 million
and Leap Technologies, Inc. assumed debts in the amount of $3.7 million, and the
Company received $1.7 million of preferred stock. In Fiscal 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 the year ended August 31, 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 carryforwards. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
As of November 30, 1996, the Company had approximately $3.8 million of net
operating loss carryforwards that expire 2006 through 2009, investment tax
credit carryforwards of approximately $246,700 that expire 1998 through 2003 and
alternative minimum tax credits of approximately $40,000, the use of which does
not expire.
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 OEMs 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
by) operating activities was $183,926 in 1994, $4,991,021 in 1995,
14
<PAGE> 15
($977,133) in 1996 and $942,680 for the quarter ended November 30, 1996. The
capital used by operations in 1996 was primarily due to changes in the Company's
Accounts Receivable, Contracts in Process, and current liabilities accounts and
for the quarter ended November 30, 1996, the primary change was the decrease in
Contracts in Process.
The Company utilized $3,005,247, $575,401, $319,308 and $50,808 of Cash
Flows from Investing Activities in 1994, 1995, 1996 and the quarter ended
November 30, 1996, respectively. In 1994 and 1995 the most significant items
were the acquisition of $2,849,684 and $585,248 of capital assets, respectively.
From Financing Activities in 1994 the Company incurred additional long-term
debt for the acquisition of capital assets. In 1995, 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 costs in
connection with this Offering which have been capitalized. These capitalized
costs will be expensed or charged to paid in capital upon completion of this
Offering. For the quarter ended November 30, 1996 the Company decreased
short-term debt which resulted from the decrease in Contracts in Process and
increase in Accounts Payable.
In connection with the Company's line of credit and note payable to bank as
of November 30, 1996, the Company has agreed to certain covenants. The agreement
requires the Company to maintain minimum working capital and net worth of
$200,000 and $6,000,000, respectively, to keep its combined debt-to-equity ratio
at less than 3 to 1, and prohibits the payment of cash dividends. As of November
30, 1996 the Company had working capital deficit of ($3,463,183), net worth of
$5,759,602, and a debt-to-equity ratio of 2.85 to 1. As a result, the Company
has classified those debt obligations as current liabilities. Although the bank
has extended the terms of the obligations to February 28, 1997, it has not
waived its rights under the agreement. See "Risk Factors -- Debt Covenant
Violations."
After application of the proceeds from this Offering, the Company's
adjusted total bank debt as of November 30, 1996 would be $6,158,000, of which
$650,000 would be short-term and the balance long-term. See "Use of Proceeds."
The Company has received a commitment from LaSalle National Bank, to restructure
its bank debt into a $8,000,000 line of credit and a $3,250,000, 5 year term
loan, with amortization commencing the first month after closing. The Company is
also exploring the possibility of issuing up to $10.0 million of publicly traded
debt securities in place of the term loan portion of the bank debt. The Company
believes that the unused portion of this credit line and the lower cost of such
funds, together with funds generated from operations, will be sufficient to
cover anticipated cash needs through 1997. 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 proposed new credit line.
The LaSalle commitment to restructure the Company's bank debt calls for an
interest rate equal to the bank's floating prime rate plus 1% on the credit line
and term loan. This compares to rates of 4% in excess of prime rate on the
Company's present bank debt. The $3,250,000 long-term portion of the
restructured debt would be repayable in equal monthly installments over five
years. The credit line utilization is based on a formula of 80% of eligible
accounts receivable, and 40% of contracts in process. Under this formula,
approximately $2.0 million of the credit line would be available to the Company.
The entire restructured bank debt would be secured by substantially all of the
Company's assets, as is the case with the existing bank debt.
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.
15
<PAGE> 16
BUSINESS
GENERAL
The Company is a leading 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
indicates the Company's sales (in thousands) and percentage of total sales by
customer for each of the last five fiscal years for the period ended August 31
and the three months ended November 30, 1995 and 1996.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------------------------------------------------
1992 1993 1994 1995 1996
------------- ------------- ------------- ------------- -------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------ - ------ - ------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Chrysler Corporation...... $ 2,912 22% $ 8,949 47% $ 6,885 31% $ 5,291 24% $ 4,622 25%
Suppliers of Chrysler
Corporation............. 2,129 16 0 * 0 * 0 * 0 *
Ford Motor Company........ 1,342 10 231 1 1,852 8 1,511 7 2,061 11
Suppliers of Ford Motor
Company................. 4,120 31 7,610 40 6,951 31 12,172 55 3,042 17
General Motors Corp. ..... 2,449 18 0 * 0 * 225 1 2,297 13
Suppliers of General
Motors Corp. ........... 0 * 0 * 0 * 140 * 1,560 9
Other auto and truck
manufacturers and
their suppliers......... 255 3 2,156 12 6,737 30 2,886 13 4,752 25
------- --- ------- --- ------- --- ------- --- ------- ---
Total Sales(1)(2)..... $13,207 100% $18,946 100% $22,425 100% $22,225 100% $18,334 100%
======= === ======= === ======= === ======= === ======= ===
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30,
---------------------------
1995 1996
------------ ------------
AMOUNT % AMOUNT %
------ - ------ -
(UNAUDITED)
<S> <C> <C> <C> <C>
Chrysler Corporation...... $ 493 10% $2,605 48%
Suppliers of Chrysler
Corporation............. 0 * 124 2
Ford Motor Company........ 298 6 794 14
Suppliers of Ford Motor
Company................. 1,288 26 1,131 21
General Motors Corp. ..... 1,214 25 461 8
Suppliers of General
Motors Corp. ........... 488 10 0 *
Other auto and truck
manufacturers and
their suppliers......... 1,153 23 365 7
------ --- ------ ---
Total Sales(1)(2)..... $4,934 100% $5,480 100%
====== === ====== ===
</TABLE>
- -------------------------
* Less than 1.0% of the Company's total sales.
(1) Sales to Motor Wheel Corporation were $6.9, $2.7, $2.5, $2.8, $2.0, $.7 and
$.2 million for fiscal years 1992 through 1996 and the three months ended
November 30, 1995 and 1996, respectively, and are all included above.
Included in sales to Motor Wheel Corporation sales are die construction
contract underutilization charges (see "Certain Transactions") of $62,472,
$462,543, $110,744, $246,011, $72,245, $72,245 and $0 for fiscal years 1992
through 1996 and the three months ended November 30, 1995 and 1996,
respectively.
(2) In conjunction with the Shareholders Agreement between Riviera Holding
Company and Motor Wheel Corporation dated October 31, 1996, a die
construction contract was terminated retroactive to December 31, 1995 and no
underutilization charges are included in sales thereafter. See "Certain
Transactions" and "Principal Shareholders -- Shareholders Agreement."
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, 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.
16
<PAGE> 17
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 September 30, 1996, Chrysler had accumulated $7.5
billion and Ford $13.0 billion for such development during future industry
downturns.(1) General Motors reported cash accumulation reaching $13.0 billion
- -- or $18.4 billion on a consolidated basis, and stated that "This 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
- -------------------------
(1) Source: Ward's Autoworld, December, 1996.
(2) Source: General Motors Corporation, 1996 Midyear Report to Shareholders,
dated September 10, 1996.
17
<PAGE> 18
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 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 via
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
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<PAGE> 19
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.
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 and Ford which directly accounted for about 36% of the Company's
revenues in 1996. For the year ended August 31, 1996, Chrysler, Ford, General
Motors and their tier one suppliers accounted for approximately 75% of the
Company's revenues. For the three months ended November 30, 1995 and 1996,
Chrysler, Ford, General Motors and their tier one suppliers accounted for
approximately 77% and 93% of the Company's revenues, respectively.
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. The Company
currently maintains Preferred Supplier status with Chrysler Corporation and Ford
Motor Company. The Company was recently awarded Chrysler's PentaStar quality
award, the highest quality award for a single plant supplier, and Ford Motor
Company's Q-1 supplier award, an award that has been historically given to
suppliers who manufacture parts and assemblies, not to suppliers of tooling. The
Company is the first tool and die firm to be awarded the Q-1 status by Ford
Motor Company.
Sales efforts are conducted primarily by Company's 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 the
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.
BACKLOG AND SEASONALITY
The Company's backlog of awarded contracts, of which all are believed to be
firm, was approximately $13.5 million and $8.8 million as of December 31, 1996
and December 31, 1995, respectively. Of the December 31, 1996 contract backlog,
the Company expects all backlog contracts will be reflected in sales during
fiscal year ended August 31, 1997. 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.
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<PAGE> 20
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 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 94 sheet metal die manufacturing companies to a
1995 survey by the National Tooling and Machining Association, the annual
domestic independent production of tools and dies exceeds $528,000,000. Of those
respondents only 12 reported average annual sales in excess of $10.0 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.
EMPLOYEES
The Company's work force consists of approximately 139 full-time employees,
of which approximately 35 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 104 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. See "Retirement Savings Plan."
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 July 1, 1998. The sublease has two 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. The facilities were designed and constructed specifically to
the Company's manufacturing requirements. The Company believes that its
facilities are modern, well maintained, adequately insured and will be adequate
and suitable for their present and intended uses.
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<PAGE> 21
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 complete 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.
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<PAGE> 22
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table sets forth the names of and certain other information
concerning the executive officers, directors and key employees of the Company.
The Company currently has five directors, Messrs. Rieth, Wood, Collins, Kinstler
and Kennedy. Mr. Highley has been selected and has agreed to become a director
of the Company subject to the completion of the Offering made hereby, at which
time the Company's Board of Directors will be increased in number from five to
six directors.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION CLASS SINCE
---- --- -------- ----- --------
<S> <C> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Kenneth K. Rieth(1)............... 37 President, Chief Executive Officer and III 1980
Director
Leonard H. Wood(1)................ 54 Vice President -- General Manager and II 1988
Director
Peter C. Canepa................... 37 Chief Financial Officer, Secretary and -- --
Treasurer
John C. Kennedy(1)................ 37 Director I 1991
Thomas R. Collins(2).............. 53 Director II 1995
John H. Kinstler(2)............... 47 Director III 1988
Thomas H. Highley(3).............. 55 Director Nominee I --
</TABLE>
- -------------------------
(1) Designated by Kenneth K. Rieth pursuant to Voting Agreement. See "Principal
Shareholders -- Shareholders Agreement."
(2) Designated by Motor Wheel Corporation pursuant to Voting Agreement. See
"Principal Shareholders -- Shareholders Agreement."
(3) Nominated by Agreement of Motor Wheel Corporation and Riviera Holding
Company. See "Principal Shareholders -- Shareholders Agreement."
The Board of Directors is divided into three classes: Class I, Class II and
Class III. The initial terms of office of directors in Class I, Class II and
Class III end following the annual meetings in 1997, 1998, and 1999
respectively. Thereafter directors in each class will serve for three year
terms. Executive officers serve at the discretion of the Company's Board of
Directors. The Company pays each director who is not a Company employee or an
employee of a 10% or more shareholder a fee of $5,000 per year.
Kenneth K. Rieth -- Mr. Rieth has been a principal owner and President of
Riviera Die & Tool since 1980. Mr. Rieth serves as a Director of Autocam
Corporation, a designer and manufacturer of close tolerance, specialty metal
alloy components for the automotive, electronic and computer industries since
1991.
Leonard H. Wood -- Mr. Wood has been a Vice President of the Company since
1985 and a Director since 1988. Prior to that time, he was Project Manager with
American Motors Corporation.
Peter C. Canepa -- Mr. Canepa has been with the Company since March of 1994
as the Chief Financial Officer, Secretary and Treasurer. Prior to that time, he
was Chief Financial Officer, Treasurer and Director of Frost, Incorporated, a
Michigan corporation, a manufacturer of material handling systems components,
for more than three years. Mr. Canepa graduated in 1980 with a Bachelor of
Science in Accounting and Finance degree from Ohio Wesleyan University.
John C. Kennedy -- Mr. Kennedy has been a principal owner, Director and
President of Autocam Corporation, a designer and manufacturer of close
tolerance, specialty metal alloy components for the automotive, electronic and
computer industries since 1988.
Thomas R. Collins -- Mr. Collins has been Controller of the Automotive
Brake Division of Hayes Wheels International, Inc., the Parent Company of Motor
Wheel Corporation (see "Principal Shareholders"), since July, 1996. Prior to
that time, he was Vice President, Treasurer and Chief Financial Officer of Motor
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<PAGE> 23
Wheel Corporation, a designer and producer of wheels and brakes for the
automotive and commercial highway markets, since 1991. Prior to 1991, he was
Comptroller and held other various positions at Motor Wheel Corporation.
John H. Kinstler -- Mr. Kinstler has been Vice President of Engineering of
the Fabricated Wheel Division of Hayes Wheels International, Inc., the Parent
Company of Motor Wheel Corporation (see "Principal Shareholders"), since May,
1996. Prior to that time, he was Vice President of Manufacturing of Motor Wheel
Corporation since 1992. He was Executive Vice President of Engineering and
Quality from 1989 through 1992 and Vice President of Engineering from 1985
through 1989 of Motor Wheel Corporation.
Thomas H. Highley -- Mr. Highley has been President and C.E.O. of The
Empire Company, Inc., a distributor of residential and commercial millwork
products, since 1991.
AUDIT COMMITTEE
The Board of Directors has agreed to form an Audit Committee within 60 days
of the completion of this Offering. The Audit Committee will review the results
and scope of audits of the Company and other accounting matters. A majority of
the members of the Audit Committee will be independent Directors.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the total compensation earned by each
executive officer during the fiscal years ended August 31, 1996, 1995, and 1994
for services rendered to the Company in all capacities during such years.
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION(1)
NAME AND PRINCIPAL -------------------
POSITION AT AUGUST 31, 1996 YEAR SALARY BONUS OTHER(2)
--------------------------- ---- ------ ----- --------
<S> <C> <C> <C> <C>
Kenneth K. Rieth......................................... 1996 $150,800 $-0- $ -0-
President, CEO and Director 1995 150,800 -0- -0-
1994 150,800 -0- -0-
Leonard H. Wood.......................................... 1996 $124,800 $-0- $7,291
Vice President, General Manager and Director 1995 124,800 -0- 7,291
1994 124,000 -0- 7,291
Peter C. Canepa.......................................... 1996 $110,500 $-0- $ -0-
Secretary, Treasurer and CFO 1995 110,500 -0- -0-
1994 51,150(3) -0- -0-
</TABLE>
- -------------------------
(1) Does not include any value that might be attributable to job-related
personal benefits, the annual value of which has not exceeded the lesser of
10% of annual salary plus bonus or $50,000 for each executive officer.
(2) Represents the dollar value of the premiums paid by the Company for life
insurance policy maintained in respect of a deferred compensation plan
discussed below in "Other Benefits."
(3) Mr. Canepa joined the Company on March 21, 1994.
The Company's Board of Directors has given Mr. Rieth the authority to set
the compensation for Senior Management. Mr. Rieth's salary has been set by the
Board of Directors since 1991.
1996 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. The
purpose of the Option Plan is to make options available to employees of the
Company to give them a greater personal interest in the success of the Company
and an added incentive to continue their employment. Riviera Holding Company,
Kenneth K. Rieth and Motor Wheel Corporation are not eligible to participate in
the Option Plan. 250,000 shares of Common Stock are reserved for issuance under
the Option Plan and the options are intended to qualify as incentive stock
options under the Internal Revenue Code of 1986, as amended.
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<PAGE> 24
The Option Plan is administered by members of the Board of Directors who
are not eligible to participate in the Option Plan, or if designated, a
committee comprised of such directors. Options granted under the Option Plan are
not transferable by the optionee other than by will or the laws of descent and
distribution and each option is exercisable during the lifetime of the optionee,
and so long as the employee does not engage in activity in competition with or
contrary to the interests of the Company. No options may be granted under the
Option Plan after August 31, 2006.
The exercise price of options granted under the Plan cannot be less than
the fair market value of the underlying shares on the option date grant. The
terms of each option and the manner in which it may be exercised will be
determined by the administrator subject to the requirement that no option may be
exercisable more than ten years after the option grant date. With respect to any
option granted to a participant who owns, or is deemed to own, stock possessing
more than 10% of the voting rights of the Company's outstanding capital stock at
the option grant date, the exercise price of the option must be at least equal
to 110% of the fair market value on the date of grant and the option may not be
exercisable more than five years after option grant date. Under the terms of the
Option Plan, the aggregate fair market value of the Common Stock (determined at
the date of the option grant) underlying options granted to any employee and
exercisable in any single year may not exceed $100,000.
RETIREMENT SAVINGS PLAN
The Company has a profit-sharing plan that covers substantially all
employees (the "Plan"). The Plan includes a 401(k) deferred compensation option.
It is the Company's policy to fund profit-sharing costs accrued on an annual
basis. The Plan, as established, allows for discretionary contribution as
determined annually by the Company's Board of Directors. No discretionary
contribution has been made for 1993, 1994 or 1995.
Part of the Plan includes a retirement savings plan qualified under
Internal Revenue Code Section 401(k) in which all full-time employees may
participate. Contributions are made to the plan by participants electing to
defer portions of their regular compensation. Amounts elected to be deferred
within certain statutory limits (currently $9,500 per year) are not taxable to
the participant. The Company matches and contributes up to 15% of the employee's
contribution to the 401(k) Plan, up to 2% of the employee's annual wage.
The Company's 8% Cumulative Preferred Stock is all owned by the Plan. A
dividend of $8.00 per share is payable on each July 31 to the holder of each
share of such stock and no other dividends can be paid until all such dividends
have been paid for all periods the 8% Cumulative Preferred Stock is outstanding.
No other dividends are payable in respect of the 8% Cumulative Preferred Stock.
The outstanding 8% Cumulative Preferred Stock may be redeemed at any time by the
Board of Directors for the price of $100 per share and the remaining 475 shares
must be redeemed on July 1, 1997. Upon redemption, all unpaid dividends must
also be paid on a pro rata basis through date of redemption. In the event of
liquidation of the Company, the holders of shares of 8% Cumulative Preferred
Stock are entitled to receive, prior to the holders of shares of all other stock
of the Company, ratably an amount up to $100 per share plus all unpaid and
accrued dividends to the date of payment. The shares of 8% Cumulative Preferred
Stock currently outstanding are duly authorized, validly issued, fully paid, and
nonassessable. Holders of 8% Cumulative Preferred Stock have no conversion
rights and are not entitled to any preemptive or subscription rights.
Under the Plan, benefits are payable in a lump sum upon termination of
employment with the Company for any reason.
OTHER BENEFITS
The Company has an Executive Deferred Compensation Plan agreement with Mr.
Wood. This Agreement provides that upon death, disability or retirement from
service after reaching age 65, the employee or his heir and assigns will receive
$50,000 per year for five consecutive years. For each year that employment with
the Company is terminated, for any reason, prior to September 1, 1999, the
benefit will be reduced by 10% or $5,000 per year. Mr. Wood is age 54.
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<PAGE> 25
The Company has an Employment Agreement with Kenneth K. Rieth. Pursuant to
which Mr. Rieth will continue to serve as the Chief Executive Officer and
President of the Company. The term of the agreement is for a period of three
years beginning September 1, 1996. Pursuant to the agreement with Mr. Rieth, the
Company will pay Mr. Rieth a base salary of $150,800 and a bonus of not less
than 3.5% of the Company's income before taxes.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
During fiscal 1996 the Board of Directors, then consisting of Directors
Kennedy, Wood, Kinstler, Collins and Rieth, had the responsibility of setting
executive compensation. Mr. Rieth serves as President and Chief Executive
Officer of the Company and serves on the Board of Directors of Autocam
Corporation, where Mr. Kennedy is President, Chief Executive Officer and also a
member of the Board of Directors. Mr. Rieth also served on the Compensation
Committee of Autocam Corporation until August 1995.
CERTAIN TRANSACTIONS
The Company previously had a contract with Motor Wheel Corporation ("Motor
Wheel"), an Ohio corporation, located in Okemos, Michigan, relating to the
performance of engineering for and construction of dies to be purchased by Motor
Wheel. This contract was terminated October 14, 1996 effective December 31,
1995. Mr. Kinstler, a director of the Company, is Vice President of the
Fabricated Wheel Division of Hayes Wheels International, Inc., the Parent
Company of Motor Wheel. Mr. Collins, a director of the Company, is Controller of
the Automotive Brake Division of Hayes Wheels International, Inc., the Parent
Company of Motor Wheel. Motor Wheel owns 50% of the outstanding common stock of
the Company and, assuming no exercise of the Underwriters' overallotment option,
will own 29.6% of the Company's Common Stock after the sale of the shares
described by this Prospectus. This contract provided that the Company would
quote such services to Motor Wheel at hourly rates not greater than it had on
file with or was actually quoting to any automobile manufacturer. Motor Wheel
was required to purchase not less than 155,000 hours of such work, as defined by
the contract, or, if less, 85% of its entire domestic consumption of such
services if domestic consumption was less than 182,500 hours in any year. In
that event, Motor Wheel was required to purchase its foreign consumption of such
services from the Company if the Company was competitive in price, quality and
delivery. Motor Wheel paid to the Company $72,245 and $246,011 during fiscal
1996 and 1995, respectively, resulting from its having used less than the
155,000 hours minimum. The contract was to terminate on December 31, 1998 and
could have been extended for two additional five year terms by Motor Wheel.
Pursuant to the Shareholders Agreement between Motor Wheel and Riviera Holding
Company dated October 31, 1996, such die construction supply contract was
terminated effective December 31, 1995. As a result, no under utilization
charges will be received by the Company for any period after December 31, 1995.
See "Principal Shareholders -- Shareholders Agreement."
In connection with the Shareholders Agreement dated October 31, 1996
between Motor Wheel and Riviera Holding Company, the Company has 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 to purchase common stock
owned by Riviera Holding Company and as a result of the dividend itself. The
Company has estimated this dividend to be approximately $170,000.
Riviera Holding Company, owned 100% by Kenneth K. Rieth, had pledged all of
its shares of the Company to NBD Bank in connection with commercial lending
arrangements not related to the Company. The pledge was terminated effective on
the date of this Prospectus pursuant to a settlement agreement between Riviera
Holding Company, NBD Bank and Kenneth K. Rieth. Under such settlement agreement,
NBD Bank received 125,000 shares of the Common Stock of the Company from Riviera
Holding Company, owned 100% by Kenneth K. Rieth, a pledge of co-plaintiffs
Kenneth K. Rieth, Arlene Morris, Riviera Holding Company and the Company of all
proceeds of the legal action against Fred Borsini, Herbert Keeler and
Durametallic Corporation, and a pledge by the Company of $1,000,000 of existing
Key Man life insurance on Kenneth K. Rieth. See "Business -- Legal Proceedings"
and "Risk Factors -- Dependence on Existing Management." The Company has
received no monetary consideration for the pledges by the Company.
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<PAGE> 26
Pursuant to the settlement agreement, Kenneth K. Rieth individually has agreed
to pay $250,000 to NBD Bank and has guaranteed that NBD Bank will receive an
additional $1,000,000 from the aggregate proceeds of the 125,000 shares of
Common Stock and the pledges.
The Company believes that the transactions described above were at prices
and terms which were no less favorable to the Company than would have been
available in similar transactions with unaffiliated third parties. The policy of
the Company is that, in the future, proposed transactions with affiliates of the
Company must have the prior approval of a majority of the disinterested members
of the Board of Directors and be made on terms no less favorable to the Company
than could be obtained from unaffiliated parties.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's articles of incorporation and bylaws provide for
indemnification of directors and officers. The Company believes that such
indemnification will assist the Company in continuing to attract and retain
talented directors and officers in light of the growing risk of litigation
directed against directors and officers of publicly held corporations. The
Company's articles of incorporation and bylaws provide that the Company shall
indemnify each person who may serve or who has served at any time as director or
officer, or who at the request of the Board of Directors of the Company may
serve or at any time have served as director or officer of another corporation
or enterprise, and his or her respective heirs, administrators, successors and
assigns, against any and all expenses, including amounts paid upon judgments,
counsel fees, and amounts paid in settlement (before and after suit is
commenced), actually and necessarily incurred by such person in connection with
the defense or settlement of any claim, action, suit, or proceeding in which he
or she are made parties, or are a party, or which may be asserted against them
or any event, by reason of being or having been director or officer or a
director or officer of the Company or any such other corporation or enterprise,
if he or she acted in good faith and in a manner which such person reasonably
believed to be in or not opposed to the best interests of the Company, or its
shareholders, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was not unlawful. Such
indemnification shall be in addition to any other rights to which those
indemnified may be entitled under any law, by-law, agreement, vote of
Shareholders or otherwise.
The Michigan Business Corporation Act permits Michigan corporations to
limit the personal liability of directors for a breach of their fiduciary duty.
The Company's articles of incorporation limit liability to the maximum extent
permitted by law. The Company's articles of incorporation provide that a
director of the Company shall not be personally liable to the Company or its
shareholders for monetary damages for breach of the director's fiduciary duty.
However, it does not eliminate or limit the liability of a director for any of
the following: (1) a breach of the director's duty of loyalty to the Company or
its shareholders; (2) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law; (3) a transaction from
which the director derives an improper personal benefit; (4) making an unlawful
loan to a director, officer or employee of the Company; and (5) declaring an
unlawful dividend or distribution to shareholders. As a result of this
provision, shareholders of the Company may be unable to recover monetary damages
against directors for actions taken by them which constitute negligence or gross
negligence or which are in violation of their fiduciary duties, although it may
be possible to obtain injunctive or other equitable relief with respect to such
actions. If equitable remedies are found not to be available to shareholders in
any particular case, shareholders may not have any effective remedy against the
challenged conduct.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act") may be permitted to directors, officers or
persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is therefore unenforceable.
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<PAGE> 27
PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock and 8% Cumulative Preferred Stock as of
November 30, 1996 by (i) persons known by the Company to own more than 5% of the
Company's Common Stock; (ii) directors and officers of the Company; and (iii)
all officers and directors of the Company as a group. Beneficial ownership
includes both voting and investment power.
<TABLE>
<CAPTION>
AMOUNT OF BENEFICIAL AMOUNT OF BENEFICIAL
OWNERSHIP PRIOR TO OFFERING OWNERSHIP AFTER OFFERING
----------------------------------------- -----------------------------------------
COMMON STOCK 8% PREFERRED STOCK COMMON STOCK 8% PREFERRED STOCK
NAME OF BENEFICIAL OWNER OFFICER, ------------------- ------------------- ------------------- -------------------
DIRECTORS & 5% SHAREHOLDERS: SHARES % TOTAL SHARES % TOTAL(1) SHARES % TOTAL SHARES % TOTAL(1)
- --------------------------------- ------ ------- ------ ---------- ------ ------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kenneth K. Rieth(2)(3)(4)(7)..... 1,335,000 91.4% * * 1,335,000 54.1% * *
Motor Wheel Corporation(5)(7).... 730,000 50% -- -- 730,000 29.6% -- --
NBD Bank(6)(7)................... 125,000 8.6% -- -- 125,000 5.1% -- --
Leonard H. Wood(2)............... -- -- -- -- -- -- -- --
Peter C. Canepa(2)............... -- -- -- -- -- -- -- --
John C. Kennedy.................. -- -- -- -- -- -- -- --
--------- ---- ---- -- --------- ---- ---- --
All officers and directors as a
group (6 persons)(1)(3)(4)(5)
(7)............................ 1,335,000 91.4% * * % 1,335,000 54.1% * * %
========= ==== ==== == ========= ==== ==== ==
</TABLE>
- -------------------------
* Beneficial ownership of less than 1% of the class.
(1) Beneficial ownership determined on the basis of the ratio of account balance
to total plan assets in Riviera Tool Company Cash or Deferred Compensation
Plan, owner of all the outstanding 8% Cumulative Preferred Stock of the
Company.
(2) The business address for Messrs. Rieth, Canepa and Wood is 5460 Executive
Parkway SE, Grand Rapids, MI 49512.
(3) Riviera Holding Company, 100% owned by Kenneth K. Rieth, owns the Common
Stock of Riviera Tool Company.
(4) Includes beneficial ownership of 730,000 shares of common stock owned by
Motor Wheel Corporation and subject to purchase by Riviera Holding Company
under the Shareholders Agreement and related Stock Option Agreement dated
October 31, 1996. Riviera Holding Company has agreed to assign certain of
its rights pursuant to the Stock Option Agreement to the Company. See
"Principal Shareholders -- Shareholders Agreement" and "Shares Eligible for
Future Sale."
(5) John R. Kinstler and Thomas R. Collins are directors of the Company and are
Vice President of the Fabricated Wheel Division and Controller of Automotive
Brake Division, respectively, of Hayes Wheels International, Inc. Mr.
Kinstler owns less than 1% of the common stock of such company. The business
address for Mr. Collins and Mr. Kinstler is 38481 Huron River Drive,
Romulus, Michigan 48174.
(6) The business address for NBD Bank is 701 First National Building, Detroit,
Michigan 48226.
(7) In the event the Company does not exercise its rights under the assignment
from Kenneth K. Rieth, see fn (4) above, the option to purchase from Motor
Wheel Corporation will revert to Mr. Rieth. The shares owned by NBD Bank
could be returned to Mr. Rieth pro rata according to the amount of recovery
by NBD Bank pursuant to a pledge of certain litigation and life insurance
proceeds. See "Management -- Certain Transactions."
SHAREHOLDERS AGREEMENT
Riviera Holding Company and Motor Wheel have executed a written
Shareholders Agreement (the "Shareholders Agreement") which provides that they
will unconditionally and irrevocably vote their respective shares of common
stock jointly in structuring the Company's Board of Directors into a board
consisting of seven members divided into three classes, two classes consisting
of two members and one class consisting of three members. Under such agreement
Riviera Holding Company will be entitled to designate three directors and Motor
Wheel to designate two directors. Both parties agree unconditionally and
irrevocably to vote all of their respective shares of common stock in favor of
the persons so designated by each party as directors. The remaining members of
the Board of Directors (two directors) may be nominated by any person however,
Motor Wheel and Riviera Holding Company have agreed to vote together on nominees
for these positions. Voting on all other matters is in the sole discretion of
the shareholder.
Pursuant to the Shareholders Agreement, Motor Wheel has granted Riviera
Holding Company an option to purchase all the shares of the Company owned by
Motor Wheel. The option is exercisable at a purchase price of $3.0 million, or
$4.11 per share, payable within 30 days after notice of exercise. This stock
option will
27
<PAGE> 28
lapse on October 31, 1997. Riviera Holding Company has agreed to assign certain
of its rights pursuant to this option to the Company. Such assignment is
conditioned upon effectiveness of this offering and will be subject to Riviera
Holding Company's continued right to exercise its option upon notice to the
Company and expiration of a ten-day option period without exercise of the option
by the Company.
Under the Shareholders Agreement Motor Wheel has certain registration
rights. Motor Wheel, Riviera Holding Company and the Company have agreed not to
register, sell, contract to sell or otherwise dispose of any shares of Common
Stock for a period of two years after the date of this Prospectus (the "Lock-Up
Period") without the prior written consent of the Representative. Motor Wheel
has a demand registration right which is exercisable at any time after the
expiration of the "Lock-Up" period. In connection with any Company registration
after the expiration of the "Lock-Up" period Motor Wheel has "piggyback
registration rights" for all of their shares. However, if in the reasonable
opinion of the lead underwriter who is expected to market the securities covered
by such registration statement, to the extent the inclusion of such Motor Wheel
shares shall be impractical and inadvisable, Motor Wheel shares to be included
in such registration shall be reduced pro rata (pro-rata reduction of all shares
of selling shareholders included in such registration statement), but only as to
such registration statement.
Under the Shareholders Agreement both Motor Wheel and Riviera Holding
Company have specific rights under a proposed sale of the shares of the Company
held by either one. Under such provision if either Motor Wheel or Riviera
Holding Company proposes to directly or indirectly transfer its shares in the
Company, it shall give the other party the right to purchase such shares at the
same price, terms and conditions as the proposed transfer. Alternatively, at the
election of the other party, the seller must arrange for the purchaser or
purchasers to purchase at least identical percentages of the Company shares
owned by each of Motor Wheel and Riviera Holding Company immediately prior to
such proposed transfer. If such proposed purchaser is purchasing only a given
number of shares, then the total number of shares to be sold in such transfer by
each of Motor Wheel and Riviera Holding Company shall be reduced pro rata so as
to total such given amount.
This Shareholders Agreement will terminate when one of the parties no
longer holds shares of Common Stock.
28
<PAGE> 29
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 200,000 shares of
Preferred Stock, none of which have been issued, and 1,425 shares of 8%
Cumulative Preferred Stock, 475 of which are outstanding and owned by the
Riviera Tool Company Cash or Deferred Compensation Plan, a qualified retirement
plan maintained by the Company for its employees, and 9,798,575 shares of Common
Stock, of which 1,460,000 shares are currently issued and outstanding. See
"Principal Shareholders." Pursuant to Michigan corporate law, the capital stock
of the Company has no par value.
PREFERRED STOCK
The terms of the Preferred Stock, or any series thereof, may be determined
from time to time by the Board of Directors. Such shares may be convertible into
Common Stock and may be superior to the Common Stock in the payment of
dividends, liquidation, voting and other rights, preferences and privileges.
Shares of Preferred Stock may be issued from time to time by authorization of
the Board of Directors of the Company without the vote of holders of the Common
Stock. The issuance of such Preferred Stock could be used, for example, in
certain circumstances to render more difficult or to discourage a merger, tender
offer or proxy contest or a removal of incumbent management. The Company has no
present plans to issue any shares of Preferred Stock.
8% CUMULATIVE PREFERRED STOCK
Holders of the 8% Cumulative Preferred Stock vote only on such matters
where voting as a class is required by law to authorize an action. All
outstanding shares of this stock are owned by the Company's qualified retirement
plan. A dividend of $8.00 per share is payable on each July 31 to the holder of
each share of such stock and no other dividends can be paid until all such
dividends have been paid for all periods during which the 8% Cumulative
Preferred Stock is outstanding. No other dividends are payable in respect of the
8% Cumulative Preferred Stock. The outstanding 8% Cumulative Preferred Stock may
be redeemed at any time by the Board of Directors for the price of $100 per
share and the remaining 475 shares must be redeemed on July 1, 1997. Upon
redemption, all unpaid dividends must also be paid on a pro rata basis through
date of redemption. The Company has not paid dividends for 1996. In the event of
liquidation of the Company, the holders of shares of 8% Cumulative Preferred
Stock are entitled to receive, prior to the holders of shares of all other stock
of the Company, ratably an amount up to $100 per share plus all unpaid and
accrued dividends to the date of payment. The shares of 8% Cumulative Preferred
Stock currently outstanding are duly authorized, validly issued, fully paid, and
nonassessable. Holders of 8% Cumulative Preferred Stock have no conversion
rights and are not entitled to any preemption or subscription rights.
COMMON STOCK
Holders of Common Stock have one vote per share and a ratable right to the
net assets of the Company in liquidation after payment of all amounts due to
creditors and any holders of preferred stock. After payment of dividends or
distributions to the holders of preferred stock, if any, holders of Common Stock
participate ratably in dividends and distributions as may be declared by the
Board of Directors from funds legally available therefor. See "Dividend Policy."
Holders of Common Stock have no conversion rights and are not entitled to any
preemptive or subscription rights. The shares of Common Stock currently
outstanding are, and the shares to be issued pursuant to this Offering will be,
duly authorized, validly issued, fully paid and nonassessable.
VOTING ON DIRECTORS
The Company's by-laws provide that the Board of Directors is divided into
three classes with each class elected for a three year term. The Board currently
consists of five members and will be expanded to six members upon completion of
the Offering made hereby. Shareholders do not have cumulative voting rights in
the election of directors. Riviera Holding Company and Motor Wheel have an
agreement with respect to the
29
<PAGE> 30
voting of their shares on Directors which provides that they will vote in
concert to elect three members designated by Riviera Holding Company, two
members designated by Motor Wheel and two additional members as they agree upon.
Only one member has been agreed upon. A seventh member has not been proposed by
either of them, but may be added in the future.
OTHER PROVISIONS
Chapter 7A of the Michigan Business Corporation Act. Under Chapter 7A of
the Michigan Business Corporation Act (the "MBCA"), "business combinations"
(defined to include, among other transactions, mergers, consolidations, certain
dispositions of assets or shares, and certain recapitalizations) between certain
corporations or their domestic subsidiaries and an "interested Shareholder"
(defined as the direct or indirect beneficial owner of at least 10% of the
voting power of a covered corporation's outstanding shares or an affiliate of
the corporation which had such 10% ownership within the preceding two years) can
only be consummated if approved by at least 90% of the votes of each class of
the corporation's shares entitled to vote thereon and by at least two-thirds of
such votes not held by the interested Shareholder or its affiliates, unless
certain price and other conditions imposed by Chapter 7A are satisfied. The
Board of Directors may elect to exempt business combinations with a particular
interested shareholder from the requirements of Chapter 7A at any time before
the interested shareholder attains that status.
Chapter 7B of the Michigan Business Corporation Act. Under Chapter 7B of
the MBCA, "control shares" (defined to mean shares, which when added to all
other shares of the corporation owned by a person or with respect to which that
person may exercise or direct the exercise of voting power, would entitle that
person, immediately after the acquisition of the shares, to exercise or direct
the exercise of voting power in the election of directors in excess of threshold
levels of 20%, 33 1/2% or a majority of all voting power) acquired in a "control
share acquisition" (defined to include the acquisition, directly or indirectly,
by any person of ownership of or the power to exercise the voting power with
respect to, issued and outstanding control shares) have the same voting rights
as were accorded the shares before the control share acquisition only to the
extent granted by resolution approved by the Shareholders of the corporation. To
have such a resolution considered by the shareholders of the corporation, the
acquiring person must deliver an "acquiring person statement" to the corporation
and the Michigan Department of Commerce, Corporation and Securities Bureau. To
be approved by the shareholders, the resolution must be approved by a majority
of the votes cast by the holders of the common stock and a majority of the votes
cast by the holders of shares of each class or series entitled to vote thereon,
excluding "interested shares" (defined to include shares held by the acquiring
person or member of his group, an officer of the corporation and any director
who is also an employee of the corporation). The practical effect of Chapter 7B
of the MBCA is to require that a person making a tender offer for shares of a
corporation condition the offer on shareholder approval of the person's right to
vote the shares to be acquired.
If authorized by the corporation's articles of incorporation or bylaws,
control shares acquired in a control share acquisition with respect to which no
acquiring person statement has been filed may be redeemed by the corporation at
any time more than 60 days after the end of the control share acquisition at
"fair value." If authorized by the corporation's articles of incorporation or
bylaws, control shares acquired in a control share acquisition which are not
accorded full voting rights may be redeemed by the corporation at "fair value."
Unless otherwise provided in the corporation's articles of incorporation or
bylaws, in the event that control shares acquired in a control share acquisition
are accorded full voting rights and the acquiring person has acquired a majority
of all voting power of the corporation, the Shareholders of the corporation,
other than the acquiring person, have dissenters' rights. "Fair value" means a
value not less than the highest price paid per share by the acquiring person in
the control share acquisition.
The provisions of Chapter 7B automatically apply to the Company, although
the Board of Directors or the Shareholders may elect to remove the Company from
the application of Chapter 7B. The Board has no plans to elect to remove such
application and is not aware of any plans or proposals to do so. Further, none
of the provisions discussed above has been included in the Company's Articles of
Incorporation or Bylaws.
The foregoing discussion concerning the provisions of the MBCA is qualified
in its entirety by reference to such MBCA provisions.
30
<PAGE> 31
SHAREHOLDER PROPOSALS
Any proposal intended to be presented by a shareholder at a meeting of the
Company's shareholders must be presented in writing to the Secretary of the
Company at least 60 days prior to the date of the meeting for consideration by
the shareholders at such meeting.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the shares of Common Stock of the
Company is Continental Stock Transfer & Trust Company. Its telephone number is
(212) 509-4000.
SHARES ELIGIBLE FOR FUTURE SALE
Immediately following the completion of this Offering, approximately
1,460,000 shares of Common Stock will be held by three existing shareholders,
Riviera Holding Company, Motor Wheel and NBD Bank. Such shares of Common Stock
(herein referred to as "Restricted Shares") may not be sold unless they are
registered under the Securities Act of 1933, are sold pursuant to an applicable
exemption from registration, or sold within the volume limitations established
by Rule 144 promulgated under the Act. Rule 144 restricts Riviera Holding
Company, Motor Wheel and NBD Bank to sales via brokers' transactions or to
market-makers in an amount in any three months not in excess of the greater of
1% of the number of shares of Common Stock then outstanding or the average
weekly trading volume for a four-week period prior to each such sale. In
connection with this Offering, Riviera Holding Company and Motor Wheel have
agreed not to sell any of their Restricted Shares for a period of two years
after the date of this Prospectus without the consent of the Representative. NBD
Bank, the holder of 125,000 shares of Common Stock, has agreed not to sell any
of its Restricted Shares for a period of one year after the date of this
Prospectus without the consent of the Representative.
Motor Wheel and Riviera Holding Company have entered into a Shareholders
Agreement which provides for certain "demand" and "piggyback registration
rights" for Motor Wheel, an option for Riviera Holding Company to purchase Motor
Wheel shares in the Company for a period ending October 31, 1997, coordination
of voting for directors and certain other rights should either one of them
propose a sale of shares in the Company to a third party without registration.
See "Principal Shareholders -- Shareholder Agreement."
No predictions can be made as to the effect, if any, that market sales of
Common Stock or the availability of Common Stock for sale will have on the
market price prevailing from time to time. Nevertheless, sales of substantial
amounts of Common Stock in the public market could adversely affect prevailing
market prices.
31
<PAGE> 32
UNDERWRITING
In the Underwriting Agreement, the Underwriters, represented by the
Representative, have agreed, severally, subject to the terms and conditions
therein set forth to purchase from the Company, and the Company has agreed to
sell them, the number of shares of Common Stock, totaling 1,010,000 shares, set
forth opposite their respective names below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
National Securities Corporation............................. 590,000
Capital West Securities, Inc. .............................. 50,000
First Colonial Securities Group Inc. ....................... 50,000
Kashner Davidson Securities Corp. .......................... 50,000
Redstone Securities Inc. ................................... 50,000
Smith Moore & Co. .......................................... 50,000
Suncoast Capital Corp. ..................................... 50,000
Value Investing Partners, Inc. ............................. 50,000
Westport Resources Investment Services...................... 50,000
Suppes Securities........................................... 20,000
---------
Total.................................................. 1,010,000
=========
</TABLE>
The Underwriters propose to initially offer the shares to the public at the
public offering price set forth on the cover page of this Prospectus. The
Underwriters may allow to select dealers who are members of the National
Association of Securities Dealers, Inc. a concession not exceeding $0.385 per
share and any Underwriter may allow, and such dealers may reallow, a concession
not in excess of $0.1 per share to certain other dealers. After this Offering,
the public offering price and concession and discounts may be changed by the
Representative.
The Company has granted an option to the Underwriters, exercisable during
the 45-day period after the date of this Prospectus, to purchase up to an
additional 151,500 shares of Common Stock at the same price per share as the
initial shares purchased from the Company. The Underwriters may exercise such
option only to cover over-allotments in the sale of shares that the Underwriters
have agreed to purchase. To the extent that the Underwriters exercise such
option, each of the Underwriters will have a firm commitment, subject to certain
conditions, to purchase the same percentage of the total option shares as the
number of shares to be purchased and offered by that Underwriter in the table
above bears to the total.
The Company has agreed to indemnify, or to contribute to payments made by,
the Underwriters and certain of their controlling persons with respect to
certain civil liabilities, including certain civil liabilities under the
Securities Act of 1933.
The Company and each existing common stockholder have agreed not to
register, sell, contract to sell or otherwise dispose of any shares of Common
Stock for a period of two years in the case of Riviera Holding Company and Motor
Wheel Corporation, and one year in the case of NBD Bank, after the date of this
Prospectus without the prior written consent of the Representative.
Prior to this Offering, there has been no public market for the Company's
Common Stock. Consequently, the offering price has been determined through
negotiation between the Company and the Representative. Such price has been
based upon on a number of factors, including estimates of the business potential
of the Company, its earning history and prospects, the present state of the
Company's development, an assessment of the Company's management, the
consideration of the above factors in relation to market valuations of
comparable companies and the current condition of the industry and the economy
as a whole.
The Company has agreed to pay the Representative a non-accountable expense
allowance of 3% of the gross proceeds from the sale of the Common Stock offered
hereby, $25,000 of which has been paid as of the date of this Prospectus. In
addition, upon completion of this Offering, the Company will issue the
Representative's Warrant to the Representative entitling the Representative to
purchase up to 101,000 shares of Common Stock. The Representative's Warrant is
exercisable beginning one year from the effective date of
32
<PAGE> 33
this Prospectus, expires five years from the date of this Prospectus, and may
not be transferred, assigned or hypothecated for a period of one year following
the effective date of this Prospectus, but may thereafter be assigned into any
successor, officer or partner of the Representative. The Representative's
Warrant will be exercisable in whole or in part for a period of four years
thereafter at a price per share equal to 150% of the initial public offering
price set forth on the cover page of this Prospectus. The Representative's
Warrant provides for adjustment in the exercise price of the Representative's
Warrant in the event of certain mergers, acquisitions, stock dividends and
capital changes. The Representative's Warrant grants to the holders thereof
certain rights with respect to the registration under the Act of the securities
issuable upon exercise of the Representative's Warrant. In the event of the
exercise of the Representative's Warrants, the Company has the right to redeem
such warrants.
The Company has agreed that for a period of five years after the date of
this Prospectus, if requested by the Representative, it will use its best
efforts to nominate one person designated by the Representative for election to
the Company's Board of Directors. In lieu thereof, the Representative may
designate a person to receive all notices of meeting by the Company's Board of
Directors and all other correspondence and communications sent by the Company to
its Board of Directors and to attend all meetings of the Company's Board of
Directors. The Company has agreed to reimburse the Representative's designee for
out-of-pocket expenses incurred in connection with attending meetings of the
Company's Board of Directors. No person has yet been designated by the
Representative for nomination for election to the Company's Board of Directors.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Dickinson, Wright, Moon, Van Dusen & Freeman, Grand Rapids, Michigan.
Certain legal matters will be passed upon for the Underwriters by Camhy
Karlinsky & Stein LLP, New York City, New York.
EXPERTS
The financial statements as of August 31, 1996, and for each of the three
years in the period ended August 31, 1996 included in this Prospectus and the
related financial statement schedules included elsewhere in the Registration
Statement containing this Prospectus (the "Registration Statement") have been
audited by Plante & Moran, LLP, independent auditors, as stated in their reports
appearing herein and elsewhere in the Registration Statement and are included in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), 450 Fifth Street, N.W., Washington, D.C. 20549, a Registration
Statement on Form S-1 under the Act, as amended, with respect to the shares of
Common Stock offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits thereto.
For further information with respect to the Company and the shares of Common
Stock offered by this Prospectus reference is made to such Registration
Statement and exhibits. Statements made in this Prospectus referring to a
document filed as an exhibit to the Registration Statement are qualified by
reference to the exhibit for a complete statement of its terms and conditions.
Copies of the Registration Statement together with exhibits thereto may be
obtained from the Commission at its principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549 upon payment of the charges prescribed by the Commission
or may be examined without charge at the public reference facilities maintained
at the principal office of the Commission. The Company is an electronic filer,
and the Commission maintains a web site that contains reports, proxy and
information statements and other information regarding the Company at
www.sec.gov/edgarhp.htm.
33
<PAGE> 34
RIVIERA TOOL COMPANY
TABLE OF CONTENTS
<TABLE>
<S> <C>
REPORT LETTER............................................... F-2
FINANCIAL STATEMENTS
Balance Sheet............................................. F-3
Statement of Operations................................... F-4
Statement of Common Stockholders' Equity.................. F-5
Statement of Cash Flows................................... F-6
Notes to Financial Statements............................. F-7
</TABLE>
F-1
<PAGE> 35
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Riviera Tool Company
We have audited the accompanying balance sheet of Riviera Tool Company, as
of August 31, 1994, 1995 and 1996, and the related statements of operations,
common stockholders' equity and cash flows for the years then ended. 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, 1994, 1995 and 1996, and the results of its operations and cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
PLANTE & MORAN, LLP
Grand Rapids, Michigan
November 22, 1996
F-2
<PAGE> 36
RIVIERA TOOL COMPANY
BALANCE SHEET
<TABLE>
<CAPTION>
AUGUST 31 NOVEMBER 30,
--------------------------------------- ------------
NOTE 1994 1995 1996 1996
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash.................................. $ -- $ 3,188 $ -- $ --
Accounts receivable:
Trade............................... 7,377,345 4,433,129 4,924,305 5,000,094
Related party....................... 12 930,967 1,111,282 344,892 319,953
Costs and estimated gross profit in
excess of billings on contracts in
process............................. 2 4,293,596 3,279,489 5,549,823 4,942,372
Inventories........................... 3 727,102 561,710 445,473 445,473
Prepaid expenses and other current
assets.............................. 329,124 284,678 250,210 291,584
----------- ----------- ----------- -----------
Total current assets........... 13,658,134 9,673,476 11,514,703 10,999,476
PROPERTY, PLANT AND EQUIPMENT, NET...... 4 11,664,882 10,906,099 9,785,639 9,547,695
PERISHABLE TOOLING...................... 704,613 836,360 759,258 720,068
OTHER ASSETS............................ 1 411,551 290,197 868,832 886,827
----------- ----------- ----------- -----------
Total assets................... $26,439,180 $21,706,132 $22,928,432 $22,154,066
=========== =========== =========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable......................... 5 9,460,669 6,866,170 10,241,503 9,795,585
Current portion of long-term debt..... 5 2,395,545 1,631,629 926,861 819,391
Current portion of capitalized lease
obligations......................... 10 733,400 624,561 409,225 438,250
Accounts payable...................... 4,718,369 3,953,522 2,913,878 2,605,972
Accrued liabilities................... 623,209 563,931 692,271 803,461
----------- ----------- ----------- -----------
Total current liabilities...... 17,931,192 13,639,813 15,183,738 14,462,659
CAPITALIZED LEASE OBLIGATIONS........... 10 699,946 397,412 118,805 --
LONG-TERM DEBT.......................... 5 2,015,442 1,433,033 882,989 737,728
DEFERRED GAINS.......................... 7 359,144 210,342 61,540 46,153
ACCRUED LEASE EXPENSE................... 9 437,457 502,870 558,935 570,617
DEFERRED TAX LIABILITY.................. 6 116,700 191,700 395,700 486,300
PREFERRED STOCK -- no par value,
$100 mandatory redemption value:
Authorized -- 5,000 shares
Issued and outstanding -- 950 shares
at November 30, 1996 and 1,425
shares at August 31, 1996, 1995
and 1994......................... 11, 13 109,249 110,537 139,072 91,007
PREFERRED STOCK -- no par value,
Authorized -- 200,000
Issued and outstanding -- none...... -- -- -- --
COMMON STOCKHOLDERS' EQUITY.............
Common stock -- No par value:
Authorized -- 9,798,575 shares
Issued and outstanding -- 1,460,000
shares........................... 4,392,752 4,392,752 4,392,752 4,392,752
Retained earnings..................... 377,298 827,673 1,194,901 1,366,850
----------- ----------- ----------- -----------
Total common stockholders'
equity...................... 4,770,050 5,220,425 5,587,653 5,759,602
----------- ----------- ----------- -----------
Total liabilities and stockholders'
equity................................ $26,439,180 $21,706,132 $22,928,432 $22,154,066
=========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE> 37
RIVIERA TOOL COMPANY
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED AUGUST 31 NOVEMBER 30
--------------------------------------- -----------------------
NOTE 1994 1995 1996 1995 1996
---- ---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
SALES
Trade....................... $19,885,808 $19,429,894 $16,379,909 $4,201,240 $5,310,295
Related party............... 12 2,538,919 2,794,829 1,954,184 733,180 169,918
----------- ----------- ----------- ---------- ----------
TOTAL SALES................... 22,424,727 22,224,723 18,334,093 4,934,420 5,480,213
COST OF SALES................. 19,675,967 18,116,301 14,936,514 4,050,170 4,395,263
----------- ----------- ----------- ---------- ----------
GROSS PROFIT.................. 2,748,760 4,108,422 3,397,579 884,250 1,084,950
SELLING AND ADMINISTRATIVE
EXPENSES.................... 1,113,185 1,902,044 1,354,112 421,683 430,531
----------- ----------- ----------- ---------- ----------
INCOME FROM OPERATIONS........ 1,635,575 2,206,378 2,043,467 462,567 654,419
OTHER INCOME (EXPENSE)
Interest expense............ (1,415,290) (1,749,447) (1,670,414) (367,221) (402,645)
Gain on asset sales......... 7 138,695 105,632 226,710 37,202 15,387
Loss from related company... 15 (532,242) -- -- -- --
----------- ----------- ----------- ---------- ----------
TOTAL OTHER EXPENSE -- NET.... (1,808,837) (1,643,815) (1,443,704) (330,019) (387,258)
----------- ----------- ----------- ---------- ----------
INCOME (LOSS) -- BEFORE TAXES
ON INCOME................... (173,262) 562,563 599,763 132,548 267,161
INCOME TAX EXPENSE (CREDIT)... 6 (133,500) 76,700 204,000 45,066 90,600
----------- ----------- ----------- ---------- ----------
NET INCOME (LOSS)............. (39,762) 485,863 395,763 87,482 176,561
DIVIDENDS AND ACCRETION ON
PREFERRED STOCK............. 13 29,636 35,488 28,535 7,134 4,612
----------- ----------- ----------- ---------- ----------
NET INCOME (LOSS) AVAILABLE
FOR COMMON SHARES........... $ (69,398) $ 450,375 $ 367,228 $ 80,348 $ 171,949
=========== =========== =========== ========== ==========
NET INCOME (LOSS) PER COMMON
SHARE....................... 1 $(.05) $.31 $.25 $.06 $.12
=========== =========== =========== ========== ==========
COMMON SHARES OUTSTANDING..... 1 1,460,000 1,460,000 1,460,000 1,460,000 1,460,000
=========== =========== =========== ========== ==========
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE> 38
RIVIERA TOOL COMPANY
STATEMENT OF COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
----------------------- RETAINED STOCKHOLDERS'
SHARES(1) AMOUNT EARNINGS EQUITY
--------- ------ -------- -------------
<S> <C> <C> <C> <C>
BALANCE -- AUGUST 31, 1993..................... 1,460,000 $4,392,752 $ 446,696 $4,839,448
Increase to redeemable preferred stock (Note
13).......................................... -- -- (29,636) (29,636)
Net loss....................................... -- -- (39,762) (39,762)
--------- ---------- ---------- ----------
BALANCE -- AUGUST 31, 1994..................... 1,460,000 4,392,752 377,298 4,770,050
Increase to redeemable preferred stock (Note
13).......................................... -- -- (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
13).......................................... -- -- (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
13).......................................... -- -- (4,612) (4,612)
Net Income (Unaudited)......................... -- -- 176,561 176,561
--------- ---------- ---------- ----------
BALANCE -- NOVEMBER 30, 1996 (UNAUDITED)....... 1,460,000 $4,392,752 $1,366,850 $5,759,602
========= ========== ========== ==========
</TABLE>
- -------------------------
(1) See Notes to Financial Statement, Note 1 -- Nature of Business and
Significant Accounting Policies, Reporting Entity
See Notes to Financial Statements.
F-5
<PAGE> 39
RIVIERA TOOL COMPANY
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED AUGUST 31 NOVEMBER 30
--------------------------------------- -----------------------
1994 1995 1996 1995 1996
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)..................... $ (39,762) $ 485,863 $ 395,763 $ 87,482 $ 176,561
Adjustments to reconcile net income
(loss) to net cash from operating
activities:
Depreciation and amortization..... 1,213,516 1,438,403 1,272,366 313,295 321,523
Loss (gain) on sale of machinery
and equipment.................. 10,107 43,170 (77,908) -- --
Amortization of deferred gain..... (148,802) (148,802) (148,802) (37,202) (15,387)
Deferred taxes.................... (130,000) 75,000 204,000 45,066 90,600
Bad debt expense.................. -- -- 175,000 -- --
(Increase) decrease in assets:
Accounts receivable............ (2,602,273) 2,763,901 100,214 (179,572) (50,850)
Costs and estimated gross
profit in excess of billings
on contracts in process...... 1,134,689 1,014,107 (2,270,334) (1,833,012) 607,451
Inventories.................... 579,924 165,392 116,237 -- --
Perishable Tooling............. (704,613) (131,747) 77,102 -- 39,190
Prepaid expenses and other
current assets............... 105,788 44,446 34,468 59,685 (41,374)
Increase (decrease) in
liabilities:
Accounts payable............... 614,845 (764,847) (1,039,644) (266,242) (307,906)
Accrued lease expense.......... 74,761 65,413 56,065 14,016 11,682
Accrued liabilities............ 75,746 (59,278) 128,340 259,363 111,190
----------- ----------- ----------- ----------- ---------
Net cash provided by (used
in) operating activities... 183,926 4,991,021 (977,133) (1,537,121) 942,680
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of machinery and
equipment........................... 36,000 80,000 205,800 -- --
Increase in other assets.............. (191,563) (70,153) (342,448) -- --
Additions to property, plant and
equipment........................... (2,849,684) (585,248) (182,660) (72,892) (50,808)
----------- ----------- ----------- ----------- ---------
Net cash used in investing
activities................. (3,005,247) (575,401) (319,308) (72,892) (50,808)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from (repayments of)
short-term debt..................... 1,334,149 (2,594,499) 3,375,333 2,319,027 (445,918)
Principal payments under capital lease
obligations......................... (501,113) (437,408) (493,943) (101,145) (89,780)
Proceeds from issuance of long-term
debt................................ 2,584,294 -- -- -- --
Principal payments on long-term
debt................................ (704,909) (1,346,325) (1,254,812) (386,926) (252,731)
Redemption of Preferred stock......... -- -- -- -- (47,500)
Capitalized refinancing costs......... -- -- (333,325) -- (50,766)
Dividends paid........................ -- (34,200) -- -- (5,177)
----------- ----------- ----------- ----------- ---------
Net cash provided by (used
in) financing activities... 2,712,421 (4,412,432) 1,293,253 1,830,956 (891,872)
----------- ----------- ----------- ----------- ---------
NET INCREASE (DECREASE) IN CASH......... (108,900) 3,188 (3,188) 220,943 --
CASH -- Beginning of Period............. 108,900 -- 3,188 3,188 --
----------- ----------- ----------- ----------- ---------
CASH -- End of Period................... $ -- $ 3,188 $ -- $ 224,131 $ --
=========== =========== =========== =========== =========
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE> 40
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
NOTE 1 -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business -- The Company is a manufacturer of medium- to
large-scale, complex stamping dies that are sold to automobile manufacturers and
their suppliers for the production of automobile and truck parts. 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 of
the Company:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31, NOVEMBER 30,
--------------------------------------------- ---------------------------
CUSTOMER: 1994 % 1995 % 1996 % 1995 % 1996 %
--------- ---- - ---- - ---- - ---- - ---- -
(IN 000'S) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Chrysler
Corporation......... $ 6,885 31% $ 5,291 24% $ 4,622 25% $ 493 10% $2,605 48%
Ford Motor Company.... 1,852 8 1,511 7 2,061 11 298 6 794 14
General Motors........ -- -- 225 1 2,297 13 1,214 25 461 8
Mayflower Vehicle
Systems............. 2,617 12 6,211 28 2,678 15 294 6 -- --
American Bumper &
Manufacturing
Co. ................ 3,949 18 3,170 14 -- -- -- -- -- --
Motor Wheel
Corporation......... 2,539 11 2,795 13 1,954 11 733 15 170 3
Dana-Parish........... -- -- 2,684 12 984 5 393 8 521 10
Others................ 4,583 20 338 1 3,738 20 1,509 30 929 17
------- --- ------- --- ------- --- ------ --- ------ ---
Total Sales...... $22,425 100% $22,225 100% $18,334 100% $4,934 100% $5,480 100%
======= === ======= === ======= === ====== === ====== ===
</TABLE>
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 exists 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 operations, 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.
Cash -- In connection with its cash management efforts, the Company
periodically issues checks in excess of cash balances. These checks issued in
excess of cash balances, which amounted to $378,853, $232,777, $590,075 and
$42,745 in 1994, 1995, 1996 and November 30, 1996, respectively, are included in
accounts payable.
Net Income (Loss) per Common Share -- Net Income (Loss) per common share is
based on net income available for common stockholders divided by the weighted
average number of common shares outstanding
F-7
<PAGE> 41
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
NOTE 1 -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
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 above.
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 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 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 -- The Company established a reserve for uncollectible
accounts receivable of $175,000 as of August 31, 1996 and November 30, 1996. For
the years ended August 31, 1994 and 1995 all accounts receivable were considered
to be fully collectible; accordingly, no allowance for doubtful accounts was
provided.
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
that are being amortized over the related debt term. Amortization expense for
the years ended August 31, 1994, 1995 and 1996, was $60,991, $191,507 and
$97,138, respectively and $0 for the three months ended November 30, 1996. As of
August 31, 1996 costs incurred totaling $333,325 in connection with the planned
public offering of common stock have been deferred and classified as other
assets. The Company has incurred additional costs of $50,766 in connection with
the planned public offering of common stock since August 31, 1996. These costs
have also been deferred and classified as other assets. As of November 30, 1996,
total costs incurred with the planned public offering of common stock total
$384,091. Such costs will be expensed or charged to paid-in capital depending
upon whether the public offering of common stock is consummated.
F-8
<PAGE> 42
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
NOTE 1 -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
Income Taxes -- 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 carryforwards. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized.
Reclassifications -- Certain reclassifications have been made in the 1994
and 1995 financial statements to conform to the classifications used in 1996.
NOTE 2 -- COSTS AND BILLINGS ON CONTRACTS IN PROCESS
Costs and billings on contracts in process are as follows:
<TABLE>
<CAPTION>
AUGUST 31
------------------------------------- NOVEMBER 30,
1994 1995 1996 1996
---- ---- ---- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Costs incurred on contracts in process under
the percentage-of-completion method....... $8,168,619 $8,217,497 $10,844,647 $12,364,776
Estimated gross profit...................... 527,445 98,355 900,375 375,125
---------- ---------- ----------- -----------
Total.................................. 8,696,064 8,315,852 11,745,022 12,739,901
Less progress payments received and progress
billings to date.......................... 4,809,173 5,438,504 6,353,779 7,890,476
Plus costs incurred on contracts in process
under the completed contract method....... 406,705 402,141 158,580 92,947
---------- ---------- ----------- -----------
Costs and estimated gross profit in
excess of billings on contracts in
process........................... $4,293,596 $3,279,489 $ 5,549,823 $ 4,942,372
========== ========== =========== ===========
</TABLE>
Included in estimated gross profit for 1994, 1995, 1996 and November 30,
1996 are jobs with losses accrued of $95,471, $266,860, $441,301 and $264,890,
respectively.
NOTE 3 -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
AUGUST 31
------------------------------ NOVEMBER 30
1994 1995 1996 1996
---- ---- ---- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Raw material stock $216,866 $143,454 $149,006 $149,006
Small tools and supplies........................... 510,236 418,256 296,467 296,467
-------- -------- -------- --------
Total......................................... $727,102 $561,710 $445,473 $445,473
======== ======== ======== ========
</TABLE>
F-9
<PAGE> 43
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
NOTE 4 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
AUGUST 31
----------------------------------------- NOVEMBER 30,
1994 1995 1996 1996
---- ---- ---- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Land and leasehold improvements........... $ 1,441,401 $ 1,501,624 $ 1,553,206 $ 1,553,206
Office furniture and fixtures............. 536,373 289,142 186,909 186,909
Machinery and equipment................... 16,234,857 15,722,397 14,704,396 14,755,204
Transportation equipment.................. 86,148 78,881 99,935 99,935
----------- ----------- ----------- -----------
Total cost........................... 18,298,779 17,592,044 16,544,446 16,595,254
Accumulated depreciation and
amortization............................ 6,633,897 6,685,945 6,758,807 7,047,559
----------- ----------- ----------- -----------
Net carrying amount.................. $11,664,882 $10,906,099 $ 9,785,639 $ 9,547,695
=========== =========== =========== ===========
Annual depreciation expense............... 981,496 951,848 1,081,680 241,023
Annual amortization expense............... 171,029 295,048 93,548 47,729
----------- ----------- ----------- -----------
Annual depreciation and amortization
expense................................. $ 1,152,525 $ 1,246,896 $ 1,175,228 $ 288,752
=========== =========== =========== ===========
</TABLE>
NOTE 5 -- NOTES PAYABLE AND LONG-TERM DEBT
The Company's notes payable and long-term debt consist of the following:
<TABLE>
<CAPTION>
AUGUST 31
--------------------------------------- NOVEMBER 30
1994 1995 1996 1996
---- ---- ---- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
NOTES PAYABLE
Revolving bank credit line, collateralized by
substantially all assets of the Company. The
agreement provides for borrowings, subject to
certain collateral requirements of up to
$10,000,000, and bears interest at 4% above
the bank's prime rate at November 30, 1996
and August 31, 1996 and 3% above the bank's
prime rate at August 31, 1995 and 1994 (an
effective rate of 12.25%, 12.25%, 11.75% and
10.25%, respectively). The agreement is
subject to certain loan covenants (discussed
below) and requires 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. Subsequent to August 31, 1996,
the bank extended the line-of-credit
agreement to February 28, 1997, and increased
the borrowing limit to $10,500,000 until
February 28, 1997. .......................... $9,460,669 $6,866,170 $10,241,503 $9,795,585
========== ========== =========== ==========
</TABLE>
F-10
<PAGE> 44
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
NOTE 5 -- NOTES PAYABLE AND LONG-TERM DEBT -- CONTINUED
<TABLE>
<CAPTION>
AUGUST 31
------------------------------------ NOVEMBER 30,
1994 1995 1996 1996
---- ---- ---- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
LONG-TERM DEBT
Note payable to bank, payable in monthly
installments of $40,000 plus interest of 4%
over the bank's prime rate at November 30,
1996 and August 31, 1996 and 3% above the
bank's prime rate at August 31, 1995 and 1994,
(effective rates of 12.25%, 12.25%, 11.75% and
10.25%, respectively), collateralized by
substantially all assets of the Company. This
agreement is subject to certain covenants
discussed below. Subsequent to August 31,
1996, the bank extended the note's maturity
date to February 28, 1997. ................... 1,336,962 856,962 376,962 256,962
Note payable to financial institution, payable
in monthly installments of $39,945 including
interest at 9.9%, collateralized by specific
assets of the Company with a carrying value of
$2,050,304 at August 31, 1996, due March 1,
1999.......................................... 1,858,170 1,441,051 1,088,532 995,019
Note payable to bank, payable in monthly
installments of $15,000 including interest at
7%, collateralized by specific assets of the
Company with a carrying value of $2,050,304 at
August 31, 1996, due September 1, 1998........ 595,341 494,432 344,356 305,138
Other......................................... 620,514 272,217 -- --
---------- ---------- ---------- ----------
Total long-term debt........................ 4,410,987 3,064,662 1,809,850 1,557,119
Less current portion........................ 2,395,545 1,631,629 926,861 819,391
---------- ---------- ---------- ----------
Long-term debt -- Net....................... $2,015,442 $1,433,033 $ 882,989 $ 737,728
========== ========== ========== ==========
</TABLE>
Minimum scheduled principal payments on long-term debt to maturity as of
August 31, 1996, are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 926,861
1998........................................................ 601,834
1999........................................................ 281,155
2000........................................................ --
2001........................................................ --
----------
Total..................................................... $1,809,850
----------
</TABLE>
In connection with the line of credit and notes payable to certain banks as of
November 30, 1996, August 31, 1996, 1995 and 1994, the Company has agreed to
certain covenants. The agreements require 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 prohibit the payment of
cash dividends. The Company presently is not in compliance and was not in
compliance at November 30, 1996, August 31, 1996, 1995 and 1994, with certain
covenants and, therefore, has reclassified those debt obligations to banks as
current liabilities. Although the banks have extended the terms of the
obligations to February 28, 1997, they have not waived their rights under the
agreements.
F-11
<PAGE> 45
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
NOTE 6 -- FEDERAL INCOME TAXES
The provision for federal income taxes (benefit) is as follows:
<TABLE>
<CAPTION>
AUGUST 31
------------------------------ NOVEMBER 30,
1994 1995 1996 1996
---- ---- ---- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current expense (benefit)............................... $ (3,500) $ 1,700 $ -- $ --
Deferred expense (benefit).............................. (130,000) 75,000 204,000 90,600
--------- ------- -------- -------
Total tax expense (benefit)........................ $(133,500) $76,700 $204,000 $90,600
========= ======= ======== =======
</TABLE>
The difference between the federal statutory tax rate and the Company's
effective rate was:
<TABLE>
<CAPTION>
AUGUST 31
-------------------- NOVEMBER 30,
1994 1995 1996 1996
---- ---- ---- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Federal statutory tax rate.............................. (34.0)% 34.0% 34.0% 34.0%
Increase (reduction) in income taxes relating to:
Effect of recording and changing valuation
allowance........................................ (59.9) (23.3) -- --
Effect of providing for deferred taxes at rates
less than statutory rates and other items........ 16.8 2.9
----- ----- ---- ----
Effective tax rate............................ (77.1)% 13.6% 34.0% 34.0%
===== ===== ==== ====
</TABLE>
The details of the net deferred tax liability are as follows:
<TABLE>
<CAPTION>
AUGUST 31
----------------------------------------- NOVEMBER 30,
1994 1995 1996 1996
---- ---- ---- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Deferred tax liabilities:
Depreciation........................... $(1,821,000) $(2,158,000) $(2,137,000) $(2,120,400)
----------- ----------- ----------- -----------
Deferred tax assets:
Net operating loss carryforward........ 1,517,000 1,637,200 1,438,000 1,306,700
Investment tax credit carryforward..... 246,700 246,700 246,700 246,700
Alternative minimum tax credit
carryforward........................ 40,000 40,000 40,000 40,000
Accrued lease expense.................. 131,000 170,900 190,000 194,000
Deferred gains and other items......... 147,300 118,200 73,300 93,400
----------- ----------- ----------- -----------
Total deferred tax assets........... 2,082,000 2,213,000 1,988,000 1,880,800
Valuation allowance recognized for
deferred tax assets.................... (377,700) (246,700) (246,700) (246,700)
----------- ----------- ----------- -----------
Net deferred tax liability.......... $ (116,700) $ (191,700) $ (395,700) $ (486,300)
=========== =========== =========== ===========
</TABLE>
F-12
<PAGE> 46
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
NOTE 6 -- FEDERAL INCOME TAXES -- CONTINUED
The details of the deferred tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
AUGUST 31
---------------------------------- NOVEMBER 30,
1994 1995 1996 1996
---- ---- ---- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net operating loss carryforward................. $(129,600) $(120,200) $199,200 $130,500
Accrued lease................................... (22,200) (39,900) (19,100) (4,000)
Depreciation.................................... 97,000 337,000 (21,000) (17,000)
Deferred compensation........................... (7,200) (9,400) (5,000) (1,500)
Deferred revenue................................ 44,600 36,200 51,000 5,000
Other items..................................... (2,900) 3,900 (1,100) (22,400)
Change in valuation allowance................... (103,800) (131,000) -- --
Investment tax credit........................... (6,700) -- -- --
Alternative minimum tax credit.................. 800 (1,600) -- --
--------- --------- -------- --------
Deferred tax expense (reduction)........... $(130,000) $ 75,000 $204,000 $ 90,600
========= ========= ======== ========
</TABLE>
As of August 31, 1996, the Company had the following applicable
carryforwards to be applied against future taxable income:
<TABLE>
<CAPTION>
NET OPERATING
LOSS INVESTMENT
EXPIRATION CARRYFORWARD TAX CREDITS
---------- ------------- -----------
<S> <C> <C>
1998........................................................ $ -- $ 32,800
1999........................................................ -- 46,400
2000........................................................ -- 19,600
2001........................................................ -- 22,400
2002........................................................ -- 28,000
2003........................................................ -- 97,500
2004........................................................ -- --
2005........................................................ -- --
2006........................................................ 1,323,000 --
2007........................................................ 2,199,900 --
2008........................................................ 486,000 --
2009........................................................ 220,100 --
---------- --------
Total.................................................. $4,229,000 $246,700
========== ========
</TABLE>
The Company also has approximately $40,000 of alternative minimum tax
credits that do not expire.
NOTE 7 -- DEFERRED GAINS
In prior years, the Company sold and subsequently leased back machinery and
equipment. The gain on these assets is being recognized over five years and
seven years, the respective lives of the leases. Gains recognized for each of
the years ended August 31, 1994, 1995 and 1996, amounted to $84,515. Gains
recognized for the three months ended November 30, 1995 and 1996, amounted to
$21,815 and $4,822, respectively.
During the year ended August 31, 1994, the Company restructured three
operating leases. The transaction involved machinery and equipment operating
leases. Machinery and equipment were purchased at
F-13
<PAGE> 47
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
NOTE 7 -- DEFERRED GAINS -- CONTINUED
$2,611,000 with proceeds from long-term debt totaling $2,584,294. The gain that
had been previously deferred on these assets as a result of a prior
sale/leaseback will continue to be recognized over the remaining lives of the
original lease terms. Gains for each of the years ended August 31, 1996, 1995
and 1994, related to these assets, amounted to $64,287. Gains recognized for the
three months ended November 30, 1995 and 1996 amounted to $10,565.
NOTE 8 -- CASH FLOWS
Cash paid or refunded during the years ended August 31, 1994, 1995, 1996
and the three months ended November 30, 1995 and 1996, for interest and income
taxes is summarized as follows:
<TABLE>
<CAPTION>
AUGUST 31 NOVEMBER 30
-------------------------------------- --------------------
1994 1995 1996 1995 1996
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest paid......................... $1,361,879 $1,701,065 $1,572,292 $357,406 $309,113
Income taxes refunded................. 20,974 -- -- -- --
</TABLE>
Noncash investing activities for the years ended August 31, 1994, 1995,
1996 and the three months ended November 30, 1996 consisted of the acquisition
of machinery and equipment and leasehold improvements of $352,884, $26,030, $0
and $0, respectively, through capital leases.
NOTE 9 -- 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 current annual
rent is $988,239. 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, 1994, 1995 and 1996, accrued lease expense exceeded cash
payments made by $74,761, $65,413 and $56,065, respectively and $14,016 and
$11,682 for the three months ended November 30, 1995 and 1996, 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,
1994, 1995 and 1996 amounted to $1,349,400, $1,117,023 and $1,164,855,
respectively and $289,383 and $286,613 for the three months ended November 30,
1995 and 1996, respectively.
F-14
<PAGE> 48
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
NOTE 9 -- OPERATING LEASES -- CONTINUED
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,
1996:
<TABLE>
<CAPTION>
LEASE SUB-LEASE NET LEASE
PAYMENTS RECEIVABLE PAYMENT
-------- ---------- ---------
<S> <C> <C> <C>
1997..................................................... $ 1,169,931 $220,320 $ 949,611
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 and after........................................... 9,296,718 -- 9,296,718
----------- -------- -----------
Total minimum payments required..................... $14,652,515 $445,044 $14,207,471
=========== ======== ===========
</TABLE>
NOTE 10 -- CAPITAL LEASES
The Company has entered into a number of capital leases. At August 31,
1994, 1995, 1996 and November 30, 1996, included in machinery and equipment and
accumulated depreciation and amortization are assets with a total cost of
$3,039,735, $3,065,770, $3,065,770, $3,065,770 and accumulated amortization of
$680,184, $975,232 and $1,068,780, $1,116,509, respectively, acquired through
capital lease transactions. 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, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
1995....................................................... $ 851,807 $ -- $ --
1996....................................................... 374,611 705,210 --
1997....................................................... 294,152 302,666 439,614
1998....................................................... 104,723 119,723 119,723
---------- ---------- --------
Total minimum lease payments............................. 1,625,293 1,127,599 559,337
Less amount representing interest.......................... 191,947 105,626 31,307
---------- ---------- --------
Present value of net minimum lease payments.............. 1,433,346 1,021,973 528,030
Less amount representing current portion................... 733,400 624,561 409,225
---------- ---------- --------
Noncurrent portion....................................... $ 699,946 $ 397,412 $118,805
========== ========== ========
</TABLE>
NOTE 11 -- 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, 1994, 1995 and 1996.
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, 1994, 1995 and 1996, amounted to $84,887, $92,575 and
$80,438, respectively, and $17,514 and $18,990 for the three months ended
November 30, 1995 and 1996, respectively.
F-15
<PAGE> 49
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
NOTE 11 -- RETIREMENT PLANS -- CONTINUED
The plan owns 100 percent of the Company's redeemable preferred stock.
NOTE 12 -- RELATED-PARTY TRANSACTIONS
The Company had a contract with a corporation that owns 50 percent of the
Company's common stock. 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, 1994, 1995 and 1996, amounted to
$2,538,919, $2,794,829, and $1,954,184, respectively, and $733,180 and $169,918
for the three months ended November 30, 1995 and 1996, respectively.
NOTE 13 -- REDEEMABLE PREFERRED STOCK
The Company has issued and outstanding 950 shares of mandatory redeemable
preferred stock at November 30, 1996. 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 are owned by the Company's retirement plan. According to the terms of
the redemption agreement, 475 shares of the stock was to be redeemed at $100 per
share, plus unpaid dividends on July 31, 1995, 1996, and 1997. The July 1995
redemption however, did not occur until after August 31, 1996 but prior to
quarter ended November 30, 1996. As of November 30, 1996, the July 1996
redemption had not yet occurred.
The carrying amount of the preferred stock is being increased by periodic
accretions, using the interest method, so that the carrying amount will equal
the mandatory redemption amount on the redemption date. The carrying amount is
also being increased by unpaid dividends. Increases in the preferred stock are
being effected by charges against retained earnings. The following schedule
summarizes activity in the preferred stock:
<TABLE>
<CAPTION>
AUGUST 31 NOVEMBER 30
-------------------------------- -----------
1994 1995 1996 1996
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Beginning balance.................................. $ 79,613 $109,249 $110,537 $139,072
Accretion.......................................... 18,236 24,088 17,135 1,762
Cumulative dividend preference..................... 11,400 11,400 11,400 2,850
Preferred stock redeemed........................... -- -- -- (47,500)
Dividends paid..................................... -- (34,200) -- (5,177)
-------- -------- -------- --------
Ending balance................................ $109,249 $110,537 $139,072 $ 91,007
======== ======== ======== ========
</TABLE>
NOTE 14 -- 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
F-16
<PAGE> 50
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
NOTE 14 -- LEGAL PROCEEDINGS AND CLAIMS -- CONTINUED
$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 was written off as were receivables from Leap
Technologies, Inc., of $559,653. 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 15 -- OTHER NONOPERATING EXPENSE
YEAR ENDED AUGUST 31, 1994:
The Company formally subleased a portion of the facility, charging annual
rent payments of $462,012 in accordance with a month-to-month lease agreement
with a related company having some shareholders in common. During the year ended
August 31, 1994, the sublease was discontinued and no sublease revenue was
received. As a result of the discontinuance of the sublease, the Company was
unable to recover $532,242 of rent and related expenses, which has been charged
to other expense in 1994.
NOTE 16 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at August 31, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
----------------------- -------------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash...................................... $ 3,188 $ 3,188 $ -- $ --
Accounts receivable -- Trade and related
party.................................. 5,544,411 5,544,411 5,269,167 5,269,167
Costs and estimated gross profit in excess
of billings on contracts in process.... 3,279,489 3,279,489 5,549,823 5,549,823
FINANCIAL LIABILITIES
Accounts payable.......................... 3,953,522 3,953,522 2,913,878 2,913,878
Notes payable............................. 6,866,170 6,866,170 10,241,503 10,241,503
Long-term debt............................ 3,064,662 2,967,775 1,809,850 1,763,716
</TABLE>
Short-Term Financial Instruments -- The fair value of short-term financial
instruments, including cash, trade accounts receivable and payable, and costs
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 -- The estimated fair value of the Company's notes payable
approximates its carrying amount because the interest rate fluctuates with
market rates.
F-17
<PAGE> 51
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
NOTE 16 -- FAIR VALUE OF FINANCIAL INSTRUMENTS -- CONTINUED
Long-Term Debt -- The estimated fair value of the Company's long-term debt
is calculated based on expected cash flows discounted using interest rates
currently available for debt with similar terms and remaining maturities.
NOTE 17 -- MANAGEMENT'S PLAN
As discussed in Note 5, the Company is presently not in compliance with
certain loan covenants, and the current bank agreements expire on February 28,
1997. As a result of the covenant violations, the bank could pursue collection
of all amounts due. Management is in the process of finalizing an initial public
offering, the proceeds of which are to be used principally to retire bank debt.
Management believes that it is more likely than not that the public
offering will be successful, and that as a result the Company will be in
compliance with all covenants then applicable. If the offering is not
successful, and the bank pursues collection, there will be a significant near
term effect on the Company's ongoing operations.
NOTE 18 -- SUPPLEMENTARY NET INCOME PER SHARE
Supplementary net income per share is based on the number of shares
outstanding assuming a sale by the Company of 1,010,000 shares of common stock
and the use of the proceeds from that sale to retire the Company's outstanding
debt at the then stated interest rate of such debt (12.25%), would have occurred
at the beginning of the period. The net income available for common shares for
the year ended August 31, 1996 would increase by $462,750, and net income per
share would increase by .09 cents per share to .34 cents per share, and as of
November 30, 1996 net income available for common shares would increase by
$115,688, and net income per share would remain constant at .12 cents per share
(due to the increased shares outstanding assuming the sale), as a result of such
calculations.
F-18
<PAGE> 52
[RIVIERA LOGO]
- --------------------------------------------------------------------------------
Riviera's tryout
presses offer the
capacity for final
adjustment on any
customer project.
The Company's
comprehensive
evaluation and
inspection process
ensures maximum
die performance.
[PHOTO]
Precision machining
is performed by
our highly-skilled
operators. Riviera's
computer numerically
controlled machining
capabilities offer the
exact metal removal
process necessary
to meet customer
quality specifications.
[PHOTO]
<PAGE> 53
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE NOTES BY ANYONE IN ANY JURISDICTION IN WHICH THE PERSON MAKING
THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
------------------
TABLE ON CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 6
Use of Proceeds........................ 8
Dilution............................... 9
Dividend Policy........................ 9
Capitalization......................... 10
Selected Financial Data................ 11
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 12
Business............................... 16
Management............................. 22
Principal Shareholders................. 27
Description of Capital Stock........... 29
Shares Eligible for Future Sale........ 31
Underwriting........................... 32
Legal Matters.......................... 33
Experts................................ 33
Additional Information................. 33
Index to Financial Statements.......... F-1
</TABLE>
UNTIL MARCH 29, 1997 ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK
OF THE COMPANY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
RIVIERA LOGO
RIVIERA TOOL COMPANY
1,010,000 SHARES
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
NATIONAL SECURITIES CORPORATION
MARCH 4, 1997
======================================================
